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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended June 30, 2009 OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 1-11692
Ethan Allen Interiors Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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06-1275288
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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Ethan Allen Drive, Danbury, CT
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06811
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(Address of principal
executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code
(203) 743-8000
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
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Title of Each Class
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On Which Registered
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Common Stock, $.01 par value
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New York Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate
by
check
mark
if
the
Registrant
is
a
well-known
seasoned
issuer,
as
defined
in
Rule
405
of
the
Securities
Act.
x
Yes
o
No
Indicate
by
check
mark
if
the
Registrant
is
not
required
to
file
reports
pursuant
to
Section
13
or
Section
15(d)
of
the
Act.
o
Yes
x
No
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
x
Yes
o
No
Indicate by check mark whether the Registrant
has submitted electronically and posted on its corporate Web site, if any,
every Interactive Date File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
such shorter period that the registrant was required to submit and post such
files).
o
Yes
o
No
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check one):
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Large accelerated filer
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Accelerated filer
x
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Non-accelerated filer
o
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Smaller reporting company
o
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Indicate by check mark whether the Registrant
is a shell company (as defined in Rule 12b-2 of the Act).
o
Yes
x
No
The aggregate market value of the Registrant’s
common stock, par value $.01 per share, held by non-affiliates (based upon the
closing sale price on the New York Stock Exchange) on December 31, 2008,
(the last day of the Registrant’s most recently completed second fiscal
quarter) was approximately $413,411,234.
As of July 31, 2009, there were 28,916,929 shares of the
Registrant’s common stock, par value $.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The Registrant’s definitive Proxy Statement
for the 2009 Annual Meeting of stockholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934, is incorporated by reference into Part III hereof.
Table of
Contents
PART I
Item
1. Business
Background
Incorporated in Delaware in 1989, Ethan Allen Interiors Inc., through
its wholly-owned subsidiary, Ethan Allen Global, Inc., and Ethan Allen
Global, Inc.’s subsidiaries (collectively, “We,” “Us,” “Our,” “Ethan
Allen” or the “Company”), is a leading manufacturer and retailer of quality
home furnishings and accessories, offering a full complement of home decorating
and design solutions through one of the country’s largest home furnishing
retail networks. In recent years, we
have made, and continue to make, considerable investment in our business in
order to expand and improve our interior design capabilities. In order to better reflect these expanded
capabilities, we have changed the designation of our Ethan Allen retail outlets
from “stores” to “design centers”. The
Company was founded in 1932 and has sold products under the Ethan Allen brand
name since 1937.
Mission Statement
Our primary business objective is to provide our customers with a
convenient, full-service, one-stop shopping solution for their home decorating
needs by offering stylish, high-quality products at good value. In order to meet our stated objective, we
have developed and adhere to a focused and comprehensive business strategy. The elements of this strategy, each of which
is integral to our solutions-based philosophy, include (i) our vertically
integrated operating structure, (ii) our products and related marketing
initiatives, (iii) our retail design center network, (iv) our people,
and (v) our numerous customer service offerings.
Operating Segments
Our operations are classified into two operating segments: wholesale
and retail. These operating segments
represent strategic business areas which, although they operate separately and
provide their own distinctive services, enable us to more effectively offer our
complete line of home furnishings and accessories. For certain financial information regarding
our operating segments, see Note 16 to the Consolidated Financial Statements included
under Item 8 of this Annual Report
and incorporated herein by reference.
The wholesale segment is principally involved in the development of the
Ethan Allen brand, which encompasses the design, manufacture, domestic and
off-shore sourcing, sale and distribution of a full range of home furnishings
and accessories to a network of independently operated and Ethan Allen operated
design centers as well as related marketing and brand awareness efforts. Wholesale revenue is generated upon the
wholesale sale and shipment of our product to all retail design centers,
including those operated by Ethan Allen.
Wholesale profitability includes (i) the wholesale gross margin,
which represents the difference between the wholesale sales price and the cost
associated with manufacturing and/or sourcing the related product, and (ii) other
operating costs associated with wholesale segment activities.
The retail segment sells home furnishings and accessories to consumers
through a network of Company-operated design centers. Retail revenue is generated upon the retail
sale and delivery of our product to our customers. Retail profitability includes (i) the
retail gross margin, which represents the difference between the retail sales
price and the cost of goods purchased from the wholesale segment, and (ii) other
operating costs associated with retail segment activities.
While the manner in which our home furnishings and accessories are
marketed and sold is consistent, the nature of the underlying recorded sales
(i.e. wholesale versus retail) and the specific services that each operating
segment provides (i.e. wholesale manufacturing, sourcing, and distribution
versus retail selling) are different.
Within the wholesale segment, we maintain revenue information according
to each respective product line (i.e. case goods, upholstery, or home
accessories and other). Sales of case
good items include, but are not limited to,
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beds, dressers, armoires, tables, chairs, buffets, entertainment units,
home office furniture, and wood accents.
Sales of upholstery home furnishing items include sleepers, recliners,
chairs, sofas, loveseats, cut fabrics and leather. Skilled craftsmen cut, sew and upholster
custom-designed upholstery items which are available in a variety of frame and
fabric options. Home accessory and other
items include window treatments, wall decor, lighting, clocks, bedding and
bedspreads, decorative accessories, area rugs, and home and garden furnishings.
Revenue information by product line is not as easily determined within
the retail segment. However, because wholesale production and sales are
matched, for the most part, to incoming orders, we believe that the allocation
of retail sales by product line would be similar to that of the wholesale
segment.
We evaluate performance of the respective segments based upon revenues
and operating income. Inter-segment eliminations result, primarily, from the
wholesale sale of inventory to the retail segment, including the related profit
margin.
In fiscal 2009, wholesale sales to independent retailers and retail
sales of Company-operated design centers accounted for approximately 25% and
75%, respectively, of our c consolidated net sales.
Wholesale
Segment Overview:
Wholesale net
sales for each of the last three fiscal years are summarized below (in
millions):
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Fiscal Year Ended June 30,
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2009
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2008
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2007
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Wholesale net sales
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$
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403.4
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$
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616.2
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$
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656.0
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Wholesale net sales for each of the last three fiscal years, allocated
by product line, were as follows:
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Fiscal Year Ended June 30,
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2009
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2008
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2007
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Case Goods
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41
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%
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43
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%
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44
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%
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Upholstered Products
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41
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40
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38
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Home Accessories and Other
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18
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17
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18
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100
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%
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100
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%
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100
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%
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During fiscal
2009, we operated as many as ten manufacturing facilities, including four case
good plants (two of which include separate sawmill operations), four upholstery
plants and one home accessory plant, located within the United States and one
cut and sew operation in Mexico. As
announced during the fiscal year, we are consolidating two upholstery plants
into existing operations and one case goods plant including its sawmill
operation. By the end of our first
fiscal quarter of 2010, we plan to operate three case goods plants (including
one sawmill), three upholstery plants (two upholstery plants on our Maiden,
North Carolina campus and one cut and sew plant in Mexico) and one home
accessory plant. We also source selected case good, upholstery, and home
accessory items from third-party suppliers located both domestically and
outside the United States.
As of June 30,
2009, we maintained a wholesale backlog of $20.6 million (as compared to $33.0
million as of June 30, 2008) which is anticipated to be serviced in the
first quarter of fiscal 2010. Backlog at
a point in time is a result, primarily, of net orders booked in prior periods,
manufacturing schedules, timing associated with the receipt of sourced product,
and the timing and volume of wholesale shipments. Because orders may be
rescheduled and/or canceled, the measure of backlog at a point in time may not
necessarily be indicative of future sales performance.
For the twelve
months ended June 30, 2009, net orders booked at the wholesale level,
which includes orders generated by independently operated and Company-operated
design centers, totaled $398.5 million as compared to $617.1 million for the
twelve months ended June 30, 2008.
In any given period, net orders booked may be
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impacted by the
timing of floor sample orders received in connection with new product
introductions. New product offerings may
be made available to the retail network at any time during the year, including
in connection with our periodic retailer conferences.
Retail
Segment Overview
:
Retail net sales
for each of the last three fiscal years are summarized below (in millions):
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Fiscal Year Ended June 30,
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2009
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2008
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2007
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Retail net sales
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$
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508.6
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$
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724.6
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$
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698.6
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We sell our
products through a dedicated network of 293 retail design centers. As of June 30, 2009, we operated 159
design centers and independent retailers operated 134 design centers (as
compared to 159 and 136, respectively, at the end of the prior fiscal year).
The ten largest independent retailers own a total of 62 design centers, which,
based on net orders booked, accounted for approximately 11% of total net sales
in fiscal 2009.
During fiscal 2009
we acquired four design centers from independent retailers, opened six new
design centers (of which three were relocations), and closed seven design
centers. In addition, during the past
year, independent retailers opened fourteen new design centers (of which three
were relocations), and closed nine design centers. In the past five years, we and our
independent retailers have, on a combined basis, opened 107 new design centers
(of which 44 were relocations), and closed 81.
The geographic distribution of all retail design center locations is
included under Item 2 of Part I of this Annual Report.
We pursue further
expansion of the Company-operated retail business by opening new design
centers, relocating existing design centers and, when appropriate, acquiring
design centers from independent retailers. In addition, we continue to promote
the growth and expansion of our independent retailers through ongoing support
in the areas of market analysis, site selection, and business development. All
retailers are required to enter into license agreements with us which (i) authorize
the use of certain Ethan Allen service marks and (ii) require adherence to
certain standards of operation, including a requirement to fulfill related
warranty service agreements. We are not
subject to any territorial or exclusive retailer agreements in North America.
Products
Our strategy has been to position Ethan Allen as a preferred brand with
superior quality and value while, at the same time, providing consumers with a
comprehensive, one-stop shopping solution for their home furnishing needs. In carrying out our strategy, we continue to
expand our reach to a broader consumer base through a diverse selection of
attractively priced products, many of which have been designed to complement
one another, reflecting the recent trend toward more eclectic home
decorating. Recent product
introductions, as well as increased styles and fabric selections within our
custom upholstery line, new finishes for, and redesigns of, previous product
introductions, and expanded product offerings to accommodate today’s home
decorating trends, are serving to redefine Ethan Allen, positioning us as a
leader in style.
In an effort to
more effectively position ourselves as a provider of interior design solutions,
we introduced a merchandising strategy which involves the grouping of our
product offerings, previously categorized by collection, into seven distinct
product “lifestyles”, each reflecting the diversity and eclecticism that we
believe represents the best in American design.
In accordance with this merchandising strategy, new products are
designed and developed to reflect unique elements applicable to one or more of
the following lifestyles: Country House; Estate; Glamour; Global; Loft; Metro;
and Villa.
All of our case
goods, upholstered products, and home accessories are styled with distinct
design characteristics. Home accessories play an important role in our
marketing strategy as they enable us to offer the consumer the
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convenience of
one-stop shopping by creating a comprehensive home furnishing solution. The
interior of our design centers is designed to facilitate display of our product
offerings in complete room settings in order to project the category lifestyle.
We continuously
monitor changes in home design trends through attendance at international
industry events and fashion shows, internal market research, and regular
communication with our retailers and design center design consultants who
provide valuable input on consumer tendencies.
Observations and input gathered as a result of our efforts enable us to
incorporate appropriate style details into our products thereby allowing us, we
believe, to react quickly to changing consumer tastes. For example, since 2005,
approximately 70% of our current complement of product offerings is new. Much of the balance has been refined and
enhanced through product redesign, additions, deletions, and/or finish changes.
Such undertakings are indicative of our ability to adapt to the current
consumer trend toward more casual and eclectic lifestyles while, at the same
time, maintaining a classic appeal.
In fiscal 2005, we
also introduced an innovative pricing program, eliminating periodic sale events
in lieu of a nation-wide uniform everyday best price on all of our product
offerings. We believe that this approach
demonstrates our commitment to differentiating ourselves through strategies
focused on customer credibility and excellence in service. In addition,
everyday best pricing provided us the opportunity to critically examine all
facets of our business, making substantive changes, where necessary, in order
to more effectively carry out our solutions-based approach to home
decorating. In response to the
recession, in the latter part of fiscal 2009 the Company offered special
savings mostly on select initiatives including new product introductions.
Product Sourcing Activities
We are one of the
largest manufacturers of home furnishings in the United States, manufacturing
and/or assembling approximately 65% of our products within six manufacturing
facilities, one of which includes separate sawmill operations. Our facilities
are located in the Northeast and Southeast regions of the United States and in
Mexico where they are close to sources of raw materials and skilled craftsmen. The balance of our production is outsourced
according to our own internally-developed design specifications, through
third-party suppliers, most of which are located outside the United States.
These suppliers, primarily in Asia, have been carefully selected and generally
have supplied us for many years. We
believe that continued investment in our manufacturing facilities, combined
with an appropriate level of outsourcing through both foreign and domestic
suppliers, will accommodate future sales growth and allow us to maintain an appropriate
degree of control over cost, quality and service to our customers.
We also take pride
in our “green” initiatives which include the use of responsibly harvested
Appalachian woods, water based finishes, organic textiles and recycled
materials.
Raw
Materials and Other Suppliers
The most important
raw materials we use in furniture manufacturing are lumber, veneers, plywood,
hardware, glue, finishing materials, glass, mirrored glass, laminates, fabrics,
foam, and filling material. The various
types of wood used in our products include cherry, ash, oak, maple, prima vera,
mahogany, birch and pine, substantially all of which are purchased
domestically.
Fabrics and other
raw materials are purchased both domestically and outside the United
States. We have no significant long-term
supply contracts, and have sufficient alternate sources of supply to prevent
disruption in supplying our operations.
We maintain a number of sources for our raw materials which, we believe,
contributes to our ability to obtain competitive pricing. Lumber prices fluctuate over time based on
factors such as weather and demand, which, in turn, impact availability. Higher material prices could have an adverse
effect on margins.
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Appropriate
amounts of lumber and fabric inventory are typically stocked so as to maintain
adequate production levels. We believe
that our sources of supply for these materials are sufficient and that we are
not dependent on any one supplier.
We enter into
standard purchase agreements with certain foreign and domestic suppliers to
source selected case good, upholstery, and home accessory items. The terms of these arrangements are customary
for the industry and do not contain any long-term contractual obligations on
our behalf. We believe we maintain good
relationships with our suppliers.
Distribution
and Logistics
Within the
wholesale segment, we warehouse and distribute our products primarily through a
national network of four primary distribution centers (three of which are
owned) strategically located throughout the United States. These distribution
centers hold finished product received from our manufacturing facilities and
our third-party suppliers, for shipment to retail design centers and retail
service centers. From time to time, we
may also rent temporary warehouse space and/or utilize third-party logistics
service providers to accommodate our additional storage needs. We stock selected case goods, upholstery and
accessories to provide for quick delivery of in-stock items and to allow for
more efficient production runs.
Wholesale
shipments are made utilizing our own fleet of trucks and trailers or through
subcontracting agreements with independent carriers. Approximately 45% of our fleet (trucks and
trailers) is leased under operating lease agreements with terms ranging from
one to 72 months.
Our policy is to
sell our products at the same delivered cost to all Company-operated and
independently operated design centers nationwide, regardless of their shipping
point. The adoption of this policy has created pricing credibility with our
customers and provided our retail network the opportunity to achieve more
consistent margins as fluctuations attributable to the cost of shipping have
been eliminated. Further, this policy
has eliminated the need for our independent retailers to carry significant
amounts of inventory in their own warehouses.
As a result, we obtain more accurate information regarding product
demand in order to better plan production runs and manage inventory levels.
Retail service
centers are operated by the Company and the independent retailers to prepare
products for delivery into clients’ homes. The Company-operated service centers
have been made more efficient and enabled us to reduce the total number from 50
at the beginning of fiscal 2008 to 26 at the end of fiscal 2009. We continue to
evaluate the entire logistics and distribution model to further streamline
these operations.
Marketing
Programs
We believe that
our ability to create high-quality marketing programs and coordinate
advertising efforts for Ethan Allen design centers, including, from time to
time, coordination of local market advertising, provides a competitive
advantage over other home furnishing manufacturers and retailers. With a dedicated network of about 300 retail
design centers taking advantage of such internally-developed marketing efforts,
we believe we are better positioned to fulfill our brand promise on a more
consistent basis.
The objectives of
our marketing campaign are to (i) communicate our position as both a
leader in style and a full-service provider of home decorating and design
solutions, and (ii) drive traffic into the retail design center
network. In support of these objectives,
several forms of media are utilized, including television (both national and
local), direct mail, newspapers, magazines, radio, and our internet
website. We also conduct a national
email marketing campaign which serves to distribute electronic newsletters
containing inspirational interior design ideas to a growing database of
consumers.
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Our national
television and print advertising campaigns are designed to capitalize on our
existing brand equity and maintain top-of-mind awareness of the breadth of our
product and service offerings. With this
is mind, our in-house team of advertising specialists has developed what we
believe is the most cohesive national advertising campaign in the home
furnishings industry. Coordinated local
television and print, to the extent these media are utilized, serve to support
our national programs.
The Ethan Allen
direct mail magazine, which brands our product lifestyles and communicates the
breadth of our services, is one of our most important marketing tools. We publish and sell the magazines to both
Company-operated and independently operated design centers, which, with
demographic information collected through independent market research, are able
to target potential customers. Given the
importance of this advertising medium, direct mail marketing lists continue to
be refined in order to target those consumers that are most likely to purchase,
with the objective of improving our return on direct mail expenditures. Approximately 12 million copies of our direct
mail magazine were distributed to consumers during fiscal 2009.
Our television
advertising and direct mail efforts are supported by strong print and radio
campaigns in various markets. During
fiscal 2009, we also updated our 200-page “Ethan Allen Style” book. This publication, which includes a catalogue
of our home furnishings and accessories, projects our seven product lifestyles
to our clients and helps customers identify their own personal style using our
product offerings. We believe this publication represents one of the most
comprehensive and effective home decorating resources in the home furnishings
industry.
In 2009, the
Company launched the all-new ethanallen.com website which combines personal
service and technology. The new state-of-the-art website provides a new
way to shop for Ethan Allen and is designed to inspire visitors with videos,
feature stories, design and style solutions, new photography, and Ethan Allen’s
portfolio for livable design—the Seven Lifestyles. It offers a new interactive
design tool called
My Projects
that allows site visitors to create idea boards and room plans and get feedback
online from a design consultant at a local design center. The website’s
Inspire
section includes editorial features, new product
stories, design trend information, decorating solutions, and a collection of
creative films and TV clips showcasing Ethan Allen’s Lifestyles and looks. The
As Seen In
column shows visitors how Ethan Allen products
have influenced style around the globe. Ethan Allen’s direct mail
magazines are viewable online with full browsing and shopping capabilities. In
the
Design
section, visitors can explore the
Seven Lifestyles in depth and after finding their own style with our style
quiz, shop the furnishings featured in the fully designed rooms. For the
first time, visitors to ethanallen.com can now access nearly all of the
Company’s more than 3,000 products online. The new ethanallen.com received
recognition at the 2008 IAC Awards (Internet Advertising Committee) as “outstanding
website”.
We have also developed an extranet website which links the retail
design centers with consumer information captured on-line, such as customer
requests for design assistance and copies of our direct mail magazine. This
medium has become the primary source of communications within our retail
network providing a variety of information, including a Company-wide daily news
flash, downloads of current advertising materials, prototype design center
display floor plans and detailed product information.
Retail
Design Center Network
Ethan Allen design
centers are typically located in busy urban settings as freestanding
destinations or as part of suburban strip malls, depending upon the real estate
opportunities in a particular market. At
the present time, our design centers average approximately 16,000 square feet
in size. While the footprint for most of
our retail network is similar, our design centers currently range in size from
approximately 3,000 square feet to 35,000 square feet.
We
maximize uniformity of presentation throughout the retail design center network
through a comprehensive set of standards.
These standards assist each design center in presenting a high quality
image and offer retail customers consistent levels of product selection and
service
. A uniform design center
image is conveyed through
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our ongoing
program to model all retail design centers with similar and consistent exterior
facades and interior layouts. This
program is carried out at all design centers, including those that are
independently operated.
We provide display
planning assistance to all Company-operated design centers and independent
retailers to support them in updating the interior projection and to maintain a
consistent image. We have developed a
standard interior design format for our retail network which, through the use
of focused lifestyle settings to display our products and information displays
to educate consumers, has positioned Ethan Allen as a leader in home
furnishings retailing.
We have
strengthened the retail division with many initiatives, including the opening
of new and relocated design centers in desirable locations, introduction of
Lifestyle presentations and floor plans, strengthening of the professionalism
of our designers through training and a team approach, and the consolidation of
certain design centers and service centers. The bulk of this effort was
completed by the end of fiscal 2008, but continued in fiscal 2009 with six new
Company-operated design centers during the year including relocations and seven
in underperforming markets closed. We consolidated 16 Company-operated retail
service centers into larger service centers in fiscal 2008 and another eleven
in fiscal 2009. We also opened three Company-operated service centers in fiscal
2009. This effort continues to reduce
the retail logistics infrastructure needed to provide “white glove” delivery
service to our customers.
People
At June 30,
2009, we had approximately 4,300 employees (“associates”), less than one
percent of whom are represented by unions.
These collective bargaining agreements expire at various times within
the next two years. We expect no
significant changes in our relations with these unions and believe we maintain
good relationships with our employees.
The retail
network, which includes both Company-operated and independently operated design
centers, is staffed with a sales force of design consultants and service
professionals who operate in teams to provide customers with an effective home
decorating solution at no additional charge.
Our associates receive appropriate training with respect to the
distinctive design and quality features inherent in each of our products and
programs, allowing them to more effectively communicate the elements of style
and value that serve to differentiate us from the competition. As such, we
believe our design consultants, and the complimentary service they provide,
create a distinct competitive advantage over other home furnishing retailers.
We have made
considerable investment within the retail network to strengthen the level of
service, professionalism, interior design competence, efficiency, and
effectiveness of retail design center personnel. The implementation of the
“team” concept is the latest phase of that progression, which resulted in the
development of over 280 interior design teams within the Company design
centers. We believe that with this structure, along with the emphasis in our
messaging to clients that “we can help as little or as much as you like”, as
well as offering the benefit of making appointments with our design
professionals, we continue to improve the customer service experience.
We recognize the
importance of our retail design center network to our long-term success.
Accordingly, we believe we (i) have established strong management teams
within Company-operated design centers and (ii) continue to work closely with
our independent retailers in order to assist them in strengthening their
teams. With this in mind, we make our
services available to every design center, whether independently operated or
Company-operated, in support of their marketing efforts, including coordinated
advertising, merchandising and display programs, and extensive training
seminars and educational materials. We
believe that the development of design teams, design consultants, service and
delivery personnel, and retailers is important for the growth of our business.
As a result, we have committed to make available a comprehensive retail
training program which is intended to increase the customer service
capabilities of each individual.
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Customer
Service Offerings
We offer numerous
customer service programs, each of which has been developed and introduced to
consumers in an effort to make their shopping experience easier and more
enjoyable.
Gift
Card
This program
allows customers to purchase, through our website or at any
participating retail design center, gift cards which can be redeemed for any of
our products or services.
Rewards
In celebration of
the new website, the Company recently launched its “Become a Member”
campaign. Members who are eligible receive 500 reward points. Each
point is redeemable toward future qualifying purchases for up to the lesser of
$500 or 5% of the total qualifying purchase price. Shoppers can redeem their
points both in Design Centers or online, through a limited time.
On-Line
Room Planning
We offer, via our
website, an interactive on-line room planning resource which serves to further
assist consumers with their home decorating needs. Through the use of this
web-based tool, customers can determine which of our product offerings best fit
their particular needs based on their own individual home floor plan.
Ethan
Allen Consumer Credit Programs
The Ethan Allen
Finance Plus program offers consumers (clients) a menu of three custom
financing options through the use of just one account. Clients can choose between (1) “Term
Choice” which offers fixed monthly payments the customer chooses from 12 to 60
months at an interest rate from 3.99% to 9.99% per annum, (2) “No Payment
/ Deferred Interest” which offers clients a way to borrow interest free for
three or six months with no monthly payments. If the purchase is not paid by
the due date, interest is charged from the date of purchase at a fixed interest
rate of 24.99% per annum, and (3) “Ethan Allen Prime” which offers the
lowest minimum monthly payment plan including no payments the first three
months; interest is accrued at a rate that matches the current prime rate. All plans provide credit lines from $1,000 to
$20,000, or greater, if the customer qualifies.
Financing offered is administered by a third-party financial institution
and is granted to our customers on a non-recourse basis to the Company. Clients may apply for an Ethan Allen Finance
Plus card at any participating design center or on-line at ethanallen.com.
Competition
In recent years,
the home furnishings industry has faced numerous challenges, not the least of
which is an influx of low-priced competition from overseas. As a result, we believe a trend toward
product commoditization has developed.
In fiscal 2009, the economic recession resulted in many small furniture
retailers going out of business and other well-established competitors
resorting to heavy discounts to liquidate inventory. Instead of following this
trend, we differentiate ourselves as a preferred brand by adhering to a
business strategy focused on providing (i) high-quality, well designed and
often custom handmade products at good value, (ii) a comprehensive
complement of home furnishing design solutions, including our complimentary
design service, and (iii) excellence in customer service. We consider our
vertical integration a significant competitive advantage in the current
environment as it allows us to design, manufacture and source, distribute,
market, and sell our products through one of the industry’s largest
single-source retail networks.
Industry
globalization has provided us an opportunity to adhere to a blended sourcing
strategy, establishing relationships with certain manufacturers, both
domestically and outside the United States, to source selected case goods,
upholstery, and home accessory items. We intend to continue to balance our
domestic production with opportunities to source from foreign and domestic
manufacturers, as appropriate, in order to maintain our competitive advantage.
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We believe the
home furnishings industry competes primarily on the basis of product styling
and quality, personal service, prompt delivery, product availability and
price. We further believe that we
effectively compete on the basis of each of these factors and that, more
specifically, our retail format, our award winning website, and complimentary
design service create a distinct competitive advantage, further supporting our
mission of providing consumers with a complete home decorating and design
solution. Our objective is to continue
to develop and strengthen our retail network by (i) expanding the
Company-operated retail business through the relocation of existing design
centers, opening of new design centers, and, when appropriate, acquiring design
centers from, or selling design centers to, independent retailers, and (ii) obtaining
and retaining independent retailers, encouraging such retailers to expand their
business through the opening or relocation of new design centers with the
objective of increasing the volume of their sales.
Trademarks
We currently hold,
or have registration applications pending for, numerous trademarks, service
marks and design patents for the Ethan Allen name, logos and designs in a broad
range of classes for both products and services in the United States and in
many foreign countries. In addition, we have registered, or have applications
pending for, many of our major collection names as well as certain of our
slogans utilized in connection with promoting brand awareness, retail sales and
other services. We view such trade and
service marks as valuable assets and have an ongoing program to diligently
monitor and defend, through appropriate action, against their unauthorized use.
Available
Information
We make available, free of charge via our website, all
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and other information filed with, or furnished to, the
Securities and Exchange Commission (the “SEC” or the “Commission”), including amendments
to such reports. This information is available at www.ethanallen.com/investors
as soon as reasonably practicable after it is electronically filed with, or
furnished to, the SEC. In addition, the
SEC maintains a website that contains reports, proxy and information
statements, and other information regarding companies that file electronically
with the Commission. This information is
available at www.sec.gov.
In addition, charters of all committees of our Board
of Directors, as well as our Corporate Governance guidelines, are available on
our website at www.ethanallen.com/governance or, upon written request, in
printed hardcopy form. Written requests should be sent to Office of the
Secretary, Ethan Allen Interiors Inc., Ethan Allen Drive, Danbury, Connecticut
06811.
Item 1A. Risk Factors
The following information describes certain
significant risks and uncertainties inherent in our business that should be
carefully considered, along with other information contained elsewhere in this
report and in other filings, when making an investment decision with respect to
us. If one or more of these risks
actually occurs, the impact on our business, including our financial condition,
results of operations, and cash flows could be adverse.
A
prolonged economic downturn may continue to materially adversely affect our
business.
Our business and
results of operations are affected by international, national and regional
economic conditions. The United States
and many other international economies have entered a recession. Our primary
customer base, direct or indirect, is composed of individual consumers. Continued weakness in the U.S. economy, high
unemployment, volatile capital markets, depressed housing prices and tight
consumer lending practices have resulted in considerable negative pressure on
consumer spending. We believe these
events have impacted consumers in our markets in ways that have negatively
affected our business. In the event the
current economic
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downturn
continues, or worsens, our current and potential customers may be inclined to
further delay their purchases. In
addition, further tightening of credit markets may restrict our customers’
ability and willingness to make purchases.
Access
to consumer credit could be interrupted and reduce sales and profitability.
Our ability to
continue to access consumer credit for our clients could be negatively affected
by conditions outside our control. Given the difficult capital markets, there
is a risk that, though we have agreements that do not expire until July 2012,
our business partner which issues our private label credit card program, may
not be able to fulfill their obligations under that agreement.
We
may be unable to obtain sufficient external funding to finance our operations
and growth.
Historically, we
have relied upon our cash from operations to fund our operations and growth. As
we operate and expand our business, we may rely on external funding sources,
including the proceeds from the issuance of debt or the $40 million
revolving bank line of credit (expandable to $60 million) under our existing
credit facility. Any unexpected reduction in cash flow from operations could
increase our external funding requirements to levels above those currently
available. If our Standard & Poor’s credit rating remains below
investment grade through March 2010, the issuer of our private label
credit cards may exercise a right to demand up to $12 million in letters of
credit which would reduce the credit available for borrowings
from the $27.5 million remaining
available at June 30, 2009
. If the total
remaining availability of the revolver is below $17.5 million, a lien by the
banks would be imposed on the Company’s intellectual property. If our credit
ratings were lowered further, the Company’s access to debt (including its
ability to expand the current revolver from $40 million to up to $60 million)
could be negatively impacted. There can be no assurance that we will not
experience unexpected cash flow shortfalls in the future or that any increase
in external funding required by such shortfalls will be available.
Continued
operating losses could reduce our liquidity and impact our dividend policy.
Historically, we
have relied on our cash from operations to fund our operations and the payment
of cash dividends. If the Company
continues to experience operating losses we may not be able to fund a shortfall
from operations and would require external funding. Due to recent changes in the capital markets,
some financing instruments used by the Company in the past are currently not
available to the Company. We cannot assure that additional sources of financing
would be available to the Company on commercially favorable terms should the
Company’s capital requirements exceed cash available from operations and
existing cash and cash equivalents. In
such circumstances the Company may further reduce its quarterly dividends.
Additional
impairment charges could reduce our profitability.
We have
significant long-lived tangible and intangible assets recorded on our balance
sheets. If our operating results
continue to decline, we may incur additional impairment charges in the future,
which could have a material impact on our financial results. Although any such impairment charge would be
a non-cash expense, it could materially increase our expenses and reduce our
profitability in the period recorded. We will continue to evaluate the
recoverability of the carrying amount of our long-lived tangible and intangible
assets on an ongoing basis. There can be
no assurance that the outcome of such future reviews will not result in
substantial impairment charges.
Impairment assessment inherently involves judgments as to assumptions
about expected future cash flows and the impact of market conditions on those
assumptions. Future events and changing
market conditions may impact our assumptions as to prices, costs or other
factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we use in
testing for impairment are reasonable, significant changes in any of our
assumptions could produce a significantly different result.
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We
face changes in global and local economic
conditions that may adversely affect consumer demand and spending, our
manufacturing operations or sources of merchandise.
Historically, the
home furnishings industry has been subject to cyclical variations in the
general economy and to uncertainty regarding future economic prospects. Such
uncertainty, as well as other variations in global economic conditions such as
rising fuel costs and increasing interest rates, may continue to cause
inconsistent and unpredictable consumer spending habits, while increasing our
own fuel, utility, transportation or security costs. These risks, as well as
industrial accidents or work stoppages, could also severely disrupt our
manufacturing operations, which could have a material adverse effect on our
financial performance.
We import a
portion of our merchandise from foreign countries. As a result, our costs may
be increased by events affecting international commerce and businesses located
outside the United States, including changes in international trade, central
bank actions, changes in the relationship of the U.S. dollar versus other
currencies, and other governmental policies of the U.S. and the countries from
which we import a portion of our merchandise. The inability to import products
from certain foreign countries or the imposition of significant tariffs could
have a material adverse effect on our results of operations.
Competition
from overseas manufacturers continues to increase and may adversely affect our
business, operating results or financial condition.
Our wholesale
business segment is involved in the development of our brand, which encompasses
the design, manufacture, sourcing, sales and distribution of our home
furnishings products, and competes with other U.S. and foreign
manufacturers. Our retail business
segment sells home furnishings to consumers through a network of
Company-operated design centers, and competes against a diverse group of
retailers ranging from specialty stores to traditional furniture and department
stores, any of which may operate locally, regionally and nationally. We also compete with these and other
retailers for appropriate retail locations as well as for qualified design
consultants and management personnel. Such competition could adversely affect
our future financial performance.
Industry
globalization has led to increased competitive pressures brought about by the
increasing volume of imported finished goods and components, particularly for
case good products, and the development of manufacturing capabilities in other
countries, specifically within Asia. The increase in overseas production
capacity in recent years has created over-capacity for many U.S. manufacturers,
including us, which has led to industry-wide plant consolidation. In addition,
because many foreign manufacturers are able to maintain substantially lower
production costs, including the cost of labor and overhead, imported product
may be capable of being sold at a lower price to consumers, which, in turn,
could lead to some measure of further industry-wide price deflation.
We cannot provide
assurance that we will be able to establish or maintain relationships with
certain manufacturers, whether foreign or domestic, to supply us with selected
case goods, upholstery and home accessory items to enable us to maintain our
competitive advantage. In addition, the recent emergence of foreign manufacturers
has served to broaden the competitive landscape. Some of these competitors
produce furniture types not manufactured by us and may have greater financial
and other resources available to them. This competition could adversely affect
our future financial performance.
Failure
to successfully anticipate or respond to changes in consumer tastes and trends
in a timely manner could adversely impact our business, operating results and
financial condition.
Sales of our
products are dependent upon consumer acceptance of our product designs, styles,
quality and price. We continuously monitor changes in home design trends
through attendance at international industry events and fashion shows, internal
marketing research, and regular communication with our retailers and design
center design consultants who provide valuable input on consumer tendencies.
However, as with all
retailers, our
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business is
susceptible to changes in consumer tastes and trends. Such tastes and trends can change rapidly and
any delay or failure to anticipate or respond to changing consumer tastes and
trends in a timely manner could adversely impact our business, operating
results and financial condition.
The
consolidation of manufacturing and logistics operations into fewer sites may
increase the exposure to business disruption and could result in higher
transportation costs.
The Company has
reduced the number of redundant manufacturing sites in both our case goods and
upholstery operations. Our upholstery operations consist of two upholstery
plants on our Maiden, North Carolina campus supported in part by one cut and
sew plant in Mexico. If any of these upholstery manufacturing sites experience
significant business interruption, our ability to manufacture products timely
would likely be impacted. Our plants require various raw materials and
commodities such as logs and lumber for our case goods plants and foam, springs
and engineered hardwood board for our upholstery plants. While we have long
standing relationships with multiple outside suppliers of our raw materials and
commodities, there can be no assurance of their ability to fulfill our supply needs
on a timely basis. The consolidation to fewer retail logistics operations has
resulted in longer distances for delivery and could result in higher costs to
transport products if fuel costs increase significantly.
Our
current and former manufacturing and retail operations are subject to
increasingly stringent environmental, health and safety requirements.
We use and
generate hazardous substances in our manufacturing and retail operations. In
addition, both the manufacturing properties on which we currently operate and
those on which we have ceased operations are and have been used for industrial
purposes. Our manufacturing operations and, to a lesser extent, our retail
operations involve risk of personal injury or death. We are subject to
increasingly stringent environmental, health and safety laws and regulations
relating to our current and former properties and our current operations. These
laws and regulations provide for substantial fines and criminal sanctions for
violations and sometimes require the installation of costly pollution control
or safety equipment or costly changes in operations to limit pollution or
decrease the likelihood of injuries. In addition, we may become subject to
potentially material liabilities for the investigation and cleanup of
contaminated properties and to claims alleging personal injury or property
damage resulting from exposure to or releases of hazardous substances or
personal injury as a result of an unsafe workplace.
We have been
identified as a potentially responsible party in connection with one site that
is currently listed, or proposed for inclusion, on the National Priorities List
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, or its state counterpart.
In addition, noncompliance with, or stricter enforcement of, existing
laws and regulations, adoption of more stringent new laws and regulations,
discovery of previously unknown contamination or imposition of new or increased
requirements could require us to incur costs or become the basis of new or
increased liabilities that could be material.
Fluctuations
in the price, availability and quality of raw materials could result in
increased costs or cause production delays which might result in a decline in
sales, either of which could adversely impact our earnings.
We use various
types of wood, foam, fibers, fabrics, leathers, and other raw materials in
manufacturing our furniture. Certain of our raw materials, including fabrics,
are purchased both outside the United States and domestically. Fluctuations in
the price, availability and quality of raw materials could result in increased
costs or a delay in manufacturing our products, which in turn could result in a
delay in delivering products to our customers. For example, lumber prices
fluctuate over time based on factors such as weather and demand, which in turn,
impact availability. Production delays or upward trends in raw material prices
could result in lower sales or margins, thereby adversely impacting our earnings.
14
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In addition,
certain suppliers may require extensive advance notice of our requirements in
order to produce products in the quantities we desire. This long lead time may
require us to place orders far in advance of the time when certain products
will be offered for sale, thereby exposing us to risks relating to shifts in
consumer demand and trends, and any further downturn in the U.S. economy.
Our
business is sensitive to increasing labor costs, competitive labor markets, our
continued ability to retain high-quality personnel and risks of work stoppages.
The market for
qualified employees and personnel in the retail and manufacturing industries is
highly competitive. Our success depends upon our ability to attract, retain and
motivate qualified craftsmen, management, marketing and sales personnel and
upon the continued contributions of these individuals. We cannot provide
assurance that we will be successful in attracting and retaining qualified
personnel. A shortage of qualified personnel may require us to enhance our wage
and benefits package in order to compete effectively in the hiring and
retention of qualified employees. Our
labor costs may continue to increase and such increases may not be recovered.
In addition, some of our employees are covered by collective bargaining
agreements with local labor unions. Although we do not anticipate any
difficulty renegotiating these contracts as they expire, a labor-related stoppage by
these unionized employees could adversely affect our business and results of
operations. The loss of the services of key personnel or our failure to attract
additional qualified personnel could have a material adverse effect on our
business, operating results and financial condition.
Our
success depends upon our brand, marketing and advertising efforts and pricing
strategies, and if we are not able to maintain and enhance our brand, or if we
are not successful in these other efforts, our business and operating results
could be adversely affected.
Maintaining and
enhancing our brand is critical to our ability to expand our base of customers
and may require us to make substantial investments. Our advertising campaign
utilizes television, direct mail, newspapers, magazines and radio to maintain
and enhance our existing brand equity. We cannot provide assurance that our
marketing, advertising and other efforts to promote and maintain awareness of
our brand will not require us to incur substantial costs. If these efforts are
unsuccessful or we incur substantial costs in connection with these efforts,
our business, operating results and financial condition could be adversely
affected.
We may
not be able to maintain our current design center locations at current costs.
We may also fail to successfully select and secure design center locations.
Our design centers
are typically located in busy urban settings as freestanding destinations or as
part of suburban strip malls, depending upon the real estate opportunities in a
particular market. Our business competes with other retailers and as a result,
our success may be affected by our ability to renew current design center
leases and to select and secure appropriate retail locations for existing and
future design centers.
We
depend on key personnel and could be affected by the loss of their services
.
The success of our
business depends upon the services of certain senior executives, and in particular,
the services of M. Farooq Kathwari, Chairman of the Board, President and Chief
Executive Officer, who is the only one of our senior executives who operates
under a written employment agreement. The loss of any such person or other key
personnel could have a material adverse effect on our business and results of
operations.
Our
results of operations for any quarter are not necessarily indicative of our
results of operations for a full year.
Sales of furniture
and other home furnishing products fluctuate from quarter to quarter due to
such factors as changes in global and regional economic conditions, changes in
competitive conditions, changes in production schedules in response to seasonal
changes in energy costs and weather conditions, and changes in consumer order
patterns. From time to time, we have experienced, and may continue to
experience, volatility with respect
15
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to demand for our
home furnishing products. Accordingly, results of operations for any quarter
are not necessarily indicative of the results of operations for a full year.
Failure
to protect our intellectual property could adversely affect us.
We believe that
our patents, trademarks, service marks, trade secrets, copyrights and all of
our other intellectual property are important to our success. We rely on
patent, trademark, copyright and trade secret laws, and confidentiality and
restricted use agreements, to protect our intellectual property and may seek
licenses to intellectual property of others. Some of our intellectual property
is not covered by any patent, trademark, or copyright or any applications for
the same. We cannot provide assurance that agreements designed to protect our
intellectual property will not be breached, that we will have adequate remedies
for any such breach, or that the efforts we take to protect our proprietary
rights will be sufficient or effective. Any significant impairment of our
intellectual property rights or failure to obtain licenses of intellectual
property from third parties could harm our business or our ability to compete.
Moreover, we cannot provide assurance that the use of our technology or
proprietary know-how or information does not infringe the intellectual property
rights of others. If we have to litigate to protect or defend any of our
rights, such litigation could result in significant expense.
Item 1B.
Unresolved Staff Comments
None.
Item
2. Properties
Our corporate
headquarters, located in Danbury, Connecticut, consists of one building
containing 144,000 square feet, situated on approximately 18.0 acres of land,
all of which is owned by us. Located
adjacent to the corporate headquarters, and situated on approximately 5.4
acres, is the Ethan Allen Hotel and Conference Center, containing 195
guestrooms. This hotel, owned by a wholly-owned subsidiary of Ethan Allen, is
used in connection with Ethan Allen functions and training programs, as well as
for functions and accommodations for the general public.
During fiscal
2009, we operated as many as ten manufacturing facilities located in six states
and Mexico. All of these facilities are owned, with the exception of a 145,636
square foot leased upholstery plant in California which will be closed by January 2010.
As announced during fiscal year 2009, we are consolidating select upholstery
and case goods plants into existing operations.
By the end of our first quarter of fiscal 2010, we plan to operate three
case goods plants (including one sawmill) totaling 1,644,522 square feet, three
upholstery furniture plants (consisting of two upholstery plants on our Maiden,
North Carolina campus and one cut and sew plant in Mexico) totaling 649,396
square feet, and one home accessory plant that is 295,000 square feet all of
which are owned by the company.
In addition, we
operate four primary distribution centers, totaling 1,179,029 square feet. All of these facilities are owned, with the
exception of one leased distribution facility in California, which is 80,000
square feet. Our U.S. manufacturing and
distribution facilities for future operations are located in North Carolina,
Vermont, Virginia, Oklahoma, California, New Jersey and Indiana, and our Mexico
plant is located in Guanajuato.
We own four and
lease 22 retail service centers, totaling 1,268,631 square feet. Our retail
service centers are located throughout the United States and Canada and serve
to support our various retail sales districts.
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The geographic
distribution of our retail design center network as of June 30, 2009 is as
follows:
|
|
|
Retail Design Center Category
|
|
|
|
|
Company
Operated
|
|
Independently
Operated
|
|
|
United States
|
|
154
|
|
88
|
|
|
North America-Other (1)
|
|
5
|
|
2
|
|
|
Asia
|
|
—
|
|
41
|
|
|
Middle East
|
|
—
|
|
3
|
|
|
Total
|
|
159
|
|
134
|
|
(1)
We own and operate five retail design
centers located in Canada.
Of the 159 retail design centers operated by us, 76 of the properties
are owned and 83 of the properties are leased from independent third
parties. Of the 76 design center
locations owned by us, 20 are subject to land leases. We own three additional
retail properties, two of which are leased to independent Ethan Allen
retailers, and one of which is leased to an unaffiliated third party. See Note 8 to the Consolidated Financial
Statements included under Item 8 of this Annual Report for more information
with respect to our operating lease obligations.
Our Ethan Allen Hotel and Conference Center located in Danbury,
Connecticut, was financed, in part, with industrial revenue bonds. The bonds bear interest at a fixed rate of
7.50% and have a remaining balance at June 30, 2009 of $3.9 million which
matures in two years. The Beecher Falls,
Vermont manufacturing facility was financed, in part, by the State of Vermont
Economic Development Authority (“VEDA”) and the Town of Canaan, Vermont. The VEDA debt matured in June 2006 and
was repaid in full at that time. The
Town of Canaan debt bears interest at a fixed rate of 3.00% and has a remaining
balance at June 30, 2009 of $0.3 million, with maturities of three to 18
years. We believe that all of our
properties are well maintained and in good condition.
We estimate that
our manufacturing division is currently operating at approximately 50% of
capacity. As a result, we announced the
consolidation of our Eldred, Pennsylvania and Chino, California upholstery
plants into existing operations as well as the closure of our Andover, Maine
case goods plant and realignment of other case goods operations in the
Northeast. We believe we have additional capacity at selected facilities, which
we could utilize with minimal additional capital expenditures.
Item
3. Legal Proceedings
We are a party to
various legal actions with customers, employees and others arising in the
normal course of our business. We maintain liability insurance, which is deemed
to be adequate for our needs and commensurate with other companies in the home
furnishings industry. We believe that the final resolution of pending actions
(including any potential liability not fully covered by insurance) will not
have a material adverse effect on our financial condition, results of
operations, or cash flows.
Environmental
Matters
We and our
subsidiaries are subject to various environmental laws and regulations. Under
these laws, we and/or our subsidiaries are, or may be, required to remove or
mitigate the effects on the environment of the disposal or release of certain
hazardous materials.
During the fiscal year ending June 30, 2009, our liability with
respect to three active sites currently listed, or proposed for inclusion, on
the National Priorities List (“NPL”) under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), where
we and/or our subsidiaries had been named as a Potentially Responsive Party
(“PRP”) located in Southington, Connecticut; High Point, North Carolina; and
Atlanta, Georgia has been resolved.
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In each case we were not a major contributor based on the very small
volume of waste generated by us in relation to total volume at those sites and
were able to take part in de minimus settlement arrangements. Specifically, with respect to the Southington
site, our volumetric share is less than 1% of over 51 million gallons disposed
of at the site and there are more than 1,000 PRPs. With respect to the High Point site, our
volumetric share is less than 1% of over 18 million gallons disposed of at the
site and there are more than 2,000 PRPs, including more than 1,000 de minimis
parties (of which we are one). With respect to the Atlanta site, a former
solvent recycling/reclamation facility, our volumetric share is less than 1% of
over 20 million gallons disposed of at the site by more than 1,700 PRPs.
In addition to the now settled actions discussed above, in July 2000,
we were notified by the State of New York (the “State”) that we may be named a
PRP in a separate, unrelated matter with respect to a site located in Carroll,
New York. In May, 2009, we were
notified by the State that it had conducted an initial environmental study and
that we have been named as a PRP. We
believe that we are not a major contributor; however, a review of the initial
environmental study is ongoing.
Liability under CERCLA may be joint and several. As such, to the extent
certain named PRPs are unable, or unwilling, to accept responsibility and pay
their apportioned costs, we could be required to pay in excess of our pro rata
share of incurred remediation costs. Our understanding of the financial
strength of other PRPs has been considered, where appropriate, in the
determination of our estimated liability.
As of June 30, 2009, we believe that established reserves related
to these environmental contingencies are adequate to cover probable and
reasonably estimable costs associated with the remediation and restoration of
these sites. We believe our currently
anticipated capital expenditures for environmental control facility matters are
not material.
We are subject to other federal, state and local environmental
protection laws and regulations and are involved, from time to time, in investigations
and proceedings regarding environmental matters. Such investigations and proceedings typically
concern air emissions, water discharges, and/or management of solid and
hazardous wastes. We believe that our facilities are in material compliance
with all such applicable laws and regulations.
Regulations issued under the Clean Air Act Amendments of 1990 required
the industry to reformulate certain furniture finishes or institute process
changes to reduce emissions of volatile organic compounds. Compliance with many
of these requirements has been facilitated through the introduction of high
solids coating technology and alternative formulations. In addition, we have
instituted a variety of technical and procedural controls, including
reformulation of finishing materials to reduce toxicity, implementation of high
velocity low pressure spray systems, development of storm water protection
plans and controls, and further development of related inspection/audit teams,
all of which have served to reduce emissions per unit of production. We remain
committed to implementing new waste minimization programs and/or enhancing
existing programs with the objective of (i) reducing the total volume of
waste, (ii) limiting the liability associated with waste disposal, and (iii) continuously
improving environmental and job safety programs on the factory floor which
serve to minimize emissions and safety risks for employees. We will continue to
evaluate the most appropriate, cost effective, control technologies for
finishing operations and design production methods to reduce the use of
hazardous materials in the manufacturing process.
Item
4. Submission of Matters to a Vote of Security Holders
No matters were submitted for vote by our security holders during the
fourth quarter of fiscal 2009.
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PART II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under ticker
symbol “ETH”. The following table sets forth, for each of the past two fiscal
years, (i) the high and low stock prices as reported on the New York Stock
Exchange and (ii) the dividend per share paid by us:
|
|
|
Market
Price
|
|
Dividend
|
|
|
|
|
High
|
|
Low
|
|
Close
|
|
Per Share
|
|
|
Fiscal
2009
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
34.02
|
|
$
|
22.34
|
|
$
|
28.02
|
|
$
|
0.25
|
|
|
Second
Quarter
|
|
28.90
|
|
11.26
|
|
14.37
|
|
0.25
|
|
|
Third
Quarter
|
|
15.05
|
|
6.98
|
|
11.26
|
|
0.10
|
|
|
Fourth
Quarter
|
|
14.47
|
|
9.86
|
|
10.36
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
36.55
|
|
$
|
31.57
|
|
$
|
32.69
|
|
$
|
0.22
|
|
|
Second
Quarter
|
|
35.41
|
|
25.87
|
|
28.50
|
|
0.22
|
|
|
Third
Quarter
|
|
31.98
|
|
22.67
|
|
28.43
|
|
0.22
|
|
|
Fourth
Quarter
|
|
31.37
|
|
24.48
|
|
24.60
|
|
0.22
|
|
As of August 13, 2009, there were 328 shareholders of record of
our common stock. Management estimates
there are over eleven thousand beneficial shareholders of the Company’s common
stock. On July 21, 2009, we
declared a dividend of $0.05 per common share, payable on October 26, 2009
to shareholders of record as of October 9, 2009. We expect to continue to declare quarterly
dividends for the foreseeable future, business conditions permitting.
Equity Compensation Plan Information
The information required by this Item 5 with respect to Equity
Compensation Plan Information is set forth in Item 12 — Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters,
contained in this Annual Report and incorporated herein by reference.
Issuer Purchases of Equity Securities
On November 21, 2002, our Board of Directors approved a share
repurchase program authorizing us to repurchase up to 2,000,000 shares of our
common stock, from time to time, either directly or through agents, in the open
market at prices and on terms satisfactory to us. Subsequent to that date, the
Board of Directors increased the remaining authorization as follows: from
904,755 shares to 2,500,000 shares on April 27, 2004; from 753,600 shares
to 2,000,000 shares on November 16, 2004; from 691,100 shares to 2,000,000
shares on April 26, 2005; from 393,100 shares to 2,500,000 shares on November 15,
2005; from 1,110,400 shares to 2,500,000 shares on July 25, 2006; from
707,300 to 2,500,000 shares on July 24, 2007, and from 1,368,000 to 2,000,000 shares on November 13,
2007. As of June 30, 2009 we had a
remaining Board authorization to repurchase 1,567,669 shares.
There were no share repurchases during
the quarter or fiscal year ended June 30, 2009.
Stockholder Rights Plan
We have a Stockholder
Rights Plan, a description of which is set forth in Note 9 to the Consolidated
Financial Statements included under Item 8 of this Annual Report and
incorporated herein by reference. Such
description contains all of the required information with respect thereto.
19
Table of Contents
Comparative
Company Performance
The following line graph compares
cumulative total stockholder return for the Company with a performance
indicator of the overall stock market, the Standard & Poor’s 500
Index, and an industry index, the Peer Issuer Group Index, assuming $100 was
invested on June 30, 2004.
COMPARISON OF 5 YEAR CUMULATIVE
TOTAL RETURN*
Among Ethan Allen
Interiors Inc., The S&P 500 Index
And A Peer Group
*$100
invested on 6/30/04 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.
Copyright©
2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Peer
group includes Bassett Furniture Industries, Inc., Chromcraft Revington, Inc.,
Flexsteel Industries, Inc., Furniture Brands International, Inc., Haverty
Furniture Companies, Inc., La-Z-boy Inc., Legett & Platt, Inc., and Pier 1
Imports Inc. The returns of each company
have been weighted according to each company’s market capitalization.
Item
6. Selected Financial Data
The following table presents selected financial data for the fiscal
years ended June 30, 2009, 2008, 2007, 2006 and 2005 which has been
derived from our consolidated financial statements. The information set forth below should be
read in conjunction with Management’s Discussion and Analysis of Financial
Condition and Results of Operations
included under Item 7 of this Annual Report
and our Consolidated Financial Statements (including the notes thereto)
included
under Item 8 of
this Annual
Report.
20
Table
of Contents
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
Statement of
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
674,277
|
|
$
|
980,045
|
|
$
|
1,005,312
|
|
$
|
1,066,390
|
|
$
|
949,012
|
|
|
Cost of sales
|
|
326,935
|
|
453,980
|
|
478,729
|
|
525,408
|
|
487,958
|
|
|
Selling, general and administrative expenses
|
|
353,112
|
|
423,229
|
|
402,022
|
|
394,069
|
|
332,295
|
|
|
Restructuring and impairment charges, net
|
|
67,001
|
|
6,836
|
|
13,442
|
|
4,241
|
|
(219
|
)
|
|
Operating income (loss)
|
|
(72,771
|
)
|
96,000
|
|
111,119
|
|
142,672
|
|
128,978
|
|
|
Interest and other expense (income), net
|
|
8,409
|
|
3,822
|
|
1,393
|
|
4,567
|
|
(442
|
)
|
|
Income (loss) before income tax expense
|
|
(81,180
|
)
|
92,178
|
|
109,726
|
|
138,105
|
|
129,420
|
|
|
Income tax expense (benefit)
|
|
(28,493
|
)
|
34,106
|
|
40,499
|
|
52,423
|
|
50,082
|
|
|
Net income (loss)
|
|
$
|
(52,687
|
)
|
$
|
58,072
|
|
$
|
69,227
|
|
$
|
85,682
|
|
$
|
79,338
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per basic share
|
|
$
|
(1.83
|
)
|
$
|
1.98
|
|
$
|
2.19
|
|
$
|
2.58
|
|
$
|
2.24
|
|
|
Basic weighted average shares outstanding
|
|
28,814
|
|
29,267
|
|
31,566
|
|
33,210
|
|
35,400
|
|
|
Net income (loss) per diluted share
|
|
$
|
(1.83
|
)
|
$
|
1.97
|
|
$
|
2.15
|
|
$
|
2.51
|
|
$
|
2.19
|
|
|
Diluted weighted average shares outstanding
|
|
28,814
|
|
29,470
|
|
32,261
|
|
34,086
|
|
36,193
|
|
|
Cash dividends per share
|
|
$
|
0.65
|
|
$
|
0.88
|
|
$
|
0.80
|
|
$
|
0.72
|
|
$
|
0.60
|
|
|
Other
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
25,635
|
|
$
|
24,670
|
|
$
|
23,013
|
|
$
|
21,599
|
|
$
|
21,338
|
|
|
Capital expenditures and acquisitions
|
|
$
|
23,903
|
|
$
|
67,815
|
|
$
|
74,370
|
|
$
|
49,296
|
|
$
|
34,381
|
|
|
Working capital
|
|
$
|
139,239
|
|
$
|
176,796
|
|
$
|
234,990
|
|
$
|
278,038
|
|
$
|
130,423
|
|
|
Current ratio
|
|
2.24 to 1
|
|
2.30 to 1
|
|
2.59 to 1
|
|
2.88 to 1
|
|
1.97 to 1
|
|
|
Effective tax rate
|
|
35.1
|
%
|
37.0
|
%
|
36.9
|
%
|
38.0
|
%
|
38.7
|
%
|
|
Balance Sheet
Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
646,485
|
|
$
|
764,093
|
|
$
|
802,598
|
|
$
|
814,100
|
|
$
|
628,386
|
|
|
Total debt, including capital lease obligations
|
|
203,148
|
|
203,029
|
|
202,908
|
|
202,787
|
|
12,510
|
|
|
Shareholders’ equity
|
|
$
|
305,923
|
|
$
|
375,773
|
|
$
|
409,642
|
|
$
|
417,442
|
|
$
|
434,068
|
|
|
Debt as a percentage of equity
|
|
66.4
|
%
|
54.0
|
%
|
49.5
|
%
|
48.6
|
%
|
2.9
|
%
|
|
Debt as a percentage of capital
|
|
39.9
|
%
|
35.1
|
%
|
33.1
|
%
|
32.7
|
%
|
2.8
|
%
|
21
Table of
Contents
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation
The following discussion of financial condition and results of
operations is based upon, and should be read in conjunction with, our
Consolidated Financial Statements (including the notes thereto) included under
Item 8 of this Annual Report.
Forward-Looking Statements
Management’s discussion and analysis of financial condition and results
of operations and other sections of this Annual Report contain forward-looking
statements relating to our future results. Such forward-looking statements are
identified by use of forward-looking words such as “anticipates”, “believes”, “plans”,
“estimates”, “expects”, and “intends” or words or phrases of similar
expression. These forward-looking statements are subject to management
decisions and various assumptions, risks and uncertainties, including, but not
limited to: the effects of terrorist attacks or conflicts or wars involving the
United States or its allies or trading partners; the effects of labor strikes;
weather conditions that may affect sales; volatility in fuel, utility,
transportation and security costs; changes in global or regional political or
economic conditions, including changes in governmental and central bank
policies; changes in business conditions in the furniture industry, including
changes in consumer spending patterns and demand for home furnishings; effects
of our brand awareness and marketing programs, including changes in demand for
our existing and new products; our ability to locate new design center sites
and/or negotiate favorable lease terms for additional design centers or for the
expansion of existing design centers; competitive factors, including changes in
products or marketing efforts of others; pricing pressures; fluctuations in
interest rates and the cost, availability and quality of raw materials; those
matters discussed in Items 1A and 7A of this Annual Report and in our SEC
filings; and our future decisions. Accordingly, actual circumstances and
results could differ materially from those contemplated by the forward-looking
statements.
Critical Accounting Policies
Our consolidated financial statements have been prepared in conformity
with U.S. generally accepted accounting principles which require, in some
cases, that certain estimates and assumptions be made that affect the amounts
and disclosures reported in those financial statements and the related
accompanying notes. Estimates are based on currently known facts and
circumstances, prior experience and other assumptions believed to be
reasonable. We use our best judgment in valuing these estimates and may, as
warranted, solicit external advice. Actual results could differ from these
estimates, assumptions and judgments, and these differences could be material.
The following critical accounting policies, some of which are impacted
significantly by estimates, assumptions and judgments, affect our consolidated
financial statements.
Inventories
— Inventories (finished
goods, work in process and raw materials) are stated at the lower of cost,
determined on a first-in, first-out basis, or market. Cost is determined based
solely on those charges incurred in the acquisition and production of the
related inventory (i.e. material, labor and manufacturing overhead costs). We
estimate an inventory reserve for excess quantities and obsolete items based on
specific identification and historical write-downs, taking into account future
demand and market conditions. If actual
demand or market conditions in the future are less favorable than those
estimated, additional inventory write-downs may be required.
Revenue Recognition
— Revenue is recognized when all of the following have occurred:
persuasive evidence of a sales arrangement exists (e.g. a wholesale purchase
order or retail sales invoice); the sales arrangement specifies a fixed or
determinable sales price; product is shipped or services are provided to the
customer; and collectibility is reasonably assured. As such, revenue
recognition occurs upon the shipment of goods to independent retailers or, in
the case of Ethan Allen-operated retail design centers, upon delivery to the
customer. Recorded sales provide for estimated returns and allowances. We
permit our customers to return defective products and incorrect shipments, and
terms we offer are standard for the industry.
22
Table of
Contents
Allowance for Doubtful Accounts
— We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is based
on a review of specifically identified accounts in addition to an overall aging
analysis. Judgments are made with
respect to the collectibility of accounts receivable based on historical
experience and current economic trends.
Actual losses could differ from those estimates.
Retail Design Center Acquisitions
- We account for the acquisition of retail design centers and related
assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141,
Business Combinations
, which requires
application of the purchase method for all business combinations initiated
after June 30, 2001. Accounting for
these transactions as purchase business combinations requires the allocation of
purchase price paid to the assets acquired and liabilities assumed based on
their fair values as of the date of the acquisition. The amount paid in excess
of the fair value of net assets acquired is accounted for as goodwill.
Impairment of Long-Lived Assets and Goodwill
— We periodically evaluate whether events or circumstances have
occurred that indicate that long-lived assets may not be recoverable or that
the remaining useful life may warrant revision.
When such events or circumstances are present, we assess the
recoverability of long-lived assets by determining whether the carrying value
will be recovered through the expected undiscounted future cash flows resulting
from the use of the asset. In the event
the sum of the expected undiscounted future cash flows is less than the
carrying value of the asset, an impairment loss equal to the excess of the
asset’s carrying value over its fair value is recorded. The long-term nature of these assets requires
the estimation of cash inflows and outflows several years into the future and
only takes into consideration technological advances known at the time of the
impairment test.
In accordance with SFAS No. 142,
Goodwill and
Other Intangible Assets
, goodwill and other indefinite-lived
intangible assets are evaluated for impairment on an annual basis and between
annual tests whenever events or circumstances indicate that the carrying value
of the goodwill or other intangible asset may exceed its fair value. We conduct
our required annual impairment test during the fourth quarter of each fiscal
year and use a discounted cash flow model to estimate fair value. This model
requires the use of long-term planning forecasts and assumptions regarding
industry-specific economic conditions that are outside our control.
Income Taxes
— Income taxes
are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Additional factors that we consider when making
judgments about the deferred tax valuation include tax law changes, a recent
history of cumulative losses, and variances in future projected profitability.
Effective July 1, 2007, we adopted Financial Accounting Standards
Board (“FASB”) Interpretation No. (“FIN”) 48,
Accounting
for Uncertainty in Income Taxes
, an interpretation of FASB Statement
No. 109,
Accounting for Income Taxes
,
which provides a comprehensive model for the recognition, measurement,
presentation, and disclosure in a company’s financial statements of uncertain
tax positions taken, or expected to be taken, on a tax return. If an income tax
position exceeds a 50% probability of success upon tax audit, based solely on
the technical merits of the position, the company recognizes an income tax
benefit in its financial statements. The tax benefits recognized are measured
based on the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate settlement. The liability associated with an
unrecognized tax benefit is classified as a long-term liability except for the
amount for which a cash payment is expected to be made or tax positions settled
within one year. We recognize interest and penalties related to income tax
matters as a component of income tax expense.
23
Table of
Contents
Business Insurance Reserves
— We have insurance programs in place to cover workers’ compensation
and property/casualty claims. The
insurance programs, which are funded through self-insured retention, are
subject to various stop-loss limitations. We accrue estimated losses using
actuarial models and assumptions based on historical loss experience. Although we believe that the insurance
reserves are adequate, the reserve estimates are based on historical
experience, which may not be indicative of current and future losses. In addition, the actuarial calculations used
to estimate insurance reserves are based on numerous assumptions, some of which
are subjective. We adjust insurance
reserves, as needed, in the event that future loss experience differs from
historical loss patterns.
Other Loss Reserves
—
We have a number of other potential loss exposures incurred in the
ordinary course of business such as environmental claims, product liability,
litigation, tax liabilities, restructuring charges, and the recoverability of
deferred income tax benefits.
Establishing loss reserves for these matters requires the use of
estimates and judgment with regard to maximum risk exposure and ultimate
liability or realization. As a result,
these estimates are often developed with our counsel, or other appropriate
advisors, and are based on our current understanding of the underlying facts
and circumstances. Because of uncertainties related to the ultimate outcome of
these issues or the possibilities of changes in the underlying facts and
circumstances, additional charges related to these issues could be required in
the future
.
Basis of Presentation
As of June 30, 2009, Ethan Allen Interiors Inc. has no material
assets other than its ownership of the capital stock of Ethan Allen Global, Inc.
and conducts all significant transactions through Ethan Allen Global, Inc.;
therefore, substantially all of the financial information presented herein is
that of Ethan Allen Global, Inc.
Results of Operations
Our Company has been severely impacted by the ongoing recession in the
United States and abroad. Continued
weakness in the U.S. economy, high unemployment, volatile capital markets,
depressed housing prices and tight consumer lending practices have driven
consumer confidence down to, or near, historical lows and resulted in
considerable negative pressure on spending by individual consumers, our primary
customer base. The Company is continuing
to adjust our infrastructure to match our sales volumes as we work through
these difficult times.
Restructuring Activities:
In 2009, the Company made several announcements on
changes to our operations as we continue to improve the structure of our
business especially in light of the recent economic downturn. In January 2009, the Company announced a
plan to consolidate the operations of its Eldred, Pennsylvania upholstery
manufacturing plant and several of its retail service centers. In June 2009,
the Company announced the consolidation of its Chino, California operations
into its Maiden, North Carolina facility and the consolidation of its Andover,
Maine sawmill and dimension mill to its Beecher Falls, Vermont sawmill and
dimension mill operations. For these fiscal 2009 actions, the Company estimates
pre-tax restructuring, impairment, and other related charges will ultimately
approximate $30 million, consisting of $15 million in write down of long-lived
assets, $8 million in employee severance and other payroll and benefit costs,
and $7 million in other associated costs. By segment, we expect $23
million in costs for the wholesale segment and $7 million for the retail
segment. Total costs for these 2009 actions in the current fiscal year by
segment are $17.0 million for Wholesale, and $2.6 million for Retail all of
which have been classified in the Statement of Operations as restructuring and
impairment charges. Approximately 800 employee positions and 140 contract
worker positions will be eliminated due to these actions.
In January 2008, we announced a plan to
consolidate the operations of certain Company-operated retail design centers
and retail service centers. In connection with this initiative, we have
permanently ceased operations at ten
24
Table of Contents
design centers and six retail service centers which,
for the most part, were consolidated into other existing operations. We also implemented our design team concept
across the Retail division at the end of the fiscal year. We recorded pre-tax restructuring,
impairment, and other related charges of $6.8 million for fiscal 2008, with
$3.3 million for lease cancellation and other costs which will be paid out over
periods ranging from less than one to seven years, $2.7 million, which was
non-cash in nature, related to fixed asset impairment charges, primarily for
real property and leasehold improvements, and $0.9 million was related to
employee severance and benefits. During
fiscal 2009, we recorded a net reduction of pre-tax restructuring, impairment,
and other related charges of $1.0 million, primarily due to net gains on the
sale of real estate of $4.2 million, partly offset by additional charges and
adjustments to previous estimates for leased facilities of $2.3 million and
employee severance, benefits and other charges of $0.5 million. Cumulative
charges to date for these actions total $5.5 million, all of which have been
classified in the Statement of Operations as restructuring and impairment charges.
In addition to the Retail charges, $0.4 million was recorded in the first
quarter of fiscal 2009 to update the fair value of a wholesale plant site held
for sale.
On September 6, 2006, we announced a plan to
close our Spruce Pine, North Carolina case goods manufacturing facility and
convert our Atoka, Oklahoma upholstery manufacturing facility into a regional
distribution center. The decision
impacted approximately 465 employees. We
recorded a pre-tax restructuring and impairment charge of $14.1 million during
the quarter ended September 30, 2006, of which $4.0 million was related to
employee severance and benefits and other plant exit costs, and $10.1 million
of fixed asset impairment charges. During the first six months of fiscal 2007,
adjustments totaling $0.4 million were recorded to reverse remaining previously
established accruals which were no longer deemed necessary.
Analysis of Goodwill and Other Intangible Assets:
We conduct an annual impairment analysis of goodwill and other
indefinite lived intangible assets the first of April each fiscal year,
unless events occur or circumstances change that would more likely than not
reduce the fair value of the goodwill or other indefinite lived intangible
assets below their carrying value. In determining whether an interim test is
appropriate, management considers several factors including changes in the
Company’s stock price, financial performance, third party ratings on its long
term debt, and expected financial outlook of the business. Methods employed to
value the enterprise and the Company’s retail and wholesale segments include
the market approach and the income approach, which are reconciled with the
total market capitalization of the Company. These valuation methods use
historical revenues and cash flows, as well as Company and external analysts’
financial projections and apply discount rates, weighted average cost of
capital rates, total invested capital multiples, and premium control multiples.
Fair value of our trade name is valued using the relief-from-royalty method.
Significant factors used in trade name valuation are royalty rates, future
growth and discount rates, and expense rates.
In the fiscal quarter ended December 31, 2008, net sales declined
7.9% from the previous quarter and there was a meaningful decline (34.5%) in
the company’s average stock price from the first fiscal quarter to the second
(from $26.35 to $17.27). This decline coupled with the sudden and dramatic
change in the business climate as seen through the financial crisis with global
banking institutions led to an interim evaluation of goodwill and other
intangible assets. As a result of these tests, management concluded that the
estimated value of the wholesale and retail segments exceeded their carrying
values and no impairment was indicated.
In the fiscal quarter ended March 31, 2009, net sales declined
26.0% from the previous quarter resulting in a 660 basis point decline in gross
margin plus a further decline (36.2%) in the company’s average stock price
(from $17.27 to $11.02). These declines coupled with a significant loss from
operations led to a second interim evaluation of goodwill and other intangible
assets. As a result of these tests, management concluded the carrying value of
goodwill on our retail division’s books exceeded its fair value. Therefore, we
recorded a non-cash impairment charge of $48.4 million. No impairment of the
goodwill or other indefinite lived assets on our wholesale division’s books was
appropriate.
25
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In the fiscal quarter ended June 30, 2009, the Company performed
its annual impairment test on April 1 and noted no additional impairment
was appropriate. During the quarter, business performance stabilized with net
sales slightly lower (1%) than the previous quarter, gross margin improved 160
basis points and there was a slight increase in cash on hand (to $53 million).
The average price of our stock increased 9.8% (from $11.02 to $12.11). The
ratings on the Company’s long term debt were lowered by third parties to
speculative grade and the Company updated its forecasts. The Company considered
these factors and concluded that an interim impairment test was not required on
the wholesale segment. No additional evaluation of the retail segment was
appropriate as all goodwill was written off in the previous fiscal quarter.
There can be no
assurance that the outcome of future reviews will not result in substantial
impairment charges. Impairment
assessment inherently involves judgments as to assumptions about expected
future cash flows and the impact of market conditions on those
assumptions. Future events and changing
market conditions may impact our assumptions as to prices, costs or other
factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we use in
testing for impairment are reasonable, significant changes in any of our
assumptions could produce a significantly different result
.
Business Results:
Our revenues are
comprised of (i) wholesale sales to independently operated and
Company-operated retail design centers and (ii) retail sales of
Company-operated design centers. See
Note 16 to our Consolidated Financial Statements for the year ended June 30,
2009 included under Item 8 of this Annual Report.
