-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JUJr5mbEbJQ35SVBFrB42ZueN3pJqY3K0QwN2cD/3VbLTRJJ/EJkidKnELvJCqOL FAHA4IXIQWp69nZM8rHh+w== /in/edgar/work/0000950144-00-013990/0000950144-00-013990.txt : 20001116 0000950144-00-013990.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950144-00-013990 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIXIE GROUP INC CENTRAL INDEX KEY: 0000029332 STANDARD INDUSTRIAL CLASSIFICATION: [2273 ] IRS NUMBER: 620183370 STATE OF INCORPORATION: TN FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02585 FILM NUMBER: 769342 BUSINESS ADDRESS: STREET 1: 345-B NOWLIN LANE CITY: CHATTANOOGA STATE: TN ZIP: 37421 BUSINESS PHONE: 6156982501 MAIL ADDRESS: STREET 1: 345-B NOWLIN LANE CITY: CHATTANOOGA STATE: TN ZIP: 37421 FORMER COMPANY: FORMER CONFORMED NAME: DIXIE YARNS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DIXIE MERCERIZING CO DATE OF NAME CHANGE: 19670524 10-Q 1 g65495e10-q.txt THE DIXIE GROUP, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 Commission File Number 0-2585 THE DIXIE GROUP, INC. Exact name of registrant as specified in its charter) Tennessee 62-0183370 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 345-B Nowlin Lane Chattanooga, Tennessee 37421 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (423) 510-7010 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. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding as of November 8, 2000 Common Stock, $3 Par Value 10,706,877 shares Class B Common Stock, $3 Par Value 795,970 shares Class C Common Stock, $3 Par Value 0 shares
2 THE DIXIE GROUP, INC. INDEX
Part I. Financial Information: Page No. Item 1 - Financial Statements Consolidated Condensed Balance Sheets -- September 30, 2000 and December 25, 1999 3 Consolidated Condensed Statements of Operations -- Three and Nine Months Ended September 30, 2000 and September 25, 1999 5 Consolidated Condensed Statements of Cash Flows -- Nine Months Ended September 30, 2000 and September 25, 1999 6 Consolidated Condensed Statements of Stockholders' Equity -- Nine Months Ended September 30, 2000 8 Notes to Consolidated Condensed Financial Statements 9 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition 16 Item 3 - Quantitative and Qualitative Disclosures About Market Risks 19 Part II. Other Information: Item 1 - Legal Proceedings 19 Item 2 - Changes in Securities and Use of Proceeds 19 Item 3 - Defaults Upon Senior Securities 19 Item 4 - Submission of Matters to a Vote of Security Holders 19 Item 5 - Other Information 19 Item 6 - Exhibits and Reports on Form 8-K 19
2 3 PART I - ITEM 1 FINANCIAL INFORMATION THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
September 30, December 25, 2000 1999 ------------- ------------ (dollar amounts in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,614 $ 12,541 Accounts receivable (less allowance for doubtful accounts of $2,044 for 2000 and $1,831 for 1999) 25,161 19,454 Inventories 122,427 104,042 Net assets held for sale 68 457 Other 18,263 14,471 --------- --------- TOTAL CURRENT ASSETS 169,533 150,965 PROPERTY, PLANT AND EQUIPMENT 330,741 307,766 Less accumulated amortization and depreciation (144,038) (134,180) --------- --------- NET PROPERTY, PLANT AND EQUIPMENT 186,703 173,586 INTANGIBLE ASSETS (less accumulated amortization of $7,317 for 2000 and $6,190 for 1999) 51,139 52,460 INVESTMENT IN AFFILIATE 11,589 -- OTHER ASSETS 17,210 14,890 --------- --------- TOTAL ASSETS $ 436,174 $ 391,901 ========= =========
See Notes to Consolidated Condensed Financial Statements. 3 4 THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
September 30, December 25, 2000 1999 ------------- ------------- (dollar amounts in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 52,921 $ 53,590 Accrued expenses 20,766 26,241 Accrued losses of discontinued operations 2,661 3,461 Current portion of long-term debt 14,019 13,460 --------- --------- TOTAL CURRENT LIABILITIES 90,367 96,752 LONG-TERM DEBT Senior indebtedness 120,798 60,961 Subordinated notes 40,476 45,238 Convertible subordinated debentures 34,737 37,237 --------- --------- TOTAL LONG-TERM DEBT 196,011 143,436 OTHER LIABILITIES 10,238 10,295 DEFERRED INCOME TAXES 25,426 23,508 STOCKHOLDERS' EQUITY Common Stock ($3 par value per share) authorized 80,000,000 shares - issued and outstanding, 14,226,315 shares for 2000 and 14,264,277 shares for 1999 42,679 42,793 Class B Common Stock ($3 par value per share) authorized 16,000,000 shares - issued and outstanding, 795,970 shares for 2000 and 1999 2,388 2,388 Common Stock Subscribed - 805,801 shares for 2000 and 620,516 shares for 1999 2,417 1,861 Additional paid-in capital 135,189 136,144 Stock subscriptions receivable (5,456) (5,456) Unearned stock compensation (106) (489) Retained earnings (deficit) (6,265) (2,659) Accumulated other comprehensive income (412) (412) --------- --------- 170,434 174,170 Less Common Stock in treasury at cost - 3,519,438 shares for 2000 and 3,511,829 shares for 1999 (56,302) (56,260) --------- --------- TOTAL STOCKHOLDERS' EQUITY 114,132 117,910 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 436,174 $ 391,901 ========= =========
See Notes to Consolidated Condensed Financial Statements. 4 5 THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended -------------------------------- --------------------------------- September 30, September 25, September 30, September 25, 2000 1999 2000 1999 ------------- ------------- -------------- ------------- (dollar amounts in thousands, except per share data) Net Sales $ 142,554 $142,589 $ 414,786 $435,926 Cost of Sales 116,142 111,713 333,647 342,821 --------- -------- --------- -------- GROSS PROFIT 26,412 30,876 81,139 93,105 Selling and administrative expenses 28,751 22,267 75,319 64,626 Other (income) expense - net (824) 317 (961) 2,457 --------- -------- --------- -------- INCOME (LOSS) BEFORE (1,515) 8,292 6,781 26,022 INTEREST AND TAXES Interest expense 4,503 3,173 12,618 9,972 --------- -------- --------- -------- INCOME (LOSS) BEFORE (6,018) 5,119 (5,837) 16,050 INCOME TAXES Income tax provision (benefit) (2,342) 2,050 (2,231) 6,341 --------- -------- --------- -------- Income (loss) from Continuing Operations (3,676) 3,069 (3,606) 9,709 Income from Disposal of Discontinued Operations -- -- -- 4,419 --------- -------- --------- -------- Net income (loss) $ (3,676) $ 3,069 $ (3,606) $ 14,128 ========= ======== ========= ======== Earnings per Share: Basic Earnings (loss) per share: Income (loss) from continuing operations $ (0.32) $ 0.27 $ (0.31) $ 0.86 Income from disposal of discontinued operations -- -- -- 0.39 --------- -------- --------- -------- Net income (loss) $ (0.32) $ 0.27 $ (0.31) $ 1.25 ========= ======== ========= ======== Shares outstanding 11,470 11,390 11,471 11,318 Diluted Earnings (loss) per share: Income (loss) from continuing operations $ (0.32) $ 0.26 $ (0.31) $ 0.83 Income from disposal of discontinued operations -- -- -- 0.37 --------- -------- --------- -------- Net income (loss) $ (0.32) $ 0.26 $ (0.31) $ 1.20 ========= ======== ========= ======== Shares outstanding 11,470 11,857 11,471 11,733
See Notes to Consolidated Condensed Financial Statements. 5 6 THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended --------------------------------- September 30, September 25, 2000 1999 ------------- ------------- (dollar amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (3,606) $ 14,128 Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations: (Income) on disposal of discontinued operations -- (4,419) Depreciation and amortization 17,923 16,945 Provision (benefit) for deferred income taxes 3,492 (1,358) (Gain) on property, plant and equipment disposals (1,933) (53) -------- -------- 15,876 25,243 Changes in operating assets and liabilities, including discontinued operations, net of effects of business combination (32,113) (23,053) -------- -------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (16,237) 2,190 CASH FLOWS FROM INVESTING ACTIVITIES Net proceeds from sale of property, plant, and equipment 17,962 91 Net proceeds from assets held for sale -- 57,380 Purchase of property, plant, and equipment (41,142) (23,845) Net cash paid in business combinations (9,117) (32,194) Investment in affiliate (11,589) -- -------- -------- NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (43,886) 1,432
See Notes to Consolidated Condensed Financial Statements. 6 7 THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)
Nine Months Ended --------------------------------------- September 30, September 25, 2000 1999 ------------- ------------- (dollar amounts in thousands) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in credit line borrowings 64,915 16,921 Payments on subordinated debentures (7,262) (2,500) Payments on term loan (6,179) (14,000) Other (278) 734 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 51,196 1,155 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,927) 4,777 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,541 2,815 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,614 $ 7,592 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 13,299 $ 11,289 ======== ======== Income taxes paid (refunds received) $ (201) $ 10,837 ======== ========
See Notes to Consolidated Condensed Financial Statements. 7 8 THE DIXIE GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in thousands) (UNAUDITED)
Common Accumulated Stock and Common Additional Retained Other Common Total Class B Stock Paid-In Earnings Comprehensive Stock In Stockholders' Stock Subscribed Capital Other (Deficit) Income Treasury Equity BALANCE AT DECEMBER 25, 1999 $ 45,181 $ 1,861 $ 136,144 $(5,945) $(2,659) $ (412) $(56,260) $ 117,910 Common Stock acquired for treasury - 7,609 shares (42) (42) Common Stock subscribed - 355,389 shares 1,066 474 (1,540) -- Stock subscriptions settled - 170,104 shares (510) (1,030) 1,540 -- Amortization of restricted stock grants 178 178 Restricted stock grants cancelled - 40,000 shares (120) (400) 205 (315) Common Stock sold under stock option plan - 2,038 shares 6 2 8 Other (1) (1) Net (loss) for the period (3,606) (3,606) BALANCE AT SEPTEMBER 30, 2000 $ 45,067 $ 2,417 $ 135,189 $(5,562) $(6,265) $ (412) $(56,302) $ 114,132
See Notes to Consolidated Condensed Financial Statements. 8 9 THE DIXIE GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (dollar amounts in thousands, except where noted or per share data) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements which do not include all of the information and footnotes required in annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the entire year. Cash and Cash Equivalents: Cash and highly liquid investments with original maturities of three months or less when purchased are reported as cash equivalents. Credit and Market Risk: The Company sells floorcovering products and, prior to July 1999, sold textile/apparel products to a wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses, including potential losses on receivables sold. The Company invests its excess cash in short-term investments and has not experienced any losses on those investments. NOTE B - SALE OF ACCOUNTS RECEIVABLE In June, 2000, the Company replaced its existing $45.0 million accounts receivable securitization program with a new one-year program which provides for up to $60.0 million of funding. Under the agreement, a significant portion of the Company's accounts receivable is sold, on a revolving basis, to a special purpose wholly-owned subsidiary which assigns such receivables to an independent issuer of receivables-backed commercial paper as security for amounts borrowed by the special purpose subsidiary. The transaction is accounted for as a sale of accounts receivable. Accordingly, the undivided interest in receivables sold under the agreement is excluded from the Company's balance sheet. Amounts sold under this arrangement and the previous program were $44.3 million at September 30, 2000 and $45.0 million at December 25, 1999. The Company's retained interest in the accounts receivable is included in the balance sheet as accounts receivable. Proceeds from the sale of accounts receivable are less than the face amount of the accounts receivable sold by an amount which approximates the variable financing cost of receivables-backed commercial paper plus administrative fees typical in such transactions. The Company continues to service the receivables and maintains an allowance for doubtful accounts based upon the expected collectibility of all of the accounts receivable generated by the Company. NOTE C - INVENTORIES Inventories are stated at the lower of cost or market. At September 30, 2000, the last-in, first-out (LIFO) cost method was used for substantially all inventories. At December 25, 1999, LIFO cost method was used for approximately 80% of total inventories and the first-in, first-out (FIFO) cost method was used for approximately 20% of total inventories. Inventories are summarized as follows: 9 10
September 30, December 25, 2000 1999 ------------- ------------ At FIFO cost: Raw materials $ 40,065 $ 31,664 Work-in-process 20,666 18,389 Finished goods 57,392 49,121 Supplies, repair parts, and other 2,247 1,835 ---------- ---------- 120,370 101,009 LIFO value over FIFO value 2,057 3,033 ---------- ---------- Total inventories $ 122,427 $ 104,042 ========== ==========
NOTE D - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended ------------------------- ------------------------- Sept 30, Sept 25, Sept 30, Sept 25, 2000 1999 2000 1999 --------- --------- --------- --------- Income (loss) from continuing operations (1) $ (3,676) $ 3,069 $ (3,606) $ 9,709 Income from disposal of discontinued operations (1) -- -- -- 4,419 Net income (loss) $ (3,676) $ 3,069 $ (3,606) $ 14,128 ========= ========= ========= ========= Denominator for calculation of basic earnings per share - weighted average shares (2) 11,470 11,390 11,471 11,318 Effect of dilutive securities: Stock options -- 184 -- 166 Stock subscriptions -- 283 -- 249 Denominator for calculation of diluted earnings per share - weighted average shares adjusted for potential dilution (3) 11,470 11,857 11,471 11,733
10 11
Three Months Ended Nine Months Ended ----------------------------- ---------------------------- Sept 30, Sept 25, Sept 30, Sept 25, 2000 1999 2000 1999 -------- -------- -------- -------- Basic Earnings per share: Income (loss) from continuing operations $ (0.32) $ 0.27 $ (0.31) $ 0.86 Income from disposal of discontinued operations -- -- -- 0.39 Net income (loss) $ (0.32) $ 0.27 $ (0.31) $ 1.25 ======= ======= ======= ======= Diluted Earnings per share: Income (loss) from continuing operations $ (0.32) $ 0.26 $ (0.31) $ 0.83 Income from disposal of discontinued operations -- -- -- 0.37 Net Income (loss) $ (0.32) $ 0.26 $ (0.31) $ 1.20 ======= ======= ======= =======
(1) No adjustments needed for diluted calculation. (2) Includes Common and Class B Common shares in thousands. (3) Because their effects are anti-dilutive, excludes shares issuable pursuant to certain grants under stock option, stock subscription, and restricted stock plans and the assumed conversion of subordinated debentures into shares of Common stock as follows: 3,281 shares in 2000 and 1,655 shares in 1999. NOTE E - LONG TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt consists of the following:
September 30, December 25, 2000 1999 ------------ ------------ Senior indebtedness: Credit line borrowings $ 95,989 $ 30,073 Term loan 30,167 36,346 Other 1,399 740 ----------- ----------- Total senior indebtedness 127,555 67,159 Subordinated notes 45,238 50,000 Convertible subordinated debentures 37,237 39,737 ----------- ----------- Total long-term debt 210,030 156,896 Less current portion (14,019) (13,460) ----------- ----------- Total long-term debt (less current portion) $ 196,011 $ 143,436 =========== ===========
The Company's senior credit arrangement was amended on November 2, 2000 to secure, with a significant portion of the Company and its subsidiaries' assets, borrowings under the arrangement and adjust covenants to reflect expected future results and the Company's current financial structure. The credit agreement provides revolving credit of up to $100.0 million through March 2003 and $5.0 million of short-term credit. The $30.2 million term loan outstanding under the agreement is payable in quarterly installments of approximately $1.6 million through December 31, 2002 with a final installment of $15.4 million in March, 2003. Interest rates under the credit agreement effectively allow for borrowing at 11 12 rates equal to LIBOR plus 1.75% to 2.75%. Commitment fees, ranging from .25% to .50% per annum on the revolving credit line are payable on the average daily unused balance of the revolving credit facility. The Company's subordinated notes are unsecured, bear interest at 9.96% to 10.61% payable semiannually, and are due in semiannual installments of $2,381 which commenced February 1, 2000. The Company's convertible subordinated debentures bear interest at 7% payable semiannually, are due in 2012, and are convertible by the holder into shares of Common Stock of the Company at an effective conversion price of $32.20 per share, subject to adjustment under certain circumstances. Mandatory sinking fund payments, which commenced May 15, 1998, will retire $2,500 principal amount of the debentures annually and approximately 70% of the debentures prior to maturity. The convertible debentures are subordinated in right of payment to all other indebtedness of the Company. At September 30, 2000, the Company is party to an interest rate swap agreement, with a notional amount of $70.0 million, to reduce the impact of changes in interest rates on its floating rate long-term debt. Under the agreement, the Company pays a fixed rate of 6.75% and receives a variable rate, which was 6.80% at September 30, 2000. Any interest rate differential realized is recognized as an adjustment to interest expense over the life of the swap agreement. The Company's long-term debt and credit agreements contain financial covenants relating to minimum net worth, the ratio of debt to capitalization and debt to earnings before interest, taxes depreciation and amortization (EBITDA), payment of dividends and certain other financial ratios. Payment of dividends is limited to 50% of aggregate consolidated net income subsequent to December 25, 1999 and financial covenants currently do not permit the payment of dividends. As of November 2, 2000, the Company's borrowing capacity under its credit arrangements was $13.1 million (including amounts available under short-term credit lines). NOTE F - BUSINESS COMBINATION AND INVESTMENTS IN AFFILIATES On July 1, 2000, the Company acquired 90% of the capital stock of Fabrica International ("Fabrica"), a privately held California corporation and a one-third interest in Chroma Systems Partners ("Chroma"). On September 8, 2000, the Company acquired the remaining 10% of the capital stock of Fabrica. Subsequent to the end of the third quarter, the Company's interest in Chroma increased to 50%. Fabrica produces and sells higher-end carpet and rugs to carpet retailers, interior designers, luxury yacht manufacturers, furniture stores and other markets. Chroma performs dyeing and finishing processes on a contract basis for Fabrica and other carpet businesses. The acquisition of Fabrica was accounted for under the purchase method and the Chroma interest was accounted for under the equity method. The Company acquired the stock of Fabrica for $9.0 million in cash. In connection with the acquisition, the Company recorded assets with a fair value of approximately $17.1 million and liabilities of $9.1 million. The agreement provides for additional payment of $50.0 million in 2003 if Fabrica's cumulative gross sales for the period of April 1, 2000 through June 30, 2003 exceed certain levels. The agreement also provides for an additional contingent amount of up to $2.5 million to be paid in April 2005 based upon Fabrica's cumulative earnings before interest and taxes for the five-year period beginning January 1, 2000. Any contingent amounts that may become payable under the agreement will be treated as an additional cost of the acquisition. Goodwill that may be generated from these transactions will be amortized over future periods on a straight-line basis. The following unaudited pro forma summary presents the consolidated results of operations as if the acquisition of Fabrica had occurred at the beginning of the periods presented after giving effect to certain adjustments, including interest expense on debt to finance the acquisition, depreciation expense on adjusted fixed asset values and related income taxes. The pro forma results are presented for comparative purposes only and do not purport to be indicative of future results or the results that would have occurred had the acquisition taken place at the beginning of the periods presented. The pro forma information below does not include information pertaining to the equity investment in Chroma. Their results of operations have been included in the Company's statement of operations subsequent to July 1, 2000. 12 13
Nine Months Ended Quarter Ended ------------------------------- Sept 25, Sept 30, Sept 25, 1999 2000 1999 ------------- ------------ ------------ Net sales $ 153,860 $ 439,951 $ 467,034 Income (loss) from continuing Operations 4,386 (1,805) 12,502 Net income (loss) 4,386 (1,805) 16,921 Basic earnings (loss) per share: Income (loss) from continuing Operations 0.39 (0.16) 1.10 Net income (loss) 0.39 (0.16) 1.50 Diluted earnings (loss) per share: Income (loss) from continuing Operations 0.37 (0.16) 1.07 Net income (loss) 0.37 (0.16) 1.44
The initial investment in Chroma was $11.0 million paid in cash on July 3, 2000. The agreement provides for an adjustment to the amount paid generally equal to the Company's share of Chroma's income or loss for the three years ending June 30, 2003 less $1.8 million. The excess of cost over the Company's share of Chroma's net assets was approximately $9.0 million. Such amount is amortized as a reduction against the Company's share of Chroma's earnings over the appropriate periods. The Company's share of Chroma's earnings for the third quarter ending September 30, 2000 were approximately $556. NOTE G - COMMITMENTS On August 15, 2000, the Company sold machinery and equipment used in its operations for approximately $15.0 million. The assets were leased back from the purchaser under an operating lease for a period of four years at an annual lease cost of approximately $2.9 million. The lease requires the Company to pay customary operating and repair expenses and to observe certain operating restrictions and financial covenants. NOTE H - SEGMENT DATA The Company's floorcovering operations are segmented based on product similarities. Accordingly, its two reportable segments are Carpet Manufacturing and Floorcovering Base Materials. The Company's Carpet Manufacturing segment is a leading carpet and rug manufacturer and supplier to higher-end residential and commercial customers serviced by Masland Carpets and Fabrica International, to consumers through major retailers under the Bretlin, Globaltex and Alliance Mills brands and to the factory-built housing and recreational vehicle markets through Carriage Carpets. The Company's Floorcovering Base Materials segment supplies extruded plied and heat-set filament and spun yarn, through Candlewick Yarns, to the Company's Carpet Manufacturing segment and, to a lesser extent, to specialty carpet yarn markets. The profit performance measure for the Company's segments is defined as Internal EBIT (earnings before interest and taxes). The aggregate of Internal EBIT for the reportable segments differs from the Company's consolidated earnings before interest and taxes by costs associated with the sale of accounts receivable under the Company's accounts receivable sales agreement and other amounts that are not included in the segments' operations. Assets measured in each reportable segment include long-lived assets, goodwill, inventories at current cost, and accounts receivable 13 14 Allocations of corporate general and administrative expenses are used in the determination of segment profit performance; however, assets of the corporate departments are not used in the segment asset performance measurement. All amortization of goodwill is included in segment profit performance measurement; however, only selected intangible assets are included in the asset performance measurement. The following table reflects selected operating data relating to the two reportable segments of the Company:
Three Months Ended Nine Months Ended --------------------------- --------------------------- Sept 30, Sept 25, Sept 30, Sept 25, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- NET SALES - EXTERNAL CUSTOMERS Carpet Manufacturing $ 125,011 $ 113,136 $ 356,485 $ 339,989 Floorcovering Base Materials 17,543 29,453 58,301 95,937 ---------- ---------- ---------- ---------- Total Net Sales $ 142,554 $ 142,589 $ 414,786 $ 435,926 INTERSEGMENTAL SALES Carpet Manufacturing $ 7,878 $ 5,791 $ 19,973 $ 14,418 Floorcovering Base Materials 38,269 27,489 105,028 74,530 ---------- ---------- ---------- ---------- Total intersegmental sales $ 46,147 $ 33,280 $ 125,001 $ 88,948 PROFIT (LOSS) PERFORMANCE Carpet Manufacturing $ (3,201) $ 7,764 $ 5,805 $ 23,694 Floorcovering Base Materials (163) 619 (1,043) 3,626 ---------- ---------- ---------- ---------- Segment Total (3,364) 8,383 4,762 27,320 Cost of A/R sales program 1,005 661 2,514 2,148 Other non-segment (income) (2,854) (570) (4,533) (850) ---------- ---------- ---------- ---------- Earnings (loss) Before Interest and Taxes (1,515) 8,292 6,781 26,022 Interest expense 4,503 3,173 12,618 9,972 ---------- ---------- ---------- ---------- Consolidated income (loss) before income taxes from continuing operations $ (6,018) $ 5,119 $ (5,837) $ 16,050
As of ---------------------------- September 30, December 25, 2000 1999 ------------- ------------ IDENTIFIABLE ASSETS Carpet Manufacturing $ 343,712 $ 292,889 Floorcovering Base Materials 76,174 76,051 Other 16,220 22,504 Assets of discontinued operations 68 457 ---------- ---------- Total consolidated assets $ 436,174 $ 391,901
