Document:

ex10_1_stockpurchase

EXHIBIT 10.1

STOCK PURCHASE AGREEMENT
by and between
TDG OPERATIONS, LLC,
a Georgia limited liability company
and
 JAMES HORWICH,
in his capacity as 
Trustee under the Horwich Trust of 1973, dated July 13, 1973,
and in his capacity as
an individual residing in the State of California

Dated as of March 19, 2014

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TABLE OF CONTENTS

1.    DESCRIPTION OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1
		
	1.1
	Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1

		
	1.2
	Purchase Price; Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1

		
	1.3
	Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     2

2.    REPRESENTATIONS AND WARRANTIES OF THE SELLER . . . . . . . . . . . . . . . . . . .     3
		
	2.1
	Seller-Specific Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     4

		
	2.2
	Due Organization; Subsidiaries; Etc . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     4

		
	2.3
	Constituent Documents; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     5

		
	2.4
	Capitalization, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     5

		
	2.5
	Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     5

		
	2.6
	Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .. . . . . . . .     6

		
	2.7
	Personal Property and Intangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    7

		
	2.8
	Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     7

		
	2.9
	Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     8

		
	2.10
	Legal Proceedings; Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     10

		
	2.11
	Compliance with Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     10

		
	2.12
	Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    11

		
	2.13
	Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    12

		
	2.14
	Employee and Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     14

		
	2.15
	Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     14

		
	2.16
	Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     15

		
	2.17
	Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     15

		
	2.18
	Warranty and Liability Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     15

		
	2.19
	Outstanding Checks; Payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    15

		
	2.20
	No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16

3.    REPRESENTATIONS AND WARRANTIES OF THE BUYER . . . . . . . . . . . . . . . . . . . .     16
		
	3.1
	Corporation Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     16

		
	3.2
	No Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16

		
	3.3
	Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16

4.    ADDITIONAL COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     16
		
	4.1
	Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     16

		
	4.2
	Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16

		
	4.3
	Employees; Continuation of Employment and Employee Benefits . . . . . . . . . . . .     17

		
	4.4
	Post-Closing Environmental Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    18

		
	4.5
	Reimbursement for Outstanding Checks and Lockbox Amounts . . . . . . . . . . . . . .     19

		
	4.6
	Delivery of Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     19

5.    TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    19
		
	5.1
	Section 338(h)(10) Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     19

		
	5.2
	Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    19

		
	5.3
	Filing Tax Returns; Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    20

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	5.4
	Assistance on Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     20

		
	5.5
	Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     20

		
	5.6
	Certain Taxes and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     21

6.    SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     21
		
	6.1
	Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     21

		
	6.2
	Indemnification by the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     21

		
	6.3
	Indemnification by the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     22

		
	6.4
	Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    22

7.    MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    23
		
	7.1
	Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     23

		
	7.2
	Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    23

		
	7.3
	Attorneys’ Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    23

		
	7.4
	Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    23

		
	7.5
	Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    24

		
	7.6
	Governing Law; Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    24

		
	7.7
	Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     24

		
	7.8
	Remedies Cumulative; Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . .     24

		
	7.9
	Waiver; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    24

		
	7.10
	Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    25

		
	7.11
	Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     25

		
	7.12
	Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     25

		
	7.13
	Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     25

 

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EXHIBITS
Exhibit A    -    Certain Definitions
Exhibit B     -    Affiliate Lease Agreement
Exhibit C    -    Affiliate Lease Agreement
Exhibit D    -    Affiliate Lease Agreement
Exhibit E    -    Employment Agreement
Exhibit F    -    Employment Agreement
Exhibit G    -    Employment Agreement
SCHEDULES
Schedule 1.3(d)(v) Associate Loans
Schedule 2.1 Consents
Schedule 2.2(a) Due Organization
Schedule 2.2(b) Subsidiaries; Interest in Other Entities
Schedule 2.3 Constituent Documents; Records
Schedule 2.4 Capitalization
Schedule 2.5(b) Financial Statements
Schedule 2.5(c) Exceptions to Conduct In the Ordinary Course of Business
Schedule 2.6(a) Real Property
Schedule 2.6(d) Repairs, Improvements, Easements
Schedule 2.6(e) Environmental Reports and Audits
Schedule 2.6(f) Environmental Reports and Audits
Schedule 2.7(a) Title to Assets
Schedule 2.7(b) Personal Property
Schedule 2.7(c) Personal Property
Schedule 2.8(a) Registered IP
Schedule 2.8(b) Intellectual Property
Schedule 2.8(c) IP Contracts
Schedule 2.8(e) IP Infringement

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Schedule 2.8(h) IP Assignments
Schedule 2.9(a) Atlas Contracts
Schedule 2.9(b) Atlas Contracts Not In Written Form
Schedule 2.10 Legal Proceedings; Orders
Schedule 2.11 Permits; Compliance With Legal Requirements
Schedule 2.12(c) Audits
Schedule 2.12(j) Payments to Employees
Schedule 2.13(a) Employee Benefit Plans
Schedule 2.13(k) Atlas Plan Termination
Schedule 2.14(a) List of Employees
Schedule 2.14(c) Employees Not “At Will”
Schedule 2.16 Insurance
Schedule 2.19 Outstanding Checks
Schedule 4.3(a) Terminated Employees
Schedule 6.2(b) Inventory Subject to Inventory Holdback
Schedule X Permitted Encumbrances