The components of consolidated revenues and operating income (loss) are
as follows (in millions):
|
|
|
Fiscal
Year Ended June 30,
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
403.4
|
|
$
|
616.2
|
|
$
|
656.0
|
|
|
Retail segment
|
|
508.6
|
|
724.6
|
|
698.6
|
|
|
Elimination of
inter-segment sales
|
|
(237.7
|
)
|
(360.8
|
)
|
(349.3
|
)
|
|
Consolidated revenue
|
|
$
|
674.3
|
|
$
|
980.0
|
|
$
|
1,005.3
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (loss):
|
|
|
|
|
|
|
|
|
Wholesale segment
(1
)
|
|
$
|
6.7
|
|
$
|
100.3
|
|
$
|
99.2
|
|
|
Retail segment
(2)
|
|
(92.1
|
)
|
(2.8
|
)
|
15.2
|
|
|
Adjustment for
inter-company profit
(3)
|
|
12.6
|
|
(1.5
|
)
|
(3.3
|
)
|
|
Consolidated operating
income
|
|
$
|
(72.8
|
)
|
$
|
96.0
|
|
$
|
111.1
|
|
(1)
Operating income for the Wholesale segment for
the twelve months ended June 2009 and 2007 includes pre-tax restructuring
and impairment charges of $17.4 million and $13.4 million, respectively.
(2)
Operating income for the Retail segment for
the twelve months ended June 2009 and 2008 includes pre-tax restructuring
and impairment charges of $49.6 million and $6.8 million, respectively.
(3)
Represents the change in the inventory profit elimination entry
necessary to adjust for the embedded wholesale profit contained in Ethan
Allen-operated design center inventory existing at the end of the period.
Fiscal 2009 Compared to Fiscal 2008
Consolidated revenue
for the fiscal year ended June 30, 2009 decreased by $305.7
million, or 31.2%, to $674.3 million, from $980 million in fiscal 2008. Net
sales for the period largely reflect the delivery of product associated with
booked orders and backlog existing as of beginning of the period. During the year, sales were negatively
26
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affected by a weak retail environment for home furnishings which we
believe is due to a number of factors including but not limited to continued
weakness in the U.S. economy, high unemployment, volatile capital markets,
depressed housing prices and tight consumer lending practices as well as the
use of highly-promotional pricing strategies by the Company’s competitors. These factors were partially offset by (i) the
positive effects of our continued efforts to reposition the retail network, (ii) the
introduction of our new American Artisan product line, (iii) several new
marketing initiatives including the launching of our new interactive web site
ethanalleninc.com and our rewards program, and in the latter part of the fiscal
year, special savings pricing, and (iv) the continued use of national
television media, where we emphasize to clients our interior design services
and the full line of our quality product offerings.
Wholesale revenue
for fiscal 2009 decreased by $212.9 million, or 34.5%, to $403.4
million from $616.2 million in the prior year.
The year-over-year decrease was primarily attributable to a decline in
the incoming order rate as a result of the softer retail environment for home
furnishings noted throughout the current period and from fewer independent
retail design centers, which decreased to 134 from 136 including four locations
transferred in to the company’s Retail division during the year.
Retail revenue
from Ethan Allen-operated design centers for the twelve months ended June 30,
2009 decreased by $216.0 million, or 29.8%, to $508.6 million from $724.6
million for the twelve months ended June 30, 2008. The decrease in retail sales by Ethan
Allen-operated design centers was attributable to a decrease in comparable
design center delivered sales of $211.9 million, or 32.5%, and reduced revenue
from sold and closed design centers of $64.4 million. This unfavorable variance
was partially offset by higher sales generated by newly opened (including
relocated) or acquired design centers of $60.4 million. The number of Ethan
Allen-operated design centers remained at 159 at both June 30, 2009 and June 30,
2008. During that twelve month period,
we acquired four design centers from independent retailers, and opened six new
design centers (of which three were relocations).
Comparable design centers are those which have been operating for at
least 15 months. Minimal net sales,
derived from the delivery of customer ordered product, are generated during the
first three months of operations of newly opened (including relocated) design
centers. Design centers acquired by us
from independent retailers are included in comparable design center sales in
their 13th full month of Ethan Allen-operated operations.
Year-over-year, written business of Ethan Allen-operated design centers
decreased 32.6% and comparable design center written business decreased
35.4%. Over that same period, wholesale
orders decreased 35.4%. Retail written
business reflects the softer retail environment for home furnishings noted
throughout the current year, likely offset, to some degree, by (i) our
continued efforts to reposition the retail network, (ii) recent product
introductions, (iii) several new marketing initiatives described
previously, and (iv) our continued use of national television as an
advertising medium throughout much of the year.
Gross profit
for fiscal 2009 declined to $347.3 million from $526.1 million in
fiscal 2008. The $178.7 million decrease
in gross profit was primarily attributable to a combined decline in both
wholesale and retail sales volume of 31.2%, partially offset by a shift in
sales mix with retail sales representing a higher proportionate share of total
sales in the current full year (75.4%) as compared to the prior full year
(73.9%). As a result of reduced sales, and to reduce inventories, manufacturing
plants were operated at approximately 50% of capacity. This resulted in higher unabsorbed costs in
our manufacturing plants which were charged to expense during the period. The
consolidated gross margin decreased to 51.5% for fiscal 2009 from 53.7% in
fiscal 2008 as a result, primarily, of the factors set forth above.
Operating profit
, the elements of which are discussed in greater detail below, was
impacted by the following items during the twelve months ended June 30,
2009 and 2008:
Operating expenses
decreased $10.0 million, or 2.3%, to $420.1 million, or 62.3% of net
sales, in fiscal 2009 from $430.1 million, or 43.9% of net sales, in fiscal
2008. Decreases in salary related costs were experienced due to the reduced
number of employees and other cost cutting efforts taken by the Company that
impacted bonuses and
27
Table of
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benefits. Advertising expenses
decreased, while still maintaining our national TV and shelter magazine
presence. Delivery and warehousing costs were lower due to decreased sales.
Partially offsetting these decreases were (i) a non-cash goodwill
impairment charge of $48.4 million recorded in the March 2009 quarter and (ii) an
$11.8 million period-over-period increase in restructuring and impairment
charges, both discussed earlier, and (iii) added costs of $7 million due
to the implementation of the team concept which caused a temporary overlap of
expenses and is now concluded.
Consolidated operating income
for the year ended June 30, 2009 totaled a loss of $72.8 million,
or 10.8% of net sales, compared to income of $96.0 million, or 9.8% of net
sales, in the prior year. The decrease
of $168.8 million was largely attributable to (i) a 31.2% reduction in net
sales, resulting in a $178.7 million reduction in gross profit, (ii) a goodwill
impairment charge, (iii) increased restructuring and impairment charges
and (iv) net declines in other operating expenses, all of which were
discussed previously.
W
holesale operating income
for fiscal 2009 totaled $6.7 million, or 1.7% of net sales, as
compared to $100.3 million, or 16.3% of net sales, in the prior year. The
decrease of $93.7 million was primarily attributable to (i) the $212.9
reduction in net sales, and (ii) a $17.4 million increase in restructuring
and impairment charges due to the 2009 actions discussed earlier.
Retail operating income
decreased $89.3 million to a $92.1 million loss, or 18.1% of sales,
for fiscal 2009, from a loss of $2.8 million, or 0.4% of sales, for fiscal
2008. The decrease in retail operating income generated by Ethan Allen-operated
design centers was primarily attributable to reduced sales caused by the weak
retail environment for home furnishings, as well as the $48.4 million goodwill
impairment charge.
Interest and other miscellaneous income, net
totaled $3.4 million in fiscal 2009 as compared to $7.9 million in
fiscal 2008. The $4.5 million decrease was mostly due to lower investment
income resulting from reduced cash and cash equivalent balances maintained
along with lower rates of interest during the current period and by gains
recorded in connection with the sale of selected real estate assets in the
prior year.
Interest and other related financing costs
remained largely unchanged at $11.8 million from $11.7 million in the
prior year. This amount mostly consists of interest expense on our senior
unsecured debt issued in September 2005.
Income tax
totaled a benefit of $28.5 million for fiscal 2009 as compared to an
expense of $34.1 million for fiscal 2008.
Our effective tax rate for the current year was 35.1%, compared to 37.0%
in the prior year. The effective tax rate was a result, primarily, of the total
current year loss before tax and the resulting valuation allowance taken
against certain deferred tax assets and the inability to apply the manufacturers’
deduction provided for under The Jobs Creation Act of 2004.
Net income
for fiscal 2009 was a loss of $52.7 million as compared to income of
$58.1 million in fiscal 2008. Net loss
per diluted share totaled $1.83 in the current year compared to net income of
$1.97 per diluted share in the prior year.
Fiscal 2008 Compared to Fiscal 2007
Consolidated revenue
for the fiscal year ended June 30, 2008 decreased by $25.3
million, or 2.5%, to $980 million, from $1.005 billion in fiscal 2007. Net
sales for the period largely reflect the delivery of product associated with
booked orders and backlog existing as of beginning of the period. During the year, sales were impacted by a
weak retail environment for home furnishings, particularly during the latter
half of the year. We believe this is due
to continued weakening of consumer confidence with the current economic
conditions in the U.S. and abroad. These
factors were partially offset by (i) the positive effects of our continued
efforts to reposition the retail network, (ii) new product introductions,
and (iii) an increase in the continued use of national television as
28
Table of
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an advertising medium, where we emphasize to clients our interior
design services and the full line of our quality product offerings.
We have made considerable investment within the retail network to
strengthen the level of service, professionalism, interior design competence,
efficiency, and effectiveness of retail design center personnel. The
implementation of the “team” concept is the latest phase of that progression,
which resulted in the development of over 280 interior design teams. We believe
that with this structure along with the emphasis in our messaging to clients
that we are here to “help as little or as much” as they like, as well as
offering the benefit of making appointments with our design professionals, we
continue to improve the customer service experience.
Wholesale revenue
for fiscal 2008 decreased by $39.8 million, or 6.1%, to $616.2 million
from $656.0 million in the prior year.
The year-over-year decrease was primarily attributable to a decline in
the incoming order rate as a result of the softer retail environment for home
furnishings noted throughout much of the current period and from fewer
independent retail design centers, which decreased to 136 from 155 including
six locations transferred in to the company’s Retail division during the year.
Retail revenue
from Ethan Allen-operated design centers for the twelve months ended June 30,
2008 increased by $26.0 million, or 3.7%, to $724.6 million from $698.6 million
for the twelve months ended June 30, 2007.
The increase in retail sales by Ethan Allen-operated design centers was
attributable to higher sales generated by newly opened (including relocated) or
acquired design centers of $66.8 million.
This favorable variance was partially offset by unfavorable variances
related to a decrease in comparable design center delivered sales of $21.3
million, or 3.2%, and reduced revenue from sold and closed design centers of
$19.5 million. The number of Ethan Allen-operated design centers increased to
159 as of June 30, 2008 as compared to 158 as of June 30, 2007. During that twelve month period, we acquired
five design centers from, and opened one previously operated by independent
retailers, and opened eighteen new design centers (of which eleven were
relocations).
Comparable design centers are those which have been operating for at
least 15 months. Minimal net sales,
derived from the delivery of customer ordered product, are generated during the
first three months of operations of newly opened (including relocated) design
centers. Design centers acquired by us
from independent retailers are included in comparable design center sales in
their 13th full month of Ethan Allen-operated operations.
Year-over-year, written business of Ethan Allen-operated design centers
increased 0.6% and comparable design center written business decreased
5.6%. Over that same period, wholesale
orders decreased 8.0%. Retail written
business reflects the softer retail environment for home furnishings noted
throughout much of the current year, likely offset, to some degree, by (i) our
continued efforts to reposition the retail network, (ii) recent product
introductions, and (iii) our continued use of national television as an
advertising medium throughout much of the year.
Gross profit
for fiscal 2008 declined slightly to $526.1 million from $526.6
million in fiscal 2007. The $0.5 million
decrease in gross profit was primarily attributable to a decline in wholesale
sales volume partially offset by a shift in sales mix with retail sales
representing a higher proportionate share of total sales in the current full
year (74%) as compared to the prior full year (69%). The consolidated gross
margin increased to 53.7% for fiscal 2008 from 52.4% in fiscal 2007 as a
result, primarily, of the factors set forth above.
Operating profit
, the elements of which are discussed in greater detail below, was
impacted by the following items during the twelve months ended June 30,
2008 and 2007:
Operating expenses
increased $14.6 million, or 3.5%, to $430.1 million, or 43.9% of net
sales, in fiscal 2008 from $415.5 million, or 41.3% of net sales, in fiscal
2007. This increase was primarily attributable to increased costs associated
with (i) occupancy, managerial salaries and benefits, and designer
compensation largely because of our continued efforts to be located in more
prominent locations and to upgrade our ability to provide professional service
during the year, as well as (ii) the impact of higher fuel costs on
warehousing and delivery. Partially
29
Table of
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offsetting these increases were (i) decreases in workers
compensation insurance and health insurance and compensation costs as a result
of improved claim experience, and (ii) a period-over-period reduction in
the restructuring and impairment charges mentioned earlier.
Consolidated operating income
for the year ended June 30, 2008 totaled $96.0 million, or 9.8%
of net sales, compared to $111.1 million, or 11.1% of net sales, in the prior
year. The decrease of $15.1 million was
primarily attributable to higher period-over-period operating expenses
discussed above, partially offset by (i) a reduction in restructuring and
impairment charges and (ii) a small decline in gross profit, all of which
were discussed previously.
W
holesale operating income
for fiscal 2008 totaled $100.3 million, or 16.3% of net sales, as
compared to $99.2 million, or 15.1% of net sales, in the prior year. The
improvement of $1.1 million was primarily attributable to (i) the
reduction in restructuring and impairment charges mentioned above, and (ii) improved
performance within our remaining product sourcing operations, including a
reduction in overhead as a result of past plant closures. These factors were partially offset by an
overall decrease in wholesale shipments during the year.
Retail operating income
decreased $18.0 million to a $2.8 million loss, or 0.4% of sales, for
fiscal 2008, from $15.2 million, or 2.2% of sales, for fiscal 2007. The
decrease in retail operating income generated by Ethan Allen-operated design
centers was primarily attributable to higher operating expenses as a result of
our continued efforts to reposition the retail network including the $6.8
million restructuring and impairment charges recorded in the year. These unfavorable variances were partially
offset by higher gross profit on the higher sales recorded during the year.
Interest and other miscellaneous income, net
totaled $7.9 million in fiscal 2008 as compared to $10.4 million in
fiscal 2007. The $2.5 million decrease was mostly due to decreased investment
income resulting from lower cash and short term investment balances maintained
during the current period coupled with lower rates of interest.
Interest and other related financing costs
remained largely unchanged at $11.7 million from $11.8 million in the
prior year. This amount mostly consists of interest expense on our senior
unsecured debt issued in September 2005.
Income tax expense
totaled $34.1 million for fiscal 2008 as compared to $40.5 million for
fiscal 2007. Our effective tax rate for
the current year was 37.0%, compared to 36.9% in the prior year.
The effective tax rate was a result,
primarily, of the adverse effects of recently-enacted changes within certain
state tax legislation, increased state income tax liability arising in
connection with the operation of a greater number of Company-operated design
centers, and increased foreign income tax liability associated with our five
retail design centers operating in Canada and our manufacturing operation in
Mexico. Partially offsetting these items
were the benefits derived from the manufacturers’ deduction provided for under
The Jobs Creation Act of 2004 and certain tax planning initiatives.
Net income
for fiscal 2008 was of $58.1 million as compared to $69.2 million in
fiscal 2007. Net income per diluted
share totaled $1.97 in the current year and $2.15 per diluted share in the
prior year.
Liquidity and Capital Resources
As of June 30, 2009, we held cash and cash equivalents totaling
$53.0 million. Our principal sources of
liquidity include cash and cash equivalents, cash flow from operations, and
borrowing capacity under revolving credit facility.
During fiscal 2009, the Company terminated its unsecured $200 million
revolving credit facility which had never been used for other than support of
outstanding letters of credit. On May 29, 2009, we entered into a
three-year secured $40 million asset-based revolving credit facility (the “Facility”)
with fewer covenant restrictions which
30
Table of
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the Company believes to be more appropriate in the current credit
environment. The Facility is subject to borrowing base availability and
includes an opportunity for expansion of up to an additional $20 million of
financing.
At the Company’s option, revolving loans under the Agreement bear
interest at an annual rate of either:
(a)
London Interbank Offered rate (“LIBOR”) plus 3.25% to 4.25%, based on
the average availability, or
(b)
the higher of (i) a prime rate, (ii) the federal funds
effective rate plus 0.50%, or (iii) a LIBOR plus 1.00% plus, in each case,
an additional 2.25% to 3.25%, based on average availability.
The Company will pay a commitment fee of 0.50% per annum on the unused
portion of the Facility and participation fees on issued letters of credit at
an annual rate of 1.625% to 4.25%, based on the average availability and the
letter of credit type, and a fronting fee of 0.125% per annum.
The borrowing base at any time equals the sum of: up to 90% of eligible
credit card receivables; plus up to 85% of eligible accounts receivable; plus
up to 85% of the net orderly liquidation value of eligible inventory. The
Facility is secured by all property owned, leased or operated by the Company in
the United States excluding any real property owned by the Company and also
excludes any intellectual property owned by the Company unless availability is
less than or equal to $17.5 million.
The Facility contains customary covenants which may limit the Company’s
ability to incur debt; engage in mergers and consolidations; make restricted
payments (including dividends); sell certain assets; and make investments. The
Company may make restricted payments (including dividends) as long as
availability equals or exceeds the greater of (i) 25% of the aggregate
commitment or (ii) $12 million. If
the average monthly availability is less than the greater of (i) 15% of
the aggregate commitment and (ii) $9 million, the Company is also required
to meet a fixed charge coverage ratio financial covenant which may not be less
than 1 to 1 for any period of four consecutive fiscal quarters. The Facility
also contains customary borrowing conditions and events of default, the
occurrence of which would entitle the lenders to accelerate the maturity of any
outstanding borrowings and terminate their commitment to make future loans.
In addition, on September 27, 2005, we completed a private
offering of $200.0 million in ten-year senior unsecured notes due 2015 (the “Senior
Notes”). The Senior Notes were offered by Ethan Allen Global, Inc. (“Global”),
a wholly-owned subsidiary of the Company, and have an annual coupon rate of
5.375%. We have used the net proceeds of
$198.4 million to expand our retail network, invest in our manufacturing and
logistics operations, and for other general corporate purposes.
In June 2009, Moodys Investors Service lowered our corporate and
senior unsecured credit ratings to Ba1 from Baa3, and Standard & Poor’s
(“S&P”) lowered our corporate and senior unsecured credit ratings to BB
from BBB-. Both rating services cited the weak economy and the resultant pressure
on the home furnishings industry as reasons for the downgrade. While the change in our credit rating had no
impact on our existing credit facilities, the S&P downgrade, if not
improved to investment grade by March 2010, the issuer of our private label
credit cards has a right to demand a standby letter of credit of up to $12
million. At June 30, 2009, we had $12.5 million in letters of credit
outstanding, leaving $27.5 million remaining available credit under the
revolver. Any additional letters of credit would reduce the credit available
for borrowings under the revolver.
The Company believes it has sufficient cash and access to credit
(including its ability to expand the $40 million credit facility to up to $60
million) to fund its operations and growth plans.
31
Table of
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A summary of net cash provided by (used in) operating, investing, and
financing activities for each of the last three fiscal years is provided below
(in millions):
|
|
|
Fiscal
Year Ended June 30,
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
Net
income plus depreciation and amortization
|
|
$
|
(27.1
|
)
|
$
|
82.7
|
|
$
|
92.2
|
|
|
Working
capital
|
|
24.8
|
|
(5.5
|
)
|
20.9
|
|
|
Excess
tax benefits from share-based payment arrangements
|
|
—
|
|
(2.1
|
)
|
(5.0
|
)
|
|
Other
(non-cash items, long-term assets and liabilities)
|
|
24.2
|
|
11.0
|
|
11.1
|
|
|
Total
provided by operating activities
|
|
$
|
21.9
|
|
$
|
86.1
|
|
$
|
119.2
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
$
|
(22.5
|
)
|
$
|
(60.0
|
)
|
$
|
(59.0
|
)
|
|
Acquisitions
|
|
(1.4
|
)
|
(7.8
|
)
|
(15.3
|
)
|
|
Asset
sales
|
|
6.4
|
|
6.9
|
|
5.4
|
|
|
Other
|
|
—
|
|
(0.5
|
)
|
0.2
|
|
|
Total
used in investing activities
|
|
$
|
(17.5
|
)
|
$
|
(61.3
|
)
|
$
|
(68.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
Issuances
of common stock
|
|
$
|
—
|
|
$
|
0.5
|
|
$
|
0.5
|
|
|
Purchases
and retirement of company stock
|
|
—
|
|
(75.6
|
)
|
(57.2
|
)
|
|
Payment
of cash dividends
|
|
(23.6
|
)
|
(25.5
|
)
|
(24.8
|
)
|
|
Excess
tax benefits from share-based payment arrangements
|
|
—
|
|
2.1
|
|
5.0
|
|
|
Payment
of deferred financing costs
|
|
(1.4
|
)
|
—
|
|
(0.1
|
)
|
|
Total
provided by (used in) financing activities
|
|
$
|
(25.0
|
)
|
$
|
(98.5
|
)
|
$
|
(76.6
|
)
|
Operating Activities
During fiscal 2009, cash provided by operating activities decreased
$64.2 million, mostly because of the decrease in net income. While expenses
were reduced and restructuring actions were taken to counteract these
conditions, cash savings in the current year were not enough to offset reduced
income. Cash generated from working
capital (accounts receivable, inventories, prepaid and other current assets,
customer deposits, payables, accrued expenses, and other current liabilities)
reduction, increased cash by $30.3 million largely from inventory reduction
initiatives taken. The $13.2 million change from other operating activities was
largely driven by the non-cash restructuring and goodwill impairment charges
net of tax effects recorded this fiscal year.
Investing Activities
In fiscal 2009, cash used in investing activities was lower by $43.8
million due, primarily, to a $37.5 million decrease in cash utilized to fund
capital expenditures. The level of
acquisitions decreased $6.4 million in fiscal 2009 as compared to fiscal
2008. The current level of capital
spending is principally attributable to (i) continued design center
development and renovation, but at a reduced level from the prior two years,
and (ii) entity-wide technology initiatives including the new interactive
website. We anticipate that cash from
operations will be sufficient to fund future capital expenditures, business
conditions permitting.
Financing Activities
For fiscal 2009, cash used in financing activities decreased $73.5
million as a result, primarily, of a curtailment in payments for the
acquisition of treasury stock. On July 21,
2009, we declared a dividend of $0.05 per common share, payable on October 26,
2009, to shareholders of record as of October 9, 2009. We expect to continue to declare quarterly
dividends for the foreseeable future.
32
Table of
Contents
As of June 30, 2009, our outstanding debt totaled $203.1 million,
the current and long-term portions of which amounted to less than $0.1 million
and $203.1 million, respectively. The
aggregate scheduled maturities of long-term debt for each of the next five
fiscal years are: less than $0.1 million in fiscal 2010; $3.9 million in fiscal
2011; and less than $0.1 million in fiscal 2012, 2013 and 2014. The balance of our long-term debt ($199.2
million) matures in fiscal 2015. We had
no revolving loans outstanding under the credit facility as of June 30,
2009, and stand-by letters of credit outstanding under the facility at that
date totaled $12.5 million. Remaining
available borrowing capacity under the facility was $27.5 million at June 30,
2009.
The following table summarizes, as of June 30, 2009, the timing of
cash payments related to our outstanding contractual obligations (in
thousands):
|
|
|
Total
|
|
Less
than 1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
More
than 5
Years
|
|
|
Long-term debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt maturities
|
|
$
|
203,148
|
|
$
|
42
|
|
$
|
3,917
|
|
$
|
22
|
|
$
|
199,167
|
|
|
Contractual interest
|
|
70,519
|
|
11,048
|
|
21,802
|
|
21,511
|
|
16,158
|
|
|
Operating lease obligations
|
|
234,518
|
|
36,863
|
|
59,636
|
|
41,068
|
|
96,951
|
|
|
Letters of credit
|
|
12,460
|
|
12,460
|
|
—
|
|
—
|
|
—
|
|
|
Purchase obligations (1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Other long-term liabilities
|
|
249
|
|
30
|
|
51
|
|
48
|
|
120
|
|
|
Total contractual obligations
|
|
$
|
520,894
|
|
$
|
60,443
|
|
$
|
85,406
|
|
$
|
62,649
|
|
$
|
312,396
|
|
(1) For purposes of
this table, purchase obligations are defined as agreements that are enforceable
and legally binding and that specify all significant terms, including: fixed or
minimum quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction. While we are not a
party to any significant long-term supply contracts or purchase commitments, we
do, in the normal course of business, regularly initiate purchase orders for
the procurement of (i) selected finished goods sourced from third-party
suppliers, (ii) lumber, fabric, leather and other raw materials used in
production, and (iii) certain outsourced services. All purchase orders are based on current
needs and are fulfilled by suppliers within short time periods. At June 30,
2009, our open purchase orders with respect to such goods and services totaled
approximately $22 million.
Further discussion of our
contractual obligations associated with outstanding debt and lease arrangements
can be found in Notes 7 and 8, respectively, to the Consolidated Financial
Statements
included under Item 8 of this Annual Report.
We believe that
our cash flow from operations, together with our other available sources of
liquidity, will be adequate to make all required payments of principal and
interest on our debt, to permit anticipated capital expenditures, and to fund
working capital and other cash requirements.
As of June 30, 2009, we had working capital of $139.2 million and a
current ratio of 2.24 to 1.
In addition to using available cash to fund changes in working capital,
necessary capital expenditures, acquisition activity, the repayment of debt,
and the payment of dividends, we have been authorized by our Board of Directors
to repurchase our common stock, from time to time, either directly or through
agents, in the open market at prices and on terms satisfactory to us. All of
our common stock repurchases and retirements are recorded as treasury stock and
result in a reduction of shareholders’ equity.
During fiscal 2009, 2008 and 2007, we repurchased and/or retired the
following shares of our common stock:
|
|
|
2009
|
|
2008
(1)
|
|
2007(2)(3)
|
|
|
Common shares
repurchased
|
|
—
|
|
2,259,631
|
|
1,548,700
|
|
|
Cost to repurchase
common shares
|
|
—
|
|
$
|
69,745,024
|
|
$
|
53,955,970
|
|
|
Average price per share
|
|
—
|
|
$
|
30.87
|
|
$
|
34.84
|
|
33
Table
of Contents
(1)
During fiscal 2008, we also retired 661,688 shares of common stock tendered
upon the exercise of outstanding employee stock options (592,861 to cover share
exercise and 68,827 to cover related employee tax withholding
liabilities). The value of such shares
on the date redeemed was $23,033,359, representing an average price per share
of $34.81.
(2)
The cost to repurchase shares in fiscal 2008 reflects $3,436,230 in
common stock repurchases with a June 2007 trade date and a July 2007
settlement date.
(3)
During fiscal 2008, we also retired 555,531 shares of common stock
tendered upon the exercise of outstanding employee stock options (410,073 to
cover share exercise and 145,458 to cover related employee tax withholding
liabilities). The value of such shares
on the date redeemed was $21,506,193, representing an average price per share
of $38.71.
For each of the
fiscal years presented above, we funded our purchases of treasury stock with
existing cash on hand and cash generated through current period operations.
During the last three fiscal years, the Board of Directors increased the then
remaining share repurchase authorization as follows: to 2.5 million shares on November 15,
2005; to 2.5 million shares on July 25, 2006; to 2.5 million shares on July 24,
2007 and to 2.0 million shares on November 13, 2007. As of June 30, 2009, we had a remaining
Board authorization to repurchase 1.6 million shares.
Off-Balance
Sheet Arrangements and Other Commitments, Contingencies and Contractual
Obligations
Except as indicated
below, we do not utilize or employ any off-balance sheet arrangements,
including special-purpose entities, in operating our business. As such, we do not maintain any (i) retained
or contingent interests, (ii) derivative instruments, or (iii) variable
interests which could serve as a source of potential risk to our future
liquidity, capital resources and results of operations.
We may, from time to time
in the ordinary course of business, provide guarantees on behalf of selected
affiliated entities or become contractually obligated to perform in accordance
with the terms and conditions of certain business agreements. The nature and
extent of these guarantees and obligations may vary based on our underlying
relationship with the benefiting party and the business purpose for which the
guarantee or obligation is being provided. Details of those arrangements for
which we act as guarantor or obligor are provided below.
Retailer-Related
Guarantees
Independent
Retailer Credit Facility
On June 11, 2009, we
obligated ourselves, on behalf of one of our independent retailers, with
respect to a $0.5 million credit facility (the
“Amended Credit
Facility”
). The Company had previously guaranteed on April 9,
2009, on behalf of the independent retailer, a $0.9 million credit facility
(the “Credit Facility”). This obligation
requires us, in the event of the retailer’s default under the Amended Credit
Facility, to repurchase the retailer’s inventory, applying such purchase price
to the retailer’s outstanding indebtedness under the Amended Credit Facility.
Our obligation remains in effect for the life of the term loan. The agreement expires in April 2011. The maximum potential amount of future
payments (undiscounted) that we could be required to make under this obligation
is limited to the amount outstanding under the Credit Facility at the time of
default (subject to pre-determined lending limits based on the value of the
underlying inventory) and, as such, is not an estimate of future cash
flows. No specific recourse or
collateral provisions exist that would enable recovery of any portion of
amounts paid under this obligation, except to the extent that we maintain the
right to take title to the repurchased inventory. We anticipate that the
repurchased inventory could subsequently be sold through our retail design
center network.
As of
June 30, 2009
, the amount outstanding under
the Amended Credit Facility totaled approximately $0.5 million. Based on the underlying creditworthiness of
the respective retailer, we believe this obligation will expire without requiring
funding by us. However, in accordance with the provisions of FASB
Interpretation No. 45,
Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others
, a liability has been established to reflect
our non-contingent obligation under this arrangement as a result of
modifications made to the Credit Facility subsequent to January 1,
2003. As of
June 30,
2009
, the carrying amount of such liability is less than
$50,000.
34
Table of Contents
Ethan Allen Consumer Credit
Program
The terms and conditions of our consumer credit program, which is
financed and administered by a third-party financial institution on a
non-recourse basis to Ethan Allen, are set forth in an agreement between us and
that financial service provider (the “Program Agreement”). Any independent
retailer choosing to participate in the consumer credit program is required to
enter into a separate agreement with that same third-party financial
institution which sets forth the terms and conditions under which the retailer
is to perform in connection with its offering of consumer credit to its
customers (the “Retailer Agreement”). We have obligated ourselves on behalf of
any independent retailer choosing to participate in our consumer credit program
by agreeing, in the event of default, breach, or failure of the independent
retailer to perform under such Retailer Agreement, to take on certain responsibilities
of the independent retailer, including, but not limited to, delivery of goods
and reimbursement of customer deposits. Customer receivables originated by
independent retailers remain non-recourse to Ethan Allen. Our obligation
remains in effect for the term of the Program Agreement which expires in July 2012.
While the maximum potential amount of future payments (undiscounted) that we
could be required to make under this obligation is indeterminable, recourse
provisions exist that would enable us to recover, from the independent
retailer, any amount paid or incurred by us related to our performance. Based
on the underlying creditworthiness of our independent retailers, including
their historical ability to satisfactorily perform in connection with the terms
of our consumer credit program, we believe this obligation will expire without
requiring funding by us.
To ensure funding for delivery of products sold,
the terms of this agreement also contain a right for the credit card issuer to
demand from the Company a letter of credit of up to $12 million if the Company’s
credit rating is below investment grade for more than 270 consecutive days. See
the
Liquidity and Capital Resource
section above for more information.
Product Warranties
Our products, including
our case goods, upholstery and home accents, generally carry explicit product
warranties that extend from three to five years and are provided based on terms
that are generally accepted in the industry.
All of our domestic independent retailers are required to enter into,
and perform in accordance with the terms and conditions of, a warranty service
agreement. We record provisions for estimated warranty and other related costs
at time of sale based on historical warranty loss experience and make periodic
adjustments to those provisions to reflect actual experience. On rare occasion,
certain warranty and other related claims involve matters of dispute that
ultimately are resolved by negotiation, arbitration or litigation. In certain cases, a material warranty issue
may arise which is beyond the scope of our historical experience. We provide
for such warranty issues as they become known and are deemed to be both
probable and estimable. It is reasonably possible that, from time to time,
additional warranty and other related claims could arise from disputes or other
matters beyond the scope of our historical experience. As of June 30,
2009, the Company’s product warranty liability totaled $1.0 million.
Impact of Inflation
We believe inflation had an
impact on our business the last three fiscal years but we have generally been
able to increase prices, create operational efficiencies, or seek lower cost
alternatives in order to offset increases in operating costs and effectively
manage our working capital.
Business Outlook
While we cannot
forecast, with any degree of certainty, changes in the various macro-economic
factors that influence the incoming order rate, we believe that we are
well-positioned both for the possibility of continued market weakness and the
next phase of economic growth based upon our existing business model which
includes: (i) an established brand; (ii) a comprehensive complement
of home decorating solutions; and (iii) a vertically-integrated operating
structure.
35
Table of Contents
As macro-economic
factors change, however, it is also possible that our costs associated with
production (including raw materials and labor), distribution (including freight
and fuel charges), and retail operations (including compensation and benefits,
delivery and warehousing, occupancy, and advertising expenses) may
increase. We cannot reasonably predict
when, or to what extent, such events may occur or what effect, if any, such
events may have on our consolidated financial condition or results of
operations.
The home
furnishings industry remains extremely competitive with respect to both the
sourcing of products and the retail sale of those products. Domestic manufacturers
continue to face pricing pressures as a result of the manufacturing
capabilities developed during recent years in other countries, specifically
within Asia. In response to these pressures, a large number of U.S. furniture
manufacturers and retailers, including us, have increased their overseas
sourcing activities in an attempt to maintain a competitive advantage and
retain market share. At the present time, we domestically manufacture and/or
assemble approximately 65% of our products. We continue to believe that a
balanced approach to product sourcing, which includes the domestic manufacture
of certain product offerings coupled with the import of other selected
products, provides the greatest degree of flexibility and is the most effective
approach to ensuring that acceptable levels of quality, service and value are
attained.
In addition, we
believe that our retail strategy, which involves (i) a continued focus on
providing a wide array of product solutions and superior customer service, (ii) the
opening of new or relocated design centers in more prominent locations, while
encouraging independent retailers to do the same, (iii) the implementation
of design teams within our retail network, and (iv) further expansion
internationally, provides an opportunity to further grow our business.
Further discussion of the
home furnishings industry has been included under
Item 1 of this
Annual Report.
Recent
Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141
(revised 2007),
Business Combinations
(SFAS No. 141(R)),
which replaces SFAS No. 141. SFAS No. 141(R) establishes
principles and requirements for how an acquirer in a business combination
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any controlling interest; recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase; and determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) is to be applied prospectively
to business combinations for which the acquisition date is on or after an
entity’s fiscal year that begins after December 15, 2008 (July 1,
2009 for the Company). The impact of this Statement on the Company’s financial
position, results of operations and cash flows will be dependent on the terms,
conditions and details of such acquisitions.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities
, which allows the Company
to choose to measure selected financial assets and financial liabilities at
fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. We adopted SFAS No. 159 on July 1,
2008 and have not elected the permitted fair value measurement provisions of
this statement.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(“SFAS No. 157”),
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements, yet does not require any new fair value measurements.
In February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP
No. 157-2”), which delayed the effective date of SFAS No. 157 as it
relates to non-financial assets and non-financial liabilities until July 1,
2009 for the Company, except for items that are recognized or disclosed at fair
value by the Company on a recurring basis. Effective July 1, 2008,
the Company adopted the provisions of SFAS No. 157, except as it relates
to those non-financial assets and non-financial liabilities excluded under FSP No. 157-2.
Those excluded items for which the
36
Table of Contents
Company has not applied the fair value provisions of
SFAS No. 157 include goodwill and other intangible assets (note 6), assets
held for sale (note 2), liabilities for exit or disposal activities (note 2),
and business acquisitions (note 3). The Company is currently evaluating
the impact of this statement on the Company’s financial position, results of
operations and cash flows as it relates to non-financial assets and
non-financial liabilities. This pronouncement became effective for us on July 1,
2008. See note 18 for more information.
In June 2008, the
FASB issued FASB Staff Position No. EITF 03-6-1,
Determining
Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities
, which requires that unvested share-based
payment awards containing non-forfeited rights to dividends be included in the
computation of earnings per common share.
The adoption of FSB EITF 03-6-1 is effective for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal years (July 1,
2009 for the Company). Retrospective
application is required. We are evaluating
this pronouncement but do not expect it to impact basic or diluted earnings per
share.
Item
7A. Quantitative and Qualitative
Disclosures About Market
Risk
We
are exposed to market risks relating to fluctuations in interest rates and
foreign currency exchange rates.
Interest
rate risk exists primarily through our borrowing activities. Our policy has
been to utilize United States dollar denominated borrowings to fund our working
capital and investment needs. Short-term debt, if required, is used to meet
working capital requirements and long-term debt is generally used to finance
long-term investments. There is inherent rollover risk for borrowings as they
mature and are renewed at current market rates. The extent of this risk is not
quantifiable or predictable because of the variability of future interest rates
and our future financing requirements.
For
floating-rate obligations, interest rate changes do not affect the fair value
of the underlying financial instrument but do impact future earnings and cash
flows, assuming other factors are held constant. Conversely, for fixed-rate
obligations, interest rate changes affect the fair value of the underlying
financial instrument but do not impact earnings or cash flows. At June 30,
2009, we had no floating-rate debt obligations outstanding. As of that same date, our fixed-rate debt
obligations consist, primarily, of the Senior Notes issued on September 27,
2005. The estimated fair value of the Senior Notes as of June 30, 2009,
which is based on changes, if any, in interest rates and our creditworthiness
subsequent to the date on which the debt was issued, and which has been
determined using quoted market prices, was $
146
million as compared to a carrying
value of $199 million.
Foreign
currency exchange risk is primarily limited to our operation of five Ethan
Allen-operated retail design centers located in Canada as substantially all
purchases of imported parts and finished goods are denominated in United States
dollars. As such, gains or losses
resulting from market changes in the value of foreign currencies have not had,
nor are they expected to have, a material effect on our consolidated results of
operations.
Historically,
we have not entered into financial instrument, including derivative,
transactions for trading or other speculative purposes or to manage interest
rate or currency exposure. However, in connection with the issuance of the
Senior Notes, Global, in July and August 2005, entered into 6
separate forward contracts to hedge the risk-free interest rate associated with
$108.0 million of the related debt in order to minimize the negative impact of
interest rate fluctuations on earnings, cash flows and equity. The forward
contracts were entered into with a major banking institution thereby mitigating
the risk of credit loss. Upon issuance of the Senior Notes in September 2005,
the related forward contracts were settled. At the present time, we have no
current plans to engage in further hedging activities.
Item
8. Financial Statements
and
Supplementary Data
Our Consolidated
Financial Statements and Supplementary Data are listed under Item 15 of this
Annual Report.
37
Table of Contents
Report of Independent
Registered Public Accounting Firm
The
Board of Directors and Shareholders
Ethan
Allen Interiors Inc.:
We have
audited the accompanying consolidated balance sheets of Ethan Allen Interiors
Inc. and subsidiaries (the “Company”) as of June 30, 2009 and 2008, and
the related consolidated statements of operations, shareholders’ equity, and
cash flows for each of the years in the three-year period ended June 30,
2009. We also have audited the Company’s internal control over financial
reporting as of June 30, 2009, based on the criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on these consolidated financial
statements and an opinion on the Company’s internal control over financial
reporting based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ethan Allen
Interiors Inc. and subsidiaries as of June 30, 2009 and 2008, and the
results of its operations and their cash flows for each of the years in the
three-year period ended June 30, 2009, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, Ethan Allen Interiors, Inc.
and
38
Table
of Contents
subsidiaries
maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2009, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
As
discussed in Notes 1 and 12 to the consolidated financial statements, effective
July 1, 2007, the Company adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109.
/s/ KPMG LLP
Stamford, Connecticut
August 24, 2009
39
Table of Contents
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2009 and 2008
(In thousands, except share data)
|
|
|
2009
|
|
2008
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,960
|
|
$
|
74,376
|
|
|
Accounts receivable, less allowance for doubtful
accounts of $1,362 at June 30, 2009 and $2,535 at June 30, 2008
|
|
13,086
|
|
12,672
|
|
|
Inventories (note 4)
|
|
156,519
|
|
186,265
|
|
|
Prepaid expenses and other current assets
|
|
21,060
|
|
32,860
|
|
|
Deferred income taxes (note 12)
|
|
8,077
|
|
6,125
|
|
|
Total current assets
|
|
251,702
|
|
312,298
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net (note 5)
|
|
333,599
|
|
350,432
|
|
|
Goodwill and other intangible assets (notes 3 and 6)
|
|
45,128
|
|
96,823
|
|
|
Other assets
|
|
16,056
|
|
4,540
|
|
|
Total assets
|
|
$
|
646,485
|
|
$
|
764,093
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Current maturities of long-term debt (note 7)
|
|
$
|
42
|
|
$
|
41
|
|
|
Customer deposits
|
|
31,691
|
|
47,297
|
|
|
Accounts payable
|
|
22,199
|
|
26,444
|
|
|
Accrued compensation and benefits
|
|
29,533
|
|
32,568
|
|
|
Accrued expenses and other current liabilities
|
|
28,998
|
|
29,152
|
|
|
Total current liabilities
|
|
112,463
|
|
135,502
|
|
|
|
|
|
|
|
|
|
Long-term debt (note 7)
|
|
203,106
|
|
202,988
|
|
|
Other long-term liabilities
|
|
24,993
|
|
27,924
|
|
|
Deferred income taxes (note 12)
|
|
—
|
|
21,906
|
|
|
Total liabilities
|
|
340,562
|
|
388,320
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity (notes 9, 10, 11 and 15):
|
|
|
|
|
|
|
Class A common stock, par value $.01,
150,000,000 shares authorized, 48,334,870 shares issued at June 30, 2009
and 48,251,780 shares issued at June 30, 2008
|
|
483
|
|
482
|
|
|
Class B common stock, par value $.01, 600,000
shares authorized; no shares issued and outstanding at June 30, 2009 and
June 30, 2008
|
|
—
|
|
—
|
|
|
Preferred stock, par value $.01, 1,055,000 shares authorized,
no shares issued and outstanding at June 30, 2009 and 2008
|
|
—
|
|
—
|
|
|
Additional paid-in capital
|
|
356,446
|
|
354,725
|
|
|
|
|
356,929
|
|
355,207
|
|
|
Less: Treasury stock (at cost), 19,380,941 shares at
June 30, 2009 and 19,656,901 shares at June 30, 2008
|
|
(583,220
|
)
|
(588,783
|
)
|
|
Retained earnings
|
|
531,747
|
|
606,648
|
|
|
Accumulated other comprehensive income
|
|
467
|
|
2,701
|
|
|
Total shareholders’ equity
|
|
305,923
|
|
375,773
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
646,485
|
|
$
|
764,093
|
|
See accompanying notes to consolidated financial statements.
40
Table of Contents
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For Years Ended June 30, 2009, 2008 and 2007
(In thousands, except per share data)
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
674,277
|
|
$
|
980,045
|
|
$
|
1,005,312
|
|
|
Cost of sales
|
|
326,935
|
|
453,980
|
|
478,729
|
|
|
Gross profit
|
|
347,342
|
|
526,065
|
|
526,583
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling
|
|
182,800
|
|
229,590
|
|
223,146
|
|
|
General and administrative
|
|
170,312
|
|
193,639
|
|
178,876
|
|
|
Goodwill impairment (note 6)
|
|
48,400
|
|
—
|
|
—
|
|
|
Restructuring and impairment charge (note 2)
|
|
18,601
|
|
6,836
|
|
13,442
|
|
|
Total operating expenses
|
|
420,113
|
|
430,065
|
|
415,464
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
(72,771
|
)
|
96,000
|
|
111,119
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other miscellaneous income, net
|
|
3,355
|
|
7,891
|
|
10,369
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other related financing costs (note 7)
|
|
11,764
|
|
11,713
|
|
11,762
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
(81,180
|
)
|
92,178
|
|
109,726
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) (note 12)
|
|
(28,493
|
)
|
34,106
|
|
40,499
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(52,687
|
)
|
$
|
58,072
|
|
$
|
69,227
|
|
|
|
|
|
|
|
|
|
|
|
Per share data (notes 10 and 17):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per basic share
|
|
$
|
(1.83
|
)
|
$
|
1.98
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
|
28,814
|
|
29,267
|
|
31,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted share
|
|
$
|
(1.83
|
)
|
$
|
1.97
|
|
$
|
2.15
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares
|
|
28,814
|
|
29,470
|
|
32,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.65
|
|
$
|
0.88
|
|
$
|
0.80
|
|
See accompanying notes to consolidated financial statements.
41
Table of Contents
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years Ended June 30, 2009, 2008 and 2007
(In
thousands)
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(52,687
|
)
|
$
|
58,072
|
|
$
|
69,227
|
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
25,635
|
|
24,670
|
|
23,013
|
|
|
Compensation expense related to share-based awards
|
|
1,719
|
|
1,260
|
|
821
|
|
|
Provision (benefit) for deferred income taxes
|
|
(32,158
|
)
|
(2,364
|
)
|
200
|
|
|
Excess tax benefits from shared-based awards
|
|
—
|
|
(2,093
|
)
|
(5,015
|
)
|
|
Goodwill impairment
|
|
48,400
|
|
—
|
|
—
|
|
|
Restructuring and impairment charge
|
|
7,038
|
|
1,762
|
|
9,439
|
|
|
(Gain) loss on disposal of property, plant and
equipment
|
|
1,001
|
|
110
|
|
(391
|
)
|
|
Other
|
|
198
|
|
221
|
|
500
|
|
|
Changes in operating assets and liabilities, net of
effects of acquired businesses:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(776
|
)
|
618
|
|
6,677
|
|
|
Inventories
|
|
31,428
|
|
(91
|
)
|
14,531
|
|
|
Prepaid and other current assets
|
|
10,627
|
|
3,626
|
|
220
|
|
|
Other assets
|
|
1,354
|
|
660
|
|
657
|
|
|
Customer deposits
|
|
(16,266
|
)
|
(9,086
|
)
|
(4,201
|
)
|
|
Accounts payable
|
|
(3,835
|
)
|
3,230
|
|
(4,334
|
)
|
|
Accrued expenses and other current liabilities
|
|
3,590
|
|
(3,784
|
)
|
7,993
|
|
|
Other liabilities
|
|
(3,335
|
)
|
9,326
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
21,933
|
|
86,137
|
|
119,189
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the disposal of property, plant and
equipment
|
|
6,384
|
|
6,943
|
|
5,431
|
|
|
Capital expenditures
|
|
(22,537
|
)
|
(60,038
|
)
|
(59,073
|
)
|
|
Acquisitions
|
|
(1,366
|
)
|
(7,777
|
)
|
(15,297
|
)
|
|
Other
|
|
(7
|
)
|
(462
|
)
|
198
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(17,526
|
)
|
(61,334
|
)
|
(68,741
|
)
|
|
|
|
|
|
|
|
|
|
|
Financial activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt and capital lease
obligations
|
|
(41
|
)
|
(40
|
)
|
(38
|
)
|
|
Purchases and retirements of company stock
|
|
—
|
|
(75,577
|
)
|
(57,152
|
)
|
|
Proceeds from the issuance of common stock
|
|
2
|
|
474
|
|
521
|
|
|
Excess tax benefits from share-based payment
arrangements
|
|
—
|
|
2,093
|
|
5,015
|
|
|
Payment of deferred financing costs
|
|
(1,380
|
)
|
—
|
|
(107
|
)
|
|
Payment of cash dividends
|
|
(23,617
|
)
|
(25,495
|
)
|
(24,797
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
(25,036
|
)
|
(98,545
|
)
|
(76,558
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
(787
|
)
|
239
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
(21,416
|
)
|
(73,503
|
)
|
(25,922
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents — beginning of year
|
|
74,376
|
|
147,879
|
|
173,801
|
|
|
Cash and cash equivalents — end of year
|
|
$
|
52,960
|
|
$
|
74,376
|
|
$
|
147,879
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
8,237
|
|
$
|
33,618
|
|
$
|
37,561
|
|
|
Interest paid
|
|
$
|
11,098
|
|
$
|
11,132
|
|
$
|
11,173
|
|
See accompanying notes to consolidated
financial statements.
42
Table of Contents
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
For the Years Ended June 30, 2009, 2008 and
2007
(In thousands, except share data
)
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Common
|
|
Paid-in
|
|
Treasury
|
|
Comprehensive
|
|
Retained
|
|
|
|
|
|
|
Stock
|
|
Capital
|
|
Stock
|
|
Income
|
|
Earnings
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2006
|
|
$
|
467
|
|
$
|
307,852
|
|
$
|
(421,308
|
)
|
$
|
935
|
|
$
|
529,496
|
|
$
|
417,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 767,938 common shares upon the exercise
of share-based awards (notes 9 and 11)
|
|
7
|
|
16,388
|
|
—
|
|
—
|
|
—
|
|
16,395
|
|
|
Compensation expense associated with share-based
awards (notes 9 and 11)
|
|
—
|
|
821
|
|
—
|
|
—
|
|
—
|
|
821
|
|
|
Tax benefit associated with exercise of share-based
awards (notes 9, 11 and 12)
|
|
—
|
|
5,015
|
|
—
|
|
—
|
|
—
|
|
5,015
|
|
|
Charge for early vesting of share-based awards
|
|
—
|
|
22
|
|
—
|
|
—
|
|
—
|
|
22
|
|
|
Treasury shares issued in connection with retail
design center acquisition (26,269 shares) (note 3)
|
|
—
|
|
170
|
|
765
|
|
—
|
|
—
|
|
935
|
|
|
Purchase/retirement of 2,104,231 shares of company
stock (note 9)
|
|
—
|
|
—
|
|
(75,462
|
)
|
—
|
|
—
|
|
(75,462
|
)
|
|
Dividends declared on common stock
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(25,188
|
)
|
(25,188
|
)
|
|
Other comprehensive income (loss) (notes 7 and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
—
|
|
—
|
|
—
|
|
387
|
|
—
|
|
387
|
|
|
Loss on derivatives, net-of-tax
|
|
—
|
|
—
|
|
—
|
|
48
|
|
—
|
|
48
|
|
|
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
69,227
|
|
69,227
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
69,662
|
|
|
Balance as of June 30, 2007
|
|
474
|
|
330,268
|
|
(496,005
|
)
|
1,370
|
|
573,535
|
|
409,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 770,337 common shares upon the exercise
of share-based awards (notes 9 and 11)
|
|
8
|
|
21,104
|
|
—
|
|
—
|
|
—
|
|
21,112
|
|
|
Compensation expense associated with share-based
awards (notes 9 and 11)
|
|
—
|
|
1,260
|
|
—
|
|
—
|
|
—
|
|
1,260
|
|
|
Tax benefit associated with exercise of share-based
awards (notes 9, 11 and 12)
|
|
—
|
|
2,093
|
|
—
|
|
—
|
|
—
|
|
2,093
|
|
|
FIN 48 transition adjustment
|
|
—
|
|
—
|
|
—
|
|
—
|
|
683
|
|
683
|
|
|
Purchase/retirement of 2,921,319 shares of company
stock (note 9)
|
|
—
|
|
—
|
|
(92,778
|
)
|
—
|
|
—
|
|
(92,778
|
)
|
|
Dividends declared on common stock
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(25,642
|
)
|
(25,642
|
)
|
|
Other comprehensive income (loss) (notes 7 and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
—
|
|
—
|
|
—
|
|
1,283
|
|
—
|
|
1,283
|
|
|
Loss on derivatives, net-of-tax
|
|
—
|
|
—
|
|
—
|
|
48
|
|
—
|
|
48
|
|
|
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
58,072
|
|
58,072
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
59,403
|
|
|
Balance as of June 30, 2008
|
|
482
|
|
354,725
|
|
(588,783
|
)
|
2,701
|
|
606,648
|
|
375,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 90 common shares upon the exercise of
share-based awards (notes 9 and 11)
|
|
1
|
|
2
|
|
—
|
|
—
|
|
—
|
|
3
|
|
|
Compensation expense associated with share-based
awards (notes 9 and 11)
|
|
—
|
|
1,719
|
|
—
|
|
—
|
|
—
|
|
1,719
|
|
|
Tax benefit associated with exercise of share-based
awards (notes 9, 11 and 12)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Issuance of treasury shares for 401k match
|
|
—
|
|
—
|
|
5,563
|
|
—
|
|
(3,431
|
)
|
2,132
|
|
|
Dividends declared on common stock
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(18,783
|
)
|
(18,783
|
)
|
|
Other comprehensive income (loss) (note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
—
|
|
—
|
|
—
|
|
(2,282
|
)
|
—
|
|
(2,282
|
)
|
|
Loss on derivatives, net-of-tax
|
|
—
|
|
—
|
|
—
|
|
48
|
|
—
|
|
48
|
|
|
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(52,687
|
)
|
(52,687
|
)
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
52,120
|
|
|
Balance at June 30, 2009
|
|
$
|
483
|
|
$
|
356,446
|
|
$
|
(583,220
|
)
|
$
|
467
|
|
$
|
531,747
|
|
$
|
305,923
|
|
See accompanying notes to consolidated financial statements.
43
Table of Contents
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2009, 2008 and 2007
(1) Summary
of Significant Accounting Policies
Basis of
Presentation
Ethan Allen Interiors Inc. (“Interiors”) is a Delaware corporation
incorporated on May 25, 1989. The consolidated financial statements
include the accounts of Interiors, its wholly-owned subsidiary Ethan Allen
Global, Inc. (“Global”), and Global’s subsidiaries (collectively “We,”
“Us,” “Our,” “Ethan Allen” or the “Company”).
All intercompany accounts and transactions have been eliminated in the
consolidated financial statements. All
of Global’s capital stock is owned by Interiors, which has no assets or
operating results other than those associated with its investment in Global.
Nature of Operations
We are a leading manufacturer and retailer of quality home furnishings
and accessories, offering a full complement of home decorating and design
solutions. We sell our products through
one of the country’s largest home furnishing retail networks with a total of
293 retail design centers, of which 159 are Company-operated and 134 are
independently operated. Nearly all of
our Company-operated retail design centers are located in the United States,
with the remaining design centers located in Canada. The majority of the
independently operated design centers are also located in the United States,
with the remaining design centers located throughout Asia, Canada and the
Middle East. We have ten manufacturing
facilities, two of which include separate sawmill operations, located
throughout the United States and one in Mexico.
Use of Estimates
We prepare our
consolidated financial statements in conformity with accounting principles
generally accepted in the United States, which requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Due to the inherent uncertainty
involved in making those estimates, actual results could differ from those
estimates. Areas in which significant estimates have been made include,
but are not limited to, revenue recognition, the allowance for doubtful
accounts receivable, inventory obsolescence, tax valuation allowances, useful
lives for property, plant and equipment and definite lived intangible assets,
goodwill and indefinite lived intangible asset impairment analyses, the
evaluation of uncertain tax positions and the fair value of assets acquired and
liabilities assumed in business combinations.
Reclassifications
Certain prior year amounts have been reclassified in order to conform
to the current year’s presentation. These changes were made for disclosure
purposes only and did not have any impact on previously reported results of
operations or shareholders’ equity.
Cash Equivalents
Cash and short-term, highly-liquid investments with original maturities
of three months or less are considered cash and cash equivalents. We invest
excess cash in money market accounts, short-term commercial paper, and U.S.
Treasury Bills.
44
Table of Contents
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Cost is determined based solely
on those charges incurred in the acquisition and production of the related
inventory (i.e. material, labor and manufacturing overhead costs).
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization.
Depreciation of plant and equipment is provided over the estimated
useful lives of the respective assets on a straight-line basis. Estimated useful
lives of the respective assets typically range from twenty to forty years for
buildings and improvements and from three to twenty years for machinery and
equipment. Leasehold improvements are amortized based on the underlying lease
term, or the asset’s estimated useful life, whichever is shorter.
Operating Leases
We account for our operating leases in accordance with the provisions
of Statement of Financial Accounting Standards (“SFAS”) No. 13,
Accounting for Leases
, which require minimum lease payments
be recognized on a straight-line basis, beginning on the date that the lessee
takes possession or control of the property. A number of our operating lease
agreements contain provisions for tenant improvement allowances, rent holidays,
rent concessions, and/or rent escalations.
Incentive payments received from landlords are recorded as deferred
lease incentives and are amortized over the underlying lease term on a
straight-line basis as a reduction of rent expense. When the terms of an
operating lease provide for periods of free rent, rent concessions, and/or rent
escalations, we establish a deferred rent liability for the difference between
the scheduled rent payment and the straight-line rent expense recognized. This
deferred rent liability is also amortized over the underlying lease term on a
straight-line basis as a reduction of rent expense.
Retail Design Center Acquisitions
We account for the acquisition of retail design centers and related
assets in accordance with SFAS No. 141,
Business
Combinations
, which requires application of the purchase method for
all business combinations initiated after June 30, 2001. Accounting for these transactions as purchase
business combinations requires the allocation of purchase price paid to the
assets acquired and liabilities assumed based on their fair values as of the
date of the acquisition. The amount paid
in excess of the fair value of net assets acquired is accounted for as
goodwill.
Goodwill and Other Intangible Assets
Our intangible assets are accounted for in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets
,
and are comprised, primarily, of goodwill, which represents the excess of cost
over the fair value of net assets acquired, and trademarks. In re-assessing the
useful lives of our goodwill and other intangible assets upon adoption of SFAS No. 142,
we determined these assets to have indefinite useful lives. Accordingly,
amortization of these assets ceased on that date. Prior to the adoption date (July 1,
2001), these assets were amortized on a straight-line basis over forty
years. We conduct an annual impairment
analysis the first of April each fiscal year, unless events occur or
circumstances change that would more likely than not reduce the fair value of
the goodwill or other intangible asset below its carrying value. See note 6 for
additional information.
Financial Instruments
Due to their short-term nature, the carrying value of our cash and cash
equivalents, receivables and payables, short-term debt and customer deposit
liabilities approximates fair value. The
estimated fair value of our long-term debt,
which
is based on changes, if any, in interest rates and our creditworthiness
subsequent to the date on
45
Table of
Contents
which the debt was issued, and which has been
determined using quoted market prices, totaled $146.0 million at June 30,
2009 and $182.1
million and at June 30, 2008, as compared to a carrying value on
those dates of $199.0 million and $198.8 million, respectively. See Note 7 for a discussion of the change in July 2007
of our credit rating.
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax
credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Effective July 1, 2007, we adopted Financial Accounting Standards
Board (“FASB”) Interpretation No. (“FIN”) 48,
Accounting
for Uncertainty in Income Taxes
, an interpretation of FASB Statement
No. 109, Accounting for Income Taxes, which provides a comprehensive model
for the recognition, measurement, presentation, and disclosure in a company’s
financial statements of uncertain tax positions taken, or expected to be taken,
on a tax return. If an income tax position exceeds a 50% probability of success
upon tax audit, based solely on the technical merits of the position, the
company recognizes an income tax benefit in its financial statements. The tax
benefits recognized are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate settlement.
The liability associated with an unrecognized tax benefit is classified
as a long-term liability except for the amount for which a cash payment is
expected to be made or tax positions settled within one year. We recognize
interest and penalties related to income tax matters as a component of income
tax expense.
Revenue Recognition
Revenue is recognized when all of the following have occurred:
persuasive evidence of a sales arrangement exists (e.g. a wholesale purchase
order or retail sales invoice); the sales arrangement specifies a fixed or
determinable sales price; product is shipped or services are provided to the customer;
and collectibility is reasonably assured.
As such, revenue recognition occurs upon the shipment of goods to
independent retailers or, in the case of Ethan Allen-operated retail design
centers, upon delivery to the customer.
Shipping and Handling Costs
Our policy is to sell our products at the same delivered cost to all
retailers nationwide, regardless of shipping point. Costs incurred to deliver
finished goods to the consumer are expensed and recorded in selling, general
and administrative expenses. Shipping and handling costs amounted to $68.2
million, $87.4 million, and $87.6 million for fiscal years 2009, 2008, and
2007, respectively.
Advertising Costs
Advertising costs
are expensed when first aired or distributed. Our total advertising costs
incurred in fiscal years 2009, 2008 and 2007, amounted to $25.1 million, $39.4
million, and $35.9 million, respectively. These amounts are presented net of
proceeds received by us under our agreement with the third-party financial
institution responsible for administering our consumer finance programs. Prepaid advertising costs at June 30,
2009 and 2008 totaled $0.9 million and $1.6 million, respectively.
46
Table of Contents
Earnings Per Share
We compute basic
earnings per share by dividing net income by the weighted average number of
common shares outstanding during the period.
Diluted earnings per share is calculated similarly, except that the
weighted average outstanding shares are adjusted to include the effects of
converting all potentially dilutive share-based awards issued under our
employee stock plans (see Notes 10 and 11).
Share-Based
Compensation
Effective July 1,
2005, share-based awards are accounted for in accordance with the recognition
and measurement provisions of SFAS No. 123 (revised 2004),
Share-Based Payment
(“SFAS No. 123(R)”), which replaced
SFAS No. 123,
Accounting for Stock-Based
Compensation
, and superseded Accounting Principles Board Opinion
(“APB”) No. 25,
Accounting for Stock
Issued to Employees
, and related interpretations. SFAS No. 123(R) requires
compensation costs related to share-based payment transactions, including
employee stock options, to be recognized in the financial statements.
In adopting SFAS No. 123(R) on
July 1, 2005, we applied the modified prospective approach to transition.
Under the modified prospective approach, the provisions of SFAS No. 123(R) are
to be applied to new awards and to awards modified, repurchased, or cancelled
after the required effective date. Additionally, compensation cost for the
portion of awards for which the requisite service has not been rendered that
are outstanding as of the required effective date is recognized as the
requisite service is rendered on or after the required effective date. The
compensation cost for that portion of awards is based on the grant-date fair
value of those awards as calculated for either recognition or pro-forma
disclosures under SFAS No. 123.
We estimate, as of
the date of grant, the fair value of stock options awarded using the
Black-Scholes option-pricing model. Use of a valuation model requires
management to make certain assumptions with respect to selected model inputs,
including anticipated changes in the underlying stock price (i.e. expected
volatility) and option exercise activity (i.e. expected life). Expected
volatility is based on the historical volatility of our stock and other
contributing factors. The expected life
of options granted, which represents the period of time that the options are
expected to be outstanding, is based, primarily, on historical data.
Share-based
compensation expense is included in the Consolidated Statements of Operations
within selling, general and administrative expenses. Tax benefits associated with our share-based
compensation arrangements are included in the Consolidated Statements of
Operations within income tax expense.
All shares of our
common stock received in connection with the exercise of share-based awards
have been recorded as treasury stock and result in a reduction in shareholders’
equity.
Foreign Currency
Translation
The functional
currency of each Company-operated foreign retail location is the respective
local currency. Assets and liabilities
are translated into United States dollars using the current period-end exchange
rate and income and expense amounts are translated using the average exchange
rate for the period in which the transaction occurred. Resulting translation adjustments are
reported as a component of accumulated other comprehensive income within
shareholders’ equity.
Derivative
Instruments
We account for derivative
instruments in accordance with SFAS No. 133,
Accounting
for Certain Derivative Instruments and Certain Hedging Activities
,
and SFAS No. 138, which later amended SFAS No. 133. Upon review of our contracts as of June 30,
2009, we have determined that we have no derivative instruments.
47
Table
of Contents
Recent Accounting
Pronouncements
In December 2007, the FASB issued SFAS No. 141
(revised 2007),
Business Combinations
(SFAS No. 141(R)),
which replaces SFAS No. 141. SFAS No. 141(R) establishes
principles and requirements for how an acquirer in a business combination
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any controlling interest; recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase; and determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) is to be applied prospectively
to business combinations for which the acquisition date is on or after an
entity’s fiscal year that begins after December 15, 2008 (July 1,
2009 for the Company). The impact of this Statement on the Company’s financial
position, results of operations and cash flows will be dependent on the terms,
conditions and details of such acquisitions.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities
, which allows the Company
to choose to measure selected financial assets and financial liabilities at
fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. We adopted SFAS No. 159 on July 1,
2008 and have not elected the permitted fair value measurement provisions of
this statement.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(“SFAS No. 157”),
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements, yet does not require any new fair value measurements.
In February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP
No. 157-2”), which delayed the effective date of SFAS No. 157 as it
relates to non-financial assets and non-financial liabilities until July 1,
2009 for the Company, except for items that are recognized or disclosed at fair
value by the Company on a recurring basis. Effective July 1, 2008,
the Company adopted the provisions of SFAS No. 157, except as it relates
to those non-financial assets and non-financial liabilities excluded under FSP No. 157-2.
Those excluded items for which the Company has not applied the fair value
provisions of SFAS No. 157 include goodwill and other intangible assets
(note 6), assets held for sale (note 2), liabilities for exit or disposal
activities (note 2), and business acquisitions (note 3). The Company is
currently evaluating the impact of this statement on the Company’s financial
position, results of operations and cash flows as it relates to non-financial
assets and non-financial liabilities. This pronouncement became effective
for us on July 1, 2008. See note 18
for more information.
In June 2008, the
FASB issued FASB Staff Position No. EITF 03-6-1,
Determining
Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities
, which requires that unvested share-based
payment awards containing non-forfeited rights to dividends be included in the
computation of earnings per common share.
The adoption of FSB EITF 03-6-1 is effective for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal years (July 1,
2009 for the Company). Retrospective
application is required. We are
evaluating this pronouncement but do not expect it to impact basic or diluted
earnings per share.
(2) Restructuring and Impairment Charges
In recent years, we have announced and executed plans
to consolidate our operations as part of an overall strategy to maximize
production efficiencies and maintain our competitive advantage.
In 2009, the Company made
several announcements on changes to our operations as we continue to improve
the structure of our business especially in light of the recent economic
downturn. In January 2009, the
Company announced a plan to consolidate the operations of its Eldred,
Pennsylvania upholstery manufacturing plant and several of its retail service
centers. In June 2009, the Company announced the consolidation of its
Chino, California operations into its Maiden, North Carolina facility and the
consolidation of its Andover, Maine sawmill and dimension mill to its Beecher
Falls, Vermont sawmill and dimension mill operations. For these fiscal
48
Table of Contents
2009 actions, the Company
estimates pre-tax restructuring, impairment, and other related charges will
ultimately approximate $30 million, consisting of $15 million in write down of
long-lived assets, $8 million in employee severance and other payroll and
benefit costs, and $7 million in other associated costs. By segment, we
expect $23 million in costs for the wholesale segment and $7 million for the
retail segment. Total costs for these 2009 actions in the current fiscal
year by segment are $17.0 million for Wholesale, and $2.6 million for Retail
all of which have been classified in the Statement of Operations as
restructuring and impairment charges. Approximately 800 employee positions and
140 contract worker positions will be eliminated due to these actions.
In January 2008, we announced a plan to
consolidate the operations of certain Company-operated retail design centers
and retail service centers. In connection with this initiative, we have
permanently ceased operations at ten design centers and six retail service
centers which, for the most part, were consolidated into other existing
operations. We also implemented our
design team concept across the Retail division at the end of the fiscal
year. We recorded pre-tax restructuring,
impairment, and other related charges of $6.8 million for fiscal 2008, with
$3.3 million for lease cancellation and other costs which will be paid out over
periods ranging from less than one to seven years, $2.7 million, which was
non-cash in nature, related to fixed asset impairment charges, primarily for
real property and leasehold improvements, and $0.9 million was related to
employee severance and benefits. During
fiscal 2009, we recorded a net reduction of pre-tax restructuring, impairment,
and other related charges of $1.0 million, primarily due to net gains on the
sale of real estate of $4.2 million, partly offset by additional charges and
adjustments to previous estimates for leased facilities of $2.3 million and
employee severance, benefits and other charges of $0.5 million. Cumulative
charges to date for these actions total $5.5 million, all of which have been
classified in the Statement of Operations as restructuring and impairment
charges. In addition to the Retail charges, $0.4 million was recorded in the
first quarter of fiscal 2009 to update the fair value of a wholesale plant site
held for sale. These charges are
reported to together in the following table.
On September 6, 2006, we announced a plan to
close our Spruce Pine, North Carolina case goods manufacturing facility and
convert our Atoka, Oklahoma upholstery manufacturing facility into a regional
distribution center. The decision
impacted approximately 465 employees. We
recorded a pre-tax restructuring and impairment charge of $14.1 million during
the quarter ended September 30, 2006, of which $4.0 million was related to
employee severance and benefits and other plant exit costs, and $10.1 million
of fixed asset impairment charges. During the first six months of fiscal 2007,
adjustments totaling $0.4 million were recorded to reverse remaining previously
established accruals which were no longer deemed necessary.
49
Table of Contents
Activity in the Company’s restructuring reserves is
summarized in the table below (in thousands) and is classified with accrued
expenses and other current liabilities in the Consolidated Balance Sheets:
|
|
|
Balance
June 30,
2008
|
|
New
charges
(credits)
|
|
Utilized
|
|
Adjust-
ments
|
|
Balance
June 30,
2009
|
|
|
2009 Actions
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance,
other payroll and benefit costs
|
|
$
|
—
|
|
$
|
7,849
|
|
$
|
(3,985
|
)
|
$
|
—
|
|
$
|
3,864
|
|
|
Other plant exit costs
|
|
—
|
|
825
|
|
(171
|
)
|
—
|
|
654
|
|
|
Write down of
long-lived assets
|
|
—
|
|
11,347
|
|
(10,921
|
)
|
(426
|
)
|
—
|
|
|
|
|
$
|
—
|
|
$
|
20,021
|
|
$
|
(15,077
|
)
|
$
|
(426
|
)
|
$
|
4,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Actions
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance,
other payroll and benefit costs
|
|
$
|
—
|
|
$
|
369
|
|
$
|
—
|
|
$
|
—
|
|
$
|
369
|
|
|
Other plant exit costs
|
|
3,358
|
|
1,677
|
|
(2,769
|
)
|
626
|
|
2,892
|
|
|
Write down of
long-lived assets
|
|
—
|
|
(4,080
|
)
|
3,664
|
|
416
|
|
—
|
|
|
|
|
$
|
3,358
|
|
$
|
(2,034
|
)
|
$
|
895
|
|
$
|
1,042
|
|
$
|
3,261
|
|
(3) Business Acquisitions
The Company’s
business acquisition practice with respect to independent retail design centers
is to selectively acquire, at market value, design centers located in markets
of strategic interest to the Company.
The Company does not actively pursue acquisitions, but is sometimes
approached by independent retailers who are retiring. Acquisitions are subject to a contractual
holdback, or reconciliation, period, during which the parties to the
transaction may agree to certain normal and customary purchase accounting
adjustments. Goodwill associated with
our acquisitions represents the premium paid to the seller related to the
acquired business (i.e. market presence).
See Note 6 for further discussion of our goodwill and other intangible
assets.
During fiscal
2009, we acquired, in four separate transactions, four Ethan Allen retail
design centers (“DCs”) from independent retailers for consideration of
approximately $1.8 million in cash and forgiveness of receivables, and assumed
customer deposits of $0.7 million and other liabilities of $0.2 million.
During fiscal
2008, we acquired, in two separate transactions, five Ethan Allen retail design
centers (“DCs”) from independent retailers for consideration of approximately
$4.2 million in cash and forgiveness of receivables, and assumed customer
deposits of $4.3 million and other liabilities of $0.1 million.