14 15 NOTE I - OTHER INCOME On September 30, 2000, the Company sold certain recreational real estate. The gain of approximately $2.0 million on the sale was included in the other (income) expense - net of the Company's income statement. 15 16 PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following is presented to update the discussion of results of operations and financial condition included in the Company's 1999 Annual Report (dollar amounts in thousands, except where noted or per share data). On July 1, 2000, the Company acquired 90% of the stock of Fabrica International ("Fabrica"), a privately held corporation which manufactures and sells high-end luxury carpet and rugs to carpet retailers, interior designers, luxury yacht manufacturers, furniture stores and other markets. On September 8, 2000, the Company acquired the remaining 10% of the capital stock of Fabrica. The total purchase price was $9.0 million plus up to $52.5 million of contingent consideration based on future sales and earnings. Additionally, the Company acquired a one-third equity interest in Chroma Systems Partners ("Chroma"), a business which performs dyeing and finishing processes for Fabrica and other carpet businesses. The equity investment in Chroma was $11.0 million, and provides for an adjustment to the amount paid generally equal to the Company's share of Chroma's income or loss for the three years ending June 30, 2003 less $1.8 million. Subsequent to the end of the third quarter the Company's interest in Chroma increased to 50%. In the third quarter 2000, the Company began implementing a strategy to improve asset utilization and operating efficiencies to improve the Company's cost structure by integrating manufacturing operations and information support systems of it's North Georgia tufted carpet businesses. The Company also began reducing inventories, which had been increased to excessive levels to insure service to customers during the re-alignment of the Company's yarn operations and construction of a new distribution center and to support aggressive internal sales forecasts. As a result of implementation of the integration and inventory reduction plan, the Company recorded approximately $6.5 million of cost, which are not anticipated to reoccur in 2001, in the third quarter 2000. The Company anticipates an additional $2.5 million to $3.0 million of similar costs in the fourth quarter of 2000 to substantially complete the planed manufacturing consolidation and inventory reduction. The Company anticipates annual savings of $12.0 million to $15.0 million from the manufacturing consolidations and other identified costs reduction programs. Expected cost improvements should result from increased utilization of tufting, dyeing, finishing and distribution assets, improved operating efficiencies, and product quality, as well as elimination of fixed cost associated with the multi-site operations. Realization of the savings will be dependent upon many factors, including continued and increasing levels of demand and careful avoidance of additional, offsetting cost. RESULTS OF OPERATIONS The Company recorded a net loss of $3,676, or $.32 per diluted share, in the quarter ended September 30, 2000 and $3,606, or $.31 per diluted share, for the first nine months of 2000. Results for the third quarter and year-to-date 2000 reflected cost of $6.5 million to consolidate manufacturing operations and information systems, curtail operations to reduce inventories and to recognize losses associated with off quality inventories identified during the third quarter. Results for the 2000 reporting periods also included a gain of $2.0 million from the sale of real estate. The effect of these costs, net of the real estate gain, was $4.5 million ($2.8 million after-tax), or $.24 per diluted share, for the third quarter and nine months ended September 30, 2000. The 2000 results compared with net income of $3,069, or $.26 per diluted share, in the third quarter 1999 and income from continuing operations of $9,709, or $.83 per diluted share, for the first nine months of 1999. Net income for the first nine months of 1999 included a gain of $4,419, or $.37 per diluted share, related to discontinued operations. Net sales were $142,554 in the third quarter of 2000 and $414,786 for the first nine months of 2000, compared with net sales of $142,589 in the third quarter of 1999 and $435,926 in the first nine months of 1999. The Company's operations are segmented based on product similarities. Accordingly, its two reportable segments are Carpet Manufacturing and Floorcovering Base Materials. The Company's Carpet Manufacturing segment is a leading carpet and rug manufacturer and supplier to higher-end residential and commercial customers serviced by Masland Carpets and Fabrica International, to consumers through major retailers under the Bretlin, Globaltex and Alliance Mills brands and to the factory-built housing and recreational vehicle markets through Carriage Carpets. The Company's 16 17 Floorcovering Base Materials segment supplies extruded plied and heat-set filament and spun yarn, through Candlewick Yarns, to the Company's Carpet Manufacturing segment and, to a lesser extent, to external customers in specialty carpet yarn markets. Sales to external customers in the Company's Carpet Manufacturing segment were $125,011 in the quarter ended September 30, 2000 and $356,485 for the first nine months of 2000. Sales increased 10.5% in the third quarter of 2000 and 4.9% for the first nine months of 2000, over the comparable 1999 periods. The improvement reflects a significant increase in dollar volume of sales to high-end commercial and residential markets, including $12.0 million related to the acquisition of Fabrica, and to home center/mass merchant markets which more than offset a decline in sales to the factory-built housing market. Results of operations in the Carpet Manufacturing segment was a $3,201 loss in the third quarter of 2000 and a $5,805 profit for the first nine months of 2000. Excluding unusual cost associated with inventories and manufacturing and system consolidations, the Carpet Manufacturing segment's operating profit was $2,388 in the third quarter of 2000 and $11,394 for the first nine months of 2000. These results compare with an operating profit of $7,764 in the third quarter of 1999 and $23,694 for the 1999 year-to-date period. The decrease in profitability for the 2000 periods was principally the result of high manufacturing and distribution cost in the Company's rapidly growing tufted home center and distributor businesses, lower sales volume to the factory-built housing market and higher raw material costs. Sales to external customers in the Company's Floorcovering Base Materials segment were $17,543 in the quarter ended September 30, 2000 and $58,301 for the first nine months of 2000, a decrease of approximately 40% compared with the corresponding 1999 periods. The sales decline was primarily the result of reduced external sales volume subsequent to the sale of the Company's Ulmer, SC yarn plant in July 1999, greater utilization of yarn capacity by the Company's carpet operations and the shift of a number of the Company's external yarn programs from a full package basis to a conversion basis, in which the customer supplies fiber for yarn processing. Operating losses in the Floorcovering Base Materials segment were $163 in the third quarter of 2000 and $1,043 for the first nine months of 2000. In the third quarter of 2000, certain of the Company's base materials facilities were operated at reduced levels to reduce inventory, which resulted in fixed costs absorption losses. Excluding such losses, operations resulted in a profit of $651 for the quarter and a loss of $229 for the nine months. These results compare with operating profits of $619 and $3,626 respectively, for the third quarter and first nine months of 1999. The profitability decrease for the year-to-date 2000 period was principally a result of cost associated with realignment and expansion of the Company's yarn manufacturing facilities and expansion of the Company's extrusion capacity. The majority of the yarn manufacturing and extrusion projects were completed by the end of the second quarter of 2000. Higher raw material prices also negatively impacted results during the first nine months of 2000 compared with 1999. A number of the Company's suppliers of petroleum based raw materials increased prices in 2000. The Company's ability to recover such cost increases has varied according to the market served. The extent to which further cost increases can be recovered is uncertain. However, selected raw material price decreases have occurred since the end of the third quarter. Selling and administrative expenses were $28,751, or 20.2% of sales, in the third quarter of 2000 and $75,319, or 18.2% of sales, in the first nine months of 2000. This compared with $22,267, or 15.6% of sales, in the third quarter of 1999 and $64,626, or 14.8% of sales, for the first nine months in 1999. The increase resulted from growth in the Company's high-end residential, commercial and home center businesses and start-up expenses associated with expanded distribution channels. Selling and administrative expenses increased as a percent of sales principally due to the decline in the sales to yarn and factory built housing markets. Sales to the yarn and factory built housing markets have relatively low selling and administrative expenses compared with sales to the Company's other markets, which grew during the periods. Interest expense increased in 2000 over the comparable 1999 periods due to increased debt and higher interest rates. LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 2000, the Company's long-term debt increased $51,196 excluding debt assumed in the Fabrica acquisition. Funds of $41,142 were utilized for property, plant and equipment expenditures, $20,706 for the acquisition of Fabrica and the investment in Chroma and, $16,237 through operating activities. Funds of $17,962 were generated from the sale of property, plant and 17 18 equipment. Additionally, funds of $8,927, as reflected as a reduction of cash on the Company's balance sheet, were utilized to reduce debt. The majority of the capital expenditures were focused on the Company's yarn realignment and expansion, extrusion expansion and a new distribution center. Inventories were increased to maintain customer service levels while the yarn realignment and distribution center were being completed and to support forecasted growth in the Company's Home Center Business. During the third quarter of 2000, inventories were reduced by $3.0 million and the Company anticipates an additional $8.0 million reduction by year-end. At September 30, 2000, the Company's debt consisted of $37.2 million of convertible subordinated debentures, $45.2 million of subordinated notes, $30.2 million of senior term loans and $97.4 million of credit line indebtedness, principally under the Company's senior credit agreement. The Company's senior credit arrangement was amended on November 2, 2000 to secure borrowing under the arrangement and adjust covenants to reflect expected future results and the Company's current financial structure. The credit agreement provides revolving credit of up to $100.0 million through March 2003 and $5.0 million of short-term credit. The $30.2 million term loan outstanding under the agreement is payable in quarterly installments of approximately $1.6 million through December 31, 2002 with a final installment of $15.4 million in March, 2003. Interest rates under the credit agreement effectively allow for borrowing at rates equal to LIBOR plus 1.75% to 2.75%. Commitment fees, ranging from .25% to .50% per annum on the revolving credit line are payable on the average daily unused balance of the revolving credit facility. The Company's long-term debt and credit agreements contain financial covenants relating to minimum net worth, the ratio of debt to capitalization and debt to earnings before interest, taxes depreciation and amortization (EBITDA), payment of dividends and certain other financial ratios. Payment of dividends is limited to 50% of aggregate consolidated net income subsequent to December 25, 1999 and financial covenants currently do not permit the payment of dividends. In June, 2000, the Company replaced its existing $45.0 million accounts receivable securitization program with a new one-year program which provides for up to $60.0 million of funding. At September 30, 2000, amounts funded under the agreement were $44.3 million. On August 15, 2000, the Company sold machinery and equipment used in its operations for approximately $15.0 million. The assets were leased back from the purchaser under an operating lease for a period of four years at an annual lease cost of approximately $2.9 million. Availability under the Company's existing debt arrangements, together with the Company's operating cash flows, are expected to be adequate to finance the Company's anticipated liquidity requirements. However, significant additional cash expenditures beyond normal requirements could require supplementation or replacement of the Company's credit facilities. There can be no assurance that any such additional credit will be available on terms as favorable as the Company's current credit facilities. YEAR 2000 SYSTEMS ISSUES The Company has not experienced any significant system related year 2000 conversion issues. NEW ACCOUNTING STANDARDS In June, 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS No.133), which establishes accounting and reporting standards for derivative instruments and hedging activities. In June 1999, FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", which amends the effective date of SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. Adoption of the statement is not expected to have a significant impact on the Company's results of operations or financial position. In July, 2000 the Emerging Issue Task Force ( EITF) reached a consensus that all shipping and handling billings to a customer in a sale transaction represent fees earned for goods provided and, accordingly, amounts billed related to shipping and handling should be classified as revenue. In September, 2000 the EITF reached a consensus that a company 18 19 cannot net the shipping and handling costs against the shipping and handling revenues in the financial statements and that a company may adopt a policy of including shipping and handling costs in cost of goods sold. If shipping and handling costs are significant and are not included in cost of goods sold, a company should disclose both the amount of such costs and which line item on the income statement includes that amount. Implementation date is the fourth quarter of a registrant's fiscal year beginning after December 15, 1999 and requires restatement for all periods presented. The Company is assessing it's classification alternatives for adoption in the fourth quarter, 2000. Adoption of EITF 00-10 is not expected to have a significant impact on the Company's results of operations and financial condition. FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-Q may contain certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as such are amended. These forward-looking statements are identified by their use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends," and similar terms and phrases. Such terms or phrases relate to, among other matters, the Company's future financial performance, business prospects, growth, strategies, or liquidity. Forward-looking statements involve a number of risks and uncertainties. The following important factors may affect the future results of The Dixie Group, Inc. and could cause those results to differ materially from its historical results or those expressed in the forward-looking statements. These factors include, among others, market risks relating to interest rates, raw material prices, the loss of a significant customer or group of customers, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets served by the Company and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. PART I - ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is party to an interest rate swap agreement as a hedge to market risk exposure for potential fluctuations in its variable rate long-term debt instruments. Any interest rate differential is reflected as an adjustment to interest expense over the life of the swap agreement. The Company does not use derivative financial instruments for trading purposes. Based on the Company's $70.0 million interest rate swap agreement, the Company pays a fixed rate and receives a variable rate. A 10% fluctuation in the variable rate would result in an annual economic impact to the Company of approximately $300. PART II. OTHER INFORMATION Item 1 - Legal Proceedings None. Item 2 - Changes in Securities and Use of Proceeds None. Item 3 - Defaults Upon Senior Securities None. Item 4 - Submission of Matters to a Vote of Security Holders None. Item 5 - Other Information None. Item 6 - Exhibits and Reports on Form 8-K 19 20 Item 6 (a) Exhibits (i) Exhibits Incorporated by Reference None. (ii) Exhibits Filed with this Report (4.1) Second Amendment, dated October 5, 2000 to Credit Agreement dated March 31, 1998. (4.2) Third Amendment, dated November 2, 2000 to Credit Agreement dated March 31, 1998. (4.3) Pledge Agreement dated November 2, 2000 between the Company and SunTrust Bank, as collateral agent. (4.4) Security Agreement dated November 2, 2000 between the Company and SunTrust Bank, as collateral Agent. (27) Financial Data Schedule (for SEC Use only) (b) Reports on Form 8-K (1) A Current Report on Form 8-K dated July 1, 2000 was filed to report the acquisition of 90% of Fabrica International and a one-third equity interest in Chroma Systems Partners. (2) An Amended Current Report on Form 8-K dated July 1, 2000 was filed to include the financial statements of Fabrica International and pro forma financial information as required by article 3 of Regulation S-X and Article 11 of Regulation S-X, respectively. 20 21 SIGNATURES Pursuant to the requirements 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. THE DIXIE GROUP, INC. ----------------------------------- (Registrant) November 14, 2000 - ----------------- (Date) /s/ GARY A. HARMON ----------------------------------- Gary A. Harmon Vice President and Chief Financial Officer /s/ D. EUGENE LASATER ----------------------------------- D. Eugene Lasater Controller 21 EX-4.1 2 g65495ex4-1.txt SECOND AMENDMENTG65495 1 EXHIBIT 4.1 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT effective as of October 5, 2000 (this "Amendment"), by and among THE DIXIE GROUP, INC., a Tennessee corporation (the "Borrower"), SUNTRUST BANK, formerly known as SunTrust Bank, Atlanta, a Georgia banking corporation ("SunTrust"), the other banks and lending institutions listed on the signature pages hereof, and any assignees of SunTrust or such other banks and lending institutions which become "Lenders" as provided herein (SunTrust, and such other banks, lending institutions, and assignees referred to collectively as "Lenders"), SUNTRUST BANK, as administrative agent for the Lenders (in such capacity, the "Administrative Agent") and BANK OF AMERICA, N.A., formerly known as Nationsbank, N.A., as documentation agent for the Lenders (in such capacity, the "Documentation Agent"). WITNESSETH: WHEREAS, Borrower, the Lenders, the Administrative Agent and the Documentation Agent are parties to that certain Credit Agreement, dated as of March 31, 1998, as amended by that certain First Amendment to Credit Agreement, effective December 26, 1998 (as amended or modified, the "Agreement"); WHEREAS, Borrower, the Lenders, the Administrative Agent and the Documentation Agent have agreed to make certain modifications to the Agreement subject to the terms, conditions and requirements set forth in this Amendment. NOW THEREFORE, in consideration of the terms and conditions contained herein, the parties hereto, intending to be legally bound, hereby amend the Agreement as follows: A. AMENDMENTS TO THE AGREEMENT 1. Section 7.07(b) of the Agreement is hereby amended by replacing such subsection in its entirety with the following: (b) Quarterly and Monthly Financial Statements. (i) As soon as available and in any event within 50 days after the end of each fiscal quarter of Borrower (other than the fourth fiscal quarter), balance sheets of the Consolidated Companies as at the end of such quarter presented on a consolidated and a consolidating basis and the related statements of income, shareholders' equity, and cash flows of the Consolidated Companies for such fiscal quarter and for the portion of Borrower's fiscal year ended at the end of such quarter, presented on a consolidated and a consolidating basis setting forth in each case in 2 comparative form the figures for the corresponding quarter and the corresponding portion of Borrower's previous fiscal year, all in reasonable detail and certified by a Financial Officer of Borrower that such financial statements fairly present in all material respects the financial condition of the Consolidated Companies as at the end of such fiscal quarter on a consolidated and consolidating basis, and the results of operations and statements of cash flows of the Consolidated Companies for such fiscal quarter and such portion of Borrower's fiscal year, in accordance with GAAP consistently applied (subject to normal year-end audit adjustments and the absence of certain footnotes); provided, however, that this subsection (b)(i) shall be deemed satisfied by the delivery of Borrower's Quarterly Report on Form 10Q as filed with the Securities Exchange Commission delivered in the time allotted above; (ii) As soon as available and in any event within 45 days after the end of each fiscal month of Borrower, balance sheets of the Consolidated Companies as at the end of such month presented on a consolidated and a consolidating basis and the related statements of income, shareholders' equity, and cash flows of the Consolidated Companies for such fiscal month and for the portion of Borrower's fiscal year ended at the end of such month, presented on a consolidated and a consolidating basis setting forth in each case in comparative form the figures for the corresponding month and the corresponding portion of Borrower's previous fiscal year, all in reasonable detail and certified by a Financial Officer of Borrower that such financial statements fairly present in all material respects the financial condition of the Consolidated Companies as at the end of such fiscal month on a consolidated and consolidating basis, and the results of operations and statements of cash flows of the Consolidated Companies for such fiscal month and such portion of Borrower's fiscal year, in accordance with GAAP consistently applied (subject to normal year-end audit adjustments and the absence of certain footnotes); 2. Section 8.11 of the Agreement is hereby amended as follows: A. Subsection (a) is hereby amended by replacing such subsection in its entirety with the following: (a) Senior Funded Debt to EBITDA. Its ratio of Senior Funded Debt to EBITDA as of the last day of any fiscal month of the Borrower to be greater than 3.00 to 1.00, calculated, in the case of EBITDA, for the preceding twelve fiscal months ending on such date. B. Each reference to "fiscal quarter" in Subsections (b), (c) and (d) shall be replaced with a reference to "fiscal month". 2 3 B. WAIVER Borrower has informed the Lenders that as of September 30, 2000, the Interest Coverage Ratio is not anticipated to be not greater than 1.75 to 1.0, as required by Section 8.11(b) of the Credit Agreement. Lenders hereby waive any Event of Default that has arisen as a result of Borrower's failure to comply with Section 8.11 of the Credit Agreement for the fiscal quarter ending on or about September 30, 2000. This waiver is limited solely to the matters stated above and shall not be deemed to waive or amend any other provision of the Credit Agreement and shall not serve as a waiver or amendment of any other matter prohibited by the terms and conditions of the Credit Agreement. As amended hereby, all terms of the Credit Agreement shall remain in full force and effect and constitute the legal, valid, binding and enforceable obligations of the Borrower to the Lenders. C. MISCELLANEOUS 3. Representations and Warranties. The Borrower hereby represents and warrants to the Lenders and the Administrative Agent that: (A) the execution, delivery and performance of this Amendment (i) is within its corporate power; (ii) has been duly authorized by all necessary corporate action and shareholder action; (iii) does not conflict with, or result in the breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of its properties or assets or the properties and assets of any of its Subsidiaries pursuant to, the charter or articles of organization or similar document, or By-Laws or operating agreement or similar document of the Borrower, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Borrower is subject and (iv) does not require the consent, permission, authorization, order or license of any governmental authority or Person; (B) this Amendment has been duly executed and delivered for the benefit of or on behalf of the Borrower and constitutes a legal, valid and binding obligation of Borrower, enforceable against the Borrower in accordance with its terms except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors' rights and remedies in general; and (C) after giving effect to this Amendment, all representations and warranties set forth in Article VI of the Agreement are true and correct in all material respects and no Default or Event of Default has occurred and is continuing as of the date hereof. 4. Survival. Except as expressly provided herein, the Agreement shall continue in full force and effect, and the unamended terms and conditions of the Agreement are expressly incorporated herein and ratified and confirmed in all respects. This Amendment 3 4 is not intended to be or to create, nor shall it be construed as, a novation or an accord and satisfaction. 5. Effect of Amendment. From and after the date hereof, references to the Agreement shall be references to the Agreement as amended hereby. 6. Entire Understanding. This Amendment constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. Neither this Amendment nor any provision hereof may be changed, waived, discharged, modified or terminated orally, but only by an instrument in writing signed by the parties required to be a party thereto pursuant to the Agreement. 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED IN ALL RESPECTS BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) AND ALL APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. 8. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same document, and shall be effective as of the date first above written. 9. Severability. In the event that any part of this Amendment shall be found to be illegal or in violation of public policy, or for any reason unenforceable at law, such finding shall not invalidate any other part thereof. 10. Reimbursement of Administrative Agent. Borrower shall reimburse the Administrative Agent for the reasonable fees and expenses of counsel for the Administrative Agent in connection with this Amendment. 4 5 WITNESS the hand and seal of the parties hereto through their duly authorized officers, as of the date first above written. THE DIXIE GROUP, INC. By: /s/ Daniel K. Frierson ---------------------- Daniel K. Frierson Chairman and CEO By: /s/ Gary A. Harmon -------------------- Gary A. Harmon Vice President and Chief Financial Officer Attest: /s/ Starr T. Klein ------------------------ Starr T. Klein Secretary [CORPORATE SEAL] Address: The Dixie Group, Inc. 345-B Nowlin Lane Chattanooga, Tennessee 37421 Attn: Mr. Gary A. Harmon Telephone: (423) 510-7000 Facsimile: (423) 510-7015 6 SUNTRUST BANK, formerly known as SunTrust Bank, Atlanta, individually and as Administrative Agent By:/s/ ------------------------------- Title: Address: SunTrust Bank, Atlanta 303 Peachtree Street Atlanta, Georgia 30308 Attn: Mr. Bradley J. Staples Telephone: (404) 230-5099 Facsimile: (404) 575-2594 Payment Office: 25 Park Place, 23rd Floor Atlanta, Georgia 30303 [SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT AGREEMENT] 7 BANK OF AMERICA, N.A., formerly known as Nationsbank, N.A., individually and as Documentation Agent By: /s/ ----------------------- Title: Address: 100 North Tryon Street, 8th Floor Charlotte, NC 28255 Attn: Mr. David Dinkins Telephone: (704) 386-2951 Facsimile: (704) 386-1270 [SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT AGREEMENT] 8 SOUTHTRUST BANK, NATIONAL ASSOCIATION By: /s/ ------------------------------- Title: Address: 230 Fourth Avenue, 8th Floor Nashville, TN 37219 Attn: Mr. Bradford Vieira Telephone: (615) 880-4115 Facsimile: (615) 880-4004 [SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT AGREEMENT] 9 FIRST UNION NATIONAL BANK By: /s/ ------------------------- Title: Address: 201 South College Street, CP-6 Charolette, NC 28288-0737 Attn: Mr. David Silander Telephone: (704) 383-5124 Facsimile: (704) 374-4973 [SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT AGREEMENT] 10 THE CHASE MANHATTAN BANK By: /s/ ----------------------------- Title: Address: 1411 Broadway, 5th Floor New York, NY 10018 Attn: Mr. James A. Knight Telephone: (212) 403-5102 Facsimile: (212) 403-5112 [SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT AGREEMENT] EX-4.2 3 g65495ex4-2.txt THIRD AMENDMENT 1 EXHIBIT 4.2 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT effective as of November 2, 2000 (this "Amendment"), by and among THE DIXIE GROUP, INC., a Tennessee corporation (the "Borrower"), SUNTRUST BANK, formerly known as SunTrust Bank, Atlanta, a Georgia banking corporation ("SunTrust"), the other banks and lending institutions listed on the signature pages hereof, and any assignees of SunTrust or such other banks and lending institutions which become "Lenders" as provided herein (SunTrust, and such other banks, lending institutions, and assignees referred to collectively as "Lenders"), SUNTRUST BANK, as administrative agent for the Lenders (in such capacity, the "Administrative Agent") and BANK OF AMERICA, N.A., formerly known as NationsBank, N.A., as documentation agent for the Lenders (in such capacity, the "Documentation Agent"). W I T N E S S E T H : WHEREAS, Borrower, the Lenders, the Administrative Agent and the Documentation Agent are parties to that certain Credit Agreement, dated as of March 31, 1998, as amended by that certain First Amendment to Credit Agreement, effective December 26, 1998, and as amended by that certain Second Amendment to Credit Agreement, effective October 5, 2000 (as amended or modified, the "Credit Agreement"); WHEREAS, Borrower, the Lenders, the Administrative Agent and the Documentation Agent have agreed to make certain modifications to the Credit Agreement subject to the terms, conditions and requirements set forth in this Amendment. NOW THEREFORE, in consideration of the terms and conditions contained herein, the parties hereto, intending to be legally bound, hereby amend the Credit Agreement as follows: A. AMENDMENTS TO THE CREDIT AGREEMENT 1. Section 1.01 of the Credit Agreement is hereby amended by replacing the definitions of "Agents", "Applicable Commitment Fee Percentage", "Applicable Margin", "Credit Documents", "Debt", "EBIT", "EBITDA", "Interest Coverage Ratio", "Interest Expense", "Material Subsidiary", "Maturity Date", "Net Income", "Net Worth", "Revolving Loan Termination Date", "Securitization Documents", "Securitization Program", "Subordinated Debt", "Subsidiary", "Subsidiary Guaranty Agreement", and "Total Funded Debt" in their entirety with the following: "Agents" shall mean collectively, the Administrative Agent, the Collateral Agent and the Documentation Agent. "Applicable Commitment Fee Percentage" shall mean, with respect to any calculation of the Revolving Loan Commitment Fee hereunder, (i) from the Third Amendment Effective Date through the date which is two days after the date that the Borrower is required to deliver its quarterly financial statements for the quarter ending March 31, 2001, one-half of one percent (0.50%) per annum, and 2 (ii) thereafter, the applicable percentage determined from the chart set forth below based on Borrower's ratio of Total Funded Debt to EBITDA, as of the relevant date of determination,