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STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of March 20, 2014, by and among: TDG Operations, LLC, a Georgia limited liability company (the “Buyer”), James Horwich, Trustee under the Horwich Trust of 1973, dated July 13, 1973 (the “Seller”), and James Horwich, in his capacity as an individual residing in the State of California (“Horwich”).  Buyer, Seller and Horwich are from time to time individually referred to as a “Party” and collectively as the “Parties.”  Capitalized terms used in this Agreement are defined herein and in Exhibit A.
RECITALS
WHEREAS, Atlas Carpet Mills, Inc., a California corporation (“Atlas”), operates a carpet and carpet tile design and manufacturing business principally located in the State of California;
WHEREAS, the Seller owns all of the issued and outstanding shares of capital stock of Atlas;
WHEREAS, the Seller wishes to sell to the Buyer, and the Buyer wishes to purchase from the Seller, all of the Stock on the terms and conditions hereinafter set forth; and
WHEREAS, the Parties desire to elect to treat the acquisition of the Stock of Atlas as an asset purchase for federal income tax purposes pursuant to the provisions of Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, (the “Code”) and the regulations promulgated thereunder;
NOW THEREFORE, in consideration of the foregoing and the respective covenants, agreements, representations and warranties set forth herein, the Parties to this Agreement, intending to be legally bound, agree as follows:
AGREEMENT
		
	1.
	DESCRIPTION OF TRANSACTION

1.1    Sale of Stock.  Upon the terms and subject to the conditions of this Agreement, at the Closing, the Buyer shall purchase from the Seller, and the Seller shall sell, transfer, assign and deliver to the Buyer, all of the Stock, free and clear of all Encumbrances.

1.2    Purchase Price; Payment of Purchase Price.  

(a)In consideration of the sale pursuant to Section 1.1, the Buyer hereby agrees to pay to the Seller an aggregate of Fifteen Million One Hundred Thousand and 00/100 Dollars ($15,100,000.00) for the Stock (the “Purchase Price”), One Hundred Thousand and 00/100 Dollars ($100,000.00) of which is reimbursement for Seller’s additional deposit as set forth in Section 2.19.

(b) On the Closing Date, Buyer shall pay the balance of the Purchase Price, after deducting from the Purchase Price the Inventory Holdback, the Claims Holdback, and the sum of Thirty Five Thousand Seven Hundred Fifty Eight and 00/100 Dollars ($35,758.00) (“Seller’s Severance Amount”) as described in Section 4.3(d), and after adding to the Purchase Price the sum of Five Hundred Eighty Two Thousand Seven Hundred Seventy Nine and 00/100 Dollars ($582,779.00), representing reimbursement of deposits made by Atlas in connection with two (2) purchase orders submitted to Card-Monroe Corp. for equipment to be delivered to Atlas after Closing as described in Section 2.5(d) (the “CMC Deposit Amount”), in such aggregate 

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net amount as set forth on the Closing Statement, by wire transfer of immediately available funds to an account of the Seller designated in writing by the Seller to the Buyer.

(c)Seven Hundred Eighty Seven Thousand and 00/100 Dollars ($787,000.00) of the balance of the Purchase Price shall be retained by Buyer on the Closing Date as a “reserve” for any Inventory Claim (as defined in Section 6.2(b)) (the “Inventory Holdback”), with charges against the Inventory Holdback to be made as provided in Section 6.2(b).  Upon the expiration of the five (5) year period following the Closing Date, Buyer shall pay to the Seller, in immediately available funds by wire transfer to an account designated by the Seller, the Inventory Holdback net of any offset for Inventory Claims as provided herein; provided, however that the Seller and the Buyer may mutually agree to settle and liquidate the inventory set forth on Schedule 6.2(b) prior to such date and cause an early release of the Inventory Holdback prior to such date. 

(d)One Hundred Thousand and 00/100 Dollars ($100,000.00) of the balance of the Purchase Price shall be retained by Buyer on the Closing Date as a “reserve” (the “Claims Holdback”) for any warranty or product liability claim asserted against Atlas with respect to inventory manufactured by Atlas prior to Closing (a “Product Claim”) in excess of the claims reserve as set forth on the balance sheet of Atlas as of the Closing Date and not covered by insurance, with charges against the Claims Holdback to be made as provided in Section 6.2(c).  Upon the expiration of the three (3) year period following the Closing Date, Buyer shall pay to the Seller, in immediately available funds by wire transfer to an account designated by the Seller, the Claims Holdback net of any offset against the Claims Holdback as provided in Section 6.2(c). 

1.3    Closing.

(a)    The consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place by wire transfer of the Purchase Price to the Seller and through the exchange of documents using overnight courier service, electronic mail in portable document format or facsimile on the date hereof (the “Closing Date”).