Also in fiscal
2008, we acquired a cut and sew upholstery facility from Americraft Leather in
order to strengthen the Company’s vertically integrated structure and secure an
additional reliable source for our leather products. Total consideration of approximately $4.3
million was paid in cash for the acquisition.
The facility, which contains 40,000 square feet of manufacturing space
and employs 165 people, is located in Guanajuato, Mexico.
During fiscal
2007, we acquired, in seven separate transactions, twelve Ethan Allen retail
design centers from independent retailers for total consideration of
approximately $17.0 million in cash and forgiveness of receivables.
50
Table of Contents
A summary of our
allocation of purchase price in each of the last three fiscal years is provided
below (in thousands):
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
Retail
|
|
Wholesale
|
|
Retail
|
|
Retail
|
|
|
Business segment
|
|
|
|
|
|
|
|
|
|
|
Total consideration
|
|
$
|
1,841
|
|
$
|
4,298
|
|
$
|
4,182
|
|
$
|
16,957
|
|
|
Assets acquired (liabilities assumed)
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
1,682
|
|
1,054
|
|
3,236
|
|
6,765
|
|
|
PP&E and other assets
|
|
242
|
|
2,707
|
|
1,029
|
|
9,177
|
|
|
Customer deposits
|
|
(660
|
)
|
—
|
|
(4,311
|
)
|
(3,070
|
)
|
|
A/P and other liabilities
|
|
(186
|
)
|
(100
|
)
|
34
|
|
(425
|
)
|
|
Goodwill
|
|
$
|
763
|
|
$
|
637
|
|
$
|
4,194
|
|
$
|
4,510
|
|
(4) Inventories
Inventories at June 30
are summarized as follows (in thousands):
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
Finished goods
|
|
$
|
130,180
|
|
$
|
153,981
|
|
|
|
|
|
|
Work in process
|
|
7,476
|
|
5,985
|
|
|
|
|
|
|
Raw materials
|
|
18,863
|
|
26,299
|
|
|
|
|
|
|
|
|
$
|
156,519
|
|
$
|
186,265
|
|
|
|
|
|
Inventories are presented
net of a related valuation allowance of $2.2 million at June 30, 2009 and
$2.3 million at June 30, 2008
(5) Property, Plant and Equipment
Property, plant
and equipment at June 30 are summarized as follows (in thousands):
|
|
|
2009
|
|
2008
|
|
|
Land and improvements
|
|
$
|
92,903
|
|
$
|
89,352
|
|
|
Buildings and improvements
|
|
392,940
|
|
382,354
|
|
|
Machinery and equipment
|
|
110,057
|
|
120,243
|
|
|
|
|
595,900
|
|
591,949
|
|
|
Less: accumulated depreciation and amortization
|
|
(262,301
|
)
|
(241,517
|
)
|
|
|
|
$
|
333,599
|
|
$
|
350,432
|
|
(6) Goodwill and Other Intangible Assets
As of June 30,
2009, we had goodwill and other indefinite-lived intangible assets of $25.4
million and $19.7 million, respectively.
Comparable balances as of June 30, 2008 were $77.1 million and
$19.7 million, respectively. Goodwill in the wholesale and retail segments was
$25.4 million and $0 million, respectively, at June 30, 2009 and $28.2
million and $48.9 million, respectively, at June 30, 2008. The wholesale
segment, at both dates, includes additional indefinite-lived intangible assets
of $19.7 million, which represent Ethan Allen trade names.
In accordance with
SFAS No. 142, we do not amortize goodwill or other indefinite-lived
intangible assets but, rather, we conduct an annual impairment analysis of
goodwill and other indefinite lived intangible assets the first of April each
fiscal year, unless events occur or circumstances change that would more likely
than not reduce the fair value of the goodwill or other indefinite lived
intangible assets below their carrying value. In determining whether an interim
test is appropriate, management considers several factors including changes in the
Company’s stock price, financial performance, third party ratings on its long
term debt, and expected financial outlook of the business. Methods employed to
value the enterprise and the Company’s retail and wholesale segments include
the market approach and the income approach, which are reconciled with the
total market capitalization of the Company. These valuation methods use
historical revenues and cash flows, as well as Company and external
51
Table of Contents
analysts’
financial projections and apply discount rates, weighted average cost of
capital rates, total invested capital multiples, and premium control multiples.
Fair value of our trade name is valued using the relief-from-royalty method.
Significant factors used in trade name valuation are royalty rates, future
growth and discount rates, and expense rates.
In the fiscal
quarter ended December 31, 2008, net sales declined 7.9% from the previous
quarter and there was a meaningful decline (34.5%) in the company’s average
stock price from the first fiscal quarter to the second (from $26.35 to
$17.27). This decline coupled with the sudden and dramatic change in the business
climate as seen through the financial crisis with global banking institutions
led to an interim evaluation of goodwill and other intangible assets. As a
result of these tests, management concluded that the estimated value of the
wholesale and retail segments exceeded their carrying values and no impairment
was indicated.
In the fiscal
quarter ended March 31, 2009, net sales declined 26.0% from the previous
quarter resulting in a 660 basis point decline in gross margin plus a further
decline (36.2%) in the company’s average stock price (from $17.27 to $11.02).
These declines coupled with a significant loss from operations led to a second
interim evaluation of goodwill and other intangible assets. As a result of
these tests, management concluded the carrying value of goodwill on our retail
division’s books exceeded its fair value. Therefore, we recorded a non-cash
impairment charge of $48.4 million. No impairment of the goodwill or other
indefinite lived assets on our wholesale division’s books was appropriate.
In the fiscal
quarter ended June 30, 2009, the Company performed its annual impairment
test on April 1 and noted no additional impairment was appropriate. During
the quarter, business performance stabilized with net sales slightly lower (1%)
than the previous quarter, gross margin improved 160 basis points and there was
a slight increase in cash on hand (to $53 million). The average price of our
stock increased 9.8% (from $11.02 to $12.11). The ratings on the Company’s long
term debt were lowered by third parties to speculative grade and the Company
updated its forecasts. The Company considered these factors and concluded that
an interim impairment test was not required on the wholesale segment. No
additional evaluation of the retail segment was appropriate as all goodwill was
written off in the previous fiscal quarter.
There can be no
assurance that the outcome of future reviews will not result in substantial
impairment charges. Impairment
assessment inherently involves judgments as to assumptions about expected
future cash flows and the impact of market conditions on those
assumptions. Future events and changing
market conditions may impact our assumptions as to prices, costs or other
factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we use in
testing for impairment are reasonable, significant changes in any of our
assumptions could produce a significantly different result.
(7)
Borrowings
Total debt obligations at June 30 consist of the following (in
thousands):
|
|
|
2009
|
|
2008
|
|
|
5.375% Senior Notes due 2015
|
|
$
|
198,997
|
|
$
|
198,837
|
|
|
Industrial revenue bonds
|
|
3,855
|
|
3,855
|
|
|
Other debt obligations
|
|
296
|
|
337
|
|
|
Total debt
|
|
203,148
|
|
203,029
|
|
|
Less: current maturities
|
|
42
|
|
41
|
|
|
Total long-term debt
|
|
$
|
203,106
|
|
$
|
202,988
|
|
Senior Notes
On September 27,
2005, we completed a private offering of $200.0 million of ten-year senior
unsecured notes due 2015 (the “Senior Notes”). The Senior Notes were offered by
Global and have an annual coupon rate of 5.375% with interest payable
semi-annually in arrears on April 1 and October 1 of each year. Proceeds received in connection with the
issuance of the Senior Notes, net of a related discount of $1.6 million,
totaled $198.4 million.
52
Table of Contents
We used the net
proceeds from the offering to expand our retail network, invest in our
manufacturing and logistics operations, and for other general corporate
purposes. As of June 30, 2009,
outstanding borrowings related to this transaction have been included in the
Consolidated Balance Sheets within long-term debt. The discount on the Senior
Notes is being amortized to interest expense over the life of the related debt
as is debt issuance costs of $2.0 million primarily for banking, legal,
accounting, rating agency, and printing services and $0.8 million of losses on
settled forward contracts entered in conjunction with this debt issuance.
The Senior Notes
may be redeemed in whole or in part, at Global’s option at any time at the
greater of (i) 100% of the principal amount of the notes to be redeemed
and (ii) the sum of the present values of the remaining scheduled payments
of principal and interest on the Senior Notes to be redeemed, discounted to the
date of redemption on a semi-annual basis at the applicable treasury rate plus
20 basis points, plus, in each case, accrued and unpaid interest to the
redemption date. In the event of default,
the trustee or the holders of 25% of the outstanding principal amount of the
Senior Notes may accelerate payment of principal, premium, if any, and accrued
and unpaid interest. Events of default
include failure to pay in accordance with the terms of the indenture, including
failure, under certain circumstances, to pay indebtedness other than the Senior
Notes.
Revolving Credit
Facility
On January 29,
2009, the Company amended its July 2005 five-year, $200 million unsecured
revolving credit facility. The Amendment
reduced the line to $100 million, and contained various operating and financial
covenants. On April 29, 2009 the Company terminated the revolving credit
facility, due to the Company’s desire to have in place a revolver that provided
greater flexibility. On May 29,
2009, the Company entered into a new three-year, $40 million senior secured
asset-based revolving credit facility (“the “Facility”). The Facility provides
revolving credit financing of up to $40 million, subject to borrowing base availability,
and includes an accordion feature which, if exercised, would provide up to an
additional $20 million of financing.
At the Company’s
option, revolving loans under the Agreement bear interest at an annual rate of
either:
(a)
London Interbank Offered rate (“LIBOR”) plus 3.25% to 4.25%, based on
the average availability, or
(b)
the higher of (i) a prime rate, (ii) the federal funds
effective rate plus 0.50%, or (iii) a LIBOR rate plus 1.00% plus, in each
case, an additional 2.25% to 3.25%, based on average availability.
The Company will
pay a commitment fee of 0.50% per annum on the unused portion of the Facility
and participation fees on issued letters of credit at an annual rate of 1.625%
to 4.25%, based on the average availability and the letter of credit type, and
a fronting fee of 0.125% per annum.
The borrowing base
at any time equals the sum of: up to 90% of eligible credit card receivables;
plus up to 85% of eligible accounts receivable; plus up to 85% of the net
orderly liquidation value of eligible inventory.
The Facility is
secured by all property owned, leased or operated by the Company in the United
States excluding any real property owned by the Company and also excludes any
intellectual property owned by the Company unless availability is less than or
equal to $17.5 million.
The Facility
contains customary covenants which may limit the Company’s ability to incur
debt; engage in mergers and consolidations; make restricted payments (including
dividends); sell certain assets; and make investments. The Company may make
restricted payments (including dividends) as long as availability equals or
exceeds the greater of (i) 25% of the aggregate commitment or (ii) $12
million. If the average monthly
availability is less than the greater of (i) 15% of the aggregate
commitment and (ii) $9 million, the Company is also required to meet a
fixed charge coverage ratio financial covenant which may not be less than 1 to
1 for any period of four consecutive fiscal quarters.
The Facility
contains customary borrowing conditions and events of default (the occurrence
of which would entitle the lenders to accelerate the maturity of any
outstanding borrowings and terminate their commitment to make future loans).
At June 30,
2009, we had no revolving loans and $12.5 million in trade and standby letters
of credit outstanding under the Credit Agreement. Remaining available borrowing
capacity under the Credit Agreement was $27.5
53
Table of Contents
million at that
date. During fiscal 2009, Standard & Poor’s (“S&P”) lowered our
corporate and senior unsecured credit ratings to BB from BBB-. While the change
in our credit rating had no impact on our existing credit facilities, the
S&P downgrade, if not improved to investment grade by March 2010,
gives a right to the issuer of our private label credit cards to demand a
standby letter of credit of up to $12 million. Any additional letters of credit
would reduce the credit available for borrowings under the revolver.
Other Borrowings
Approximately $3.9
million of our outstanding debt is related to industrial revenue bonds which
were issued to finance capital improvements at the Ethan Allen Hotel and
Conference Center, which is adjacent to our corporate headquarters in Danbury,
Connecticut. These bonds bear interest at a fixed rate of 7.50% and have a
remaining maturity of three years. For
fiscal years ended June 30, 2009, 2008 and 2007, the weighted-average
interest rates applicable under our outstanding debt obligations for each year
were 5.53%.
Aggregate
scheduled maturities of our debt obligations for each of the five fiscal years
subsequent to June 30, 2009, and thereafter are as follows (in thousands):
|
Fiscal Year Ended
June 30
|
|
|
|
|
2010
|
|
$
|
42
|
|
|
2011
|
|
3,898
|
|
|
2012
|
|
19
|
|
|
2013
|
|
11
|
|
|
2014
|
|
11
|
|
|
Subsequent to 2014
|
|
199,167
|
|
|
Total scheduled debt payments
|
|
$
|
203,148
|
|
Independent Retailer
Credit Facility
On June 11, 2009, we
obligated ourselves, on behalf of one of our independent retailers, with
respect to a $0.5 million non-revolving line of credit facility on which there
is no further availability for borrowing (the
“Amended Credit
Facility”
). The Company had previously guaranteed on April 9,
2009, on behalf of the independent retailer, a $0.9 million credit facility
comprised of a $0.6 million revolving line of credit and a $0.3 million term
loan (the “Credit Facility”). On June 11,
2009, the Company purchased from the independent retailer one of the design
centers which was collateral under the Credit Facility. Some of the proceeds were used by the
independent retailer to pay down a portion of the Credit Facility, whereupon
the Company entered into the Amended Credit Facility. This obligation requires us, in the event of
the retailer’s default under the Amended Credit Facility, to repurchase the
retailer’s inventory, applying such purchase price to the retailer’s
outstanding indebtedness under the Amended Credit Facility. Our obligation remains
in effect for the life of the term loan.
The agreement expires in April 2011. The original agreement, which expired in April 2008,
was replaced with a new agreement with the same terms and conditions dated December 2008,
and amended on April 9, 2009. The
maximum potential amount of future payments (undiscounted) that we could be
required to make under this obligation is limited to the amount outstanding
under the Credit Facility at the time of default (subject to pre-determined
lending limits based on the value of the underlying inventory) and, as such, is
not an estimate of future cash flows. No
specific recourse or collateral provisions exist that would enable recovery of
any portion of amounts paid under this obligation, except to the extent that we
maintain the right to take title to the repurchased inventory. We anticipate
that the repurchased inventory could subsequently be sold through our retail
design center network.
As of
June 30, 2009
, the amount outstanding under
the Amended Credit Facility totaled approximately $0.5 million. Based on the underlying creditworthiness of
the respective retailer, we believe this obligation will expire without
requiring funding by us. However, in accordance with the provisions of FASB
Interpretation No. 45,
Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others
, a liability has been established to reflect
our non-contingent obligation under this arrangement as a result of
modifications made to the Credit Facility subsequent to January 1,
2003. As of
June 30,
2009
, the carrying amount of such liability is less than
$50,000.
54
Table of Contents
(8) Leases
We lease real
property and equipment under various operating lease agreements expiring
through 2033. Leases covering retail design center locations and equipment may
require, in addition to stated minimums, contingent rentals based on retail
sales or equipment usage. Generally, the leases provide for renewal for various
periods at stipulated rates. Future minimum lease payments under non-cancelable
operating leases for each of the five fiscal years subsequent to June 30,
2009, and thereafter are as follows (in thousands):
|
Fiscal Year Ended
June 30
|
|
|
|
|
2010
|
|
$
|
36,863
|
|
|
2011
|
|
31,057
|
|
|
2012
|
|
28,579
|
|
|
2013
|
|
24,059
|
|
|
2014
|
|
17,009
|
|
|
Subsequent to 2014
|
|
96,951
|
|
|
Total minimum lease payments
|
|
$
|
234,518
|
|
The above amounts
will be offset in the aggregate by minimum future rentals from subleases of
$6.2 million, which is due to be received as follows: $1.0 million in 2010;
$0.9 million in 2011; $0.9 million in 2012; $0.9 million in 2013; $0.5 million
in 2014; and $2.0 million subsequent to 2014.
Total rent expense
for each of the past three fiscal years ended June 30 was as follows (in
thousands):
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Basic rentals under operating leases
|
|
$
|
38,522
|
|
$
|
40,387
|
|
$
|
35,637
|
|
|
Contingent rentals under operating lease
|
|
182
|
|
589
|
|
524
|
|
|
|
|
38,704
|
|
40,976
|
|
36,161
|
|
|
Less: sublease rent
|
|
(1,256
|
)
|
(2,395
|
)
|
(2,899
|
)
|
|
Total rent expense
|
|
$
|
37,448
|
|
$
|
38,580
|
|
$
|
33,262
|
|
As of June 30,
2009 and 2008, deferred rent credits totaling $11.6 million and $9.8 million,
respectively, and deferred lease incentives totaling $2.8 million at both year
ends, are reflected in the Consolidated Balance Sheets. These amounts are amortized over the
respective underlying lease terms on a straight-line basis as a reduction of
rent expense.
(9) Shareholders’ Equity
Our authorized
capital stock consists of (a) 150,000,000 shares of Class A Common
Stock, par value $.01 per share, (b) 600,000 shares of Class B Common
Stock, par value $.01 per share, and (c) 1,055,000 shares of Preferred
Stock, par value $.01 per share, of which (i) 30,000 shares have been
designated Series A Redeemable Convertible Preferred Stock, (ii) 30,000
shares have been designated Series B Redeemable Convertible Preferred
Stock, (iii) 155,010 shares have been designated as Series C Junior
Participating Preferred Stock, and (iv) the remaining 839,990 shares may
be designated by the Board of Directors with such rights and preferences as
they determine (all such preferred stock, collectively, the “Preferred
Stock”). Shares of Class B Common
Stock are convertible to shares of our Common Stock upon the occurrence of
certain events or other specified conditions being met. As of June 30,
2009 and 2008, there were no shares of Preferred Stock or Class B Common
Stock issued or outstanding.
Share Repurchase
Program
On November 21,
2002, the Company’s Board of Directors approved a share repurchase program
authorizing us to repurchase up to 2.0 million shares of our common stock, from
time to time, either directly or through agents, in the open market at prices
and on terms satisfactory to us.
Subsequent to that date, the Board of Directors increased the then
remaining share repurchase authorization as follows: to 2.5 million shares on April 27,
2004; to 2.0 million shares on November 16, 2004; to 2.0 million shares on
April 26, 2005; to 2.5 million shares on November 15, 2005; to 2.5
million shares on July 25, 2006; to 2.5 million shares on July 24,
2007, and to 2.0 million
55
Table of Contents
shares on November 13,
2007. As of June 30, 2009 we had a
remaining Board authorization to repurchase 1.6 million shares.
All of our common
stock repurchases and retirements are recorded as treasury stock and result in
a reduction of shareholders’ equity. During fiscal years 2009, 2008 and 2007,
we repurchased and/or retired the following shares of our common stock:
|
|
|
2009
|
|
2008 (1)
|
|
2007(2)(3)
|
|
|
Common shares repurchased
|
|
—
|
|
2,259,631
|
|
1,548,700
|
|
|
Cost to repurchase common shares
|
|
—
|
|
$
|
69,745,024
|
|
$
|
53,955,970
|
|
|
Average price per share
|
|
—
|
|
$
|
30.87
|
|
$
|
34.84
|
|
(1)
During fiscal 2008, we also retired 661,688 shares of common stock
tendered upon the exercise of outstanding employee stock options (592,861 to
cover share exercise and 68,827 to cover related employee tax withholding
liabilities). The value of such shares
on the date redeemed was $23,033,359, representing an average price per share of
$34.81.
(2)
The cost to repurchase shares in fiscal 2007 reflects $3,436,230 in
common stock repurchases with a June 2007 trade date and a July 2007
settlement date.
(3)
During fiscal 2007, we also retired 555,531 shares of common stock
tendered upon the exercise of outstanding employee stock options (410,073 to
cover share exercise and 145,458 to cover related employee tax withholding
liabilities). The value of such shares
on the date redeemed was $21,506,193, representing an average price per share
of $38.71.
For each of the
fiscal years presented above, we funded our purchases of treasury stock with
existing cash on hand and cash generated through current period operations.
Stockholder Rights
Plan
On May 20,
1996, the Board of Directors adopted a Stockholder Rights Plan (the “Rights
Plan”) and declared a dividend of one Right for each share of our common stock
outstanding as of July 10, 1996. Under the Rights Plan, each share of our
common stock issued after July 10, 1996 is accompanied by one Right (or
such other number of Rights as results from the adjustments for stock splits
and other events described below). Each Right entitles its holder, under
certain circumstances, to purchase one one-hundredth of a share of our Series C
Junior Participating Preferred Stock at a purchase price of $125. The Rights may not be exercised until 10 days
after a person or group acquires 15% or more of our common stock, or 15 days
after the commencement or the announcement of the intent to commence a tender
offer, which, if consummated, would result in acquisition by a person or group
of 15% or more of our common stock.
Until then, separate Rights certificates will not be issued and the
Rights will not be traded separately from shares of our common stock.
If the Rights
become exercisable, then, upon exercise of a Right, our stockholders (other
than the acquirer) would have the right to receive, in lieu of our Series C
Junior Participating Preferred Stock, a number of shares of our common stock
(or a number of shares of the common stock of the acquirer, if we are acquired,
or other assets under various circumstances) having a market value equal to two
times the purchase price. Under the
Rights Plan, as amended by the Board of Directors on July 27, 2004, the
Rights will expire on May 31, 2011, unless redeemed prior to that date.
The redemption price is $0.01 per Right. The Board of Directors may redeem the
Rights at its option any time prior to the time when the Rights become
exercisable.
The Rights Plan
provides for adjustment to the number of Rights which accompanies each share of
our common stock (whether then outstanding or thereafter issued) upon the
occurrence of various events after July 10, 1996, including stock
splits. We effected a 2-for-1 stock
split on September 3, 1997 and a 3-for-2 stock split on May 24,
1999. Accordingly, at June 30,
2009, each share of our common stock was accompanied by one-third of one Right.
56
Table of Contents
(10) Earnings per Share
The following
table sets forth the calculation of weighted average shares for the fiscal
years ended June 30 (in thousands):
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Weighted average common shares outstanding for basic
calculation
|
|
28,814
|
|
29,267
|
|
31,566
|
|
|
Effect of dilutive stock options and share based
awards
|
|
—
|
|
203
|
|
695
|
|
|
Weighted average common shares outstanding adjusted
for diluted calculation
|
|
28,814
|
|
29,470
|
|
32,261
|
|
Certain restricted
stock awards and the potential exercise of certain stock options were excluded
from the respective diluted earnings per share calculation because their impact
is anti-dilutive. In 2009, 2008 and
2007, stock options and share based awards of 2,228,121, 1,713,323 and 750,981,
respectively, have been excluded.
(11) Share-Based Compensation
For the twelve
months ended June 30, 2009, 2008, and 2007, share-based compensation
expense totaled $1.7 million, $1.3 million, and $0.8 million respectively. These amounts have been included in the
Consolidated Statements of Operations within selling, general and
administrative expenses. During the
twelve months ended June 30, 2009, 2008, and 2007, we recognized related
tax benefits associated with our share-based compensation arrangements totaling
$0.6 million, $0.5 million and $0.3 million, respectively. Such amounts have been included in the
Consolidated Statements of Operations within income tax expense.
We estimate, as of
the date of grant, the fair value of stock options awarded using the Black-Scholes
option-pricing model. Use of a valuation model requires management to make
certain assumptions with respect to selected model inputs, including
anticipated changes in the underlying stock price (i.e. expected volatility)
and option exercise activity (i.e. expected life). Expected volatility is based
on the historical volatility of our stock. The risk-free rate of return is
based on the U.S. Treasury bill rate for the term closest matching the expected
life of the grant. The dividend yield is based on the annualized dividend rate
at the grant date relative to the grant date stock price. The expected life of
options granted, which represents the period of time that the options are
expected to be outstanding, is based, primarily, on historical data. The weighted average assumptions used for
fiscal years ended June 30 are noted in the following table:
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Volatility
|
|
34.4
|
%
|
35.8
|
%
|
28.14
|
%
|
|
Risk-free rate of return
|
|
3.21
|
%
|
4.51
|
%
|
4.97
|
%
|
|
Dividend yield
|
|
5.11
|
%
|
2.69
|
%
|
2.18
|
%
|
|
Expected average life
|
|
7.4 years
|
|
9.3 years
|
|
6.0 years
|
|
At June 30,
2009, we had 7,317,409 shares of common stock reserved for issuance pursuant to
the following share-based compensation plans:
57
Table
of Contents
1992 Stock Option
Plan
The Plan provides
for the grant of non-compensatory stock options to eligible employees and
non-employee directors. Stock options
granted under the Plan are non-qualified under Section 422 of the Internal
Revenue code and allow for the purchase of shares of our common stock. The maximum number of shares of common stock
reserved for issuance under the Plan is 6,487,867 shares. The Plan also
provides for the issuance of stock appreciation rights (“SARs”) on issued
options, however, no SARs have been issued as of June 30, 2009. The awarding of such options is determined by
the Compensation Committee of the Board of Directors after consideration of
recommendations proposed by the Chief Executive Officer. Option awards are generally granted with an
exercise price equal to the market price of our common stock at the date of
grant, vest ratably over a specified service period (4 years for awards to
employees; 2 years for awards to independent directors), and have a contractual
term of 10 years.
On October 10, 2007, the Company’s Board of Directors and M.
Farooq Kathwari, our President and Chief Executive Officer, agreed to the terms
of a new employment agreement expiring on June 30, 2012 (“2007 Employment
Agreement”). This agreement was effective as of October 1, 2007
and served to supersede all terms and conditions set forth in his previous
employment agreement dated August 1, 2002 (the “2002 Employment
Agreement”). Pursuant to the terms of the 2007 Employment Agreement, Mr. Kathwari
was awarded on October 10, 2007, July 1, 2008, and July 1, 2009,
options to purchase 150,000, 90,000 and 60,000 shares respectively, of our
common stock. These options were issued
at an exercise price of $34.03, $24.62, and $10.68 per share respectively (the
price of a share of our common stock on the New York Stock Exchange on those
dates). The 2007 grant vests in three
installments of 33 1/3% on each June 30 of 2008, 2009, and 2010. The 2008 grant vests in two installments of
50% on each June 30 of 2009 and 2010.
The 2009 grant vests on June 30, 2010. On November 11, 2008 Mr. Kathwari
was awarded options to purchase 50,000 shares of our common stock at an exercise
price of $15.93 (the price of a share of our common stock on the New York Stock
Exchange on that date). This grant vests in four equal installments on the
anniversary date of the grant.
58
Table
of Contents
A summary of stock
option activity occurring during the fiscal year ended June 30, 2009 is
presented below:
|
Options
|
|
Shares
|
|
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term (yrs)
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding - June 30, 2008
|
|
1,768,457
|
|
$
|
33.23
|
|
|
|
|
|
|
Granted
|
|
291,060
|
|
19.58
|
|
|
|
|
|
|
Exercised
|
|
(90
|
)
|
25.00
|
|
|
|
|
|
|
Canceled (forfeited/expired)
|
|
(73,291
|
)
|
27.22
|
|
|
|
|
|
|
Outstanding - June 30, 2009
|
|
1,986,136
|
|
31.45
|
|
5.0
|
|
—
|
|
|
Exercisable – June 30, 2009
|
|
1,667,380
|
|
$
|
33.19
|
|
4.2
|
|
—
|
|
The weighted
average grant-date fair value of options granted during fiscal 2009, 2008, and
2007 was $4.58, $12.06 and $9.91 respectively.
The total intrinsic value of options exercised during 2009, 2008 and
2007 was $0.0 million, $5.7 million, and $13.5 million, respectively. As of June 30,
2009, there was $1.9 million of total unrecognized compensation cost related to
nonvested options granted under the Plan. That cost is expected to be
recognized over a weighted average period of 1.7 years. A summary of the nonvested shares as of June 30,
2009 and changes during the year then ended is presented below:
|
Nonvested Shares
|
|
Shares
|
|
Weighted Average
Grant Date Fair Value
|
|
|
Nonvested June 30, 2008
|
|
170,276
|
|
$
|
11.16
|
|
|
Granted
|
|
291,060
|
|
4.58
|
|
|
Vested
|
|
(130,820
|
)
|
10.18
|
|
|
Canceled (forfeited/expired)
|
|
(11,760
|
)
|
4.32
|
|
|
Nonvested at June 30, 2009
|
|
318,756
|
|
$
|
5.80
|
|
In connection with
the 1992 Stock Option Plan, the following two stock award plans have also been
established:
Restricted Stock
Awards
In connection with
the 2007 Employment Agreement, Mr. Kathwari received on November 13,
2007 and July 1, 2008, and will be awarded on July 1, 2009, an annual
award of 20,000 shares of restricted stock (for a total award of 60,000
shares), with vesting based on the performance of the Company’s stock price
during the three year periods subsequent to the award date as compared to the
Standard and Poor’s 500 index. Mr. Kathwari
also received on November 13, 2007, 15,000 shares of restricted stock
which vest ratably over a five year period through June 30, 2012. On November 11, 2008 Mr. Kathwari
received an award of 60,000 shares of restricted stock, which provided for
vesting to occur if specific financial objectives were achieved during the
final three quarters of fiscal 2009. The
financial objectives were not achieved and the shares were forfeited. A summary
of nonvested restricted share activity occurring during the fiscal year ended June 30,
2009 is presented below.
|
|
|
|
|
Weighed Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
Nonvested Restricted
Shares
|
|
Shares
|
|
Fair Value
|
|
|
Nonvested - June 30, 2008
|
|
35,000
|
|
$
|
22.19
|
|
|
Granted
|
|
83,000
|
|
10.28
|
|
|
Vested
|
|
(5,000
|
)
|
30.55
|
|
|
Canceled (forfeited/expired)
|
|
(60,000
|
)
|
8.22
|
|
|
Nonvested - June 30, 2009
|
|
53,000
|
|
$
|
18.56
|
|
As of June 30,
2009, there was $0.5 million of total unrecognized compensation cost related to
restricted shares granted under the Plan.
That cost is expected to be recognized over a weighted average period of
2.7 years. The
59
Table
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total fair value
of restricted shares vested during the fiscal years ending June 30, 2009
and 2008 was $0.2 million and $0.1 million respectively.
Stock Unit Awards
In connection with
previous employment agreements, Mr. Kathwari was deemed to have earned
126,000 stock units. In the event of the
termination of his employment, regardless of the reason for termination, Mr. Kathwari
will receive shares of common stock equal to the number of stock units earned.
(12) Income Taxes
Total income taxes were allocated as follows for the fiscal years ended
June 30 (in thousands):
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Income (loss) from operations
|
|
$
|
(28,493
|
)
|
$
|
34,106
|
|
$
|
40,499
|
|
|
Shareholders’ equity
|
|
—
|
|
(2,093
|
)
|
(5,015
|
)
|
|
Total
|
|
$
|
(28,493
|
)
|
$
|
32,013
|
|
$
|
35,484
|
|
The income taxes
credited to shareholders’ equity relate to the excess tax benefit arising from
the exercise of employee stock options.
Income tax expense
(benefit) attributable to income from operations consists of the following for
the fiscal years ended June 30 (in thousands):
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,657
|
|
$
|
32,431
|
|
$
|
34,768
|
|
|
State
|
|
975
|
|
4,151
|
|
5,125
|
|
|
Foreign
|
|
33
|
|
(112
|
)
|
406
|
|
|
Total current
|
|
3,665
|
|
36,470
|
|
40,299
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
(30,200
|
)
|
(2,172
|
)
|
190
|
|
|
State
|
|
(1,958
|
)
|
(192
|
)
|
10
|
|
|
Total deferred
|
|
(32,158
|
)
|
(2,364
|
)
|
200
|
|
|
Income tax expense
|
|
$
|
(28,493
|
)
|
$
|
34,106
|
|
$
|
40,499
|
|
The following is a
reconciliation of expected income tax expense (benefit) (computed by applying
the federal statutory income tax rate to income before taxes) to actual income
tax expense (benefit) (in thousands):
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Expected income tax expense (benefit)
|
|
$
|
(28,413
|
)
|
35.0
|
%
|
$
|
32,262
|
|
35.0
|
%
|
$
|
38,404
|
|
35.0
|
%
|
|
State income taxes (benefit), net of federal income
tax
|
|
(3,237
|
)
|
4.0
|
%
|
2,698
|
|
2.9
|
%
|
3,331
|
|
3.0
|
%
|
|
Valuation allowance
|
|
2,088
|
|
(2.6
|
)%
|
—
|
|
0.0
|
%
|
—
|
|
0.0
|
%
|
|
Goodwill impairment
|
|
1,402
|
|
(1.7
|
)%
|
—
|
|
0.0
|
%
|
—
|
|
0.0
|
%
|
|
Section 199 Qualified Production Activities
deduction
|
|
—
|
|
0.0
|
%
|
(1,100
|
)
|
(1.2
|
)%
|
(630
|
)
|
(0.6
|
)%
|
|
Other, net
|
|
(333
|
)
|
0.4
|
%
|
246
|
|
0.3
|
%
|
(606
|
)
|
(0.5
|
)%
|
|
Actual income tax expense (benefit)
|
|
$
|
(28,493
|
)
|
35.1
|
%
|
$
|
34,106
|
|
37.0
|
%
|
$
|
40,499
|
|
36.9
|
%
|
60
Table
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The significant components of the deferred tax expense (benefit) are as
follows (in thousands):
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
(3,045
|
)
|
$
|
(426
|
)
|
$
|
211
|
|
|
Restructuring costs
|
|
(4,469
|
)
|
(1,238
|
)
|
—
|
|
|
Acquired goodwill
|
|
(16,191
|
)
|
1,018
|
|
927
|
|
|
Amortization and depreciation
|
|
(7,126
|
)
|
(1,767
|
)
|
(1,515
|
)
|
|
Federal, foreign and state net operating losses
|
|
(2,870
|
)
|
—
|
|
—
|
|
|
Other
|
|
(545
|
)
|
10
|
|
538
|
|
|
Utilization of net operating loss and tax credit
carryforwards
|
|
—
|
|
39
|
|
39
|
|
|
Total deferred tax expense (benefit)
|
|
$
|
(34,246
|
)
|
$
|
(2,364
|
)
|
$
|
200
|
|
|
Less: Valuation allowance
|
|
2,088
|
|
—
|
|
—
|
|
|
Net deferred tax expense (benefit)
|
|
$
|
(32,158
|
)
|
$
|
(2,364
|
)
|
$
|
200
|
|
The deferred income tax asset and liability balances
at June 30 (in thousands) include:
|
|
|
2009
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
531
|
|
$
|
963
|
|
|
Property, plant and equipment
|
|
2,391
|
|
—
|
|
|
Employee compensation accruals
|
|
6,436
|
|
10,236
|
|
|
Stock based compensation
|
|
2,227
|
|
1,514
|
|
|
Deferred rent credits
|
|
5,439
|
|
4,619
|
|
|
Restructuring charges
|
|
5,762
|
|
1,345
|
|
|
Net operating loss carryforwards
|
|
2,870
|
|
30
|
|
|
Other, net
|
|
3,301
|
|
2,670
|
|
|
Total deferred tax asset
|
|
28,957
|
|
21,377
|
|
|
Less: Valuation allowance
|
|
(2,088
|
)
|
—
|
|
|
Net deferred tax assets
|
|
26,869
|
|
21,377
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Inventories
|
|
1,425
|
|
2,719
|
|
|
Property, plant and equipment
|
|
—
|
|
7,577
|
|
|
Intangible assets other than goodwill
|
|
5,180
|
|
20,737
|
|
|
Commissions
|
|
353
|
|
3,642
|
|
|
Other accrued liabilities
|
|
—
|
|
2,483
|
|
|
Other, net
|
|
37
|
|
—
|
|
|
Total deferred tax liability
|
|
6,995
|
|
37,158
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
19,874
|
|
$
|
(15,781
|
)
|
The deferred
income tax balances are classified in the Consolidated Balance Sheets as
follows at June 30 (in thousands):
|
|
|
2009
|
|
2008
|
|
|
Current assets
|
|
$
|
9,502
|
|
$
|
11,111
|
|
|
Non-current assets
|
|
17,367
|
|
10,266
|
|
|
Current liabilities
|
|
1,425
|
|
4,986
|
|
|
Non-current liabilities
|
|
5,570
|
|
32,172
|
|
|
Total net deferred tax asset (liability)
|
|
$
|
19,874
|
|
$
|
(15,781
|
)
|
Note: Current deferred tax
assets and liabilities and non-current deferred tax assets and liabilities have
been presented net in the Consolidated Balance Sheets.
61
Table
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In accordance with
SFAS No. 109,
Accounting for Income
Taxes,
we evaluate our deferred taxes to determine if the “more likely than not”
standard of evidence has not been met thereby supporting the need for a
valuation allowance. In fiscal 2009, due to significant losses incurred in our
retail segment, the uncertain outlook regarding the current economic recession,
and the lack of carry-back availability due to limitations imposed by certain
states and Canada, we established valuation allowances of $2.1 million against
certain state and Canada deferred tax assets primarily for net operating
losses. Our state net operating losses and credits expire between fiscal year
2014 and 2029 and for Canada expire in fiscal 2029. At June 30, 2009 we
had, for U.S. federal income tax purposes, a net operating loss of $4.3 million
which expires in 2029. We believe it is more likely than not that our deferred
tax assets and credits for U.S. federal income tax purposes will be realized
due to sufficient historical and anticipated future pre-tax earnings and we
therefore have not established valuation allowances for these assets.
Uncertain Tax Positions
Effective July 1,
2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. (“FIN”)
48,
Accounting for Uncertainty in Income Taxes
,
an interpretation of FASB Statement No. 109,
Accounting
for Income Taxes
. As a result of the adoption of FIN 48, we recorded
a cumulative effect of a change in accounting principle adjustment of $0.7
million as an increase to beginning retained earnings. Our continuing practice
is to recognize interest and penalties related to income tax matters as a
component of income tax expense. If the $13.1 million of unrecognized tax
benefits and related interest and penalties as of June 30, 2009 were
recognized, approximately $10.8 million would be recorded as a benefit to
income tax expense.
|
|
|
2009
|
|
2008
|
|
|
A reconciliation of the beginning and ending amount
of unrecognized tax benefits including related interest and penalties as of
June 30, 2009 is as follows (in thousands):
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
13,633
|
|
$
|
13,988
|
|
|
Additions based on tax positions in the current year
|
|
399
|
|
458
|
|
|
Additions for tax positions in prior years
|
|
1,264
|
|
2,377
|
|
|
Reductions for tax positions of prior years due to:
|
|
|
|
|
|
|
Statute expiration
|
|
(895
|
)
|
(360
|
)
|
|
Settlements
|
|
(1,341
|
)
|
(2,830
|
)
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,060
|
|
$
|
13,633
|
|
It is reasonably possible
that various issues relating to approximately $3.7 million of the total gross
unrecognized tax benefits as of June 30, 2009 will be resolved within the
next twelve months as exams are completed or statutes expire. If recognized, approximately
$3.7 million of unrecognized tax benefits would reduce our tax expense in the
period realized. However, actual results could differ from those currently
anticipated.
The Company
conducts business globally and, as a result, the Company or one or more of its
subsidiaries files income tax returns in the U.S., various state, and foreign
jurisdictions. In the normal course of
business, the Company is subject to examination by the taxing authorities in
such major jurisdictions as Canada, Mexico and the U.S. As of June 30, 2009 certain
subsidiaries of the Company are currently under audit from 2001 through 2008 in
the U.S. While the amount of uncertain
tax benefits with respect to the entities and years under audit may change within
the next twelve months, it is not anticipated that any of the changes will be
significant.
62
Table
of Contents
(13) Employee Retirement Programs
The Ethan Allen Retirement Savings Plan
The Ethan Allen
Retirement Savings Plan (the “Savings Plan”) is a defined contribution plan,
which is offered to substantially all of our employees who have completed three
consecutive months of service regardless of hours worked.
We may, at our
discretion, make a matching contribution to the 401(k) portion of the
Savings Plan on behalf of each participant, provided the contribution does not
exceed the lesser of 50% of the participant’s contribution or $500 per participant
per Savings Plan year. Total profit
sharing and 401(k) Company match expense amounted to $1.3 million in 2009,
$3.7 million in 2008, and $4.3 million in 2007.
The contribution was made in shares of the Company’s common stock in
2009 and in cash in 2008 and 2007.
Other Retirement
Plans and Benefits
Ethan Allen
provides additional benefits to selected members of senior and middle
management in the form of previously entered deferred compensation arrangements
and a management cash bonus and other incentive programs. The total cost (credit) of these benefits was
($0.7) million, $1.2 million, and $2.7 million in 2009, 2008 and 2007,
respectively.
(14) Litigation
Environmental
Matters
We and our
subsidiaries are subject to various environmental laws and regulations. Under
these laws, we and/or our subsidiaries are, or may be, required to remove or
mitigate the effects on the environment of the disposal or release of certain
hazardous materials.
During the fiscal
year ending June 30, 2009, our liability with respect to three active
sites currently listed, or proposed for inclusion, on the National Priorities
List (“NPL”) under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (“CERCLA”), where we and/or our subsidiaries
had been named as a Potentially Responsive Party (“PRP”) located in
Southington, Connecticut; High Point, North Carolina; and Atlanta, Georgia has
been resolved.
In each case we
were not a major contributor based on the very small volume of waste generated
by us in relation to total volume at those sites and were able to take part in
de minimus settlement arrangements.
Specifically, with respect to the Southington site, our volumetric share
is less than 1% of over 51 million gallons disposed of at the site and there
are more than 1,000 PRPs. With respect
to the High Point site, our volumetric share is less than 1% of over 18 million
gallons disposed of at the site and there are more than 2,000 PRPs, including
more than 1,000 de minimis parties (of which we are one). With respect to the
Atlanta site, a former solvent recycling/reclamation facility, our volumetric
share is less than 1% of over 20 million gallons disposed of at the site by
more than 1,700 PRPs.
In addition to the
now settled actions discussed above, in July 2000, we were notified by the
State of New York (the “State”) that we may be named a PRP in a separate,
unrelated matter with respect to a site located in Carroll, New York. In May, 2009, we were notified by the State
that it had conducted an initial environmental study and that we have been
named as a PRP. We believe that we are
not a major contributor; however, a review of the initial environmental study
is ongoing.
Liability under
CERCLA may be joint and several. As such, to the extent certain named PRPs are
unable, or unwilling, to accept responsibility and pay their apportioned costs,
we could be required to pay in excess of our pro rata share of incurred
remediation costs. Our understanding of the financial strength of other PRPs
has been considered, where appropriate, in the determination of our estimated
liability.
63
Table
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As of June 30,
2009, we believe that established reserves related to these environmental
contingencies are adequate to cover probable and reasonably estimable costs
associated with the remediation and restoration of these sites. We believe our currently anticipated capital
expenditures for environmental control facility matters are not material.
We are subject to
other federal, state and local environmental protection laws and regulations
and are involved, from time to time, in investigations and proceedings regarding
environmental matters. Such
investigations and proceedings typically concern air emissions, water
discharges, and/or management of solid and hazardous wastes. We believe that
our facilities are in material compliance with all such applicable laws and
regulations.
Regulations issued
under the Clean Air Act Amendments of 1990 required the industry to reformulate
certain furniture finishes or institute process changes to reduce emissions of
volatile organic compounds. Compliance with many of these requirements has been
facilitated through the introduction of high solids coating technology and
alternative formulations. In addition, we have instituted a variety of
technical and procedural controls, including reformulation of finishing
materials to reduce toxicity, implementation of high velocity low pressure
spray systems, development of storm water protection plans and controls, and
further development of related inspection/audit teams, all of which have served
to reduce emissions per unit of production. We remain committed to implementing
new waste minimization programs and/or enhancing existing programs with the
objective of (i) reducing the total volume of waste, (ii) limiting
the liability associated with waste disposal, and (iii) continuously
improving environmental and job safety programs on the factory floor which
serve to minimize emissions and safety risks for employees. We will continue to
evaluate the most appropriate, cost effective, control technologies for
finishing operations and design production methods to reduce the use of
hazardous materials in the manufacturing process.
(15) Comprehensive Income
Total
comprehensive income represents the sum of net income and items of “other
comprehensive income or loss” that are reported directly in equity. Such items, which are generally presented on
a net-of-tax basis, may include foreign currency translation adjustments,
minimum pension liability adjustments, fair value adjustments (i.e. gains and
losses) on certain derivative instruments, and unrealized gains and losses on
certain investments in debt and equity securities. We have reported our total comprehensive
income in the Consolidated Statements of Shareholders’ Equity.
Our accumulated
other comprehensive income, which is comprised of losses on certain derivative
instruments and accumulated foreign currency translation adjustments, totaled
$0.5 million at June 30, 2009 and $2.7 million at June 30, 2008. Foreign currency translation adjustments are
the result of changes in foreign currency exchange rates related to our
operation of five Ethan Allen-operated retail design centers located in Canada.
Foreign currency translation adjustments exclude income tax expense (benefit)
given that the earnings of non-U.S. subsidiaries are deemed to be reinvested
for an indefinite period of time.
(16) Segment Information
Our operations are
classified into two operating segments: wholesale and retail. These operating segments represent strategic
business areas which, although they operate separately and provide their own
distinctive services, enable us to more effectively offer our complete line of
home furnishings and accessories.
The wholesale
segment is principally involved in the development of the Ethan Allen brand,
which encompasses the design, manufacture, domestic and off-shore sourcing,
sale and distribution of a full range of home furnishings and accessories to a
network of independently operated and Ethan Allen-operated design centers as
well as related marketing and brand awareness efforts. Wholesale revenue is generated upon the
wholesale sale and shipment of our product to all retail design centers,
including those operated by Ethan Allen.
Wholesale profitability includes (i) the wholesale gross margin,
which represents the difference between the wholesale sales
64
Table
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price and the cost
associated with manufacturing and/or sourcing the related product, and (ii) other
operating costs associated with wholesale segment activities.
The retail segment
sells home furnishings and accessories to consumers through a network of
Company-operated design centers. Retail
revenue is generated upon the retail sale and delivery of our product to our
customers. Retail profitability includes
(i) the retail gross margin, which represents the difference between the
retail sales price and the cost of goods purchased from the wholesale segment,
and (ii) other operating costs associated with retail segment activities.
Inter-segment
eliminations result, primarily, from the wholesale sale of inventory to the
retail segment, including the related profit margin.
We evaluate
performance of the respective segments based upon revenues and operating
income. While the manner in which our home furnishings and accessories are
marketed and sold is consistent, the nature of the underlying recorded sales
(i.e. wholesale versus retail) and the specific services that each operating
segment provides (i.e. wholesale manufacturing, sourcing, and distribution
versus retail selling) are different.
Within the wholesale segment, we maintain revenue information according
to each respective product line (i.e. case goods, upholstery, or home
accessories and other).
A breakdown of
wholesale sales by product line for each of the last three fiscal years ended June 30
is provided below:
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Case Goods
|
|
41
|
%
|
43
|
%
|
44
|
%
|
|
Upholstered Products
|
|
41
|
|
40
|
|
38
|
|
|
Home Accessories and Other
|
|
18
|
|
17
|
|
18
|
|
|
|
|
100
|
%
|
100
|
%
|
100
|
%
|
Revenue
information by product line is not as easily determined within the retail
segment. However, because wholesale production and sales are matched, for the
most part, to incoming orders, we believe that the allocation of retail sales
by product line would be similar to that of the wholesale segment. Information for each of the last three fiscal
years ended June 30 is provided below (in thousands):
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
403,378
|
|
$
|
616,230
|
|
$
|
656,035
|
|
|
Retail segment
|
|
508,621
|
|
724,586
|
|
698,611
|
|
|
Elimination of inter-company sales
|
|
(237,722
|
)
|
(360,771
|
)
|
(349,334
|
)
|
|
Consolidated Total
|
|
$
|
674,277
|
|
$
|
980,045
|
|
$
|
1,005,312
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
Wholesale segment (1)
|
|
$
|
6,670
|
|
$
|
100,324
|
|
$
|
99,215
|
|
|
Retail segment (2)
|
|
(92,100
|
)
|
(2,800
|
)
|
15,162
|
|
|
Adjustment for inter-company profit (3)
|
|
12,659
|
|
(1,524
|
)
|
(3,258
|
)
|
|
Consolidated Total
|
|
$
|
(72,771
|
)
|
$
|
96,000
|
|
$
|
111,119
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
3,246
|
|
$
|
7,347
|
|
$
|
8,791
|
|
|
Retail segment
|
|
19,291
|
|
52,691
|
|
50,282
|
|
|
Acquisitions (4) (5)
|
|
1,366
|
|
7,168
|
|
15,906
|
|
|
Consolidated Total
|
|
$
|
23,903
|
|
$
|
67,206
|
|
$
|
74,979
|
|
65
Table
of Contents
|
|
|
June 30
|
|
June 30
|
|
June 30,
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
276,250
|
|
$
|
345,080
|
|
$
|
416,237
|
|
|
Retail segment
|
|
397,877
|
|
459,842
|
|
425,382
|
|
|
Inventory profit elimination (6)
|
|
(27,642
|
)
|
(40,829
|
)
|
(39,021
|
)
|
|
Consolidated Total
|
|
$
|
646,485
|
|
$
|
764,093
|
|
$
|
802,598
|
|
(1) Operating income for the wholesale segment for
the twelve months ended June 30, 2009 and 2007 includes pre-tax
restructuring and impairment charges of $17.4 million and $13.4 million,
respectively.
(2) Operating income for the retail segment for
the twelve months ended June 30, 2009 and 2008 includes pre-tax
restructuring and impairment charges of $49.6 million and $6.8 million
respectively.
(3) Represents the change in the inventory profit
elimination entry necessary to adjust for the embedded wholesale profit
contained in Ethan Allen-operated design center inventory existing at the end
of the period. See footnote 6 below.
(4) Acquisitions include the purchase of four
retail design centers in 2009, five retail design centers and a cut and sew
upholstery facility in 2008 and 12 retail design centers in 2007. See Note 3.
(5) Amount reflected as acquisitions for 2007
includes purchase of a retail design center with an effective (closing) date of
June 30, 2007. However, the
consideration paid in connection with this acquisition was not funded until July 2,
2007.
(6) Represents the embedded wholesale profit
contained in Ethan Allen-operated design center inventory that has not yet been
realized. These profits are realized when the related inventory is sold.
There are 46 independent retail design centers located outside the
United States. Approximately 3.3% of our
net sales are derived from sales to these retail design centers.
(17) Selected Quarterly Financial Data
(Unaudited)
Tabulated below is selected financial data for each quarter of the
fiscal years ended June 30, 2009, 2008, and 2007 (in thousands, except per
share data):
|
|
|
Quarter Ended
|
|
|
|
|
September 30
|
|
December 31
|
|
March 31
|
|
June 30
|
|
|
Fiscal 2009
:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
205,841
|
|
$
|
189,558
|
|
$
|
140,221
|
|
$
|
138,657
|
|
|
Gross profit
|
|
111,941
|
|
101,801
|
|
66,050
|
|
67,550
|
|
|
Net income (loss)
|
|
7,422
|
|
5,488
|
|
(48,674
|
)
|
(16,923
|
)
|
|
Earnings (loss) per basic share
(1)
|
|
0.26
|
|
0.19
|
|
(1.69
|
)
|
(0.58
|
)
|
|
Earnings (loss) per diluted share
(1)
|
|
0.26
|
|
0.19
|
|
(1.69
|
)
|
(0.58
|
)
|
|
Dividend per common share
|
|
0.25
|
|
0.25
|
|
0.10
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
248,727
|
|
$
|
259,510
|
|
$
|
235,901
|
|
$
|
235,907
|
|
|
Gross profit
|
|
133,457
|
|
139,453
|
|
125,187
|
|
127,968
|
|
|
Net income
|
|
17,504
|
|
20,622
|
|
8,846
|
|
11,100
|
|
|
Earnings per basic share
(1)
|
|
0.58
|
|
0.70
|
|
0.31
|
|
0.39
|
|
|
Earnings per diluted share
(1)
|
|
0.57
|
|
0.70
|
|
0.30
|
|
0.39
|
|
|
Dividend per common share
|
|
0.22
|
|
0.22
|
|
0.22
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
242,823
|
|
$
|
257,419
|
|
$
|
246,539
|
|
$
|
258,531
|
|
|
Gross profit
|
|
126,329
|
|
133,750
|
|
128,516
|
|
137,988
|
|
|
Net income
|
|
8,452
|
|
22,792
|
|
17,499
|
|
20,484
|
|
|
Earnings per basic share
(1)
|
|
0.27
|
|
0.72
|
|
0.55
|
|
0.66
|
|
|
Earnings per diluted share
(1)
|
|
0.26
|
|
0.70
|
|
0.54
|
|
0.65
|
|
|
Dividend per common share
|
|
0.20
|
|
0.20
|
|
0.20
|
|
0.20
|
|
(1)
The sum of the quarterly earnings per share
may not equal the full-year total due to rounding and/or changes in share
count.
66
Table
of Contents
(18) Financial Instruments
We adopted SFAS No. 157
on July 1, 2008 for all financial assets and liabilities and non-financial
assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). SFAS No. 157
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements.
SFAS No. 157 defines
fair value as the price that would be received upon sale of an asset or paid
upon transfer of a liability in an orderly transaction between market
participants at the measurement date and in the principal or most advantageous
market for that asset or liability. The fair value should be calculated based
on assumptions that market participants would use in pricing the asset or
liability, not on assumptions specific to the entity. In addition, the fair
value of liabilities should include consideration of non-performance risk
including our own credit risk.
In addition to defining
fair value, SFAS No. 157 expands the disclosure requirements around fair
value and establishes a fair value hierarchy for valuation inputs. The
hierarchy prioritizes the inputs into three levels based on the extent to which
inputs used in measuring fair value are observable in the market. Each
fair value measurement is reported in one of the three levels which is
determined by the lowest level input that is significant to the fair value
measurement in its entirety. These levels are:
·
Level 1 – inputs are based upon unadjusted quoted
prices for identical instruments traded in active markets.
·
Level 2 – inputs are based upon quoted prices for
similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market
or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
·
Level 3 – inputs are generally unobservable and
typically reflect management’s estimates of assumptions that market
participants would use in pricing the asset or liability. The fair values are
therefore determined using model-based techniques that include option pricing
models, discounted cash flow models, and similar techniques.
The following section
describes the valuation methodologies we use to measure different financial
assets and liabilities at fair value.
Cash Equivalents
Cash equivalents consist
of money market accounts and mutual funds in U.S. government and agency
securities. We use quoted prices in
active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to our Level
1 cash equivalents. We do not hold any
Level 2 or Level 3 investments in our cash equivalents.
Assets and Liabilities Measured
at Fair Value on a Recurring Basis
At June 30, 2009,
the Company’s assets and liabilities measured at fair value on a recurring
basis consist of $53.0 million in cash equivalents, which were valued using
Level 1 inputs.
Assets and Liabilities Measured
at Fair Value on a Nonrecurring Basis
We measure certain
assets, including our cost and equity method investments, at fair value on a
nonrecurring basis. These assets are recognized at fair value when they are
deemed to be other-than-temporarily impaired. During the third quarter of
fiscal, 2009, we determined that the goodwill for the Retail segment was
impaired, and a goodwill impairment charge of $48.4 million was recorded (also
see note 6).
67
Table
of Contents
(19) Subsequent Events
The Company has
evaluated events and transactions subsequent to June 30, 2009 through August 24,
2009, which was the date the financial statements were issued (filed with the
SEC).
(20) Financial Information About the Parent,
the Issuer and the Guarantors
On September 27,
2005, Global (the “Issuer”) issued $200 million aggregate principal amount of
Senior Notes which have been guaranteed on a senior basis by Interiors (the
“Parent”), and other wholly owned domestic subsidiaries of the Issuer and the
Parent, including Ethan Allen Retail, Inc., Ethan Allen Operations, Inc.,
Ethan Allen Realty, LLC, Lake Avenue Associates, Inc. and Manor House, Inc.
The subsidiary guarantors (other than the Parent) are collectively called the
“Guarantors”. The guarantees of the Guarantors are unsecured. All
of the guarantees are full, unconditional and joint and several and the Issuer
and each of the Guarantors are 100% owned by the Parent. Ethan Allen (UK) Ltd.
and our other subsidiaries which are not guarantors are called the
“Non-Guarantors”. During the quarter ended December 31, 2008, we
determined that our international subsidiaries in Canada and Mexico are
non-guarantors. The Company has reclassified, for all prior periods presented,
the financial results of these international subsidiaries to reflect their non-guarantor
status.
The following
tables set forth the condensed consolidating balance sheets as of June 30,
2009 and June 30, 2008, the condensed consolidating statements of
operations for the twelve months ended June 30, 2009, 2008 and 2007, and
the condensed consolidating statements of cash flows for the twelve months
ended June 30, 2009, 2008 and 2007of the Parent, the Issuer, the
Guarantors and the Non-Guarantors.
68
Table
of Contents
CONDENSED CONSOLIDATING BALANCE SHEET
(in thousands)
June 30,
2009
|
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
—
|
|
$
|
47,712
|
|
$
|
3,592
|
|
$
|
1,656
|
|
$
|
—
|
|
$
|
52,960
|
|
|
Accounts receivable, net
|
|
—
|
|
12,049
|
|
783
|
|
254
|
|
—
|
|
13,086
|
|
|
Inventories
|
|
—
|
|
—
|
|
179,705
|
|
4,456
|
|
(27,642
|
)
|
156,519
|
|
|
Prepaid expenses and other current assets
|
|
—
|
|
20,509
|
|
8,084
|
|
544
|
|
—
|
|
29,137
|
|
|
Intercompany receivables
|
|
—
|
|
782,736
|
|
227,453
|
|
(3,010
|
)
|
(1,007,179
|
)
|
0
|
|
|
Total current assets
|
|
—
|
|
863,006
|
|
419,617
|
|
3,900
|
|
(1,034,821
|
)
|
251,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
—
|
|
11,748
|
|
317,144
|
|
4,707
|
|
—
|
|
333,599
|
|
|
Goodwill and other intangible assets
|
|
—
|
|
37,905
|
|
7,223
|
|
—
|
|
—
|
|
45,128
|
|
|
Other assets
|
|
—
|
|
15,323
|
|
727
|
|
6
|
|
—
|
|
16,056
|
|
|
Investment in affiliated companies
|
|
612,391
|
|
(20,616
|
)
|
—
|
|
—
|
|
(591,775
|
)
|
—
|
|
|
Total assets
|
|
612,391
|
|
907,366
|
|
744,711
|
|
8,613
|
|
(1,626,596
|
)
|
646,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
—
|
|
—
|
|
42
|
|
—
|
|
—
|
|
42
|
|
|
Customer deposits
|
|
—
|
|
—
|
|
30,412
|
|
1,279
|
|
—
|
|
31,691
|
|
|
Accounts payable
|
|
—
|
|
8,851
|
|
13,106
|
|
242
|
|
—
|
|
22,199
|
|
|
Accrued expenses and other current liabilities
|
|
1,552
|
|
41,004
|
|
15,707
|
|
268
|
|
—
|
|
58,531
|
|
|
Intercompany payables
|
|
304,917
|
|
8,123
|
|
687,826
|
|
6,313
|
|
(1,007,179
|
)
|
—
|
|
|
Total current liabilities
|
|
306,469
|
|
57,978
|
|
747,093
|
|
8,102
|
|
(1,007,179
|
)
|
112,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
—
|
|
198,998
|
|
4,108
|
|
—
|
|
—
|
|
203,106
|
|
|
Other long-term liabilities
|
|
—
|
|
10,565
|
|
14,290
|
|
138
|
|
—
|
|
24,993
|
|
|
Deferred income taxes
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total liabilities
|
|
306,469
|
|
267,541
|
|
765,491
|
|
8,240
|
|
(1,007,179
|
)
|
340,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
305,922
|
|
639,825
|
|
(20,780
|
)
|
373
|
|
(619,417
|
)
|
305,923
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
612,391
|
|
$
|
907,366
|
|
$
|
744,711
|
|
$
|
8,613
|
|
$
|
(1,626,596
|
)
|
$
|
646,485
|
|
69
Table
of Contents
CONDENSED CONSOLIDATING BALANCE SHEET
(in thousands)
June 30,
2008
|
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
—
|
|
$
|
71,117
|
|
$
|
1,307
|
|
$
|
1,952
|
|
$
|
—
|
|
$
|
74,376
|
|
|
Accounts receivable, net
|
|
—
|
|
11,937
|
|
431
|
|
304
|
|
—
|
|
12,672
|
|
|
Inventories
|
|
—
|
|
—
|
|
222,130
|
|
4,964
|
|
(40,829
|
)
|
186,265
|
|
|
Prepaid expenses and other current assets
|
|
—
|
|
17,475
|
|
21,020
|
|
490
|
|
—
|
|
38,985
|
|
|
Intercompany receivables
|
|
—
|
|
712,981
|
|
209,471
|
|
—
|
|
(922,452
|
)
|
—
|
|
|
Total current assets
|
|
—
|
|
813,510
|
|
454,359
|
|
7,710
|
|
(963,281
|
)
|
312,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
—
|
|
13,186
|
|
331,581
|
|
5,665
|
|
—
|
|
350,432
|
|
|
Goodwill and other intangible assets
|
|
—
|
|
37,905
|
|
55,189
|
|
3,729
|
|
—
|
|
96,823
|
|
|
Other assets
|
|
—
|
|
3,604
|
|
929
|
|
7
|
|
—
|
|
4,540
|
|
|
Investment in affiliated companies
|
|
665,427
|
|
118,371
|
|
—
|
|
—
|
|
(783,798
|
)
|
—
|
|
|
Total assets
|
|
665,427
|
|
986,576
|
|
842,058
|
|
17,111
|
|
(1,747,079
|
)
|
764,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
—
|
|
—
|
|
41
|
|
—
|
|
—
|
|
41
|
|
|
Customer deposits
|
|
—
|
|
—
|
|
45,486
|
|
1,811
|
|
—
|
|
47,297
|
|
|
Accounts payable
|
|
—
|
|
9,785
|
|
15,936
|
|
723
|
|
—
|
|
26,444
|
|
|
Accrued expenses and other current liabilities
|
|
6,438
|
|
36,885
|
|
18,022
|
|
375
|
|
—
|
|
61,720
|
|
|
Intercompany payables
|
|
283,216
|
|
597
|
|
628,925
|
|
9,714
|
|
(922,452
|
)
|
—
|
|
|
Total current liabilities
|
|
289,654
|
|
47,267
|
|
708,410
|
|
12,623
|
|
(922,452
|
)
|
135,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
—
|
|
198,837
|
|
4,151
|
|
—
|
|
—
|
|
202,988
|
|
|
Other long-term liabilities
|
|
—
|
|
15,360
|
|
12,380
|
|
184
|
|
—
|
|
27,924
|
|
|
Deferred income taxes
|
|
—
|
|
21,906
|
|
—
|
|
—
|
|
—
|
|
21,906
|
|
|
Total liabilities
|
|
289,654
|
|
283,370
|
|
724,941
|
|
12,807
|
|
(922,452
|
)
|
388,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
375,773
|
|
703,206
|
|
117,117
|
|
4,304
|
|
(824,627
|
)
|
375,773
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
665,427
|
|
$
|
986,576
|
|
$
|
842,058
|
|
$
|
17,111
|
|
$
|
(1,747,079
|
)
|
$
|
764,093
|
|
70
Table
of Contents
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
Year
Ended June 30, 2009
|
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
Net
sales
|
|
$
|
—
|
|
$
|
404,543
|
|
$
|
676,740
|
|
$
|
21,042
|
|
$
|
(428,048
|
)
|
$
|
674,277
|
|
|
Cost
of sales
|
|
—
|
|
302,359
|
|
453,868
|
|
12,007
|
|
(441,299
|
)
|
326,935
|
|
|
Gross
profit
|
|
—
|
|
102,184
|
|
222,872
|
|
9,035
|
|
13,251
|
|
347,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
165
|
|
49,191
|
|
293,296
|
|
10,460
|
|
—
|
|
353,112
|
|
|
Restructuring
and impairment charges
|
|
—
|
|
—
|
|
67,001
|
|
—
|
|
—
|
|
67,001
|
|
|
Total
operating expenses
|
|
165
|
|
49,191
|
|
360,297
|
|
10,460
|
|
—
|
|
420,113
|
|
|
Operating
income (loss)
|
|
(165
|
)
|
52,993
|
|
(137,425
|
)
|
(1,425
|
)
|
13,251
|
|
(72,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other miscellaneous income (expense), net
|
|
(52,522
|
)
|
(135,736
|
)
|
43
|
|
83
|
|
191,487
|
|
3,355
|
|
|
Interest
and other related financing costs
|
|
—
|
|
11,459
|
|
305
|
|
—
|
|
—
|
|
11,764
|
|
|
Income
(loss) before income tax expense
|
|
(52,687
|
)
|
(94,202
|
)
|
(137,687
|
)
|
(1,342
|
)
|
204,738
|
|
(81,180
|
)
|
|
Income
tax expense (benefit)
|
|
—
|
|
(28,493
|
)
|
—
|
|
—
|
|
—
|
|
(28,493
|
)
|
|
Net
income/(loss)
|
|
$
|
(52,687
|
)
|
$
|
(65,709
|
)
|
$
|
(137,687
|
)
|
$
|
(1,342
|
)
|
$
|
204,738
|
|
$
|
(52,687
|
)
|
71
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
Year
Ended June 30, 2008
|
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
Net
sales
|
|
$
|
—
|
|
$
|
617,547
|
|
$
|
982,404
|
|
$
|
27,192
|
|
$
|
(647,098
|
)
|
$
|
980,045
|
|
|
Cost
of sales
|
|
—
|
|
436,642
|
|
648,437
|
|
14,279
|
|
(645,378
|
)
|
453,980
|
|
|
Gross
profit
|
|
—
|
|
180,905
|
|
333,967
|
|
12,913
|
|
(1,720
|
)
|
526,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
166
|
|
50,555
|
|
359,719
|
|
12,789
|
|
—
|
|
423,229
|
|
|
Restructuring
and impairment charges
|
|
—
|
|
—
|
|
6,836
|
|
—
|
|
—
|
|
6,836
|
|
|
Total
operating expenses
|
|
166
|
|
50,555
|
|
366,555
|
|
12,789
|
|
—
|
|
430,065
|
|
|
Operating
income (loss)
|
|
(166
|
)
|
130,350
|
|
(32,588
|
)
|
124
|
|
(1,720
|
)
|
96,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other miscellaneous income (expense), net
|
|
58,238
|
|
(24,901
|
)
|
603
|
|
121
|
|
(26,170
|
)
|
7,891
|
|
|
Interest
and other related financing costs
|
|
—
|
|
11,408
|
|
305
|
|
—
|
|
—
|
|
11,713
|
|
|
Income
(loss) before income tax expense
|
|
58,072
|
|
94,041
|
|
(32,290
|
)
|
245
|
|
(27,890
|
)
|
92,178
|
|
|
Income
tax expense (benefit)
|
|
—
|
|
33,995
|
|
111
|
|
—
|
|
—
|
|
34,106
|
|
|
Net
income/(loss)
|
|
$
|
58,072
|
|
$
|
60,046
|
|
$
|
(32,401
|
)
|
$
|
245
|
|
$
|
(27,890
|
)
|
$
|
58,072
|
|
72
Table of Contents
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
Year
Ended June 30, 2007
|
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
Net
sales
|
|
$
|
—
|
|
$
|
655,967
|
|
$
|
959,799
|
|
$
|
22,704
|
|
$
|
(633,158
|
)
|
$
|
1,005,312
|
|
|
Cost
of sales
|
|
—
|
|
461,479
|
|
636,246
|
|
11,018
|
|
(630,014
|
)
|
478,729
|
|
|
Gross
profit
|
|
—
|
|
194,488
|
|
323,553
|
|
11,686
|
|
(3,144
|
)
|
526,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
166
|
|
45,232
|
|
346,051
|
|
10,573
|
|
—
|
|
402,022
|
|
|
Restructuring
and impairment charges
|
|
—
|
|
—
|
|
13,442
|
|
—
|
|
—
|
|
13,442
|
|
|
Total
operating expenses
|
|
166
|
|
45,232
|
|
359,493
|
|
10,573
|
|
—
|
|
415,464
|
|
|
Operating
income (loss)
|
|
(166
|
)
|
149,256
|
|
(35,940
|
)
|
1,113
|
|
(3,144
|
)
|
111,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other miscellaneous income (expense), net
|
|
69,393
|
|
(26,137
|
)
|
(97
|
)
|
(55
|
)
|
(32,735
|
)
|
10,369
|
|
|
Interest
and other related financing costs
|
|
—
|
|
11,457
|
|
305
|
|
—
|
|
—
|
|
11,762
|
|
|
Income
(loss) before income tax expense
|
|
69,227
|
|
111,662
|
|
(36,342
|
)
|
1,058
|
|
(35,879
|
)
|
109,726
|
|
|
Income
tax expense (benefit)
|
|
—
|
|
39,013
|
|
1,486
|
|
—
|
|
—
|
|
40,499
|
|
|
Net
income/(loss)
|
|
$
|
69,227
|
|
$
|
72,649
|
|
$
|
(37,828
|
)
|
$
|
1,058
|
|
$
|
(35,879
|
)
|
$
|
69,227
|
|
73
Table
of Contents
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
Year
Ended June 30, 2009
|
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
Net
cash provided by (used in) operating activities
|
|
$
|
23,615
|
|
$
|
(20,986
|
)
|
$
|
18,710
|
|
$
|
594
|
|
$
|
—
|
|
$
|
21,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
—
|
|
(1,337
|
)
|
(21,097
|
)
|
(103
|
)
|
—
|
|
(22,537
|
)
|
|
Acquisitions
|
|
—
|
|
—
|
|
(1,366
|
)
|
—
|
|
—
|
|
(1,366
|
)
|
|
Proceeds
from the disposal of property, plant and equipment
|
|
—
|
|
88
|
|
6,296
|
|
—
|
|
—
|
|
6,384
|
|
|
Other
|
|
—
|
|
210
|
|
(217
|
)
|
—
|
|
—
|
|
(7
|
)
|
|
Net
cash used in investing activities
|
|
—
|
|
(1,039
|
)
|
(16,384
|
)
|
(103
|
)
|
—
|
|
(17,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
—
|
|
—
|
|
(41
|
)
|
—
|
|
—
|
|
(41
|
)
|
|
Purchases
and other retirements of company stock
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Proceeds
from issuance of common stock
|
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2
|
|
|
(Increase)
decrease in deferred financing costs
|
|
—
|
|
(1,380
|
)
|
—
|
|
—
|
|
—
|
|
(1,380
|
)
|
|
Dividends
paid
|
|
(23,617
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(23,617
|
)
|
|
Net
cash provided by (used in) financing activities
|
|
(23,615
|
)
|
(1,380
|
)
|
(41
|
)
|
—
|
|
—
|
|
(25,036
|
)
|
|
Effect
of exchange rate changes on cash
|
|
—
|
|
—
|
|
—
|
|
(787
|
)
|
—
|
|
(787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
—
|
|
(23,405
|
)
|
2,285
|
|
(296
|
)
|
—
|
|
(21,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — beginning of period
|
|
—
|
|
71,117
|
|
1,307
|
|
1,952
|
|
—
|
|
74,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — end of period
|
|
$
|
—
|
|
$
|
47,712
|
|
$
|
3,592
|
|
$
|
1,656
|
|
$
|
—
|
|
$
|
52,960
|
|
74
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
Year
Ended June 30, 2008
|
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
Net
cash provided by (used in) operating activities
|
|
$
|
100,598
|
|
$
|
(68,050
|
)
|
$
|
52,512
|
|
$
|
1,077
|
|
$
|
—
|
|
$
|
86,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
—
|
|
(5,217
|
)
|
(54,784
|
)
|
(37
|
)
|
—
|
|
(60,038
|
)
|
|
Acquisitions
|
|
—
|
|
—
|
|
(7,777
|
)
|
—
|
|
—
|
|
(7,777
|
)
|
|
Proceeds
from the disposal of property, plant and equipment
|
|
—
|
|
—
|
|
6,943
|
|
—
|
|
—
|
|
6,943
|
|
|
Other
|
|
—
|
|
38
|
|
(500
|
)
|
—
|
|
—
|
|
(462
|
)
|
|
Net
cash used in investing activities
|
|
—
|
|
(5,179
|
)
|
(56,118
|
)
|
(37
|
)
|
—
|
|
(61,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
—
|
|
—
|
|
(40
|
)
|
—
|
|
—
|
|
(40
|
)
|
|
Purchases
and other retirements of company stock
|
|
(75,577
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(75,577
|
)
|
|
Proceeds
from issuance of common stock
|
|
474
|
|
—
|
|
—
|
|
—
|
|
—
|
|
474
|
|
|
Excess
tax benefits from share-based payment arrangements
|
|
—
|
|
2,093
|
|
—
|
|
—
|
|
—
|
|
2,093
|
|
|
Dividends
paid
|
|
(25,495
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(25,495
|
)
|
|
Net
cash provided by (used in) financing activities
|
|
(100,598
|
)
|
2,093
|
|
(40
|
)
|
—
|
|
—
|
|
(98,545
|
)
|
|
Effect
of exchange rate changes on cash
|
|
—
|
|
—
|
|
—
|
|
239
|
|
—
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
—
|
|
(71,136
|
)
|
(3,646
|
)
|
1,279
|
|
—
|
|
(73,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — beginning of period
|
|
—
|
|
142,253
|
|
4,953
|
|
673
|
|
—
|
|
147,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — end of period
|
|
$
|
—
|
|
$
|
71,117
|
|
$
|
1,307
|
|
$
|
1,952
|
|
$
|
—
|
|
$
|
74,376
|
|
75
Table
of Contents
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)
Year
Ended June 30, 2007
|
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
$
|
81,428
|
|
$
|
(32,386
|
)
|
$
|
69,841
|
|
$
|
306
|
|
$
|
—
|
|
$
|
119,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
—
|
|
(2,713
|
)
|
(56,084
|
)
|
(276
|
)
|
—
|
|
(59,073
|
)
|
|
Acquisitions
|
|
—
|
|
—
|
|
(15,297
|
)
|
—
|
|
—
|
|
(15,297
|
)
|
|
Proceeds
from the disposal of property, plant and equipment
|
|
—
|
|
—
|
|
5,431
|
|
—
|
|
—
|
|
5,431
|
|
|
Other
|
|
—
|
|
198
|
|
—
|
|
—
|
|
—
|
|
198
|
|
|
Net
cash used in investing activities
|
|
—
|
|
(2,515
|
)
|
(65,950
|
)
|
(276
|
)
|
—
|
|
(68,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
—
|
|
—
|
|
(38
|
)
|
—
|
|
—
|
|
(38
|
)
|
|
Payment
of deferred financing costs
|
|
—
|
|
(107
|
)
|
—
|
|
—
|
|
—
|
|
(107
|
)
|
|
Purchases
and other retirements of company stock
|
|
(57,152
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(57,152
|
)
|
|
Proceeds
from the issuance of common stock
|
|
521
|
|
—
|
|
—
|
|
—
|
|
—
|
|
521
|
|
|
Excess
tax benefits from share-based payment arrangements
|
|
—
|
|
5,015
|
|
—
|
|
—
|
|
—
|
|
5,015
|
|
|
Dividends
paid
|
|
(24,797
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(24,797
|
)
|
|
Net
cash provided by (used in) financing activities
|
|
(81,428
|
)
|
4,908
|
|
(38
|
)
|
—
|
|
—
|
|
(76,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
—
|
|
—
|
|
—
|
|
188
|
|
—
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
—
|
|
(29,993
|
)
|
3,853
|
|
218
|
|
—
|
|
(25,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — beginning of period
|
|
—
|
|
172,246
|
|
1,100
|
|
455
|
|
—
|
|
173,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents — end of period
|
|
$
|
—
|
|
$
|
142,253
|
|
$
|
4,953
|
|
$
|
673
|
|
$
|
—
|
|
$
|
147,879
|
|
76
Table
of Contents
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
No changes in, or disagreements with, accountants as a result of accounting
or financial disclosure matters, occurred during fiscal years 2009, 2008 or
2007.