> 3.50 and > 4.00 and > 4.50 and Total Funded Debt - - - to EBITDA < 3.50 < 4.00 < 4.50 < 5.00 > 5.00 --------- ------ ---------- ---------- ---------- ----- Applicable Commitment .25% .375% .375% .50% .50% Fee Percentage
Each change in the Applicable Commitment Fee Percentage shall be effective from and after the date that any change in the Applicable Margin is effective. "Applicable Margin" shall mean, with respect to all Loans, (i) from the Third Amendment Effective Date through the date which is two days after the date that the Borrower is required to deliver its quarterly financial statements for the quarter ending March 31, 2001, (A) two and three quarters percent (2.75%) per annum for all Revolving Loans that consist of Eurodollar Borrowings and (B) one and one-half of one percent (1.50%) per annum for all Loans that consist of Base Rate Borrowings, and (ii) thereafter, the applicable percentage determined from the chart set forth below based on Borrower's ratio of Total Funded Debt to EBITDA for the preceding four quarter period then ending, as determined quarterly based upon the financial statements delivered by the Borrower pursuant to this Agreement, with such Applicable Margin to be effective, with respect to calculations based upon the quarterly unaudited financial statements delivered pursuant to Section 7.07(b) of this Agreement, as of the second Business Day following the date the Administrative Agent receives the Borrower's applicable financial statements:
> 3.50 and > 4.00 and > 4.50 and Total Funded Debt - - - to EBITDA < 3.50 < 4.00 < 4.50 < 5.00 > 5.00 --------- ------ ---------- ---------- ---------- ------ Applicable Margin 1.75% 2.00% 2.25% 2.50% 2.75% for Eurodollar Borrowings Applicable Margin .50% .75% 1.00% 1.25% 1.50% for Base Rate Borrowings
"Credit Documents" shall mean and include, as the context requires, this Agreement, the Subsidiary Guaranty Agreement, the Masland Bonds, the Parent Guaranty, the Dixie Reimbursement Agreement, the Letters of Credit, the Security Documents and any and all other instruments, agreements, documents and writings contemplated hereby or executed in connection herewith. "Debt" of any Person shall mean, without duplication, (i) obligations of such Person for borrowed money, (ii) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations of such -2- 3 Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business on terms customary in the trade), (iv) obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) capitalized lease obligations of such Person, (vi) obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) guaranties by such Person of the type of indebtedness described in clauses (i) through (v) above, (viii) all indebtedness of a third party secured by any Lien on property owned by such Person, whether or not such indebtedness has been assumed by such Person, (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any common stock of such Person, (x) off-balance sheet liability retained in connection with asset securitization programs, real estate synthetic leases, real estate sale and leaseback transactions or other similar obligations 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 consolidated balance sheet of such Person and its Subsidiaries, (xi) obligations under any Interest Rate Contracts and (xii) advances under any factoring arrangement pursuant to which such Person sells its accounts on a recourse or non-recourse basis; provided, however, that in no event shall Debt include any earnout obligations of the Borrower and its Subsidiaries incurred in connection with the acquisition of Fabrica International, Inc., Chroma Technologies, Inc. and Multitex, Inc. "EBIT" shall mean, for the Borrower and its Subsidiaries for any period, an amount equal to the sum of (a) the Consolidated Net Income (Loss) of the Borrower and its Subsidiaries for such period, plus, (b) to the extent deducted in determining Net Income for such period, (i) Interest Expense of the Consolidated Companies for such period, (ii) income tax expense (whether paid or deferred) of the Consolidated Companies for such period determined in on a consolidated basis in accordance with GAAP, (iii) any other non-cash charges of the Consolidated Companies for such period determined in on a consolidated basis in accordance with GAAP and (iv) other non-recurring, non-operating consolidation expenses, not to exceed $7,553,000 in the aggregate so long as such expenses are incurred in the third and fourth fiscal quarters of the Borrower's fiscal year 2000, to the extent approved by the Administrative Agent in its sole discretion; provided, however, that with respect to any Person, or substantially all of the assets of a Person, that became a Subsidiary of, or was merged with or consolidated into, or acquired by, the Borrower or any of its Subsidiaries in accordance with the terms of this Agreement, during such period, "EBIT" shall also include the EBIT of such Person or the EBIT attributable to such assets during such period as if such Person or assets were acquired as of the first day of such period. "EBITDA" shall mean, for the Borrower and its Subsidiaries for any period, an amount equal to (i) EBIT for such period, plus (ii) to the extent -3- 4 subtracted in determining Consolidated Net Income (Loss) of the Borrower and its Subsidiaries for such period, the sum of (x) amortization expense and (y) depreciation expense of the Consolidated Companies, in each case, determined on a consolidated basis for such period in conformity with GAAP; provided, however, that with respect to any Person, or substantially all of the assets of a Person, that became a Subsidiary of, or was merged with or consolidated into, or acquired by, the Borrower or any of its Subsidiaries in accordance with the terms of this Agreement, during such period, "EBITDA" shall also include the EBITDA of such Person or the EBITDA attributable to such assets during such period as if such Person or assets were acquired as of the first day of such period. "Interest Coverage Ratio" shall mean, as of any date, the ratio of (i) EBITDA for the twelve-month period ending on or immediately prior to such date to (ii) Interest Expense for the twelve-month period ending on or immediately prior to such date. "Interest Expense" shall mean, for the Borrower and its Subsidiaries for any period determined on a consolidated basis in accordance with GAAP, the sum of (i) total interest expense, including without limitation the interest component of any payments in respect of capital leases capitalized or expensed during such period (whether or not actually paid during such period) plus (ii) the net amount payable (or minus the net amount receivable) under Currency Contracts during such period (whether or not actually paid or received during such period); provided, however, that with respect to any Person, or substantially all of the assets of a Person, that became a Subsidiary of, or was merged with or consolidated into, or acquired by, the Borrower or any of its Subsidiaries in accordance with the terms of this Agreement, during such period, "Interest Expense" shall also include the Interest Expense of such Person or the Interest Expense attributable to such assets during such period as if such Person or assets were acquired as of the first day of such period. "Material Subsidiary" shall mean each Subsidiary of the Borrower, now existing or hereafter established or acquired, that at any time prior to the Maturity Date, has or acquires total assets in excess of $1,000,000, or that is otherwise material to the operations or business of the Borrower or another Material Subsidiary or that has guaranteed any Subordinated Debt; provided that, for so long as Dixie Funding II, Inc. holds no assets and undertakes no activities other than in connection with the Securitization Program, Dixie Funding II, Inc. shall not be deemed to be a Material Subsidiary of the Borrower. "Maturity Date" shall mean the earlier of (i) March 31, 2003, and (ii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise). "Net Income" shall mean, for any period, the net income (or loss) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in -4- 5 accordance with GAAP, but excluding therefrom (to the extent otherwise included therein)(i) any extraordinary gains or losses and (ii) any gains attributable to write-ups of assets; provided, however, that to the extent during such period, the percentage of Chroma Technologies, Inc.'s net income (the "Net Income Percentage") actually distributed to the Borrower is less than 75% of Chroma Technologies, Inc.'s net income for such period, then "Net Income" for such period with respect to Chroma Technologies, Inc. shall only include an amount equal to the Net Income Percentage of Chroma Technologies, Inc.'s net income. "Net Worth" shall mean, as of any date, (i) the total assets of the Borrower and its Subsidiaries that would be reflected on the Borrower's consolidated balance sheet as of such date prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries, minus (ii) the sum of (A) the total liabilities of the Borrower and its Subsidiaries that would be reflected on the Borrower's consolidated balance sheet as of such date prepared in accordance with GAAP and (B) the amount of any write-up in the book value of any assets resulting from a revaluation thereof or any write-up in excess of the cost of such assets acquired reflected on the consolidated balance sheet of the Borrower as of such date prepared in accordance with GAAP. "Revolving Loan Termination Date" shall mean the earlier of (i) March 31, 2003, and (ii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise). "Securitization Documents" shall mean all documents from time to time executed in connection with the Securitization Program, including without limitation that certain Loan Agreement, dated as of June 23, 2000, among Dixie Funding II, Inc. as borrower, the Borrower, as Servicer, Three Pillars Funding Corporation, as lender and SunTrust Equitable Securities Corporation, the First Tier Purchase Agreement, dated as of June 23, 2000, between Borrower, Carriage Industries, Inc., Bretlin, Inc., Candlewick Yarns, Inc. and Dixie Logistics, Inc., and that certain Receivables Purchase Agreement, dated as of June 23, 2000, between Dixie Funding II, Inc. and the Borrower, in each case as amended, modified or supplemented from time to time. "Securitization Program" shall mean that certain accounts receivable purchase program established by the Borrower and its wholly-owned subsidiary, Dixie Funding II, Inc., for the sale of the accounts receivable of the Borrower and certain of its Subsidiaries to Dixie Funding II, Inc. for further transfer to a trust or series of trusts in return for certain interests in such trust or trusts with such interests in an aggregate amount not to exceed $60,000,000 to be sold to certain third party investors with all other interests in such trust or trusts to be retained by Dixie Funding II, Inc. or the Borrower. -5- 6 "Subsidiary" shall mean, as applied to any Person, (a) any corporation of which more than fifty percent (50%) of the outstanding capital stock (other than directors' qualifying shares) having ordinary voting power to elect a majority of its board of directors, regardless of the existence at the time of a right of the holders of any class or classes of securities of such corporation to exercise such voting power by reason of the happening of any contingency, or any partnership of which more than fifty percent (50%) of the outstanding partnership interests is at the time owned by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person, and (b) any other entity which is controlled or capable of being controlled by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person. "Subsidiary Guaranty Agreement" shall mean the Amended and Restated Subsidiary Guaranty Agreement executed by each of the Material Subsidiaries of the Borrower in favor of the Lenders and the Administrative Agent, substantially in the form of Exhibit C as the same may be amended, restated or supplemented from time to time. "Subordinated Debt" shall mean any Debt of the Borrower or any Subsidiary (i) that is expressly subordinated to the Debt and other obligations arising under the Credit Documents on terms reasonably satisfactory to the Administrative Agent and the Required Lenders, (ii) that matures by its terms no earlier than six months after the later of the Revolving Loan Termination Date or the Maturity Date then in effect, and (iii) that is evidenced by an indenture or other similar agreement that is in a form satisfactory to the Administrative Agent and the Required Lenders. "Total Funded Debt" shall mean, at any time, all then currently outstanding obligations, liabilities and indebtedness of the Borrower and its Subsidiaries on a consolidated basis of the types described in the definition of Debt (other than as described in subsections (vi) and (vii) thereof), including, but not limited to, all Loans and Letter of Credit Obligations under the Credit Documents. 2. Section 1.01 of the Credit Agreement is hereby amended by adding the following definitions of "Carriage Pledge Agreement", "Collateral", "Collateral Agent", "Collateral Assignments", "Copyright Security Agreement", "Deed of Trust Properties", "Deeds of Trust", "Dixie Pledge Agreement", "Environmental Indemnity", "Hazardous Materials", "Landlord Waiver", "Loans", "Master Account Agreement", "Patent Security Agreement", "Perfection Certificate", "Pledge Agreements", "Processor Agreements", "Real Estate", "Real Estate Documents", "Security Agreement", "Security Documents", "SunTrust Note", "Trademark Security Agreement" and "Third Amendment Effective Date" in the appropriate alphabetical order: "Carriage Pledge Agreement" shall mean that certain Pledge Agreement, dated as of the date hereof, executed by Carriage Industries, Inc. in favor of the -6- 7 Collateral Agent, for the benefit of the Lenders and SunTrust Bank individually, as amended, restated, supplemented or otherwise modified from time to time. "Collateral" shall mean all tangible and intangible property, real and personal, of any Credit Party that is the subject of a Lien granted pursuant to a Security Document to the Administrative Agent for the benefit of the Lenders to secure the whole or any part of the Obligations or any guarantee thereof, and shall include, without limitation, all casualty insurance proceeds and condemnation awards with respect to any of the foregoing. "Collateral Agent" shall mean SunTrust Bank, as Collateral Agent for the Lenders under the Credit Agreement and for itself (and its successors and assigns) as the lender under the SunTrust Note. "Collateral Assignments" shall mean all collateral assignments of lease and collateral assignments of distribution agreements delivered by any Credit Party to the Collateral Agent, all in form and substance satisfactory to the Collateral Agent, as each may be amended, restated, modified or otherwise supplemented from time to time. "Copyright Security Agreement" shall mean those Copyright Security Agreements, dated as of the date hereof, executed by the Borrower and any of its Subsidiaries in favor of the Collateral Agent, for the benefit of the Lenders and SunTrust Bank individually, as amended, restated, supplemented or otherwise modified from time to time. "Deed of Trust Properties" shall mean, collectively, the Real Estate subject to the Deeds of Trust. "Deeds of Trust" shall mean each of the deeds of trust, leasehold deeds of trust, mortgages, leasehold mortgages, deeds to secure debt, leasehold deeds to secure debt or other real estate security documents delivered by any Credit Party to the Collateral Agent, all in form and substance satisfactory to the Collateral Agent, as each may be amended, restated, modified or otherwise supplemented from time to time. "Dixie Pledge Agreement" shall mean that certain Pledge Agreement, dated as of the date hereof, executed by the Borrower in favor of the Collateral Agent, for the benefit of the Lenders and SunTrust Bank individually, as amended, restated, supplemented or otherwise modified from time to time. "Environmental Indemnity" shall mean the Environmental Indemnity, to be executed by the Borrower in favor of the Collateral Agent, for the benefit of the Lenders, as amended, restated, supplemented or otherwise modified from time to time. -7- 8 "Hazardous Materials" shall mean 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. "Landlord Waiver" shall mean any and all Landlord Waivers, by and among the Borrower, the Collateral Agent and the landlords at which the Borrower or any of the Material Subsidiaries leases Real Estate, as amended, restated, supplemented or otherwise modified from time to time. "Loans" shall mean, collectively, the Revolving Loans, the Term Loans and the Swing Line Loans. "Master Account Agreement" shall mean that certain Master Account Agreement, dated as the Third Amendment Effective Date, by and between the Borrower and the Collateral Agent, as amended, restated, supplemented or otherwise modified. "Patent Security Agreement" shall mean those Collateral Assignment and Security Agreements (Patents), dated as of the date hereof, executed by the Borrower and any of its Subsidiaries in favor of the Collateral Agent, for the benefit of the Lenders and SunTrust Bank individually, as amended, restated, supplemented or otherwise modified from time to time. "Perfection Certificate" shall have the meaning assigned to such term in the Security Agreement. "Pledge Agreements" shall mean, collectively, the Carriage Pledge Agreement and the Dixie Pledge Agreement. "Processor Agreements" shall mean all agreements entered into among the Credit Parties, the Collateral Agent and the third-party processors of inventory of the Credit Parties, all in form and substance satisfactory to the Collateral Agent, as each may be amended, restated, modified or otherwise supplemented from time to time. "Real Estate" shall mean all real property owned or leased by the Borrower and its Subsidiaries listed on Schedule 1.1R. "Real Estate Documents" shall mean collectively, the Deeds of Trust, the Environmental Indemnity, the Collateral Assignments, the Processor Agreements and all other documents, instruments, agreements and certificates executed and delivered by any Credit Party to the Collateral Agent in connection with the foregoing. -8- 9 "Security Agreement" shall mean that certain Security Agreement, dated as of the Third Amendment Effective Date, executed by the Borrower and each Material Subsidiary in favor of the Collateral Agent for the benefit of the Lenders and SunTrust Bank individually, as amended, restated, supplemented or otherwise modified from time to time. "Security Documents" shall mean, collectively, the Security Agreement, the Pledge Agreements, the Copyright Security Agreement, the Patent Security Agreement, the Trademark Security Agreement, the Deeds of Trust, the other Real Estate Documents, any Landlord Waivers, the Master Account Agreement, the Perfection Certificate, and all other instruments and agreements now or hereafter securing the whole or any part of the Obligations or any guarantee thereof, all UCC-1 financing statements, fixture financing statements, stock powers, and all other documents, instruments, agreements and certificates executed and delivered by any Credit Party to the Collateral Agent in connection with the foregoing. "SunTrust Note" shall mean that certain Promissory Note, dated as of August 15, 2000, executed by the Borrower in favor of SunTrust Bank in the committed amount of $5,000,000, as amended or modified. "Trademark Security Agreement" shall mean those certain Collateral Assignment and Security Agreements (Trademarks), dated as of the date hereof, executed by the Borrower and any of its Subsidiaries in favor of the Collateral Agent, for the benefit of the Lenders and SunTrust Bank individually, as amended, restated, supplemented or otherwise modified from time to time. "Third Amendment Effective Date" shall mean November 2, 2000. 3. Section 2.02(b) of the Credit Agreement is hereby amended by deleting the first sentence of said subsection and replacing it with the following: (b) Each Revolving Loan shall, at the option of the Borrower, be made or continued as, or converted into, part of one of Borrowings that shall consist entirely of Base Rate Advances or Eurodollar Advances. 4. Section 3.01(b) of the Credit Agreement is hereby amended by deleting the first two sentences of said subsection and replacing them with the following (b) Each Term Loan shall, at the option of the Borrower, be made or continued as, or converted into, part of one of Borrowings that shall consist entirely of Base Rate Advances or Eurodollar Advances. The aggregate principal amount of each Borrowing of Term Loans consisting of Eurodollar Advances shall be not less than $5,000,000 or a greater integral multiple of $1,000,000 and the aggregate principal amount of each Borrowing of Term Loans consisting of -9- 10 Base Rate Advances shall not be less than $1,000,000 or greater integral multiple of $1,000,000. 5. Section 3.02(b) of the Credit Agreement is hereby amended by deleting such section in its entirety and replacing such section with the following: (b) The Borrower agrees to repay the Term Loans in consecutive quarterly installments, commencing on December 31, 2000, and continuing on the last day of each calendar quarter (each, a "Mandatory Reduction Date") in accordance with the chart set forth below:
Date of Payment Quarterly Payment Amount --------------- ------------------------ December 31, 2000 $ 1,635,577 March 31, 2001 $ 1,635,577 June 30, 2001 $ 1,635,577 September 30, 2001 $ 1,635,577 December 31, 2001 $ 1,635,577 March 31, 2002 $ 1,635,577 June 30, 2002 $ 1,635,577 September 30, 2002 $ 1,635,577 December 31, 2002 $ 1,635,577 March 31, 2003 $15,447,115
Additionally, the Term Loans shall be repaid as required by Section 3.03 hereof. Any remaining principal and interest with respect to the Term Loans shall be due and payable in full on the Maturity Date. 6. Section 3.03(a) of the Credit Agreement is hereby amended by deleting such section in its entirety and replacing such section with the following: (a) No mandatory prepayment shall be required pursuant to this Section 3.03 except in connection with an Asset Disposition or series of related Asset Dispositions where the aggregate value of the assets subject to such Asset Disposition(s) exceeds $1,000,000 (based on the Asset Fair Market Values thereof); provided, that, regardless of the value of the assets disposed of, no mandatory prepayment shall be required with respect to (i) Asset Dispositions resulting from loss, damage, destruction, or taking where the proceeds thereof are utilized so as to be excluded from the definition of Net Proceeds, (ii) Asset Dispositions occurring as a part of any sale and leaseback transactions permitted pursuant to Section 8.07, (iii) the Tarboro Disposition, and (iv) Asset Dispositions in connection with off-balance sheet financings resulting in Deemed Debt hereunder. Whenever any Asset Disposition shall have occurred in which such Asset Fair Market Values shall have equaled or exceeded such amount, then within fifteen (15) Business Days after each date on which any Consolidated Company receives any Net Proceeds as a result of or in connection with an Asset Disposition by any Consolidated Company, the Term Loans shall be prepaid, or in the even that the Term Loans have been prepaid in full, the Total Commitments -10- 11 shall be reduced, on a pro rata basis by an amount equal to 50% the Net Proceeds of such Asset Disposition plus interest accrued and unpaid on the amount of such prepayment; provided that, in the event that the Borrower has invested or intends to reinvest the Net Proceeds of such Asset Disposition in other capital assets to be used in the business of the Borrower, the Borrower may deliver to the Administrative Agent a certificate of a Financial Officer (a "Reinvestment Certificate") of the Borrower indicating either that Borrower has reinvested or that Borrower intends to reinvest such Net Proceeds in capital assets to be used in Borrower's business within 180 days (or such longer period as may be allowed in the definition of Net Proceeds in the case of certain Asset Dispositions), then the application of the Net Proceeds of such Asset Disposition to repay the Term Loans or reduce the Total Commitments hereunder shall not be required. At the end of such 180 day period (or such longer period as may be specified in the applicable Reinvestment Certificate in the circumstances described above), 50% of the Net Proceeds of such Asset Disposition in excess of $100,000 which have not been used as set forth in the Reinvestment Certificate shall immediately be used to repay the Term Loans or, in the event that the Term Loans have been paid in full, to reduce the Total Commitments as provided herein. 7. Section 4.03(a) of the Credit Agreement is hereby amended by adding the word "and" to the end of subsection (i), by deleting the word "and" from the end of subsection (ii) and by deleting subsection (iii) thereto in its entirety. 8. Sections 4.04(a) and (b) of the Credit Agreement are hereby amended by replacing such subsections thereof with the following: (a) In connection with the making or continuation of, or conversion into, each Borrowing of Eurodollar Advances, the Borrower shall select an Interest Period to be applicable to such Eurodollar Advances, which Interest Period shall be either (i) a 1, 2, or 3 month period at any time during the one year period after the Third Amendment Effective Date or (ii) a 1, 2, 3 or 6 month period at any time at any time thereafter. 9. Section 7.07 of the Credit Agreement are hereby amended by renumbering subsection (u) as subsection (v) and adding the following as a new subsection (u) thereof: (u) promptly after the institution of, notice of any claim arising in tort with respect to which any Credit Party is the claimant and is alleging damages of at least $1,500,000; 10. Section 8.02 of the Credit Agreement is hereby amended by replacing subsection (c) and (j) thereof in their entirety with the following: (c) (i) Debt owing to a Credit Party in the form of Intercompany Advances, payable on demand and (ii) Investments in Subsidiaries permitted by Section 8.03; provided that the aggregate amount of Intercompany Advances at -11- 12 any one time outstanding from the Borrower to its Subsidiaries (excluding amounts owed by Dixie Funding or Dixie Funding II to the Borrower in connection with the Securitization Program) shall not exceed $85,000,000 at any time outstanding; plus (j) Deemed Debt incurred in connection with the Securitization Program; plus 11. Section 8.06 of the Credit Agreement is hereby amended by deleting such section in its entirety and replacing it with the following: SECTION 8.06. LEASE OBLIGATIONS. Create or suffer to exist any obligations for the payment of rent for any property under operating leases or agreements to lease (other than capital leases) which would cause the direct or contingent liabilities of the Borrower and its Subsidiaries, on a consolidated basis, to exceed $12,500,000 payable in any period of twelve consecutive calendar months. 12. Section 8.07 of the Credit Agreement is hereby amended by adding the following as a new clause (iii) at the end of such section: or (iii) in connection with the purchase of new equipment by the Borrower and its Subsidiaries which is sold and leased back by the Borrower or such Subsidiary within 45 days after such new equipment is purchased. 13. Section 8.11 of the Credit Agreement is hereby amended by deleting such section in its entirety and replacing it with the following: SECTION 8.11. FINANCIAL COVENANTS. In the case of the Borrower, permit: (a) Total Funded Debt to EBITDA. Its ratio of (i) Total Funded Debt as of the last day of any fiscal quarter of the Borrower to (ii) EBITDA for the four fiscal quarter period ending on such date to be greater than the following levels for the following periods:
Period: Maximum Ratio: ------ -------------- Third fiscal quarter of the Borrower's fiscal year 2000 through and including the second fiscal quarter of fiscal year 2001 5.5:1.0 Third fiscal quarter of the Borrower's fiscal year 2001 5.0:1.0 Fourth fiscal quarter of the Borrower's fiscal year 2001 4.5:1.0 Each fiscal quarter thereafter 4.0.1.0
-12- 13 (b) Senior Funded Debt to EBITDA. Its ratio of (i) Senior Funded Debt as of the last day of any fiscal quarter of the Borrower to (ii) EBITDA for the four fiscal quarter period ending on such date to be greater than the following levels for the following periods:
Period: Maximum Ratio: ------ -------------- Third fiscal quarter and fourth fiscal quarter of the Borrower's fiscal year 2000 3.65:1.0 First and second fiscal quarter of the Borrower's fiscal year 2001 3.5:1.0 Third fiscal quarter of the Borrower's fiscal year 2001 3.3:1.0 Each fiscal quarter thereafter 3.0.1.0
(c) Interest Coverage Ratio. Its Interest Coverage Ratio to be less than the following levels for the following periods, tested as of the last day of each fiscal month during the first twelve months ending after the Third Amendment Effective Date and as of the last day of each fiscal quarter thereafter:
Period: Maximum Ratio: ------ -------------- Fiscal month ending on or about October 31, 2000 through and including the fiscal month ending on or about September 30, 2001 2.5:1.0 Fiscal quarter ending on or about December 31, 2001 2.75:1.0 Each fiscal quarter thereafter 3.0.1.0
(d) Consolidated Net Worth. Fail to maintain as of the last day of each fiscal quarter of Borrower, Net Worth equal to or greater than the Minimum Compliance Level plus 50% of the Net Income of the Borrower earned during the current fiscal year, calculated on a cumulative basis for such fiscal year; provided, however, in the event that the Consolidated Companies suffer a net loss for any year-to-date fiscal period, Net Income shall be deemed to be $0. The "Minimum Compliance Level" shall, as of any date of determination, be equal to the sum of -13- 14 (x) $103,000,000 plus (y) an additional amount calculated as of the last day of each fiscal year of Borrower, commencing with fiscal year 2000 and added to the Minimum Compliance Level then in effect as of the last day of such fiscal year, equal to 50% of the Net Income for such fiscal year of Borrower then ending; provided, however, in the event that the Consolidated Companies suffer a net loss for any fiscal year, Net Income shall be deemed to be $0, and further provided that amounts calculated pursuant to clause (y) above shall be permanent increases in the Minimum Compliance Level so that in no event shall the Minimum Compliance Level at any date of determination be less than the amount required at any preceding date of determination. 14. Section 11.05 of the Credit Agreement is amended by replacing all references contained therein to "the Administrative Agent" to "the Administrative Agent and the Collateral Agent". 15. Section 11.17 of the Credit Agreement is amended by adding the following as subsection (d) thereof: (d) release any guarantor or limit the liability of any such guarantor under any guaranty agreement, or release all or substantially all of the collateral securing any of the Obligations; 16. Article XI of the Credit Agreement is hereby amended by inserting the provisions set forth on Exhibit A hereto at the end of such Article. Each Lender hereby acknowledges and agrees that all Collateral secures, on a pari passu basis, the Obligations and all obligations and indebtedness owed to SunTrust Bank under the SunTrust Chattanooga Note, in an aggregate principal amount of indebtedness not to exceed $5,000,000, and that the proceeds of any Collateral realized upon the exercise of any remedies of the Collateral Agent or the Lenders shall be applied in accordance with the specific terms of the Security Documents. 17. Schedule 1.1R attached hereto is hereby added as Schedules 1.1R to the Credit Agreement. 18. Schedule 6.01 and Schedule 8.01 the Credit Agreement are hereby amended by replacing such Schedules in their entirety with Schedule 6.01 and Schedule 8.01 to this Amendment. 19. Exhibit C to the Credit Agreement is hereby amended by replacing such Exhibit in its entirety with Exhibit C to this Amendment. 20. All references to "Loan Document" or "Loan Documents" contained in the Credit Agreement are hereby amended to refer to "Credit Document" or "Credit Documents". -14- 15 B. CONDITIONS PRECEDENT: This Amendment shall become effective, when and only when, the following conditions have been fulfilled to the satisfaction of the Administrative Agent: 1. The Administrative Agent shall have received the fee agreed to by the parties in that certain Fee Letter, dated as of the date hereof, by and between the Company and the Administrative Agent on behalf of the Lenders (the "Third Amendment Fee"), to be distributed pro rata to the Lenders, together with all other fees and other amounts due and payable on or prior to the Closing Date, including reimbursement or payment of all out-of-pocket expenses (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) required to be reimbursed or paid by the Borrowers hereunder, under any other Credit Document and under any agreement with the Administrative Agent. 2. Administrative Agent shall have received executed originals of this Amendment and all of the following documents, each (unless otherwise indicated) being dated the Third Amendment Effective Date, in form and substance satisfactory to the Lenders: (a) the duly completed and executed Revolving Credit Notes in favor of each Lender in the amount of its Revolving Commitment Amount; (b) the duly completed and executed Term Notes in favor of each Lender in the amount of its Term Loan; (c) the duly executed Amended and Restated Guaranty, executed by all Guarantors; (d) the duly executed Security Agreement and Master Account Agreement, together with (A) UCC-1 financing statements and other applicable documents under the laws of the jurisdictions with respect to the perfection of the Liens granted under the Security Agreement, as requested by the Administrative Agent in order to perfect such Liens, duly executed by the Borrower and the other Credit Parties, and (B) a Perfection Certificate duly completed and executed by the Borrower; (e) the duly executed Pledge Agreements, together with (A) original stock certificates evidencing the issued and outstanding shares of capital stock pledged to the Collateral Agent for the benefit of the Lenders pursuant to the Pledge Agreements, and (B) stock powers or other appropriate instruments of transfer executed in blank; (f) the duly executed Copyright Security Agreement, Patent Security Agreement and the Trademark Security Agreement; (g) a certificate of a Secretary or Assistant Secretary of each Credit Party, attaching and certifying copies of its Articles of Incorporation, Bylaws and unanimous written consent of its board of directors, authorizing the execution, delivery and performance of the -15- 16 Security Documents to which it is a party and certifying the name, title and true signature of each officer of such Credit Party executing the Credit Documents to which it is a party; (h) a favorable written opinion of counsel to the Credit Parties, addressed to the Collateral Agent and each of the Lenders, and covering such matters relating to the Credit Parties, the Amendment, the Security Documents and the transactions contemplated therein as the Collateral Agent or the Required Lenders shall reasonably request; (i) certificates of insurance, in form and detail acceptable to the Collateral Agent, describing the types and amounts of insurance (property and liability) covering any of the tangible insurable Collateral maintained by the Credit Parties in each case naming the Collateral Agent as loss payee or additional insured, as the case may be, together with a lender's loss payable endorsement in form and substance satisfactory to the Collateral Agent; and (j) evidence that the ratio of Total Funded Debt as of the Third Amendment Effective Date to EBITDA for the most recently ended four fiscal quarter period does not exceed 5.5:1.0. C. POST CLOSING COVENANT 1. The Borrower agrees to deliver, or cause to be delivered, to the Administrative Agent no later than forty-five days after the Third Amendment Effective Date: (a) the duly executed Deeds of Trust covering all of the Real Estate owned or leased by the Borrower or any other Credit Party described in Section A of Schedule 1.1R, the duly executed Collateral Assignments covering all locations where the Borrower or any other Credit Party leases warehouse or distribution space as described in Section B of Schedule 1.1R with landlord consents (unless waived by the Administrative Agent after determining in its sole discretion that the Credit Parties have unsuccessfully used their commercially reasonable efforts to obtain such Collateral Assignments and landlord consents), duly executed counterparts of Processor Agreements with all third party processors of any Credit Party's inventory if the inventory located with such processor has an aggregate value of $250,000 or more (unless waived by the Administrative Agent after determining in its sole discretion that the Credit Parties have unsuccessfully used their commercially reasonable efforts to obtain such Processor Agreements), and the duly executed counterparts of the other Real Estate Documents; (b) (i) title insurance policies (with endorsements as required by the Administrative Agent), current as-built ALTA/ACSM Land Title surveys certified to the Collateral Agent, and except to the extent waived by the Administrative Agent in its sole discretion, zoning letters, building permits and certificates of occupancy, in each case relating to the Real Estate described in Section A of Schedule 1.1R, in form and substance satisfactory to the Administrative Agent; (ii) evidence that counterparts of such Deeds of Trust have been recorded in all places to the extent necessary or desirable, in the judgment of Administrative Agent, to create a valid and enforceable first priority lien (subject to Liens permitted pursuant to Section 8.01) on each such Deed of Trust Property in favor of the Collateral Agent for the benefit of the Lenders and SunTrust Bank (or in favor of such other trustee as may be required or desired -16- 17 under local law); and (iii) an opinion of counsel in each state in which the Real Estate listed in Section A of Schedule 1.1R is located in form and substance and from counsel satisfactory to the Administrative Agent; and (c) satisfactory field audits of all accounts receivable, inventory and other personal property of the Credit Parties requested by the Lenders. 2. The Borrower agrees to deliver, or cause to be delivered, to the Administrative Agent no later than fifteen days after the Third Amendment Effective Date, UCC, tax, judgment and fixture lien searches in all jurisdictions and under all names that the Administrative Agent has requested, showing no Liens of record other than Liens permitted under the Credit Agreement. 3. The Borrower agrees to deliver, or cause to be delivered, to the Administrative Agent no later than thirty days after the Third Amendment Effective Date, certified articles of merger, assignments, releases of liens and such other documents as the US Patent and Trademark Office shall require, or otherwise, to evidence each Credit Party's patents, patent applications, trademarks and trademark applications as being owned by such Credit Party under its current name. 4. The Borrower acknowledges and agrees that the failure of the Borrower to satisfy the foregoing conditions by the deadlines set forth above shall constitute an Event of Default under the Credit Agreement. D. COLLATERAL 1. The Borrower agrees that it has or will, pursuant to Section C(1) above, pledge and cause all of its Subsidiaries to pledge all of their real and personal property as Collateral under the Security Documents for their respective obligations under the Credit Documents and the Borrower's obligations under the SunTrust Note, except that the Borrower and its Subsidiaries shall not be obligated to pledge the following assets or property: a. All assets and property of Dixie Funding II, and all capital stock of Dixie Funding II; b. All assets of the Borrower and its Subsidiaries excluded from the definition of Collateral as defined in the Security Agreement, including without limitation, (i) all accounts receivable and related assets sold or contributed, or purported to be sold or contributed, directly or indirectly, to Dixie Funding II pursuant to the Borrower's asset securitization, (ii) all accounts receivable and related assets owed by account debtors located outside the United States to the extent factored by GE Factors or any third party and (iii) all accounts receivable of Fabrica International and related assets factored by SunTrust Bank so long as the proceeds thereof are deposited into bank accounts at SunTrust Bank subject to the Master Account Agreement; -17- 18 c. All equipment or related collateral owned by SAFECO Credit Company, Inc. and leased to The Dixie Group, Inc. pursuant to that certain Master Equipment Lease Agreement dated as of August 15, 2000, and all subleases of such equipment; d. All capital stock of Chroma Technologies, Inc. and Fabrica International, Inc.; e. The Borrower's office at the Chattanooga, Tennessee airport, the Borrower's lease of (i) its New York show room located at 295 Fifth Avenue, New York, New York 10016, (ii) its New York sales office located at 469 Seventh Avenue, New York, New York 10018, (iii) its Atlanta carpets show room located at 240 Peachtree Street, NW, Atlanta, GA 30305, (iii) its Chicago carpets show room located at 222 Merchandise Mart Plaza, and (iv) its High Points, North Carolina carpets show room located at 305 West High Street, High Points, North Carolina 27260; f. The lots of real estate described, with their approximate value, on Exhibit B; and g. All trucks and other rolling stock of the Credit Parties. 2. The Borrower agrees that it will not permit the aggregate amount of accounts receivable owed by accounts debtors located outside the United States to exceed $5,000,000 at any time. 3. The Borrower agrees that it will not permit the aggregate amount of property located at its warehouse in the Netherlands to exceed $2,000,000 at any time. E. MISCELLANEOUS 1. Except for the amendments and agreements expressly set forth above, the Credit Agreement shall remain unchanged and in full force and effect. The Borrower acknowledges and expressly agrees that the Lenders reserve the right to, and do in fact, require strict compliance with the terms and provisions of the Credit Agreement, as amended by this Amendment. 2. The Borrower hereby affirms and restates as of the date hereof all covenants set forth in the Credit Agreement, as amended hereby, and such covenants are incorporated by reference herein as if set forth herein directly. 3. To induce the Lenders to enter into this Amendment (A) the Borrower hereby represents and warrants that the representations and warranties set forth in Article VI of the Credit Agreement as amended hereby are true and correct, (B) the Borrower hereby restates, ratifies and reaffirms each and every term and condition set forth in the Credit Agreement, as amended hereby, and in the Credit Documents, effective as of the date hereof; and (C) the Borrower hereby certifies that no Event of Default has occurred and is continuing. -18- 19 4. The Borrower agrees to pay all costs and expenses of the Administrative Agent and the Lenders incurred in connection with the preparation, execution, delivery and enforcement of this Amendment, including the reasonable fees and out-of-pocket expenses of Administrative Agent's and each Lender's counsel. 5. Except as expressly amended herein, all terms, covenants and conditions of the Credit Agreement and all other Credit Documents shall remain in full force and effect. The parties hereto do expressly ratify and confirm the Credit Agreement as amended herein. 6. The Borrower hereby agrees that except as explicitly stated herein nothing herein shall constitute a waiver by the Lenders of any Event of Default, whether known or unknown, which may exist under the Credit Agreement. The Borrower hereby further agrees that no action, inaction or agreement by the Lenders, including, without limitation, any indulgence, waiver, consent or agreement altering the provisions of the Credit Agreement which may have occurred with respect to the non-payment of any obligation during the terms of the Credit Agreement or any portion thereof, or any other matter relating to the Credit Agreement, shall require or imply any future indulgence, waiver, or agreement by the Lenders. In addition, the Borrower acknowledges and agrees that it has no knowledge of any defenses, counterclaims, offsets or objections in its favor against the Administrative Agent or any Lender with regard to any of the obligations due under the terms of the Credit Agreement or any other Credit Document as of the date of this Amendment. 7. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors, successors-in-titles, and assigns. 8. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 9. This Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. 10. This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof. -19- 20 IN WITNESS the hand and seal of the parties hereto through their duly authorized officers, as of the date first above written. THE DIXIE GROUP, INC. By: /s/ Danie K. Frierson ------------------------------------------ Daniel K. Fierson Chairman and CEO By: /s/ Gary A. Harmon ------------------------------------------ Gary A. Harmon Vice President and Chief Financial Officer Attest: /s/ Starr T. Klein -------------------------------------- Starr T. Klein Secretary [CORPORATE SEAL] Address: The Dixie Group, Inc. 1100 Watkins Street Chattanooga, Tennessee 37404 Attn: Mr. Gary A. Harmon Telephone: (423) 493-7241 Facsimile: (423) 493-7353 [SIGNATURE PAGE TO THIRD AMENDMENT] 21 SUNTRUST BANK, formerly known as SunTrust Bank, Atlanta, individually and as Administrative Agent By: /s/ ---------------------------------------- Title: Address: SunTrust Bank 303 Peachtree Street Atlanta, Georgia 30308 Attn: Mr. Bradley J. Staples Telephone: (404) 230-5099 Facsimile: (404) 575-2594 Payment Office: 25 Park Place, 23rd Floor Atlanta, Georgia 30303 [SIGNATURE PAGE TO THIRD AMENDMENT] 22 BANK OF AMERICA, N.A., formerly known as Nationsbank, N.A., individually and as Documentation Agent By: /s/ ------------------------------------- Title: Address: 100 North Tryon Street, 8th Floor Charlotte, NC 28255 Attn: Mr. David Dinkins Telephone: (704) 386-2951 Facsimile: (704) 386-1270 [SIGNATURE PAGE TO THIRD AMENDMENT] 23 SOUTHTRUST BANK, formerly known as SOUTHTRUST BANK, NATIONAL ASSOCIATION By: /s/ -------------------------------------- Title: Address: 230 Fourth Avenue, 8th Floor Nashville, TN 37219 Attn: Mr. Bradford Vieira Telephone: (615) 880-4115 Facsimile: (615) 880-4004 [SIGNATURE PAGE TO THIRD AMENDMENT] 24 FIRST UNION NATIONAL BANK By: /s/ ------------------------------------- Title: Address: 201 South College Street, CP-6 Charlotte, NC 28288-0737 Attn: Mr. David Silander Telephone: (704) 383-5124 Facsimile: (704) 374-4973 [SIGNATURE PAGE TO THIRD AMENDMENT] 25 THE CHASE MANHATTAN BANK By: /s/ --------------------------------------- Title: Address: 1411 Broadway, 5th Floor New York, NY 10018 Attn: Mr. James A. Knight Telephone: (212) 391-7679 Facsimile: (212) 391-2102 [SIGNATURE PAGE TO THIRD AMENDMENT] 26 SCHEDULE 1.1R A. REAL ESTATE LOCATIONS FOR DEEDS OF TRUST Office Building - Held For Sale (No title insurance, survey or other 1100 South Watkins Street real estate diligence to be required on Chattanooga, TN 37404 this location) (Hamilton County) Bretlin, Inc. 380 S. Industrial Blvd. Calhoun, GA 30701 (Gordon County) Bretlin Recycling 1465 Shattuck Industrial Blvd. Lafayette, GA 30728 (Walker County) Bretlin - Needlepunch - Dalton 1627 Abutment Road Dalton, GA 30720 (Whitfield County) Bretlin - Colormaster 200 Fair Street Extension Calhoun, GA 30701 (Gordon County) Candlewick Yarns 1529 Waring Rd. Dalton, GA 30720 (Whitfield County) Candlewick Calhoun Yarn Plant 185 South Industrial Blvd. Calhoun, GA 30701 (Gordon County) Candlewick Extrusion 246 Old Dalton Road Calhoun, GA 30701 (Gordon County) Candlewick Hurst Plant 716 Industrial Blvd Ringgold, GA 30736 (Catoosa County) Candlewick Lemoore Plant 711 Cinnamon Drive Lemoore, CA 93245 (Kings County) 27 Candlewick Roanoke Plant 1130 Lafayette Rd. Roanoke, AL 36274 (Randolph County) Carriage Industries, Inc. 185 South Industrial Blvd., SW Calhoun, GA 30701 (Gordon County) Carriage Keystone Building 185 South Industrial Blvd., SW Calhoun, GA 30701 (Gordon County) Colorworks 341 Beamer Rd. Calhoun, GA 30701 (Gordon County) Carriage Distribution Center 843 Union Grove Rd. Calhoun, GA 30701 (Gordon County) Dixie Logistics Truck Shop South Industrial Blvd., SW Calhoun, GA 30701 (Gordon County) Masland Carpets 716 Bill Myles Drive Saraland, AL 36571 (Mobile County) Masland Carpets 209 Carpet Dr. Atmore, AL 36502 (Escambia County) Fabrica (Manufacturing Facility) - Leased 2801 Pullman Street Santa Ana, CA 92705 Fabrica Catalina Island Condominium 89 Gaviota Avalon, CA Carriage Indiana Warehouse 24127 County Rd. #6 28 Elkhart, IN 46514 (Elkhart County) Dixie Group 2626 York Road #01 098 049 00 000 ($74,800) [Dixie leases this property to H&S Homes, LLC w/ option to purchase] and 2618 York Road #01 098 050 00 000 ($51,000) Gaston County, NC Dixie Group Hope Mills (21.08 acres) #0414-67-1635 ($87,617) Hope Mills (67.15 acres Mill land including 20.72 acres Hope Mills Lake) #0414-69-9200 ($127,172) Cumberland County, NC Golf Course and tracts of land in Lupton City, Tennessee 29 B. LEASED LOCATIONS FOR COLLATERAL ASSIGNMENTS OF LEASE OR COLLATERAL ASSIGNMENTS OF DISTRIBUTION AGREEMENTS Bretlin Tufting - Leased 3515 Corporate Drive Dalton, GA 30720 (Whitfield County) Bretlin - Sales - Dalton - Leased 3352 Blake Drive Dalton, GA 30720 (Whitfield County) Bretlin Tufting - Leased 75C Lowy Drive Chatsworth, GA 30705 (Murray County) Bretlin Mauldin Warehouse - Leased 1147 Mauldin Road Calhoun, GA 30701(Gordon County) Bretlin Samples - Leased 150 Connector 3 Dalton, GA 30722 (Whitfield County) Bretlin Raw Material Warehouse - Leased Brookhollow Industrial Park Boulevard Dalton, GA 30722 (Whitfield County) Candlewick West Coast Sales Office and Warehouse - Leased 13930 Mica Street Santa Fe Springs, CA 90670 (Los Angeles County) Candlewick Raw Material Warehouse - Leased 2363 HWY 41 Calhoun, GA (Gordon County) Candlewick Raw Material Warehouse - Leased 210 Second Street Ft. Oglethorpe, GA 30742 Carriage Warehousing - Distribution Agreement 1201 South 2nd Ave. Mansfield, TX 76063 Carriage Warehousing - Distribution Agreement 30 101 S. Evans Newton, KS 37114 Carriage Warehousing - Distribution Agreement 3033 Industrial Way, N.E. Salem, OR 97303 Carriage Warehousing - Distribution Agreement 5882 E. Berry St. Ft. Worth, TX 76119 Dixie Logistics Office - Leased South Industrial Blvd. Calhoun, GA 30701 (Gordon County) Fabrica 1895 South Standard Avenue Santa Ana, CA 92705 31 EXHIBIT A ADDITIONAL AGENCY PROVISIONS RELATING TO COLLATERAL AGENT SECTION 10.09. COLLATERAL AGENT PROVISIONS. (a) Each Lender hereby designates SunTrust Bank as Collateral Agent to act as specified in this Agreement and in the Security Documents. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of a Note shall be deemed irrevocably to authorize, the Collateral Agent to take such action on its behalf under the provisions of this Agreement and any other instruments and agreements referred to herein, and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Collateral Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Collateral Agent may perform any of its duties hereunder by or through its agents or employees. (b) The Collateral Agent shall have no duties or responsibilities except those expressly set forth in this Agreement. Neither the Collateral Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or in connection herewith, unless caused by its or their gross negligence or willful misconduct. The Collateral Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Collateral Agent any obligations in respect of this Agreement except as expressly set forth herein. (c) (i) Each Lender agrees that, independently and without reliance upon the Collateral Agent, or the directors, officers, agents or employees of the Collateral Agent or of any other Lender, each Lender, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with the taking or not taking of any action in connection with this Agreement and the other Credit Documents, including the decision to enter into this Agreement and to purchase the participation in the Masland Bonds, and (ii) its own appraisal of the creditworthiness of the Borrower and its Subsidiaries, and, except as expressly provided in this Agreement, the Collateral Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of any Advance or at any time or times thereafter. (ii) The Collateral Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, priority or sufficiency of this Agreement or the Notes or the Masland Bonds or the financial condition of the Borrower or its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or the Notes or the Masland Bonds, or the financial 32 condition of the Borrower or its Subsidiaries, or the existence or possible existence of any Default or Event of Default. (d) If the Collateral Agent shall request instructions from the Required Lenders with respect to any act or action (including the failure to act) in connection with this Agreement or the Security Documents, the Collateral Agent shall be entitled to refrain from such act or taking such action unless and until the Collateral Agent shall have received instructions from the Required Lenders and the Collateral Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Collateral Administrative Agent as a result of the Collateral Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders; provided, however, that the Collateral Agent shall not be required to act or not act in accordance with any instructions of the Required Lenders if to do so would expose the Collateral Agent to personal liability or would be contrary to any Credit Document or to applicable law. (e) The Collateral Agent may assume that no Event of Default has occurred and is continuing, unless the Collateral Agent has received notice from the Borrower stating the nature of the Event of Default, or has received notice from a Lender stating the nature of the Event of Default and that such Lender considers the Event of Default to have occurred and to be continuing. (f) Neither the Collateral Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or not taken by them in such capacity under or in connection with the Credit Documents, except for their own gross negligence or willful misconduct. Without limitation on the foregoing, the Collateral Agent and their respective directors, officers, agents, and employees: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives notice of the assignment or transfer thereof in form satisfactory to the Administrative Agent, signed by the payee and may treat each Lender as the owner of that Lender's interest in the obligations due to the Lender for all purposes of this Agreement until the Administrative Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Administrative Agent, signed by that Lender; (ii) may consult with legal counsel, in-house legal counsel, independent public accountants, in-house accountants and other professionals, or other experts selected by it with reasonable care, or with legal counsel, independent public accountants, or other experts for the Borrower, and shall not be liable for any action taken or not taken by it or them in good faith in accordance with the advice of such legal counsel, independent public accountants, or experts; (iii) will not be responsible to any Lender for any statement, warranty, or representation made in any of the Credit Documents or in any notice, certificate, report, request, or other statement (written or oral) in connection with any of the Credit Documents; 33 (iv) except to the extent expressly set forth in the Credit Documents, will have no duty to ascertain or inquire as to the performance or observance by the Borrower or any other Person of any of the terms, conditions, or covenants of any of the Credit Documents or to inspect the property, books, or records of the Borrower or any Subsidiary or other Person; (v) will not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, effectiveness, sufficiency, or value of any Credit Document, any other instrument or writing furnished pursuant thereto or in connection therewith; (vi) will not incur any liability by acting or not acting in reliance upon any Credit Document, notice, consent, certificate, document, statement, telex, telecopier message or other instrument or writing believed by it or them to be genuine and to have been signed, sent or made by the proper Person; and (vii) will not incur any liability for any arithmetical error in computing any amount payable to or receivable from any Lender hereunder, including, without limitation, payment of principal and interest on the Notes, Advances, and other amounts; provided that promptly upon discovery of such an error in computation, the Collateral Agent, the Lender, and (to the extent applicable) the Borrower shall make such adjustments as are necessary to correct such error and to restore the parties to the position that they would have occupied had the error not occurred. (g) Each Lender and SunTrust Bank, individually, shall, ratably in accordance with the respective outstanding principal amount of its Advances with respect to any Lender and in accordance with the outstanding principal amount under the SunTrust Chattanooga Note, indemnify and hold the Collateral Agent and its directors, officers, agents, and employees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever (including, without limitation, attorneys' fees and disbursements) that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of the Credit Documents (other than losses incurred by reason of the failure by the Borrower to pay the obligations due to the Lenders hereunder or under the Notes) or any action taken or not taken by it as Collateral Agent thereunder, except for the gross negligence or willful misconduct of such party. Without limitation of the foregoing, each Lender shall reimburse the Collateral Agent upon demand for that Lender's ratable share of any cost or expense incurred by the Collateral Agent in connection with the negotiation, preparation, execution, delivery, administration, amendment, waiver, refinancing, restructuring, reorganization (including a bankruptcy reorganization), or enforcement of the Credit Documents, to the extent that the Borrower is required to pay that cost or expense but fails to do so upon demand. (h) SunTrust Bank (and each successor Collateral Agent) has the same rights and powers under the Credit Documents as any other Lender and may exercise the same as though it 34 were not the Collateral Agent and the term "the Lenders" or "Lender" includes SunTrust Bank in its individual capacity. SunTrust Bank (and each successor Collateral Agent), and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower and any Affiliate or Subsidiary of the Borrower, as if it were not the Collateral Agent and without any duty to account therefor to the Lenders. SunTrust Bank (and each successor Collateral Agent) need not account to any other Lender for any monies received by it for reimbursement of its costs, expenses and fees as the Collateral Agent hereunder, or for any monies received by it in its capacity as a Lender hereunder, except as otherwise provided herein. This Agreement shall not be deemed to constitute a joint venture or partnership among the Lenders. (i) The Collateral Agent may resign as such at any time by written notice to the Borrower and the Lenders, to be effective upon a successor's acceptance of appointment as Collateral Agent. In such event, subject to the approval of the Borrower, the Required Lenders shall appoint a successor Collateral Agent, who must be from among the Lenders; provided, that the Collateral Agent shall be entitled to appoint a successor Collateral Agent from among the Lenders, subject to acceptance of appointment by that successor Collateral Agent and subject to the approval of the Borrower, if the Required Lenders have not appointed a successor Collateral Agent within thirty (30) calendar days after the date the Collateral Agent gave notice of resignation or was removed. Upon a successor's acceptance of appointment as Collateral Agent, the successor will thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the Collateral Agent under the Credit Documents, and the resigning Collateral Agent will thereupon be discharged from its duties and obligations thereafter arising under the Credit Documents. 35 EXHIBIT B EXTRA LOTS Lupton City, TN: Lot 126 Lupton City ($1,250) Lot 85 Lupton City ($1,625) Lot 128 Lupton City ($800) Lot 127 Lupton City ($1,175) Gaston County, NC: May Street #01 041 063 00 000 ($6,500) S. York Road #01 098 051 00 000 ($4,600) S. York Road #01 098 052 00 000 ($17,500) S. York Road #01 098 53 00 000 ($17,400) York Road #01 098 054 00 000 ($16, 300) Myers Street #10 063B 016 00 000 ($600) Bush Street #10 063B 095 00 000 ($700) Hwy 321 #10 063C 008 00 000 ($3,400) Meadow Street #10 063C 009 00 000 ($3,400) Meadow Street #10 063C 010 00 000 ($3,000) Meadow Street #10 063C 011 00 000 ($3,000) Meadow Street #10 063C 012 00 000 ($5,100) Meadow Street #10, 063C 013 00 000 ($3,000) Meadow Street #10 063C 014 00 000 ($3,000) Meadow Street #10 063C 015 00 000 ($3,000) Meadow Street #10 063C 016 00 000 ($14,800) Myers Street #10 063C 017 00 000 ($3,900) Myers Street #10 063C 018 00 000 ($3,200) Myers Street #10 063C 019 00 000 ($3,200) Myers Street #10 063C 020 00 000 ($3,100) Myers Street #10 063C 021 00 000 ($1,900) Myers Street #10 063C 022 00 000 ($2,300) Myers Street #10 063C 023 00 000 ($3,100) Myers Street #10 063C 024 00 000 ($3,100) Myers Street #10 063C 025 00 000 ($3,100) Myers Street #10 063C 026 00 000 ($3,100) Westview St. #10 063C 074 00 000 ($7,000) Goble Street #10 070 002 00 000 ($4,200) Goble Street #10 070 0002 06 000 ($1,100) Davis Park Road #10 070A 043 00 000 ($3,600) York Road #10 070A 051 00 000 ($9,300) 36 York Road #10 070A 054 00 000 ($9,900) York Road #10 070A 055 00 000 ($10,100) York Road #10 070A 056 00 000 ($10,300) York Road #10 070A 057 00 000 ($8,600) York Road #10 070A 058 00 000 ($7,100) Howard Street (Mt. Holly) #15 019B 119 00 000 ($2,000) Howard Street (Mt. Holly #15 019B 120 00 000 ($1,900) 8210 Catawba Cove Road (New Hope) #15 124 019 00 912 ($3,300) Cumberland County, NC: Hope Mills (9.8 acres) #0414-78-2197 ($35,535) Hope Mills (.60 acres) #0414-68-0527 ($5,250) Hope Mills (.65 Bluff Mill Tract) #0405-40-4596) ($2,750) Hope Mills (7.51 acres Rockfish Creek between Lakeview Dr. and Legion Rd) #0414-64-9011 ($9,578) Hope Mills (lot 24 Courthouse Acres) #0405-45-7138 ($8,000) Hope Mills (Lot 23 Courthouse Acres) #0405-45-6137 ($8,000) Hope Mills (Lot 22 Courthouse Acres) #0405-45-5147 ($8,000) Hope Mills Lot 21 Courthouse Acres) #0405-45-4136 ($8,000) Warehouse leased in the Netherlands 37 THIRD AMENDMENT TO CREDIT AGREEMENT SCHEDULE 6.01 SUBSIDIARIES Material Subsidiaries:
Company Jurisdiction Parent ------- ------------ ------ Amtex, Inc. Tennessee The Dixie Group, Inc. Bretlin, Inc. Georgia Carriage Industries, Inc. Candlewick Yarns, Inc. Tennessee Carriage Industries, Inc. Carriage Industries, Inc. Georgia The Dixie Group, Inc. Chroma Technologies, Inc. California The Dixie Group, Inc. Dixie Funding, Inc. Tennessee The Dixie Group, Inc. Dixie Group Logistics, Inc. Georgia Carriage Industries, Inc. Fabrica International California The Dixie Group, Inc. Other Subsidiaries: Company Jurisdiction Parent ------- ------------ ------ C-Knit Apparel, Inc. Tennessee The Dixie Group, Inc. Dixie Export, Inc. U.S.V.I The Dixie Group, Inc. Dixie Funding II, Inc. Tennessee The Dixie Group, Inc. Wingate Carpets, Inc. Georgia Carriage Industries, Inc.
38 THIRD AMENDMENT TO CREDIT AGREEMENT SCHEDULE 8.01 LIENS (i) Specific Assets a. All equipment or related collateral owned by or pledged to SAFECO Credit Company, Inc. and leased to The Dixie Group, Inc. pursuant to that certain Master Equipment Lease Agreement dated as of August 15, 2000; and all subleases of such equipment; b. Real property located in Calhoun, Georgia is subject to a Deed to Secure Debt dated August 4, 1993, in the amount of $544,156.20 incurred upon the purchase of the property. A Carriage Industries distribution center is now under construction on the property. c. The Borrower and its Subsidiaries have recorded UCC Financing Statements to effect the sale of its Accounts in connection with the Loan Agreement, dated as of June 23, 2000 among the Borrower, Dixie Funding II, Three Pillars Funding Corporation and SunTrust Equitable Securities Corporation. d. Liens on the shares of stock of Fabrica International and Chroma Technologies, Inc. pledged to the former owners to the extent that such shares of stock secure the contingent deferred purchase price owed to the former owners. (ii) Miscellaneous a. All locations: security interests have been granted in connection with various copiers, computers and miscellaneous office equipment. b. All locations: security interests in accounts receivables have been granted in connection with various factoring contracts. c. All locations; security interests have been granted in the ordinary course of business in connection with various automobiles, trucks, tractor and trailers and operating leases. EX-4.3 4 g65495ex4-3.txt PLEDGE AGREEMENT 1 EXHIBIT 4.3 PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (this "PLEDGE AGREEMENT"), executed by THE DIXIE GROUP, INC., a Tennessee corporation (the "PLEDGOR") in favor of SUNTRUST BANK, a Georgia banking corporation, in its capacity as Collateral Agent (the "COLLATERAL AGENT") for itself and other lending institutions (the "LENDERS") that are signatories to the Credit Agreement (as defined below). WITNESSETH: WHEREAS, the Pledgor, the Lenders, SunTrust Bank, as Administrative Agent, and Bank of America, N.A., as the Documentation Agent are parties to that Credit Agreement, dated as of March 31, 1998, as amended by that certain First Amendment to Credit Agreement, effective December 26, 1998, as amended by that certain Second Amendment to Credit Agreement, effective October 5, 2000 and by that certain Third Amendment to Credit Agreement, effective November 2, 2000 (as amended or modified, the "CREDIT AGREEMENT"); WHEREAS, the Pledgor has executed that certain Promissory Note in the amount of $5,000,000 in favor of SunTrust Bank, formerly known as SunTrust Bank, Chattanooga, ("SUNTRUST") (as amended or modified, the "SUNTRUST NOTE"); WHEREAS, it is a condition to the obligations of the Administrative Agent and the Lenders under the Credit Agreement and the obligations of SunTrust under the SunTrust Note that Pledgor grant to the Collateral Agent a security interest in all of its Pledged Collateral as defined below, and Pledgor wishes to fulfill said condition; WHEREAS, Pledgor is the record and beneficial owner of the issued and outstanding shares of common stock of those companies listed on Schedule I attached hereto (the "PLEDGED SHARES"). NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement. 2. Pledge. Pledgor hereby pledges to the Collateral Agent, for its benefit in such capacity, for its benefit as lender under the SunTrust Note and for the benefit of the Lenders (the Collateral Agent, SunTrust and Lenders referred to herein as the "SECURED PARTIES" and each a "SECURED PARTY") and grants to the Collateral Agent, for its benefit and the benefit of the Secured Parties, a security interest in all of Pledgor's rights, title and interests in, to and under the following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of Pledgor (collectively, the "PLEDGED COLLATERAL"): 2 (a) the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares so that the Collateral Agent maintains at all times under this Pledge Agreement a pledge of and security interest in and to all shares of the authorized and issued and outstanding capital stock of those companies listed on Schedule I now or hereafter owned by the Pledgor; (b) Any stock or other securities acquired by the Pledgor or the Pledgor's designees with respect to, incident to or in lieu of the Pledged Shares or with respect to, incident to or in lieu of the Pledged Collateral (x) due to any dividend, stock-split, stock dividend or distribution on dissolution, on partial or total liquidation, or for any other reason, (y) in connection with a reduction of capital, capital surplus or paid-in-surplus or (z) in connection with any spin-off, split-off, reclassification, readjustment, merger, consolidation, sale of assets, combination of shares or any other plan of distribution affecting those companies listed on Schedule I; (c) Any subscription or other rights or options issued in connection with the Pledged Shares, and, if exercised by the Pledgor, all new shares or other securities so acquired by the Pledgor, which shall immediately be assigned and delivered to the Collateral Agent and held under the terms of this Pledge Agreement in the same manner as the Pledged Shares originally pledged hereunder; and (d) Any and all proceeds, monies, income and benefits arising from or by virtue of, and all dividends and distributions (cash or otherwise) payable and/or distributable with respect to, all or any of the Pledged Shares or other securities and rights and interests described in this Section 2. 3. Security For Secured Obligations. This Pledge Agreement and the Pledged Collateral secure the prompt payment, in full when due, whether at stated maturity, or by acceleration or otherwise, and performance of all Obligations of any kind under or in connection with the Credit Agreement and the other Credit Documents, the payment in full when due and performance of all obligations under or in connection with the SunTrust Note and all obligations of Pledgor now or hereafter existing under this Pledge Agreement (collectively, the "SECURED OBLIGATIONS"). Such Secured Obligations include, without limitation, all interest, charges, expenses, fees, attorneys' fees and other sums required to be paid by Pledgor under the Credit Agreement, under the SunTrust Note, under this Pledge Agreement or under any of the other Credit Documents. 4. Delivery Of Pledged Collateral. All certificates representing or evidencing the Pledged Shares shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto, and shall be accompanied by duly executed, undated instruments of transfer or assignment endorsed in blank, all in form and substance satisfactory to the Collateral Agent and, if the Collateral Agent so requests, with signatures guaranteed by a member of a registered national securities exchange or the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States. After 2 3 the occurrence and during the continuation of an Event of Default, the Collateral Agent shall have the right, at any time in its discretion and without notice to Pledgor, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Pledged Shares. In addition, the Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Shares for certificates or instruments of smaller or larger denominations. 5. Representations and Warranties. Pledgor represents and warrants to the Secured Parties as follows: (a) the Pledged Shares represent, all of the issued and outstanding shares of the voting capital stock of those companies listed on Schedule I owned by the Pledgor. (b) Pledgor is, and at the time of delivery of the Pledged Shares to the Collateral Agent pursuant to Section 4 hereof will be, the sole holder of record and the sole beneficial owner of the Pledged Shares, free and clear of any Lien thereon or affecting the title thereto except for the Lien created by this Pledge Agreement. (c) All of the Pledged Shares have been duly authorized, validly issued and are fully paid and non-assessable and all documentary, stamp, or other taxes or fees owing in connection with the issuance, transfer and/or pledge thereof hereunder have been paid and will be hereafter paid by the Pledgor as same becomes due and payable. (d) No dispute, counterclaim or defense exists with respect to all or any part of the Pledged Collateral. (e) Pledgor has the requisite corporate authority to pledge, assign, transfer, deliver, deposit and set over its Pledged Collateral to the Collateral Agent as provided herein. (f) There are no restrictions upon the transfer, hypothecation or pledge of any of the Pledged Collateral. (g) None of the Pledged Shares has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject. (h) Schedule I hereto lists the authorized shares of common stock, the par value thereof and the number of issued and outstanding shares of common stock of each issuer of Pledged Shares. As of the date hereof, (i) no subscription, warrant, option or other rights to purchase or acquire any shares of any class of capital stock of any issuer of Pledged Shares is authorized and outstanding, and (ii) there is no commitment by any issuer of Pledged Shares to issue any such shares, warrants, options or other such rights or securities. 3 4 (i) The pledge by Pledgor of its Pledged Collateral is not in contravention of any law or of any agreement to which Pledgor is party or by which Pledgor is otherwise bound, and no consent, approval, authorization or other order of, or other action by, any Person or notice to or filing with, any Person is required (x) for the pledge by Pledgor of the Pledged Collateral pursuant to this Pledge Agreement or for the execution, delivery or performance of this Pledge Agreement by Pledgor or (y) for the exercise by the Collateral Agent of the voting or other rights provided for in this Pledge Agreement or the remedies in respect of the Pledged Collateral pursuant to this Pledge Agreement (except as may be required in connection with any disposition of any portion of the Pledged Collateral by laws affecting the offering and sale of securities generally). (j) The pledge, assignment and delivery of the Pledged Collateral together with duly executed, undated instruments of transfer or assignment endorsed in blank pursuant to this Pledge Agreement will create a valid first priority Lien on and a first priority perfected security interest in the Pledged Collateral and the proceeds thereof, securing the payment of the Secured Obligations and no filing or other action is necessary to perfect or protect such security interest, except that (i) the filing of a financing statement, the taking of possession or some other action may be required under Section 9-306 of the Uniform Commercial Code as in effect in the State of Georgia (the "U.C.C.") to perfect a security interest in certain proceeds of the Pledged Collateral that do not constitute Pledged Shares or other securities or instruments and (ii) the filing of a financing statement under Section 9-115(4)(b) of the U.C.C. may be required to perfect a security interest in any Pledged Collateral that constitutes "investment property" (other than the Pledged Shares) with respect to which the Collateral Agent does not have "control" (as such terms are defined in the U.C.C.). (k) All of the representations and warranties contained in the Credit Agreement, the SunTrust Note and the other Credit Documents are true and correct in all material respects, are incorporated herein by this reference and are reaffirmed and deemed made herein by Pledgor for purposes of this Pledge Agreement. The representations and warranties set forth in this Section 5 shall survive the execution and delivery of this Pledge Agreement. 6. Covenants. Pledgor covenants and agrees that from and after the date of this Pledge Agreement and until all Commitments have been terminated and all Secured Obligations, other than Secured Obligations in respect of indemnification that are not yet due and payable and other similar contingent obligations which are not yet due and payable and survive the termination of this Agreement, have been paid in full: (a) Pledgor will not sell, assign, transfer, pledge, or otherwise encumber any of its rights in or to the Pledged Collateral or any unpaid dividends or other distributions or payments with respect to the Pledged Collateral or grant a Lien in the Pledged Collateral, except pursuant to this Pledge Agreement. 4 5 (b) Pledgor will not cause any issuer of Pledged Shares to issue or grant any warrants, stock options of any nature or other instruments convertible into shares of any class of capital stock or issue any additional shares of capital stock or sell or transfer any treasury stock. (c) Pledgor will, at its own cost and expense, promptly execute, acknowledge and deliver all such instruments and take all such action as the Collateral Agent from time to time may request in order to perfect and protect the Lien granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to the Pledged Collateral. (d) Pledgor has and will, at its own cost and expense, defend the title to its Pledged Collateral and the Liens of the Collateral Agent thereon against the claim of any Person and will maintain and preserve such Liens until the payment and performance, in full, of all Secured Obligations; including the filing of any necessary financing statements, which may be filed by Collateral Agent with or (to the extent permitted by law) without the signature of Pledgor, and will cooperate with Collateral Agent, at Pledgor's expense, in obtaining all necessary approvals and making all necessary filings under federal, state, local or foreign law in connection with such Liens or any sale or transfer of the Pledged Collateral;. (e) Pledgor will pay all taxes, assessments and charges levied, assessed or imposed upon its Pledged Collateral before the same become delinquent or become Liens upon any of its Pledged Collateral except where the same may be contested in good faith by appropriate proceedings and as to which adequate reserves have been provided. 7. Adjustments and Distributions Concerning Pledged Collateral. Should the Pledged Collateral, or any part thereof, ever be converted in any manner into another type of property or any money or other proceeds ever be paid or delivered to Pledgor as a result of Pledgor's rights in the Pledged Collateral, then in any such event (except as expressly provided in Section 8 hereof), all such property, money and other proceeds shall immediately be and become part of the Pledged Collateral, and the Pledgor covenants and agrees to forthwith pay and deliver all money so received to the Collateral Agent; and, if the Collateral Agent deems it necessary and so requests, to properly endorse, assign or transfer any and all such other proceeds to the Collateral Agent and to deliver to the Collateral Agent any and all such other proceeds which require perfection by possession under the U.C.C. With respect to any of such property of a kind requiring an additional security agreement, financing statement or other writing to perfect a security interest therein in favor of the Collateral Agent, the Pledgor will forthwith execute and deliver to the Collateral Agent whatever the Collateral Agent shall deem necessary or proper for such purposes. 8. Pledgor's Rights; Termination Of Rights. (a) As long as no Event of Default (as defined in Section 9 hereof) shall have occurred and be continuing: (i) Pledgor shall have the right, from time to time, to vote and give consents with respect to its Pledged Collateral or any part thereof for all 5 6 purposes permitted by the Credit Agreement and not inconsistent with the provisions of this Pledge Agreement, the Credit Agreement or any other Credit Documents; provided, that, without limitation of the foregoing, no vote shall be cast, and no consent shall be given or action taken by Pledgor, which would have the effect of impairing the position of the Collateral Agent hereunder or which would authorize or effect (except if and to the extent expressly permitted by the Credit Agreement): (A) the dissolution or liquidation, in whole or in part, of any issuer of the Pledged Collateral, (B) the consolidation or merger of any issuer of the Pledged Collateral with any other Person (other than Pledgor), (C) the sale, disposition or encumbrance of any portion of the assets of any issuer of the Pledged Collateral or any business or division thereof, (D) any change in the authorized number of shares, the stated capital or the authorized shares of any issuer of the Pledged Collateral or the issuance of any additional shares of capital stock thereof, or (E) the alteration of the voting rights with respect to the capital stock of any issuer of the Pledged Collateral; (ii) Pledgor shall be entitled, from time to time, to collect and receive for its own use all dividends paid in respect of its Pledged Shares to the extent not in violation of the Credit Agreement other than any and all: (A) dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any of its Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any of its Pledged Collateral in connection with a partial or total liquidation or dissolution, and (C) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any of its Pledged Collateral; provided, that until actually paid all rights to such dividends shall remain subject to the Lien created by this Pledge Agreement. (b) All dividends (other than such cash dividends as are permitted to be paid to Pledgor in accordance with Section 8(a)(ii) above) and all other distributions in respect of any of the Pledged Shares, whenever paid or made, shall be delivered to the Collateral Agent to hold as Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of the Collateral Agent, be segregated from the other property or funds of Pledgor, and be forthwith delivered to the Collateral Agent as Pledged Collateral of Pledgor in the same form as so received (with any necessary endorsement or assignment). (c) Upon the occurrence of an Event of Default and during the continuation thereof, all of Pledgor's rights to exercise voting and other consensual rights pursuant to Section 8(a)(i) hereof and all of Pledgor's rights to receive any cash dividends pursuant to Section 8(a)(ii) hereof shall cease and all such rights shall thereupon become vested in the Collateral Agent, for the benefit of the Secured Parties, who shall have the sole and exclusive right to exercise the voting and other consensual rights which Pledgor would otherwise be authorized to exercise pursuant to Section 8(a)(i) hereof and to receive and retain the dividends which Pledgor would otherwise be authorized to receive and retain pursuant to Section 8(a)(ii) hereof. Upon the occurrence 6 7 of an Event of Default (as defined in Section 9 hereof) and during the continuation thereof, Pledgor shall pay over to the Collateral Agent, for the benefit of the Secured Parties, any dividends received by Pledgor with respect to its Pledged Collateral and any and all money and other property paid over to or received by the Collateral Agent shall be retained by the Collateral Agent, for the benefit of the Secured Parties, as Pledged Collateral hereunder and shall be applied in accordance with the provisions hereof. 