Item
9A. Controls and Procedures
Management’s Report on Disclosure
Controls and Procedures
Our management, including the Chairman of the Board and Chief Executive
Officer (“CEO”) and the Vice President-Finance (“VPF”), conducted an evaluation
of the effectiveness of disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the
period covered by this report. Based on such evaluation, the CEO and VPF have
concluded that, as of June 30, 2009, our disclosure controls and
procedures were effective in ensuring that material information relating to us
(including our consolidated subsidiaries), which is required to be disclosed by
us in our periodic reports filed or submitted under the Exchange Act is (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and (ii) accumulated and communicated to
management, including the CEO and VPF, as appropriate, to allow timely
decisions regarding required disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f) and
15d-15(f). Under the supervision and with the participation of management,
including the CEO and VPF, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in
Internal Control - Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission (
“
COSO
”
). Based on that evaluation, management
concluded that our internal control over financial reporting was effective as
of June 30, 2009.
KPMG LLP, the independent
registered public accounting firm that audited the consolidated financial
statements included in this Annual Report on Form 10-K, has also audited
the effectiveness of our internal control over financial reporting as of June 30,
2009, as stated in their report included under Item 8 of this Annual Report.
Changes in Internal Control over
Financial Reporting
There have been no
changes in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fourth fiscal quarter ended June 30, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Item
9B. Other Information
None.
PART III
Except as set forth below, the information required by Items 10, 11,
12, 13 and 14 will appear in the Ethan Allen Interiors Inc. proxy statement for
the Annual Meeting of Shareholders scheduled to be held on November 17,
2009 (the “Proxy Statement”). The Proxy
Statement, which will be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, is incorporated by reference in this Annual Report
pursuant to General Instruction G(3) of Form 10-K (other than the
portions thereof not deemed to be “filed” for the purpose of Section 18 of
the Securities Exchange Act of 1934). In
addition, the information set forth below is provided as required by Item 10
and the listing standards of the New York Stock Exchange (“NYSE”).
77
Table
of Contents
Item
10. Directors, Executive Officers and Corporate Governance
Code
of Ethics
We have adopted a
code of ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions. Our code of ethics can be accessed via our
website at
www.ethanallen.com/governance
.
We intend to
disclose any amendment of our Code of Ethics, or waiver of provision thereof,
applicable to our principal executive officer and/or principal financial
officer, or persons performing similar functions, on our website within 4 days
of the date of such amendment or waiver.
In the case of a waiver, the nature of the waiver, the name of the
person to whom the waiver was granted, and the date of the waiver will also be
disclosed.
Information
contained on, or connected to, our website is not incorporated by reference
into this Form 10-K and should not be considered part of this or any other
report that we file with, or furnish to, the SEC.
Audit Committee Financial Expert
Our Board of
Directors has determined that we have three “audit committee financial
experts”, as defined under Item 407(d)(5)(ii) of Regulation S-K of the
Securities Exchange Act of 1934, currently serving on our Audit Committee. Those members of our Audit Committee who are
deemed to be audit committee financial experts are as follows:
Clinton A. Clark
Kristin Gamble
Richard A. Sandberg
All persons
identified as audit committee financial experts are independent from management
as defined by Item 7(d)(3), of Schedule 14A.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Equity
Compensation Plan Information
The following table sets forth certain information regarding our equity
compensation plans at June 30, 2009.
|
Plan Category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
first column)
|
|
|
Equity compensation plans approved by security
holders (1)
|
|
2,165,136
|
|
$
|
28.85
|
|
1,105,260
|
|
|
Equity compensation plans not approved by security
holders (2)
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
|
2,165,136
|
|
$
|
28.85
|
|
1,105,260
|
|
(1)
Amount includes stock options outstanding under our 1992 Stock Option
Plan (the “Plan”) as well as nonvested shares of restricted stock and vested
Stock Units which have been provided for under the provisions of the Plan. See Note 11 to our Consolidated Financial
Statements included under Item 8 of this Annual Report.
(2)
As of June 30, 2009, we do not maintain any equity compensation
plans which have not been approved by our shareholders.
78
Table
of Contents
NYSE
Certification
Mr. Kathwari, Chief Executive Officer and President, has certified
to the NYSE, pursuant to Section 303A.12 of the NYSE’s Listing Company
Manual, that he is unaware of any violation by the Company of the NYSE’s
corporate governance listing standards.
PART IV
Item
15. Exhibits and Financial Statement Schedules
I.
Listing of Documents
(1)
Financial Statements
. Our Consolidated Financial Statements, included under Item 8 hereof,
as required at June 30, 2009 and 2008, and for the years ended June 30,
2009, 2008 and 2007 consist of the following:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedule.
Our Financial Statement Schedule, appended hereto, as required for the
years ended June 30, 2009, 2008 and 2007 consists of the following:
Valuation and Qualifying Accounts
The schedules listed in Reg. 210.5-04, except those listed above, have
been omitted because they are not applicable or the required information is shown
in the consolidated financial statements or notes thereto.
(3)
The following Exhibits are filed as part of this report on Form 10-K:
|
|
|
Exhibit
|
|
|
|
|
|
Number
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
3 (a)
|
|
Restated
Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3(c) to the Registration Statement on Form S-1 of the
Company filed with the SEC on March 16, 1993)
|
|
|
|
3 (a)-1
|
|
Certificate of
Amendment to Restated Certificate of Incorporation as of August 5, 1997
(incorporated by reference to Exhibit 3(c)-2 to the Quarterly Report on
Form 10-Q of the Company filed with the SEC on May 13, 1999)
|
|
|
|
3 (a)-2
|
|
Second
Certificate of Amendment to Restated Certificate of Incorporation as of
March 27, 1998 (incorporated by reference to Exhibit 3(c)-3 to the Quarterly
Report on Form 10-Q of the Company filed with the SEC on May 13,
1999)
|
|
|
|
3 (a)-3
|
|
Third
Certificate of Amendment to Restated Certificate of Incorporation as of
April 28, 1999 (incorporated by reference to Exhibit 3(c)-4 to the
Quarterly Report on Form 10-Q of the Company filed with the SEC on
May 13, 1999)
|
|
|
|
3 (b)
|
|
Certificate of
Designation relating to the New Convertible Preferred Stock (incorporated by
reference to the Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)
|
|
|
|
3 (c)
|
|
Certificate of
Designation relating to the Series C Junior Participating Preferred
Stock (incorporated by reference to Exhibit 1 to Form 8-A of the
Company filed with the SEC on July 3, 1996)
|
79
Table
of Contents
|
|
|
3 (c)-1
|
|
Certificate of
Amendment of Certificate of Designation of Series C Junior Participating
Preferred Stock (incorporated by reference to Exhibit 3(c)-1 to the
Annual Report on Form 10-K of the Company filed with the SEC on
September 13, 2005
|
|
|
|
3 (d)
|
|
Amended and
Restated By-laws of the Company (incorporated by reference to
Exhibit 3(d) to the Registration Statement on Form S-1 of the
Company filed with the SEC on March 16, 1993)
|
|
|
|
3 (e)
|
|
Certificate of
Incorporation of Ethan Allen Global, Inc. (incorporated by reference to
Exhibit 3(e) to the Registration Statement on Form S-4 of
Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
|
|
|
|
3
(f)
|
|
By-laws of Ethan Allen
Global, Inc. (incorporated by reference to Exhibit 3(f) to the
Registration Statement on Form S-4 of Ethan Allen Global, Inc.
filed with the SEC on February 3, 2006)
|
|
|
|
3
(g)
|
|
Restated Certificate of
Incorporation of Ethan Allen Inc. (now known as, Ethan Allen
Retail, Inc.) (incorporated by reference to Exhibit 3(g) to
the Registration Statement on Form S-4 of Ethan Allen Global, Inc.
filed with the SEC on February 3, 2006)
|
|
|
|
3
(g)-1
|
|
Certificate of
Amendment of Restated Certificate of Incorporation of Ethan Allen Inc. (now known as Ethan Allen
Retail, Inc.) as of June 29,
2005 (incorporated by reference to Exhibit 3(g)-1 to the Registration
Statement on Form S-4 of Ethan Allen Global, Inc. filed with the
SEC on February 3, 2006)
|
|
|
|
3
(h)
|
|
Amended and Restated
By-laws of Ethan Allen Inc. (now known as Ethan Allen Retail, Inc.)
(incorporated by reference to Exhibit 3(h) to the Registration
Statement on Form S-4 of Ethan Allen Global, Inc. filed with the
SEC on February 3, 2006)
|
|
|
|
3
(i)
|
|
Certificate of
Incorporation of Ethan Allen Manufacturing Corporation (now known as Ethan
Allen Operations, Inc.) (incorporated by reference to
Exhibit 3(i) to the Registration Statement on Form S-4 of
Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
|
|
|
|
3
(i)-1
|
|
Certificate of
Amendment of Certificate of Incorporation of Ethan Allen Manufacturing
Corporation (now known as, Ethan Allen
Operations, Inc.) as of June 29, 2005 (incorporated by reference to
Exhibit 3(i)-1 to the Registration Statement on Form S-4 of Ethan
Allen Global, Inc. filed with the SEC on February 3, 2006)
|
|
|
|
3
(j)
|
|
By-laws of Ethan Allen
Manufacturing Corporation (now known as, Ethan Allen Operations, Inc.)
(incorporated by reference to Exhibit 3(j) to the Registration
Statement on Form S-4 of Ethan Allen Global, Inc. filed with the
SEC on February 3, 2006)
|
|
|
|
3
(k)
|
|
Certificate of Formation of Ethan Allen Realty, LLC
(incorporated by reference to Exhibit 3(k) to the Registration
Statement on Form S-4 of Ethan Allen Global, Inc. filed with the
SEC on February 3, 2006)
|
|
|
|
3
(l)
|
|
Limited Liability
Company Operating Agreement of Ethan Allen Realty, LLC (incorporated by
reference to Exhibit 3(l) to the Registration Statement on
Form S-4 of Ethan Allen Global, Inc. filed with the SEC on
February 3, 2006)
|
|
|
|
3
(l)-1
|
|
Amendment No. 1 to
Operating Agreement of Ethan Allen Realty, LLC as of June 30, 2005
(incorporated by reference to Exhibit 3(l)-1 to the Registration
Statement on Form S-4 of Ethan Allen Global, Inc. filed with the
SEC on February 3, 2006)
|
|
|
|
3
(m)
|
|
Certificate of
Incorporation of Lake Avenue Associates, Inc. (incorporated by reference
to Exhibit 3(m) to the Registration Statement on Form S-4 of
Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
|
|
|
|
3
(n)
|
|
By-laws of Lake Avenue
Associates, Inc. (incorporated by reference to Exhibit 3(n) to
the Registration Statement on Form S-4 of Ethan Allen Global, Inc.
filed with the SEC on February 3, 2006)
|
|
|
|
3
(o)
|
|
Certificate of
Incorporation of Manor House, Inc. (incorporated by reference to
Exhibit 3(o) to the Registration Statement on Form S-4 of
Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
|
80
Table
of Contents
|
|
|
3
(p)
|
|
Restated By-laws of
Manor House, Inc. (incorporated by reference to
Exhibit 3(p) to the Registration Statement on Form S-4 of
Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
|
|
|
|
4 (a)
|
|
Rights
Agreement, dated July 26, 1996, between the Company and Harris Trust and
Savings Bank (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of the Company filed with the SEC on July 3,
1996)
|
|
|
|
4 (a)-1
|
|
Amendment No. 1
to Rights Agreement, dated as of December 23, 2004 between the Company
and Harris Trust Savings Bank and Computershare Investor Services, LLC
(incorporated by reference to Exhibit 4(a)-1 to the Annual Report on
Form 10-K of the Company filed with the SEC on September 13, 2005
|
|
|
|
4 (b)
|
|
Form of
outstanding 5.375% Senior Note due 2015 pursuant to Rule 144A of the
Securities Act (incorporated by reference to Exhibit A to
Exhibit 10.2 to the Current Report on Form 8-K of the Company filed
with the SEC on September 30, 2005)
|
|
|
|
4 (c)
|
|
Indenture dated
September 27, 2005, by and among
Ethan
Allen Global, Inc., the Guarantors named therein, and the Initial
Purchaser named therein, relating to the Notes (incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K of Ethan Allen
Interiors Inc. filed with the SEC on September 30, 2005)
|
|
|
|
4
(d)
|
|
Form of
Exchange Note
(incorporated
by reference to Exhibit 4(d) to the Registration Statement on
Form S-4 of Ethan Allen Global, Inc. filed with the SEC on
February 3, 2006)
|
|
|
|
10 (a)
|
|
Restated
Directors Indemnification Agreement dated March 1993, among the Company
and Ethan Allen and their Directors (incorporated by reference to
Exhibit 10(c) to the Registration Statement on Form S-1 of the
Company filed with the SEC on March 16, 1993)
|
|
|
|
10 (b)
|
|
The Ethan Allen
Retirement Savings Plan as Amended and Restated, effective January 1,
2006 (incorporated by reference to Exhibit 10(b)-7 to the Quarterly
Report on Form 10-Q of the Company filed with the SEC on November 5,
2007
|
|
|
|
10 (c)
|
|
General Electric
Capital Corporation Credit Card Program Agreement dated August 25, 1995
(incorporated by reference from Exhibit 10(h) to the Annual Report
on Form 10-K of the Company filed with the SEC on September 21,
1995)
|
|
|
|
10 (c)-1
|
|
First Amendment
to Credit Card Program Agreement dated February 22, 2000 (incorporated
by reference to Exhibit 10(h)-1 to the Annual Report on Form 10-K
of the Company filed with the SEC on September 13, 2000)
|
|
|
|
10 (d)
|
|
Sales Finance
Agreement, dated June 25, 1999, between the Company and MBNA America
Bank, N.A. (incorporated by reference to Exhibit 10(j) to the
Annual Report on Form 10-K of the Company filed with the SEC on
September 13, 2000)
|
|
|
|
10 (e)
|
|
Second Amended
and Restated Private Label Consumer Credit Card Program Agreement, dated as
of July 23, 2007, by and between Ethan Allen Global, Inc., Ethan
Allen Retail, Inc. and GE Money Bank (incorporated by reference to
Exhibit 10(e)-3 to the Quarterly Report on Form 10-Q of the Company
filed with the SEC on November 5, 2007)
|
|
|
|
10 (f)
|
|
Employment
Agreement, dated As of November 13, 2007, between Mr. Kathwari and
Ethan Allen Interiors Inc. (incorporated by reference to
Exhibit 10(h) to the Current Report on Form 8-K of the Company
filed with the SEC on November 19, 2007
|
|
|
|
10 (g)-1
|
|
Credit
Agreement, dated as of July 21, 2005, by and among Ethan Allen
Global, Inc., Ethan Allen Interiors Inc., the J.P. Morgan Chase Bank,
N.A., Citizens Bank of Massachusetts, Wachovia Bank, N.A. and certain other
lenders (incorporated by reference to Exhibit 10 (g) to Amendment
No. 4 to the Registration Statement on Form S-4 of Ethan Allen
Global, Inc. filed with
|
81
Table
of Contents
|
|
|
|
|
the SEC on
March 9, 2006) (confidential treatment granted under Rule 24b-2 as
to certain portions which are omitted and filed separately with the SEC)
|
|
*
|
|
10 (g)-2
|
|
Credit
Agreement, dated as of May 29, 2009, among Ethan Allen
Global, Inc., Ethan Allen Interiors Inc., J.P. Morgan Chase Bank, N.A.,
and Capital One Leverage Finance Corp (confidential treatment requested as to
certain portions)
|
|
|
|
10 (h)
|
|
Amended and
Restated 1992 Stock Option Plan (incorporated by reference to
Exhibit 10(f) to the Current Report on Form 8-K of the Company
filed with the SEC on November 19, 2007)
|
|
|
|
10 (h)-1
|
|
Form of
Option Agreement for Grants to Independent Directors (incorporated by
reference to Exhibit 10(h)-4 to the Annual Report on Form 10-K of
the Company filed with the SEC on September 13, 2005
|
|
|
|
10 (h)-2
|
|
Form of
Option Agreement for Grants to Employees (incorporated by reference to
Exhibit 10(h)-5 to the Annual Report on Form 10-K of the Company
filed with the SEC on September 13, 2005
|
|
|
|
10(h)-3
|
|
Form of
Restricted Stock Agreement for Executives (incorporated by reference to
Exhibit 10(f)-1 to the Current Report on Form 10-8 of the Company
filed with the SEC on November 19, 2007
|
|
|
|
10(h)-4
|
|
Form of
Restricted Stock Agreement for Directors (incorporated by reference to
Exhibit 10(f)-2 to the Current Report on Form 8-K of the Company
filed with the SEC on November 19, 2007
|
|
|
|
10 (i)
|
|
Purchase Agreement
dated September 22, 2005, by
and
between Ethan Allen Global, Inc., the Guarantors named therein, and the
Initial Purchaser named therein, relating to the Initial Notes (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K of
the Company filed with the SEC on September 30, 2005)
|
|
|
|
10
(j)
|
|
Registration Rights
Agreement dated September 27, 2005, by and among Ethan Allen
Global, Inc., the Guarantors named therein, and the Initial Purchaser
named therein, relating to the Notes (incorporated by reference to
Exhibit 10.3 to the Current Report on Form 8-K of Ethan Allen
Interiors Inc. filed with the SEC on September 30, 2005)
|
|
|
*
|
12 (a)
|
|
Computation of
Ratio of Earnings to Fixed Charges
|
|
|
*
|
21
|
|
List of
wholly-owned subsidiaries of the Company
|
|
|
*
|
23
|
|
Report and
Consent of KPMG LLP
|
|
|
*
|
31.1
|
|
Rule 13a-14(a) Certification
of Principal Executive Officer
|
|
|
*
|
31.2
|
|
Rule 13a-14(a) Certification
of Principal Financial Officer
|
|
|
*
|
32.1
|
|
Section 1350
Certification of Principal Executive Officer
|
|
|
*
|
32.2
|
|
Section 1350
Certification of Principal Financial Officer
|
82
Table
of Contents
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
As of and for the Fiscal Years Ended June 30,
2009, 2008 and 2007
(In thousands)
|
|
|
Balance at
Beginning
of Period
|
|
Additions
(Reductions)
Charged to
Income
|
|
Adjustments
and/or
Deductions
|
|
Balance at
End of Period
|
|
|
Accounts Receivable:
|
|
|
|
|
|
|
|
|
|
|
Sales discounts, sales returns and allowance for
doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
$
|
2,535
|
|
$
|
(773
|
)
|
$
|
(400
|
)
|
$
|
1,362
|
|
|
June 30, 2008
|
|
$
|
2,042
|
|
$
|
493
|
|
$
|
—
|
|
$
|
2,535
|
|
|
June 30, 2007
|
|
$
|
2,074
|
|
$
|
10
|
|
$
|
(42
|
)
|
$
|
2,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory:
|
|
|
|
|
|
|
|
|
|
|
Inventory valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
$
|
2,260
|
|
$
|
—
|
|
$
|
(56
|
)
|
$
|
2,204
|
|
|
June 30, 2008
|
|
$
|
2,930
|
|
$
|
—
|
|
$
|
(670
|
)
|
$
|
2,260
|
|
|
June 30, 2007
|
|
$
|
2,930
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,930
|
|
83
Table
of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
ETHAN ALLEN
INTERIORS INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
By
|
/s/ M. Farooq
Kathwari
|
|
|
|
(M. Farooq
Kathwari)
|
|
|
|
Chairman,
President and
|
|
|
|
Chief Executive
Officer
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
By
|
/s/ David R.
Callen
|
|
|
|
(David R.
Callen)
|
|
|
|
Vice President,
Finance and Treasurer
|
|
|
|
(Principal
Financial Officer and
|
|
|
|
Principal
Accounting Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
|
/s/ M. Farooq Kathwari
|
|
Chairman,
President and
|
|
(M. Farooq Kathwari)
|
|
Chief Executive
Officer
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/ David R. Callen
|
|
Vice President,
Finance and Treasurer
|
|
(David R. Callen)
|
|
(Principal
Financial Officer and
|
|
|
|
Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/ John P. Birkelund
|
|
Director
|
|
(John P. Birkelund)
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Clinton A. Clark
|
|
Director
|
|
(Clinton A. Clark)
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Kristin Gamble
|
|
Director
|
|
(Kristin Gamble)
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Edward H. Meyer
|
|
Director
|
|
(Edward H. Meyer)
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Richard A. Sandberg
|
|
Director
|
|
(Richard A. Sandberg)
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Frank G. Wisner
|
|
Director
|
|
(Frank G. Wisner)
|
|
|
|
|
|
|
|
|
|
|
|
Date:
August 24, 2009
|
|
|
84
Exhibit 10(g)-2
EXECUTION COPY
ETHAN ALLEN INTERIORS INC. HAS CLAIMED CONFIDENTIAL TREATMENT OF
PORTIONS OF THIS DOCUMENT IN ACCORDANCE WITH RULE 24-B UNDER THE SECURITIES
EXCHANGE ACT OF 1934
CREDIT AGREEMENT
dated as of
May 29, 2009
Among
ETHAN ALLEN GLOBAL, INC.
as Borrower
ETHAN ALLEN INTERIORS INC.
The Other Loan Parties Party Hereto
The Lenders Party Hereto
JPMORGAN CHASE BANK, N.A.
as Administrative Agent
JPMORGAN CHASE BANK, N.A.
as Syndication Agent
and
CAPITAL ONE LEVERAGE FINANCE CORP.
as Documentation Agent
J.P. MORGAN SECURITIES INC.
as Sole Bookrunner and Sole Lead Arranger
TABLE
OF CONTENTS
|
ARTICLE I Definitions
|
1
|
|
|
|
|
SECTION 1.01.
|
Defined Terms
|
1
|
|
SECTION 1.02.
|
Classification of Loans and Borrowings
|
28
|
|
SECTION 1.03.
|
Terms Generally
|
28
|
|
SECTION 1.04.
|
Accounting Terms; GAAP
|
28
|
|
|
|
|
ARTICLE II The Credits
|
29
|
|
|
|
|
SECTION 2.01.
|
Commitments
|
29
|
|
SECTION 2.02.
|
Loans and Borrowings
|
29
|
|
SECTION 2.03.
|
Requests for Revolving Borrowings
|
29
|
|
SECTION 2.04.
|
Protective Advances
|
30
|
|
SECTION 2.05.
|
Swingline Loans and Overadvances
|
31
|
|
SECTION 2.06.
|
Letters of Credit
|
32
|
|
SECTION 2.07.
|
Funding of Borrowings
|
35
|
|
SECTION 2.08.
|
Interest Elections
|
36
|
|
SECTION 2.09.
|
Termination and Reduction of Commitments; Increase in
Commitments
|
37
|
|
SECTION 2.10.
|
Repayment and Amortization of Loans; Evidence of Debt
|
38
|
|
SECTION 2.11.
|
Prepayment of Loans
|
39
|
|
SECTION 2.12.
|
Fees
|
40
|
|
SECTION 2.13.
|
Interest
|
41
|
|
SECTION 2.14.
|
Alternate Rate of Interest
|
41
|
|
SECTION 2.15.
|
Increased Costs
|
42
|
|
SECTION 2.16.
|
Break Funding Payments
|
43
|
|
SECTION 2.17.
|
Taxes
|
43
|
|
SECTION 2.18.
|
Payments Generally; Allocation of Proceeds; Sharing of
Set-offs
|
44
|
|
SECTION 2.19.
|
Mitigation Obligations; Replacement of Lenders
|
47
|
|
SECTION 2.20.
|
Defaulting Lenders
|
47
|
|
SECTION 2.21.
|
Returned Payments
|
48
|
|
SECTION 2.22.
|
Senior Debt
|
49
|
|
|
|
|
|
ARTICLE III Representations and Warranties
|
49
|
|
|
|
|
|
SECTION 3.01.
|
Organization; Powers
|
49
|
|
SECTION 3.02.
|
Authorization; Enforceability
|
49
|
|
SECTION 3.03.
|
Governmental Approvals; No Conflicts
|
49
|
|
SECTION 3.04.
|
Financial Condition; No Material Adverse Change
|
49
|
|
SECTION 3.05.
|
Properties
|
50
|
|
SECTION 3.06.
|
Litigation and Environmental Matters
|
50
|
|
SECTION 3.07.
|
Compliance with Laws and Agreements
|
51
|
|
SECTION 3.08.
|
Investment Company Status
|
51
|
|
SECTION 3.09.
|
Taxes
|
51
|
|
SECTION 3.10.
|
ERISA
|
51
|
|
SECTION 3.11.
|
Disclosure
|
51
|
|
SECTION 3.12.
|
Material Agreements
|
52
|
i
|
SECTION 3.13.
|
Solvency
|
52
|
|
SECTION 3.14.
|
Insurance
|
52
|
|
SECTION 3.15.
|
Capitalization and Subsidiaries
|
52
|
|
SECTION 3.16.
|
No Burdensome Restrictions
|
52
|
|
SECTION 3.17.
|
Federal Reserve Regulations
|
52
|
|
SECTION 3.18.
|
Security Interest in Collateral
|
52
|
|
SECTION 3.19.
|
Employment Matters
|
53
|
|
SECTION 3.20.
|
Common Enterprise
|
53
|
|
SECTION 3.21.
|
Credit Card Processors
|
53
|
|
|
|
|
|
ARTICLE IV Conditions
|
53
|
|
|
|
|
|
SECTION 4.01.
|
Effective Date
|
53
|
|
SECTION 4.02.
|
Each Credit Event
|
56
|
|
|
|
|
|
ARTICLE V Affirmative Covenants
|
56
|
|
|
|
|
SECTION 5.01.
|
Financial Statements; Borrowing Base and Other Information
|
56
|
|
SECTION 5.02.
|
Notices of Material Events
|
60
|
|
SECTION 5.03.
|
Existence; Conduct of Business
|
60
|
|
SECTION 5.04.
|
Payment of Obligations
|
60
|
|
SECTION 5.05.
|
Maintenance of Properties
|
61
|
|
SECTION 5.06.
|
Books and Records; Inspection Rights
|
61
|
|
SECTION 5.07.
|
Compliance with Laws
|
61
|
|
SECTION 5.08.
|
Use of Proceeds
|
61
|
|
SECTION 5.09.
|
Insurance
|
61
|
|
SECTION 5.10.
|
Casualty and Condemnation
|
61
|
|
SECTION 5.11.
|
Appraisals
|
61
|
|
SECTION 5.12.
|
Field Examinations
|
62
|
|
SECTION 5.13.
|
[Intentionally Omitted]
|
62
|
|
SECTION 5.14.
|
Credit Card Processors
|
62
|
|
SECTION 5.15.
|
Additional Collateral; Further Assurances
|
62
|
|
|
|
|
|
ARTICLE VI Negative Covenants
|
64
|
|
|
|
|
|
SECTION 6.01.
|
Indebtedness
|
64
|
|
SECTION 6.02.
|
Liens
|
66
|
|
SECTION 6.03.
|
Fundamental Changes
|
67
|
|
SECTION 6.04.
|
Investments, Loans, Advances, Guarantees and Acquisitions
|
68
|
|
SECTION 6.05.
|
Asset Sales
|
69
|
|
SECTION 6.06.
|
Sale and Leaseback Transactions
|
70
|
|
SECTION 6.07.
|
Swap Agreements
|
70
|
|
SECTION 6.08.
|
Restricted Payments; Certain Payments of Indebtedness
|
70
|
|
SECTION 6.09.
|
Transactions with Affiliates
|
71
|
|
SECTION 6.10.
|
Restrictive Agreements
|
71
|
|
SECTION 6.11.
|
Amendment of Material Documents
|
72
|
|
SECTION 6.12.
|
Financial Covenants
|
72
|
|
|
|
|
|
ARTICLE VII Events of Default
|
72
|
|
|
|
|
|
ARTICLE VIII The Administrative Agent
|
75
|
ii
|
ARTICLE IX Miscellaneous
|
79
|
|
|
|
|
|
SECTION 9.01.
|
Notices
|
79
|
|
SECTION 9.02.
|
Waivers; Amendments
|
80
|
|
SECTION 9.03.
|
Expenses; Indemnity; Damage Waiver
|
82
|
|
SECTION 9.04.
|
Successors and Assigns
|
83
|
|
SECTION 9.05.
|
Survival
|
86
|
|
SECTION 9.06.
|
Counterparts; Integration; Effectiveness
|
86
|
|
SECTION 9.07.
|
Severability
|
87
|
|
SECTION 9.08.
|
Right of Setoff
|
87
|
|
SECTION 9.09.
|
Governing Law; Jurisdiction; Consent to Service of Process
|
87
|
|
SECTION 9.10.
|
WAIVER OF JURY TRIAL
|
87
|
|
SECTION 9.11.
|
Headings
|
88
|
|
SECTION 9.12.
|
Confidentiality
|
88
|
|
SECTION 9.13.
|
Several Obligations; Nonreliance; Violation of Law
|
89
|
|
SECTION 9.14.
|
USA PATRIOT Act
|
89
|
|
SECTION 9.15.
|
Disclosure
|
89
|
|
SECTION 9.16.
|
Appointment for Perfection
|
89
|
|
SECTION 9.17.
|
Interest Rate Limitation
|
89
|
|
SECTION 9.18.
|
Conflicts
|
90
|
|
|
|
|
|
ARTICLE X Loan Guaranty
|
90
|
|
|
|
|
|
SECTION 10.01.
|
Guaranty
|
90
|
|
SECTION 10.02.
|
Guaranty of Payment
|
90
|
|
SECTION 10.03.
|
No Discharge or Diminishment of Loan Guaranty
|
90
|
|
SECTION 10.04.
|
Defenses Waived
|
91
|
|
SECTION 10.05.
|
Rights of Subrogation
|
91
|
|
SECTION 10.06.
|
Reinstatement; Stay of Acceleration
|
91
|
|
SECTION 10.07.
|
Information
|
92
|
|
SECTION 10.08.
|
Termination
|
92
|
|
SECTION 10.09.
|
Taxes
|
92
|
|
SECTION 10.10.
|
Maximum Liability
|
92
|
|
SECTION 10.11.
|
Contribution
|
92
|
|
SECTION 10.12.
|
Liability Cumulative
|
93
|
SCHEDULES:
Schedule
2.01 — Commitments
Schedule
2.06 — Existing Letters of Credit
Schedule
3.06 — Disclosed Matters
Schedule
3.14 — Insurance
Schedule
3.15 — Capitalization and Subsidiaries
Schedule
3.21 — Credit Card Processors
Schedule
6.01 — Existing Indebtedness
Schedule
6.02 — Existing Liens
Schedule
6.04 — Existing Investments
Schedule
6.10 — Existing Restrictions
iii
EXHIBITS:
Exhibit A
— Form of Assignment and Assumption
Exhibit B
— Forms of Opinions of Loan Parties’ Counsels
Exhibit C
— Form of Borrowing Base Certificate
Exhibit D
— Form of Compliance Certificate
Exhibit E
— Joinder Agreement
Exhibit F
— List of Closing Documents
iv
CREDIT AGREEMENT dated as of
May 29, 2009 (as it may be amended or modified from time to time, this “
Agreement
”),
among ETHAN ALLEN GLOBAL, INC., ETHAN ALLEN INTERIORS INC., the other Loan
Parties party hereto, the Lenders party hereto, JPMORGAN CHASE BANK, N.A., as
Administrative Agent, JPMORGAN CHASE BANK, N.A., as Syndication Agent and
CAPITAL ONE LEVERAGE FINANCE CORP., as Documentation Agent.
The parties hereto agree as
follows:
ARTICLE I
Definitions
SECTION 1.01.
Defined Terms
. As used in this Agreement, the following
terms have the meanings specified below:
“
ABR
”
, when used in reference to any Loan or
Borrowing, refers to a Loan, or the Loans comprising such Borrowing, bearing
interest at a rate determined by reference to the Alternate Base Rate.
“
Account
”
has the meaning assigned to such term in the
Security Agreement.
“
Account Debtor
”
means any Person obligated
on an Account.
“
Adjusted LIBO Rate
”
means, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the
LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve
Rate.
“
Administrative Agent
”
means JPMorgan Chase Bank,
N.A., in its capacity as administrative agent for the Lenders hereunder.
“
Administrative Questionnaire
”
means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
“
Affected Foreign Subsidiary
”
means any
Foreign Subsidiary to the extent greater than 65% of the Equity Interests of
such Foreign Subsidiary being pledged to support the Secured Obligations would
cause a Deemed Dividend Problem.
“
Affiliate
”
means, with respect to a specified Person,
another Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
“
Aggregate Commitment
” the aggregate of the Commitments of all of the
Lenders, as reduced from time to time pursuant to the terms and conditions
hereof.
“
Aggregate Credit Exposure
”
means, at any
time, the aggregate Credit Exposure of all the Lenders.
“
Alternate Base Rate
”
means, for any day, a rate
per annum equal to the greatest of (a) the Prime Rate in effect on such
day, (b) the Federal Funds Effective Rate in effect on such day plus
1
/
2
of 1% and (c) the
Adjusted LIBO Rate for a one month Interest Period on such day (or if such day
is not a Business Day, the immediately preceding Business Day) plus 1%;
provided
that, for the avoidance of doubt, the Adjusted LIBO Rate for any day shall be
based on the rate appearing on the Reuters Screen
LIBOR01 Page (or on any successor or
substitute page of such page) at approximately 11:00 a.m. London time
on such day (without any rounding). Any
change in the Alternate Base Rate due to a change in the Prime Rate, the
Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from
and including the effective date of such change in the Prime Rate, the Federal
Funds Effective Rate or the Adjusted LIBO Rate, respectively.
“
Applicable Percentage
”
means, with respect to any
Lender, (a) with respect to Revolving Loans, LC Exposure, Swingline Loans
or Overadvances, a percentage equal to a fraction the numerator of which is
such Lender’s Commitment and the denominator of which is the aggregate
Commitment of all Lenders (if the Commitments have terminated or expired, the
Applicable Percentages shall be determined based upon such Lender’s share of
the aggregate Revolving Exposures at that time);
provided
that in the
case of Section 2.20 when a Defaulting Lender shall exist, any such
Defaulting Lender’s Commitment shall be disregarded in the calculation and (b) with
respect to Protective Advances or with respect to the Aggregate Credit
Exposure, a percentage based upon its share of the Aggregate Credit Exposure
and the unused Commitments;
provided
that in the case of Section 2.20
when a Defaulting Lender shall exist, any such Defaulting Lender’s Commitment
shall be disregarded in the calculation.
“
Applicable Pledge Percentage
”
means 100% but
65% in the case of a pledge by Holdings, the Borrower or any Domestic
Subsidiary of its Equity Interests in a Foreign Subsidiary that is an Affected
Foreign Subsidiary due to a Deemed Dividend Problem.
“
Applicable Rate
”
means, for any day, with
respect to any ABR Loan or Eurodollar Revolving Loan, or with respect to the
commitment fees payable hereunder, as the case may be, the applicable rate per
annum set forth below under the caption “
ABR Spread
”, “
Eurodollar
Spread
” or “
Commitment Fee Rate
”, as the case may be, based upon the
Average Quarterly Availability during the most recently ended fiscal quarter of
Holdings:
|
|
|
Average Quarterly
Availability
|
|
Commitment Fee
Rate
|
|
Eurodollar Spread
|
|
ABR Spread
|
|
|
Category
1
|
|
Greater than
$40,000,000
|
|
0.50
|
%
|
3.25
|
%
|
2.25
|
%
|
|
Category
2
|
|
Less than or equal to
$40,000,000 but
greater than
$20,000,000
|
|
0.50
|
%
|
3.75
|
%
|
2.75
|
%
|
|
Category
3
|
|
Less than or equal to
$20,000,000
|
|
0.50
|
%
|
4.25
|
%
|
3.25
|
%
|
For purposes of the
foregoing, (a) the Applicable Rate shall be determined as of the end of
each fiscal quarter of Holdings based upon the Borrowing Base Certificates and
related information that are delivered from time to time pursuant to Section 5.01
and (b) each change in the Applicable Rate resulting from a change in
Average Quarterly Availability shall be effective during the period commencing
on and including the date of delivery to the Administrative Agent as of the end
of the most recent fiscal quarter and ending on the date immediately preceding
the effective date of the next such change,
provided
that the Average
Quarterly Availability shall be deemed to be (i) in Category 2 during the
period from the Effective Date to the date of delivery to the Administrative
Agent of the Borrowing Base Certificate for the fiscal quarter ending on or
about September 30, 2009 and (ii) in Category 3 (A) at
2
any time that an Event of Default has
occurred and is continuing or (B) at the option of the Administrative
Agent or at the request of the Required Lenders if Holdings or the Borrower
fail to deliver any Borrowing Base Certificate or related information that is
required to be delivered by them pursuant to Section 5.01, during the
period from the expiration of the time for delivery thereof until each such
Borrowing Base Certificate and related information pursuant to Section 5.01
is so delivered;
provided further
that if any Borrowing Base Certificate
is at any time restated or otherwise revised or if the information set forth in
any Borrowing Base Certificate otherwise proves to be false or incorrect such
that the Applicable Rate would have been higher than was otherwise in effect
during any period, without constituting a waiver of any Default or Event of
Default arising as a result thereof, the Applicable Rate shall be immediately
recalculated at such higher rate for any applicable periods and shall be due
and payable on demand.
“
Approved Fund
”
has the meaning assigned to
such term in Section 9.04.
“
Assignment and Assumption
”
means an
assignment and assumption agreement entered into by a Lender and an assignee
(with the consent of any party whose consent is required by Section 9.04),
and accepted by the Administrative Agent, in the form of
Exhibit A
or any other form approved by the Administrative Agent.
“
Availability
”
means, at any time, an amount
equal to (a) the lesser of (i) the Aggregate Commitment and (ii) the
Borrowing Base
minus
(b) the Revolving Exposure of all Lenders.
“
Availability Period
”
means the period from and
including the Effective Date to but excluding the earlier of the Maturity Date
and the date of termination of the Commitments.
“
Availability Trigger
” shall be in effect at any time that the average
Availability for the most recently ended calendar month is less than an amount
equal to the greater of (i) 20% of the Aggregate Commitment at such time
and (ii) $10,000,000.
“
Available Commitment
”
means, at any time, the
Aggregate Commitment then in effect
minus
the Revolving
Exposure of all Lenders at such time; it being understood and agreed that any
Lender’s Swingline Exposure shall not be deemed to be a component of the
Revolving Exposure for purposes of calculating the commitment fee under Section 2.12(a).
“
Average Quarterly
Availability
” means, for any fiscal quarter, an amount equal to the average
daily Availability during such quarter.
“
Banking Services
”
means each and any of the
following bank services provided to any Loan Party by any Lender or any of its
Affiliates: (a) credit cards for commercial customers (including, without
limitation, “commercial credit cards” and purchasing cards), (b) stored
value cards and (c) treasury management services (including, without
limitation, controlled disbursement, automated clearinghouse transactions,
return items, overdrafts and interstate depository network services).
“
Banking Services Obligations
”
of the Loan
Parties means any and all obligations of the Loan Parties, whether absolute or
contingent and howsoever and whensoever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof and substitutions
therefor) in connection with Banking Services.
“
Banking Services Reserves
”
means all
Reserves which the Administrative Agent from time to time establishes in its
Permitted Discretion for Banking Services then provided or outstanding.
3
“
Board
”
means the Board of Governors of the Federal
Reserve System of the United States of America.
“
Borrower
”
means Ethan Allen Global, Inc., a
Delaware corporation.
“
Borrowing
”
means (a) Revolving Loans of the same
Type, made, converted or continued on the same date and, in the case of
Eurodollar Loans, as to which a single Interest Period is in effect, (b) a
Swingline Loan, (c) a Protective Advance and (d) an Overadvance.
“
Borrowing Base
”
means, at any time, the sum
of (a) up to 90% of the Eligible Credit Card Receivables,
plus
(b) up
to 85% of the Eligible Accounts at such time,
plus
(b) the lesser
of (i) up to 70% of the Eligible Inventory, valued at the lower of cost or
market value, determined on a first-in-first-out basis, at such time and (ii) the
product of up to 85%
multiplied
by
the Net Orderly Liquidation
Value percentage identified in the most recent inventory appraisal ordered by
the Administrative Agent
multiplied
by
the Eligible Inventory,
valued at the lower of cost or market value, determined on a first-in-first-out
basis, at such time,
minus
(c) Reserves. The Administrative Agent may, in its
Permitted Discretion, reduce the advance rates set forth above, adjust Reserves
or reduce one or more of the other elements used in computing the Borrowing
Base.
“
Borrowing Base Certificate
”
means a
certificate, signed and certified as accurate and complete by a Financial
Officer of the Borrower, in substantially the form of
Exhibit C
or
another form which is acceptable to the Administrative Agent in its Permitted
Discretion.
“
Borrowing Request
”
means a request by the
Borrower for a Revolving Borrowing in accordance with Section 2.03.
“
Burdensome Restrictions
” means any consensual encumbrance or restriction of
the type described in clause (a) or (b) of Section 6.10.
“
Business Day
”
means any day that is not a
Saturday, Sunday or other day on which commercial banks in New York City are
authorized or required by law to remain closed;
provided
that, when used
in connection with a Eurodollar Loan, the term “
Business Day
” shall also
exclude any day on which banks are not open for dealings in dollar deposits in
the London interbank market.
“
Capital Expenditures
”
means, without duplication,
any expenditure or commitment to expend money for any purchase or other
acquisition of any asset which would be classified as a fixed or capital asset
on a consolidated balance sheet of Holdings and its Subsidiaries prepared in
accordance with GAAP.
“
Capital Lease Obligations
”
of any Person
means the obligations of such Person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such
Person under GAAP, and the amount of such obligations shall be the capitalized
amount thereof determined in accordance with GAAP.
“
Change in Control
”
means (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Securities Exchange Act of 1934
and the rules of the Securities and Exchange Commission thereunder as in
effect on the date hereof), of Equity Interests representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Equity Interests of Holdings; (b) occupation of a majority of the seats
(other than vacant seats) on the board of directors of Holdings by Persons who
were neither (i) nominated by the
4
board of directors of the Borrower nor (ii) appointed
by directors so nominated; or (c) the acquisition of direct or indirect
Control of Holdings by any Person or group; (d) the occurrence of a change
in control, or other similar provision, as defined in any agreement or
instrument evidencing any Material Indebtedness (triggering a default or
mandatory prepayment, which default or mandatory prepayment has not been waived
in writing); or (e) Holdings shall cease to own, directly or (through
another Loan Party) indirectly, 100% of the capital stock of the Borrower.
“
Change in Law
”
means (a) the adoption
of any law, rule or regulation after the date of this Agreement, (b) any
change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this
Agreement or (c) compliance by any Lender or the Issuing Bank (or, for
purposes of Section 2.15(b), by any lending office of such Lender or by
such Lender’s or the Issuing Bank’s holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
“
Chase
”
means JPMorgan Chase Bank, N.A., a national
banking association, in its individual capacity, and its successors.
“
Class
”
, when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing,
are Revolving Loans, Swingline Loans, Protective Advances or Overadvances.
“
Code
”
means the Internal Revenue Code of 1986, as
amended from time to time.
“
Collateral
”
means any and all property owned, leased or
operated by any Loan Party, now existing or hereafter acquired, that may at any
time be or become subject to a security interest or Lien in favor of the
Administrative Agent, on behalf of itself and the Secured Parties, to secure
the Secured Obligations;
provided
that “
Collateral
” shall not
include any Excluded Assets.
“
Collateral Access Agreement
”
has the
meaning assigned to such term in the Security Agreement.
“
Collateral Documents
”
means, collectively, the
Security Agreement and any other documents granting a Lien upon property as
security for payment of the Secured Obligations.
“
Collection Account
”
has the meaning assigned to
such term in the Security Agreement.
“
Commercial LC Exposure
” means, at any time, the sum of (a) the
aggregate undrawn amount of all outstanding Commercial Letters of Credit at
such time plus (b) the aggregate amount of all LC Disbursements relating
to Commercial Letters of Credit that have not yet been reimbursed by or on
behalf of the Borrower at such time. The
Commercial LC Exposure of any Lender at any time shall be its Applicable Percentage
of the total Commercial LC Exposure at such time.
“
Commercial Letters of Credit
” means all Letters of Credit
other than standby Letters of Credit.
“
Commitment
”
means, with respect to each Lender, the
commitment, if any, of such Lender to make Revolving Loans and to acquire
participations in Letters of Credit, Protective Advances, Overadvances and
Swingline Loans hereunder, expressed as an amount representing the maximum
possible aggregate amount of such Lender’s Revolving Exposure hereunder, as
such commitment may be reduced or increased from time to time pursuant to (a) Section 2.09
and (b) assignments by or to such
5
Lender pursuant to Section 9.04. The initial amount of each Lender’s
Commitment is set forth on
Schedule 2.01
, or in the Assignment and
Assumption or other documentation contemplated hereby pursuant to which such
Lender shall have assumed its Commitment, as applicable.
“
Control
”
means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ability to exercise voting power, by
contract or otherwise. “
Controlling
”
and “
Controlled
” have meanings correlative thereto.
“
Controlled Disbursement Account
”
means any
accounts of any Loan Party maintained with the Administrative Agent as a zero
balance, cash management account pursuant to and under any agreement between
the such Loan Party and the Administrative Agent, as modified and amended from
time to time, and through which all disbursements of such Loan Party, any Loan
Party and any designated Subsidiary of Holdings are made and settled on a daily
basis with no uninvested balance remaining overnight.
“
Credit Card Account Receivables
” means any receivables due to
any Loan Party on a non-recourse basis (it being understood, for the avoidance
of doubt, that normal return policies of any Loan Party shall not be deemed to
be with recourse) in connection with purchases from and other goods and
services provided by such Loan Party from: Visa, MasterCard, American Express
and such other Credit Card Processor acceptable to the Administrative Agent in
its Permitted Discretion, in each case which have been earned by performance by
such Loan Party but not yet paid to such Loan Party by the Credit Card
Processor;
provided
, that Credit Card Account
Receivables shall be calculated net of fees and chargebacks owed to credit card
processors and deposits, holdbacks or escrows held by credit card processors.
“
Credit Card Processor
” means a Person that provides credit card processing
services for any merchant.
“
Credit Exposure
”
means, as to any Lender at
any time, the sum of (a) such Lender’s Revolving Exposure at such time,
plus
(b) an amount equal to its Applicable Percentage, if any, of the aggregate
principal amount of Protective Advances outstanding at such time.
“
Deemed Dividend Problem
”
means, with respect to any
Foreign Subsidiary, such Foreign Subsidiary’s accumulated and undistributed
earnings and profits being deemed to be repatriated to Holdings, the Borrower
or the applicable parent Domestic Subsidiary under Section 956 of the Code
and the effect of such repatriation causing materially adverse tax consequences
to Holdings, the Borrower or such parent Domestic Subsidiary, in each case as
determined by Holdings and the Borrower in their commercially reasonable
judgment acting in good faith and in consultation with their legal and tax
advisors.
“
Default
”
means any event or condition which
constitutes an Event of Default or which upon notice, lapse of time or both
would, unless cured or waived, become an Event of Default.
“
Defaulting Lender
”
means any Lender, as
determined by the Administrative Agent, that has (a) failed to fund any
portion of its Loans or participations in Letters of Credit or Swingline Loans
within three (3) Business Days of the date required to be funded by it
hereunder, (b) notified the Borrower, the Administrative Agent, the
Issuing Bank, the Swingline Lender or any Lender in writing that it does not
intend to comply with any of its funding obligations under this Agreement or
has made a public statement to the effect that it does not intend to comply
with its funding obligations under this Agreement or under other agreements in
which it commits to extend credit, (c) failed, within three (3) Business
Days after request by the Administrative Agent, to confirm that it will comply
with the terms of
6
this Agreement relating to its obligations to
fund prospective Loans and participations in then outstanding Letters of Credit
and Swingline Loans, (d) otherwise failed to pay over to the
Administrative Agent or any other Lender any other amount required to be paid
by it hereunder within three (3) Business Days of the date when due,
unless the subject of a good faith dispute, or (e) (i) become or is
insolvent or has a parent company that has become or is insolvent or (ii) become
the subject of a bankruptcy or insolvency proceeding, or has had a receiver,
conservator, trustee, administrator, assignee for the benefit of creditors or
similar Person charged with reorganization or liquidation of its business or
custodian appointed for it, or has taken any action in furtherance of, or
indicating its consent to, approval of or acquiescence in any such proceeding
or appointment or has a parent company that has become the subject of a
bankruptcy or insolvency proceeding, or has had a receiver, conservator,
trustee, administrator, assignee for the benefit of creditors or similar Person
charged with reorganization or liquidation of its business or custodian
appointed for it, or has taken any action in furtherance of, or indicating its
consent to, approval of or acquiescence in any such proceeding or appointment.
“
Disclosed Matters
”
means the actions, suits
and proceedings and the environmental matters disclosed in
Schedule 3.06
.
“
Document
”
has the meaning assigned to such term in the
Security Agreement.
“
Documentation Agent
”
means Capital One Leverage
Finance Corp. in its capacity as documentation agent for the credit facility
evidenced by this Agreement.
“
dollars
” or “
$
”
refers to lawful money of the United States of America.
“
Domestic Subsidiary
”
means a Subsidiary
organized under the laws of a jurisdiction located in the United States of
America.
“
EBITDA
”
means, for any period, Net Income for such
period, before giving effect to any extraordinary gains or losses or any gains
or losses resulting from sales of assets (other than sales of inventory in the
ordinary course of business),
plus
, to the
extent deducted in computing such Net Income, the sum of (a) income tax
expense (whether paid or deferred), (b) Interest Expense, (c) depreciation
and amortization and (d) any non-cash charges resulting from any
restructuring or consolidation of operations or any grant, exercise or
cancellation of stock options or warrants.
“
Effective Date
”
means the date on which the
conditions specified in Section 4.01 are satisfied (or waived in
accordance with Section 9.02).
“
Eligible Accounts
”
means, at any time, the
Accounts of any Loan Party which the Administrative Agent determines in its
Permitted Discretion are eligible as the basis for the extension of Revolving
Loans, Swingline Loans and the issuance of Letters of Credit hereunder. Without limiting the Administrative Agent’s
discretion provided herein, Eligible Accounts shall not include any Account:
(a) which is not subject to a first
priority perfected security interest in favor of the Administrative Agent;
(b) which is subject to any Lien other
than (i) a Lien in favor of the Administrative Agent and (ii) a
Permitted Encumbrance which does not have priority over the Lien in favor of
the Administrative Agent;
7
(c) which (i) is unpaid more than 90
days after the date of the original invoice therefor or more than 60 days after
the original due date, or (ii) has been written off the books of such Loan
Party or otherwise designated as uncollectible;
(d) which is owing by an Account Debtor
for which more than 50% of the Accounts owing from such Account Debtor and its
Affiliates are ineligible hereunder;
(e) which is owing by an Account Debtor
to the extent the aggregate amount of Accounts owing from such Account Debtor
and its Affiliates to such Loan Party exceeds 10% of the aggregate amount of
Eligible Accounts;
(f) with respect to which any covenant,
representation, or warranty contained in this Agreement or in the Security
Agreement has been breached or is not true in any material respect;
(g) which (i) does not arise from
the sale of goods or performance of services in the ordinary course of
business, (ii) is not evidenced by an invoice or other documentation the
form of which is satisfactory to the Administrative Agent in its Permitted
Discretion and which has been sent to the Account Debtor, (iii) represents
a progress billing, (iv) is contingent upon such Loan Party’s completion
of any further performance, (v) represents a sale on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment, cash-on-delivery
or any other repurchase or return basis (other than, for the avoidance of
doubt, normal wholesale customer return policies in respect of warranty claims)
or (vi) relates to payments of interest;
(h) for which the goods giving rise to
such Account have not been shipped to the Account Debtor or for which the
services giving rise to such Account have not been performed by such Loan Party
or if such Account was invoiced more than once;
(i) with respect to which any check or
other instrument of payment has been returned uncollected for any reason;
(j) which is owed by an Account Debtor
which has (i) applied for, suffered, or consented to the appointment of
any receiver, custodian, trustee, or liquidator of its assets, (ii) has
had possession of all or a material part of its property taken by any receiver,
custodian, trustee or liquidator, (iii) filed, or had filed against it,
any request or petition for liquidation, reorganization, arrangement,
adjustment of debts, adjudication as bankrupt, winding-up, or voluntary or
involuntary case under any state or federal bankruptcy laws, (iv) has
admitted in writing its inability, or is generally unable to, pay its debts as
they become due, (v) become insolvent, or (vi) ceased operation of
its business;
(k) which is owed by any Account Debtor
which has sold all or a substantially all of its assets unless the Account has
been assumed by a party of at least equal creditworthiness in the
Administrative Agent’s Permitted Discretion;
(l) which is owed by an Account Debtor
which (i) does not maintain its chief executive office in the U.S. or
Canada or (ii) is not organized under applicable law of the U.S., any
state of the U.S., Canada, or any province of Canada unless, in either case,
such Account is backed by (A) a letter of credit acceptable to the
Administrative Agent which is in the possession of, has been assigned to and is
directly drawable by the Administrative Agent or (B) security equivalent
to such a letter of credit and reasonably acceptable to the Administrative
Agent;
(m) which is owed in any currency other
than U.S. dollars;
8
(n) which is owed by (i) the
government (or any department, agency, public corporation, or instrumentality
thereof) of any country other than the U.S. unless such Account is backed by a
Letter of Credit acceptable to the Administrative Agent in its Permitted
Discretion and which is in the possession of the Administrative Agent, or (ii) the
government of the U.S., or any department, agency, public corporation, or
instrumentality thereof, unless the Federal Assignment of Claims Act of 1940,
as amended (31 U.S.C. § 3727 et seq. and 41 U.S.C. § 15 et seq.), and any other
steps necessary to perfect the Lien of the Administrative Agent in such Account
have been complied with to the Administrative Agent’s satisfaction;
(o) which is owed by any Affiliate,
employee, officer, director, agent or stockholder of any Loan Party (to the
extent such stockholder owns or controls 5% or more of the Equity Interests in
a Loan Party);
(p) which, for any Account Debtor,
exceeds a credit limit determined by the Administrative Agent, to the extent of
such excess;
(q) which is owed by an Account Debtor or
any Affiliate of such Account Debtor to which any Loan Party is indebted, but
only to the extent of such indebtedness or is subject to any security, deposit,
progress payment, retainage or other similar advance made by or for the benefit
of an Account Debtor, in each case to the extent thereof;
(r) which is subject to any counterclaim
(to the extent asserted), deduction, defense, setoff or dispute, but only to
the extent of such counterclaim, deduction, defense, setoff or dispute;
(s) which is evidenced by any promissory
note, chattel paper, or instrument;
(t) which is owed by an Account Debtor
located in any jurisdiction which requires filing of a “Notice of Business Activities
Report” or other similar report in order to permit the applicable
Loan Party to seek judicial enforcement in such jurisdiction of payment of such
Account, unless such Loan Party has filed such report or qualified to do
business in such jurisdiction;
(u) with respect to which such Loan Party
has made any agreement with the Account Debtor for any reduction thereof, other
than discounts and adjustments given in the ordinary course of business, or any
Account which was partially paid and such Loan Party created a new receivable
for the unpaid portion of such Account;
(v) which does not comply in all material
respects with the requirements of all applicable laws and regulations, whether
Federal, state or local, including without limitation the Federal Consumer
Credit Protection Act, the Federal Truth in Lending Act and Regulation Z of the
Board;
(w) which is for goods that have been sold
under a purchase order or pursuant to the terms of a contract or other
agreement or understanding (written or oral) that indicates or purports that
any Person other than such Loan Party has or has had an ownership interest in
such goods, or which indicates any party other than such Loan Party as payee or
remittance party;
(x) which was created on cash on
delivery terms;
9
(y) which is subject to any limitation on
assignments or other security interests (whether arising by operation of law,
by agreement or otherwise), unless the Administrative Agent has determined that
such limitation is not enforceable;
(z) which is governed by the laws of any
jurisdiction other than the United States, any State thereof or the District of
Columbia;
(aa) in respect of which the Account Debtor
is a consumer within applicable consumer protection litigation; or
(bb) which the Administrative Agent
determines in its Permitted Discretion may not be paid by reason of the Account
Debtor’s inability to pay or which the Administrative Agent otherwise
determines in its Permitted Discretion is unacceptable.
In the event that an Account
which was previously an Eligible Account (in an amount of at least $5,000,000)
ceases to be an Eligible Account hereunder by virtue of the foregoing clauses
(j), (k) or (l), the Borrower shall notify the Administrative Agent
thereof on and at the time of submission to the Administrative Agent of the
next Borrowing Base Certificate. In
determining the amount of an Eligible Account, the face amount of an Account
may, in the Administrative Agent’s Permitted Discretion, be reduced by, without
duplication, to the extent not reflected in such face amount, (i) the
amount of all accrued and actual discounts, claims, credits or credits pending,
promotional program allowances, price adjustments, finance charges or other
allowances (including any amount that the applicable Loan Party may be
obligated to rebate to an Account Debtor pursuant to the terms of any agreement
or understanding (written or oral)) and (ii) the aggregate amount of all
cash received in respect of such Account but not yet applied by the applicable
Loan Party to reduce the amount of such Account. For the avoidance of doubt, no Credit Card Account
Receivable shall constitute an Eligible Account under this Agreement.
“
Eligible Credit Card Account Receivables
” means any Credit Card
Account Receivable that (i) has been earned and represents the bona fide
amounts due to a Loan Party from a Credit Card Processor, and in each case
originated in the ordinary course of business of the applicable Loan Party and (ii) is
not excluded as an Eligible Credit Card Receivable pursuant to any of clauses (a) through
(l) below. Without limiting the
foregoing, to qualify as an Eligible Credit Card Account Receivable, a Credit
Card Account Receivable shall indicate no person other than a Loan Party as
payee or remittance party. Eligible Credit Card Account Receivable shall not
include any Credit Card Account Receivable if:
(a) such Credit Card Account Receivable is not owned by a Loan
Party and such Loan Party does not have good or marketable title to such Credit
Card Account Receivable;
(b) such Credit Card Account Receivable does not constitute an
“Account” (as defined in the UCC) or such Credit Card Account Receivable has
been outstanding more than five (5) Business Days;
(c) the Credit Card Processor of the applicable credit card
with respect to such Credit Card Account Receivable is the subject of any bankruptcy
or insolvency proceedings;
(d) such Credit Card Account Receivable is not a valid,
legally enforceable obligation of the applicable credit card issuer with
respect thereto;
(e) such Credit Card Account Receivable is not subject to a
properly perfected security interest in favor of the Administrative Agent, or
is subject to any Lien whatsoever other than Permitted Encumbrances
contemplated by the processor agreements and for which
10
appropriate reserves (as determined by the Administrative
Agent in its Permitted Discretion) have been established or maintained by the
Loan Parties;
(f) such Credit Card Account Receivable does not conform in
all material respects to all representations, warranties or other provisions in
the Loan Documents or in the credit card agreements relating to such Credit
Card Account Receivable;
(g) such Credit Card Account Receivable is subject to risk of
set-off, non-collection or not being processed due to unpaid or overdue Credit
Card Processor fee balances;
(h) such Credit Card Account Receivable is evidenced by “chattel
paper” or an “instrument” of any kind unless such “chattel paper” or “instrument”
is in the possession of the Administrative Agent, and to the extent necessary
or appropriate, endorsed to the Administrative Agent;
(i) such Credit Card Account Receivable has been disputed, or
with respect to which a claim, counterclaim, offset or chargeback has been
asserted, by the related Credit Card Processor;
(j) such Credit Card Account Receivable is due from a Credit
Card Processor which the Administrative Agent determines in its Permitted
Discretion to be unlikely to be collected;
(k) other than for the ninety (90) days immediately following
the Effective Date, such Credit Card Account Receivable is due from a Credit
Card Processor with respect to which a Processor Control Agreement has not been
obtained; or
(l) such Credit Card Account Receivable does not meet such
other usual and customary eligibility criteria for Credit Card Account
Receivables as the Administrative Agent may determine from time to time in its
Permitted Discretion.
In determining the amount to be so
included in the calculation of the value of an Eligible Credit Card Receivable,
the face amount thereof shall be reduced by, without duplication, to the extent
not reflected in such face amount, (i) the amount of all customary fees
and expenses in connection with any credit card arrangements and (ii) the
aggregate amount of all cash received in respect thereof but not yet applied by
the applicable Loan Party to reduce the amount of such Eligible Credit Card
Account Receivable.
“
Eligible Inventory
”
means, at any time, the
Inventory of a Loan Party which the Administrative Agent determines in its
Permitted Discretion is eligible as the basis for the extension of Revolving
Loans, Swingline Loans and the issuance of Letters of Credit hereunder. Without limiting the Administrative Agent’s
discretion permitted herein, Eligible Inventory shall not include any Inventory:
(a) which is not subject to a first
priority perfected Lien in favor of the Administrative Agent;
(b) which is subject to any Lien other
than (i) a Lien in favor of the Administrative Agent and (ii) a
Permitted Encumbrance which does not have priority over the Lien in favor of
the Administrative Agent;
(c) which is, in the determination of the
Borrower in its ordinary course of business with the approval of the
Administrative Agent in its Permitted Discretion, unmerchantable,
11
defective, used, unfit for sale, not salable at prices
approximating at least the cost of such Inventory in the ordinary course of
business or unacceptable due to age, type, category and/or quantity;
(d) with respect to which any covenant,
representation, or warranty contained in this Agreement or the Security
Agreement has been breached or is not true in any material respect and which
does not conform in all material respects to all standards imposed by any
Governmental Authority;
(e) in which any Person other than a Loan
Party shall (i) have any direct or indirect ownership, interest or title
to such Inventory or (ii) be indicated on any purchase order or invoice
with respect to such Inventory as having or purporting to have an interest
therein;
(f) which constitutes work-in-process,
spare or replacement parts, subassemblies, packaging and shipping material,
manufacturing supplies, samples, prototypes, displays or display items (except
to the extent saleable as finished goods in the ordinary course of business),
bill-and-hold goods, goods that are returned or marked for return, repossessed
goods, defective or damaged goods, goods held on consignment, or goods which
are not of a type held for sale in the ordinary course of business;
(g) which is not located in the U.S. or
is in transit with a common carrier from vendors and suppliers located outside
of the U.S.;
provided
that Inventory in transit from vendors and
suppliers having a value (based on invoiced amounts) not exceeding $7,000,000
in the aggregate at any time shall not be excluded from “Eligible Inventory”
pursuant to this
clause (g)
so long as (i) such Inventory has
been paid for in full by the applicable Loan Party, (ii) the
Administrative Agent shall have received evidence that such Inventory is
covered by casualty insurance and the Administrative Agent shall have been
named as loss payee with respect to such casualty insurance, and (iii) other
than for the sixty (60) days following the Effective Date, the
Administrative Agent shall have received, to the extent requested by the
Administrative Agent in its Permitted Discretion, a duly executed
Collateral Access Agreement from the applicable Loan Party’s customs broker
with respect to such Inventory;
(h) other than for the sixty (60)
days immediately following the Effective Date, which is located
in a warehouse, distribution center, regional distribution center or depot
located in any location leased by the applicable Loan Party unless (i) the
lessor has delivered to the Administrative Agent a Collateral Access Agreement
or (ii) a Reserve for rent, charges, and other amounts due or to become
due with respect to such facility has been established by the Administrative
Agent in its Permitted Discretion;
(i) which is located in a store or other
retail location located in any location leased by the applicable Loan Party in
any Landlord Lien State unless (i) the lessor has delivered to the
Administrative Agent a Collateral Access Agreement, (ii) a Rent Reserve
has been established by the Administrative Agent in its Permitted Discretion or
(iii) the landlord has waived any applicable lien pursuant to
documentation satisfactory to the Administrative Agent in its Permitted
Discretion;
(j) other than for the sixty (60)
days immediately following the Effective Date, which is located
in any third party warehouse or is in the possession of a bailee (other than a
third party processor) and is not evidenced by a Document, unless (i) such
warehouseman or bailee has delivered to the Administrative Agent a Collateral
Access Agreement and such other
12
documentation as the
Administrative Agent may require in its Permitted Discretion or (ii) a
Rent Reserve has been established by the Administrative Agent in its Permitted
Discretion;
(k) which is being processed offsite at a
third party location or outside processor, or is in-transit to or from said
third party location or outside processor;
(l) which is a discontinued product or
component thereof;
(m) which is the subject of a consignment
by the applicable Loan Party as consignor;
(n) which contains or bears any
intellectual property rights licensed to the applicable Loan Party unless the
Administrative Agent is satisfied in its Permitted Discretion that it may sell
or otherwise dispose of such Inventory without (i) the consent of each
applicable licensor, (ii) infringing the rights of such licensor, (iii) violating
any contract with such licensor, or (iv) incurring any liability with
respect to payment of royalties other than royalties incurred pursuant to sale
of such Inventory under the current licensing agreement;
(o) which is not reflected in a current
perpetual inventory report of the applicable Loan Party;
(p) for which reclamation rights have
been asserted by the seller; or
(q) which the Administrative Agent
otherwise determines is unacceptable in its Permitted Discretion.
“
Environmental Laws
”
means all laws, rules,
regulations, codes, ordinances, orders, decrees, judgments, injunctions,
notices or binding agreements issued, promulgated or entered into by any
Governmental Authority, relating in any way to the environment, preservation or
reclamation of natural resources, the management, release or threatened release
of any Hazardous Material or to health and safety matters.
“
Environmental Liability
”
means any liability,
contingent or otherwise (including any liability for damages, costs of
environmental investigation or remediation, injunctive or equitable relief,
fines, penalties or indemnities), of Holdings or any Subsidiary directly or
indirectly resulting from or based upon (a) a violation or alleged
violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure
to any Hazardous Materials, (d) the Release, presence or threatened
Release of any Hazardous Materials into the environment or within any facility,
building or fixture or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
“
Equity Interests
”
means shares of capital
stock, partnership interests, membership interests in a limited liability
company, beneficial interests in a trust or other equity ownership interests in
a Person, and any warrants, options or other rights entitling the holder
thereof to purchase or acquire any such equity interest.
“
ERISA
”
means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
“
ERISA Affiliate
”
means any trade or business
(whether or not incorporated) that, together with the Borrower, is treated as a
single employer under Section 414(b) or (c) of the Code or,
13
solely
for purposes of Section 302 of ERISA and Section 412 of the Code, is
treated as a single employer under Section 414 of the Code.
“
ERISA Event
”
means (a) any “
reportable event
”,
as defined in Section 4043 of ERISA or the regulations issued thereunder
with respect to a Plan (other than an event for which the 30 day notice period
is waived); (b) the existence with respect to any Plan of an “
accumulated
funding deficiency
” (as defined in Section 412 of the Code or Section 302
of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of
the Code or Section 303(d) of ERISA of an application for a waiver of
the minimum funding standard with respect to any Plan; (d) the incurrence
by the Borrower or any of its ERISA Affiliates of any liability under Title IV
of ERISA with respect to the termination of any Plan; (e) the receipt by
the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of
any notice relating to an intention to terminate any Plan or Plans or to
appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal of the Borrower or any of its ERISA Affiliates
from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or
any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan
from the Borrower or any ERISA Affiliate of any notice, concerning the
imposition upon the Borrower or any of its ERISA Affiliates of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA.