9. Default. The Pledgor shall be in default under this Pledge Agreement upon the happening of any of the following events or conditions (hereinafter referred to as an "EVENT OF DEFAULT"): (a) The occurrence of a "Default" or an "Event of Default" as defined in the Credit Agreement; (b) The occurrence of a default or event of default under or in connection with the SunTrust Note; (c) The filing of any financing statement with regard to the Pledged Collateral, other than relating to or permitted by this Pledge Agreement, or the attachment of any additional lien or security interest to any portion of the Pledged Collateral, for the benefit of any Person other than the Collateral Agent; and (d) Failure of Pledgor to observe any of its respective covenants set forth in this Pledge Agreement; 10. Remedies Upon An Event Of Default. (a) Upon the occurrence of an Event of Default and during the continuation thereof, the Collateral Agent may exercise all rights of a secured party under the U.C.C. (whether or not the U.C.C. applies to the affected collateral). In addition, the Collateral Agent is hereby authorized and empowered to transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, exercise the voting rights with respect thereto, collect and receive all cash dividends and other distributions made thereon, sell in one or more sales after ten (10) days' notice of the time and place of any public sale or of the time after which a private sale is to take place (which notice Pledgor agrees is commercially reasonable), but without any previous notice or advertisement, the whole or any part of the Pledged Collateral and otherwise act with respect to the Pledged Collateral as though the Collateral Agent was the legal and record owner thereof. Pledgor hereby irrevocably constitutes and appoints the Collateral Agent, for the benefit of the Secured Parties, as the proxy and attorney-in-fact of Pledgor, with full power of substitution to exercise any of the rights provided in the preceding sentence; provided, that the Collateral Agent shall not have any duty to exercise any such right or to preserve the same and shall not be liable for any failure to do so or for any delay in doing so. Any sale shall be made at a public or private sale at the Collateral Agent's offices or elsewhere to be named in the notice of sale, either for cash or upon credit or for future delivery at such price as the Collateral Agent may deem fair, and any 7 8 Secured Party may be the purchaser of the whole or any part of the Pledged Collateral so sold and hold the same thereafter in its own right free from any claim of Pledgor or any right of redemption, which Pledgor hereby waives to the extent permitted by applicable law. Each sale shall be made to the highest bidder, but the Collateral Agent reserves the right to reject any and all bids at such sale which, in its discretion, it shall deem inadequate. Demands of performance, except as otherwise herein specifically provided for, notices of sale, advertisements and the presence of property at sale are hereby waived and any sale hereunder may be conducted by an auctioneer or any officer or agent of the Collateral Agent. (b) If, at the original time or times appointed for the sale of the whole or any part of the Pledged Collateral, the highest bid, if there be but one sale, shall be inadequate to discharge in full all the Secured Obligations, or if the Pledged Collateral be offered for sale in lots, if at any of such sales, the highest bid for the lot offered for sale would indicate to the Collateral Agent, in its discretion, the unlikelihood of the proceeds of the sales of the whole of the Pledged Collateral being sufficient to discharge all the Secured Obligations, the Collateral Agent may, on one or more occasions and in its discretion, postpone any of said sales by public announcement at the time of sale or the time of previous postponement of sale, and no other notice of such postponement or postponements of sale need be given, any other notice being hereby waived; provided, that any sale or sales made after such postponement shall be after ten (10) days' notice from the Collateral Agent to the Pledgor. (c) If, at any time that the Collateral Agent shall determine to exercise its rights to sell the whole or any part of the Pledged Collateral hereunder, such Pledged Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (the "Act"), the Collateral Agent may, in its discretion (subject only to applicable requirements of law), sell such Pledged Collateral or part thereof by private sale in such manner and under such circumstances as the Collateral Agent may deem necessary or advisable, but subject to the other requirements of this Section 10, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event the Collateral Agent in its discretion (i) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Collateral or part thereof could be or shall have been filed under said Act (or similar statute), (ii) may approach and negotiate with a single possible purchaser to effect such sale, (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Pledged Collateral or part thereof, and (iv) may place all or any part of the Pledged Collateral with an investment banking firm for private placement, which firm shall be entitled to purchase all or any part of the Pledged Collateral for its own account. If any of the Pledged Collateral shall not be freely distributable to the public without registration under the Act (or similar statute), then the Collateral Agent shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder 8 9 (including a sale at auction) be conducted subject to restrictions (i) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale, (ii) as to the content of legends to be placed upon any certificates representing the Pledged Collateral sold in such sale, including restrictions on future transfer thereof, (iii) as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person's access to financial information about Pledgor or any of its subsidiaries so sold and such Person's intentions as to the holding of the Pledged Collateral so sold for investment, for its own account, and not with a view to the distribution thereof, and (iv) as to such other matters as the Collateral Agent may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the U.C.C. and other laws affecting the enforcement of creditors' rights and the Act and all applicable state securities laws. (d) Pledgor acknowledges that, notwithstanding the legal availability of a private sale or a sale subject to the restrictions described above in paragraph (c), the Collateral Agent may, in its discretion, elect to register any or all the Pledged Collateral under the Act (or any applicable state securities law). Pledgor, however, recognizes that the Collateral Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof. Pledgor also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Collateral Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the registrant to register such securities for public sale under the Act, or under applicable state securities laws, even if Pledgor would agree to do so. (e) Any cash held by the Collateral Agent as Pledged Collateral and all cash proceeds received by the Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Collateral Agent, be held by the Collateral Agent as collateral for, and/or then or at any time thereafter be applied (after payment of any amounts payable to the Collateral Agent pursuant to Section 13 hereof) in whole or in part by the Collateral Agent for the benefit of the Secured Parties in their individual and various agency capacities and any other holder of any Secured Obligations against, all or any part of the Secured Obligations in accordance with the terms hereof. Any surplus of such cash or cash proceeds held by the Collateral Agent and remaining after payment in full of all the Secured Obligations shall be paid over to Pledgor or to whomsoever may be lawfully entitled to receive such surplus. (f) Pledgor agrees that following the occurrence and during the continuation of an Event of Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Pledge Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession 9 10 thereof by any purchaser at any sale hereunder, and Pledgor waives the benefit of all such laws to the extent it lawfully may do so. Pledgor agrees that it will not interfere with any right, power and remedy of the Collateral Agent provided for in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by the Collateral Agent of any one or more of such rights, powers, or remedies. No failure or delay on the part of the Collateral Agent to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by the Collateral Agent with respect to any such remedies shall operate as a waiver thereof, or limit or impair the Collateral Agent's right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect. Pledgor waives all claims, damages and demands against the Collateral Agent arising out of the repossession, retention or sale of the Pledged Collateral. 11. Power Of Attorney. Pledgor appoints the Collateral Agent, or any other Person whom the Collateral Agent may designate, as Pledgor's true and lawful attorney-in-fact, with power to endorse Pledgor's name on any checks, notes, acceptances, money orders, drafts or other form of payment or security representing a portion of the Pledged Collateral that may come into the Collateral Agent's possession and to do all things necessary to carry out the terms of this Pledge Agreement. Pledgor ratifies and approves all such acts of such attorney-in-fact. Neither the Collateral Agent nor any other Person designated by the Collateral Agent as attorney-in-fact hereunder will be liable for any acts or omissions, nor for any errors of judgment or mistakes of fact or law. This power, coupled with an interest, is irrevocable until all Commitments have been terminated and all Secured Obligations, other than Secured Obligations in respect of indemnification that are not yet due and payable and other similar contingent obligations which are no yet due and payable and survive the termination of this Agreement, have been paid in full. 12. Collateral Agent's Right To Take Action. In the event that Pledgor fails or refuses promptly to perform any of its obligations set forth herein, including, without limitation, its obligation pursuant to Section 6(e) hereof to pay taxes, assessments and other charges levied, assessed or imposed on the Pledged Collateral, or otherwise fails or refuses to pay any amount necessary for the preservation and protection of the Pledged Collateral, the Collateral Agent shall have the right, without obligation, to do all things it deems necessary or advisable to discharge the same (including, without limitation, to pay any such taxes, assessments, charges or other sums, together with interest and penalties thereon) and any sums paid by the Collateral Agent, or the cost thereof, including, without limitation, attorneys' fees, shall be reimbursed by Pledgor, to the Collateral Agent on demand and, until so reimbursed, shall bear interest at the highest rate chargeable under Section 4.03(c) of the Credit Agreement. 13. Expenses. (a) The Pledgor shall pay (i) all reasonable, out-of-pocket costs and expenses of the Collateral Agent, its Affiliates and the lenders, including the reasonable fees, charges and disbursements of counsel for the Collateral Agent and its Affiliates (but not the other Secured Parties), in connection with the preparation and administration of 10 11 this Pledge Agreement and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Pledge Agreement or any other Credit Document shall be consummated), and (ii) all out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel) incurred by the Collateral Agent or any Secured Party in connection with the enforcement or protection of its rights in connection with this Pledge Agreement, including its rights under this Section, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations. (b) The Pledgor shall pay, and hold the Collateral Agent and each of the Secured Parties harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Pledge Agreement and any other Credit Documents, any collateral described therein, or any payments due thereunder, and save the Collateral Agent and each Secured Party harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes. (c) To the extent that the Pledgor fails to pay any amount required to be paid to the Collateral Agent under clauses (a) or (b) hereof, each Secured Party severally agrees to pay to the Collateral Agent such Secured Party's pro rata share (determined as of the time that the unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided, that the unreimbursed expense or indemnified payment, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Collateral Agent in its capacity as such. (d) All amounts due under this Section shall be payable promptly after written demand therefor. 14. Indemnity. Pledgor will indemnify and hold harmless each of the Secured Parties and each of their respective employees, representatives, officers and directors from and against any and all claims, liabilities, investigations, losses, damages, actions, and demands by any party against the Secured Parties or any of them resulting from any breach or alleged breach by Pledgor of any representation or warranty made hereunder, or otherwise arising out of this Pledge Agreement, unless, with respect to any of the above, any of the Secured Parties are finally judicially determined to have acted or failed to act with gross negligence or wilful misconduct. This Section 14 shall survive termination of this Pledge Agreement. 15. Limitation On the Collateral Agent's Duty In Respect Of Pledged Collateral. The Collateral Agent shall use reasonable care with respect to the Pledged Collateral in its possession or under its control. The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Pledged Collateral or any income thereon, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Collateral Agent, or any other Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve 11 12 rights against any parties or any other rights pertaining to any Pledged Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own property. 16. Security Interest Absolute. All rights of the Collateral Agent and security interests hereunder, and all obligations of Pledgor hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Credit Documents or the SunTrust Note; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Documents including, without limitation, any increase in the Secured Obligations resulting from the extension of additional credit to Pledgor or any of its Subsidiaries or otherwise; (c) any taking, exchange, release or non-perfection of any other collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations; (d) any manner of application of collateral, or proceeds thereof, to all or any of the Secured Obligations, or any manner of sale or other disposition of any collateral for all or any part of the Secured Obligations or any other assets of Pledgor or any of its Subsidiaries; (e) any change, restructuring or termination of the corporate structure or existence of Pledgor or any of its Subsidiaries; or (f) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor or a third party pledgor. 17. Reinstatement. This Pledge Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Pledgor for liquidation or reorganization, should Pledgor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Pledgor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a "voidable preference," "fraudulent conveyance," "fraudulent transfer" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 12 13 18. Successors And Assigns. This Pledge Agreement and all obligations of Pledgor hereunder shall be binding upon the successors and assigns of Pledgor (including any debtor-in-possession on behalf of Pledgor) and shall, together with the rights and remedies of the Collateral Agent, for the benefit of the Secured Parties, hereunder, inure to the benefit of the Collateral Agent, Secured Parties, all future holders of any instrument evidencing any of the Secured Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner affect the Lien granted to the Collateral Agent, for the benefit of the Secured Parties, hereunder. Pledgor may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Pledge Agreement. 19. Waivers. The rights and remedies of the Secured Parties under this Pledge Agreement shall be cumulative and not exclusive of any rights or remedies which they would otherwise have. No failure or delay by any Secured Party in exercising any right shall operate as a waiver of such right. The Secured Parties expressly reserve the right to require strict compliance with the terms of this Pledge Agreement. Any waiver or indulgence granted by any Secured Party shall not constitute a modification of this Pledge Agreement, except to the extent expressly provided in such waiver or indulgence, or constitute a course of dealing by any Secured Party at variance with the terms of this Pledge Agreement such as to require further notice by the them or their intent to require strict adherence to the terms of this Pledge Agreement in the future. Any such actions shall not in any way affect the ability of the Secured Parties, in their discretion, to exercise any rights available to them under this Pledge Agreement. 20. Remedies. The rights and remedies of the Secured Parties under this Pledge Agreement shall be cumulative and nonexclusive of any other rights and remedies which any Secured Party may have under any other agreement, including the Credit Documents, or by operation of law or otherwise. Recourse to the Pledged Collateral shall not be required. 21. Severability. Any provision of this Pledge Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction. 22. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other party any communication with respect to this Pledge Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and given in the manner, and deemed received in the manner provided for in of the Credit Agreement or the SunTrust Note, as the case may be. 23. Limitation By Law. All rights, remedies and powers provided in this Pledge Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Pledge Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to 13 14 the extent necessary so that they shall not render this Pledge Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. 24. Headings. Headings used in this Pledge Agreement are for convenience only and shall not be used in connection with the interpretation of any provision hereof. 25. Counterparts. This Pledge Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument. 26. Time Of The Essence. TIME IS OF THE ESSENCE OF THIS PLEDGE AGREEMENT. 27. Governing Law; Submission to Jurisdiction. (i) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF GEORGIA. (ii) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY COURT OF THE STATE OF GEORGIA OR IN ANY COURT OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF GEORGIA, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PLEDGOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY, AND THE PLEDGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. (iii) PLEDGOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO PLEDGOR AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. 28. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Pledge Agreement. In the event an ambiguity or question of intent or interpretation arises, this Pledge Agreement shall be construed as if drafted jointly by the parties 14 15 hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Pledge Agreement. 29. Benefit of Secured Parties. All Liens granted or contemplated hereby shall be for the benefit of the Secured Parties and all proceeds or payments realized from Pledged Collateral in accordance herewith shall be applied to the Secured Obligations in accordance with the terms hereof. 30. Termination of this Pledge Agreement. No termination or cancellation (regardless of cause or procedure) of the Credit Agreement shall in any way affect or impair the powers, obligations, duties, rights and liabilities of the parties hereto in any way with respect to any transaction or event occurring prior to such termination or cancellation. This Pledge Agreement shall not terminate until all Commitments have been terminated and all Secured Obligations, other than Secured Obligations in respect of indemnification that are not yet due and payable and other similar contingent obligations which are no yet due and payable and survive the termination of this Agreement, have been paid in full. 15 16 IN WITNESS WHEREOF, Pledgor has caused this Pledge Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. THE DIXIE GROUP, INC. By: /s/ Gary A. Harmon ----------------------------- Name: Gary A. Harmon Title: Vice President and Chief Financial Officer Acknowledged and Agreed to : SUNTRUST BANK, as Collateral Agent By: /s/ ------------------------- Name: Title: [SIGNATURE PLAGE TO PLEDGE AGREEMENT] 17 Schedule I to Pledge Agreement
Place of Percentage of Shares Shares Issued Name of Corporation Incorporation Issued and Outstanding Par/No Par And Outstanding - ------------------- ------------- ---------------------- ---------- --------------- Carriage Industries, Inc. Georgia 100% $0.02 2,015,932 Dixie Export, Inc. U.S. Virgin Islands 100% no par 100 Amtex, Inc. Tennessee 100% no par 113 C-Knit Apparel, Inc. Tennessee 100% no par 1,000 Dixie Funding, Inc. Tennessee 100% $0.01 100
EX-4.4 5 g65495ex4-4.txt SECURITY AGREEMENT 1 EXHIBIT 4.4 SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "AGREEMENT"), dated as of November 2, 2000 by and among THE DIXIE GROUP, INC., a Tennessee corporation (the "BORROWER"), certain of the Borrower's Subsidiaries listed on the signature pages hereto (the "SUBSIDIARIES", together with the Borrower, the "GRANTORS") and SUNTRUST BANK, a Georgia banking corporation, in its capacity as Collateral Agent (the "COLLATERAL AGENT") for itself and other lending institutions (the "LENDERS") that are signatories to the Credit Agreement (as defined below). W I T N E S S E T H: WHEREAS, the Borrower, the Lenders, SunTrust Bank, as Administrative Agent, and Bank of America, N.A., as the Documentation Agent are parties to that Credit Agreement, dated as of March 31, 1998, as amended by that certain First Amendment to Credit Agreement, effective December 26, 1998, as amended by that certain Second Amendment to Credit Agreement, effective October 5, 2000 and by that certain Third Amendment to Credit Agreement, effective November 2, 2000 (as amended or modified, the "CREDIT AGREEMENT"; capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement); WHEREAS, the Borrower has executed that certain Promissory Note in the amount of $5,000,000 in favor or SunTrust Bank, formerly known as SunTrust Bank, Chattanooga, ("SUNTRUST") (as amended or modified, the "SUNTRUST NOTE"); WHEREAS, pursuant to that certain Amended and Restated Subsidiary Guaranty Agreement, dated as of the date hereof, certain of the Borrower's Subsidiaries have guaranteed, among other things, the Obligations of the Borrower under the Credit Agreement and under the SunTrust Note (the "SUBSIDIARY GUARANTY AGREEMENT"); WHEREAS, it is a condition precedent to the obligations of the Lenders under the Credit Agreement and SunTrust under the SunTrust Note that the Grantors enter into this Agreement to secure all obligations of the Grantors under the Credit Agreement, the SunTrust Note, the Subsidiary Guaranty Agreement and all Credit Documents, and the Grantors desire to satisfy such condition precedent; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. Capitalized terms defined in the Credit Agreement and not otherwise defined herein, when used in this Agreement, including its preamble and Recitals, shall have the respective meanings provided for in the Credit Agreement. The following additional terms, when used in this Agreement, shall have the following meanings: 2 "ACCOUNTS" shall mean, for any Person, all "accounts" (as defined in the UCC), now or hereafter owned or acquired by such Person or in which such Person now or hereafter has or acquires any rights and, in any event, shall mean and include, without limitation, (a) all accounts receivable, contract rights, book debts, notes, drafts and other obligations or indebtedness owing to such Person arising from the sale or lease of goods or other property by it or the performance of services by it (including, without limitation, any such obligation which might be characterized as an account, contract right or general intangible under the Uniform Commercial Code in effect in any jurisdiction), (b) all of such Person's rights in, to and under all purchase and sales orders for goods, services or other property, and all of such Person's rights to any goods, services or other property represented by any of the foregoing (including returned or repossessed goods and unpaid sellers' rights of rescission, replevin, reclamation and rights to stoppage in transit), (c) all monies due to or to become due to such Person under all contracts for the sale, lease or exchange of goods or other property or the performance of services by it (whether or not yet earned by performance on the part of such Person), and (d) all collateral security and guarantees of any kind given to such Person with respect to any of the foregoing. "CHATTEL PAPER" shall mean any "chattel paper" (as defined in the UCC). "COLLATERAL" shall mean, collectively, all of the following property in which any Grantor has any right, title and interest: (i) Accounts; (ii) Chattel Paper and Electronic Chattel Paper; (iii) Commercial Tort Claims; (iv) Documents; (v) Equipment; (vi) General Intangibles, Payment Intangibles, Letter of Credit Rights and Software (vii) Instruments; (viii) Inventory; (ix) Investment Property; (x) All other goods and personal property, whether tangible or intangible; -2- 3 (xi) All books and records pertaining to any of the Collateral (including, without limitation, customer lists, credit files, computer programs, printouts and other computer materials and records); and (xii) All products and Proceeds of all or any of the Collateral described in clauses (ii) through (x) hereof. Notwithstanding anything to the contrary contained herein, this Agreement shall not cover and the term "Collateral" shall not include any of the following: (A) the Purchased Assets sold or purported to be sold directly or indirectly to Dixie Funding II, (B) any equipment or related collateral owned by SAFECO Credit Company, Inc. and leased to The Dixie Group, Inc. or pledged to SAFECO Credit Company, Inc. by the Dixie Group Inc. pursuant to that certain Master Equipment Lease Agreement dated as of August 15, 2000, (C) all assets and property of Dixie Funding II, and all capital stock of Dixie Funding II, (D) all capital stock of Chroma Technologies, Inc. and Fabrica International, (E) all accounts receivable and related assets owed by account debtors located outside the United States to the extent factored by GE Factors or any third party and (F) all accounts receivable of Fabrica International and related assets factored by SunTrust Bank so long as the proceeds thereof are deposited into bank accounts at SunTrust Bank subject to the Master Account Agreement; "COLLECTIONS" means (i) all payments received in respect of the Receivables, in the form of cash, checks, wire transfers, ACH transfers or any other form of payment in accordance with the terms of a Receivable or otherwise, (ii) all proceeds from the sale or other disposition of any collateral securing a Receivable, (iii) any repurchase amounts, (iv) any insurance proceeds or sales tax refund payments received in respect of a Receivable and (v) any indemnification, recourse payments or other amounts payable to Dixie Funding II, Inc. or any Originator in respect of a Receivable pursuant to Loan Agreement, the Receivables Purchase Agreement, the First Tier Purchase Agreement or otherwise. "COMMERCIAL TORT CLAIM" shall mean, for any Person, any "commercial tort claim," (to the extent such term is defined in the UCC), and, in any event, including any claim arising in tort with respect to which (A) the claimant is an organization; or (B) the claimant is an individual and the claim; (i) arose in the course of the claimant's business or profession; and (ii) does not include damages arising out of personal injury to or the death of an individual. "CONTRACT" means either a written agreement between an Originator and a Person, or an invoice, pursuant to which such Person is obligated to pay for goods, merchandise and/or services. "COPYRIGHT LICENSE" shall mean any and all rights under any written agreement granting any right to use any Copyright or Copyright registration. -3- 4 "COPYRIGHTS" shall mean all of the following: (a) all copyrights and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof, and (b) all reissues, extensions or renewals thereof. "DEFAULT" shall mean any event that, with notice or lapse of time or both, would constitute an Event of Default. "DIXIE GROUP MASTER ACCOUNTS" shall mean Account No. 8801796544 and Account No. 8800600382 maintained at SunTrust Bank in the name of the Borrower, any other deposit or disbursement accounts in the name of any Grantor, but excluding all deposit or disbursement accounts in the name of Dixie Funding II. "DOCUMENTS" shall mean all "documents" (as defined in the UCC) or other receipts covering, evidencing or representing goods. "ELECTRONIC CHATTEL PAPER" shall mean any "electric chattel paper" (to the extent defined in the UCC), including any Chattel Paper evidenced by a record or records consisting of information stored in an electronic medium. "EQUIPMENT" shall mean all "equipment" (as defined in the UCC) and, in any event, including all machinery and equipment, including, without limitation, processing equipment, conveyors, machine tools, data processing and computer equipment with software and peripheral equipment, all engineering, processing and manufacturing equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock, furnishings, and other equipment of every kind and nature, fixtures, together with all additions and accessions thereto, replacements therefor, and all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto. "EVENT OF DEFAULT" shall mean, collectively, (i) an "Event of Default", as such term is defined in the Credit Agreement, shall occur and be continuing, or (ii) an "Event of Default, as such term is defined in the SunTrust Note, shall occur and be continuing, or (iii) the Borrower shall fail to duly and promptly perform, comply with or observe the terms, covenants, conditions and agreements set forth in this Agreement. "FACTORING CONTRACT" means the Factoring Contract and Security Agreement, dated as of February 26, 1999, between The Dixie Group, Inc. and GE Factors. "FIRST TIER PURCHASE AGREEMENT" means the First Tier Purchase Agreement, dated as of June 23, 2000, by and among The Dixie Group, Inc. and the other Originators, as such First Tier Purchase Agreement may be amended, supplemented or otherwise modified from time to time. -4- 5 "GE FACTORS" means GE Capital First Factors Corporation, a North Carolina corporation. "GENERAL INTANGIBLES" shall mean all "general intangibles" (as defined in the UCC) and, in any event, including all right, title and interest which such Person may now or hereafter have in or under any contract, all customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations (including without limitation those listed on Schedule 2 attached hereto), licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights of indemnification, and other papers and documents. "INSTRUMENTS" shall mean all "instruments" or "letters of credit" (each as defined in the UCC) and, in any event including letters of credit evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances. "INTELLECTUAL PROPERTY" shall mean collectively, (a) all Patents, patent rights and patent applications, Copyrights and copyright applications, Trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, applications for registration of trademarks, trade names and service marks, fictitious names registrations and trademark, trade name and service mark registrations, and all derivations thereof, and (b) Patent Licenses, Trademark Licenses, Copyright Licenses and other licenses to use any of the items described in clause (a), and any other items necessary to conduct or operate the business of such Person, now or hereafter owned or acquired by such Person. "INVENTORY" shall mean, for any Person, any "inventory," (as such term is defined in the UCC), now owned or hereafter acquired by any Grantor or in which any Grantor now has or hereafter acquires any rights and wherever located, and, in any event, shall include, without limitation, all inventory, merchandise, goods and other personal property, now owned or hereafter acquired by any Grantor or in which any Grantor now has or hereafter acquires any rights and wherever located, which are held for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in the Grantor's business, or the processing, packaging, delivery or shipping of the same, and all finished goods. -5- 6 "INVESTMENT PROPERTY" shall mean, for any Person, all "investment property" (as defined in the UCC) now or hereafter owned or acquired by such Person and, in any event, including all certificated securities, uncertificated securities, security entitlements, securities accounts, commodity contracts and commodity accounts. "LETTER OF CREDIT RIGHT" shall mean any "letter of credit right" (to the extent defined in the UCC), including any right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance; but not including the right of a beneficiary to demand payment or performance under a letter of credit. "LICENSE" shall mean, for any Person, any Copyright License, Patent License, Trademark License or other license of rights or interests. "LIEN" means any mortgage, pledge, assignment, lien, security interest or other charge or encumbrance of any kind, including the retained security title of a conditional vendor or a lessor. "LOAN AGREEMENT" shall mean the Loan Agreement, dated as of June 23, 2000, among Dixie Funding, II, Inc., as borrower, The Dixie Group, Inc., as servicer, Three Pillars Funding Corporation, as lender, and SunTrust Equitable Securities Corporation, as administrator, as amended, supplemented or otherwise modified from time to time. "MERCHANDISE" means (i) carpeting, other floor covering and goods related to the foregoing, in each case of the type sold by the Originators, and (ii) service contracts and services in respect of any goods or merchandise referred to in clause (i) above. "OBLIGOR" means, with respect to any Receivable, the Person or Persons obligated to make payments with respect to such Receivable, including any guarantor thereof. "OBLIGATIONS" shall mean, collectively, the Obligations, as such term is defined in the Credit Agreement, and all obligations owing to SunTrust pursuant to the SunTrust Note. "ORIGINATOR" means any of The Dixie Group, Inc., in its capacity as originator under the Receivables Purchase Agreement, and those Subsidiaries of The Dixie Group, Inc. that generate Receivables and that are parties to the First Tier Purchase Agreement. "PATENT LICENSE" shall mean any written agreement now or hereafter in existence granting any right with respect to any invention on which a Patent is in existence. "PATENTS" shall mean all of the following: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency -6- 7 of the United States, any State or Territory thereof, or any other country, and (b) all reissues, continuations, continuations-in-part or extensions thereof. "PAYMENT INTANGIBLE" shall mean any "payment intangible" (to the extent defined in the UCC), including any General Intangible under which the account debtors' principal obligation is a monetary obligation. "PERSON" shall mean an individual, partnership, limited liability company, corporation (including a business trust), joint stock company, trust unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "PROCEEDS" shall mean all proceeds of, and all other profits, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, the Collateral, and, in any event, including all claims against third parties for loss of, damage to or destruction of, or for proceeds payable under, or unearned premiums with respect to, policies of insurance in respect of, any Collateral, and any condemnation or requisition payments with respect to any Collateral and any property acquired with cash proceeds. "PURCHASED ASSETS" shall mean (i) all Receivables, now existing or arising hereafter and all payment and enforcement rights (but not any obligations) to, in and under the related Contracts, (ii) all Collections and other monies due or to become due with respect to the foregoing, (iii) all Related Security for the Receivables, (iv) all of the Originator's rights and claims under the First Tier Purchase Agreement, (v) all lockboxes and accounts to which Collections are sent, and all funds and investments from time to time therein, and (vi) all proceeds of the foregoing, including, without limitation, insurance proceeds relating thereto, in each case with respect to clauses (i) through (vi), to the extent actually sold directly or indirectly to Dixie Funding II, Inc.; provided, however, that "Purchased Assets" shall not include the Dixie Group Master Accounts or the funds and investments contained from time to time therein. "RECEIVABLE" means, (i) with respect to any Obligor (other than GE Factors), the indebtedness of such obligor under a Contract arising from a sale of Merchandise by an Originator, and includes the right to payment of any interest, finance, returned check or late charges and other obligations of such Obligor with respect thereto and (ii) with respect to GE Factors, the obligation of GE Factors to pay the purchase price for accounts receivable pursuant to the Factoring Contract. "RECEIVABLE FILE" means with respect to a Receivable, (i) the Contract giving rise to the Receivable and other evidences of the Receivable including, without limitation, tapes, discs, punch cards and related property and rights and (ii) each UCC financing statement related thereto, if any. "RECEIVABLES PURCHASE AGREEMENT" means the Receivables Purchase Agreement, dated as of June 23, 2000, by and between The Dixie Group, Inc. and Dixie Funding II, Inc., as such Receivables Purchase Agreement may be amended, supplemented or otherwise modified -7- 8 from time to time. "RELATED SECURITY" means, with respect to any Receivable, (a) all right, title and interest, but none of the obligations, of the related Originator, in the merchandise (including returned merchandise), if any, relating to the sale which gave rise to such Receivable, (b) all right, title and interest, but none of the obligations, of the related Originator, in, to and under other Liens and property subject to Liens from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, (c) all UCC Financing Statements or similar instruments covering any collateral securing payment of such Receivable, (d) all guaranties, indemnities, insurance and other agreements (including the related Receivable File) or arrangement and other collateral of whatever character from time to time supporting or securing payment of such Receivable, whether pursuant to the Contract relating to such Receivable or otherwise relating to such Receivable and (e) all other instruments and all rights under the documents in the Receivables File relating to such Receivables and all rights (but not obligations) relating to such Receivables. "SECURITY INTERESTS" shall mean the security interests granted pursuant to Section 3, as well as all other security interests created or assigned as additional security for the Obligations pursuant to the provisions of this Agreement. "SECURED PARTY" shall mean the Collateral Agent, the Administrative Agent, the Lenders, the Documentation Agent and SunTrust. "SOFTWARE" shall mean any "software" (to the extent defined in the UCC), including any computer program and any supporting information provided in connection with a transaction relating to the program but excluding any computer program that is included in the definition of "goods". "SUBSIDIARY" means, with respect to any Person, a corporation of which such Person and/or its other Subsidiaries own, directly or indirectly, such number of outstanding shares as have more than 50% of the ordinary voting power for the election of directors. "TRADEMARK LICENSE" shall mean any written agreement granting to such Person any right to use any Trademark. "TRADEMARKS" shall mean all of the following: (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, (ii) all reissues, extensions or renewals thereof and (iii) all goodwill associated with or symbolized by any of the foregoing. -8- 9 "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of Georgia; provided, that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the Security Interests in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than Georgia, "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or non-perfection. SECTION 2. Representations and Warranties. Each Grantor represents and warrants as follows: (a) Such Grantor has good and marketable title to all of its Collateral, free and clear of any Liens other than the Liens permitted by Section 8.01 of the Credit Agreement. Grantor has all rights to and is entitled to grant a security interest hereunder in all of its Collateral. (b) Such Grantor has not performed any act or acts that could prevent the Collateral Agent from enforcing any of the terms of this Agreement. Other than financing statements or other similar or equivalent documents or instruments with respect to Liens permitted by Section 8.01 of the Credit Agreement, no financing statement, mortgage, security agreement or similar or equivalent document or instrument covering all or any part of its Collateral is on file or of record in any jurisdiction, and none of its Collateral is subject to any Lien, other than, in each case, Liens permitted by Section 8.01 of the Credit Agreement. None of its Collateral is in the possession of a Person (other than such Grantor) asserting any claim thereto or security interest therein, except that the Collateral Agent or its designee may have possession of Collateral as contemplated hereby. (c) All of the information set forth in the Perfection Certificate, in the form of Schedule 1 attached hereto, is true and correct as of the date hereof. (d) When the UCC-1 financing statements in appropriate form are properly filed in the offices specified in the Perfection Certificate, the Security Interests shall constitute valid and perfected security interests in such Grantor's Collateral, prior to all other Liens and rights of others therein except for the Liens permitted by Section 8.01 of the Credit Agreement, to the extent that a security interest therein may be perfected by filing pursuant to the UCC. (e) The Inventory and Equipment are insured in accordance with the requirements of the Credit Agreement. (f) All Equipment and Inventory is located at the places specified in the Perfection Certificate and such location is an owned, leased or bailment location as specified in the Perfection Certificate. The correct corporate name, the principal place of business and the chief executive office of each of the Grantors and the places where the Grantors' books and records concerning the Collateral are currently kept are set forth in the Perfection Certificate. -9- 10 SECTION 3. The Security Interests. In order to secure the full and punctual payment and performance of all debts, liabilities and obligations of the Grantors, jointly and severally, to the Collateral Agent and the Secured Parties, including, without limitation, the Obligations, all obligations of any Grantor arising under the terms and conditions of the Subsidiary Guaranty Agreement and those arising under the terms and conditions of any guaranty agreement in accordance with the terms thereof, (collectively, the "SECURED OBLIGATIONS") each Grantor hereby pledges, assigns, hypothecates, sets over and conveys to the Collateral Agent, for its benefit and for the benefit of the Secured Parties, and grants to the Collateral Agent for its benefit and for the benefit of the Secured Parties, a continuing security interest in and to, all of its rights to all Collateral now or hereafter owned or acquired by such Grantor or in which such Grantor now has or hereafter has or acquires any rights, and wherever located. The Security Interests are granted as security only and shall not subject the Collateral Agent or any Secured Party to, or transfer to the Collateral Agent or any Secured Party, or in any way affect or modify, any obligation or liability of any Grantor with respect to any Collateral or any transaction in connection therewith. SECTION 4. Further Assurances; Covenants. (a) General. (i) No Grantor will change the location of its chief executive office or principal place of business in any state unless it shall have given the Collateral Agent thirty (30) days prior notice thereof, executed and delivered to the Collateral Agent all financing statements and financing statement amendments which the Collateral Agent may request in connection therewith and delivered an opinion of counsel with respect thereto in accordance with Section 4(a)(viii). No Grantor shall change the locations, or establish new locations, where it keeps or holds any of its Collateral or any records relating thereto from the applicable locations described in the Perfection Certificate unless such Grantor shall have given the Collateral Agent thirty (30) days prior notice of such change of location, executed and delivered to the Collateral Agent all financing statements and financing statement amendments which the Collateral Agent may request in connection therewith and delivered an opinion of counsel with respect thereto in accordance with Section 4(a)(viii), and such Grantor shall have complied with any other requirement in this Agreement or any other Credit Document relating to the location of any of its Collateral, provided, however, that each Grantor may keep its Collateral at any of its locations described in the Perfection Certificate and in any other location in which the Collateral Agent has previously filed a financing statement naming such Grantor as debtor and the Collateral Agent as secured party. No Grantor shall in any event change the location, or establish new locations, of any of its Collateral if such change would cause the Security Interests in such Collateral to lapse or cease to be a perfected first priority Security Interest, subject to Liens permitted by Section 8.01 of the Credit Agreement. (ii) No Grantor will change its name, taxpayer identification number, identity or corporate structure in any manner unless it shall have given the Collateral -10- 11 Agent thirty (30) days prior notice thereof, executed and delivered to the Collateral Agent all financing statements and financing statement amendments which the Collateral Agent may request in connection therewith and delivered an opinion of counsel with respect thereto in accordance with Section 4(a)(viii). (iii) The Grantors will, from time to time, at their expense, execute, deliver, file and record any statement, financing statements, assignment, instrument, document, agreement or other paper and take any other action (including, without limitation, any filings with the United States Patent and Trademark Office, Copyright or Patent filings, any filings of financing or continuation statements under the UCC) that from time to time may be necessary, or that the Collateral Agent may request, in order to create, preserve, upgrade in rank (to the extent required hereby), perfect, confirm or validate the Security Interests or to enable the Collateral Agent and the Secured Parties to obtain the full benefits of this Agreement, or to enable the Collateral Agent to exercise and enforce any of its rights, powers and remedies hereunder with respect to any of its Collateral. To the extent permitted by law, each Grantor hereby authorizes the Collateral Agent to execute and file financing statements, financing statement amendments or continuation statements without the Grantor's signature appearing thereon. Each Grantor agrees that a carbon, photographic, photostatic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. The Grantors shall, jointly and severally, pay the costs of, or incidental to, any recording or filing of any financing statements, financing statement amendments or continuation statements concerning their Collateral. (iv) If any Grantor's Collateral exceeding in value $250,000 in aggregate is at any time in the possession or control of any warehouseman, bailee (other than a carrier transporting inventory to a purchaser in the ordinary course of business) or any of such Grantor's agents or processors, such Grantor shall notify in writing such warehouseman, bailee, agent or processor of the Security Interests created hereby, shall within 60 days obtain such warehouseman's, bailee's, agent's or processor's agreement in writing to hold all such Collateral for the Collateral Agent's account subject to the Collateral Agent's instructions, and at any time after the occurrence and during the continuance of an Event of Default, shall cause such warehousemen, bailee, agent or processor to issue and deliver to the Collateral Agent warehouse receipts, bills of lading or any similar documents relating to such Collateral in the Collateral Agent's name and in form and substance acceptable to the Collateral Agent. (v) Each Grantor will immediately deliver and pledge each Instrument, Investment Property and Document to the Collateral Agent, appropriately endorsed to the Collateral Agent, provided that so long as no Event of Default shall have occurred and be continuing, such Grantor may retain for collection in the ordinary course any Instruments, Investment Property and Documents (other than checks and drafts constituting payments in respect of Accounts) received by it in the ordinary course of business and the Collateral Agent shall, promptly upon request of such Grantor, make appropriate arrangements for making any other Instruments, Investment Property and -11- 12 Documents pledged by such Grantor available to it for purposes of presentation, collection or renewal (any such arrangement to be effected, to the extent deemed appropriate to the Collateral Agent, against trust receipt or like document). (vi) Except for Inventory sold in the ordinary course of business, no Grantor will (A) sell, transfer, lease, exchange, assign or otherwise dispose of, or grant any option, warrant or other right with respect to, any of its Collateral except that so long as no Default or Event of Default has occurred and is continuing, the Grantors may dispose of assets if such disposition is permitted by Section 8.04 of the Credit Agreement, whereupon, in the case of such a disposition, sale or exchange, the Security Interests created hereby in such item (but not in any Proceeds arising from such disposition, sale or exchange) shall cease immediately without any further action on the part of the Collateral Agent; or (B) create, incur or suffer to exist any Lien with respect to any Collateral, except for the Liens permitted by Section 8.01 of the Credit Agreement. (vii) The Grantors will, promptly upon request, provide to the Collateral Agent all information and evidence it may request concerning the Collateral, to enable the Collateral Agent to enforce the provisions of this Agreement. (viii) Prior to each date on which any Grantor proposes to take any action contemplated by Section 4(a)(i) or Section 4(a)(ii), upon request of the Required Lenders, such Grantor shall, at its cost and expense, cause to be delivered to the Collateral Agent and the Secured Parties an opinion of counsel, satisfactory to the Collateral Agent, to the effect that all financing statements and amendments or supplements thereto, continuation statements and other documents required to be recorded or filed in order to perfect and protect the Security Interests and priority thereof against all creditors of and purchasers from such Grantor have been filed in each filing office necessary for such purposes and that all filing fees and taxes, if any, payable in connection with such filings have been paid in full. (b) Accounts, Etc. Each Grantor will perform and comply in all material respects with all of its obligations in respect of Accounts, Instruments and General Intangibles. (c) Inventory, Etc. The Grantors shall notify the Collateral Agent immediately of any additional location where Inventory exceeding in value $250,000 in the aggregate is stored that is not listed in the Perfection Certificate and in no event later than ten (10) days after the occurrence thereof. (d) Equipment, Etc. The Grantors shall, (i) within ten (10) days after a written request by the Required Lenders after the occurrence and during the continuance of an Event of Default, in the case of Equipment now owned, and (ii) following a request by the Required Lenders pursuant to subclause (i) above, within ten (10) days after acquiring any other Equipment, deliver to the Collateral Agent, for the benefit of itself and the Secured Parties, any and all certificates of title, and applications therefor, if any, of such Equipment and shall cause the Collateral Agent, for the benefit of itself and the Secured Parties, to be named as lienholder -12- 13 on any such certificate of title and applications. The Grantors shall promptly inform the Collateral Agent of any material additions to or deletions from the Equipment and shall not permit any such items to become a fixture to real estate or an accession to other personal property unless such real estate or personal property. (e) Patents, Trademarks, Etc. Each Grantor shall notify the Collateral Agent immediately (i) of its acquisition after the date hereof of any Intellectual Property and (ii) if it knows, or has reason to know, that any application or registration relating to any Intellectual Property owned by or licensed to such Grantor is reasonably likely to become abandoned or dedicated, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Copyright Office, the United States Patent and Trademark Office or any court) regarding any Grantor's ownership of any Intellectual Property, its right to register the same, or to keep and maintain the same. In the event that any Intellectual Property is infringed, misappropriated or diluted by a third party, the Grantors shall notify the Collateral Agent promptly after they learn thereof and shall, unless the Grantors shall reasonably determine that any such action would be of immaterial economic value, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and