“
Eurodollar
”
, when used in reference to any Loan or
Borrowing, means that such Loan, or the Loans comprising such Borrowing, bears
interest at a rate determined by reference to the Adjusted LIBO Rate.
“
Event of Default
”
has the meaning assigned to
such term in Article VII.
“
Excluded Assets
”
means (i) any “Principal
Property” as defined in the Indenture
dated as of September 27, 2005 by and among Holdings and certain Subsidiaries and U.S.
Bank National Association as in effect on the Effective Date and without giving
effect to any amendments or modifications thereto after the Effective Date, (ii) any
Real Property owned by Holdings or any Subsidiary and (iii) only to the
extent that the IP Collateral Trigger Date has not occurred, intellectual
property owned by Holdings or any Subsidiary.
“
Excluded
Subsidiary
” means, at any time, any Subsidiary of the Borrower
identified on Schedule 3.15 as an “Excluded Subsidiary” and that has not ceased
to be an “Excluded Subsidiary” as provided below;
provided
that such Subsidiary does not own assets or properties that, together with the
assets and properties owned by all other Subsidiaries that are treated as “Excluded
Subsidiaries”, have a book value, in the aggregate, in excess of $10,000,000, (b) did
not, during the period of four consecutive fiscal quarters of the Borrower
ended on the most recent date for which quarterly or annual financial
statements of Holdings are available, have revenues that, together with the
revenues of all other Subsidiaries that are treated as “Excluded Subsidiaries”,
accounted for more than 5% of the consolidated revenues of the Borrower and its
Subsidiaries during such period, and (c) does not have any Indebtedness or
any other material liabilities. At any
time the Borrower may, and shall if one or more Excluded Subsidiaries fail to
satisfy one or more of the conditions described in clauses (a) through (c) above,
notify the Administrative Agent that one or more Excluded Subsidiaries shall
cease to constitute an “Excluded Subsidiary”, whereupon such Subsidiary or
Subsidiaries shall cease to constitute an “Excluded Subsidiary” for all
purposes hereof. The Borrower may not
designate any Subsidiary that is not an Excluded Subsidiary as an Excluded
Subsidiary.
“
Excluded Taxes
”
means, with respect to the
Administrative Agent, any Lender, the Issuing Bank or any other recipient of
any payment to be made by or on account of any obligation of the
14
Borrower hereunder, (a) income or
franchise taxes imposed on (or measured by) its net income by the United States
of America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction in which the Borrower is located and (c) in
the case of a Foreign Lender (other than an assignee pursuant to a request by
the Borrower under Section 2.19(b)), any withholding tax that is imposed
on amounts payable to such Foreign Lender at the time such Foreign Lender
becomes a party to this Agreement (or designates a new lending office) or is
attributable to such Foreign Lender’s failure to comply with Section 2.17(f),
except to the extent that such Foreign Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office (or assignment),
to receive additional amounts from the Borrower with respect to such
withholding tax pursuant to Section 2.17(a).
“
Existing Credit Agreement
” means the Credit Agreement,
dated as of July 21, 2005, by and among the Borrower, Holdings, the
lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as
administrative agent thereunder, as amended, restated, supplemented or
otherwise modified prior to the date hereof.
“
Existing Letters of Credit
” is defined in Section 2.06(a).
“
Federal Funds Effective Rate
”
means, for any
day, the weighted average (rounded upwards, if necessary, to the next 1/100 of
1%) of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
“
Financial Officer
”
means the chief financial
officer, principal accounting officer, treasurer or controller of the Borrower
or the assistant treasurer or controller for purposes of giving notices.
“
First Tier Foreign Subsidiary
”
means each
Foreign Subsidiary with respect to which any one or more of the Loan Parties
directly owns or Controls more than 50% of such Foreign Subsidiary’s issued and
outstanding Equity Interests.
“
Fixed Charges
”
means, with reference to
any period, without duplication, cash Interest Expense,
plus
cash
Rentals, plus prepayments and scheduled principal payments on Indebtedness made
during such period,
plus
expense for taxes paid in cash,
plus
dividends or distributions paid in cash,
plus
Capital Lease Obligation
payments,
plus
cash contributions to any Plan, all calculated for
Holdings and its Subsidiaries on a consolidated basis.
“
Fixed Charge Coverage Ratio
”
means, for any
period, the ratio of (a) EBITDA minus the unfinanced portion of Capital
Expenditures to (b) Fixed Charges, all calculated for the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP for such period.
“
Foreign Lender
”
means any Lender that is
organized under the laws of a jurisdiction other than that in which the
Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
“
Foreign Subsidiary
”
means any Subsidiary which
is not a Domestic Subsidiary.
15
“
Funding Account
”
has the meaning assigned to
such term in Section 4.01(h).
“
GAAP
”
means generally accepted accounting
principles in the United States of America.
“
Governmental Authority
”
means the government of the
United States of America, any other nation or any political subdivision
thereof, whether state or local, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions
of or pertaining to government.
“
Guarantee
”
of or by any Person (the “
guarantor
”)
means any obligation, contingent or otherwise, of the guarantor guaranteeing or
having the economic effect of guaranteeing (x) any Indebtedness of any
other Person (the “
primary obligor
”) in any manner, whether directly or
indirectly, and (y) any obligation
of the guarantor, direct or indirect, (a) to purchase or pay (or advance
or supply funds for the purchase or payment of) Indebtedness of the primary obligor or to purchase (or to
advance or supply funds for the purchase of) any security for the payment
thereof, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of any
Indebtedness of the primary obligor of the payment thereof, (c) to
maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay Indebtedness of the
primary obligor or (d) as an account party in respect of any letter of
credit or letter of guaranty issued to support Indebtedness;
provided
,
that the term Guarantee shall not include endorsements for collection or
deposit in the ordinary course of business.
“
Guaranteed Obligations
”
has the meaning assigned to
such term in Section 10.01.
“
Hazardous Materials
”
means all explosive or radioactive substances
or wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
“
Holdings
”
means Ethan Allen Interiors Inc., a Delaware
corporation.
“
Indebtedness
”
of any Person means,
without duplication, (a) all obligations of such Person for borrowed money
or with respect to deposits or advances of any kind, (b) all obligations
of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charges are customarily paid
(other than accounts payable incurred in the ordinary course of business), (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (e) all
obligations of such Person in respect of the deferred purchase price of
property or services (excluding current accounts payable incurred in the
ordinary course of business), (f) all Indebtedness of others secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (g) all
Guarantees by such Person of Indebtedness of others, (h) all Capital Lease
Obligations of such Person, (i) all obligations, contingent or otherwise,
of such Person as an account party in respect of letters of credit and letters
of guaranty, (j) all obligations, contingent or otherwise, of such Person
in respect of bankers’ acceptances, (k) obligations under any liquidated
earn-out and (l) any other Off-Balance Sheet Liability. The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person’s ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.
16
“
Indemnified Taxes
”
means Taxes other than
Excluded Taxes.
“
Information Memorandum
”
means the Confidential
Information Memorandum dated April 2009 relating to the Borrower and the
Transactions.
“
Interest Election Request
”
means a
request by the Borrower to convert or continue a Revolving Borrowing in
accordance with Section 2.08.
“
Interest Expense
”
means, with reference to
any period, total interest expense (including, but without duplication, that
attributable to Capital Lease Obligations) of the Borrower and its Subsidiaries
for such period with respect to all outstanding Indebtedness of the Borrower
and its Subsidiaries (including all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers’ acceptance
financing and net costs under Swap Agreements in respect of interest rates to
the extent such net costs are allocable to such period in accordance with GAAP),
calculated on a consolidated basis for the Borrower and its Subsidiaries for
such period in accordance with GAAP.
“
Interest Payment Date
”
means (a) with respect
to any ABR Loan (other than a Swingline Loan), the first day of each calendar
quarter and the Maturity Date, and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months’ duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months’ duration after
the first day of such Interest Period and the Maturity Date.
“
Interest Period
”
means with respect to any
Eurodollar Borrowing, the period commencing on the date of such Borrowing and
ending on the numerically corresponding day in the calendar month that is one,
two, three or six (or, with the consent of each Lender, nine or twelve) months
thereafter, as the Borrower may elect;
provided
, that (i) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the
case of a Eurodollar Borrowing only, such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period shall end
on the next preceding Business Day and (ii) any Interest Period pertaining
to a Eurodollar Borrowing that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business Day
of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and, in the case of
a Revolving Borrowing, thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing.
“
Inventory
”
has the meaning assigned to such term in the
Security Agreement.
“
IP Collateral Trigger Date
” means the earliest date
after the Effective Date on which Availability is less than $17,500,000 and the
Administrative Agent has notified the Borrower in writing of such date.
“
Issuing Bank
”
means Chase, in its
capacity as the issuer of Letters of Credit hereunder, and its successors in
such capacity as provided in Section 2.06(i). The Issuing Bank may, in its discretion,
arrange for one or more Letters of Credit to be issued by Affiliates of the
Issuing Bank, in which case the term “
Issuing Bank
” shall include any
such Affiliate with respect to Letters of Credit issued by such Affiliate.
“
Joinder Agreement
”
has the meaning assigned to
such term in Section 5.11.
17
“
Landlord Lien State
” means any jurisdiction the laws of which provide
for the liens in favor of the landlords of such jurisdiction to have priority
over the liens of the Administrative Agent on Inventory;
provided
that if the laws of any such jurisdiction are changed
after the Effective Date so as to provide for the liens in favor of the
Administrative Agent on Inventory to have priority over the liens in favor of
the landlords of such jurisdiction, then such jurisdiction shall no longer be a
“Landlord Lien State” as such term is used herein.
“
LC Collateral Account
”
has the meaning assigned to
such term in Section 2.06(j).
“
LC Disbursement
”
means a payment made by the
Issuing Bank pursuant to a Letter of Credit.
“
LC Exposure
”
means, at any time, the sum of Commercial LC
Exposure and Standby LC Exposure. The LC
Exposure of any Lender at any time shall be its Applicable Percentage of the
total LC Exposure at such time.
“
Lenders
”
means the Persons listed on
Schedule 2.01
and any other Person that shall have become a party hereto pursuant to an
Assignment and Assumption, other than any such Person that ceases to be a party
hereto pursuant to an Assignment and Assumption. Unless the context otherwise requires, the
term “
Lenders
” includes the Swingline Lender.
“
Letter of Credit
”
means any letter of credit
issued pursuant to this Agreement.
“
LIBO Rate
”
means, with respect to any Eurodollar
Borrowing for any Interest Period, the rate appearing on Reuters Screen LIBOR01
Page (or on any successor or substitute page of such service, or any
successor to or substitute for such service, providing rate quotations
comparable to those currently provided on such page of such service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two (2) Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that such rate is not available
at such time for any reason, then the “
LIBO Rate
” with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period
are offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two (2) Business Days prior to the
commencement of such Interest Period.
“
Lien
”
means, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or
security interest in, on or of such asset, (b) the interest of a vendor or
a lessor under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic effect
as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.
“
Loan Documents
”
means this Agreement, any
promissory notes issued pursuant to Section 2.10(f) of this
Agreement, any Letter of Credit applications, the Collateral Documents and all
other agreements, instruments, documents and certificates identified in Section 4.01
executed and delivered to, or in favor of, the Administrative Agent, any
Lenders or any Secured Parties and including all other pledges, powers of
attorney, consents, assignments, contracts, notices, letter of credit
agreements and all other written matter whether heretofore, now or hereafter
executed by or on behalf of any Loan Party, or any employee of any Loan Party,
and delivered to the Administrative Agent, any Lender or any
18
Secured Party in connection with this
Agreement or the transactions contemplated thereby. Any reference in this Agreement or any other
Loan Document to a Loan Document shall include all appendices, exhibits or
schedules thereto, and all amendments, restatements, supplements or other
modifications thereto, and shall refer to the Agreement or such Loan Document
as the same may be in effect at any and all times such reference becomes
operative.
“
Loan Guarantor
”
means each Loan Party
(other than the Borrower).
“
Loan Guaranty
”
means
Article X
of this Agreement.
“
Loan Parties
”
means Holdings, the
Borrower, the Borrower’s Material Domestic Subsidiaries and any other Person
who becomes a party to this Agreement pursuant to a Joinder Agreement and their
successors and assigns.
“
Loans
”
means the loans and advances made by the
Lenders pursuant to this Agreement, including Swingline Loans, Overadvances and
Protective Advances.
“
Material Adverse Effect
”
means a material adverse
effect on (a) the business, assets, operations, condition (financial or
otherwise) or prospects of Holdings, or the Borrower, or the Borrower and the
Subsidiaries taken as a whole, (b) the ability of any Loan Party to
perform any of its obligations under the Loan Documents to which it is a party,
(c) the Collateral, or the Administrative Agent’s Liens (on behalf of
itself and the Secured Parties) on the Collateral or the priority of such
Liens, or (d) the rights of or benefits available to the Administrative
Agent, the Issuing Bank, the Lenders or the Secured Parties thereunder.
“
Material Domestic Subsidiaries
”
means each
Domestic Subsidiary which, as of the most recent fiscal quarter of Holdings,
for the period of four consecutive fiscal quarters then ended, for which
financial statements have been delivered pursuant to Section 5.01,
contributed greater than ten percent (10%) of Total Assets as of such date;
provided
that, if at any time the aggregate amount of the Total Assets of all
Subsidiaries that are not Material Domestic Subsidiaries exceeds ten percent
(10%) of Total Assets as of the end of any such fiscal quarter, Holdings (or,
in the event Holdings has failed to do so within ten (10) days, the
Administrative Agent) shall designate sufficient Subsidiaries as “
Material
Domestic Subsidiaries
” to eliminate such excess, and such designated
Subsidiaries shall for all purposes of this Agreement constitute Material
Domestic Subsidiaries.
“
Material Foreign Subsidiaries
”
means each
Foreign Subsidiary which, as of the most recent fiscal quarter of Holdings, for
the period of four consecutive fiscal quarters then ended, for which financial
statements have been delivered pursuant to Section 5.01, contributed
greater than ten percent (10%) of Total Assets as of such date;
provided
that, if at any time the aggregate amount of the Total Assets of all
Subsidiaries that are not Material Foreign Subsidiaries exceeds ten percent
(10%) of Total Assets as of the end of any such fiscal quarter, Holdings (or,
in the event Holdings has failed to do so within ten (10) days, the
Administrative Agent) shall designate sufficient Subsidiaries as “
Material
Foreign Subsidiaries
” to eliminate such excess, and such designated
Subsidiaries shall for all purposes of this Agreement constitute Material
Foreign Subsidiaries.
“
Material Indebtedness
”
means Indebtedness (other
than the Loans and Letters of Credit), or obligations in respect of one or more
Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an
aggregate principal amount exceeding $10,000,000. For purposes of determining Material
Indebtedness, the “
obligations
” of the Borrower or any Subsidiary in
respect of any Swap Agreement at any time shall be the maximum aggregate amount
(giving effect to any netting agreements)
19
that the Borrower or such Subsidiary would be
required to pay if such Swap Agreement were terminated at such time.
“
Maturity Date
”
means May 29, 2012 or
any earlier date on which the Commitments are reduced to zero or otherwise
terminated pursuant to the terms hereof.
“
Maximum Liability
”
has the meaning assigned to
such term in Section 10.10.
“
Monthly Reporting Trigger
” shall be in effect at any
time that (i) an Event of Default is continuing, (ii) any Loans are
outstanding, (iii) LC Exposure is equal to or in excess of $13,500,000 or (iv) average
Availability for the most recently ended calendar month is equal to or less
than $25,000,000.
“
Moody’s
”
means Moody’s Investors Service, Inc.
“
Multiemployer Plan
”
means a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
“
Negative Covenant Permission Trigger
” means (a) no Default or
Event of Default has occurred and is continuing prior to making such
acquisition (in the case of a Permitted Acquisition), Restricted Payment (in
the case of Section 6.08(a)) or payment (in the case of Section 6.08(b))
or would arise after giving effect (including pro forma effect) thereto, (b) Availability
equals or exceeds an amount equal to the greater of (i) 25% of the
Aggregate Commitment at such time and (ii) $12,000,000, prior thereto as
well as after giving effect (including pro forma effect) thereto and (c) Holdings
and the Borrower are in compliance, on a pro forma basis after giving effect
thereto (excluding synergies or cost savings in the case of an acquisition),
with the covenant contained in Section 6.12 recomputed as of the last day
of the most recently ended fiscal quarter of Holdings for which financial
statements are available
“
Net Income
”
means, for any period, the consolidated net
income (or loss) of Holdings and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP;
provided
that there shall be excluded (a) the
income (or deficit) of any Person accrued prior to the date it becomes a
Subsidiary or is merged into or consolidated with Holdings
or any of its Subsidiaries, (b) the income (or deficit) of any
Person (other than a Subsidiary) in which
Holdings or any of its Subsidiaries has an ownership interest, except to
the extent that any such income is actually received by Holdings or such
Subsidiary in the form of dividends or similar distributions and (c) the
undistributed earnings of any Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary is not at the
time permitted by the terms of any contractual obligation (other than under any
Loan Document) or Requirement of Law applicable to such Subsidiary. Any
Requirement of Law that a dividend be declared by the board of directors or
similar governing body of a Subsidiary shall not be deemed a restriction
described in clause (c) above.
“
Net Orderly Liquidation Value
”
means, with
respect to Inventory of any Person, the orderly liquidation value thereof as
determined in a manner acceptable to the Administrative Agent in its Permitted
Discretion by an appraiser acceptable to the Administrative Agent, net of all
costs of liquidation thereof.
“
Net Proceeds
”
means, with respect to any
event, (a) the cash proceeds received in respect of such event including (i) any
cash received in respect of any non-cash proceeds (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or purchase price adjustment receivable or otherwise,
but excluding any interest payments), but only as and when received, (ii) in
the case of a casualty, insurance proceeds and (iii) in the case of a
condemnation or similar event, condemnation awards and similar payments, net of
(b) the sum of (i) all
20
reasonable fees and out-of-pocket expenses
paid to third parties (other than Affiliates) in connection with such event, (ii) in
the case of a sale, transfer or other disposition of an asset (including
pursuant to a sale and leaseback transaction or a casualty or a condemnation or
similar proceeding), the amount of all payments required to be made as a result
of such event to repay Indebtedness (other than Loans) secured by such asset or
otherwise subject to mandatory prepayment as a result of such event and (iii) the
amount of all taxes paid (or reasonably estimated to be payable) and the amount
of any reserves established to fund contingent liabilities reasonably estimated
to be payable, in each case during the year that such event occurred or the
next succeeding year and that are directly attributable to such event (as
determined reasonably and in good faith by a Financial Officer).
“
Non-Consenting Lender
”
has the meaning assigned to
such term in Section 9.02(d).
“
Non-Paying Guarantor
”
has the meaning assigned to
such term in Section 10.11.
“
Obligated Party
”
has the meaning assigned to
such term in Section 10.02.
“
Obligations
”
means all unpaid principal of and accrued
and unpaid interest on the Loans, all LC Exposure, all accrued and unpaid fees
and all expenses, reimbursements, indemnities and other obligations and
indebtedness (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding), obligations and liabilities
of the Loan Parties to the Lenders or to any of the Lenders, the Administrative
Agent, the Issuing Bank or any indemnified party, individually or collectively,
existing on the Effective Date or arising thereafter, direct or indirect, joint
or several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, secured or unsecured, arising by contract, operation of law or
otherwise, arising or incurred under this Agreement or any of the other Loan
Documents or in respect of any of the Loans made or reimbursement or other
obligations incurred or any of the Letters of Credit or other instruments at
any time evidencing any thereof.
“
Off-Balance Sheet Liability
”
of a Person
means (a) any repurchase obligation or liability of such Person with
respect to accounts or notes receivable sold by such Person, (b) any
indebtedness, liability or obligation under any so-called “
synthetic lease
”
transaction entered into by such Person, or (c) any indebtedness,
liability or obligation arising with respect to any other transaction which is
the functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the balance sheets of such Person (other than
operating leases).
“
Other Taxes
”
means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement or any other
Loan Document other than Excluded Taxes.
“
Overadvance
”
has the meaning assigned to such term in Section 2.05(b).
“
Participant
”
has the meaning set forth in Section 9.04.
“
Paying Guarantor
”
has the meaning assigned to
such term in Section 10.11.
“
PBGC
”
means the Pension Benefit Guaranty
Corporation referred to and defined in ERISA and any successor entity
performing similar functions.
“
Permitted Acquisition
”
means any acquisition
(whether by purchase, lease (other than a customary real estate lease), merger,
consolidation or otherwise) or series of related acquisitions by
21
Holdings, the Borrower or any Subsidiary of (i) all
or substantially all the assets of or (ii) all or substantially all the
Equity Interests in, a Person or division or line of business of a Person, if,
at the time of and immediately after giving effect thereto, (a) no Default
has occurred and is continuing or would arise after giving effect (including
pro forma effect) thereto, (b) such Person or division or line of business
is engaged in the same or a similar line of business as Holdings and its
Subsidiaries or business reasonably related thereto, (c) all actions
required to be taken with respect to such acquired or newly formed Subsidiary
under Section 5.15 shall have been taken, (d) the Negative Covenant
Permission Trigger is satisfied and (e) in the case of an acquisition or
merger involving Holdings, the Borrower or a Subsidiary, Holdings, the Borrower
or such Subsidiary is the surviving entity of such merger and/or consolidation.
“
Permitted Discretion
”
means a determination made
in good faith and in the exercise of reasonable (from the perspective of a
secured asset-based lender) business judgment.
“
Permitted Encumbrances
”
means:
(a) Liens imposed by law for taxes that
are not yet due or are being contested in compliance with Section 5.04;
(b) carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than thirty (30) days or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the
ordinary course of business in compliance with workers’ compensation,
unemployment insurance and other social security laws or regulations;
(d) deposits to secure the performance of
bids, trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business;
(e) judgment liens in respect of
judgments that do not constitute an Event of Default under clause (k) of Article VII;
(f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property or interfere with the ordinary conduct of business of Holdings or any
Subsidiary; and
(g) liens arising by virtue of any
statutory, common law or contractual provisions relating to bankers’ liens,
right of set-off or similar rights and remedies;
provided
that the term “
Permitted
Encumbrances
” shall not include any Lien securing Indebtedness.
“
Permitted Investments
”
means:
(a) direct obligations of, or obligations
the principal of and interest on which are unconditionally guaranteed by, the
United States of America (or by any agency thereof to the extent such
obligations are backed by the full faith and credit of the United States of
America), in each case maturing within one year from the date of acquisition
thereof;
22
(b) investments in commercial paper
maturing within 270 days from the date of acquisition thereof and having, at
such date of acquisition, the highest credit rating obtainable from S&P or
from Moody’s;
(c) investments in certificates of
deposit, banker’s acceptances and time deposits maturing within 180 days from
the date of acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, any domestic office of any
commercial bank organized under the laws of the United States of America or any
State thereof which has a combined capital and surplus and undivided profits of
not less than $500,000,000;
(d) fully collateralized repurchase
agreements with a term of not more than 30 days for securities described in
clause (a) above and entered into with a financial institution satisfying
the criteria described in clause (c) above;
(e) money market funds that (i) comply
with the criteria set forth in Securities and Exchange Commission Rule 2a-7
under the Investment Company Act of 1940, (ii) are rated AAA by S&P
and Aaa by Moody’s and (iii) have portfolio assets of at least
$5,000,000,000; and
(f) other investments made in accordance
with Holdings’ investment policy as in effect on the Effective Date and without
giving effect to any amendments, modifications or supplements thereto unless
the same are approved by the Administrative Agent in its Permitted Discretion.
“
Person
”
means any natural person, corporation,
limited liability company, trust, joint venture, association, company,
partnership, Governmental Authority or other entity.
“
Plan
”
means any employee pension benefit plan
(other than a Multiemployer Plan) subject to the provisions of Title IV of
ERISA or Section 412 of the Code or Section 302 of ERISA, and in
respect of which the Borrower or any ERISA Affiliate is (or, if such plan were
terminated, would under Section 4069 of ERISA be deemed to be) an “
employer
”
as defined in Section 3(5) of ERISA.
“
Pledge Subsidiary
” means (i) each Domestic Subsidiary and (ii) each
First Tier Foreign Subsidiary which is a Material Foreign Subsidiary.
“
Prepayment Event
”
means:
(a) any sale, transfer or other
disposition (excluding a sale, transfer or disposition of Real Property
pursuant to a transaction permitted by Sections 6.01(n) and 6.06) of any
Collateral, other than dispositions described in Section 6.05(a); or
(b) any casualty or other insured damage
to, or any taking under power of eminent domain or by condemnation or similar
proceeding of, any property or asset of any Loan Party with a fair value
immediately prior to such event equal to or greater than $5,000,000; or
(c) the issuance by Holdings or the
Borrower of any Equity Interests, or the receipt by Holdings or the Borrower of
any capital contribution, other than any issuance by the Borrower of common
Equity Interests to, or receipt of any such capital contribution from, Holdings
and other than in connection with employee and director compensation, incentive
and benefit plans and other than in connection with acquisitions or in payment
of or exchange for debt; or
23
(d) the incurrence by any Loan Party of
any Indebtedness, other than Indebtedness permitted under Section 6.01 or
permitted by the Required Lenders pursuant to Section 9.02.
“
Prime Rate
”
means the rate of interest per annum
publicly announced from time to time by Chase as its prime rate at its offices
at 270 Park Avenue in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as
being effective.
“
Processor Control Agreement
” means, with respect to any
Credit Card Processor providing credit card processing services for or on
behalf of any Loan Party, an agreement in form and substance reasonably
satisfactory to the Administrative Agent in its Permitted Discretion, executed
and delivered by the applicable Loan Party, such Credit Card Processor and the
Administrative Agent, pursuant to which such Credit Card Processor shall agree,
among other things, to follow instructions originated by the Administrative
Agent regarding amounts payable by such Credit Card Processor to such Loan
Party pursuant to the applicable credit card processing agreement without the
further consent of such Loan Party under circumstances specified therein, as
such agreement may be amended, supplemented or otherwise modified from time to
time.
“
Projections
”
has the meaning assigned to such term in Section 5.01(f).
“
Protective Advance
”
has the meaning assigned to
such term in Section 2.04.
“
Real Property
” means real property and all related fixtures,
cooling, heating and other building systems located thereon and all
improvements thereto (including any parking lot located thereon).
“
Register
”
has the meaning set forth in Section 9.04.
“
Related Parties
”
means, with respect to any
specified Person, such Person’s Affiliates and the respective directors,
officers, employees, agents and advisors of such Person and such Person’s
Affiliates.
“
Release
” means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping, disposing, depositing, dispersing, emanating or migrating of any
Hazardous Material in, into, onto or through the environment.
“
Rentals
”
means, with reference to any period, the
aggregate fixed amounts payable in cash by Holdings and its Subsidiaries under
any operating leases, calculated on a consolidated basis for Holdings and its
Subsidiaries for such period in accordance with GAAP.
“
Rent Reserve
”
with respect to any store,
warehouse distribution center, regional distribution center or depot where any
Inventory subject to Liens arising by operation of law is located, a reserve
equal to two (2) months’ rent at such store, warehouse distribution center,
regional distribution center or depot.
“
Report
”
means reports prepared by the Administrative
Agent or another Person showing the results of appraisals, field examinations
or audits pertaining to the Loan Parties’ assets from information furnished by
or on behalf of the Borrower, after the Administrative Agent has exercised its
rights of inspection pursuant to this Agreement, which Reports may be
distributed to the Lenders by the Administrative Agent.
24
“
Required Lenders
”
means, at any time, Lenders
(but at least two (2) such Lenders during such time when there is more
than one (1) Lender but no more than three (3) Lenders) having
Revolving Exposures and unused Commitments representing more than 50% of the
sum of the total Revolving Exposures and unused Commitments at such time,
except as provided in Section 2.20(b).
“
Requirement of Law
”
means, as to any Person,
the Certificate of Incorporation and By Laws or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
“
Reserves
”
means any and all reserves which the
Administrative Agent deems necessary, in its Permitted Discretion, to maintain
(including, without limitation, reserves for accrued and unpaid interest on the
Secured Obligations, Banking Services Reserves, Rent Reserves, reserves for
rent at locations leased by any Loan Party and for consignee’s, warehousemen’s
and bailee’s charges, reserves for dilution of Accounts and/or Credit Card
Account Receivables, reserves for Inventory shrinkage, reserves for customs
charges and shipping charges related to any Inventory in transit, reserves for
Swap Obligations, reserves for contingent liabilities of any Loan Party,
reserves for uninsured losses of any Loan Party, reserves for uninsured,
underinsured, unindemnified or underindemnified liabilities or potential
liabilities with respect to any litigation and reserves for taxes, fees,
assessments, and other governmental charges) without duplication with respect
to the Collateral or any Loan Party.
“
Restricted Payment
”
means any dividend or other
distribution (whether in cash, securities or other property) with respect to
any Equity Interests in Holdings, the Borrower or any Subsidiary, or any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such Equity Interests in
Holdings or the Borrower or any
Subsidiary or any option, warrant or other right to acquire any such Equity
Interests in Holdings or the Borrower or any Subsidiary.
“
Revolving Exposure
”
means, with respect to any
Lender at any time, the sum of (a) the outstanding principal amount of
such Lender’s Revolving Loans and its LC Exposure,
plus
(b) an
amount equal to its Applicable Percentage of the aggregate principal amount of
Swingline Loans at such time,
plus
(c) an amount equal to its
Applicable Percentage of the aggregate principal amount of Overadvances
outstanding at such time.
“
Revolving Loan
”
means a Loan made pursuant
to Section 2.01(a).
“
S&P
”
means Standard & Poor’s Ratings
Services, a division of The McGraw Hill Companies, Inc.
“
Secured Obligations
”
means all Obligations,
together with all (i) Banking Services Obligations and (ii) Swap Obligations
owing to one or more Secured Parties or their respective Affiliates;
provided
that at or prior to the time that any transaction relating to such Swap
Obligation is executed, the Secured Party party thereto (other than Chase)
shall have delivered written notice to the Administrative Agent that such a
transaction has been entered into and that it constitutes a Secured Obligation
entitled to the benefits of the Collateral Documents.
“
Secured Parties
” means the holders of the Secured Obligations from
time to time and shall include (i) each Lender and the Issuing Bank in
respect of its Loans and LC Exposure respectively, (ii) the Administrative
Agent, the Issuing Bank and the Lenders in respect of all other present and
future obligations and liabilities of Holdings, the Borrower and each
Subsidiary of every type and description
25
arising under or in connection
with this Agreement or any other Loan Document, (iii) each Lender and
Affiliate of such Lender in respect of Swap Obligations and Banking Services
Obligations owed to such Person by Holdings, the Borrower or any Subsidiary, (iv) each
indemnified party under Section 9.03 in respect of the obligations and
liabilities of Holdings, the Borrower or any Subsidiary to such Person
hereunder and under the other Loan Documents, and (v) their respective
successors and (in the case of a Lender, permitted) transferees and assigns.
“
Security Agreement
”
means the Pledge and
Security Agreement (including any and all supplements thereto), dated as of the
date hereof, between the Loan Parties and the Administrative Agent, for the
benefit of the Administrative Agent and the Secured Parties, and any other
pledge or security agreement entered into, after the date of this Agreement by
any other Loan Party (as required by this Agreement or any other Loan
Document), or any other Person, as the same may be amended, restated or
otherwise modified from time to time.
“
Settlement
”
has the meaning assigned to such term in Section 2.05(d).
“
Settlement Date
”
has the meaning assigned to
such term in Section 2.05(d).
“
Standby LC Exposure
” means, at any time, the sum of (a) the
aggregate undrawn amount of all outstanding standby Letters of Credit at such
time plus (b) the aggregate amount of all LC Disbursements relating to
standby Letters of Credit that have not yet been reimbursed by or on behalf of
the Borrower at such time. The Standby
LC Exposure of any Lender at any time shall be its Applicable Percentage of the
total Standby LC Exposure at such time.
“
Statutory Reserve Rate
”
means a fraction (expressed
as a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject with respect to the Adjusted LIBO Rate, for eurocurrency funding
(currently referred to as “
Eurocurrency Liabilities
” in Regulation D of
the Board). Such reserve percentages
shall include those imposed pursuant to such Regulation D of the Board. Eurodollar Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D of the Board
or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
“
Subordinated Indebtedness
”
of a Person
means any Indebtedness of such Person the payment of which is subordinated to
payment of the Secured Obligations to the written satisfaction of the Administrative
Agent in its Permitted Discretion.
“
subsidiary
”
means, with respect to any Person (the “
parent
”)
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with those
of the parent in the parent’s consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, Controlled or held,
or (b) that is, as of such date, otherwise Controlled, by the parent or
one or more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.
26
“
Subsidiary
”
means any direct or indirect subsidiary of
Holdings, the Borrower or a Loan Party, as applicable.
“
Swap Agreement
”
means any agreement with
respect to any swap, forward, future or derivative transaction or option or
similar agreement involving, or settled by reference to, one or more rates,
currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk
or value or any similar transaction or any combination of these transactions;
provided
that no phantom stock or similar plan providing for payments only on account of
services provided by current or former directors, officers, employees or
consultants of Holdings or the Subsidiaries shall be a Swap Agreement.
“
Swap Obligations
”
of a Person means any and
all obligations of such Person, whether absolute or contingent and howsoever
and whensoever created, arising, evidenced or acquired (including all renewals,
extensions and modifications thereof and substitutions therefor), under (a) any
and all Swap Agreements permitted hereunder with a Lender or an Affiliate of a
Lender, and (b) any and all cancellations, buy backs, reversals,
terminations or assignments of any such Swap Agreement transaction.
“
Swingline Exposure
”
means, at any time, the
aggregate principal amount of all outstanding Swingline Loans at such
time. The Swingline Exposure of any
Lender at any time shall be its Applicable Percentage of the total Swingline
Exposure at such time.
“
Swingline Lender
”
means JPMorgan Chase Bank,
N.A., in its capacity as lender of Swingline Loans hereunder.
“
Swingline Loan
”
has the meaning assigned to
such term in Section 2.05(a).
“
Syndication Agent
”
means JPMorgan Chase Bank,
N.A. in its capacity as syndication agent for the credit facility evidenced by
this Agreement.
“
Taxes
”
means any and all present or future taxes,
levies, imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
“
Total Assets
”
means, as of the date of
any determination thereof, total assets of Holdings and its Subsidiaries
calculated in accordance with GAAP on a consolidated basis as of such date.
“
Total Indebtedness
”
means, at any date, the
aggregate principal amount of all Indebtedness of Holdings and its Subsidiaries
at such date, determined on a consolidated basis in accordance with GAAP.
“
Transactions
”
means the execution,
delivery and performance by the Loan Parties of this Agreement and the other
Loan Documents, the borrowing of Loans and other credit extensions, the use of
the proceeds thereof and the issuance of Letters of Credit hereunder.
“
Type
”
, when used in reference to any Loan or
Borrowing, refers to whether the rate of interest on such Loan, or on the Loans
comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate
or the Alternate Base Rate.
“
UCC
”
means the Uniform Commercial Code as in
effect from time to time in the State of New York or any other state the laws
of which are required to be applied in connection with the issue of perfection
of security interests.
27
“
Unliquidated Obligations
”
means, at any time, any
Secured Obligations (or portion thereof) that are contingent in nature or
unliquidated at such time, including any Secured Obligation that is: (i) an
obligation to reimburse a bank for drawings not yet made under a letter of
credit issued by it; (ii) any other obligation (including any guarantee)
that is contingent in nature at such time; or (iii) an obligation to
provide collateral to secure any of the foregoing types of obligations.
“
Withdrawal Liability
”
means liability to a
Multiemployer Plan as a result of a complete or partial withdrawal from such
Multiemployer Plan, as such terms are defined in Part I of Subtitle E of
Title IV of ERISA.
SECTION 1.02.
Classification of Loans and Borrowings
. For purposes of this Agreement, Loans may be
classified and referred to by Class (e.g., a “
Revolving Loan
”) or
by Type (e.g., a “
Eurodollar Loan
”) or by Class and Type (e.g., a “
Eurodollar
Revolving Loan
”). Borrowings also
may be classified and referred to by Class (e.g., a “
Revolving
Borrowing
”) or by Type (e.g., a “
Eurodollar Borrowing
”) or by Class and
Type (e.g., a “
Eurodollar Revolving Borrowing
”).
SECTION 1.03.
Terms Generally
. The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words “
include
”, “
includes
”
and “
including
” shall be deemed to be followed by the phrase “
without
limitation
”. The word “
will
”
shall be construed to have the same meaning and effect as the word “
shall
”. Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, restated, supplemented or otherwise
modified (subject to any restrictions on such amendments, restatements,
supplements or modifications set forth herein), (b) any reference herein
to any Person shall be construed to include such Person’s successors and
assigns, (c) the words “
herein
”, “
hereof
” and “
hereunder
”,
and words of similar import, shall be construed to refer to this Agreement in
its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words “
asset
” and “
property
”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.
SECTION 1.04.
Accounting Terms; GAAP
. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time;
provided
that, if
the Borrower notifies the Administrative Agent that the Borrower requests an
amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the
operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
Notwithstanding any other provision contained herein, all terms of an
accounting or financial nature used herein shall be construed, and all
computations of amounts and ratios referred to herein shall be made, without
giving effect to any election under Statement of Financial Accounting Standards
159 (or any other Financial Accounting Standard having a similar result or
effect) to value any Indebtedness or other liabilities of Holdings, the
Borrower or any Subsidiary at “fair value”, as defined therein.
28
ARTICLE II
The Credits
SECTION 2.01.
Commitments
. Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans to the Borrower in
dollars from time to time during the Availability Period in an aggregate principal
amount that will not result in (a) such Lender’s Revolving Exposure
exceeding such Lender’s Commitment or (b) the total Revolving Exposures
exceeding the lesser of (i) the Aggregate Commitment or (ii) the
Borrowing Base, subject to the Administrative Agent’s authority, in its sole
discretion, to make Protective Advances and Overadvances pursuant to the terms
of Section 2.04 and 2.05. Within
the foregoing limits and subject to the terms and conditions set forth herein,
the Borrower may borrow, prepay and reborrow Revolving Loans.
SECTION 2.02.
Loans and Borrowings
. (a) Each Loan (other than a Swingline
Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and
Type made by the Lenders ratably in accordance with their respective
Commitments of the applicable Class. Any
Protective Advance, any Overadvance and any Swingline Loan shall be made in
accordance with the procedures set forth in Section 2.04 and 2.05. No failure to fund by a Defaulting Lender
shall relieve any other Lender of its funding obligations hereunder in
accordance with the terms and conditions hereof.
(b) Subject to Section 2.14,
each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar
Loans as the Borrower may request in accordance herewith;
provided
that
all Borrowings made on the Effective Date must be made as ABR Borrowings but
may be converted into Eurodollar Borrowings in accordance with Section 2.08.
Each Swingline Loan shall be an ABR Loan.
Each Lender at its option may make any Eurodollar Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided
that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement.
(c) At the
commencement of each Interest Period for any Eurodollar Revolving Borrowing,
such Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $2,000,000.
ABR Revolving Borrowings may be in any amount. Borrowings of more than one Type and Class may
be outstanding at the same time;
provided
that there shall not at any
time be more than a total of ten (10) Eurodollar Borrowings outstanding.
(d) Notwithstanding
any other provision of this Agreement, the Borrower shall not be entitled to
request, or to elect to convert or continue, any Borrowing if the Interest
Period requested with respect thereto would end after the Maturity Date.
SECTION 2.03.
Requests for
Revolving Borrowings
. To
request a Revolving Borrowing, the Borrower shall notify the Administrative
Agent of such request either in writing (delivered by hand or facsimile) in a
form approved by the Administrative Agent and signed by the Borrower or by
telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m.,
New York City time, three (3) Business Days before the date of the
proposed Borrowing or (b) in the case of an ABR Borrowing, not later than
1:00 p.m., New York City time, on the date of the proposed Borrowing;
provided
that any such notice of an ABR Revolving Borrowing to finance the reimbursement
of an LC Disbursement as contemplated by Section 2.06(e) may be given
not later than 10:00 a.m., New York City time, on the date of the proposed
Borrowing. Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or facsimile to the Administrative Agent of a written Borrowing
Request in a form approved by the Administrative Agent and signed by the
29
Borrower.
Each such telephonic and written Borrowing Request shall specify the
following information in compliance with Section 2.01:
(i) the aggregate
amount of the requested Borrowing and a breakdown of the separate wires
comprising such Borrowing;
(ii) the date of such
Borrowing, which shall be a Business Day;
(iii) whether such
Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) in the case of a
Eurodollar Borrowing, the initial Interest Period to be applicable thereto,
which shall be a period contemplated by the definition of the term “
Interest
Period.
”
If
no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Revolving Borrowing, then the Borrower
shall be deemed to have selected an Interest Period of one month’s
duration. Promptly following receipt of
a Borrowing Request in accordance with this Section, the Administrative Agent
shall advise each Lender of the details thereof and of the amount of such
Lender’s Loan to be made as part of the requested Borrowing.
SECTION 2.04.
Protective Advances
. (a) Subject to the limitations set forth
below, the Administrative Agent is authorized by the Borrower and the Lenders,
from time to time in the Administrative Agent’s sole discretion (but shall have
absolutely no obligation to), to make Loans to the Borrower, on behalf of all
Lenders, which the Administrative Agent, in its Permitted Discretion, deems
necessary or desirable (i) to preserve or protect the Collateral, or any
portion thereof, (ii) to enhance the likelihood of, or maximize the amount
of, repayment of the Loans and other Obligations, or (iii) to pay any
other amount chargeable to or required to be paid by the Borrower pursuant to
the terms of this Agreement, including payments of reimbursable expenses
(including costs, fees, and expenses as described in Section 9.03) and
other sums payable under the Loan Documents (any of such Loans are herein
referred to as “
Protective Advances
”);
provided
that, the
aggregate amount of Protective Advances outstanding at any time shall not at
any time exceed $5,000,000;
provided
further
that, the aggregate
amount of outstanding Protective Advances plus the aggregate Revolving Exposure
shall not exceed the Aggregate Commitment.
Protective Advances may be made even if the conditions precedent set
forth in Section 4.02 have not been satisfied. The Protective Advances shall be secured by
the Liens in favor of the Administrative Agent in and to the Collateral and
shall constitute Obligations hereunder.
All Protective Advances shall be ABR Borrowings. The Administrative Agent’s authorization to
make Protective Advances may be revoked at any time by 100% of the Lenders
(other than the Lender that is (or whose
Affiliate is) the Administrative Agent).
Any such revocation must be in writing and shall become effective
prospectively upon the Administrative Agent’s receipt thereof. At any time that there is sufficient
Availability and the conditions precedent set forth in Section 4.02 have
been satisfied, the Administrative Agent may request the Lenders to make a
Revolving Loan to repay a Protective Advance.
At any other time the Administrative Agent may require the Lenders to
fund their risk participations described in Section 2.04(b).
(b) Upon the making of
a Protective Advance by the Administrative Agent (whether before or after the
occurrence of a Default), each Lender shall be deemed, without further action
by any party hereto, to have unconditionally and irrevocably purchased from the
Administrative Agent without recourse or warranty, an undivided interest and
participation in such Protective Advance in proportion to its Applicable
Percentage. From and after the date, if
any, on which any Lender is required to fund its participation in any
Protective Advance purchased hereunder, the Administrative Agent shall promptly
distribute to such Lender, such Lender’s Applicable Percentage of all payments
30
of principal and interest and all proceeds of
Collateral received by the Administrative Agent in respect of such Protective
Advance.
SECTION 2.05.
Swingline Loans and
Overadvances
. (a) The
Administrative Agent, the Swingline Lender and the Lenders agree that in order
to facilitate the administration of this Agreement and the other Loan
Documents, promptly after the Borrower requests an ABR Borrowing, the Swingline
Lender may elect to have the terms of this Section 2.05(a) apply to
such Borrowing Request by advancing, on behalf of the Lenders and in the amount
requested, same day funds to the Borrower on the applicable Borrowing date to
the Funding Account (each such Loan made solely by the Swingline Lender
pursuant to this Section 2.05(a) is referred to in this Agreement as
a “
Swingline Loan
”), with settlement among them as to the Swingline
Loans to take place on a periodic basis as set forth in Section 2.05(d). Each Swingline Loan shall be subject to all
the terms and conditions applicable to other ABR Loans funded by the Lenders,
except that all payments thereon shall be payable to the Swingline Lender
solely for its own account. In addition,
the Borrower hereby authorizes the Swingline Lender to, and the Swingline
Lender shall, subject to the terms and conditions set forth herein (but without
any further written notice required), not later than 2:00 p.m., New York
City time, on each Business Day, make available to the Borrower by means of a
credit to the Funding Account, the proceeds of a Swingline Loan to the extent
necessary to pay items to be drawn on any Controlled Disbursement Account that
day (as determined based on notice from the Administrative Agent). The aggregate amount of Swingline Loans
outstanding at any time shall not exceed $6,000,000. The Swingline Lender shall not make any
Swingline Loan if the requested Swingline Loan exceeds Availability (before
giving effect to such Swingline Loan).
All Swingline Loans shall be ABR Borrowings.
(b) Any provision of
this Agreement to the contrary notwithstanding, at the request of the Borrower,
the Administrative Agent may in its sole discretion (but with absolutely no
obligation), make Revolving Loans to the Borrower, on behalf of the Lenders, in
amounts that exceed Availability (any such excess Revolving Loans are herein
referred to collectively as “
Overadvances
”);
provided
that, no Overadvance shall result in a Default due to Borrower’s failure to
comply with Section 2.01 for so long as such Overadvance remains
outstanding in accordance with the terms of this paragraph, but solely with
respect to the amount of such Overadvance.
In addition, Overadvances may be made even if the condition precedent
set forth in Section 4.02(c) has not been satisfied. All Overadvances shall constitute ABR
Borrowings. The authority of the
Administrative Agent to make Overadvances is limited to an aggregate amount not
to exceed $5,000,000 at any time, no Overadvance may remain outstanding for
more than forty-five (45) days and no Overadvance shall cause any Lender’s
Revolving Exposure to exceed its Commitment;
provided
that, the Required Lenders may at any time revoke the Administrative Agent’s
authorization to make Overadvances. Any
such revocation must be in writing and shall become effective prospectively
upon the Administrative Agent’s receipt thereof.
(c) Upon the making of
a Swingline Loan or an Overadvance (whether before or after the occurrence of a
Default and regardless of whether a Settlement has been requested with respect
to such Swingline Loan or Overadvance), each Lender shall be deemed, without
further action by any party hereto, to have unconditionally and irrevocably
purchased from the Swingline Lender or the Administrative Agent, as the case
may be, without recourse or warranty, an undivided interest and participation
in such Swingline Loan or Overadvance in proportion to its Applicable
Percentage of the Commitment. The
Swingline Lender or the Administrative Agent may, at any time, require the
Lenders to fund their participations.
From and after the date, if any, on which any Lender is required to fund
its participation in any Swingline Loan or Overadvance purchased hereunder, the
Administrative Agent shall promptly distribute to such Lender, such Lender’s
Applicable Percentage of all payments of principal and interest and all
proceeds of Collateral received by the Administrative Agent in respect of such
Loan.
31
(d) The Administrative
Agent, on behalf of the Swingline Lender, shall request settlement (a “
Settlement
”)
with the Lenders on at least a weekly basis or on any date that the
Administrative Agent elects, by notifying the Lenders of such requested
Settlement by facsimile, telephone, or e-mail no later than 1:00 p.m., New
York City time, on the date of such requested Settlement (the “
Settlement
Date
”). Each Lender (other than the
Swingline Lender, in the case of the Swingline Loans) shall transfer the amount
of such Lender’s Applicable Percentage of the outstanding principal amount of
the applicable Loan with respect to which Settlement is requested to the
Administrative Agent, to such account of the Administrative Agent as the
Administrative Agent may designate, not later than 3:00 p.m., New York
City time, on such Settlement Date.
Settlements may occur during the existence of a Default and whether or
not the applicable conditions precedent set forth in Section 4.02 have
then been satisfied. Such amounts
transferred to the Administrative Agent shall be applied against the amounts of
the Swingline Lender’s Swingline Loans and, together with Swingline Lender’s
Applicable Percentage of such Swingline Loan, shall constitute Revolving Loans
of such Lenders, respectively. If any
such amount is not transferred to the Administrative Agent by any Lender on
such Settlement Date, the Swingline Lender shall be entitled to recover such
amount on demand from such Lender together with interest thereon as specified
in Section 2.07.
SECTION 2.06.
Letters of Credit
. (a)
General
. Subject to the terms and conditions set forth
herein, the Borrower may request the issuance of Letters of Credit for its own
account, in a form reasonably acceptable to the Administrative Agent and the
Issuing Bank, at any time and from time to time during the Availability
Period. In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement
submitted by the Borrower to, or entered into by the Borrower with, the Issuing
Bank relating to any Letter of Credit, the terms and conditions of this
Agreement shall control. The letters of
credit identified on
Schedule 2.06
(the “
Existing Letters of Credit
”)
shall be deemed to be “Letters of Credit” issued on the Effective Date for all
purposes of the Loan Documents.
(b)
Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions
. To request the
issuance of a Letter of Credit (or the amendment, renewal or extension of an
outstanding Letter of Credit), the Borrower shall hand deliver or facsimile (or
transmit by electronic communication, if arrangements for doing so have been
approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent
(reasonably in advance of the requested date of issuance, amendment, renewal or
extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, and specifying
the date of issuance, amendment, renewal or extension (which shall be a
Business Day), the date on which such Letter of Credit is to expire (which
shall comply with paragraph (c) of this Section), the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such
other information as shall be necessary to prepare, amend, renew or extend such
Letter of Credit. If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit application and
(in the case of a commercial Letter of Credit) a master agreement for the
issuance of commercial Letters of Credit, in each case on the Issuing Bank’s
standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended,
renewed or extended only if (and upon issuance, amendment, renewal or extension
of each Letter of Credit the Borrower shall be deemed to represent and warrant
that), after giving effect to such issuance, amendment, renewal or extension (i) the
LC Exposure shall not exceed $30,000,000, (ii) the Standby LC Exposure
shall not exceed $25,000,000 and (iii) the total Revolving Exposures shall
not exceed the lesser of the Aggregate Commitment and the Borrowing Base.
(c)
Expiration Date
.
Each Letter of Credit shall expire at or prior to the close of business
on the earlier of (i) the date one year after the date of the issuance of
such Letter of Credit (or, in the case of any renewal or extension thereof, one
year after such renewal or extension) and (ii) the date that is five (5) Business
Days prior to the Maturity Date.
32
(d)
Participations
. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each Lender hereby acquires from the Issuing
Bank, a participation in such Letter of Credit equal to such Lender’s
Applicable Percentage of the aggregate amount available to be drawn under such
Letter of Credit. In consideration and
in furtherance of the foregoing, each Lender hereby absolutely and
unconditionally agrees to pay to the Administrative Agent, for the account of
the Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement
made by the Issuing Bank and not reimbursed by the Borrower on the date due as
provided in paragraph (e) of this Section, or of any reimbursement payment
required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including any amendment, renewal or extension of
any Letter of Credit or the occurrence and continuance of a Default or reduction
or termination of the Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.
(e)
Reimbursement
. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse
such LC Disbursement by paying to the Administrative Agent an amount equal to
such LC Disbursement not later than 12:00 noon, New York City time, on the date
that such LC Disbursement is made, if the Borrower shall have received notice
of such LC Disbursement prior to 10:00 a.m., New York City time, on such
date, or, if such notice has not been received by the Borrower prior to such
time on such date, then not later than 12:00 noon, New York City time, on (i) the
Business Day that the Borrower receives such notice, if such notice is received
prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the
Business Day immediately following the day that the Borrower receives such
notice, if such notice is not received prior to such time on the day of
receipt;
provided
that, subject to the conditions to borrowing set forth
herein, request in accordance with Section 2.03 or 2.05 that such payment
be financed with an ABR Revolving Borrowing or Swingline Loan in an equivalent
amount and, to the extent so financed, the Borrower’s obligation to make such
payment shall be discharged and replaced by the resulting ABR Revolving
Borrowing or Swingline Loan. If the
Borrower fails to make such payment when due, the Administrative Agent shall
notify each Lender of the applicable LC Disbursement, the payment then due from
the Borrower in respect thereof and such Lender’s Applicable Percentage
thereof. Promptly following receipt of
such notice, each Lender shall pay to the Administrative Agent its Applicable
Percentage of the payment then due from the Borrower, in the same manner as
provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07
shall apply, mutatis mutandis, to the payment obligations of the Lenders), and
the Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders.
Promptly following receipt by the Administrative Agent of any payment
from the Borrower pursuant to this paragraph, the Administrative Agent shall
distribute such payment to the Issuing Bank or, to the extent that Lenders have
made payments pursuant to this paragraph to reimburse the Issuing Bank, then to
such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this
paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the
funding of ABR Revolving Loans or a Swingline Loan as contemplated above) shall
not constitute a Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement.
(f)
Obligations
Absolute
. The Borrower’s
obligation to reimburse LC Disbursements as provided in paragraph (e) of
this Section shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement under any
and all circumstances whatsoever and irrespective of (i) any lack of
validity or enforceability of any Letter of Credit or this Agreement, or any
term or provision therein, (ii) any draft or other document presented
under a Letter of Credit proving to be forged, fraudulent or invalid in any
respect or any statement therein being
33
untrue or inaccurate in any respect, (iii) payment by the Issuing
Bank under a Letter of Credit against presentation of a draft or other document
that does not comply with the terms of such Letter of Credit, or (iv) any
other event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section, constitute a
legal or equitable discharge of, or provide a right of setoff against, the
Borrower’s obligations hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor
any of their Related Parties, shall have any liability or responsibility by
reason of or in connection with the issuance or transfer of any Letter of
Credit or any payment or failure to make any payment thereunder (irrespective
of any of the circumstances referred to in the preceding sentence), or any
error, omission, interruption, loss or delay in transmission or delivery of any
draft, notice or other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond
the control of the Issuing Bank;
provided
that the foregoing shall not
be construed to excuse the Issuing Bank from liability to the Borrower to the
extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by the Issuing Bank’s
failure to exercise care when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in
the absence of gross negligence or willful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such
determination. In furtherance of the
foregoing and without limiting the generality thereof, the parties agree that,
with respect to documents presented which appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g)
Disbursement
Procedures
. The Issuing Bank
shall, promptly following its receipt thereof, examine all documents purporting
to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by facsimile) of
such demand for payment and whether the Issuing Bank has made or will make an
LC Disbursement thereunder;
provided
that any failure to give or delay
in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Lenders with respect to any such LC
Disbursement.
(h)
Interim
Interest
. If the Issuing Bank
shall make any LC Disbursement, then, unless the Borrower shall reimburse such
LC Disbursement in full on the date such LC Disbursement is made, the unpaid
amount thereof shall bear interest, for each day from and including the date
such LC Disbursement is made to but excluding the date that the Borrower
reimburses such LC Disbursement, at the rate per annum then applicable to ABR
Revolving Loans;
provided
that, if the Borrower fails to reimburse such
LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(d) shall
apply. Interest accrued pursuant to this
paragraph shall be for the account of the Issuing Bank, except that interest
accrued on and after the date of payment by any Lender pursuant to paragraph (e) of
this Section to reimburse the Issuing Bank shall be for the account of
such Lender to the extent of such payment.
(i)
Replacement
of the Issuing Bank
. The
Issuing Bank may be replaced at any time by written agreement among the
Borrower, the Administrative Agent, the replaced Issuing Bank and the successor
Issuing Bank. The Administrative Agent
shall notify the Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become
effective, the Borrower shall pay all unpaid fees accrued for the account of
the replaced Issuing Bank pursuant to
34
Section 2.12(b). From and
after the effective date of any such replacement, (i) the successor
Issuing Bank shall have all the rights and obligations of the Issuing Bank
under this Agreement with respect to Letters of Credit to be issued thereafter
and (ii) references herein to the term “
Issuing Bank
” shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such
successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank
hereunder, the replaced Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this
Agreement with respect to Letters of Credit issued by it prior to such
replacement, but shall not be required to issue additional Letters of Credit.
(j)
Cash
Collateralization
. If any
Event of Default shall occur and be continuing, on the Business Day that the
Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has
been accelerated, Lenders with LC Exposure representing greater than 50% of the
total LC Exposure) demanding the deposit of cash collateral pursuant to this
paragraph, the Borrower shall deposit in an account with the Administrative
Agent, in the name of the Administrative Agent and for the benefit of the
Secured Parties (the “
LC Collateral Account
”), an amount in cash equal
to 103% of the LC Exposure as of such date plus accrued and unpaid interest
thereon;
provided
that the obligation to deposit such cash collateral
shall become effective immediately, and such deposit shall become immediately
due and payable, without demand or other notice of any kind, upon the
occurrence of any Event of Default with respect to the Borrower described in
clause (h) or (i) of Article VII. Such deposit shall be held by the
Administrative Agent as collateral for the payment and performance of the
Secured Obligations. The Administrative
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account and the Borrower hereby grants the
Administrative Agent a security interest in the LC Collateral Account. Other than any interest earned on the
investment of such deposits, which investments shall be made at the option and
Permitted Discretion of the Administrative Agent and at the Borrower’s risk and
expense, such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in
such account. Moneys in such account
shall be applied by the Administrative Agent to reimburse the Issuing Bank for
LC Disbursements for which it has not been reimbursed and, to the extent not so
applied, shall be held for the satisfaction of the reimbursement obligations of
the Borrower for the LC Exposure at such time or, if the maturity of the Loans
has been accelerated (but subject to the consent of Lenders with LC Exposure
representing greater than 50% of the total LC Exposure), be applied to satisfy
other Secured Obligations. If the
Borrower is required to provide an amount of cash collateral hereunder as a result
of the occurrence of an Event of Default, such amount (to the extent not
applied as aforesaid) shall be returned to the Borrower within three (3) Business
Days after all such Defaults have been cured or waived.
SECTION 2.07.
Funding of
Borrowings
. (a) Each
Lender shall make each Loan to be made by it hereunder on the proposed date
thereof by wire transfer of immediately available funds by 2:00 p.m., New
York City time, to the account of the Administrative Agent most recently
designated by it for such purpose by notice to the Lenders in an amount equal
to such Lender’s Applicable Percentage;
provided
that, Swingline Loans
shall be made as provided in Section 2.05.
The Administrative Agent will make such Loans available to the Borrower
by promptly crediting the amounts so received, in like funds, to the Funding
Account;
provided
that ABR Revolving Loans made to finance the
reimbursement of (i) an LC Disbursement as provided in Section 2.06(e) shall
be remitted by the Administrative Agent to the Issuing Bank and (ii) a
Protective Advance or an Overadvance shall be retained by the Administrative
Agent.
(b) Unless the Administrative Agent
shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the Administrative Agent
such Lender’s share of such Borrowing, the Administrative Agent may assume that
such Lender has made such share available on such date in accordance with
paragraph (a) of this Section and may,
35
in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if
a Lender has not in fact made its share of the applicable Borrowing available
to the Administrative Agent, then the applicable Lender and the Borrower
severally agree to pay to the Administrative Agent forthwith on demand such
corresponding amount with interest thereon, for each day from and including the
date such amount is made available to the Borrower to but excluding the date of
payment to the Administrative Agent, at (i) in the case of such Lender,
the greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on
interbank compensation or (ii) in the case of the Borrower, the interest
rate applicable to ABR Loans. If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender’s Loan included in such Borrowing.
SECTION 2.08.
Interest Elections
. (a) Each Revolving Borrowing initially
shall be of the Type specified in the applicable Borrowing Request and, in the
case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period
as specified in such Borrowing Request.
Thereafter, the Borrower may elect to convert such Borrowing to a
different Type or to continue such Borrowing and, in the case of a Eurodollar
Revolving Borrowing, may elect Interest Periods therefor, all as provided in
this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing. This Section shall not apply to
Swingline Borrowings, Overadvances or Protective Advances, which may not be
converted or continued.
(b) To make an election pursuant to
this Section, the Borrower shall notify the Administrative Agent of such
election by telephone by the time that a Borrowing Request would be required
under Section 2.03 if the Borrower were requesting a Revolving Borrowing
of the Type resulting from such election to be made on the effective date of
such election. Each such telephonic
Interest Election Request shall be irrevocable and shall be confirmed promptly
by hand delivery or facsimile to the Administrative Agent of a written Interest
Election Request in a form approved by the Administrative Agent and signed by
the Borrower.
(c) Each telephonic and written
Interest Election Request shall specify the following information in compliance
with Section 2.02:
(i) the Borrowing to which such
Interest Election Request applies and, if different options are being elected
with respect to different portions thereof, the portions thereof to be
allocated to each resulting Borrowing (in which case the information to be
specified pursuant to clauses (iii) and (iv) below shall be specified
for each resulting Borrowing);
(ii) the effective date of the election
made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing
is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a
Eurodollar Borrowing, the Interest Period to be applicable thereto after giving
effect to such election, which shall be a period contemplated by the definition
of the term “
Interest Period
”.
If any such Interest
Election Request requests a Eurodollar Borrowing but does not specify an
Interest Period, then the Borrower shall be deemed to have selected an Interest
Period of one month’s duration.
36
(d) Promptly following receipt of an
Interest Election Request, the Administrative Agent shall advise each Lender of
the details thereof and of such Lender’s portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a
timely Interest Election Request with respect to a Eurodollar Revolving
Borrowing prior to the end of the Interest Period applicable thereto, then,
unless such Borrowing is repaid as provided herein, at the end of such Interest
Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing (i) no
outstanding Revolving Borrowing may be converted to or continued as a
Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.09.
Termination and
Reduction of Commitments; Increase in Commitments
. (a) Unless previously terminated, the
Commitments shall terminate on the Maturity Date.
(b) The Borrower may at any time
terminate the Commitments upon (i) the payment in full of all outstanding
Loans, together with accrued and unpaid interest thereon and on any Letters of
Credit, (ii) the cancellation and return of all outstanding Letters of
Credit (or alternatively, with respect to each such Letter of Credit, the
furnishing to the Administrative Agent of a cash deposit (or at the discretion
of the Administrative Agent a back up standby letter of credit satisfactory to
the Administrative Agent) equal to 103% of the LC Exposure as of such date), (iii) the
payment in full of the accrued and unpaid fees and (iv) the payment in
full of all reimbursable expenses and other Obligations together with accrued
and unpaid interest thereon.
(c) The Borrower may from time to time
reduce the Commitments;
provided
that (i) each reduction of the
Commitments shall be in an amount that is an integral multiple of $1,000,000
and not less than $5,000,000 and (ii) the Borrower shall not reduce the
Commitments if, after giving effect to any concurrent prepayment of the
Revolving Loans in accordance with Section 2.10, the sum of the Revolving
Exposures would exceed the lesser of the total Commitments and the Borrowing
Base.
(d) The Borrower shall notify the
Administrative Agent of any election to terminate or reduce the Commitments
under paragraph (b) or (c) of this Section at least three (3) Business
Days prior to the effective date of such termination or reduction, specifying
such election and the effective date thereof.
Promptly following receipt of any notice, the Administrative Agent shall
advise the Lenders of the contents thereof.
Each notice delivered by the Borrower pursuant to this Section shall
be irrevocable;
provided
that a notice of termination of the Commitments
delivered by the Borrower may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such notice may be
revoked by the Borrower (by notice to the Administrative Agent on or prior to
the specified effective date) if such condition is not satisfied. Any termination or reduction of the
Commitments shall be permanent. Each
reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.
(e) The Borrower shall have the right
to increase the Aggregate Commitment by obtaining additional Commitments,
either from one or more of the Lenders or another lending institution provided
that (i) any such request for an increase shall be in a minimum amount of
$5,000,000, (ii) the Borrower may make a maximum of two (2) such
requests, (iii) after giving effect thereto, the Aggregate Commitment does
not exceed $60,000,000, (iv) the Administrative Agent has approved the
identity of any such new Lender, such approval not to be unreasonably withheld,
(v) any
37
such new Lender assumes all of the rights and obligations of a “Lender”
hereunder, (vi) the procedure described in Section 2.09(f) have
been satisfied and (vii) solely during the period commencing on the
Effective Date and ending 90 days thereafter, the percentage rate on any
upfront or similar fee paid to such new Lender in respect of its Commitment
(the “
New Upfront Fee Rate
”) shall not exceed the percentage rate on
upfront fees paid to the other Lenders in respect of their Commitments (the “
Original
Upfront Fee Rate
”) unless the Borrower pays the incremental difference (if
positive) in percentage between the New Upfront Fee Rate and the Original
Upfront Fee Rate to such other Lenders in respect of their Commitments.
(f) Any amendment hereto for such an
increase or addition shall be in form and substance satisfactory to the
Administrative Agent and shall only require the written signatures of the
Administrative Agent, the Borrower and the Lender(s) being added or
increasing their Commitment. As a
condition precedent to such an increase, Borrower shall deliver to the
Administrative Agent (i) a certificate of each Loan Party signed by an
authorized officer of such Loan Party (A) certifying and attaching the
resolutions adopted by such Loan Party approving or consenting to such
increase, and (B) in the case of the Borrower, certifying that, before and
after giving effect to such increase, (1) the representations and
warranties contained in
Article III
and the other Loan Documents
are true and correct, except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they are true and correct
as of such earlier date, and (2) no Default exists and (ii) legal
opinions and documents consistent with those delivered on the Effective Date as
to the corporate power and authority of the Loan Parties.
(g) Within a reasonable time after the
effective date of any increase, the Administrative Agent shall, and is hereby
authorized and directed to, revise
Schedule 2.01
to reflect such
increase and shall distribute such revised
Schedule 2.01
to each of the
Lenders and the Borrower, whereupon such revised
Schedule 2.01
shall
replace the old
Schedule 2.01
and become part of this Agreement. On the Business Day following any such
increase, all outstanding ABR Loans shall be reallocated among the Lenders
(including any newly added Lenders) in accordance with the Lenders’ respective
revised Applicable Percentages.
Eurodollar Loans shall not be reallocated among the Lenders prior to the
expiration of the applicable Interest Period in effect at the time of any such
increase.
SECTION 2.10.
Repayment and
Amortization of Loans; Evidence of Debt
. (a) The Borrower hereby unconditionally
promises to pay (i) to the Administrative Agent for the account of each
Lender the then unpaid principal amount of each Revolving Loan on the Maturity
Date, (ii) to the Administrative Agent the then unpaid amount of each
Protective Advance on the earlier of the Maturity Date and demand by the
Administrative Agent and (iii) to the Administrative Agent the then unpaid
principal amount of each Overadvance on the earlier of the Maturity Date and
demand by the Administrative Agent.
(b) At all times that full cash
dominion is in effect pursuant to Section 7.3 of the Security Agreement,
on each Business Day, the Administrative Agent shall apply all funds credited
to the Collection Account the previous Business Day (whether or not immediately
available)
first
to prepay any Protective Advances and Overadvances that
may be outstanding, pro rata, and
second
to prepay the Revolving Loans
(including Swing Line Loans) and to cash collateralize outstanding LC
Exposure. If no Default is continuing,
the amount of such cash collateral securing outstanding LC Exposure shall be
returned to the Borrower within three (3) Business Days.
(c) Each Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Lender resulting from each Loan made
38
by such Lender, including the amounts of principal and interest payable
and paid to such Lender from time to time hereunder.
(d) The Administrative Agent shall
maintain accounts in which it shall record (i) the amount of each Loan
made hereunder, the Class and Type thereof and the Interest Period
applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) the amount of any sum received by the Administrative Agent
hereunder for the account of the Lenders and each Lender’s share thereof.
(e) The entries made in the accounts
maintained pursuant to paragraph (c) or (d) of this Section shall
be prima facie evidence of the existence and amounts of the obligations recorded
therein;
provided
that the failure of any Lender or the Administrative
Agent to maintain such accounts or any error therein shall not in any manner
affect the obligation of the Borrower to repay the Loans in accordance with the
terms of this Agreement.
(f) Any Lender may request that Loans
made by it be evidenced by a promissory note.
In such event, the Borrower shall prepare, execute and deliver to such
Lender a promissory note payable to the order of such Lender (or, if requested
by such Lender, to such Lender and its registered assigns) and in a form
approved by the Administrative Agent.
Thereafter, the Loans evidenced by such promissory note and interest
thereon shall at all times (including after assignment pursuant to Section 9.04)
be represented by one or more promissory notes in such form payable to the
order of the payee named therein (or, if such promissory note is a registered
note, to such payee and its registered assigns).
SECTION 2.11.
Prepayment of Loans
. (a) The Borrower shall have the right
at any time and from time to time to prepay any Borrowing in whole or in part,
subject to prior notice in accordance with paragraph (f) of this Section.
(b) Except for Overadvances permitted
under Section 2.05, in the event and on such occasion that the total
Revolving Exposure exceeds (the amount of such excess, the “
Excess
”) the
lesser of (A) the Aggregate Commitment or (B) the Borrowing Base, the
Borrower shall prepay the Revolving Loans, LC Exposure and/or Swingline Loans
in an aggregate amount equal to such Excess.
If such Excess is subsequently reduced and no Default is continuing, any
such cash collateral so provided by the Borrower shall be returned to the
Borrower (in an amount equal to the lesser of (i) any such reduction in
the Excess and (ii) the amount of such cash collateral) within three (3) Business
Days after such reduction.
(c) In the event and on each occasion
that any Net Proceeds are received by or on behalf of any Loan Party in respect
of any Prepayment Event, the Borrower shall, within three (3) Business
Days after such Net Proceeds are received by any Loan Party, prepay the
Obligations as set forth in Section 2.11(e) below in an aggregate
amount equal to 100% of such Net Proceeds.
(d) [Intentionally Omitted].
(e) All such amounts pursuant to Section 2.11(c) shall
be applied,
first
to prepay any Protective Advances and Overadvances
that may be outstanding, pro rata, and
second
to prepay the Revolving
Loans (including Swing Line Loans) without a corresponding reduction in the
Commitment and, so long as a Default is continuing, to cash collateralize
outstanding LC Exposure.
(f) The Borrower shall notify the
Administrative Agent (and, in the case
of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed
by facsimile) of any
39
prepayment hereunder (i) in the case of prepayment of a Eurodollar
Revolving Borrowing, not later than 11:00 a.m., New York City time, three (3) Business
Days before the date of prepayment, or (ii) in the case of prepayment of
an ABR Revolving Borrowing, not later than 11:00 a.m., New York City time,
one (1) Business Day before the date of prepayment. Each such notice shall be irrevocable and
shall specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid;
provided
that, if a notice of prepayment
is given in connection with a conditional notice of termination of the
Commitments as contemplated by Section 2.09, then such notice of
prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.09.
Promptly following receipt of any such notice relating to a Revolving
Borrowing, the Administrative Agent shall advise the Lenders of the contents
thereof. Each partial prepayment of any
Revolving Borrowing shall be in an amount that would be permitted in the case
of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing
shall be applied ratably to the Revolving Loans included in the prepaid
Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.13.
SECTION 2.12.
Fees
. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Rate on the average daily amount of the
Available Commitment of such Lender during the period from and including the
Effective Date to but excluding the date on which the Lenders’ Commitments
terminate. Accrued commitment fees shall
be payable in arrears on the first day of each calendar quarter and on the date
on which the Commitments terminate, commencing on the first such date to occur
after the date hereof. All commitment
fees shall be computed on the basis of a year of 360 days and shall be payable
for the actual number of days elapsed.