take such other actions as the Grantors shall reasonably deem appropriate under the circumstances to protect such Intellectual Property. In no event shall the Grantors, either themselves or through any agent, employee or licensee, file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office, or any similar office or agency in any other country or any political subdivision thereof, unless not less than thirty (30) days prior thereto it informs the Collateral Agent, and, upon issuance of such Intellectual Property, executes and delivers any and all agreements, instruments, documents and papers the Collateral Agent may reasonably request to evidence the Security Interests in such Intellectual Property and the goodwill and general intangibles of the Grantors relating thereto or represented thereby. Each Grantor hereby constitutes the Collateral Agent its attorney-in-fact to execute and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed, and such power, being coupled with an interest, shall be irrevocable until the Commitments have terminated and the Secured Obligations are paid in full. (f) Insurance Proceeds. Upon the occurrence of an insurable loss to any of the Collateral and absent and Event of Default, applicable proceeds of any insurance policies shall be made available for application by Borrower, at its discretion to: (i) the repair of the damaged Collateral; (ii) the replacement of the damaged Collateral (provided, Collateral Agent receives a perfected, first priority security interest in such replacement); (iii) application to capital expenditures (provided, Collateral Agent receives a perfected, first priority security interest in any purchased assets); (iv) or repayment of the Obligations. SECTION 5. Reporting and Recordkeeping. Each Grantor covenants and agrees with the Collateral Agent and the Secured Parties that from and after the date of this Agreement and until the Commitments have terminated, and all Secured Obligations are paid in full: -13- 14 (a) Maintenance of Records Generally. Such Grantor will keep and maintain at its own cost and expense records of its Collateral, complete in all material respects, including, without limitation, a record of all payments received and all credits granted with respect to the Collateral and all other dealings with its Collateral. Such Grantor will mark its books and records pertaining to its Collateral to evidence this Agreement and the Security Interests. For the Collateral Agent's and the Secured Parties' further security, such Grantor agrees that the Collateral Agent and the Secured Parties shall have a security interest in all of each Grantor's books and records pertaining to its Collateral and, upon the occurrence and during the continuation of any Event of Default, the Grantor shall deliver and turn over full and complete copies of any such books and records to the Collateral Agent or to its representatives at any time on demand of the Collateral Agent. Upon reasonable notice from the Collateral Agent such Grantor shall permit any representative of the Collateral Agent or the Secured Parties, to inspect such books and records and will provide photocopies thereof to the Collateral Agent and the Secured Parties. (b) Special Provisions Regarding Maintenance of Records and Reporting Re: Accounts, Inventory and Equipment; (i) Such Grantor shall keep complete and accurate records of its Accounts. Upon the request of the Collateral Agent, such Grantor shall deliver to the Collateral Agent all documents, including, without limitation, repayment histories, present status reports, relating to its Accounts so scheduled and such other matters and information relating to the status of its then existing Accounts as the Collateral Agent shall reasonably request. (ii) Such Grantor shall maintain itemized records, accurate in all material respects, itemizing and describing the kind, type, quality, quantity, location and book value of its Inventory and Equipment and shall, upon request by the Collateral Agent, furnish the Collateral Agent with a current schedule containing the foregoing information. (c) Further Identification of Collateral. Such Grantor will if so requested by the Collateral Agent furnish to the Collateral Agent, as often as the Collateral Agent reasonably requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail. (d) Notices. The Grantors will advise the Collateral Agent promptly, in reasonable detail, (i) of any Lien or claim made or asserted against any of the Collateral, (ii) of any material adverse change in the composition of the Collateral, and (iii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or on the validity, perfection or priority of the Security Interests. SECTION 6. General Authority. Each Grantor hereby irrevocably appoints the Collateral Agent its true and lawful attorney, with full power of substitution, in the name of such Grantor, -14- 15 the Collateral Agent, the Secured Parties or otherwise, for the sole use and benefit of the Collateral Agent and the Secured Parties, but at such Grantor's expense, to exercise, (a) at any time from time to time with respect to (i) below, and (b) at any time after an Event of Default has occurred and is continuing; with respect to (ii), (iii), (iv) and (v) below, from all or any of the following powers: (i) to file the financing statements, financing statement amendments and continuation statements referred to in Section 4(a)(iii), (ii) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due with respect to any Collateral or by virtue thereof, (iii) to settle, compromise, compound, prosecute or defend any action or proceeding with respect to any Collateral, (iv) to sell, transfer, assign or otherwise deal in or with the Collateral or the proceeds or avails thereof, as fully and effectually as if the Collateral Agent were the absolute owner thereof, and (v) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference to the Collateral. SECTION 7. Remedies upon Event of Default. (a) If any Event of Default has occurred and is continuing, the Collateral Agent may exercise on behalf of the Secured Parties without further notice, all rights and remedies under this Agreement, the SunTrust Note or any other Credit Document or that are available to a secured creditor under the UCC or that are otherwise available at law or in equity, at any time, in any order and in any combination, including to collect any and all Secured Obligations from any Grantor, and, in addition, the Collateral Agent may sell the Collateral or any part thereof at public or private sale, for cash, upon credit or for future delivery, and at such price or prices as the Collateral Agent may deem satisfactory. The Collateral Agent shall give each Grantor not less than ten (10) days' prior written notice of the time and place of any sale or other intended disposition of such Grantor's Collateral, except any Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Grantors agree that any such notice constitutes "reasonable notification" within the meaning of Section 9-504(3) of the UCC (to the extent such Section is applicable). (b) The Collateral Agent or any Secured Party may be the purchaser of any or all of the Grantors' Collateral so sold at any public sale (or, if such Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations or if otherwise permitted under applicable law, at any private sale) and thereafter hold the same, absolutely, free from any right or claim of whatsoever kind. The Grantors will execute and deliver such documents and take such other action as the Collateral Agent deems necessary or advisable in order that any such sale may be made in compliance with -15- 16 law. Upon any such sale the Collateral Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold to it absolutely, free from any claim or right of any kind, including any equity or right of redemption of the Grantors. To the extent permitted by law, each Grantor hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice (if any) of such sale shall (1) in case of a public sale, state the time and place fixed for such sale, and (2) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix in the notice of such sale. At any such sale the Grantors' Collateral may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may determine. The Collateral Agent shall not be obligated to make any such sale pursuant to any such notice. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Grantors' Collateral on credit or for future delivery, such Collateral so sold may be retained by the Collateral Agent until the selling price is paid by the purchaser thereof, but the Collateral Agent shall not incur any liability in case of the failure of such purchaser to take up and pay for such Collateral so sold and, in case of any such failure, such Collateral may again be sold upon like notice. The Collateral Agent, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Grantors' Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. The Grantors shall remain liable, jointly and severally, for any deficiency. (c) For the purpose of enforcing any and all rights and remedies under this Agreement, the Collateral Agent may (i) require the Grantors to, and the Grantors agree that they will, at their expense and upon the request of the Collateral Agent, forthwith assemble all or any part of its Collateral as directed by the Collateral Agent and make it available at a place designated by the Collateral Agent which is, in the Collateral Agent's opinion, reasonably convenient to the Collateral Agent and the Grantors, whether at the premises of a Grantor or otherwise, (ii) to the extent permitted by applicable law, enter, with or without process of law and without breach of the peace, any premise where any such Collateral is or may be located and, without charge or liability to the Collateral Agent, seize and remove such Collateral from such premises, (iii) have access to and use the Grantors' books and records, computers and software relating to the Grantors' Collateral, and (iv) prior to the disposition of any of the Grantors' Collateral, store or transfer such Collateral without charge in or by means of any storage or transportation facility owned or leased by the Grantors, process, repair or recondition such Collateral or otherwise prepare it for disposition in any manner and to the extent the Collateral Agent deems appropriate and, in connection with such preparation and disposition, use without charge any trademark, trade name, copyright, patent or technical process used by the Grantors. (d) Without limiting the generality of the foregoing, if any Event of Default has occurred and is continuing: -16- 17 (i) the Collateral Agent may license, or sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Intellectual Property included in the Collateral throughout the world for such term or terms, on such conditions and in such manner as the Collateral Agent shall in its sole discretion determine; (ii) the Collateral Agent may (without assuming any obligations or liability thereunder), at any time and from time to time, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of the Grantors in, to and under any Licenses and take or refrain from taking any action under any thereof, and each Grantor hereby releases the Collateral Agent and each of the Secured Parties from, and agrees to hold the Collateral Agent and each of the Secured Parties free and harmless from and against any claims arising out of, any lawful action so taken or omitted to be taken with respect thereto except for the Collateral Agent's and such Secured Party's bad faith, gross negligence or willful misconduct as determined by a final and nonappealable decision of a court of competent jurisdiction; and (iii) upon request by the Collateral Agent, the Grantors will execute and deliver to the Collateral Agent powers of attorney, in form and substance satisfactory to the Collateral Agent, for the implementation of any lease, assignment, license, sublicense, grant of option, sale or other disposition of any Intellectual Property. In the event of any such disposition pursuant to this Section, the Grantors shall supply their know-how and expertise relating to the manufacture and sale of the products bearing Trademarks or the products or services made or rendered in connection with Patents or Copyrights, and its customer lists and other records relating to such Intellectual Property and to the distribution of said products, to the Collateral Agent. SECTION 8. Limitation on Duty of Collateral Agent in Respect of Collateral. Beyond reasonable care in the custody thereof, the Collateral Agent shall have no duty as to any Collateral of the Grantors in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Collateral Agent shall be deemed to have exercised reasonable care in the custody of the Collateral of the Grantors in its possession if such Collateral is accorded treatment substantially equal to that which it accords its own property, and the Collateral Agent shall not be liable or responsible for any loss or damage to any of the Grantors' Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee selected by the Collateral Agent in good faith. SECTION 9. Application of Proceeds. The Collateral Agent shall apply all proceeds received from the Collateral first to the fees and expenses of the Collateral Agent then due and payable, second to the accrued and unpaid interest and other fees that have accrued under the -17- 18 Credit Documents and under the SunTrust Note, pro rata to the Lenders and SunTrust, and third to the outstanding principal amount of the Obligations and indebtedness outstanding under the Credit Documents and under the SunTrust Note, pro rata to the Lenders and SunTrust. SECTION 10. Appointment of Co-Agents. At any time or times, in order to comply with any legal requirement in any jurisdiction, the Collateral Agent may appoint another bank or trust company or one or more other Persons reasonably acceptable to the Required Lenders, either to act as co-agent or co-agents, jointly with the Collateral Agent, or to act as separate agent or agents on behalf of the Collateral Agent with such power and authority as may be necessary for the effectual operation of the provisions hereof and specified in the instrument of appointment. SECTION 11. Concerning the Collateral Agent. The provisions of Article X of the Credit Agreement shall inure to the benefit of the Collateral Agent in respect of this Agreement and shall be binding upon the parties to the Credit Agreement in such respect. In furtherance and not in derogation of the rights, privileges and immunities of the Collateral Agent therein set forth: (a) The Collateral Agent is authorized to take all such action as is provided to be taken by it as Collateral Agent hereunder or otherwise permitted under the Credit Agreement and all other action reasonably incidental thereto. As to any matters not expressly provided for herein or therein, the Collateral Agent may request instructions from the Required Lenders and shall act or refrain from acting in accordance with written instructions from the Required Lenders or, in the absence of such instructions, in accordance with its discretion. (b) The Collateral Agent shall not be responsible for the existence, genuineness or value of any of the Grantor's Collateral or for the validity, perfection, priority or enforceability of the Security Interests, whether impaired by operation of law or by reason of any action or omission to act on its part. The Collateral Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Agreement by the Grantors. SECTION 12. Expenses. In the event that any Grantor fails to comply with the provisions of the Credit Agreement, the SunTrust Note, this Agreement or any other Credit Document, such that the value of any of its Collateral or the validity, perfection, rank or value of the Security Interests are thereby diminished or potentially diminished or put at risk, the Collateral Agent if requested by the Required Lenders may, but shall not be required to, effect such compliance on behalf of such Grantor, and the Grantors shall reimburse the Collateral Agent, jointly and severally, for the reasonable costs thereof on demand. All insurance expenses and all expenses of protecting, storing, warehousing, appraising, insuring, handling, maintaining and shipping such Collateral, any and all excise, stamp, intangibles, transfer, property, sales, and use taxes imposed by any state, federal, or local authority or any other governmental authority on any of such Collateral, or in respect of periodic appraisals and inspections of such Collateral to the extent the same may be requested by the Required Lenders from time to time or in respect of the sale or other disposition thereof, shall be borne and paid by the Grantors; and if the Grantors fail promptly to pay any portion thereof when due, the Collateral Agent or any Secured Party -18- 19 may, at its option, but shall not be required to, pay the same and charge the Grantors' accounts therefor, and the Grantors agree to reimburse the Collateral Agent or such Secured Party therefor on demand. All sums so paid or incurred by the Collateral Agent or any Secured Party for any of the foregoing and any and all other sums for which the Grantors may become liable hereunder and all costs and expenses (including reasonable attorneys' fees, legal expenses and court costs) incurred by the Collateral Agent or any Secured Party in enforcing or protecting the Security Interests or any of their rights or remedies thereon shall be payable by the Grantors on demand and shall bear interest (after as well as before judgment) until paid at the rate set forth in Section 4.03(c) of the Credit Agreement and shall be additional Secured Obligations hereunder. SECTION 13. Termination of Security Interests; Release of Collateral. Upon the repayment in full of all Secured Obligations, the Security Interests shall terminate and all rights to the Collateral of the Grantors shall revert to the Grantors. At any time and from time to time prior to such termination of the Security Interests, the Collateral Agent may release any of the Grantors' Collateral with the prior written consent of the Required Lenders or all Lenders, as required under the Credit Agreement. Upon any such termination of the Security Interests or release of such Collateral, the Collateral Agent will, at the expense of the Grantors, execute and deliver to the Grantors such documents as the Grantors shall reasonably request, but without recourse or warranty to the Collateral Agent or any Secured Party, including but not limited to UCC-3 termination statements, to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. SECTION 14. Notices. All notices, requests and other communications to the Grantors, the Collateral Agent or the Secured Parties hereunder shall be in writing or by telecopy, shall be in the English language, and shall be sufficiently given to the Collateral Agent, the Secured Parties or the Grantors if addressed or delivered to them at, in the case of the Borrower, the Collateral Agent, the Lenders, their respective addresses and telecopier numbers specified in Section 11.02 of the Credit Agreement and in the case of SunTrust, its respective address and telecopier specified in the SunTrust Note, or at such other address as any party may designate to the Borrower and the Collateral Agent by written notice. All such notices and communications shall be deemed to have been duly given at the times set forth in Section 11.02 of the Credit Agreement. SECTION 15. No Waiver; Remedies Cumulative. No failure or delay on the part of the Collateral Agent, any Secured Party or any holder of any Note in exercising any right or remedy hereunder, and no course of dealing between any Grantor on the one hand and the Collateral Agent, any Secured Party or any holder of any Note on the other hand shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy hereunder or any other Credit Document preclude any other or further exercise thereof or the exercise of any other right or remedy hereunder or thereunder. The rights and remedies herein and in the other Credit Documents are cumulative and not exclusive of any rights or remedies which the Collateral Agent, any Secured Party or the holder of any Note would otherwise have. No notice to or demand on any Grantor not required hereunder in any case shall entitle any Grantor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights -19- 20 of the Collateral Agent, the Secured Parties or the holder of any Note to any other or further action in any circumstances without notice or demand. SECTION 16. Successors and Assigns. This Agreement is for the benefit of the Collateral Agent and the Secured Parties and their permitted successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Agreement shall be binding on the Grantors and their successors and assigns; provided, however, that the Grantors may not assign any of their rights or obligations hereunder without the prior written consent of the Collateral Agent and the Secured Parties. SECTION 17. Amendments. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Grantors herefrom, shall in any event be effective unless the same shall be in writing and signed by the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 18. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF GEORGIA. SECTION 19. Severability. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable, in whole or in part, in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 20. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instruments. SECTION 21. Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. SECTION 22. Additional Grantors. In the event that any Subsidiary of the Borrower is required, under the terms of the Credit Agreement or otherwise, to grant a security interest in its Collateral, such Subsidiary shall become a Grantor hereunder and shall be bound by all of the terms and conditions hereof, upon the delivery to the Collateral Agent of an executed counterpart of a Supplement to this Security Agreement in the form of Exhibit A attached hereto. -20- 21 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. THE DIXIE GROUP, INC. By: --------------------------------------- Name: Title: CARRIAGE INDUSTRIES, INC. By: --------------------------------------- Name: Title: FABRICA INTERNATIONAL By: --------------------------------------- Name: Title: CHROMA TECHNOLOGIES, INC. By: --------------------------------------- Name: Title: BRETLIN, INC. By: --------------------------------------- Name: Gary A. Harmon Title: Vice President [SIGNATURE PAGE TO THE DIXIE GROUP SECURITY AGREEMENT] 22 CANDLEWICK YARNS, INC. By: --------------------------------------- Name: Gary A. Harmon Title: Vice President DIXIE GROUP LOGISTICS, INC. By: --------------------------------------- Name: Gary A. Harmon Title: Vice President AMTEX, INC. By: --------------------------------------- Name: Gary A. Harmon Title: Vice President DIXIE FUNDING, INC. By: --------------------------------------- Name: Gary A. Harmon Title: Vice President & Assistant Secretary [SIGNATURE PAGE TO THE DIXIE GROUP SECURITY AGREEMENT] 23 EXHIBIT A to Security Agreement SUPPLEMENT TO SECURITY AGREEMENT THIS SUPPLEMENT TO SECURITY AGREEMENT (this "Supplement"), dated as of _____________ __, ____, is executed by [_________________], [__________] (the "ADDITIONAL GRANTOR"), in favor of SUNTRUST BANK, as collateral agent (the "COLLATERAL AGENT") for itself and other lending institutions (the "LENDERS") that are signatories to the Credit Agreement (as defined below). W I T N E S S E T H: WHEREAS, the Dixie Group, Inc. (the "BORROWER"), the Lenders, SunTrust Bank, as Administrative Agent, and Bank of America, N.A., as the Documentation Agent are parties to that Credit Agreement, dated as of March 31, 1998, as amended by that certain First Amendment to Credit Agreement, effective December 26, 1998, as amended by that certain Second Amendment to Credit Agreement, effective October 5, 2000 and by that certain Third Amendment to Credit Agreement, effective November 2, 2000 (as amended or modified, the "CREDIT AGREEMENT"; capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement); WHEREAS, the Borrower has executed that certain Promissory Note in the amount of $5,000,000 in favor or SunTrust Bank, formerly known as SunTrust Bank, Chattanooga, ("SUNTRUST") (as amended or modified, the "SUNTRUST Note"); WHEREAS, the Borrower and certain of the Borrower's Subsidiaries have entered into that certain Security Agreement, dated as of November 2, 2000, in favor of the Collateral Agent (as amended, restated, supplemented or otherwise modified from time to time, the "Security Agreement"), pursuant to which the Borrower and such Subsidiaries granted Liens to the Collateral Agent for the benefit of the Secured Parties in all of their Collateral; and WHEREAS, the Additional Grantor is a Subsidiary of the Borrower, and pursuant to the Credit Agreement and Section 22 of the Security Agreement, the Borrower is required to cause the Additional Grantor to become a party to the Security Agreement, and the Additional Grantor desires to execute and deliver this Supplement to satisfy such requirement; 24 NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Additional Grantor agrees as follows: SECTION 1. Granting of Security Interests. In order to secure the full and punctual payment and performance of the Secured Obligations in accordance with the terms thereof, the Additional Grantor hereby grants, pledges, assigns, hypothecates, sets over and conveys to the Collateral Agent for its benefit and the benefit of the Secured Parties, a continuing security interest in and to all of its Collateral now or hereafter owned or acquired by such Additional Grantor or in which such Additional Grantor now has or hereafter has or acquires any rights, and wherever located. The Security Interests are granted as security only and shall not subject the Collateral Agent or any Secured Party to, or transfer to Collateral Agent or any Secured Party, or in any way affect or modify, any obligation or liability of Additional Grantor with respect to any of its Collateral or any transaction in connection therewith. SECTION 2. Representations and Warranties. The Additional Grantor, with respect to itself, hereby restates each representation and warranty set forth in Section 2 of the Security Agreement as of the date hereof. SECTION 3. Updated Perfection Certificate. Attached hereto as Schedule 1 is a Perfection Certificate with respect to the Additional Grantor, which shall be deemed to modify and update the Perfection Certificate delivered by the Grantors on November 2, 2000. SECTION 4. Binding Effect. This Supplement shall become effective when it shall have been executed by the Additional Grantor and thereafter shall be binding upon the Additional Grantor and shall inure to the benefit of the Collateral Agent and the Secured Parties. Upon the effectiveness of this Supplement, the Additional Grantor shall be deemed to be a Grantor for all purposes under the Security Agreement, and this Supplement shall be deemed to be a part of and shall be subject to all the terms and conditions of the Security Agreement. The Additional Grantor shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Collateral Agent. SECTION 5. Governing Law. THIS SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF GEORGIA. SECTION 6. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instruments. 25 IN WITNESS WHEREOF, the Additional Grantor has caused this Supplement to be duly executed and delivered by its duly authorized officer as of the date first above written. "Additional Grantor" -------------------------------------- By: ------------------------------------ Name: Title: EX-27 6 g65495ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE DIXIE GROUP, INC. AT AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-30-2000 JAN-01-2000 SEP-30-2000 3,614 0 27,205 2,044 122,427 169,533 330,741 144,038 436,174 90,367 196,011 0 0 45,067 69,065 436,174 414,786 414,786 333,647 333,647 0 0 12,618 (5,837) (2,231) (3,606) 0 0 0 (3,606) (0.31) (0.31)
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