(b) The Borrower agrees to pay (i) to
the Administrative Agent for the account of each Lender a participation fee
with respect to its participations in Letters of Credit, which shall accrue, in
the case of standby Letters of Credit at the same Applicable Rate and, in the
case of Commercial Letters of Credit at 50% of such Applicable Rate, in each
case used to determine the interest rate applicable to Eurodollar Revolving
Loans on the average daily amount of such Lender’s LC Exposure (excluding any
portion thereof attributable to unreimbursed LC Disbursements) during the
period from and including the Effective Date to but excluding the later of the
date on which such Lender’s Commitment terminates and the date on which such
Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a
fronting fee, which shall accrue at the rate of 0.125% per annum on the average
daily amount of the LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date of termination of the
Commitments and the date on which there ceases to be any LC Exposure, as well
as the Issuing Bank’s standard fees and commissions (including without
limitation standard commissions with respect to Commercial Letters of Credit,
payable at the time of invoice of such amounts) with respect to the issuance,
amendment, renewal or extension of any Letter of Credit or processing of
drawings thereunder. Participation fees
and fronting fees accrued through and including the last day of each calendar
quarter shall be payable on the first day of each calendar quarter following
such last day, commencing on the first such date to occur after the Effective
Date;
provided
that all such fees shall be payable on the date on which
the Commitments terminate and any such fees accruing after the date on which
the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank
pursuant to this paragraph shall be payable within ten (10) days after
demand. All participation fees and
fronting fees shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed.
(c) The Borrower agrees to pay to the
Administrative Agent, for its own account, fees payable in the amounts and at
the times separately agreed upon between the Borrower and the Administrative
Agent.
40
(d) All fees payable hereunder shall be
paid on the dates due, in immediately available funds, to the Administrative
Agent (or to the Issuing Bank, in the case of fees payable to it) for
distribution, in the case of commitment fees and participation fees, to the
Lenders. Fees paid shall not be
refundable under any circumstances.
SECTION 2.13.
Interest
. (a) The Loans comprising each ABR
Borrowing (including each Swingline Loan) shall bear interest at the Alternate
Base Rate plus the Applicable Rate.
(b) The Loans comprising each
Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the
Interest Period in effect for such Borrowing plus the Applicable Rate.
(c) Each Protective Advance and each
Overadvance shall bear interest at the Alternate Base Rate plus the Applicable
Rate for Revolving Loans plus 2%.
(d) Notwithstanding the foregoing,
during the occurrence and continuance of an Event of Default, the
Administrative Agent or the Required Lenders may, at their option, by notice to
the Borrower (which notice may be revoked at the option of the Required Lenders
notwithstanding any provision of Section 9.02 requiring the consent of “each
Lender directly affected thereby” for reductions in interest
rates), declare that (i) all Loans shall bear interest at 2% plus the rate
otherwise applicable to such Loans as provided in the preceding paragraphs of
this Section or (ii) in the case of any other amount outstanding
hereunder, such amount shall accrue at 2% plus the rate applicable to such fee
or other obligation as provided hereunder.
(e) Accrued interest on each Loan (for
ABR Loans, accrued through the last day of the prior calendar month) shall be
payable in arrears on each Interest Payment Date for such Loan and upon
termination of the Commitments;
provided
that (i) interest accrued
pursuant to paragraph (d) of this Section shall be payable on demand,
(ii) in the event of any repayment or prepayment of any Loan (other than a
prepayment of an ABR Revolving Loan prior to the end of the Availability
Period), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event
of any conversion of any Eurodollar Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(f) All interest hereunder shall be
computed on the basis of a year of 360 days, except that interest computed by
reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on the Prime Rate shall be computed on the basis of a year of 365 days
(or 366 days in a leap year), and in each case shall be payable for the actual
number of days elapsed. The applicable
Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.14.
Alternate Rate of
Interest
. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines
(which determination shall be conclusive absent manifest error) that adequate
and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or
the LIBO Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised
by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect the
cost to such Lenders (or Lender) of making or maintaining their Loans (or its
Loan) included in such Borrowing for such Interest Period;
41
then the Administrative
Agent shall give notice thereof to the Borrower and the Lenders by telephone or
facsimile as promptly as practicable thereafter and, until the Administrative
Agent notifies the Borrower and the Lenders that the circumstances giving rise
to such notice no longer exist, (i) any Interest Election Request that
requests the conversion of any Revolving Borrowing to, or continuation of any
Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if
any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing
shall be made as an ABR Borrowing.
SECTION 2.15.
Increased Costs
. (a) If any Change in Law shall:
(i)
impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of, or
credit extended by, any Lender (except any such reserve requirement reflected
in the Adjusted LIBO Rate) or the Issuing Bank; or
(ii)
impose on any Lender or the Issuing Bank or the London interbank market
any other condition affecting this Agreement or Eurodollar Loans made by such
Lender or any Letter of Credit or participation therein;
and the result of any of the
foregoing shall be to increase the cost to such Lender of making or maintaining
any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or
to increase the cost to such Lender or the Issuing Bank of participating in,
issuing or maintaining any Letter of Credit or to reduce the amount of any sum
received or receivable by such Lender or the Issuing Bank hereunder (whether of
principal, interest or otherwise), then the Borrower will pay to such Lender or
the Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank, as the case may be, for such
additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank
determines that any Change in Law regarding capital requirements has or would
have the effect of reducing the rate of return on such Lender’s or the Issuing
Bank’s capital or on the capital of such Lender’s or the Issuing Bank’s holding
company, if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of
Credit issued by the Issuing Bank, to a level below that which such Lender or
the Issuing Bank or such Lender’s or the Issuing Bank’s holding company could
have achieved but for such Change in Law (taking into consideration such Lender’s
or the Issuing Bank’s policies and the policies of such Lender’s or the Issuing
Bank’s holding company with respect to capital adequacy), then from time to
time the Borrower will pay to such Lender or the Issuing Bank, as the case may
be, such additional amount or amounts as will compensate such Lender or the
Issuing Bank or such Lender’s or the Issuing Bank’s holding company for any
such reduction suffered.
(c) A certificate of a Lender or the
Issuing Bank setting forth the amount or amounts necessary to compensate such
Lender or the Issuing Bank or its holding company, as the case may be, as
specified in paragraph (a) or (b) of this Section shall be
delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the
Issuing Bank, as the case may be, the amount shown as due on any such certificate
within ten (10) days after receipt thereof.
(d) Failure or delay on the part of any
Lender or the Issuing Bank to demand compensation pursuant to this Section shall
not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand
such compensation;
provided
that the Borrower shall not be required to
compensate a Lender or the Issuing Bank pursuant to this Section for any
increased costs or reductions incurred more than 270 days prior to the date
that such Lender or the Issuing Bank, as the case may be, notifies the Borrower
of the Change in Law giving rise to such increased costs or reductions and of
such Lender’s or the Issuing Bank’s intention to claim compensation therefor;
provided
further
that, if
42
the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 270-day period referred to above shall be extended to
include the period of retroactive effect thereof.
SECTION 2.16.
Break Funding Payments
. In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b) the
conversion of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto, (c) the failure to borrow, convert, continue or
prepay any Eurodollar Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice may be revoked under Section 2.09(d) and
is revoked in accordance therewith), or (d) the assignment of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.19,
then, in any such event, the Borrower shall compensate each Lender for the
loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss,
cost or expense to any Lender shall be deemed to include an amount determined
by such Lender to be the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount of such Loan had such event
not occurred, at the Adjusted LIBO Rate that would have been applicable to such
Loan, for the period from the date of such event to the last day of the then
current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period
for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender
setting forth any amount or amounts that such Lender is entitled to receive
pursuant to this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate
within ten (10) days after receipt thereof.
SECTION 2.17.
Taxes
. (a) Any and all payments by or on
account of any obligation of the Borrower hereunder shall be made free and
clear of and without deduction for any Indemnified Taxes or Other Taxes;
provided
that if the Borrower shall be required to deduct any Indemnified Taxes or Other
Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section) the Administrative
Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower shall pay
any Other Taxes to the relevant Governmental Authority in accordance with
applicable law.
(c) The Borrower shall indemnify the
Administrative Agent, each Lender and the Issuing Bank, within ten (10) days
after written demand therefor, for the full amount of any Indemnified Taxes or
Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank,
as the case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount
of such payment or liability delivered to the Borrower by a Lender or the
Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of
a Lender or the Issuing Bank, shall be conclusive absent manifest error.
43
(d) Each Lender and the Issuing Bank
shall indemnify the Borrower and the Administrative Agent, within ten (10) days
after written demand therefor, against any and all Taxes and any and all
related losses, claims, liabilities, penalties, interest and reasonable
expenses (including the fees, charges and disbursements of any counsel for the
Borrower or the Administrative Agent) incurred by or asserted against the
Borrower or the Administrative Agent by any Governmental Authority as a result
of the failure by such Lender or the Issuing Bank, as the case may be, to
deliver, or as a result of the inaccuracy, inadequacy or deficiency of, any
documentation required to be delivered to the Borrower or the Administrative
Agent pursuant to Section 2.17(f).
Each Lender and the Issuing Bank hereby authorizes the Administrative
Agent to set off and apply any and all amounts at any time owing to such Lender
or the Issuing Bank, as the case may be, under this Agreement or any other Loan
Document against any amount due to the Administrative Agent under this Section 2.17(d).
(e) As soon as practicable after any
payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental
Authority, the Borrower shall deliver to the Administrative Agent the original
or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the Administrative Agent.
(f) Any Foreign Lender that is entitled
to an exemption from or reduction of withholding tax under the law of the
jurisdiction in which the Borrower is located, or any treaty to which such
jurisdiction is a party, with respect to payments under this Agreement shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.
(g) If the Administrative Agent or a
Lender determines, in its sole good faith discretion, that it has received a
refund of any Taxes or Other Taxes as to which it has been indemnified by the
Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section 2.17, it shall pay over such refund to the
Borrower (but only to the extent of indemnity payments made, or additional
amounts paid, by the Borrower under this Section 2.17 with respect to the
Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of the Administrative Agent or such Lender and without interest (other
than any interest paid by the relevant Governmental Authority with respect to
such refund);
provided
, that the Borrower, upon the request of the
Administrative Agent or such Lender, agrees to repay the amount paid over to
the Borrower (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to the Administrative Agent or such Lender in
the event the Administrative Agent or such Lender is required to repay such
refund to such Governmental Authority. This Section shall not be construed
to require the Administrative Agent or any Lender to make available its tax
returns (or any other information relating to its taxes which it deems
confidential) to the Borrower or any other Person.
SECTION 2.18.
Payments Generally;
Allocation of Proceeds; Sharing of Set-offs
. (a) The Borrower shall make each
payment required to be made by it hereunder (whether of principal, interest,
fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15,
2.16 or 2.17, or otherwise) prior to 3:00 p.m., New York City time, on the
date when due, in immediately available funds, without set off or
counterclaim. Any amounts received after
such time on any date may, in the discretion of the Administrative Agent, be
deemed to have been received on the next succeeding Business Day for purposes
of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices at 10
South Dearborn Street, 22
nd
Floor, Chicago, Illinois, except
payments to be made directly to the Issuing Bank or Swingline Lender as
expressly provided herein and
44
except that payments pursuant to Sections
2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled
thereto. The Administrative Agent shall
distribute any such payments received by it for the account of any other Person
to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a
day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such
extension. All payments hereunder shall
be made in dollars.
(b) Any proceeds of Collateral
received by the Administrative Agent (i) not constituting either (A) a
specific payment of principal, interest, fees or other sum payable under the
Loan Documents (which shall be applied as specified by the Borrower), (B) a
mandatory prepayment (which shall be applied in accordance with Section 2.11)
or (C) amounts to be applied from the Collection Account when full cash
dominion is in effect pursuant to Section 7.3 of the Security Agreement
(which shall be applied in accordance with Section 2.10(b)) or (ii) after
an Event of Default has occurred and is continuing and the Administrative Agent
so elects or the Required Lenders so direct, such proceeds shall be applied
ratably
first
, to pay any fees, indemnities, or expense reimbursements
including amounts then due to the Administrative Agent and the Issuing Bank
from the Borrower (other than in connection with Banking Services or Swap
Obligations),
second
, to pay any fees or expense reimbursements then due
to the Lenders from the Borrower (other than in connection with Banking
Services or Swap Obligations),
third
, to pay interest due in respect of
the Overadvances and Protective Advances,
fourth
, to pay the principal
of the Overadvances and Protective Advances,
fifth
, to pay interest then
due and payable on the Loans (other than the Overadvances and Protective
Advances) ratably,
sixth
, to prepay principal on the Loans (other than
the Overadvances and Protective Advances) and unreimbursed LC Disbursements
ratably,
seventh
, to pay an amount to the Administrative Agent equal to
one hundred three percent (103%) of the aggregate undrawn face amount of all
outstanding Letters of Credit and the aggregate amount of any unpaid LC
Disbursements, to be held as cash collateral for such Obligations,
eighth
,
to payment of any amounts owing with respect to Banking Services and Swap Obligations,
and
ninth
, to the payment of any other
Secured Obligation due to the Administrative Agent or any Lender by the
Borrower. Notwithstanding anything to the contrary contained in this Agreement,
unless so directed by the Borrower, or unless a Default is in existence,
neither the Administrative Agent nor any Lender shall apply any payment which
it receives to any Eurodollar Loan of a Class, except (a) on the
expiration date of the Interest Period applicable to any such Eurodollar Loan
or (b) in the event, and only to the extent, that there are no outstanding
ABR Loans of the same Class and, in any such event, the Borrower shall pay
the break funding payment required in accordance with Section 2.16. The
Administrative Agent and the Lenders shall have the continuing and exclusive
right to apply and reverse and reapply any and all such proceeds and payments
to any portion of the Secured Obligations.
(c) At the election of the
Administrative Agent, all payments of principal, interest, LC Disbursements,
fees, premiums, reimbursable expenses (including, without limitation, all
reimbursement for fees and expenses pursuant to Section 9.03), and other
sums payable under the Loan Documents, may be paid from the proceeds of
Borrowings made hereunder whether made following a request by the Borrower
pursuant to Section 2.03 or a deemed request as provided in this Section or
may be deducted from any deposit account of the Borrower maintained with the
Administrative Agent. The Borrower
hereby irrevocably authorizes (i) the Administrative Agent to make a
Borrowing for the purpose of paying each payment of principal, interest and
fees as it becomes due hereunder or any other amount due under the Loan
Documents and agrees that all such amounts charged shall constitute Loans
(including Swingline Loans and Overadvances, but such a Borrowing may only
constitute a Protective Advance if it is to reimburse costs, fees and expenses
as described in Section 9.03) and that all such Borrowings shall be deemed
to have been requested pursuant to Sections 2.03, 2.04 or 2.05, as applicable
and (ii) the Administrative Agent to charge any deposit
45
account of the Borrower maintained with the Administrative Agent for
each payment of principal, interest and fees as it becomes due hereunder or any
other amount due under the Loan Documents.
(d) If any Lender shall, by exercising
any right of set off or counterclaim or otherwise, obtain payment in respect of
any principal of or interest on any of its Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Loans and participations in LC
Disbursements and accrued interest thereon than the proportion received by any
other Lender, then the Lender receiving such greater proportion shall purchase
(for cash at face value) participations in the Loans and participations in LC
Disbursements of other Lenders to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective Loans
and participations in LC Disbursements;
provided
that (i) if any such participations are purchased and all or any portion
of the payment giving rise thereto is recovered, such participations shall be rescinded and
the purchase price restored to the extent of such recovery, without interest,
and (ii) the provisions of this paragraph shall not be construed to apply
to any payment made by the Borrower pursuant to and in accordance with the
express terms of this Agreement or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans or participations in LC Disbursements to any assignee or participant,
other than to the Borrower or any Subsidiary or Affiliate thereof (as to which
the provisions of this paragraph shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
(e) Unless the Administrative Agent
shall have received notice from the Borrower prior to the date on which any
payment is due to the Administrative Agent for the account of the Lenders or
the Issuing Bank hereunder that the Borrower will not make such payment, the
Administrative Agent may assume that the Borrower has made such payment on such
date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders or the Issuing Bank, as the case may be, the amount
due. In such event, if the Borrower has
not in fact made such payment, then each of the Lenders or the Issuing Bank, as
the case may be, severally agrees to repay to the Administrative Agent
forthwith on demand the amount so distributed to such Lender or Issuing Bank
with interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to the Administrative
Agent, at the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on
interbank compensation.
(f) If any Lender shall fail to make
any payment required to be made by it pursuant to Section 2.05, 2.06(d) or
(e), 2.07(b), 2.18(e) or 9.03(c), then the Administrative Agent may, in
its discretion (notwithstanding any contrary provision hereof), (i) apply
any amounts thereafter received by the Administrative Agent for the account of
such Lender and for the benefit of the Administrative Agent, the Swingline
Lender or the Issuing Bank to satisfy such Lender’s obligations under such
Sections until all such unsatisfied obligations are fully paid, and/or (ii) hold
any such amounts in a segregated account as cash collateral for, and
application to, any future funding obligations of such Lender under such
Sections; in the case of each of (i) and (ii) above, in any order as
determined by the Administrative Agent in its discretion.
46
SECTION 2.19.
Mitigation
Obligations; Replacement of Lenders
.
(a) If any Lender requests compensation
under Section 2.15, or if the Borrower is required to pay any additional
amount to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 2.17, then such Lender shall use reasonable efforts to
designate a different lending office for funding or booking its Loans hereunder
or to assign its rights and obligations hereunder to another of its offices,
branches or affiliates, if, in the judgment of such Lender, such designation or
assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15
or 2.17, as the case may be, in the future and (ii) would not subject such
Lender to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender. The
Borrower hereby agrees to pay all reasonable costs and expenses incurred by any
Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation
under Section 2.15, or if the Borrower is required to pay any additional
amount to any Lender or any Governmental Authority for the account of any
Lender pursuant to Section 2.17, or if any Lender becomes a Defaulting
Lender, then the Borrower may, at its sole expense and effort, upon notice to
such Lender and the Administrative Agent, require such Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions
contained in Section 9.04), all its interests, rights and obligations
under this Agreement to an assignee that shall assume such obligations (which
assignee may be another Lender, if a Lender accepts such assignment);
provided
that (i) the Borrower shall have received the prior written consent of the
Administrative Agent (and if a Commitment is being assigned, the Issuing Bank),
which consent shall not unreasonably be withheld, (ii) such Lender shall
have received payment of an amount equal to the outstanding principal of its
Loans and participations in LC Disbursements and Swingline Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts) and (iii) in
the case of any such assignment resulting from a claim for compensation under Section 2.15
or payments required to be made pursuant to Section 2.17, such assignment
will result in a reduction in such compensation or payments. A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.
SECTION 2.20.
Defaulting Lenders
. Notwithstanding any provision of this
Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the
following provisions shall apply for so long as such Lender is a Defaulting
Lender:
(a) fees shall cease to accrue on the
unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 2.12(a);
(b) the Commitment and Revolving
Exposure of such Defaulting Lender shall not be included in determining whether
all Lenders or the Required Lenders have taken or may take any action hereunder
(including any consent to any amendment or waiver pursuant to Section 9.02);
provided
that any waiver, amendment or modification requiring the
consent of all Lenders or each affected Lender which affects such Defaulting
Lender differently than other affected Lenders shall require the consent of
such Defaulting Lender;
(c) if any Swingline Exposure or LC
Exposure exists at the time a Lender becomes a Defaulting Lender then:
(i) all or any part of such Swingline
Exposure and LC Exposure shall be reallocated among the non-Defaulting Lenders
in accordance with their respective Applicable Percentages but only to the
extent (x) the sum of all non-Defaulting Lenders’ Revolving Exposures plus
such
47
Defaulting Lender’s Swingline Exposure and LC Exposure does not exceed
the total of all non-Defaulting Lenders’ Commitments and (y) the
conditions set forth in Section 4.02 are satisfied at such time; and
(ii) if the reallocation described in
clause (i) above cannot, or can only partially, be effected, the Borrower
shall within one (1) Business Day following notice by the Administrative
Agent (x)
first
, prepay such Swingline Exposure and (y)
second
,
cash collateralize such Defaulting Lender’s LC Exposure (after giving effect to
any partial reallocation pursuant to clause (i) above) in accordance with
the procedures set forth in Section 2.06(j) for so long as such LC
Exposure is outstanding;
(iii) if the Borrower cash
collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to Section 2.20(c),
the Borrower shall not be required to pay any fees to such Defaulting Lender
pursuant to Section 2.12(b) with respect to such Defaulting Lender’s
LC Exposure during the period such Defaulting Lender’s LC Exposure is cash
collateralized;
(iv) if the LC Exposure of the
non-Defaulting Lenders is reallocated pursuant to Section 2.20(c), then
the fees payable to the Lenders pursuant to Section 2.12(a) and Section 2.12(b) shall
be adjusted in accordance with such non-Defaulting Lenders’ Applicable
Percentages; or
(v) if any Defaulting Lender’s LC
Exposure is neither cash collateralized nor reallocated pursuant to Section 2.20(c),
then, without prejudice to any rights or remedies of the Issuing Bank or any
Lender hereunder, all letter of credit fees payable under Section 2.12(b) with
respect to such Defaulting Lender’s LC Exposure shall be payable to the Issuing
Bank until such LC Exposure is cash collateralized and/or reallocated; and
(d) so long as any Lender is a
Defaulting Lender, the Issuing Bank shall not be required to issue, amend or
increase any Letter of Credit, unless it is satisfied that the related exposure
will be 100% covered by the Commitments of the non-Defaulting Lenders and/or cash
collateral will be provided by the Borrower in accordance with Section 2.20(c),
and participating interests in any such newly issued or increased Letter of
Credit or newly made Swingline Loan shall be allocated among non-Defaulting
Lenders in a manner consistent with Section 2.20(c)(i) (and
Defaulting Lenders shall not participate therein).
In the event that the
Administrative Agent, the Borrower, the Issuing Bank and the Swingline Lender
each agrees that a Defaulting Lender has adequately remedied all matters that
caused such Lender to be a Defaulting Lender, then the Swingline Exposure and
LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such
Lender’s Commitment and on such date such Lender shall purchase at par such of
the Loans of the other Lenders (other than Swingline Loans) as the
Administrative Agent shall determine may be necessary in order for such Lender
to hold such Loans in accordance with its Applicable Percentage.
SECTION 2.21.
Returned Payments
. If after receipt of any payment which is
applied to the payment of all or any part of the Obligations, the
Administrative Agent or any Lender is for any reason compelled to surrender
such payment or proceeds to any Person because such payment or application of
proceeds is invalidated, declared fraudulent, set aside, determined to be void
or voidable as a preference, impermissible setoff, or a diversion of trust
funds, or for any other reason, then the Obligations or part thereof intended
to be satisfied shall be revived and continued and this Agreement shall
continue in full force as if such payment or proceeds had not been received by
the Administrative Agent or such Lender.
The provisions of this Section 2.21 shall be and remain effective
notwithstanding any contrary action which may have been taken by the
Administrative Agent or any Lender in reliance
48
upon such payment or application of
proceeds. The provisions of this Section 2.21
shall survive the termination of this Agreement.
SECTION 2.22.
Senior Debt
. The Borrower hereby designates all Secured
Obligations now or hereinafter incurred or otherwise outstanding, and agrees
that the Secured Obligations shall at all times constitute, senior indebtedness
and designated senior indebtedness, or terms of similar import, which are
entitled to the benefits of the subordination provisions of all Subordinated
Indebtedness.
ARTICLE
III
Representations and Warranties
Each Loan Party represents
and warrants to the Lenders that:
SECTION 3.01.
Organization; Powers
. Each of the Loan Parties and each of its
Subsidiaries (other than Excluded Subsidiaries) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as
now conducted, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, and is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required, except where the failure to
so qualify could not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect.
SECTION 3.02.
Authorization;
Enforceability
. The
Transactions are within each Loan Party’s organizational powers and have been
duly authorized by all necessary organizational actions and, if required,
actions by equity holders. The Loan
Documents to which each Loan Party is a party have been duly executed and
delivered by such Loan Party and constitute a legal, valid and binding
obligation of such Loan Party, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors’ rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in
equity or at law.
SECTION 3.03.
Governmental
Approvals; No Conflicts
. The
Transactions (a) do not require any consent or approval of, registration
or filing with, or any other action by, any Governmental Authority, except such
as have been obtained or made and are in full force and effect and except for
filings necessary to perfect Liens created pursuant to the Loan Documents, (b) will
not violate in any material respect any Requirement of Law applicable to any
Loan Party or any of its Subsidiaries, (c) will not violate or result in a
default under any indenture, material agreement or other material instrument
binding upon any Loan Party or any of its Subsidiaries or its assets, or give
rise to a right thereunder to require any payment to be made by any Loan Party
or any of its Subsidiaries, and (d) will not result in the creation or
imposition of any Lien on any asset of any Loan Party or any of its
Subsidiaries, except Liens created pursuant to the Loan Documents.
SECTION 3.04.
Financial Condition;
No Material Adverse Change
. (a)
Holdings has heretofore furnished to the Lenders its consolidated balance sheet
and statements of income, stockholders equity and cash flows (i) as of and
for the fiscal year ended June 30, 2008, reported on by KPMG LLP,
independent public accountants, and (ii) as of and for the fiscal quarter
ended March 31, 2009, certified by its chief financial officer. Such financial statements present fairly, in
all material respects, the financial position and results of operations and
cash flows of Holdings and its consolidated Subsidiaries as of such dates and
for such periods in accordance with GAAP, subject to year end audit adjustments
and the absence of footnotes in the case of the statements referred to in
clause (ii) above.
49
(b) No event, change or condition has
occurred that has had, or could reasonably be expected to have, a Material
Adverse Effect, since March 31, 2009.
SECTION 3.05.
Properties
. (a) Each of the Loan Parties and its
Subsidiaries has good and marketable title to, or valid leasehold interests in,
all its material real and personal property, free of all Liens other than those
permitted by Section 6.02.
(b) Each Loan Party and its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, patents and other intellectual property necessary to its business
as currently conducted, and the use thereof by the Loan Parties and its
Subsidiaries does not infringe in any material respect upon the rights of any
other Person, and the Loan Parties’ rights thereto are not subject to any
licensing agreement or similar arrangement (other than customary licensing
agreements and arrangements in respect of software, technology and
advertising).
SECTION 3.06.
Litigation and
Environmental Matters
. (a)
Except for the Disclosed Matters, there are not any actions, suits or
proceedings at law or in equity or by or before any Governmental Authority now
pending or, to the knowledge of Holdings or the Borrower, threatened against or
affecting Holdings or the Borrower or any Subsidiary or any business, property
or rights of any such Person (i) which involve any Loan Document or the
Transactions or (ii) as to which there is a reasonable possibility of an
adverse determination and which (A) if adversely determined, would
individually result in a loss of greater than $300,000 or (B) if adversely
determined (excluding any actions, suits or proceedings at law or in equity or
by or before any Governmental Authority that would individually result in a
loss of $300,000 or less), in the aggregate could reasonably be expected to
result in a Material Adverse Effect.
(b) None of Holdings, the Borrower or
any of the Subsidiaries or any of their respective material properties or
assets is in violation of, nor will the continued operation of their material
properties and assets as currently conducted violate, any law, rule or
regulation (including any zoning, building, Environmental Law, ordinance, code
or approval or any building permits), or is in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, except any
such violations or defaults that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(c) Except for the Disclosed Matters,
the soils and groundwater beneath the properties and facilities owned or
operated by Holdings, the Borrower and the Subsidiaries (the “
Properties
”) do not contain any Hazardous
Materials in amounts or concentrations which (i) constitute a violation
of, or (ii) give rise to liability under, Environmental Laws, which violations
and liabilities, in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.
(d) Except for the Disclosed Matters,
the Properties and all operations of Holdings, the Borrower and the
Subsidiaries are in compliance, and in the last three years have been in
compliance, with all Environmental Laws and all necessary Environmental Permits
have been obtained and are in effect, except to the extent that such
non-compliance or failure to obtain any necessary permits, in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
(e) Except for the Disclosed Matters,
there have been no Releases or threatened Releases at, from, under or proximate
to the Properties or otherwise in connection with the operations of Holdings,
the Borrower or the Subsidiaries, which Releases or threatened Releases, in the
aggregate, could reasonably be anticipated to result in a Material Adverse
Effect.
50
(f) Except for the Disclosed Matters,
none of Holdings, the Borrower or any of the Subsidiaries has received any
written notice of an Environmental Claim in connection with the Properties or
the operations of the Borrower or the Subsidiaries or with regard to any person
whose liabilities for environmental matters Holdings, the Borrower or the
Subsidiaries has retained or assumed, in whole or in part, contractually, by
operation of law or otherwise, which, in the aggregate, could reasonably be
anticipated to result in a Material Adverse Effect, nor do Holdings, the
Borrower or the Subsidiaries have reason to believe that any such notice will
be received or is being threatened.
(g) Since the date of this Agreement,
there has been no change in the status of the Disclosed Matters that,
individually or in the aggregate, has resulted in, or materially increased the
likelihood of, a Material Adverse Effect.
SECTION 3.07.
Compliance with Laws
and Agreements
. Each Loan
Party and its Subsidiaries is in compliance with all Requirements of Law
applicable to it or its property and all indentures, agreements and other
instruments binding upon it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect. No Default
has occurred and is continuing.
SECTION 3.08.
Investment Company
Status
. No Loan Party nor any
of its Subsidiaries is an “investment company” as defined in, or
subject to regulation under, the Investment Company Act of 1940.
SECTION 3.09.
Taxes
. Each Loan Party and its Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed by it and has paid or caused to be paid all Taxes required to have
been paid by it as shown thereon, except (a) Taxes that are being
contested in good faith by appropriate proceedings and for which such Loan
Party or such Subsidiary, as applicable, has set aside on its books adequate
reserves or (b) to the extent that the failure to do so could not be expected
to result in a Material Adverse Effect.
No material tax liens have been filed and no material claims are being
asserted with respect to any such taxes.
SECTION 3.10.
ERISA
. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events
for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.11.
Disclosure
. As of the date hereof, Holdings and the
Borrower have disclosed to the Lenders or in their filings with the Securities
and Exchange Commission and available on their website, all agreements,
instruments and corporate or other restrictions to which it or any Subsidiary
is subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect. Neither the Information
Memorandum nor any of the other reports, financial statements, certificates or
other information furnished by or on behalf of the any Loan Party to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or any other Loan Document (as modified or supplemented by other
information so furnished and considered as a whole) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
provided
that, with respect to projected financial
information, the Borrower and Holdings represent only that such information was
prepared in good faith based upon assumptions believed to be reasonable at the
time delivered and, if such projected financial information was delivered prior
to the Effective Date, as of the Effective Date.
51
SECTION 3.12.
Material Agreements
. No Loan Party is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement to which it is a party which could
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.13.
Solvency
. (a) Immediately after the consummation
of the Transactions to occur on the Effective Date, (i) the fair value of
the assets of each Loan Party, at a fair valuation, will exceed its debts and
liabilities, subordinated, contingent or otherwise; (ii) the present fair
saleable value of the property of each Loan Party will be greater than the
amount that will be required to pay the probable liability of its debts and
other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (iii) each Loan Party will
be able to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured; and (iv) each
Loan Party will not have unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted after the Effective Date.
(b) No Loan Party intends to, or will permit any
of its Subsidiaries to, and no Loan Party believes that it or any of its
Subsidiaries will, incur debts beyond its ability to pay such debts as they
mature, taking into account the timing of and amounts of cash to be received by
it or any such Subsidiary and the timing of the amounts of cash to be payable
on or in respect of its Indebtedness or the Indebtedness of any such
Subsidiary.
SECTION 3.14.
Insurance
.
Schedule 3.14
sets forth a description
of all insurance maintained by or on behalf of the Loan Parties and the
Subsidiaries as of the Effective Date.
As of the Effective Date, all premiums in respect of such insurance have
been paid. The Borrower and Holdings
believe that the insurance maintained by or on behalf of the Borrower and the
Subsidiaries is adequate.
SECTION 3.15.
Capitalization and
Subsidiaries
.
Schedule
3.15
sets forth (a) a correct and complete list of the name and
relationship to the Borrower of each and all of the Borrower’s Subsidiaries, (b) a
true and complete listing of each class of each of the Borrower’s authorized
Equity Interests, of which all of such issued shares are validly issued,
outstanding, fully paid and non-assessable, and owned beneficially and of
record by the Persons identified on
Schedule 3.15
, and (c) the type
of entity of the Borrower and each of
its Subsidiaries. All of the issued and
outstanding Equity Interests owned by any Loan Party has been (to the extent
such concepts are relevant with respect to such ownership interests) duly
authorized and issued and is fully paid and non assessable.
SECTION 3.16.
No Burdensome
Restrictions
. No Loan Party
is a party to any agreement or instrument or
subject to any corporate restriction that has resulted or could reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.17.
Federal Reserve
Regulations
. None of Holdings,
the Borrower or any of the Subsidiaries is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose
of purchasing or carrying Margin Stock.
No part of the proceeds of any Loan have been used or will be used,
whether directly or indirectly, for any purpose that entails a violation of any
of the Regulations of the Board, including Regulations T, U and X.
SECTION 3.18.
Security Interest in
Collateral
. The provisions of
this Agreement and the other Loan Documents create legal and valid Liens on all
the Collateral in favor of the Administrative Agent, for the benefit of the
Administrative Agent and the Lenders, and upon the filing of required financing
statements by the Administrative Agent, such Liens constitute perfected and
continuing Liens on the Collateral, securing the Secured Obligations,
enforceable against the applicable Loan Party and all third parties, and having
priority over all other Liens on the Collateral except in the case of (a) Permitted
52
Encumbrances, to the extent any such
Permitted Encumbrances would have priority over the Liens in favor of the
Administrative Agent pursuant to any applicable law and (b) Liens
perfected only by possession (including possession of any certificate of title)
to the extent the Administrative Agent has not obtained or does not maintain
possession of such Collateral.
SECTION 3.19.
Employment Matters
. As of the Effective Date, there are no
strikes, lockouts or slowdowns against any Loan Party or any Subsidiary pending
or, to the knowledge of the Borrower, threatened. The hours worked by and payments made to
employees of the Loan Parties and the Subsidiaries have not been in violation
of the Fair Labor Standards Act or any other applicable Federal, state, local
or foreign law dealing with such matters except where such violation could not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. All material
payments due from any Loan Party or any Subsidiary, or for which any claim may
be made against any Loan Party or any Subsidiary, on account of wages and
employee health and welfare insurance and other benefits, have been paid or
accrued as a liability on the books of the Loan Party or such Subsidiary.
SECTION 3.20.
Common Enterprise
. The successful operation and condition of
each of the Loan Parties is dependent on the continued successful performance
of the functions of the group of the Loan Parties as a whole and the successful
operation of each of the Loan Parties is dependent on the successful
performance and operation of each other Loan Party. Each Loan Party expects to derive benefit
(and its board of directors or other governing body has determined that it may
reasonably be expected to derive benefit), directly and indirectly, from (i) successful
operations of each of the other Loan Parties and (ii) the credit extended
by the Lenders to the Borrower hereunder, both in their separate capacities and
as members of the group of companies.
Each Loan Party has determined that execution, delivery, and performance
of this Agreement and any other Loan Documents to be executed by such Loan
Party is within its purpose, will be of direct and indirect benefit to such
Loan Party, and is in its best interest.
SECTION 3.21.
Credit Card Processors
. As of the Effective Date,
Schedule 3.21
lists all Credit Card Processors that provide any Loan Party with credit card
processing services, and such Schedule correctly identifies the name and
address of each Credit Card Processor, and the name in which such services are
provided. True and complete copies of each agreement listed on
Schedule 3.21
have been delivered to the Administrative Agent, together with all amendments,
waivers and other modifications thereto. All such agreements are valid,
subsisting, in full force and effect, are currently binding upon each Loan
Party that is a party thereto and binding upon the other parties thereto in
accordance with their terms. The Loan Parties are in compliance in all material
respects under such agreements.
ARTICLE
IV
Conditions
SECTION 4.01.
Effective Date
. The obligations of the Lenders to make Loans
and of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 9.02):
(a)
Credit
Agreement and Loan Documents
.
The Administrative Agent (or its counsel) shall have received (i) from
each party hereto either (A) a counterpart of this Agreement signed on
behalf of such party or (B) written evidence satisfactory to the
Administrative Agent (which may include facsimile or electronic transmission of
a signed signature page of this Agreement) that such party has signed a
counterpart of this Agreement and (ii) duly executed copies of the Loan
Documents and such other certificates, documents, instruments and agreements as
the Administrative
53
Agent shall reasonably request in connection with
the transactions contemplated by this Agreement and the other Loan Documents,
including any promissory notes requested by a Lender pursuant to Section 2.10
payable to the order of each such requesting Lender and written opinions of the
Loan Parties’ counsels, addressed to the Administrative Agent, the Issuing Bank
and the Lenders in substantially the form of
Exhibit B
, all in form
and substance satisfactory to the Administrative Agent and its counsel and as
further described in the list of closing documents attached as
Exhibit F
.
(b)
Financial
Statements and Projections
.
The Lenders shall have received (i) satisfactory audited
consolidated financial statements of Holdings and the Borrower for the 2007 and
2008 fiscal years, (ii) satisfactory unaudited interim consolidated
financial statements of Holdings and the Borrower for each fiscal quarterly
period ended after the date of the latest applicable financial statements
delivered pursuant to clause (i) of this paragraph and (iii) the
Borrower’s most recent projected income statement, balance sheet and cash
flows, prepared on a quarterly basis for the 2009 and 2010 fiscal years and on
an annual basis for the 2011 and 2012 fiscal years (including, without limitation,
a reasonably detailed description of the assumptions used in preparing such
projections), all in form and detail reasonably satisfactory to the
Administrative Agent.
(c)
Closing
Certificates; Certified Certificate of Incorporation; Good Standing Certificates
. The Administrative Agent shall have received (i) a
certificate of each Loan Party, dated the Effective Date and executed by its
Secretary or Assistant Secretary, which shall (A) certify the resolutions
of its Board of Directors, members or other body authorizing the execution,
delivery and performance of the Loan Documents to which it is a party, (B) identify
by name and title and bear the signatures of the Financial Officers and any
other officers of such Loan Party authorized to sign the Loan Documents to
which it is a party, and (C) contain appropriate attachments, including
the certificate or articles of incorporation or organization of each Loan Party
certified by the relevant authority of the jurisdiction of organization of such
Loan Party and a true and correct copy of its by laws or operating, management
or partnership agreement, and (ii) a good standing certificate for each
Loan Party from its jurisdiction of organization.
(d)
No Default
Certificate
. The
Administrative Agent shall have received a certificate, signed by the chief
financial officer of Holdings, on the initial Borrowing date (i) stating
that no Default has occurred and is continuing, (ii) stating that the
representations and warranties contained in
Article III
are true and
correct as of such date, and (iii) certifying any other factual matters as
may be reasonably requested by the Administrative Agent.
(e)
Fees
. The Lenders and the Administrative Agent
shall have received all fees required to be paid, and all reasonable expenses
for which reasonably detailed invoices have been presented (including the
reasonable fees and expenses of legal counsel), on or before the Effective
Date.
(f)
Lien
Searches
. The Administrative
Agent shall have received the results of a recent lien search in each of the
jurisdictions where the Loan Parties are located, and such search shall reveal
no liens on any of the assets of the Loan Parties except for liens permitted by
Section 6.02 or discharged on or prior to the Effective Date pursuant to a
pay-off letter or other documentation satisfactory to the Administrative Agent.
(g)
Pay-Off
Letter
. Unless the same has
previously been terminated, the Administrative Agent shall have received
satisfactory pay-off letter for the Existing Credit Agreement, confirming that
all Liens upon any of the property of the Loan Parties constituting Collateral
will be terminated concurrently with such payment and all letters of credit
(other than the Existing Letters of Credit) issued or guaranteed as part of
such Existing Credit Agreement shall have been cash
54
collateralized or supported by a Letter of Credit or otherwise
satisfied in a manner satisfactory to the Administrative Agent.
(h)
Funding
Account
. The Administrative
Agent shall have received a notice setting forth the deposit account of the
Borrower (the “
Funding Account
”) to which the Administrative Agent is
authorized by the Borrower to transfer the proceeds of any Borrowings requested
or authorized pursuant to this Agreement.
(i)
Solvency
. The Administrative Agent shall have received
a solvency certificate from the chief financial officer of the Borrower in form
and substance satisfactory to the Administrative Agent.
(j)
Borrowing
Base Certificate
. The
Administrative Agent shall have received a Borrowing Base Certificate which
calculates the Borrowing Base as of the end of the calendar quarter immediately
preceding the Effective Date.
(k)
Closing
Availability
. After giving
effect to all Borrowings to be made on the Effective Date and the issuance of
any Letters of Credit on the Effective Date and payment of all fees and
expenses due hereunder, and with all of the Loan Parties’ indebtedness,
liabilities, and obligations current, Availability shall not be less than
$25,000,000.
(l)
Pledged Stock; Stock Powers;
Pledged Notes
. The Administrative
Agent shall have received (i) the certificates representing the shares of
Equity Interests pledged pursuant to the Security Agreement, together with an
undated stock power for each such certificate executed in blank by a duly
authorized officer of the pledgor thereof and (ii) each promissory note
(if any) pledged to the Administrative Agent pursuant to the Security Agreement
endorsed (without recourse) in blank (or accompanied by an executed transfer
form in blank) by the pledgor thereof.
(m)
Filings, Registrations and
Recordings
. Each document (including
any UCC financing statement) required by the Collateral Documents or under law
or reasonably requested by the Administrative Agent to be filed, registered or
recorded in order to create in favor of the Administrative Agent, for the
benefit of the Secured Parties, a perfected Lien on the Collateral described
therein and being provided on the Effective Date, prior and superior in right
to any other Person (other than with respect to Liens expressly permitted by Section 6.02),
shall be in proper form for filing, registration or recordation.
(n)
Insurance
. The Administrative Agent shall have received
evidence of insurance coverage in form, scope, and substance reasonably
satisfactory to the Administrative Agent and otherwise in compliance with the
terms of Section 5.09 and Section 4.12 of the Security Agreement.
(o)
Letter of Credit
Application
. The Administrative
Agent shall have received a properly completed letter of credit application if
the issuance of a Letter of Credit will be required on the Effective Date.
(p)
Other Documents
. The Administrative Agent shall have received
such other documents and information as the Administrative Agent, the Issuing
Bank, any Lender or their respective counsel may have reasonably requested.
The Administrative Agent
shall notify the Borrower and the Lenders of the Effective Date, and such
notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not
become effective unless
55
each of the foregoing
conditions is satisfied (or waived pursuant to Section 9.02) at or prior
to 3:00 p.m., New York City time, on May 29, 2009 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate
at such time).
SECTION 4.02.
Each Credit Event
. The obligation of each Lender to make a Loan
on the occasion of any Borrowing, and of the Issuing Bank to issue, amend,
renew or extend any Letter of Credit, is subject to the satisfaction of the
following conditions:
(a) The representations and warranties
of the Borrower set forth in this Agreement shall be true and correct on and as
of the date of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit, as applicable.
(b) At the time of and immediately
after giving effect to such Borrowing or the issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, no Default shall have
occurred and be continuing.
(c) After giving effect to any
Borrowing or the issuance of any Letter of Credit, Availability is not less
than zero.
Each Borrowing and each
issuance, amendment, renewal or extension of a Letter of Credit shall be deemed
to constitute a representation and warranty by the Borrower on the date thereof
as to the matters specified in paragraphs (a), (b) and (c) of this
Section.
Notwithstanding the failure
to satisfy the conditions precedent set forth in paragraphs (a) or (b) of
this Section, unless otherwise directed by the Required Lenders, the Administrative
Agent may, but shall have no obligation to, continue to make Loans and an
Issuing Bank may, but shall have no obligation to, issue or cause to be issued
any Letter of Credit for the ratable account and risk of Lenders from time to
time if the Administrative Agent believes that making such Loans or issuing or
causing to be issued any such Letter of Credit is in the best interests of the
Lenders.
ARTICLE
V
Affirmative Covenants
Until the Commitments have
expired or been terminated and the principal of and interest on each Loan and
all fees payable hereunder shall have been paid in full and all Letters of
Credit shall have expired or terminated and all LC Disbursements shall have
been reimbursed, each Loan Party executing this Agreement covenants and agrees,
jointly and severally with all of the Loan Parties, with the Lenders that:
SECTION 5.01.
Financial
Statements; Borrowing Base and Other Information
. The Borrower will furnish to the
Administrative Agent and each Lender:
(a) within ninety (90) days after the
end of each fiscal year of Holdings, its audited consolidated and consolidating
balance sheets and related consolidated and consolidating statements of
operations and consolidated statements of shareholders’ equity and cash flows
as of the end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by KPMG LLP or
other independent public accountants of recognized national standing (without a
“going
concern” or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect that
such consolidated financial statements present fairly in all material respects
the financial condition and results of operations of Holdings and its
56
consolidated Subsidiaries on a consolidated basis in accordance with
GAAP consistently applied, accompanied by any management letter prepared by
said accountants;
(b) within forty-five (45) days after
the end of each of the first three fiscal quarters of each fiscal year of
Holdings, its consolidated and consolidating balance sheets and related
consolidated and consolidating statements of operations and consolidated
statements of shareholders’ equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth
in each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results
of operations of Holdings and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes;
(c) if and so long as the Availability
Trigger is in effect, within twenty (20) days after the end of each calendar
month, Holdings’ consolidated and consolidating balance sheets and related
consolidated and consolidating statements of operations and consolidated
statements of shareholders’ equity and cash flows as of the end of and for such
calendar month and the then elapsed portion of the fiscal year, setting forth
in each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, all certified by one of its Financial Officers as presenting
fairly in all material respects the financial condition and results of
operations of Holdings and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes;
(d) concurrently with any delivery of
financial statements under clause (a) or (b) above, a certificate of
a Financial Officer of the Borrower in substantially the form of
Exhibit D
(i) certifying, in the case of the
financial statements delivered under clause (b), as presenting fairly in all
material respects the financial condition and results of operations of the
Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes, (ii) certifying as to whether a
Default has occurred and, if a Default has occurred, specifying the details
thereof and any action taken or proposed to be taken with respect thereto, (iii) setting
forth reasonably detailed calculations demonstrating compliance with Section 6.12
and (iv) to the extent not discussed in the footnotes to financial
statements delivered pursuant to clauses (a) and (b) above, stating
whether any change in GAAP or in the application thereof has occurred since the
date of the audited financial statements referred to in Section 3.04 and,
if any such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
(e) concurrently with any delivery of
financial statements under clause (a) above, a certificate of the
accounting firm that reported on such financial statements stating whether they
obtained knowledge during the course of their examination of such financial
statements of any Default (which certificate may be limited to the extent
required by accounting rules or guidelines);
(f) as soon as available, but in any
event not more than thirty (30) days prior to the end of each fiscal year of
the Holdings, a copy of the plan and forecast (including a projected
consolidated balance sheet, income statement and funds flow statement) of
Holdings for each quarter of the upcoming fiscal year (the “
Projections
”)
in form reasonably satisfactory to the Administrative Agent;
57
(g) as soon as available but in any
event within twenty (20) days after the end of each fiscal quarter of each
fiscal year of Holdings ((or within twenty (20) days of the end of each
calendar month if and so long as the Monthly Reporting Trigger is in effect)
(or within four (4) days of the end of each calendar week if and so long
as the Availability Trigger is in effect)), and at such other times as may be
requested by the Administrative Agent upon at least four (4) days’ prior
notice to the Borrower, as of the period then ended, a Borrowing Base
Certificate and supporting information in connection therewith (including, in
respect of any Borrowing Base Certificate delivered for a month which is also
the end of any fiscal quarter of Holdings, a calculation of Average Quarterly
Availability for such quarter then ended and an indication of what the
Applicable Rate is as a result of such Average Quarterly Availability),
together with any additional reports with respect to the Borrowing Base as the
Administrative Agent may reasonably request;
provided
that if, at the
time the Lenders make any Loan to the Borrower hereunder and the Borrower shall
not have delivered a Borrowing Base Certificate within the preceding twenty
(20) days, the Borrower shall deliver a Borrowing Base Certificate to the
Administrative Agent as soon as available but in any event within ten (10) days
of the funding of such Loan, which Borrowing Base Certificate shall set forth
the Borrowing Base as of the last day of the calendar month most recently
ended;
(h) as soon as available but in any
event within twenty (20) days after the end of each fiscal quarter of each
fiscal year of Holdings ((or within twenty (20) days of the end of each
calendar month if and so long as the Monthly Reporting Trigger is in effect)
(or within four (4) days of the end of each calendar week if and so long
as the Availability Trigger is in effect)), and at such other times as may be
requested by the Administrative Agent upon at least four (4) days’ prior
notice to the Borrower, as of the period then ended, all delivered
electronically in a text formatted file acceptable to the Administrative Agent:
(i) a detailed aging of the each Loan
Party’s Accounts (but only a detailed schedule in the case of Credit Card
Account Receivables) (1) including all invoices aged by invoice date and
due date (with an explanation of the terms offered if not then standard) and (2) reconciled
to the Borrowing Base Certificate delivered as of such date prepared in a
manner reasonably acceptable to the Administrative Agent, together with a
summary specifying the name, address, and balance due for each Account Debtor;
(ii) a schedule detailing each Loan
Party’s Inventory, in form satisfactory to the Administrative Agent, (1) by
location (showing Inventory in transit, any Inventory located with a third
party under any consignment, bailee arrangement, or warehouse agreement), by
class (raw material, work-in-process and finished goods), by product type, and
by volume on hand, which Inventory shall be valued at the lower of cost
(determined on a first-in, first-out basis) or market and adjusted for Reserves
as the Administrative Agent has previously indicated to the Borrower are deemed
by the Administrative Agent to be appropriate, (2) including a report of
any variances or other results of Inventory counts performed by such Loan Party
since the last Inventory schedule (including information regarding sales or
other reductions, additions, returns, credits issued by such Loan Party and
complaints and claims made against such Loan Party which in the aggregate
exceed $100,000 in such month), and (3) reconciled to the Borrowing Base
Certificate delivered as of such date;
(iii) a worksheet of calculations
prepared by each Loan Party to determine Eligible Accounts, Eligible Credit
Card Account Receivables and Eligible Inventory, such worksheets detailing the
Accounts, Credit Card Account Receivables and Inventory excluded from Eligible
Accounts, Eligible Credit Card Account Receivables and Eligible Inventory and
the reason for such exclusion;
58
(iv) a reconciliation of each Loan
Party’s Accounts, Credit Card Account Receivables and Inventory between the
amounts shown in such Loan Party’s general ledger and financial statements and
the reports delivered pursuant to clauses (i) and (ii) above; and
(v) a reconciliation of the loan
balance per each Loan Party’s general ledger to the loan balance under this
Agreement;
(i) as soon as available but in any
event within twenty (20) days after the end of each fiscal quarter of each
fiscal year of Holdings ((or within twenty (20) days of the end of each
calendar month if and so long as the Monthly Reporting Trigger is in effect)
(or within four (4) days of the end of each calendar week if and so long
as the Availability Trigger is in effect)), and at such other times as may be
requested by the Administrative Agent upon at least four (4) days’ prior
notice to the Borrower, as of the fiscal quarter (or month or week, if
applicable) then ended, a detailed schedule of each Loan Party’s accounts
payable, delivered electronically in a text formatted file acceptable to the
Administrative Agent;
(j) promptly upon the Administrative
Agent’s request:
(i) copies of invoices in connection
with the invoices issued by each Loan Party in connection with any Accounts
(including, without limitation, Credit Card Account Receivables), credit memos,
shipping and delivery documents, and other information related thereto;
(ii) copies of purchase orders,
invoices, and shipping and delivery documents in connection with any Inventory
or Equipment purchased by any Loan Party; and
(iii) a schedule detailing the balance
of all intercompany accounts of the Loan Parties;
(k) to the extent requested by the
Administrative Agent, copies of all tax returns filed by any Loan Party with
the U.S. Internal Revenue Service;
(l) promptly after the same become
publicly available, copies of all periodic and other reports, proxy statements
and other materials filed by Holdings, the Borrower or any Subsidiary with the
Securities and Exchange Commission, or any Governmental Authority succeeding to
any or all of the functions of said Commission, or with any national securities
exchange, or distributed by Holdings or the Borrower to its shareholders
generally, as the case may be; and
(m) promptly following any request
therefor, such other information regarding the operations, business affairs and
financial condition of Holdings, the Borrower or any Subsidiary, or compliance
with the terms of this Agreement, as the Administrative Agent or any Lender may
reasonably request.
Documents
required to be delivered pursuant to clauses (a) and (b) of this Section 5.01
may be delivered electronically and if so delivered, shall be deemed to have
been delivered on the date on which such documents (i) shall have been
posted by the Administrative Agent on IntraLinks or similar site to which the
Lenders have been granted access or (ii) shall be available on the website
of the Securities and Exchange Commission at www.sec.gov, provided that
Holdings shall have delivered a notice to the Administrative Agent that such
information is so available. Information
required to be delivered pursuant to this Section may be delivered by
electronic communications pursuant to procedures approved by the Administrative
Agent. Notwithstanding anything
contained herein, in every instance the Borrower shall
59
be
required to provide copies of the compliance certificates required by clause (d) of
this Section 5.01 to the Administrative Agent.
SECTION 5.02.
Notices of Material
Events
. The Borrower and
Holdings will furnish to the Administrative Agent and each Lender prompt
written notice of the following:
(a) the occurrence of any Default;
(b) receipt of any notice of any
governmental investigation or any litigation or proceeding commenced or
threatened against any Loan Party that (i) seeks damages in excess of
$10,000,000, (ii) seeks injunctive relief, (iii) is asserted or
instituted against any Plan, its fiduciaries or its assets, (iv) alleges
criminal misconduct by any Loan Party, (v) alleges the violation of any
law regarding, or seeks remedies in connection with, any Environmental Laws,
that could reasonably be expected to result in liabilities in excess of
$10,000,000 (vi) contests any tax, fee, assessment, or other governmental
charge in excess of $10,000,000, or (vii) involves any product recall;
(c) any Lien (other than Permitted
Encumbrances) or claim made or asserted against any of the Collateral;
(d)
any and all default notices received under or with respect to any leased
location or public warehouse where Collateral (with a book value in excess of
$10,000,000) is located (which shall be delivered within five (5) Business
Days after receipt thereof);
(e) the occurrence of any ERISA Event
that, alone or together with any other ERISA Events that have occurred, could
reasonably be expected to result in a Material Adverse Effect; and
(f) any other development that results
in, or could reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under
this Section shall be accompanied by a statement of a Financial Officer or
other executive officer of Holdings setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
SECTION 5.03.
Existence; Conduct
of Business
. Each Loan Party
will, and will cause each Subsidiary (other than Excluded Subsidiaries) to, (a) do
or cause to be done all things necessary to preserve, renew and keep in full
force and effect its legal existence and the rights, qualifications, licenses,
permits, privileges, franchises, governmental authorizations and intellectual
property rights material to the conduct of its business, and maintain all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted except where failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect;
provided
that
the foregoing shall not prohibit any merger, consolidation, liquidation or
dissolution permitted under Section 6.03 and (b) carry on and conduct
its business in substantially the same manner and in substantially the same
fields of enterprise as it is presently conducted.
SECTION 5.04.
Payment of
Obligations
. Each Loan Party
will, and will cause each Subsidiary to,
pay or discharge all Material Indebtedness and all other material liabilities
and obligations, including Taxes, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being
contested in good faith by appropriate proceedings, (b) such Loan Party or
such Subsidiary has set aside on its books adequate reserves with respect
thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
60
SECTION 5.05.
Maintenance of
Properties
. Each Loan Party
will, and will cause each Subsidiary to, keep and maintain all property
material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted.
SECTION 5.06.
Books and Records;
Inspection Rights
. Without
limiting Sections 5.11 or 5.12 hereof, each Loan Party will, and will cause
each Subsidiary to, maintain all financial records in accordance with GAAP and
permit any representatives designated by any Lender, upon reasonable prior
notice (except that no prior notice shall be required if an Event of Default
has occurred and is continuing) to visit and inspect the financial records and
the properties of Holdings, the Borrower or any Subsidiary at reasonable times
(during normal business hours) and as often as requested and to make extracts
from and copies of such financial records, and permit any representatives
designated by any Lender to discuss the affairs, finances and condition of
Holdings, the Borrower or any Subsidiary with the officers thereof and
independent accountants therefor;
provided
that any such visitation and inspection rights shall be exercised in a
reasonable manner that does not disrupt the business activities of Holdings,
the Borrower and its Subsidiaries. The
Loan Parties acknowledge that the Administrative Agent, after exercising its
rights of inspection, may prepare and distribute to the Lenders certain Reports
pertaining to the Loan Parties’ assets for internal use by the Administrative
Agent and the Lenders.
SECTION 5.07.
Compliance with Laws
. Each Loan Party will, and will cause each
Subsidiary to, comply with all Requirements of Law applicable to it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.08.
Use of Proceeds
. The proceeds of the Loans will be used only
for general corporate purposes of the Borrower and its Subsidiaries in the
ordinary course of business. No part of
the proceeds of any Loan and no Letter of Credit will be used, whether directly
or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations T, U and X.
SECTION 5.09.
Insurance
. Each Loan Party will, and will cause each
Subsidiary to, maintain with financially sound and reputable carriers having a
financial strength rating of at least A- by A.M. Best Company (a) insurance
in such amounts (with no greater risk retention) and against such risks
(including loss or damage by fire and loss in transit; theft, burglary,
pilferage, larceny, embezzlement, and other criminal activities; business
interruption; and general liability) and such other hazards, as is customarily
maintained by companies of established repute engaged in the same or similar
businesses operating in the same or similar locations and (b) all
insurance required pursuant to the Collateral Documents. The Borrower will furnish to the Lenders,
upon request of the Administrative Agent, information in reasonable detail as
to the insurance so maintained.
SECTION 5.10.
Casualty and
Condemnation
. The Borrower (a) will
furnish to the Administrative Agent and the Lenders prompt written notice of
any casualty or other insured damage to any material portion of the Collateral
or the commencement of any action or proceeding for the taking of any material
portion of the Collateral or interest therein under power of eminent domain or by
condemnation or similar proceeding and (b) will ensure that the Net
Proceeds of any such event (whether in the form of insurance proceeds,
condemnation awards or otherwise) are collected and applied in accordance with
the applicable provisions of this Agreement and the Collateral Documents.
SECTION 5.11.
Appraisals
. At any time that the Administrative Agent
requests, the Loan Parties will provide the Administrative Agent with
appraisals or updates thereof of their Inventory from an appraiser selected and
engaged by the Administrative Agent, and prepared on a basis satisfactory to
the Administrative Agent, such appraisals and updates to include, without
limitation, information
61
required by applicable law and
regulations. It is anticipated that up
to three (3) appraisals per year will be conducted;
provided
that (i) no
more than one (1) appraisal per year will be conducted unless the
Administrative Agent elects to conduct a second appraisal in its sole
discretion, (ii) no more than three (3) appraisals per year will be
conducted if any Loans are outstanding, and average monthly Availability is
less than an amount equal to the greater of (x) 20% of the Aggregate
Commitment and (y) $10,000,000 at such time, and (iii) there shall be
no limitation on the number or frequency of appraisals if an Event of Default
shall have occurred and be continuing.
For purposes of this Section 5.11, it is understood and agreed that
a single Inventory appraisal may consist of examinations conducted at multiple
relevant sites and involve one or more relevant Loan Parties and their
assets. All such appraisals shall be at
the sole expense of the Loan Parties.
SECTION 5.12.
Field Examinations
. At any time that the Administrative Agent
requests, the Loan Parties will permit, upon reasonable notice, the
Administrative Agent to conduct a field examination to ensure adequacy of
Collateral included in the Borrowing Base and related reporting and control
systems. It is anticipated that up to
three (3) field examinations per year will be conducted;
provided
that (i) no more than one (1) field examination per year will be
conducted unless the Administrative Agent elects to conduct a second field
examination in its sole discretion, (ii) no more than three (3) field
examinations per year will be conducted if any Loans are outstanding, and
average monthly Availability is less than an amount equal to the greater of (x) 20%
of the Aggregate Commitment and (y) $10,000,000, at such time, and (iii) there
shall be no limitation on the number or frequency of field examinations if an
Event of Default shall have occurred and be continuing. For purposes of this Section 5.12, it is
understood and agreed that a single field examination may consist of
examinations conducted at multiple relevant sites and involve one or more
relevant Loan Parties and their assets.
All such field examinations shall be at the sole expense of the Loan
Parties.
SECTION 5.13.
[Intentionally
Omitted]
.
SECTION 5.14.
Credit Card
Processors
. Each Loan Party
will (a) comply in all material respects with all obligations of such Loan
Party under each credit card processing agreement to which such Loan Party is a
party, (b) maintain each credit card processing agreement set forth on
Schedule 3.21
and each credit card processing agreement entered
into after the Effective Date in full force and effect (except to the extent
such Loan Party elects to terminate the same and so notifies the Administrative
Agent) and take or cause to be taken all actions necessary to maintain,
preserve and protect the rights and interests of the Administrative Agent in
all material respects with respect to all such agreements, (c) use
commercially reasonable efforts to obtain a Processor Control Agreement with
respect to each Credit Card Processor providing any credit card processing
services for or on behalf of such Loan Party and listed on
Schedule 3.21
within sixty (60) days after the Effective Date and (d) promptly
notify the Administrative Agent of the entry by such Loan Party into any credit
card processing agreement with any Credit Card Processor after the Effective
Date and (subject to Section 5.15(e) with respect to any credit card
processing agreement acquired by such Loan Party in connection with the
consummation of a Permitted Acquisition) obtain a Processor Control Agreement
with respect to each such Credit Card Processor contemporaneously with the
entry by such Loan Party into such credit processing agreement.
SECTION 5.15.
Additional Collateral;
Further Assurances
. (a)
Holdings shall cause each of its Material Domestic Subsidiaries formed or
acquired after the Effective Date, and each Domestic Subsidiary which is not a
Material Domestic Subsidiary on the Effective Date but which qualifies as a
Material Domestic Subsidiary after the Effective Date, in accordance with the
terms of this Agreement to become a Loan Party by executing the Joinder
Agreement set forth as
Exhibit E
hereto (the “
Joinder Agreement
”)
within thirty (30) days (or such later date as may be agreed upon by the
Administrative Agent) of such formation, acquisition or qualification, such
Joinder Agreement to be accompanied by appropriate corporate resolutions, other
corporate organizational and authorization
62
documentation and legal opinions in form and
substance reasonably satisfactory to the Administrative Agent. Upon execution
and delivery thereof, each such Person (i) shall automatically become a
Loan Guarantor hereunder and thereupon shall have all of the rights, benefits,
duties, and obligations in such capacity under the Loan Documents and (ii) will
grant Liens to the Administrative Agent, for the benefit of the Secured
Parties, in any property of such Loan Party which constitutes Collateral.
(b) Without limiting the generality of
the foregoing, Holdings will cause the Applicable Pledge Percentage of the
issued and outstanding Equity Interests of each Pledge Subsidiary directly
owned by Holdings or any other Loan Party to be subject at all times to a first
priority, perfected Lien in favor of the Administrative Agent, for the benefit
of the Administrative Agent and the Lenders, to secure the Secured Obligations
in accordance with the terms and conditions of the Collateral Documents or such
other security documents as the Administrative Agent shall reasonably
request. Notwithstanding the foregoing,
no such pledge agreement in respect of the Equity Interests of a Foreign
Subsidiary shall be required hereunder (i) (A) until the date that is
sixty (60) days immediately following the Effective Date (or such later date as
may be agreed upon by the Administrative Agent) in the case of Material Foreign
Subsidiaries in existence on the Effective Date and (B) within sixty (60)
days (or such later date as may be agreed upon by the Administrative Agent) in
the case of a Material Foreign Subsidiary formed or acquired, or a Foreign
Subsidiary otherwise qualifying as a Material Foreign Subsidiary, after the
Effective Date and (ii) to the extent the Administrative Agent or its
counsel determines that, in light of the cost and expense associated therewith,
such pledge would not provide material credit support for the benefit of the
Secured Parties pursuant to legally valid, binding and enforceable pledge
agreements.
(c) Without limiting the foregoing,
each Loan Party will, and will cause each Subsidiary to, execute and deliver,
or cause to be executed and delivered, to the Administrative Agent such
documents, agreements and instruments (including, without limitation, the
making of commercially reasonably efforts in respect of deposit account control
agreements and securities account control agreements), and will take or cause
to be taken such further actions (including the filing and recording of
financing statements and other documents and such other actions or deliveries
of the type required by Section 4.01, as applicable), which may be
required by law or which the Administrative Agent may, from time to time,
reasonably request to carry out the terms and conditions of this Agreement and
the other Loan Documents and to ensure perfection and priority of the Liens
created or intended to be created by the Collateral Documents, all in form and
substance reasonably satisfactory to the Administrative Agent and all at the
expense of the Loan Parties.
(d) If any material assets (other than
Excluded Assets) are acquired by any Loan Party after the Effective Date (other
than assets constituting Collateral under the Security Agreement that become
subject to the Lien in favor of the Administrative Agent upon acquisition
thereof), the Borrower will notify the Administrative Agent and the Lenders
thereof, and, if requested by the Administrative Agent or the Required Lenders,
the Borrower will cause such assets to be subjected to a Lien securing the
Secured Obligations and will take, and cause the Loan Parties to take, such
actions as shall be necessary or reasonably requested by the Administrative
Agent to grant and perfect such Liens, including actions described in paragraph
(c) of this Section, all at the expense of the Loan Parties.
(e) Each Loan Party will use
commercially reasonable efforts to obtain a Processor Control Agreement with
respect to each Credit Card Processor party to a credit card processing
agreement acquired by any Loan Party in connection with the consummation of any
Permitted Acquisition, within sixty (60) days after the consummation of such
Permitted Acquisition.
63
(f) On or prior to the Effective Date,
each Loan Party shall deliver to the Administrative Agent executed signature pages and
exhibits to Confirmatory Grants of Security Interest with respect to its
patents, trademarks and copyrights to be held in escrow by the Administrative
Agent until the occurrence of the IP Collateral Trigger Date. Upon the occurrence of the IP Collateral
Trigger Date, each Loan Party acknowledges and agrees that (i) all
signature pages, exhibits, documents, instruments and other deliveries provided
to the Administrative Agent by such Loan Party to evidence a first priority
security interest of the Administrative Agent in such Loan Party’s patents,
trademarks, and copyrights, shall be automatically and irrevocably released, (ii) the
Administrative Agent shall be authorized to (A) date any such items the
date of the IP Collateral Trigger Date, (B) attach the executed signature pages of
such Loan Party thereto, and (C) make all filings and take any other
actions contemplated thereby in connection with creating and perfecting the
Administrative Agent’s Lien on the patents, trademarks and copyrights of such
Loan Party, and (iii) it shall promptly execute and deliver to the
Administrative Agent a reaffirmation agreement, in form and substance
satisfactory to the Administrative Agent, that reaffirms its obligations under
the Loan Documents (including, without limitation, such Loan Party’s grant to
the Administrative Agent of a first priority security interest in all of such
Loan Party’s patents, trademarks and copyrights).
(g) If an agreement with respect to a
joint venture (that is not a Subsidiary) entered into by a Loan Party otherwise
permitted hereunder contains customary restrictions on the granting of Liens on
its assets or Equity Interests of such joint venture, no Lien need be provided
to the Administrative Agent to the extent that such Lien would not be permitted
by the terms of the joint venture agreements.
ARTICLE
VI
Negative Covenants
Until the Commitments have
expired or terminated and the principal of and interest on each Loan and all
fees, expenses and other amounts payable under any Loan Document have been paid
in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, the Loan Parties covenant and agree,
jointly and severally, with the Lenders that:
SECTION 6.01.
Indebtedness
. No Loan Party will, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a) the Secured Obligations;
(b) Indebtedness existing on the date
hereof and set forth in
Schedule 6.01
and extensions, renewals and
replacements of any such Indebtedness in accordance with clause (f) hereof;
(c) Indebtedness of Holdings or the
Borrower to any Subsidiary and of any Subsidiary to Holdings, the Borrower or
any other Subsidiary;
provided
that (i) Indebtedness of any
Subsidiary that is not a Loan Party to Holdings, the Borrower or any Subsidiary
that is a Loan Party shall be subject to Section 6.04 and (ii) Indebtedness
of Holdings or the Borrower to any Subsidiary and Indebtedness of any
Subsidiary that is a Loan Party to any Subsidiary that is not a Loan Party
shall be subordinated to the Secured Obligations on terms reasonably
satisfactory to the Administrative Agent;
(d) Guarantees by Holdings or the
Borrower of Indebtedness or other obligations of any Subsidiary and by any
Subsidiary of Indebtedness of the Borrower or any other Subsidiary;
provided
that (i) the Indebtedness so Guaranteed is permitted by this Section 6.01,
(ii) Guarantees by Holdings, the Borrower or any Subsidiary that is a Loan
Party of Indebtedness of any Subsidiary that
64
is not a Loan Party shall be subject to Section 6.04 and (iii) Guarantees
permitted under this clause (d) shall be subordinated to the Secured
Obligations of the applicable Subsidiary on the same terms as the Indebtedness
so Guaranteed is subordinated to the Secured Obligations;
(e) Indebtedness of the Borrower or any
Subsidiary incurred to finance the acquisition, construction or improvement of
any fixed or capital assets (whether or not constituting purchase money
Indebtedness), including Capital Lease Obligations and any Indebtedness assumed
in connection with the acquisition of any such assets or secured by a Lien on
any such assets prior to the acquisition thereof, and extensions, renewals and
replacements of any such Indebtedness in accordance with clause (f) hereof;
provided
that (i) such Indebtedness is incurred prior to or one
hundred eighty (180) days after such acquisition or the completion of such
construction or improvement and (ii) the aggregate principal amount of
Indebtedness permitted by this clause (e) shall not exceed $35,000,000 at
any time outstanding;
(f) Indebtedness which represents an
extension, refinancing, or renewal of any of the Indebtedness described in
clauses (b), (e) and (i) hereof;
provided
that, (i) the
principal amount of such Indebtedness is not increased, (ii) any Liens
securing such Indebtedness are not extended to any additional property of any
Loan Party, (iii) no Loan Party that is not originally obligated with
respect to repayment of such Indebtedness is required to become obligated with
respect thereto, (iv) such extension, refinancing or renewal does not
result in a shortening of the average weighted maturity of the Indebtedness so
extended, refinanced or renewed, (v) the material terms (taken as a whole)
of any such extension, refinancing, or renewal are not less favorable to the
obligor thereunder than the original terms of such Indebtedness and (iv) if
the Indebtedness that is refinanced, renewed, or extended was subordinated in
right of payment to the Secured Obligations, then the terms and conditions of
the refinancing, renewal, or extension Indebtedness must include subordination
terms and conditions that are at least as favorable to the Administrative Agent
and the Lenders as those that were applicable to the refinanced, renewed, or
extended Indebtedness;
(g) Indebtedness owed to any person
providing workers’ compensation, health, disability or other employee benefits
or property, casualty or liability insurance, pursuant to reimbursement or
indemnification obligations to such person, in each case incurred in the ordinary
course of business;
(h) Indebtedness of the Borrower or any
Subsidiary in respect of performance bonds, bid bonds, appeal bonds, surety
bonds and similar obligations, in each case provided in the ordinary course of
business;
(i) Indebtedness of any Person that
becomes a Subsidiary after the date hereof;
provided
that (i) such
Indebtedness exists at the time such Person becomes a Subsidiary and is not
created in contemplation of or in connection with such Person becoming a
Subsidiary and (ii) the aggregate principal amount of Indebtedness
permitted by this clause (i) shall not exceed $25,000,000 at any time
outstanding;
(j) Indebtedness owed in respect of any
overdrafts and related liabilities arising in the ordinary course of business
from treasury, depository and cash management services or from any automated
clearing-house transfers of funds;
(k) obligations under Swap Agreements
permitted under this Agreement;
65
(l) Indebtedness of Foreign Subsidiaries
incurred for working capital purposes provided that the aggregate principal
amount of Indebtedness permitted by this clause (l) shall not exceed
$10,000,000 at any time outstanding;
(m) Guarantees of obligations of
independent licensed Ethan Allen dealers in an aggregate principal amount not
exceeding $5,000,000 at any time outstanding;
(n) Indebtedness under sale-leaseback
transactions, and other financing arrangements, in respect of Real Property and
in an aggregate principal amount not exceeding $50,000,000 at any time
outstanding; and
(o) other unsecured Indebtedness in an
aggregate principal amount not exceeding $100,000,000 at any time outstanding.
SECTION 6.02.
Liens
. No Loan Party will, nor will it permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any
property or asset now owned or hereafter acquired by it, or assign or sell any
income or revenues (including accounts receivable) or rights in respect of any
thereof, except:
(a) Liens created pursuant to any Loan
Document;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset
of Holdings or any Subsidiary existing on the date hereof and set forth in
Schedule
6.02
;
provided
that (i) such Lien shall not apply to any other
property or asset of Holdings or Subsidiary (other than additions thereto that
become part thereof) and (ii) such Lien shall secure only those
obligations which it secures on the date hereof and extensions, renewals and
replacements thereof that do not increase the outstanding principal amount
thereof;
(d) Liens on fixed or capital assets
acquired, constructed or improved by Holdings or any Subsidiary;
provided
that (i) such security interests secure Indebtedness permitted by clause (e) of
Section 6.01, (ii) such security interests and the Indebtedness
secured thereby are incurred prior to or within one hundred eighty (180) days
after such acquisition or the completion of such construction or improvement, (iii) the
Indebtedness secured thereby does not exceed 90% of the cost of acquiring,
constructing or improving such fixed or capital assets and (iv) such
security interests shall not apply to any other property or assets of the
Borrower or Subsidiary;
(e) any Lien existing on any property
or asset (other than Accounts (including, without limitation, Credit Card
Account Receivables) and Inventory) prior to the acquisition thereof by any
Loan Party or any Subsidiary or existing on any property or asset (other than
Accounts (including, without limitation, Credit Card Account Receivables) and
Inventory) of any Person prior to the acquisition of such Person by any Loan
Party or any Subsidiary;
provided
that (i) such Lien is not created
in contemplation of or in connection with such acquisition, (ii) such Lien
shall not apply to any other property or assets of a Loan Party and (iii) such
Lien shall secure only those obligations which it secures on the date of such
acquisition or the date such Person becomes a Loan Party, as the case may be
and extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;
(f) Liens of a collecting bank arising
in the ordinary course of business under Section 4-208 of the Uniform
Commercial Code in effect in the relevant jurisdiction covering only the items
being collected upon;
66
(g) Liens on Real Property arising out
of sale and leaseback transactions, and other financing arrangements, permitted
by Sections 6.01(n) and 6.06;
(h) customary rights and restrictions
contained in agreements relating to a sale, transfer or other disposition
applicable pending completion thereof and customary post-closing escrow and
similar arrangements;
(i) in the case of any Subsidiary that
is not a wholly-owned Subsidiary, any put, call, right of first refusal and
similar arrangements, and customary transfer restrictions, set forth in its
organizational documents or any related joint venture or similar agreement;
(j) leases, subleases, licenses and
sublicenses of assets, in each case entered into by Holdings or any other
Subsidiary in the ordinary course of business, that do not materially interfere
with the conduct of the business of the Holdings and its Subsidiaries taken as
a whole;
(k) Liens arising by virtue of UCC
financing statement filings (or similar filings under applicable law) regarding
operating leases entered into by Holdings or any Subsidiary in the ordinary
course of business;
(l)Liens consisting of interests of lessors
under capital leases permitted under Section 6.01;
(m) Liens on assets of Foreign
Subsidiaries securing Indebtedness permitted by Section 6.01(l);
(n) Liens granted by a Subsidiary that
is not a Loan Party in favor of the Borrower or another Loan Party in respect
of Indebtedness owed by such Subsidiary; and
(o) other Liens on Excluded Assets
securing Indebtedness or other obligations in an aggregate principal amount not
exceeding $1,000,000 at any time outstanding.
Notwithstanding the
foregoing, none of the Liens permitted pursuant to this Section 6.02 may
at any time attach to any Loan Party’s (1) Accounts (including, without
limitation, Credit Card Account Receivables), other than those permitted under
clause (a) of the definition of Permitted Encumbrance and clause (a) above
and (2) Inventory, other than those permitted under clauses (a) and (b) of
the definition of Permitted Encumbrance and clause (a) above.
SECTION 6.03.
Fundamental Changes
. (a) No Loan Party will, nor will it
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or liquidate or
dissolve, except that, if at the time thereof and immediately after giving
effect thereto no Event of Default shall have occurred and be continuing (i) any
Subsidiary of Holdings may merge into the Borrower in a transaction in which
the Borrower is the surviving corporation, (ii) any Subsidiary of Holdings
(other than the Borrower) may merge into any Loan Party in a transaction in
which the surviving entity is a Loan Party and (iii) any Subsidiary that
is not a Loan Party may liquidate or dissolve if the Borrower determines in
good faith that such liquidation or dissolution is in the best interests of the
Borrower and is not materially disadvantageous to the Lenders;
provided
that any such merger involving a Person that is not a wholly owned Subsidiary
immediately prior to such merger shall not be permitted unless also permitted
by Section 6.04.
67
(b) No Loan Party will, nor will it
permit any of its Subsidiaries to, engage in any business other than businesses
of the type conducted by the Borrower and its Subsidiaries on the date of
execution of this Agreement and businesses reasonably related thereto.
(c) Holdings will not engage in any
business or activity other than business conducted as of the Effective Date
(and activities incidental thereto) as the parent company of the Borrower and
the other Subsidiaries, as a public company under securities laws.
SECTION 6.04.
Investments, Loans,
Advances, Guarantees and Acquisitions
. No Loan Party will, nor will it permit any
Subsidiary to, purchase, hold or acquire (including pursuant to any merger with
any Person that was not a Loan Party and a wholly owned Subsidiary prior to
such merger) any capital stock, evidences of indebtedness or other securities
(including any option, warrant or other right to acquire any of the foregoing)
of, make or permit to exist any loans or advances to, Guarantee any
Indebtedness of, or make or permit to exist any investment or any other
interest in, any other Person, or purchase or otherwise acquire (in one
transaction or a series of transactions) any assets of any other Person
constituting a business unit (whether through purchase of assets, merger or
otherwise), except:
(a) Permitted Investments, subject, to
the extent requested by the Administrative Agent, to control agreements in
favor of the Administrative Agent for the benefit of the Secured Parties or
otherwise subject to a perfected security interest in favor of the
Administrative Agent for the benefit of the Secured Parties;
(b) investments, loans and advances in
existence on the date of this Agreement and described in
Schedule
6.04
;
(c)
investments by Holdings in the Borrower and by the Borrower and the
Subsidiaries in Equity Interests in their respective Subsidiaries;
provided
that (A) any such Equity Interests held by a Loan Party shall be pledged
pursuant to, and to the extent required by, the Security Agreement and the
other Collateral Documents (subject to the limitations applicable to common
stock of an Affected Foreign Subsidiary referred to in Section 5.12) and (B) the
aggregate amount of investments by Loan Parties in Subsidiaries that are not
Loan Parties (together with outstanding intercompany loans permitted under the
proviso to Section 6.04(d) and outstanding Guarantees permitted under
the proviso to Section 6.04(e)) shall not exceed $15,000,000 at any time
outstanding (in each case determined without regard to any write-downs or
write-offs);
(d) loans or advances made by a Loan
Party to any Subsidiary and made by any Subsidiary to any Loan Party or any
other Subsidiary;
provided
that the amount of such loans and advances
made by Loan Parties to Subsidiaries that are not Loan Parties (together with
outstanding investments permitted under clause (B) to the proviso to Section 6.04(c) and
outstanding Guarantees permitted under the proviso to Section 6.04(e))
shall not exceed $15,000,000 at any time outstanding (in each case determined
without regard to any write-downs or write-offs);
(e) Guarantees constituting
Indebtedness permitted by Section 6.01;
provided
that the aggregate
principal amount of Indebtedness of Subsidiaries that are not Loan Parties that
is Guaranteed by any Loan Party shall (together with outstanding investments
permitted under clause (B) to the proviso to Section 6.04(c) and
outstanding intercompany loans permitted under the proviso to Section 6.04(d))
shall not exceed $15,000,000 at any time outstanding (in each case determined
without regard to any write-downs or write-offs);
(f) loans or advances made by a Loan
Party to its employees on an arms-length basis in the ordinary course of
business consistent with past practices for travel and entertainment expenses,
68
relocation costs and similar purposes up to a maximum of $1,000,000 in
the aggregate at any one time outstanding;
(g) subject to Sections 4.2(a) and
4.4 of the Security Agreement, notes payable, or stock or other securities
issued by account debtors or other obligors to a Loan Party pursuant to
negotiated agreements with respect to settlement of such Account Debtor’s
Accounts in the ordinary course of business, consistent with past practices or
received in connection with the bankruptcy or reorganization of an account
debtor or other obligor;
(h) investments in the form of Swap
Agreements permitted by Section 6.07;
(i) investments of any Person existing
at the time such Person becomes a Subsidiary or consolidates or merges with
Holdings or any of its Subsidiaries (including in connection with a Permitted
Acquisition) so long as such investments were not made in contemplation of such
Person becoming a Subsidiary or of such merger;
(j) investments received in connection
with the dispositions of assets permitted by Section 6.05;
(k) accounts receivable arising and
trade credit granted in the ordinary course of business and prepayments and
other credits granted to suppliers in the ordinary course of business;
(l) loans or advances to, or for
the benefit of, independent licensed dealers in products and services of
Holdings and its Subsidiaries in an aggregate outstanding amount not exceeding
$5,000,000;
(m)
investments constituting
deposits described in clauses (c) and (d) of the definition of the
term “
Permitted Encumbrances
”; and
(n) Permitted Acquisitions.
SECTION 6.05.
Asset Sales
. No Loan Party will, nor will it permit any
Subsidiary to, sell, transfer, lease or otherwise dispose of any asset,
including any Equity Interest owned by it, nor will the Borrower permit any
Subsidiary to issue any additional Equity Interest in such Subsidiary (other
than to the Borrower or another Subsidiary in compliance with Section 6.04),
except:
(a) sales, transfers and dispositions
of (i) inventory in the ordinary course of business and (ii) used,
obsolete, worn out or surplus equipment or property in the ordinary course of
business;
(b) sales, transfers and dispositions
to any Loan Party or any Subsidiary;
provided
that any such sales,
transfers or dispositions involving a Subsidiary that is not a Loan Party shall
be made in compliance with Sections 6.04 and 6.09;
(c) sales, transfers and dispositions
of accounts receivable in connection with the compromise, settlement or
collection thereof;
(d) sales, transfers and dispositions
of Permitted Investments and other investments permitted by clauses (i) and
(k) of Section 6.04;
69
(e) sale and leaseback transactions,
and other financing arrangements, permitted by Sections 6.01(n) and 6.06,
and any other sale of Real Property not involving the incurrence of
Indebtedness;
(f) dispositions resulting from any
casualty or other insured damage to, or any taking under power of eminent
domain or by condemnation or similar proceeding of, any property or asset of
any Loan Party or any Subsidiary;
(g) leases, subleases, licenses and
sublicenses entered into in the ordinary course of business; and
(h) sales, transfers and other
dispositions of assets (other than Equity Interests in a Subsidiary unless all
Equity Interests in such Subsidiary are sold) that are not permitted by any
other paragraph of this Section;
provided
that the aggregate fair market
value of all assets sold, transferred or otherwise disposed of in reliance upon
this paragraph (h) shall not exceed $30,000,000;
provided
that all
sales, transfers, leases and other dispositions permitted hereby (other than
those permitted by paragraphs (b) and (f) above) shall be made for
fair value and for at least 75% cash consideration.
SECTION 6.06.
Sale and Leaseback
Transactions
. Except for Real
Property financing transactions existing on the Effective Date and set forth on
Schedule 6.01
or otherwise permitted pursuant to
Section 6.01(n)
,
no Loan Party will, nor will it permit any Subsidiary to, enter into any
arrangement, directly or indirectly, whereby it shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned
or hereafter acquired, and thereafter rent or lease such property or other
property that it intends to use for substantially the same purpose or purposes
as the property sold or transferred, except for any such sale of any fixed or
capital assets by any Loan Party or any Subsidiary that is made for cash
consideration in an amount not less than the fair value of such fixed or
capital asset and, in the case of an acquisition or construction of any fixed
or capital asset as provided for in Section 6.01(e), is consummated within
one hundred eighty (180) days after such Loan Party or such Subsidiary acquires
or completes the construction of such fixed or capital asset.
SECTION 6.07.
Swap Agreements
. No Loan Party will, nor will it permit any Subsidiary to, enter into any Swap Agreement,
except (a) Swap Agreements entered into to hedge or mitigate risks to
which any Loan Party or any Subsidiary has actual exposure (other than those in
respect of Equity Interests of the Borrower or any of its Subsidiaries), and (b) Swap
Agreements entered into in order to effectively cap, collar or exchange
interest rates (from fixed to floating rates, from one floating rate to another
floating rate or otherwise) with respect to any interest-bearing liability or
investment of any Loan Party or any Subsidiary.
SECTION 6.08.
Restricted Payments;
Certain Payments of Indebtedness
.
(a) No Loan Party will, nor will it permit any Subsidiary to,
declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, or incur any obligation (contingent or otherwise) to do so, except (i) Holdings
may declare and pay dividends with respect to its common stock payable solely
in additional shares of its common stock, and, with respect to its preferred stock,
payable solely in additional shares of such preferred stock or in shares of its
common stock, (ii) Holdings may make any dividend or distribution to all
holders of its common stock to redeem rights issued pursuant to any stockholder
rights plan, “poison pill” or a similar arrangement,
provided
that the
aggregate amount of such dividends and distributions shall not exceed $750,000,
(iii) the Borrower and the Subsidiaries may declare and pay dividends
ratably with respect to their Equity Interests, (iv) Holdings may make
Restricted Payments pursuant to and in accordance with (A) equity
incentive plans or other benefit plans for management or
70
employees of Holdings and its Subsidiaries so
long as the Negative Covenant Permission Trigger is satisfied and (B) the
employment agreement, and related restricted stock agreements, with M. Farooq
Kathwari, as specified in Holdings’ publicly filed proxy statement dated October 17,
2008 and (v) Holdings, the Borrower and its Subsidiaries may make any
Restricted Payment so long as the Negative Covenant Permission Trigger is
satisfied.
(b) No Loan Party will, nor will it
permit any Subsidiary to, make or agree to pay or make, directly or indirectly,
any payment or other distribution (whether in cash, securities or other
property) of or in respect of principal of or interest on any Indebtedness, or
any payment or other distribution (whether in cash, securities or other
property), including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancellation or termination of
any Indebtedness, except:
(i) payment of Indebtedness created
under the Loan Documents;
(ii) payment of regularly scheduled
interest and principal payments as and when due in respect of any Indebtedness,
other than payments in respect of the Subordinated Indebtedness prohibited by
the subordination provisions thereof;
(iii) refinancings of Indebtedness to
the extent permitted by Section 6.01; and
(iv) payment of secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the property
or assets securing such Indebtedness;
provided
that, Holdings, the Borrower and its Subsidiaries
may make any payment described in clause (b) above so long as the Negative
Covenant Permission Trigger is satisfied.
SECTION 6.09.
Transactions with
Affiliates
. No Loan Party
will, nor will it permit any Subsidiary to, sell, lease or otherwise transfer
any property or assets to, or purchase, lease or otherwise acquire any property
or assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that (i) are in the ordinary
course of business and (ii) are at prices and on terms and conditions not less
favorable to the Loan Party or such Subsidiary than could be obtained on an arm’s-length
basis from unrelated third parties, (b) transactions between or among the
Loan Party and any Subsidiary that is a Loan Party not involving any other
Affiliate, (c) any investment permitted by Sections 6.04(c) or
6.04(d), (d) any Indebtedness permitted under Section 6.01(c), (e) any
Restricted Payment permitted by Section 6.08, (f) loans or advances
to employees permitted under Section 6.04, (g) the payment of reasonable
fees to directors of Holdings or any Subsidiary who are not employees of
Holdings or any Subsidiary, and compensation and benefit arrangements
(including reasonable and customary expense advancements) paid to, and
indemnities provided for the benefit of, directors, officers or employees of
Holdings or its Subsidiaries in the ordinary course of business and (h) any
issuances of securities or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment agreements, equity
incentive and employee benefit plans approved by Holdings’ board of directors.
SECTION 6.10.
Restrictive
Agreements
. No Loan Party
will, nor will it permit any Subsidiary to, directly or indirectly, enter into,
incur or permit to exist any agreement or other arrangement that prohibits,
restricts or imposes any condition upon (a) the ability of such Loan Party
or any of its Subsidiaries to create, incur or permit to exist any Lien upon
any of its property or assets, or (b) the ability of any Subsidiary to pay
dividends or other distributions with respect to any shares of its capital
stock or to make or repay loans or advances to the Borrower or any other
Subsidiary or to Guarantee Indebtedness of the Borrower or any other
Subsidiary;
provided
that (i) the foregoing shall not
71
apply to restrictions and conditions imposed
by law or by any Loan Document, (ii) the foregoing shall not apply to
restrictions and conditions existing on the date hereof identified on
Schedule
6.10
(but shall apply to any extension or renewal of, or any amendment or
modification, in each case expanding the scope of, any such restriction or
condition), (iii) the foregoing shall not apply to customary restrictions
and conditions contained in agreements relating to the sale of a Subsidiary or
an asset pending such sale;
provided
such restrictions and conditions
apply only to the Subsidiary or asset that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply
to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness, (v) clause
(a) of the foregoing shall not apply to customary provisions in licenses
or leases restricting the assignment thereof and (vi) the foregoing shall
not apply to (1) any restriction in any agreement of any Person in effect
at the time such Person becomes a Subsidiary so long as such restriction is not
entered into in contemplation of such Person becoming a Subsidiary, (2) customary
restrictions and conditions in joint ventures or similar arrangements and (3) customary
restrictions on then-market terms (for the applicable Indebtedness) under any
Indebtedness permitted under Section 6.01 (so long as, in the case of
Indebtedness under clauses (b) or (f) of Section 6.01, the
restrictions imposed by any such Indebtedness which constitutes extended,
renewed, replaced or refinanced Indebtedness are not more restrictive than the
restrictions in the applicable original Indebtedness).
SECTION 6.11.
Amendment of
Material Documents
. No Loan
Party will, nor will it permit any Subsidiary to, amend, modify or waive any of
its rights under (a) agreement relating to any Subordinated Indebtedness
or any Material Indebtedness or (b) its certificate of incorporation,
by-laws, operating, management or partnership agreement or other organizational
documents, to the extent any such amendment, modification or waiver would be
materially adverse to the Lenders.
SECTION 6.12.
Financial Covenants
.
(a)
Fixed
Charge Coverage Ratio
. The
Borrower will not, at any time when average monthly Availability is less than
an amount equal to the greater of (i) 15% of the Aggregate Commitment at
such time and (ii) $9,000,000, permit the Fixed Charge Coverage Ratio,
determined for any period of four consecutive fiscal quarters ending on the
last day of each fiscal quarter, to be less than 1.00 to 1.00.
ARTICLE
VII
Events of Default
If any of the following
events (“
Events of Default
”)
shall occur:
(a) the Borrower shall fail to pay any
principal of any Loan or any reimbursement obligation in respect of any LC
Disbursement when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any
interest on any Loan or any fee or any other amount (other than an amount
referred to in clause (a) of this Article) payable under this Agreement,
when and as the same shall become due and payable, and such failure shall
continue unremedied for a period of three (3) Business Days;
(c) any representation or warranty made
or deemed made by or on behalf of any Loan Party or any Subsidiary in or in
connection with this Agreement or any Loan Document or any amendment or
modification thereof or waiver thereunder, or in any report, certificate,
financial
72
statement or other document furnished pursuant to or in connection with
this Agreement or any Loan Document or any amendment or modification thereof or
waiver thereunder, shall prove to have been incorrect in any material respect
when made or deemed made;
(d) any Loan Party shall fail to
observe or perform any covenant, condition or agreement contained in Section 5.02(a),
5.03 (with respect to a Loan Party’s existence), 5.08, 5.15 or in Article VI;
(e) any Loan Party shall fail to
observe or perform any covenant, condition or agreement contained in this
Agreement (other than those which constitute a default under another Section of
this Article), and such failure shall continue unremedied for a period of (i) five
(5) days after the earlier of any Loan Party’s knowledge of such breach or
notice thereof from the Administrative Agent (which notice will be given at the
request of any Lender) if such breach relates to terms or provisions of Section 5.01,
5.02 (other than Section 5.02(a)), 5.03 through 5.07, 5.09, 5.10 or 5.13
of this Agreement or (ii) fifteen (15) days after the earlier of any Loan
Party’s knowledge of such breach or notice thereof from the Administrative
Agent (which notice will be given at the request of any Lender) if such breach
relates to terms or provisions of any other Section of this Agreement;
(f) any Loan Party or any Subsidiary
shall fail to make any payment (whether of principal or interest and regardless
of amount) in respect of any Material Indebtedness, when and as the same shall
become due and payable;
(g) any event or condition occurs that
results in any Material Indebtedness becoming due prior to its scheduled
maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any Material Indebtedness or
any trustee or agent on its or their behalf to cause any Material Indebtedness
to become due, or to require the prepayment, repurchase, redemption or
defeasance thereof, prior to its scheduled maturity;
provided
that this
clause (g) shall not apply to secured Indebtedness that becomes due as a
result of the voluntary sale or transfer of the property or assets securing
such Indebtedness;
(h) an involuntary proceeding shall be
commenced or an involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of a Loan Party or any Subsidiary of
any Loan Party or its debts, or of a substantial part of its assets, under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar law
now or hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for any Loan Party or
any Subsidiary of any Loan Party or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed for
sixty (60) days or an order or decree approving or ordering any of the
foregoing shall be entered;
(i) any Loan Party or any Subsidiary of
any Loan Party shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to contest
in a timely and appropriate manner, any proceeding or petition described in
clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for such Loan Party or Subsidiary of any Loan Party or for a
substantial part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make
a general assignment for the benefit of creditors or (vi) take any action
for the purpose of effecting any of the foregoing;
73
(j) any Loan Party or any Subsidiary of
any Loan Party shall become unable, admit in writing its inability or fail
generally to pay its debts as they become due;
(k) one or more judgments for the
payment of money in an aggregate amount in excess of $10,000,000 shall be
rendered against any Loan Party, any Subsidiary of any Loan Party or any
combination thereof and the same shall remain undischarged for a period of
thirty (30) consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach
or levy upon any assets of any Loan Party or any Subsidiary of any Loan Party
to enforce any such judgment or any Loan Party or any Subsidiary of any Loan
Party shall fail within thirty (30) days to discharge one or more non-monetary
judgments or orders which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect, which judgments or orders, in
any such case, are not stayed on appeal or otherwise being appropriately
contested in good faith by proper proceedings diligently pursued;
(l) an ERISA Event shall have occurred
that, in the opinion of the Required Lenders, when taken together with all
other ERISA Events that have occurred, could reasonably be expected to result
in a Material Adverse Effect;
(m) a Change in Control shall occur;
(n) the occurrence of any default
or “Event of Default” as defined in any Loan Document (other than
this Agreement) or the breach of any of the terms or provisions of any Loan
Document (other than this Agreement), which default or breach continues beyond
any period of grace therein provided;
(o) the Loan Guaranty shall fail to
remain in full force or effect or any action shall be taken to discontinue or
to assert the invalidity or unenforceability of the Loan Guaranty, or any Loan
Guarantor shall fail to comply with any of the terms or provisions of the Loan
Guaranty to which it is a party, or any Loan Guarantor shall deny that it has
any further liability under the Loan Guaranty to which it is a party, or shall
give notice to such effect;
(p) any Collateral Document shall for
any reason fail to create a valid and perfected first priority security
interest in any material portion of Collateral purported to be covered thereby,
except as permitted by the terms of any Collateral Document, or any Collateral
Document shall fail to remain in full force or effect or any action shall be
taken to discontinue or to assert the invalidity or unenforceability of any
Collateral Document, or any Loan Party shall fail to comply in any material
respect with any of the terms or provisions of any Collateral Document; or
(q) any material provision of any Loan
Document for any reason ceases to be valid, binding and enforceable in accordance
with its terms (or any Loan Party shall challenge the enforceability of any
Loan Document or shall assert in writing, or engage in any action or inaction
based on any such assertion, that any provision of any of the Loan Documents
has ceased to be or otherwise is not valid, binding and enforceable in
accordance with its terms);
then, and in every such
event (other than an event with respect to the Borrower described in clause (h) or
(i) of this Article), and at any time thereafter during the continuance of
such event, the Administrative Agent may, and at the request of the Required
Lenders shall, by notice to the Borrower, take either or both of the following
actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be
due and payable in whole (or in part, in which case any principal not so
declared to be due and payable may thereafter be declared to be due and
payable), and thereupon the principal of the Loans so declared to
74
be due and payable, together
with accrued interest thereon and all fees and other obligations of the
Borrower accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and in case of any event with respect to the
Borrower described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
Upon the occurrence and during the continuance of an Event of Default,
the Administrative Agent may, and at the request of the Required Lenders shall,
exercise any rights and remedies provided to the Administrative Agent under the
Loan Documents or at law or equity, including all remedies provided under the
UCC.
ARTICLE
VIII
The Administrative Agent
Each of the Lenders and the
Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent
and authorizes the Administrative Agent to take such actions on its behalf,
including execution of the other Loan Documents, and to exercise such powers as
are delegated to the Administrative Agent by the terms of the Loan Documents,
together with such actions and powers as are reasonably incidental thereto.
The bank serving as the
Administrative Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not the Administrative Agent, and such bank and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
the Loan Parties or any Subsidiary of a Loan Party or other Affiliate thereof
as if it were not the Administrative Agent hereunder.
The Administrative Agent
shall not have any duties or obligations except those expressly set forth in
the Loan Documents. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be
subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing, (b) the Administrative Agent shall
not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated by the Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02), and (c) except as expressly set forth in
the Loan Documents, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to any Loan Party or any of its Subsidiaries that is communicated to
or obtained by the bank serving as Administrative Agent or any of its
Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken by
it with the consent or at the request of the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of its own
gross negligence or willful misconduct.
The Administrative Agent shall be deemed not to have knowledge of any
Default unless and until written notice thereof is given to the Administrative
Agent by the Borrower or a Lender, and the Administrative Agent shall not be
responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with any Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection with any Loan Document, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth in any Loan Document, (iv) the validity,
enforceability, effectiveness or genuineness of any Loan Document or any other
agreement, instrument or document, (v) the creation, perfection or
priority of Liens on the Collateral or the existence of the Collateral, or (vi) the
75
satisfaction
of any condition set forth in Article IV or elsewhere in any Loan
Document, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument,
document or other writing believed by it to be genuine and to have been signed
or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon.
The Administrative Agent may consult with legal counsel (who may be
counsel for the Borrower), independent accountants and other experts selected by
it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may
perform any and all its duties and exercise its rights and powers by or through
any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties.
The exculpatory provisions of the preceding paragraphs shall apply to
any such sub-agent and to the Related Parties of the Administrative Agent and
any such sub-agent, and shall apply to their respective activities in
connection with the syndication of the credit facilities provided for herein as
well as activities as Administrative Agent.
Subject to the appointment
and acceptance of a successor Administrative Agent as provided in this
paragraph, the Administrative Agent may resign at any time by notifying the
Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, in
consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within thirty
(30) days after the retiring Administrative Agent gives notice of its
resignation, then the retiring Administrative Agent may, on behalf of the
Lenders and the Issuing Bank, appoint a successor Administrative Agent which
shall be a commercial bank or an Affiliate of any such commercial bank. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder.
The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor.
After the Administrative Agent’s resignation hereunder, the provisions
of this Article, Section 2.17(d) and Section 9.03 shall continue
in effect for the benefit of such retiring Administrative Agent, its sub agents
and their respective Related Parties in respect of any actions taken or omitted
to be taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges
that it has, independently and without reliance upon the Administrative Agent
or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon this
Agreement, any other Loan Document or related agreement or any document
furnished hereunder or thereunder.
Each Lender hereby agrees
that (a) it has requested a copy of each Report prepared by or on behalf
of the Administrative Agent; (b) the Administrative Agent (i) makes
no representation or warranty, express or implied, as to the completeness or
accuracy of any Report or any of the information contained therein or any
inaccuracy or omission contained in or relating to a Report and (ii) shall
not be liable for any information contained in any Report; (c) the Reports
are not comprehensive audits or
76
examinations,
and that any Person performing any field examination will inspect only specific
information regarding the Loan Parties and will rely significantly upon the
Loan Parties’ books and records, as well as on representations of the Loan
Parties’ personnel and that the Administrative Agent undertakes no obligation
to update, correct or supplement the Reports; (d) it will keep all Reports
confidential and strictly for its internal use, not share the Report with any
Loan Party or any other Person except as otherwise permitted pursuant to this
Agreement; and (e) without limiting the generality of any other
indemnification provision contained in this Agreement, it will pay and protect,
and indemnify, defend, and hold the Administrative Agent and any such other
Person preparing a Report harmless from and against, the claims, actions,
proceedings, damages, costs, expenses, and other amounts (including reasonable
attorney fees) incurred by as the direct or indirect result of any third
parties who might obtain all or part of any Report through the indemnifying
Lender.
None of the Lenders, if any,
identified in this Agreement as a Syndication Agent or Documentation Agent
shall have any right, power, obligation, liability, responsibility or duty
under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of such
Lenders shall have or be deemed to have a fiduciary relationship with any
Lender. Each Lender hereby makes the
same acknowledgments with respect to the relevant Lenders in their respective
capacities as Syndication Agent or Documentation Agent, as applicable, as it makes
with respect to the Administrative Agent in the preceding paragraph.
Except with respect to the
exercise of setoff rights of any Lender, in accordance with Section 9.08,
the proceeds of which are applied in accordance with this Agreement, each
Lender agrees that it will not take any action, nor institute any actions or
proceedings, against the Borrower or with respect to any Loan Document, without
the prior written consent of the Required Lenders or, as may be provided in
this Agreement or the other Loan Documents, with the consent of the Administrative
Agent.
The Lenders are not partners
or co-venturers, and no Lender shall be liable for the acts or omissions of, or
(except as otherwise set forth herein in case of the Administrative Agent)
authorized to act for, any other Lender.
The Administrative Agent shall have the exclusive right on behalf of the
Lenders to enforce the payment of the principal of and interest on any Loan
after the date such principal or interest has become due and payable pursuant
to the terms of this Agreement.
In its capacity, the
Administrative Agent is a “
representative
” of the Secured Parties within
the meaning of the term “
secured party
” as defined in the New York
Uniform Commercial Code. Each Lender
authorizes the Administrative Agent to enter into each of the Collateral
Documents to which it is a party and to take all action contemplated by such
documents. Each Lender agrees that no
Secured Party (other than the Administrative Agent) shall have the right
individually to seek to realize upon the security granted by any Collateral
Document, it being understood and agreed that such rights and remedies may be
exercised solely by the Administrative Agent for the benefit of the Secured
Parties upon the terms of the Collateral Documents. In the event that any Collateral is hereafter
pledged by any Person as collateral security for the Secured Obligations, the
Administrative Agent is hereby authorized, and hereby granted a power of
attorney, to execute and deliver on behalf of the Secured Parties any Loan
Documents necessary or appropriate to grant and perfect a Lien on such
Collateral in favor of the Administrative Agent on behalf of the Secured
Parties. The Lenders hereby authorize
the Administrative Agent, at its option and in its discretion, to release any
Lien granted to or held by the Administrative Agent upon any Collateral (i) as
described in Section 9.02(c); (ii) as permitted by, but only in
accordance with, the terms of the applicable Loan Document; or (iii) if
approved, authorized or ratified in writing by the Required Lenders, unless
such release is required to be approved by all of the Lenders hereunder. Upon request by the Administrative Agent at
any time, the Lenders will confirm in writing the Administrative Agent’s
authority to release particular types or items of Collateral pursuant
hereto. Upon any sale or transfer of
assets constituting Collateral which is permitted pursuant to the terms of any
Loan
77
Document,
or consented to in writing by the Required Lenders or all of the Lenders, as
applicable, and upon at least five (5) Business Days’ prior written
request by the Borrower to the Administrative Agent, the Administrative Agent
shall (and is hereby irrevocably authorized by the Lenders to) execute such
documents as may be necessary to evidence the release of the Liens granted to
the Administrative Agent for the benefit of the Secured Parties herein or
pursuant hereto upon the Collateral that was sold or transferred;
provided
,
however
, that (i) the Administrative Agent shall not be required to
execute any such document on terms which, in the Administrative Agent’s
opinion, would expose the Administrative Agent to liability or create any
obligation or entail any consequence other than the release of such Liens
without recourse or warranty, and (ii) such release shall not in any
manner discharge, affect or impair the Secured Obligations or any Liens upon
(or obligations of the Borrower or any Subsidiary in respect of) all interests
retained by the Borrower or any Subsidiary, including (without limitation) the
proceeds of the sale, all of which shall continue to constitute part of the
Collateral.
The Borrower, on its behalf
and on behalf of its Subsidiaries, and each Lender, on its behalf and on the
behalf of its affiliated Secured Parties, hereby irrevocably constitute the
Administrative Agent as the holder of an irrevocable power of attorney (
fondé de pouvoir
within the meaning of Article 2692 of
the Civil Code of Québec) in order to hold hypothecs and security granted by
the Borrower or any Subsidiary on property pursuant to the laws of the Province
of Quebec to secure obligations of the Borrower or any Subsidiary under any
bond, debenture or similar title of indebtedness issued by the Borrower or any
Subsidiary in connection with this Agreement, and agree that the Administrative
Agent may act as the bondholder and mandatary with respect to any bond,
debenture or similar title of indebtedness that may be issued by the Borrower
or any Subsidiary and pledged in favor of the Secured Parties in connection
with this Agreement. Notwithstanding the
provisions of Section 32 of the An Act respecting the special powers of
legal persons (Quebec), JPMorgan Chase Bank, N.A. as Administrative Agent may
acquire and be the holder of any bond issued by the Borrower or any Subsidiary
in connection with this Agreement (i.e., the fondé de pouvoir may acquire and
hold the first bond issued under any deed of hypothec by the Borrower or any
Subsidiary).
The Administrative Agent is
hereby authorized to execute and deliver any documents necessary or appropriate
to create and perfect the rights of pledge for the benefit of the Secured
Parties including a right of pledge with respect to the entitlements to
profits, the balance left after winding up and the voting rights of the
Borrower as ultimate parent of any subsidiary of the Borrower which is
organized under the laws of the Netherlands and the Equity Interests of which
are pledged in connection herewith (a “
Dutch Pledge
”). Without prejudice to the provisions of this
Agreement and the other Loan Documents, the parties hereto acknowledge and
agree with the creation of parallel debt obligations of the Borrower or any
relevant Subsidiary as will be described in any Dutch Pledge (the “
Parallel
Debt
”), including that any payment received by the Administrative Agent in
respect of the Parallel Debt will conditionally upon such payment not
subsequently being avoided or reduced by virtue of any provisions or enactments
relating to bankruptcy, insolvency, preference, liquidation or similar laws of
general application be deemed a satisfaction of a pro rata portion of the
corresponding amounts of the
Obligations, and any payment to the Secured Parties in satisfaction of
the Obligations shall conditionally upon such payment not subsequently being
avoided or reduced by virtue of any provisions or enactments relating to
bankruptcy, insolvency, preference, liquidation or similar laws of general
application be deemed as satisfaction of the corresponding amount of the
Parallel Debt. The parties hereto
acknowledge and agree that, for purposes of a Dutch Pledge, any resignation by
the Administrative Agent is not effective until its rights under the Parallel
Debt are assigned to the successor Administrative Agent.
The parties hereto
acknowledge and agree for the purposes of taking and ensuring the continuing
validity of German law governed pledges (
Pfandrechte
)
with the creation of parallel debt obligations of the Borrower as will be
further described in a separate German law governed parallel debt
undertaking. The Administrative Agent
shall (i) hold such parallel debt undertaking as fiduciary agent
78
(
Treuhaender
) and (ii) administer and hold as fiduciary
agent (Treuhaender) any pledge created under a German law governed Collateral
Document which is created in favor of any Holder of the Secured Obligations or
transferred to any Holder of the Secured Obligations due to its accessory
nature (
Akzessorietaet
), in each case in its own
name and for the account of the Holders of the Secured Obligations. Each Lender, on its own behalf and on behalf
of its affiliated Secured Parties, hereby authorizes the Administrative Agent
to enter as its agent in its name and on its behalf into any German law
governed Collateral Document, to accept as its agent in its name and on its
behalf any pledge under such Collateral Document and to agree to and execute as
agent its in its name and on its behalf any amendments, supplements and other
alterations to any such Collateral Document and to release any such Collateral
Document and any pledge created under any such Collateral Document in
accordance with the provisions herein and/or the provisions in any such
Collateral Document
ARTICLE
IX
Miscellaneous
SECTION 9.01.
Notices
. (a) Except in the case of notices and
other communications expressly permitted to be given by telephone (and subject
to paragraph (b) below), all notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by facsimile, as
follows:
(i) if to any Loan Party, to it at
Ethan Allen Drive, Danbury, Connecticut 06811, Attention of Chief Financial
Officer or Treasurer (Telecopy No. (203) 743-8469; Telephone No. (203)
743-8305), with copies to, in the case of any notice or communication other
than routine notices and communications under Article II, the attention of
General Counsel at the aforesaid address (Telecopy No. (203) 743-8254);
(ii) if to the Administrative Agent, to
JPMorgan Chase Bank, N.A., 270 Park Avenue, 44th Floor, New York, NY 10017,
Attention of Joseph A. Lisack (Telecopy No. (646) 534-2288);
(iii) if to the Issuing Bank, to
JPMorgan Chase Bank, N.A., 270 Park Avenue, 44th Floor, New York, NY 10017,
Attention of Joseph A. Lisack (Telecopy No. (646) 534-2288);
(iv) if to the Swingline Lender, to
JPMorgan Chase Bank, N.A., 270 Park Avenue, 44th Floor, New York, NY 10017, Attention
of Joseph A. Lisack (Telecopy No. (646) 534-2288); and
(v) if to any other Lender, to it at
its address (or telecopy number) set forth in its Administrative Questionnaire.
All such notices and other
communications (i) sent by hand or overnight courier service, or mailed by
certified or registered mail, shall be deemed to have been given when received
or (ii) sent by facsimile, shall be deemed to have been given when sent,
provided that if not given during normal business hours for the recipient,
shall be deemed to have been given at the opening of business on the next
Business Day for the recipient.
(b) Notices and other communications to
the Lenders hereunder may be delivered or furnished by electronic
communications (including e-mail and internet or intranet websites) pursuant to
procedures approved by the Administrative Agent;
provided
that the
foregoing shall not apply to notices pursuant to Article II or to
compliance and no Event of Default certificates delivered pursuant to Section 5.01(d) unless
otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower (on
behalf of the Loan Parties) may, in its discretion, agree
79
to accept notices and other communications to it hereunder by
electronic communications pursuant to procedures approved by it;
provided
that approval of such procedures may be limited to particular notices or
communications. All such notices and other communications (i) sent to an
e-mail address shall be deemed received upon the sender’s receipt of an
acknowledgement from the intended recipient (such as by the “
return receipt
requested
” function, as available, return e-mail or other written
acknowledgement);
provided
that if not given during the normal business
hours of the recipient, such notice or communication shall be deemed to have
been given at the opening of business on the next Business Day for the
recipient, and (ii) posted to an Internet or intranet website shall be
deemed received upon the deemed receipt by the intended recipient at its e-mail
address as described in the foregoing clause (b)(i) of notification that
such notice or communication is available and identifying the website address
therefor.
(c) Any party hereto may change its
address or facsimile number for notices and other communications hereunder by
notice to the other parties hereto.
SECTION 9.02.
Waivers; Amendments
. (a) No failure or delay by the
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power,
or any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies
of the Administrative Agent, the Issuing Bank and the Lenders hereunder and
under any other Loan Document are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision of any Loan
Document or consent to any departure by any Loan Party therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of
this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any
provision hereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Borrower and the
Required Lenders;
provided
that no such agreement shall (i) increase
the Commitment of any Lender without the written consent of such Lender (provided
that the Administrative Agent may make Protective Advances as set forth in Section 2.04),
(ii) reduce or forgive the principal amount of any Loan or LC Disbursement
or reduce the rate of interest thereon, or reduce or forgive any interest or
fees payable hereunder, without the written consent of each Lender directly
affected thereby, (iii) postpone any scheduled date of payment of the
principal amount of any Loan or LC Disbursement, or any date for the payment of
any interest, fees or other Obligations payable hereunder, or reduce the amount
of, waive or excuse any such payment, or postpone the scheduled date of
expiration of any Commitment, without the written consent of each Lender
directly affected thereby, (iv) change Section 2.18(b) or (d) in
a manner that would alter the manner in which payments are shared, without the
written consent of each Lender, (v) increase the advance rates set forth
in the definition of Borrowing Base or add new categories of eligible assets,
without the written consent of each Lender, (vi) change any of the
provisions of this Section or the definition of “
Required Lenders
”
or any other provision of any Loan Document specifying the number or percentage
of Lenders required to waive, amend or modify any rights thereunder or make any
determination or grant any consent thereunder, without the written consent of
each Lender, (vii) change Section 2.20, without the consent of each
Lender (other than any Defaulting Lender), (viii) release any Loan
Guarantor from its obligation under its Loan Guaranty (except as otherwise
permitted herein or in the other Loan Documents), without the written consent
of each Lender, or (ix) except as provided in clauses (d) and (e) of
this Section or in any
80
Collateral Document, release all or substantially all of the
Collateral, without the written consent of each Lender;
provided
further
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent, the Issuing Bank or the Swingline Lender
hereunder without the prior written consent of the Administrative Agent, the
Issuing Bank or the Swingline Lender, as the case may be (it being understood
that any change to Section 2.20 shall require the consent of the
Administrative Agent, the Swingline Lender and the Issuing Bank). The Administrative Agent may also amend
Schedule
2.01
to reflect assignments entered into pursuant to Section 9.04
(c) (1) The Lenders hereby
irrevocably authorize the Administrative Agent, at its option and in its sole
discretion, to release any Liens granted to the Administrative Agent by the
Loan Parties on any Collateral (i) upon the termination of the all
Commitments, payment and satisfaction in full in cash of all Secured Obligations
(other than Unliquidated Obligations),
and the cash collateralization of all Unliquidated Obligations in a manner
satisfactory to the Administrative Agent, (ii) constituting property being
sold or disposed of if the Loan Party disposing of such property certifies to
the Administrative Agent that the sale or disposition is made in compliance
with the terms of this Agreement (and the Administrative Agent may rely
conclusively on any such certificate, without further inquiry), and to the
extent that the property being sold or disposed of constitutes 100% of the
Equity Interest of a Subsidiary, the Administrative Agent is authorized to
release any Loan Guaranty provided by such Subsidiary, (iii) constituting
property leased to a Loan Party under a lease which has expired or been
terminated in a transaction permitted under this Agreement, (iv) as
required to effect any sale or other disposition of such Collateral in
connection with any exercise of remedies of the Administrative Agent and the
Lenders pursuant to Article VII and (v) as otherwise contemplated
hereunder in connection with cash collateral securing LC Exposure. Except as provided in the preceding sentence
and the following clause (2), the Administrative Agent will not release any Liens
on Collateral without the prior written authorization of the Required Lenders;
provided
that, the Administrative Agent may in its discretion, release its Liens on
Collateral valued in the aggregate not in excess of $5,000,000 during any
calendar year without the prior written authorization of the Required
Lenders. Any such release shall not in
any manner discharge, affect, or impair the Obligations or any Liens (other
than those expressly being released) upon (or obligations of the Loan Parties
in respect of) all interests retained by the Loan Parties, including the
proceeds of any sale, all of which shall continue to constitute part of the
Collateral.
(2) Notwithstanding the foregoing
clause (1), any Loan Party that is a Subsidiary (other than the Borrower) shall
be automatically released from its obligations under the Loan Documents and all
security interests in the Collateral of such Loan Party created by the Loan
Documents shall be automatically released upon the consummation of any
transaction permitted by this Agreement as a result of which such Loan Party
ceases to be a Subsidiary. Upon any
sale, lease, transfer or other disposition by any Loan Party of any Collateral
that is permitted under this Agreement to any Person other than Holdings or a
Subsidiary, or upon the effectiveness of any written consent to the release of
the security interest created under any Loan Document in any Collateral
pursuant to Section 9.02, the security interest in such Collateral shall
be automatically released. In connection with any termination or release
pursuant to this Section, the Administrative Agent, upon receipt of any
certificates or other documents reasonably requested by it to confirm
compliance with this Agreement, shall promptly execute and deliver to any Loan
Party, at such Loan Party’s expense, all documents that such Loan Party shall
reasonably request to evidence such termination or release. The Lenders hereby
irrevocably authorize the Administrative Agent to take all actions specified in
this Section 9.02(c)(2). Any execution
and delivery of documents pursuant to this Section shall be without
recourse to or warranty by the Administrative Agent.
(d) If, in connection with any proposed
amendment, waiver or consent requiring
the consent of “each Lender” or “each Lender directly affected
thereby,” the consent of the Required
81
Lenders is obtained, but the consent of other necessary Lenders is not
obtained (any such Lender whose consent is necessary but not obtained being
referred to herein as a “
Non-Consenting Lender
”), then the Borrower may
elect to replace a Non-Consenting Lender as a Lender party to this Agreement;
provided
that, concurrently with such replacement, (i) another bank or other entity
which is reasonably satisfactory to the Borrower and the Administrative Agent
shall agree, as of such date, to purchase for cash the Loans and other
Obligations due to the Non-Consenting Lender pursuant to an Assignment and
Assumption and to become a Lender for all purposes under this Agreement and to
assume all obligations of the Non-Consenting Lender to be terminated as of such
date and to comply with the requirements of clause (b) of Section 9.04,
and (ii) the Borrower shall pay to such Non-Consenting Lender in same day
funds on the day of such replacement (1) all interest, fees and other
amounts then accrued but unpaid to such Non-Consenting Lender by the Borrower
hereunder to and including the date of termination, including without
limitation payments due to such Non-Consenting Lender under Sections 2.15 and
2.17, and (2) an amount, if any, equal to the payment which would have
been due to such Lender on the day of such replacement under Section 2.16
had the Loans of such Non-Consenting Lender been prepaid on such date rather
than sold to the replacement Lender.
SECTION 9.03.
Expenses; Indemnity;
Damage Waiver
. (a) The
Borrower shall pay (i) all reasonable out of pocket expenses incurred by
the Administrative Agent and its Affiliates, including the reasonable fees,
charges and disbursements of counsel for the Administrative Agent, in
connection with the syndication and distribution (including, without
limitation, via the internet or through a service such as Intralinks) of the
credit facilities provided for herein, the preparation and administration of
the Loan Documents or any amendments, modifications or waivers of the
provisions of the Loan Documents (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket
expenses incurred by the Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder and (iii) all out-of-pocket expenses incurred by the
Administrative Agent, the Issuing Bank or any Lender, including the fees,
charges and disbursements of any counsel for the Administrative Agent, the
Issuing Bank or any Lender, in connection with the enforcement, collection or
protection of its rights in connection with the Loan Documents, including its
rights under this Section, or in connection with the Loans made or Letters of
Credit issued hereunder, including all such out-of pocket expenses incurred
during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit. Expenses being
reimbursed by the Borrower under this Section include, without limiting
the generality of the foregoing, reasonable fees, costs and expenses incurred
in connection with:
(i) appraisals and insurance reviews
and environmental reviews;
(ii) field examinations and the
preparation of Reports based on the fees charged by a third party retained by
the Administrative Agent or the internally allocated fees for each Person
employed by the Administrative Agent with respect to each field examination;
(iii) taxes, fees and other charges for
(A) lien searches and (B) filing financing statements and
continuations, and other actions to perfect, protect, and continue the
Administrative Agent’s Liens;
(iv) sums paid or incurred to take any
action required of any Loan Party under the Loan Documents that such Loan Party
fails to pay or take; and
(v) forwarding loan proceeds,
collecting checks and other items of payment, and establishing and maintaining
the accounts and lock boxes, and costs and expenses of preserving and
protecting the Collateral.
82
All of the foregoing fees,
costs and expenses may be charged to the Borrower as Revolving Loans or to
another deposit account, all as described in Section 2.18(c).
(b) The Borrower shall indemnify the
Administrative Agent, the Issuing Bank and each Lender, and each Related Party
of any of the foregoing Persons (each such Person being called an “
Indemnitee
”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, penalties, incremental taxes, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any
Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of the Loan
Documents or any agreement or instrument contemplated thereby, the performance
by the parties hereto of their respective obligations thereunder or the
consummation of the Transactions or any other transactions contemplated hereby,
(ii) any Loan or Letter of Credit or the use of the proceeds therefrom
(including any refusal by the Issuing Bank to honor a demand for payment under
a Letter of Credit if the documents presented in connection with such demand do
not strictly comply with the terms of such Letter of Credit), (iii) any
actual or alleged presence or release of Hazardous Materials on or from any
property owned or operated by the Borrower or any of its Subsidiaries, or any
Environmental Liability related in any way to the Borrower or any of its
Subsidiaries, (iv) the failure of the Borrower to deliver to the
Administrative Agent the required receipts or other required documentary
evidence with respect to a payment made by the Borrower for Taxes pursuant to Section 2.17,
or (v) any actual or prospective claim, litigation, investigation or
proceeding relating to any of the foregoing, whether based on contract, tort or
any other theory and regardless of whether any Indemnitee is a party thereto;
provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, penalties, liabilities or related expenses
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
(c) To the extent that the Borrower
fails to pay any amount required to be paid by it to the Administrative Agent,
the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of
this Section, each Lender severally agrees to pay to the Administrative Agent,
the Issuing Bank or the Swingline Lender, as the case may be, such Lender’s
Applicable Percentage (determined as of the time that the applicable unreimbursed
expense or indemnity payment is sought) of such unpaid amount (it being
understood that the Borrower’s failure to pay any such amount shall not relieve
the Borrower of any default in the payment thereof);
provided
that the
unreimbursed expense or indemnified loss, claim, damage, penalty, liability or
related expense, as the case may be, was incurred by or asserted against the
Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity
as such.
(d) To the extent permitted by applicable
law, no Loan Party shall assert, and each hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, the Transactions, any Loan or Letter of Credit
or the use of the proceeds thereof.
(e) All amounts due under this Section shall
be payable not later than fifteen (15) days after written demand therefor.
SECTION 9.04.
Successors and
Assigns
. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns permitted hereby
(including any Affiliate of the Issuing Bank that issues any Letter of Credit),
except that (i) the Borrower may not assign or otherwise transfer any of
its rights or obligations hereunder without the prior written consent of each
Lender (and any attempted assignment or transfer by the Borrower without such
consent shall be null and void) and (ii) no Lender may assign or otherwise
transfer its rights
83
or obligations hereunder except in accordance
with this Section. Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), Participants (to the extent provided in paragraph (c) of
this Section) and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, the Issuing Bank and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this
Agreement.
(b)(i) Subject to the conditions set
forth in paragraph (b)(ii) below, any Lender may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing
to it) with the prior written consent (such consent not to be unreasonably
withheld) of:
(A) the Borrower;
provided
that no consent of the Borrower shall be required for an assignment to a Lender,
an Affiliate of a Lender, an Approved Fund or, if an Event of Default has
occurred and is continuing, any other assignee;
(B) the Administrative
Agent; and
(C) the Issuing Bank.
(ii) Assignments shall be subject to
the following additional conditions:
(A) except in the case
of an assignment to a Lender or an Affiliate of a Lender or an assignment of
the entire remaining amount of the assigning Lender’s Commitment or Loans of
any Class, the amount of the Commitment or Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment and
Assumption with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $5,000,000 unless each of the Borrower and the
Administrative Agent otherwise consent;
provided
that no such consent of
the Borrower shall be required if an Event of Default has occurred and is
continuing;
(B) each partial
assignment shall be made as an assignment of a proportionate part of all the
assigning Lender’s rights and obligations under this Agreement;
(C) the parties to
each assignment shall execute and deliver to the Administrative Agent an
Assignment and Assumption, together with a processing and recordation fee of
$3,500, such fee to be paid by either the assigning Lender or the assignee
Lender or shared between such Lenders; and
(D) the assignee, if
it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire in which the assignee designates one or more
Credit Contacts to whom all syndicate-level information (which may contain
material non-public information about the Borrower, the Loan Parties and their
Related Parties or their respective securities) will be made available and who
may receive such information in accordance with the assignee’s compliance
procedures and applicable laws, including Federal and state securities laws.
For the purposes of this Section 9.04(b),
the term “
Approved Fund
” has the following meaning:
“
Approved Fund
”
means any Person (other
than a natural person) that is engaged in making, purchasing, holding or
investing in bank loans and similar extensions of credit in the ordinary course
of its business and that is administered or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that
administers or manages a Lender.
84
(iii) Subject to acceptance and
recording thereof pursuant to paragraph (b)(iv) of this Section, from and
after the effective date specified in each Assignment and Assumption the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Assumption, have the rights and obligations of
a Lender under this Agreement, and the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Assumption, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Assumption covering all of the assigning Lender’s rights and
obligations under this Agreement, such Lender shall cease to be a party hereto
but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17
and 9.03). Any assignment or transfer by
a Lender of rights or obligations under this Agreement that does not comply
with this Section 9.04 shall be treated for purposes of this Agreement as
a sale by such Lender of a participation in such rights and obligations in
accordance with paragraph (c) of this Section.
(iv) The Administrative Agent, acting
for this purpose as an agent of the Borrower, shall maintain at one of its
offices a copy of each Assignment and Assumption delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans and LC Disbursements owing to,
each Lender pursuant to the terms hereof from time to time (the “
Register
”).
The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and
the Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable
time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly
completed Assignment and Assumption executed by an assigning Lender and an
assignee, the assignee’s completed Administrative Questionnaire (unless the
assignee shall already be a Lender hereunder), the processing and recordation
fee referred to in paragraph (b) of this Section and any written
consent to such assignment required by paragraph (b) of this Section, the
Administrative Agent shall accept such Assignment and Assumption and record the
information contained therein in the Register;
provided
that if either
the assigning Lender or the assignee shall have failed to make any payment
required to be made by it pursuant to Section 2.05, 2.06(d) or (e),
2.07(b), 2.18(d) or 9.03(c), the Administrative Agent shall have no
obligation to accept such Assignment and Assumption and record the information
therein in the Register unless and until such payment shall have been made in
full, together with all accrued interest thereon. No assignment shall be effective for purposes
of this Agreement unless it has been recorded in the Register as provided in
this paragraph.
(c)(i) Any Lender may, without the
consent of the Borrower, the Administrative Agent, the Issuing Bank or the
Swingline Lender, sell participations to one or more banks or other entities (a
“
Participant
”) in all or a
portion of such Lender’s rights and obligations under this Agreement (including
all or a portion of its Commitment and the Loans owing to it);
provided
that (A) such Lender’s obligations under this Agreement shall remain
unchanged, (B) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (C) the
Borrower, the Administrative Agent, the Issuing Bank and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement;
provided
that
such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver described
in the first proviso to Section 9.02(b) that affects such
Participant. Subject to paragraph (c)(ii) of
this Section, the Borrower agrees that each Participant
85
shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 9.08 as
though it were a Lender, provided such Participant agrees to be subject to Section 2.18(c) as
though it were a Lender.
(ii) A Participant shall not be
entitled to receive any greater payment under Section 2.15 or 2.17 than
the applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to
such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.17
unless the Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(f) as
though it were a Lender.
(d) Any Lender may at any time pledge
or assign a security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including without limitation
any pledge or assignment to secure obligations to a Federal Reserve Bank, and
this Section shall not apply to any such pledge or assignment of a
security interest;
provided
that no such pledge or assignment of a
security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05.
Survival
. All covenants, agreements, representations
and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, the Issuing
Bank or any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17
and 9.03 and Article VIII shall survive and remain in full force and
effect regardless of the consummation of the transactions contemplated hereby,
the repayment of the Loans, the expiration or termination of the Letters of
Credit and the Commitments or the termination of this Agreement or any other
Loan Document or any provision hereof or thereof.
SECTION 9.06.
Counterparts;
Integration; Effectiveness
.
This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and
any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this
Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a
signature page of this Agreement by facsimile shall be effective as
delivery of a manually executed counterpart of this Agreement.
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SECTION 9.07.
Severability
. Any provision of any Loan Document held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions thereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08.
Right of Setoff
. If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of the Borrower
or any Loan Guarantor against any of and all the Secured Obligations held by
such Lender, irrespective of whether or not such Lender shall have made any
demand under the Loan Documents and although such obligations may be
unmatured. The applicable Lender shall
notify the Borrower and the Administrative Agent of such set-off or
application;
provided
that any failure to give or any delay in giving
such notice shall not affect the validity of any such set-off or application
under this Section. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.09.
Governing Law;
Jurisdiction; Consent to Service of Process
. (a) The Loan Documents shall be
construed in accordance with and governed by the law of the State of New York,
but giving effect to federal laws applicable to national banks.
(b) Each Loan Party hereby irrevocably
and unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any U.S. Federal or New York State court sitting in New York
County, New York in any action or proceeding arising out of or relating to any
Loan Document, or for recognition or enforcement of any judgment, and each of
the parties hereto hereby irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and determined
in such New York State or, to the extent permitted by law, in such Federal
court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this
Agreement or any other Loan Document shall affect any right that the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to
bring any action or proceeding relating to this Agreement or any other Loan
Document against any Loan Party or its properties in the courts of any
jurisdiction.
(c) Each Loan Party hereby irrevocably
and unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement or any other Loan Document in any court referred to in paragraph
(b) of this Section. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 9.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 9.10.
WAIVER OF JURY TRIAL
. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR
87
THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11.
Headings
. Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.
SECTION 9.12.
Confidentiality
. Each of the Administrative Agent, the Issuing
Bank and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its
and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by Requirement of Law or by any subpoena or similar legal process,
(d) to any other party to this Agreement, (e) in connection with the
exercise of any remedies hereunder or any suit, action or proceeding relating
to this Agreement or any other Loan Document or the enforcement of rights
hereunder or thereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to (i) any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement or (ii) any actual or
prospective counterparty (or its advisors) to any swap or derivative
transaction relating to the Loan Parties and their obligations, (g) with
the consent of the Borrower or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section or (ii) becomes
available to the Administrative Agent, the Issuing Bank or any Lender on a
non-confidential basis from a source other than the Borrower. For the purposes of this Section, “
Information
” means all information
received from the Borrower relating to the Borrower or its business, other than
any such information that is available to the Administrative Agent, the Issuing
Bank or any Lender on a non-confidential basis prior to disclosure by the
Borrower;
provided
that, in the case of information received from the
Borrower after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to
do so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED
IN SECTION 9.12 FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE
MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER AND ITS AFFILIATES
AND THEIR RELATED PARTIES OR THEIR
RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES
REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE
SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND
APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND
AMENDMENTS, FURNISHED BY THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO,
OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE
88
SYNDICATE-LEVEL INFORMATION,
WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE BORROWER, THE
LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE
BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS
ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION
THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS
COMPLIANCE PROCE
DURES AND APPLICABLE LAW, INCLUDING FEDERAL
AND STATE SECURITIES LAWS.
SECTION 9.13.
Several Obligations;
Nonreliance; Violation of Law
.
The respective obligations of the Lenders hereunder are several and not
joint and the failure of any Lender to make any Loan or perform any of its
obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. Each Lender hereby represents that it is not relying on
or looking to any margin stock for the repayment of the Borrowings provided for
herein. Anything contained in this
Agreement to the contrary notwithstanding, neither the Issuing Bank nor any
Lender shall be obligated to extend credit to the Borrower in violation of any
Requirement of Law.
SECTION 9.14.
USA PATRIOT Act
. Each Lender that is subject to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the “
Act
”) hereby notifies the Borrower
that pursuant to the requirements of the Act, it is required to obtain, verify
and record information that identifies the Borrower, which information includes
the name and address of the Borrower and other information that will allow such
Lender to identify the Borrower in accordance with the Act.
SECTION 9.15.
Disclosure
. Each Loan Party and each Lender hereby
acknowledges and agrees that the Administrative Agent and/or its Affiliates
from time to time may hold investments in, make other loans to or have other
relationships with any of the Loan Parties and their respective Affiliates.
SECTION 9.16.
Appointment for
Perfection
. Each Lender
hereby appoints each other Lender as its agent for the purpose of perfecting
Liens, for the benefit of the Administrative Agent and the Lenders, in assets
which, in accordance with Article 9 of the UCC or any other applicable law
can be perfected only by possession.
Should any Lender (other than the Administrative Agent) obtain
possession of any such Collateral, such Lender shall notify the Administrative
Agent thereof, and, promptly upon the Administrative Agent’s request therefor
shall deliver such Collateral to the Administrative Agent or otherwise deal
with such Collateral in accordance with the Administrative Agent’s
instructions.
SECTION 9.17.
Interest Rate
Limitation
. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated
as interest on such Loan under applicable law (collectively the “
Charges
”),
shall exceed the maximum lawful rate (the “
Maximum Rate
”) which may be
contracted for, charged, taken, received or reserved by the Lender holding such
Loan in accordance with applicable law, the rate of interest payable in respect
of such Loan hereunder, together with all Charges payable in respect thereof,
shall be limited to the Maximum Rate and, to the extent lawful, the interest
and Charges that would have been payable in respect of such Loan but were not
payable as a result of the operation of this Section shall be cumulated
and the interest and Charges payable to such Lender in respect of other Loans
or periods shall be increased (but not above the Maximum Rate therefor) until
such cumulated amount, together with interest thereon at the Federal Funds
Effective Rate to the date of repayment, shall have been received by such
Lender.
89
SECTION 9.18.
Conflicts
. In the event of any conflict between the
terms of this Agreement and the terms of any other Loan Document, the terms of
this Agreement shall, to the extent of such conflict, prevail.
ARTICLE
X
Loan Guaranty
SECTION 10.01.
Guaranty
. Each Loan Guarantor (other than those that
have delivered a separate Guaranty) hereby agrees that it is jointly and
severally liable for, and, as primary obligor and not merely as surety,
absolutely and unconditionally guarantees to the Lenders the prompt payment
when due, whether at stated maturity, upon acceleration or otherwise, and at
all times thereafter, of the Secured Obligations and all costs and expenses
including, without limitation, all court costs and attorneys’ and paralegals’
fees (including allocated costs of in-house counsel and paralegals) and
expenses paid or incurred by the Administrative Agent, the Issuing Bank and the
Lenders in endeavoring to collect all or any part of the Secured Obligations
from, or in prosecuting any action against, the Borrower, any Loan Guarantor or
any other guarantor of all or any part of the Secured Obligations (such costs
and expenses, together with the Secured Obligations, collectively the “
Guaranteed
Obligations
”). Each Loan Guarantor further agrees that the Guaranteed
Obligations may be extended or renewed in whole or in part without notice to or
further assent from it, and that it remains bound upon its guarantee
notwithstanding any such extension or renewal. All terms of this Loan Guaranty
apply to and may be enforced by or on behalf of any domestic or foreign branch
or Affiliate of any Lender that extended any portion of the Guaranteed
Obligations.
SECTION 10.02.
Guaranty of Payment
. This Loan Guaranty is a guaranty of payment
and not of collection. Each Loan Guarantor waives any right to require the
Administrative Agent, the Issuing Bank or any Lender to sue the Borrower, any
Loan Guarantor, any other guarantor, or any other person obligated for all or
any part of the Guaranteed Obligations (each, an “
Obligated Party
”), or
otherwise to enforce its payment against any collateral securing all or any
part of the Guaranteed Obligations.
SECTION 10.03.
No Discharge or
Diminishment of Loan Guaranty
.
(a) Except as otherwise provided for herein, the obligations of
each Loan Guarantor hereunder are unconditional and absolute and not subject to
any reduction, limitation, impairment or termination for any reason (other than
the indefeasible payment in full in cash of the Guaranteed Obligations),
including: (i) any claim of waiver,
release, extension, renewal, settlement, surrender, alteration, or compromise
of any of the Guaranteed Obligations, by operation of law or otherwise; (ii) any
change in the corporate existence, structure or ownership of the Borrower or
any other guarantor of or other person liable for any of the Guaranteed
Obligations; (iii) any insolvency, bankruptcy, reorganization or other
similar proceeding affecting any Obligated Party, or their assets or any
resulting release or discharge of any obligation of any Obligated Party; or (iv) the
existence of any claim, setoff or other rights which any Loan Guarantor may
have at any time against any Obligated Party, the Administrative Agent, the
Issuing Bank, any Lender, or any other person, whether in connection herewith
or in any unrelated transactions.
(b) The obligations of each Loan
Guarantor hereunder are not subject to any defense or setoff, counterclaim,
recoupment, or termination whatsoever by reason of the invalidity, illegality,
or unenforceability of any of the Guaranteed Obligations or otherwise, or any
provision of applicable law or regulation purporting to prohibit payment by any
Obligated Party, of the Guaranteed Obligations or any part thereof.
90
(c) Further, the obligations of any
Loan Guarantor hereunder are not discharged or impaired or otherwise affected
by: (i) the failure of the Administrative Agent, the Issuing Bank or any
Lender to assert any claim or demand or to enforce any remedy with respect to
all or any part of the Guaranteed Obligations; (ii) any waiver or
modification of or supplement to any provision of any agreement relating to the
Guaranteed Obligations; (iii) any release, non-perfection, or invalidity
of any indirect or direct security for the obligations of the Borrower for all
or any part of the Guaranteed Obligations or any obligations of any other
guarantor of or other person liable for any of the Guaranteed Obligations; (iv) any
action or failure to act by the Administrative Agent, the Issuing Bank or any
Lender with respect to any collateral securing any part of the Guaranteed
Obligations; or (v) any default, failure or delay, willful or otherwise,
in the payment or performance of any of the Guaranteed Obligations, or any
other circumstance, act, omission or delay that might in any manner or to any
extent vary the risk of such Loan Guarantor or that would otherwise operate as
a discharge of any Loan Guarantor as a matter of law or equity (other than the
indefeasible payment in full in cash of the Guaranteed Obligations).
SECTION 10.04.
Defenses Waived
. To the fullest extent permitted by applicable
law, each Loan Guarantor hereby waives any defense based on or arising out of
any defense of the Borrower or any Loan Guarantor or the unenforceability of
all or any part of the Guaranteed Obligations from any cause, or the cessation
from any cause of the liability of the Borrower or any Loan Guarantor, other
than the indefeasible payment in full in cash of the Guaranteed Obligations.
Without limiting the generality of the foregoing, each Loan Guarantor
irrevocably waives acceptance hereof, presentment, demand, protest and, to the
fullest extent permitted by law, any notice not provided for herein, as well as
any requirement that at any time any action be taken by any person against any
Obligated Party, or any other person.
The Administrative Agent may, at its election, foreclose on any Collateral
held by it by one or more judicial or nonjudicial sales, accept an assignment
of any such Collateral in lieu of foreclosure or otherwise act or fail to act
with respect to any collateral securing all or a part of the Guaranteed
Obligations, compromise or adjust any part of the Guaranteed Obligations, make
any other accommodation with any Obligated Party or exercise any other right or
remedy available to it against any Obligated Party, without affecting or
impairing in any way the liability of such Loan Guarantor under this Loan
Guaranty except to the extent the Guaranteed Obligations have been fully and
indefeasibly paid in cash. To the
fullest extent permitted by applicable law, each Loan Guarantor waives any
defense arising out of any such election even though that election may operate,
pursuant to applicable law, to impair or extinguish any right of reimbursement
or subrogation or other right or remedy of any Loan Guarantor against any
Obligated Party or any security.
SECTION 10.05.
Rights of
Subrogation
. No Loan
Guarantor will assert any right, claim or cause of action, including, without
limitation, a claim of subrogation, contribution or indemnification that it has
against any Obligated Party, or any collateral, until the Loan Parties and the
Loan Guarantors have fully performed all their obligations to the
Administrative Agent, the Issuing Bank and the Lenders.
SECTION 10.06.
Reinstatement; Stay
of Acceleration
. If at any
time any payment of any portion of the Guaranteed Obligations is rescinded or
must otherwise be restored or returned upon the insolvency, bankruptcy, or
reorganization of the Borrower or otherwise, each Loan Guarantor’s obligations
under this Loan Guaranty with respect to that payment shall be reinstated at
such time as though the payment had not been made and whether or not the
Administrative Agent, the Issuing Bank and the Lenders are in possession of
this Loan Guaranty. If acceleration of the time for payment of any of the
Guaranteed Obligations is stayed upon the insolvency, bankruptcy or
reorganization of the Borrower, all such amounts otherwise subject to
acceleration under the terms of any agreement relating to the Guaranteed
Obligations shall nonetheless be payable by the Loan Guarantors forthwith on
demand by the Lender.
91
SECTION 10.07.
Information
. Each Loan Guarantor assumes all
responsibility for being and keeping itself informed of the Borrower’s
financial condition and assets, and of all other circumstances bearing upon the
risk of nonpayment of the Guaranteed Obligations and the nature, scope and
extent of the risks that each Loan Guarantor assumes and incurs under this Loan
Guaranty, and agrees that neither the Administrative Agent, the Issuing Bank
nor any Lender shall have any duty to advise any Loan Guarantor of information
known to it regarding those circumstances or risks.
SECTION 10.08.
Termination
. The Lenders may continue to make loans or
extend credit to the Borrower based on this Loan Guaranty until five (5) days
after it receives written notice of termination from any Loan Guarantor. Notwithstanding receipt of any such notice,
each Loan Guarantor will continue to be liable to the Lenders for any
Guaranteed Obligations created, assumed or committed to prior to the fifth day
after receipt of the notice, and all subsequent renewals, extensions,
modifications and amendments with respect to, or substitutions for, all or any
part of that Guaranteed Obligations.
SECTION 10.09.
Taxes
. All payments of the Guaranteed Obligations
will be made by each Loan Guarantor free and clear of and without deduction for
any Indemnified Taxes or Other Taxes;
provided
that if any Loan
Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Issuing Bank (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) such Loan Guarantor
shall make such deductions and (iii) such Loan Guarantor shall pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
SECTION 10.10.
Maximum Liability
. The provisions of this Loan Guaranty are
severable, and in any action or proceeding involving any state corporate law,
or any state, federal or foreign bankruptcy, insolvency, reorganization or
other law affecting the rights of creditors generally, if the obligations of
any Loan Guarantor under this Loan Guaranty would otherwise be held or
determined to be avoidable, invalid or unenforceable on account of the amount
of such Loan Guarantor’s liability under this Loan Guaranty, then,
notwithstanding any other provision of this Loan Guaranty to the contrary, the
amount of such liability shall, without any further action by the Loan
Guarantors or the Lenders, be automatically limited and reduced to the highest
amount that is valid and enforceable as determined in such action or proceeding
(such highest amount determined hereunder being the relevant Loan Guarantor’s “
Maximum
Liability
”. This Section with
respect to the Maximum Liability of each Loan Guarantor is intended solely to
preserve the rights of the Lenders to the maximum extent not subject to
avoidance under applicable law, and no Loan Guarantor nor any other person or
entity shall have any right or claim under this Section with respect to
such Maximum Liability, except to the extent necessary so that the obligations
of any Loan Guarantor hereunder shall not be rendered voidable under applicable
law. Each Loan Guarantor agrees that the Guaranteed Obligations may at any time
and from time to time exceed the Maximum Liability of each Loan Guarantor
without impairing this Loan Guaranty or affecting the rights and remedies of
the Lenders hereunder;
provided
that, nothing in this sentence shall be
construed to increase any Loan Guarantor’s obligations hereunder beyond its
Maximum Liability.
SECTION 10.11.
Contribution
. In the event any Loan Guarantor (a “
Paying
Guarantor
”) shall make any payment or payments under this Loan Guaranty or
shall suffer any loss as a result of any realization upon any collateral
granted by it to secure its obligations under this Loan Guaranty, each other
Loan Guarantor (each a “
Non-Paying Guarantor
”) shall contribute to such
Paying Guarantor an amount equal to such Non-Paying Guarantor’s “
Applicable
Percentage
” of such payment or payments made, or losses suffered, by such
Paying Guarantor. For purposes of this Article X,
each Non-Paying Guarantor’s “
Applicable Percentage
” with respect to any
such payment or loss by a Paying Guarantor shall be determined as of the date
on which such payment or loss was made by reference to the ratio of (i) such
92
Non-Paying Guarantor’s Maximum Liability as
of such date (without giving effect to any right to receive, or obligation to
make, any contribution hereunder) or, if such Non-Paying Guarantor’s Maximum
Liability has not been determined, the aggregate amount of all monies received
by such Non-Paying Guarantor from the Borrower after the date hereof (whether
by loan, capital infusion or by other means) to (ii) the aggregate Maximum
Liability of all Loan Guarantors hereunder (including such Paying Guarantor) as
of such date (without giving effect to any right to receive, or obligation to
make, any contribution hereunder), or to the extent that a Maximum Liability has
not been determined for any Loan Guarantor, the aggregate amount of all monies
received by such Loan Guarantors from the Borrower after the date hereof
(whether by loan, capital infusion or by other means). Nothing in this provision shall affect any
Loan Guarantor’s several liability for the entire amount of the Guaranteed
Obligations (up to such Loan Guarantor’s Maximum Liability). Each of the Loan Guarantors covenants and
agrees that its right to receive any contribution under this Loan Guaranty from
a Non-Paying Guarantor shall be subordinate and junior in right of payment to
the payment in full in cash of the Guaranteed Obligations. This provision is for the benefit of both the
Administrative Agent, the Issuing Bank, the Lenders and the Loan Guarantors and
may be enforced by any one, or more, or all of them in accordance with the
terms hereof.
SECTION 10.12.
Liability Cumulative
. The liability of each Loan Party as a Loan
Guarantor under this Article X is in addition to and shall be cumulative
with all liabilities of each Loan Party to the Administrative Agent, the
Issuing Bank and the Lenders under this Agreement and the other Loan Documents
to which such Loan Party is a party or in respect of any obligations or
liabilities of the other Loan Parties, without any limitation as to amount,
unless the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.
[Signature Pages Follow]
93
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
|
|
ETHAN
ALLEN GLOBAL, INC.,
|
|
|
as
the Borrower
|
|
|
|
|
|
|
By:
|
/s/
M. Farooq Kathwari
|
|
|
Name:
|
M.
Farooq Kathwari
|
|
|
Title:
|
President
|
|
|
|
|
|
|
ETHAN
ALLEN INTERIORS INC.
|
|
|
|
|
|
|
By:
|
/s/
M. Farooq Kathwari
|
|
|
Name:
|
M.
Farooq Kathwari
|
|
|
Title:
|
President
|
|
|
|
|
|
Signature Page to Credit Agreement
Ethan Allen Global, Inc.
|
|
ETHAN
ALLEN OPERATIONS, INC.
|
|
|
|
|
|
|
|
By:
|
/s/
M. Farooq Kathwari
|
|
|
|
Name:
|
M.
Farooq Kathwari
|
|
|
|
Title:
|
President
|
|
|
|
|
|
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ETHAN
ALLEN REALTY, LLC
|
|
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|
|
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|
By:
|
/s/
M. Farooq Kathwari
|
|
|
|
Name:
|
M.
Farooq Kathwari
|
|
|
|
Title:
|
President
|
|
|
|
|
|
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|
|
ETHAN
ALLEN RETAIL, INC.
|
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By:
|
/s/
M. Farooq Kathwari
|
|
|
|
Name:
|
M.
Farooq Kathwari
|
|
|
|
Title:
|
President
|
|
|
|
|
|
|
|
|
|
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|
|
LAKE
AVENUE ASSOCIATES, INC.
|
|
|
|
|
|
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|
By:
|
/s/
M. Farooq Kathwari
|
|
|
|
Name:
|
M.
Farooq Kathwari
|
|
|
|
Title:
|
President
|
|
|
|
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MANOR
HOUSE, INC.
|
|
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By:
|
/s/
M. Farooq Kathwari
|
|
|
|
Name:
|
M.
Farooq Kathwari
|
|
|
|
Title:
|
President
|
Signature Page to Credit
Agreement
Ethan Allen Global, Inc.
|
|
JPMORGAN
CHASE BANK, N.A., individually as a Lender, as the Swingline Lender, as the
Issuing Bank and as Administrative Agent
|
|
|
|
|
|
|
|
|
By:
|
/s/
Joseph A. Lisack
|
|
|
|
Name:
|
Joseph A. Lisack
|
|
|
|
Title:
|
Vice
President
|
Signature Page to Credit
Agreement
Ethan Allen Global, Inc.
|
|
CAPITAL
ONE LEVERAGE FINANCE CORP.,
|
|
|
|
|
|
|
|
|
By:
|
/s/
Nick Malatestinic
|
|
|
|
Name:
|
Nick Malatestinic
|
|
|
|
Title:
|
SVP
|
Signature Page to Credit
Agreement
Ethan Allen Global, Inc.
SCHEDULE 2.01
COMMITMENTS
|
Lender
|
|
Commitment
|
|
|
|
|
|
|
|
JPMorgan Chase Bank, N.A
|
|
$
|
25,000,000
|
|
|
Capital One Leverage Finance Corp.
|
|
$
|
15,000,000
|
|
|
|
|
|
|
|
Aggregate Commitment:
|
|
$
|
40,000,000
|
|
SCHEDULE 2.06
EXISTING LETTERS OF CREDIT
|
JPMorgan Chase Bank
Letter of Credit Number
|
|
Outstanding
Amount
|
|
Expiry / Maturity
Date
|
|
Beneficiary Name
|
|
|
|
|
|
|
|
|
|
|
|
T-244580
|
|
$
|
579,174.00
|
|
AUG 19, 2009
|
|
INSURANCE
COMPANY OF NORTH AMERICA
|
|
|
T-249589
|
|
$
|
11,300,000.00
|
|
JUL 12, 2010
|
|
THE TRAVELERS
INDEMNITY COMPANY
|
|
|
T-250558
|
|
$
|
300,000.00
|
|
AUG 19, 2009
|
|
U.S. BANK
NATIONAL ASSOCIATION
|
|
|
TPTS-233492
|
|
$
|
15,000.00
|
|
OCT 31, 2009
|
|
SOUTHGATE WATER
AND
|
|
|
TPTS-277995
|
|
$
|
3,500.00
|
|
DEC 31, 2009
|
|
SOUTHEAST METRO
STORMWATER
|
|
|
TPTS-312139
|
|
$
|
49,517.10
|
|
FEB 28, 2010
|
|
CITY OF
CENTENNIAL
|
|
|
TPTS-334627
|
|
$
|
10,734.00
|
|
MAR 31, 2010
|
|
CITY OF
BROOKFIELD
|
|
|
TPTS-334723
|
|
$
|
1,867.00
|
|
MAR 31, 2010
|
|
CITY OF
BROOKFIELD
|
|
|
TPTS-344509
|
|
$
|
7,000.00
|
|
JUL 31, 2009
|
|
SOUTHGATE WATER
DISTRICT
|
|
|
TPTS-344510
|
|
$
|
2,960.00
|
|
JUL 31, 2009
|
|
SOUTHGATE
SANITATION DISTRICT
|
|
|
TPTS-380846
|
|
$
|
36,000.00
|
|
AUG 31, 2009
|
|
CITY OF PALM
BEACH GARDENS
|
|
|
TPTS-381645
|
|
$
|
10,000.00
|
|
AUG 31, 2009
|
|
TORGERSON
PROPERTIES, INC
|
|
|
TPTS-674070
|
|
$
|
135,000.00
|
|
AUG 31, 2009
|
|
CITY OF ARTESIA
|
|
|
TTTS-259870
|
|
$
|
9,000.00
|
|
MAY 31,
2010
|
|
COUNTY OF
PULASKI
|
|
ETHAN ALLEN INTERIORS INC. HAS CLAIMED CONFIDENTIAL TREATMENT OF
PORTIONS OF THIS DOCUMENT IN ACCORDANCE WITH RULE 24-B UNDER THE SECURITIES
EXCHANGE ACT OF 1934
SCHEDULE 3.06
To Credit Agreement
Disclosed Matters (Litigation)
List of Pending or Threatened Litigation in Excess of $1,000,000
*
*CONFIDENTIAL
INFORMATION AHS BEEN OMITTED AND FURNISHED SEPARATELY TO THE COMMISSION
SCHEDULE 3.14
To Credit Agreement
Insurance
SEE ATTACHED
Schedule of
Insurance
|
Lockton - NY
|
|
|
|
Ethan Allen Interiors, Inc
|
|
7 Times Square, Suite 3802
|
|
Property
|
|
Ethan Allen Drive, PO Box 1966
|
|
New York, NY 10036
|
|
|
|
Danbury, CT 06813
|
|
Phone: 646-572-7300
|
|
|
|
|
|
|
|
Amount or
|
|
|
|
Policy
|
|
|
|
Policy
|
|
|
Coverage
|
|
Limits
|
|
Location
|
|
Term
|
|
Company
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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All Risk - Manufacturing
|
|
*
|
|
All
Manufacturing and distribution locations as on file.
|
|
7/1/2008
- 09
|
|
Zurich
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Risk - Retail
|
|
*
|
|
All
Retail locations as on file.
|
|
7/1/2008
- 09
|
|
Travelers
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
Rough
Mill
27 Railroad Ave.
Orleans, VT 05860
|
|
6/20/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
Rub &
Pack Building
27 Railroad Ave.
Orleans, VT 05860
|
|
6/20/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
Boiler
House
27 Railroad Ave.
Orleans,
VT 05860
|
|
6/20/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
Saw
Mill
217 Main St.
Beecher Falls, VT 05902
|
|
6/20/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
Main
Building
217 Main St.Beecher Falls, VT 05902
|
|
6/20/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
1800
Banks Rd.
Margate, FL 33063
|
|
6/28/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
13680
Pines Blvd.
Pembroke Pines, FL 33027
|
|
6/28/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
5139 Manheim Pike
East Petersburg, PA 17520
|
|
7/1/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
16240
S. Tamiami Trl, Fort
Myers, FL 33908
|
|
7/22/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
Finish
Mill
27 Railroad Ave.
Orleans, VT 05860
|
|
7/1/2008
- 09
|
|
Selective
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flood
|
|
*
|
|
200
Murray Hill Parkway
East Rutherford, NJ 07073
|
|
7/1/2008
- 09
|
|
Selective
|
|
*
|
|
*
CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE
COMMISSION
This
Record of Insurance is intended to be used as a quick reference; please refer
to your actual policies for exact terms and conditions
|
Revised
5/21/2009
|
|
SCHEDULE 3.14
|
SCHEDULE 3.15
To Credit Agreement
Capitalization and Subsidiaries
SEE ATTACHED
ETHAN ALLEN
|
Name of Entity
|
|
State
of
Domicile
|
|
Inc/Qual
Date
|
|
|
|
Tax ID
|
|
Mailing
Address of
CEO and Principal
Place of Business
|
|
Former
Business
Name
|
|
Current
or
Former Trade
Name(s)
|
|
Owner
& % of
Ownership
|
|
Number
of Shares
Authorized to
Issue
|
|
Ethan Allen Global, Inc.
|
|
DE
|
|
6/27/2005
|
|
*
|
|
20-2991357
|
|
Ethan Allen Drive,
Danbury, CT 06811
|
|
|
|
Ethan Allen
|
|
Ethan Allen Interiors Inc.
- 100% (100 shares)
|
|
1,000 - $0.01 par value
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethan Allen Retail, Inc.
|
|
DE
|
|
6/16/1989
|
|
*
|
|
06-1273300
|
|
Ethan Allen Drive,
Danbury, CT 06811
|
|
Changed Name 6/29/05 from Ethan Allen Inc.
|
|
Ethan Allen, Ethan Allen
Home Interiors
|
|
Ethan Allen Global, Inc.
- 100%
|
|
1,000 - $0.01 par value
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethan Allen Interiors Inc.
|
|
DE
|
|
5/25/1989
|
|
*
|
|
06-1275288
|
|
Ethan Allen Drive,
Danbury, CT 06811
|
|
|
|
|
|
Publicly Held
|
|
151,655,000 (see
footnote 1 below)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethan Allen Operations, Inc.
|
|
DE
|
|
12/27/1994
|
|
*
|
|
06-1420986
|
|
Ethan Allen Drive,
Danbury, CT 06811
|
|
Ethan Allen Manufacturing Corporation; Name change
filed 8/19/05
|
|
Ethan Allen
Manufacturing Corporation
|
|
Ethan Allen Global, Inc.
- 100%
|
|
1,000 - $0.01 par value
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethan Allen Realty, LLC
|
|
DE
|
|
6/24/2005
|
|
*
|
|
06-1753714
|
|
Ethan Allen Drive,
Danbury, CT 06811
|
|
|
|
|
|
Ethan Allen Operations,
Inc. - 100%
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lake Avenue Associates, Inc.
|
|
CT
|
|
11/2/1973
|
|
*
|
|
06-0901325
|
|
Ethan Allen Drive,
Danbury, CT 06811
|
|
|
|
Ethan Allen Hotel
|
|
Ethan Allen Global, Inc.
- 100% (250 shares)
|
|
500 (see footnote 2
below)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manor House, Inc.
|
|
DE
|
|
10/4/1974
|
|
*
|
|
06-0919150
|
|
Ethan Allen Drive,
Danbury, CT 06811
|
|
|
|
|
|
Ethan Allen Retail, Inc.
- 100%
|
|
1,000 - $100 par value
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluded Subsidiaries: Ethan Allen (UK) Ltd.
(currently undergoing liquidation/dissolution), Cut and Sew Manufacturing
Operations, S de R.L. de C.V., Cut and Sew Manufacturing Realty, S. de R.L.
de C.V., Ethan Allen (Canada) Inc., Ethan Allen Carriage Ho
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnote 1 - 150,000,000 - Common Stock - $.01 par
value per share; 600,000 Class B Common Stock - $.01 par value per share; and
1,055,000 Preferred Stock - $0.01 par value per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnote 2 - 250 Class A Common Stock - $10 par value
per share; and 250 Class B Common Stock - $10.00 par value per share
|
* CONFIDENTIAL INFORMATION HAS BEEN OMITTED
AND FURNISHED SEPARATELY TO THE COMMISSION
SCHEDULE 3.15
SCHEDULE 3.21
To Credit Agreement
Credit Card Processors
Name
and Address of Processing Agents for Ethan Allen
A.
American Express
American
Express Travel Related Services Company, Inc.
World
Financial Center
New
York, NY 10285
Kim
Goodman, Executive Vice President Merchant Services, North America
B.
Elavon
One
Concourse Parkway, Suite 200
Atlanta,
Georgia
C.
Paymentech LLC
(Credit Card and Gift Cards)
4221
Dallas Parkway
Dallas,
Texas 75254
D.
G.E. Money Bank
950
Forrer Boulevard
Kettering,
Ohio 45420
Attn: Paul Beekman
SCHEDULE 6.01
Existing Indebtedness
1.
Western
Pennsylvania Teamsters and Employers Pension Fund - Notice of Withdrawal and
Demand for Payment of Withdrawal Liability (related to a closed facility). $0.38 million, matures 01/01/23.
2.
10-year Senior
Unsecured Notes - $200 million, matures 10/1/15
3.
Ethan Allen
Hotel IRB (US Bank) - $4 million, matures 6/1/11
4.
Beecher Falls -
Town of Cannan (Building) - $0.3 million, matures 10/15/26
5.
Beecher Falls -
Town of Cannan (M&E) - $0.4 million, matures 10/15/11
6.
Private Label
Consumer Credit Card Program Agreement with GE (imbedded guarantee)
7.
Fratco Bank
subordination agreement / guarantee inventory repurchase of up to $0.9 million
8.
Letters of
Credit outstanding of $12.5 million (see schedule 2.06)
9.
Obligations to
pay M Farooq Kathwari under past and present employment agreements
SCHEDULE 6.02
To Credit Agreement
Existing Liens
I.
See Attached
UCC Lien Search Summary (as of April 20, 2009)
II.
Town of Canaan
Loans – Security Agreement dated 26
th
day of June 1996
– Balance as of 3/31/09 is $306,218 ($224,820 maturity date 10/15/2026
(Building); $81,398 maturity date 10/15/11 (Machinery and Equipment))
III.
Connecticut
Development Authority – Indenture dated May 1, 1993. Payment of interest only on outstanding debt
of $3,855,000. Maturity date 6/1/11.
ETHAN ALLEN UCC LIEN SEARCH SUMMARY
AS OF APRIL 20, 2009
|
Secured
Party
|
|
File Number
|
|
File Date
|
|
Filing Type
|
|
Filing Jurisdiction
and Office
|
|
Collateral Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I. ETHAN
ALLEN GLOBAL, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IBM Credit LLC
|
|
54051869
|
|
12/29/2005
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
74088208
|
|
10/29/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
74125901
|
|
10/30/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
900119601
|
|
1/5/2009
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
NMHG Financial Services
Inc.
|
|
63315983
|
|
9/26/2006
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
GE Money Bank
|
|
71109783
|
|
3/26/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Informational filing
against all of the Debtor’s rights in the Secured Party’s property and
related accounts, indebtedness and related documentation with respect to the
credit card program offered by the Secured Party through the Debtor.
|
|
|
|
72945060
|
|
8/2/2007
|
|
Amendment
|
|
Secretary of State of
the State of Delaware
|
|
Amendment and
restatement of collateral description
|
|
Banc of America
Leasing & Capital, LLC
|
|
72108727
|
|
6/5/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
72361706
|
|
6/21/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
72803020
|
|
7/25/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
73112546
|
|
8/15/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
73910824
|
|
10/17/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
74234364
|
|
11/6/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
74417597
|
|
11/20/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
74648555
|
|
12/10/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
80199198
|
|
1/16/2008
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
81976958
|
|
6/10/2008
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
82803110
|
|
8/15/2008
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
82891370
|
|
8/25/2008
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
82902623
|
|
8/26/2008
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
82933107
|
|
8/28/2008
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
83293873
|
|
9/29/2008
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
Secured
Party
|
|
File Number
|
|
File Date
|
|
Filing Type
|
|
Filing Jurisdiction
and Office
|
|
Collateral Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bashian
Bros., Inc.
|
|
74919105
|
|
12/26/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Informational filing
against oriental rugs held on consignment basis.
|
|
General Electric Capital
Corp.
|
|
82961645
|
|
9/2/2008
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Specific Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II. ETHAN
ALLEN INTERIORS INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No UCC filings found by search
with Secretary of State of the State of Delaware.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
III. ETHAN
ALLEN OPERATIONS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No UCC filings found by search
with Secretary of State of the State of Delaware.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV. ETHAN
ALLEN REALTY, LLC
|
|
|
|
|
|
|
|
No UCC filings found by search
with Secretary of State of the State of Delaware.
|
|
|
|
|
|
|
|
V. ETHAN
ALLEN RETAIL, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE Money Bank
|
|
71109783
|
|
3/26/2007
|
|
UCC-1
|
|
Secretary of State of
the State of Delaware
|
|
Informational filing
against all of the Debtor’s rights in the Secured Party’s property and
related accounts, indebtedness and related documentation with respect to the
credit card program offered by the Secured Party through the Debtor.
|
|
|
|
72945060
|
|
8/2/2007
|
|
Amendment
|
|
Secretary of State of
the State of Delaware
|
|
Amendment and
restatement of collateral description
|
|
VI. LAKE
AVENUE ASSOCIATES, INC.
|
|
|
|
|
|
|
|
No UCC filings found by search
with Secretary of State of the State of Connecticut.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VII. MANOR
HOUSE, INC.
|
|
|
|
|
|
|
|
No UCC filings found by search
with Secretary of State of the State of Delaware.
|
|
|
Ethan Allen Interiors Inc.
ABL Revolver - May 2009
(data as of 3/31/09 in millions)
Schedule 6.04
Existing
Investments, Loans and Advances
|
|
|
Investments
|
|
Loans &
Advances
|
|
|
|
|
|
|
|
|
|
Ethan Allen Canada
|
|
$
|
4.4
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
Lake Ave Assoc (EA
Hotel)
|
|
$
|
0.7
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
Cut & Sew -
Mexico
|
|
$
|
3.1
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
Cash & Cash
Equivalents (Permitted Investments):
|
|
|
|
|
|
|
JPMorgan
|
|
*
|
|
|
|
|
Citizens
|
|
*
|
|
|
|
|
PNC
|
|
*
|
|
|
|
|
Wachovia
|
|
*
|
|
|
|
|
BoA
|
|
*
|
|
|
|
|
Scotia
|
|
*
|
|
|
|
|
Other
|
|
*
|
|
|
|
|
|
|
$
|
51.2
|
|
|
|
|
|
|
|
|
|
|
|
Notes Receivable:
|
|
|
|
|
|
|
*
|
|
|
|
*
|
|
|
*
|
|
|
|
*
|
|
|
*
|
|
|
|
*
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
$
|
0.7
|
|
* CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND
FURNISHED SEPARATELY TO THE COMMISSION
SCHEDULE 6.10
To Credit Agreement
Existing Restrictions
1.
None
EXHIBIT A
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the “
Assignment and Assumption
”)
is dated as of the Effective Date set forth below and is entered into by and
between [
Insert name of Assignor
] (the “
Assignor
”)
and [
Insert name of Assignee
] (the “
Assignee
”). Capitalized terms used but not defined herein
shall have the meanings given to them in the Credit Agreement identified below
(as amended, the “
Credit Agreement
”), receipt of a copy of which is
hereby acknowledged by the Assignee. The
Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby
agreed to and incorporated herein by reference and made a part of this
Assignment and Assumption as if set forth herein in full.
For an agreed consideration,
the Assignor hereby irrevocably sells and assigns to the Assignee, and the
Assignee hereby irrevocably purchases and assumes from the Assignor, subject to
and in accordance with the Standard Terms and Conditions and the Credit
Agreement, as of the Effective Date inserted by the Administrative Agent as
contemplated below (i) all of the Assignor’s rights and obligations in its
capacity as a Lender under the Credit Agreement and any other documents or
instruments delivered pursuant thereto to the extent related to the amount and
percentage interest identified below of all of such outstanding rights and
obligations of the Assignor under the respective facilities identified below
(including any letters of credit, guarantees, and swingline loans included in
such facilities) and (ii) to the extent permitted to be assigned under
applicable law, all claims, suits, causes of action and any other right of the
Assignor (in its capacity as a Lender) against any Person, whether known or
unknown, arising under or in connection with the Credit Agreement, any other
documents or instruments delivered pursuant thereto or the loan transactions
governed thereby or in any way based on or related to any of the foregoing,
including contract claims, tort claims, malpractice claims, statutory claims
and all other claims at law or in equity related to the rights and obligations
sold and assigned pursuant to clause (i) above (the rights and obligations
sold and assigned pursuant to clauses (i) and (ii) above being
referred to herein collectively as the “
Assigned Interest
”). Such sale and assignment is without recourse
to the Assignor and, except as expressly provided in this Assignment and
Assumption, without representation or warranty by the Assignor.
|
1.
|
|
Assignor:
|
|
|
|
|
|
|
|
|
|
2.
|
|
Assignee:
|
|
|
|
|
|
|
|
[and
is an Affiliate/Approved Fund of [
identify Lender
](1)]
|
|
|
|
|
|
|
|
3.
|
|
Borrower:
|
|
Ethan
Allen Global, Inc.
|
|
|
|
|
|
|
|
4.
|
|
Administrative
Agent:
|
|
JPMorgan
Chase Bank, N.A., as the administrative agent under the Credit Agreement
|
|
|
|
|
|
|
|
5.
|
|
Credit
Agreement:
|
|
The
Credit Agreement dated as of May 29, 2009 among Ethan Allen
Global, Inc., the other Loan Parties parties thereto, the Lenders
parties thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.
|
(1) Select as applicable.
6.
Assigned
Interest:
|
Facility Assigned(2)
|
|
Aggregate Amount of
Commitment/Loans for
all Lenders
|
|
Amount of
Commitment/Loans
Assigned
|
|
Percentage Assigned of
Commitment/Loans(3)
|
|
|
|
|
$
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
$
|
|
|
|
%
|
Effective
Date:
, 20
[TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE
OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The Assignee agrees to deliver to the
Administrative Agent a completed Administrative Questionnaire in which the
Assignee designates one or more Credit Contacts to whom all syndicate-level
information (which may contain material non-public information about the
Borrower, the Loan Parties and their Related Parties or their respective
securities) will be made available and who may receive such information in
accordance with the Assignee’s compliance procedures and applicable laws,
including Federal and state securities laws.
The terms set forth in this
Assignment and Assumption are hereby agreed to:
|
|
ASSIGNOR
|
|
|
|
|
|
[NAME OF ASSIGNOR]
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
ASSIGNEE
|
|
|
|
|
|
[NAME
OF ASSIGNEE]
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
Title:
|
(2) Fill in the appropriate terminology
for the types of facilities under the Credit Agreement that are being assigned
under this Assignment.
(3) Set forth, to at least 9 decimals,
as a percentage of the Commitment/Loans of all Lenders thereunder.
|
[Consented to
and](4) Accepted:
|
|
|
|
|
|
JPMORGAN
CHASE BANK, N.A., as
|
|
|
Administrative Agent and as Issuing Bank
|
|
|
|
|
|
|
|
|
|
|
By
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
[Consented
to:](5)
|
|
|
|
|
|
ETHAN
ALLEN GLOBAL, INC.
|
|
|
|
|
|
|
|
|
|
|
By
|
|
|
|
Title:
|
|
(4) To be added only if the consent of
the Administrative Agent and/or the Issuing Bank is required by the terms of
the Credit Agreement.
(5) To be added only if the consent of
the Borrower is required by the terms of the Credit Agreement.
ANNEX 1
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1.
Representations and
Warranties
.
1.1
Assignor
. The Assignor (a) represents and warrants
that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the
Assigned Interest is free and clear of any lien, encumbrance or other adverse
claim and (iii) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby; and (b) assumes no
responsibility with respect to (i) any statements, warranties or
representations made in or in connection with the Credit Agreement or any other
Loan Document, (ii) the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Documents or any collateral
thereunder, (iii) the financial condition of the Borrower, any of its
Subsidiaries or Affiliates or any other Person obligated in respect of any Loan
Document or (iv) the performance or observance by the Borrower, any of its
Subsidiaries or Affiliates or any other Person of any of their respective
obligations under any Loan Document.
1.2.
Assignee
. The Assignee (a) represents and warrants
that (i) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby and to become a Lender under
the Credit Agreement, (ii) it satisfies the requirements, if any,
specified in the Credit Agreement that are required to be satisfied by it in
order to acquire the Assigned Interest and become a Lender, (iii) from and
after the Effective Date, it shall be bound by the provisions of the Credit
Agreement as a Lender thereunder and, to the extent of the Assigned Interest,
shall have the obligations of a Lender thereunder, (iv) it has received a copy
of the Credit Agreement, together with copies of the most recent financial
statements delivered pursuant to Section
thereof, as applicable, and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Assumption and to purchase the Assigned Interest on the
basis of which it has made such analysis and decision independently and without
reliance on the Administrative Agent or any other Lender, and (v) if it is
a Foreign Lender, attached to the Assignment and Assumption is any
documentation required to be delivered by it pursuant to the terms of the
Credit Agreement, duly completed and executed by the Assignee; and (b) agrees
that (i) it will, independently and without reliance on the Administrative
Agent, the Assignor or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Loan Documents, and (ii) it
will perform in accordance with their terms all of the obligations which by the
terms of the Loan Documents are required to be performed by it as a Lender.
2.
Payments
. From and after the Effective Date, the
Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignor for amounts which have accrued to but excluding the Effective Date
and to the Assignee for amounts which have accrued from and after the Effective
Date.
3.
General Provisions
.
This Assignment and Assumption shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed
counterpart of a signature page of this Assignment and Assumption by
facsimile shall be effective as delivery of a manually executed counterpart of
this Assignment and Assumption. This
Assignment and Assumption shall be construed in accordance with and governed by
the law of the State of New York, but giving effect to federal laws applicable
to national banks.
EXHIBIT
B
OPINION OF LOAN PARTIES’
COUNSEL
[Attached]
May 29, 2009
To
the Lenders and the Administrative
Agent
Referred to Below
c/o
JPMorgan Chase Bank, N.A.
As Administrative Agent
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
We have acted as special
counsel to Ethan Allen Interiors Inc., a Delaware corporation (“
Holdings”
),
and certain of its subsidiaries, including Ethan Allen Global, Inc., a
Delaware corporation (the “
Borrower
”), Ethan Allen Retail, Inc., a
Delaware corporation (“
Retail
”), Ethan Allen Operations, Inc., a
Delaware corporation (“
Operations
”), Lake Avenue Associates, Inc.,
a Connecticut corporation (“
Lake Avenue
”) , Manor House, Inc., a
Delaware corporation (“
Manor House
”), Ethan Allen Realty, LLC, a
Delaware limited liability company (“
Realty
”, and collectively with
Holdings, the Borrower, Retail, Operations, Lake Avenue, and Manor House, the “
Loan
Parties
”) in connection with Credit
Agreement dated as of May 29, 2009, (the “
Credit Agreement
”) among
the Borrower, Holdings, the other Loan Parties party thereto, JPMorgan Chase
Bank, N.A., a national banking association, in its capacity as contractual
representative (the “
Administrative Agent
”), and the Lenders party
thereto (the “
Lenders
”). This
opinion is delivered to you at the request of Holdings and the Borrower
pursuant to Section 4.01 of the Credit Agreement. Unless otherwise indicated herein,
capitalized terms used herein and not defined herein shall have the meanings
given to them in the Credit Agreement.
In connection with this
opinion, we have examined and relied upon copies, certified or otherwise
identified to our satisfaction, of (i) the Credit Agreement, (ii) the
Pledge and Security Agreement, dated as of May 29, 2009 (the “
Security
Agreement
”), among Holdings, the Borrower, the other Loan Parties, and the
Administrative Agent for itself and for the Lenders, (iii) the Financing
Statements (as hereinafter defined), related to the security interests granted
by the Loan Parties pursuant to the Security Agreement, and (iv) such
other
records, agreements,
certificates and instruments, and information from officers and other
representatives of the Loan Parties and governmental and regulatory officials
as we have deemed necessary as a basis for this opinion. The documents described in clauses (i) and
(ii) of the immediately preceding sentence are sometimes referred to
herein as the “
Agreements
.”
In our examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity of any documents submitted to us
as copies to their respective originals, the authenticity of the originals of
such copies and the legal capacity of all natural persons. We have also assumed, with your consent and
without undertaking, or having any duty to undertake, any independent
investigation or inquiry, that the representations, warranties and statements
as to factual matters (except any of the foregoing expressly covered by the
opinions set forth below) made in the Credit Agreement and the Security
Agreement by the Loan Parties or in the respective certificates of the Loan
Parties and their respective officers mentioned above, are true and correct and
have assumed the compliance by each of the Lenders and the Administrative Agent
with the terms of the Agreements to which it is a party.
In rendering the opinions
expressed below, we have assumed the following:
(a) the accuracy and completeness of all reports and
certificates received from public officials and others;
(b) the absence of fraud, misrepresentation, omission or
deceit on the part of any party to the Agreements;
(c) the absence of any mutual mistake of fact or
misunderstanding, duress or undue influence involved in the negotiation,
execution, delivery or performance of the Agreements;
(d) neither the Administrative Agent or
any Lender nor any of the representatives of any thereof has any notice or
knowledge (actual or constructive) of any adverse claim, lien, security
interest, encumbrance, interest or other condition of title affecting any
investment property or instruments (as each such term is defined in Article 9-102
of the UCC, as hereinafter defined) that are part of the Collateral;
(e) all items of Collateral for which
possession must be taken by a secured party in order to perfect its security
interest under Section 9-313 of the Uniform Commercial Code of New York
(the “
New York UCC
”) or the Uniform Commercial Code of Delaware (the “
Delaware
UCC
”) or the Uniform Commercial Code of Connecticut (
Connecticut UCC
”,
and collectively with the New York UCC and the Delaware UCC, the “
UCC
”)
shall be in the possession or constructive possession of the Administrative
Agent and not in the possession of any Loan Party, or any Affiliate, agent or
any other Person acting on behalf of any Loan Party;
2
(f) each Loan Party has acquired good
and sufficient title to each existing item of Collateral existing on the date
hereof and has “rights” in and to such Collateral within the meaning of Section 9-203
of the UCC consistent with and sufficient for purposes of the Agreements, and
the same will be true of each item of Collateral arising after the date hereof;
(g) the Collateral is (A) either
located in the State of New York or is of a type as to which the creation and
enforcement of a security interest therein is governed solely by Article 9
of the New York UCC and (B) except as expressly stated in paragraph (5) below,
is of a type as to which a security interest can be perfected solely by filing
a financing statement; and
(h) each Loan Party has received legally
sufficient consideration and that “value” (as defined in Section 1-201 of
the UCC) “has been given” (as required by Section 9-203 of the UCC) for
the execution of the Agreements to which it is a party and the granting of
security interests in its property pursuant thereto.
We have also assumed that
there is no other agreement or understanding among the parties to the
Agreements, written or oral, or any waiver of a right or remedy, or any usage
of trade or course of dealing between the parties to each of the Agreements,
that would, in any case, modify, define, supplement or qualify any of the terms
of the Agreements.
As to various questions of
fact material to the opinions rendered herein, we have relied upon the
statements, representations and warranties in the documents examined by us, and
nothing has come to our attention which would indicate that we are not
justified in relying on such statements, representations and warranties. We have assumed the due execution and
delivery, pursuant to due authorization, of the documents that we have examined
by each party thereto, that each such party is existing and (to the extent
applicable) in good standing under the laws of its jurisdiction of organization
or formation and has the full power, authority and legal right to enter into
and perform its obligations under each such document to which it is a party,
and that all necessary consents, licenses, approvals, authorizations,
registrations, declarations, filings and
other acts (governmental or otherwise) and all other conditions precedent with
respect to the legal and valid execution and delivery of, and performance
under, the documents that we have examined by each party thereto, in each case
other than, with respect to the laws of the State of New York, each of the Loan
Parties, have been made or satisfied or have occurred and are in full force and
effect. We have also assumed that all of
the documents we have examined are binding and enforceable obligations of each
party thereto other than the Loan Parties.
We do not assume any
responsibility for the accuracy, completeness or fairness of any information,
including, but not limited to, financial information, furnished to you by any
of the Loan Parties or any of their Affiliates concerning the business, assets
and affairs of the Loan Parties or any of their Affiliates or any other
information furnished to you by or on behalf of any of the Loan Parties or any
of their Affiliates or furnished by us to you, except for our conclusions of
law in this opinion letter.
3
References in this opinion
to our “knowledge” or “known to us” or similar phrases mean the actual
knowledge (i.e., conscious awareness) of the attorneys currently in this firm
who our records indicate have devoted substantive attention to matters directly
relating to the Agreements and the transactions contemplated thereby, and mean
that such attorneys have not been informed by the Loan Parties that the matters
stated are factually incorrect and have no actual knowledge (i.e
.,
conscious awareness) that the matters stated are
factually incorrect. Except as expressly
set forth herein, we have not undertaken any independent investigation,
examination, or inquiry to determine the existence or absence of any facts (and
have not caused the review of any court file or indices) and no inference as to
our knowledge concerning any facts should be drawn as a result of the limited
representation undertaken by us.
We express no opinion on any
matter not specifically set forth herein and we understand that you are relying
upon, and receiving contemporaneously with the delivery of this opinion, the
legal opinion of Pamela A. Banks of Holdings (the “
Other Opinion
”),
addressing various matters set forth therein and that you are not relying upon
us with respect to matters covered in the Other Opinion. In rendering this opinion, we have relied
upon the Other Opinion solely as to the matters opined upon in the Other
Opinion.
Based
upon and subject to the foregoing, and to the limitations and qualifications
stated herein, it is our opinion that:
(1) Assuming
due authorization, execution and delivery thereof by the parties thereto, each
of the Credit Agreement and the Security Agreement is a valid and legally
binding agreement of each Loan Party that is a party thereto, enforceable
against it in accordance with its terms.
(2) No
Lender is required to obtain or effect any registration or filing with, consent
or approval of or other action by any Governmental Authority of the United
States of America or the State of New York in connection with the transactions
contemplated by the Credit Agreement and the Security Agreement, other than (a) such
filings, registrations, consents, approvals and other actions which may be
required in order to perfect the liens and security interests granted pursuant
to the Credit Agreement and the Security Agreement and (b) those that have
been made or obtained and are in full force and effect or as to which the
failure to be made or obtained or to be in full force and effect would not
reasonably be expected to result, individually or in the aggregate, in a
Material Adverse Effect.
(3) Under
the New York UCC, the Security Agreement is effective to create in favor of the
Administrative Agent, for the benefit of the Secured Parties, a valid security
interest in the Collateral described therein, to the extent that the creation
of security interests in the Collateral is governed by Article 9 of the
New York UCC.
4
(4) The
UCC-1 financing statements (the “
Financing Statements
”) in the forms
attached as
Annex A
hereto are in appropriate form for filing in the
office of the Secretary of the State of the jurisdiction of incorporation or
organization of the Loan Parties indicated on Exhibit B (the “
Filing
Offices
”). Upon filing and proper
indexing of the Financing Statements in the Filing Offices of the jurisdiction
of incorporation or organization of each Loan Party, the security interest of
the Administrative Agent, for the benefit of the Secured Parties, in the
Collateral described therein will be perfected under the Uniform Commercial
Code in effect in the states of incorporation or organization indicated on Exhibit B
of such Loan Parties (the “
State UCCs
”) to the extent that a security
interest in such Collateral can be perfected by the filing of a financing
statement in the Filing Offices (such Collateral, “
Article 9 Collateral
”).
(5) Under
the New York UCC, the execution and delivery of the Security Agreement,
together with delivery and the continued possession by the Administrative
Agent, in the State of New York, of certificates evidencing all Collateral
consisting of instruments or investment property, issued or endorsed in the
name of the Administrative Agent, or in blank or together with stock powers or
other instruments of transfer properly executed in the name of the
Administrative Agent, or in blank with respect thereto, will create a valid and
duly perfected lien on and a security interest in such Collateral pledged on
the date hereof under the Security Agreement.
Subject to the limitations contained in Section 9-331 of the New
York UCC, the Administrative Agent will acquire such lien and security interest
free of adverse claims (as defined in Section 8-102 of the New York UCC).
(6) None
of the Loan Parties is an “investment company” as defined in, or subject to
regulation under, the Investment Company Act of 1940, as amended.
The foregoing opinions
are subject to the following limitations and qualifications:
The opinions set forth in
the numbered paragraphs above are subject to the following limitations and
qualifications:
(a) Except as expressly
set forth in paragraph 4 above, we express no opinion concerning any law
of any jurisdiction other than (i) the laws of the State of New York, (ii) the
laws of the State of Connecticut and (iii) the Federal laws of the United
States of America. Without limiting the foregoing, we express no opinion with
respect to the applicability or the effect of the laws of any other
jurisdiction, municipal laws or rules, ordinances, regulations or orders of any
agency within any state or municipality.
Our opinions set forth below are based upon our consideration of those
statutes, rules and regulations which, in our experience, are normally
applicable to the transactions contemplated by the Agreements.
5
(b) We express no
opinion with respect to the enforceability of any agreement, contract or
document or any provision thereof (i) to the extent such enforceability
may be subject to, or affected by, applicable bankruptcy, insolvency,
reorganization, receivership, moratorium, arrangement, assignment for the
benefit of creditors or similar laws affecting the rights and remedies of
creditors generally (including, without limitation, fraudulent transfer or
conveyance laws) and judicially developed doctrines relevant to any such laws
and which are in effect at the time when enforcement is sought or general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity), including, without limitation, commercial
reasonableness, good faith and fair dealing and the requirement that the right,
remedy or penalty sought be proportionate to the breach, default or injury, (ii) to
the extent that such enforceability may be affected by requirements as to
compliance with, and limitations imposed by, procedural requirements relating
to the exercise of remedies, (iii) providing for specific performance,
injunctive relief or other equitable remedies, regardless of whether such
enforceability is sought in a proceeding in equity or at law, (iv) to the
extent such enforceability may be limited by Article 9 of the UCC as in
effect on the date hereof limiting the right or ability of a person to waive or
vary certain provisions of Article 9 of the UCC, (v) with respect to
applicable law limiting certain rights and remedies of the Administrative Agent
and the Lenders (but, assuming that the Administrative Agent and the Lenders
act in accordance with the general principles of equity in enforcing their
rights and remedies, the matters identified in this paragraph do not, in our
opinion, render the Agreements invalid as a whole or substantially interfere
with the realization by the Administrative Agent, for the benefit of the
Secured Parties, of the principal benefits intended to be provided by the
Credit Agreement and the Security Agreement), (vi) providing for
indemnification and contribution, which provisions may be limited by applicable
federal and state securities laws and general principles of public policy, (vii) requiring
any waiver of stay or extension laws, diligent performance or other acts which
may be unenforceable under principles of public policy, or (viii) providing
for a choice of jurisdiction.
(c) We express no
opinion with respect to the enforceability of any agreement, contract or
document or any provision thereof (i) to the effect that failure to
exercise or delay in exercising a right or remedy will not operate as a waiver
of the right or remedy, (ii) releasing, exculpating or exempting a party
from, or requiring indemnification of any Person for, liability for its own
action or inaction, to the extent the action or inaction involves gross
negligence, recklessness, willful misconduct or wrongful or unlawful conduct, (iii) purporting
to preclude modification thereof through conduct, custom or course of
performance, action or dealing, (iv) requiring the payment or
reimbursement of
6
fees, costs, expenses, or
other amounts without regard to whether they are reasonable in nature or amount
or (v) that
purportedly waives any right granted pursuant to statute which may not be
legally waived or the effectiveness of any purported waiver by any Person of any
right granted pursuant to statute which may not be legally waived.
(d) We express no
opinion as to the enforceability of any agreement, contract or document or any
provision thereof, with respect to (i) the choice of New York law in any
action or proceeding in a Federal court or state court outside the State of New
York, or in any action or proceeding in any forum outside the United States, (ii) any
consent to jurisdiction of any Federal court, (iii) any consent to venue
or an inconvenient forum, (iv) provisions which purport to change or alter
the manner in which service of process may be effected under applicable law or (v) relate
to setoffs in respect of participations purchased in Loans.
(e) We express no
opinion as to compliance with applicable state and federal antifraud statutes, rules or
regulations,
(f) We express no
opinion as to compliance with applicable tax, environmental, pension, employee
benefit, zoning, land use, anti-money laundering or antitrust statutes, laws, rules or
regulations of state or federal law or any matters, statutes, regulations, laws
or proceedings pertaining to patents, trademarks or copyrights.
(g) Any reference to
performance of a document by a party means performance of the obligations of
such party thereunder.
(h) With respect to the
opinions in paragraphs 3, 4 and 5, the security interests of the
Administrative Agent, for the benefit of the Secured Parties, are subject to or
limited by (i) the requirement to file a continuation statement within six
months before the fifth anniversary of the date of filing of the original
financing statement perfecting a security interest, (ii) the requirement
to file a new financing statement under the circumstances set forth in Section 9-316
or Section 9-507 of the UCC, (iii) the rights of purchasers and
holders of instruments, documents and chattel paper under Section 9-330
and Section 9-331 of the UCC, (iv) the provisions of Section 9-315
of the UCC relating to proceeds, and (v) the rights of buyers of goods
under Section 9-320 and 9-323 of the UCC.
We express no opinion as to the creation, validity or enforceability of
any security interests in consumer goods, motor vehicles, minerals,
health-care-insurance receivables, commercial tort claims arising after the
date hereof, claims arising in tort other than commercial tort claims or timber
to be cut or growing crops.
7
(i) in the case of
property which becomes Collateral after the date hereof, Section 552 of
Title 11 of the United States Code (the “
Bankruptcy Code
”) limits the
extent to which property acquired by a debtor after the commencement of a case
under the Bankruptcy Code may be subject to a security interest arising from
the Security Agreement entered into by the debtor before the commencement of
such case;
(j) we express no
opinion as to the validity or enforceability of any security interests in goods
(as defined by the UCC) which have been bought by a buyer in the ordinary
course of business (as defined in Section 1-201 of the UCC);
(k)
We express no opinion with respect to any
Person’s rights in or title to any property or the priority of any security
interest or lien created under the Agreements, including without limitation,
the relative priority of any security interest or lien as against (i) any
claim or lien in favor of the United States of America or any agency or
instrumentality thereof (including, without limitation, federal tax liens and
liens under Title IV f the Employee Retirement Income Security Act of 1974, as
amended) or (ii) the claim of a lien creditor to the extent set forth in Section 9-317
of the New York UCC.
(l)
In rendering the opinions in this
paragraphs 3 and 4, insofar as they are based upon the State UCCs, with
your consent, we have relied solely on our review of the CCH Secured
Transactions Guide, without any investigation of the legal decisions or other
statutory provisions in effect that may affect the interpretation of the State
UCCs.
(m)
Except as expressly set forth in
paragraphs 3, 4 and 5, we express no opinion as to (i) the creation,
validity or perfection of any security interest or lien, on any item of Collateral other than the
Collateral existing on the date hereof and the Article 9 Collateral, (ii) the
effect of perfection or priority purported to be created by any agreement,
contract or document, or (iii) the sufficiency of the description of any
collateral contained in any agreement, contract or document or any financing
statements or other documents delivered in connection therewith. Without limiting the foregoing, we express no
opinion as to the creation, validity or perfection of any security interest in (i) in
any item of Collateral which is expressly excluded from the application of Article 9
of the UCC, (ii) in any item of Collateral which consists of fixtures (as
defined in Section 9-102 of the UCC) or (iii) in any item of
Collateral which is subject to (A) a statute or treaty of the United
States which provides for a national or international registration or a
national or international certificate of title for the perfection of a security
interest therein or which specifies a place of filing
8
different from
that specified in the UCC for filing to perfect such security interest or (B) a
certificate of title statute.
(n)
We express no opinion as to the
perfection of any security interest in any proceeds other than identifiable
cash proceeds to the extent set forth in Section 9-315 of the New York
UCC.
(o)
We express no opinion as to (i) any
provision of any agreement, contract or document which is intended (A) to
establish any standard as the measure of the performance by any party thereto
of such party’s obligations of good faith, diligence, fair dealing,
reasonableness or care or the fulfillment of the duties imposed on any secured
creditor with respect to the disposition or redemption of collateral,
accounting for surplus proceeds of collateral, or accepting collateral in
discharge of liabilities owed to any creditor or unsecured creditor or (B) to
permit modification thereof only by means of an agreement in writing signed by
the parties thereto, (ii) any provision of any agreement, contract or
document requiring payment of attorneys’ fees, except to the extent that a
court determines such fees to be reasonable, (iii) any provision of any
agreement, contract or document insofar as it relates to post-judgment or
default interest rates or interest rates or interest on overdue amounts, (iv) any
provision of any agreement, contract or document which purports to require that
any collateral or property be held in trust or imposes fiduciary duties on any
party thereto and (v) the enforceability of any provision in any
agreement, contract or document which provides for the appointment of a process
agent for suits, actions or proceedings brought in the State of New York to the
extent that such process agent is not located in the State of New York.
This opinion is being
furnished to you solely for your benefit in connection with the Credit
Agreement. This opinion may not be
relied upon by you for any other purpose or relied upon by any other Person
without our prior written consent. At
your request, we hereby consent to reliance hereon by any assignee under the
Credit Agreement pursuant to an assignment that is made and consented to in
accordance with the express provisions of the Credit Agreement, on the
condition and understanding that (i) this letter speaks only as of the
date hereof, (ii) we have no responsibility or obligation to update this
letter, to consider its applicability or correctness to other than its
addressee(s), or to take into account changes in law, facts or any other
developments of which we may later become aware, and (iii) any such
reliance by a future assignee must be actual and reasonable under the
circumstances existing at the time of assignment, including any changes in law,
facts or any other developments known to or
9
reasonably knowable by the
assignee at such time. Our opinions in
this letter are based upon the facts in existence and the laws in effect on the
date hereof. We have no obligation to
update this opinion for events or changes in law or fact occurring after the
date hereof.
Very
truly yours,
10
Annex A
Forms of UCC-1 Financing Statements
Annex B
Jurisdictions of Holdings, the Borrower and the Loan Parties(6)
|
Entity
|
|
Jurisdiction of Incorporation / Organization
|
|
|
|
|
|
Ethan
Allen Interiors, Inc.
|
|
Delaware
|
|
|
|
|
|
Ethan
Allen Global Inc.
|
|
Delaware
|
|
|
|
|
|
Ethan
Allen Operations, Inc.
|
|
Delaware
|
|
|
|
|
|
Lake
Avenue Associates, Inc.
|
|
Connecticut
|
|
|
|
|
|
Manor
House, Inc.
|
|
Delaware
|
|
|
|
|
|
Ethan
Allen Realty LLC
|
|
Delaware
|
|
|
|
|
|
Ethan
Allen Retail, Inc.
|
|
Delaware
|
Writer’s Direct Number: (203) 743-8496
Writer’s
Direct Facsimile: (203) 743-8254
OPINION OF COUNSEL FOR THE LOAN PARTIES
May 29, 2009
To the Lenders and the
Administrative
Agent Referred to Below
c/o JPMorgan Chase Bank N.A., as
Administrative Agent
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
This opinion is furnished to you pursuant to
paragraph (a) of Section 4.01 of the Credit Agreement, dated as
of May 29, 2009, among Ethan Allen Interiors Inc., a Delaware corporation
(“Holdings”), Ethan Allen Global, Inc., a Delaware corporation (the “Borrower”),
Ethan Allen Retail, Inc., a Delaware corporation (“
Retail
”), Ethan
Allen Operations, Inc., a Delaware corporation (“
Operations
”), Lake
Avenue Associates, Inc., a Connecticut corporation (“
Lake Avenue
”)
, Manor House, Inc., a Delaware corporation (“
Manor House
”), Ethan
Allen Realty, LLC, a Delaware limited liability company (“
Realty
”, and
collectively with Holdings, the Borrower, Retail, Operations, Lake Avenue, and
Manor House, the “
Loan Parties
”), the banks and other financial
institutions identified therein as Lenders, and JPMorgan Chase Bank, as
Administrative Agent. Unless otherwise
defined herein, terms used herein have the meanings provided in the Credit
Agreement.
I am general counsel of Holdings and the
Borrower and, in that capacity, have acted as counsel for the Loan Parties in
connection with (i) the Credit Agreement, (ii) the Pledge and
Security Agreement, dated as of May 29, 2009 (the “
Security Agreement”;
collectively with the Credit Agreement, the “Agreements
”), among Holdings,
the Borrower, the other Loan Parties, and the Administrative Agent and (iii) the
other Loan Documents. For purposes of
this opinion, I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as I have deemed necessary or advisable.
Upon the basis of the foregoing, I am of the
opinion that:
1. Each Loan Party (a) is a corporation (or in the case of
Realty, a limited liability company) duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
organization, (b) has
all requisite power and authority to own its property and assets and to carry
on its business as now conducted, (c) is qualified to do business in every
jurisdiction where such qualification is required, except where the failure to
do so could not reasonably be expected to result in a Material Adverse Effect,
and (d) has the corporate or other organizational power and authority to
execute, deliver and perform its obligations under each Agreement.
2. The execution, delivery and performance by each Loan Party
(collectively, the “Transactions”) (a) have been duly authorized by all
requisite corporate (or other organizational) and, if required, stockholder (or
member) action and (b) will not (i) violate (A) any provision of
law, statute, rule or regulation, or of the certificate or articles of
incorporation or other constitutive documents, by-laws or operating agreement
of any of the Loan Parties, (B) any order of any Governmental Authority or
(C) any provision of any indenture, agreement or other instrument to which
any of the Loan Parties is a party or by which any of them or any of their
property is or may be bound, or (ii) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such indenture, agreement or other instrument.
3. Each Agreement has been duly executed and delivered by each of
the Loan Parties.
I am a member of the bar of the State of New
York and the foregoing opinion is limited to the laws of the State of New York,
the General Corporation Law of the State of Delaware and the Federal laws of
the United States of America. This
opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you
for any other purpose or relied upon by any other Person (other than your
successors and assigns as Lenders and Persons that acquire participations in
your Loans) without my prior written consent.
My opinions in this letter are based upon the facts in existence and the
laws in effect on the date hereof. I
have no obligation to update this opinion for events or changes in law or fact
occurring after the date hereof.
|
Very
truly yours,
|
|
|
|
|
|
|
|
|
Pamela
A. Banks
|
|
|
Vice
President, General Counsel
|
|
|
and Secretary
|
|
EXHIBIT
C
BORROWING BASE CERTIFICATE
[Attached]
|
|
|
BORROWING BASE REPORT
as of
|
|
Obligor Number:
Loan Number:
Ethan Allen
Global, Inc.
(in $,
000 omitted)
|
|
|
|
|
US
|
|
|
|
|
|
|
|
|
|
1
|
|
Retail A/R (credit card)
|
|
|
|
|
2
|
|
Less ineligibles
|
|
—
|
|
|
3
|
|
Eligible retail A/R
|
|
—
|
|
|
4
|
|
Advance rate %
|
|
|
|
|
5
|
|
Retail A/R availability
|
|
—
|
|
|
|
|
|
|
|
|
|
6
|
|
Wholesale A/R
|
|
|
|
|
7
|
|
Less ineligibles
|
|
|
|
|
8
|
|
Eligible wholesale A/R
|
|
—
|
|
|
9
|
|
Advance rate %
|
|
|
|
|
10
|
|
Wholesale A/R availability
|
|
—
|
|
|
|
|
|
|
|
|
|
11
|
|
Total A/R availability
|
|
—
|
|
|
|
|
|
|
|
|
|
12
|
|
Wholesale and Retail Finished Goods
Inventory
|
|
|
|
|
13
|
|
Less ineligibles
|
|
|
|
|
14
|
|
Eligible FG/Retail inventory
|
|
—
|
|
|
15
|
|
NOLV calculation:
|
|
|
|
|
16
|
|
Eligible FG inventory
as per above
|
|
—
|
|
|
17
|
|
NOLV rate
|
|
|
|
|
18
|
|
Cost rate
|
|
|
|
|
19
|
|
Effective advance rate %
|
|
|
|
|
20
|
|
FG inventory availability at 85% of NOLV
|
|
—
|
|
|
|
|
|
|
|
|
|
21
|
|
Plant
Inventory
|
|
|
|
|
22
|
|
Less ineligibles
|
|
|
|
|
23
|
|
Eligible plant inventory
|
|
—
|
|
|
24
|
|
NOLV calculation:
|
|
|
|
|
25
|
|
NOLV rate
|
|
|
|
|
26
|
|
Cost rate
|
|
|
|
|
27
|
|
Effective
advance rate %
|
|
|
|
|
28
|
|
Raw Material inventory
availability
|
|
—
|
|
|
|
|
|
|
|
|
|
29
|
|
Total inventory availability
|
|
—
|
|
|
|
|
|
|
|
|
|
30
|
|
Total Borrowing Base Availability
before reserves
|
|
—
|
|
|
|
|
|
|
|
|
|
31
|
|
Less availability reserves:
|
|
|
|
|
32
|
|
Rent Reserve
|
|
—
|
|
|
33
|
|
Customer Deposits @ 50%
|
|
|
|
|
34
|
|
Other Reserves
|
|
—
|
|
|
|
|
|
|
|
|
|
35
|
|
Total availability reserves
|
|
—
|
|
|
|
|
|
|
|
|
|
36
|
|
Total Borrowing Base Availablility
|
|
—
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37
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Revolver Line
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38
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Lesser of Borrowing Base
Availabiliy & Commiment
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—
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39
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Loan Balance
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—
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40
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Letters of Credit Outstanding
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|
|
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41
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|
Availability
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—
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Pursuant to, and in
accordance with, the terms and provisions of that certain Credit Agreement
(“Agreement”), between JPMorgan Chase Bank, N.A. (“Chase”), as administrative
agent for the Lenders, the Loan Parties and Ethan Allen Global, Inc.
(“Borrower”), Borrower is executing and delivering to Chase this Collateral
Report accompanied by supporting data (collectively referred to as the
“Report”). Borrower warrants and represents to Chase that this Report is true
and correct, and is based on information contained in Borrower’s own financial
accounting records. Borrower, by the
execution of this Report, hereby ratifies, confirms and affirms all of the
terms, conditions and provisions of the Agreement, and further certifies on
this day of
,
20 , that the Borrower is in compliance with said
Agreement.
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BORROWER NAME:
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AUTHORIZED SIGNATURE:
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EXHIBIT D
COMPLIANCE CERTIFICATE
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To:
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The
Lenders parties to the
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Credit
Agreement Described Below
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This Compliance Certificate is furnished pursuant to that certain
Credit Agreement dated as of May 29, 2009 (as amended, modified, renewed
or extended from time to time, the “
Agreement
”) among Ethan Allen Global, Inc.
(the “
Borrower
”), Ethan Allen Interiors Inc., the other Loan Parties,
the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative
Agent for the Lenders and as the Issuing Bank.
Unless otherwise defined herein, capitalized terms used in this
Compliance Certificate have the meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected of
the Borrower;
2. I have reviewed the terms of
the Agreement and I have made, or have caused to be made under my supervision,
a detailed review of the transactions and conditions of the Borrower and its
Subsidiaries during the accounting period covered by the attached financial
statements [
for quarterly or monthly
financial statements add:
and such financial statements present
fairly in all material respects the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes];
3.
The examinations described
in paragraph 2 did not disclose, except as set forth below, and I have no
knowledge of (i) the existence of any condition or event which constitutes
a Default during or at the end of the accounting period covered by the attached
financial statements or as of the date of this Certificate or (ii) any
change in GAAP or in the application thereof that has occurred since the date
of the audited financial statements referred to in Section 3.04 of the
Agreement;
4. I hereby certify that no Loan Party has
changed (i) its name, (ii) its chief executive office, (iii) principal
place of business, (iv) the type of entity it is or (v) its state of
incorporation or organization without having given the Agent the notice
required by Section 4.15 of the Security Agreement;
5.
Schedule I
attached hereto sets forth financial data and
computations evidencing the Borrower’s compliance with certain covenants of the
Agreement, all of which data and computations are true, complete and
correct; and
6.
Schedule II
hereto
sets forth the computations necessary to determine the Applicable Rate
commencing on the Business Day this certificate is delivered.
Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the (i) nature of the condition or event, the period during
which it has existed and the action which the Borrower has taken, is taking, or
proposes to take with respect to each such condition or event or (i) the
change in GAAP or the application thereof and the effect of such change on the
attached financial statements:
The foregoing certifications, together with the computations set forth
in Schedule I and Schedule II hereto and the financial statements delivered
with this Certificate in support hereof, are made and delivered this day
of ,
.
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ETHAN
ALLEN GLOBAL, INC.
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By:
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Name:
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Title:
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SCHEDULE I
Compliance as of
,
with
Provisions of and of
the Agreement
SCHEDULE II
Borrower’s Applicable Rate
Calculation
EXHIBIT E
JOINDER AGREEMENT
THIS
JOINDER AGREEMENT (this “
Agreement
”), dated as of
[ ],
20[ ], is entered into between
,
a
(the “
New Subsidiary
”) and JPMORGAN CHASE BANK, N.A., in its capacity as
administrative agent (the “
Administrative Agent
”) under that certain
Credit Agreement, dated as of May 29, 2009, among Ethan Allen Global, Inc.
(the “
Borrower
”), Ethan Allen Interiors Inc., the Loan Parties party
thereto, the Lenders party thereto and the Administrative Agent (as the same
may be amended, modified, extended or restated from time to time, the “Credit
Agreement”). All capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the
Credit Agreement.
The
New Subsidiary and the Administrative Agent, for the benefit of the Lenders,
hereby agree as follows:
1. The New Subsidiary hereby
acknowledges, agrees and confirms that, by its execution of this Agreement, the
New Subsidiary will be deemed to be a Loan Party under the Credit Agreement and
a “Loan Guarantor” for all purposes of the Credit Agreement and shall have all
of the obligations of a Loan Party and a Loan Guarantor thereunder as if it had
executed the Credit Agreement. The New
Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by,
all of the terms, provisions and conditions contained in the Credit Agreement,
including without limitation (a) all of the representations and warranties
of the Loan Parties set forth in Article III of the Credit Agreement,
*[
and
]*
(b) all
of the covenants set forth in Articles V and VI of the Credit Agreement
*[
and (c) all of the guaranty obligations set forth in Article X
of the Credit Agreement. Without
limiting the generality of the foregoing terms of this paragraph 1, the New
Subsidiary, subject to the limitations set forth in Section 10.10 of the
Credit Agreement, hereby guarantees, jointly and severally with the other Loan
Guarantors, to the Administrative Agent and the Lenders, as provided in Article X
of the Credit Agreement, the prompt payment and performance of the Guaranteed
Obligations in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration or otherwise) strictly in accordance with the terms
thereof and agrees that if any of the Guaranteed Obligations are not paid or
performed in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration or otherwise), the New Subsidiary will, jointly and
severally together with the other Loan Guarantors, promptly pay and perform the
same, without any demand or notice whatsoever, and that in the case of any
extension of time of payment or renewal of any of the Guaranteed Obligations,
the same will be promptly paid in full when due (whether at extended maturity,
as a mandatory prepayment, by acceleration or otherwise) in accordance with the
terms of such extension or renewal.
]* *[
The New Subsidiary has delivered
to the Administrative Agent an executed Loan Guaranty.
]*
2. If required, the New Subsidiary is,
simultaneously with the execution of this Agreement, executing and delivering
such Collateral Documents (and such other documents and instruments) as
requested by the Administrative Agent in accordance with the Credit Agreement.
3. The New Subsidiary hereby waives
acceptance by the Administrative Agent and the Lenders of the guaranty by the
New Subsidiary upon the execution of this Agreement by the New Subsidiary.
4. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, but all of which shall constitute one and the same instrument.
5. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
IN
WITNESS WHEREOF, the New Subsidiary has caused this Agreement to be duly
executed by its authorized officer, and the Administrative Agent, for the
benefit of the Lenders, has caused the same to be accepted by its authorized
officer, as of the day and year first above written.
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[NEW
SUBSIDIARY]
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By:
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Name:
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Title:
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Acknowledged
and accepted:
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JPMORGAN
CHASE BANK, N.A., as Administrative
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Agent
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By:
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Name:
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Title:
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EXHIBIT F
LIST OF CLOSING DOCUMENTS
Attached
ETHAN ALLEN GLOBAL, INC.
CREDIT FACILITIES
May 29, 2009
LIST OF CLOSING DOCUMENTS(7)
A.
LOAN DOCUMENTS
1.
Credit
Agreement (the “
Credit Agreement
”) by and among Ethan Allen Global, Inc.,
a Delaware corporation (the “
Borrower
”), Ethan Allen Interiors Inc., a
Delaware corporation (“
Holdings
”), the other Loan Parties party thereto,
the financial institutions from time to time parties thereto as Lenders (the “
Lenders
”)
and JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent for
itself and the other Lenders (the “
Administrative Agent
”), evidencing a
revolving credit facility to the Borrower from the Lenders in an initial
aggregate principal amount of $40,000,000.
SCHEDULES
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Schedule 2.01
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—
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Commitments
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Schedule 2.06
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—
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Existing Letters of Credit
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Schedule 3.06
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—
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Disclosed Matters
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Schedule 3.14
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—
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Insurance
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Schedule 3.15
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—
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Capitalization and Subsidiaries
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Schedule 3.21
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—
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Credit Card Processors
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Schedule 6.01
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—
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Existing Indebtedness
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Schedule 6.02
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—
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Existing Liens
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Schedule 6.04
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—
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Existing Investments
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Schedule 6.10
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—
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Existing Restrictions
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EXHIBITS
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Exhibit A
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—
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Form of Assignment and Assumption
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Exhibit B
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—
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Forms of Opinions of Loan Parties’ Counsels
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Exhibit C
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—
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Form of Borrowing Base Certificate
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Exhibit D
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—
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Form of Compliance Certificate
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Exhibit E
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—
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Joinder Agreement
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Exhibit F
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—
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List of Closing Documents
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2.
Promissory
notes executed by the Borrower in favor of each of the Lenders, if any, which
has requested a note pursuant to Section 2.10(f) of the Credit
Agreement.
(7) Each capitalized term used herein and not
defined herein shall have the meaning assigned to such term in the
above-defined Credit Agreement. Items
appearing in bold and italics shall be prepared and/or provided by the Borrower
and/or Borrower’s counsel.
3.
Pledge and
Security Agreement executed by the Loan Parties,
together
with pledged instruments and allonges, stock certificates, stock powers
executed in blank, pledge instructions and acknowledgments, as appropriate
.
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Exhibit A
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—
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Type of Entity; Principal Place of Business or
Chief Executive Office; FEIN; State Organization Number; Jurisdiction of
Incorporation; Properties Leased by the Grantors; Properties Owned by the
Grantors; Public Warehouses or Other Locations
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Exhibit B
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—
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Deposit Accounts; Lock Boxes; Securities Accounts
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Exhibit C
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—
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Letter of Credit Rights; Chattel Paper
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Exhibit D
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—
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Patents; Trademarks; Copyrights
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Exhibit E
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—
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[Intentionally Omitted]
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Exhibit F
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—
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[Intentionally Omitted]
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Exhibit G
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—
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List of Pledged Collateral, Securities and other
Investment Property
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Exhibit H
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—
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UCC Financing Statement Filing Locations
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Exhibit I
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—
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Form of Amendment
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Exhibit J
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—
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[Intentionally Omitted]
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Exhibit K
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—
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Commercial Tort Claims
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4.
Confirmatory
Grant of Security Interest in United States Patents made by certain of the Loan
Parties in favor of the Administrative Agent for the benefit of the Lenders.(8)
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Schedule A
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—
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Registered Patents; Patent Applications; Other
Patents
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Schedule B
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—
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License Agreements
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5.
Confirmatory
Grant of Security Interest in United States Trademarks made by certain of the
Loan Parties in favor of the Administrative Agent for the benefit of the
Lenders.(2)
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Schedule A
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—
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Registered Trademarks; Trademark and Service Mark
Applications; Other Trademarks
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Schedule B
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—
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License Agreements
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6.
Certificates
of Insurance listing the Administrative Agent as (x) lender loss payee for
the property, casualty and business interruption insurance policies of the Loan
Parties, together with long-form lender loss payable endorsements or
assignments, as appropriate, and (y) additional insured with respect to
the liability insurance of the Loan Parties, together with additional insured
endorsements.
B.
UCC/INTELLECTUAL PROPERTY DOCUMENTS
7.
UCC, tax lien
and name variation search reports naming each Loan Party from the appropriate
offices in relevant jurisdictions.
8.
UCC financing
statements naming each Loan Party as debtor and the Administrative Agent as
secured party as filed with the appropriate offices in applicable
jurisdictions.
9.
Intellectual
property search reports under the name of each Loan Party in each of the U.S.
Copyright Office and the U.S. Patent and Trademark Office.
(8) Executed copies of confirmatory grants to
be delivered by the Borrower (or its counsel) at closing, but shall be held in
escrow until IP Collateral Trigger Date.
C.
CORPORATE DOCUMENTS
10.
Certificate
of the Secretary or an Assistant Secretary of each Loan Party certifying (i) that
there have been no changes in the Certificate of Incorporation or other charter
document of such Loan Party, as attached thereto and as certified as of a
recent date by the Secretary of State (or the equivalent thereof) of the
jurisdiction of its organization, since the date of the certification thereof
by such Secretary of State (or the equivalent thereof), (ii) the By-Laws
or other applicable organizational document, as attached thereto, of such Loan
Party as in effect on the date of such certification, (iii) resolutions of
the Board of Directors or other governing body of such Loan Party authorizing
the execution, delivery and performance of each Loan Document to which it is a
party, and (iv) the names and true signatures of the incumbent officers of
each Loan Party authorized to sign the Loan Documents to which it is a party,
and (in the case of the Borrower) authorized to request a Borrowing or the
issuance of a Letter of Credit under the Credit Agreement.
11.
Good
Standing Certificate (or analogous documentation if applicable) for each Loan
Party from the Secretary of State (or the equivalent thereof) of the
jurisdiction of its organization, to the extent generally available in such
jurisdiction.
D.
OPINIONS
12.
Opinion
of Kelley Drye and Warren LLP, counsel for the Loan Parties.
13.
Opinion
of Pamela A. Banks, General Counsel for the Loan Parties.
E.
CLOSING CERTIFICATES AND MISCELLANEOUS
14.
A
certificate signed by the chief financial officer of Holdings, dated as of the
Effective Date, stating: (i) that no Default has occurred and is
continuing; (ii) that the representations and warranties contained in Article III
of the Credit Agreement are true and correct as of such date, (iii) certifying
any other factual matters as may be reasonably requested by the Administrative
Agent and (iv) that, after giving effect to the Transactions, the Loan
Parties, taken as a whole, are solvent and will be solvent subsequent to
incurring the Indebtedness in connection with the Transactions.
15.
Funding Account
notice.
16.
Borrowing Base
Certificate.
17.
Letter of
Credit application.
F. POST-CLOSING
DOCUMENTS
18.
Collateral
Access Agreements
.
19.
Processor
Control Agreements
.
20.
Deposit
Account Control Agreements, with respect to each deposit account of each Loan
Party, in form and substance satisfactory to the Administrative Agent, executed
by such Loan Party, the financial institution at which such deposit account is
maintained, and the Administrative Agent.
21.
Securities
Account Control Agreements, with respect to each securities account of each
Loan Party, in form and substance satisfactory to the Administrative Agent,
executed by such Loan Party, the financial institution at which such securities
account is maintained, and the Administrative Agent.