(b)    At the Closing, the Buyer shall deliver to the Seller:

(i)the Purchase Price, minus the Claims Holdback and minus the Inventory Holdback minus the Seller’s Severance Amount plus the CMC Deposit Amount, by wire transfer of immediately available funds to an account of the Seller designated in writing by the Seller to the Buyer; 

(ii)lease agreements in the forms attached hereto as Exhibits B through D (the “Affiliate Lease Agreements”), executed by the Buyer, with respect to the real properties and facilities at the following locations: 2200 Saybrook Avenue, 2211 Davie Avenue, and 6433 Gayhart Avenue, all in Commerce, California.

(iii)employment agreements with each of Mark Nestler, Scott Price and Horwich in the forms attached hereto as Exhibits E through G (the “Employment Agreements”), executed by the Buyer; and

(iv)a certificate, dated as of the Closing Date, executed by the Secretary of the Buyer certifying that attached thereto are true and correct copies of an action by written consent of, or of resolutions duly adopted by, the Board of Directors of the Buyer that authorize and approve the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby 

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and certifying the incumbency, signature and authority of the officers of the Buyer authorized to execute, deliver and perform this Agreement and all other related documents, instruments or agreements; and

(v)such other certificates, instruments, forms and items as the Seller shall reasonably request relating to the transactions contemplated by this Agreement.

(c)    At the Closing, the Seller shall deliver to the Buyer:

(i)    A stock certificate evidencing the Stock, free and clear of all Encumbrances, duly endorsed in blank or accompanied by stock powers or other instruments of transfer duly executed in blank, with required stock transfer tax stamps (if any) affixed thereto; 

(ii)    a properly-completed IRS Form 8023 duly executed by the Seller;

(iii)    written resignations of Horwich and Ada Horwich as directors and officers of Atlas, effective as of the Closing;

(iv)    the Employment Agreement, executed by Horwich; 

(v)    evidence from the Secretary of State of the State of California of the valid existence and good standing of Atlas in the State of California;

(vi)    evidence that Atlas has terminated the Atlas Plan (the 401(k) profit sharing plan) to the Buyer’s satisfaction; and

(vii)    such other certificates, instruments, forms and items as the Buyer shall reasonably request relating to the transactions contemplated by this Agreement.

(d)    It is a condition to Closing that, at Closing, the Buyer shall have received:

(i)    the written resignations of Mark Nestler, Scott Price and Corazon Fabricante as officers of Atlas, effective as of the Closing;

(ii)    the Affiliate Lease Agreements, executed by the landlords set forth therein;

(iii)    the Employment Agreements, executed by Mark Nestler and Scott Price; 

(iv)    all Consents set forth on Schedule 2.1, including without limitation, the Consent required in connection with the Wells Fargo Master Lease Agreement dated December 3, 2008, as amended, and the Consents required in connection with the leases for the Real Property located at 6503 Gayhart, Commerce, California, at 6478 Putnam Ford Drive, Woodstock, Georgia, at 200 Lexington Avenue, New York, New York and at 222 Merchandise Mart Plaza, Chicago, Illinois; and 

(v)    evidence that all associate loans (as set forth on Schedule 1.3(c)(v)) have been paid in full.
2.    REPRESENTATIONS AND WARRANTIES OF THE SELLER  

Subject to the exceptions set forth in the Schedules (which exceptions shall specifically identify the Section to which the exception relates, it being understood and agreed that each exception shall be deemed to be disclosed with respect to other representations or warranties of this Article 2 if the relevance of such 

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disclosure to such other representation or warranties is readily apparent on its face), the Seller represents and warrants to the Buyer as of the Closing Date as follows, and for all purposes under this Article 2 any representation or warranty concerning the Seller shall also constitute the same representation or warranty concerning Horwich:

2.1    Seller-Specific Representations.  The Seller owns and has, and at the Closing shall transfer to the Buyer, good, valid and marketable title to all of the Stock free and clear of all Encumbrances.  There are no Contracts under which the Seller is or may become obligated to sell or otherwise dispose of the Stock, other than this Agreement.  No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Seller or Atlas.   The Seller is a duly organized and validly existing trust, in good standing under the laws of the State of California.  The Seller has full right, power and authority to enter into this Agreement and all other agreements and documents contemplated by or related to this Agreement and to consummate the transactions contemplated hereby and thereby.  James Horwich is the sole trustee of the Seller and has full right, power and authority to cause the Seller to enter into this Agreement and all other agreements and documents contemplated by or related to this Agreement and to consummate the transactions contemplated hereby and thereby, including the sale of the Stock to the Buyer.  Except as set forth on Schedule 2.1, neither the execution, delivery or performance of this Agreement by the Seller, nor the consummation of the transactions contemplated by this Agreement by the Seller, will directly or indirectly (with or without notice or lapse of time): (a) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the transactions contemplated by this Agreement or to exercise any remedy or obtain any relief under, any trust instrument or other organizational document of the Seller or any Legal Requirement to which the Seller or Atlas, or any of the assets owned, used or controlled by Atlas, is subject; (b) result in the imposition or creation of any Encumbrance upon or with respect to the Stock or any asset owned or used by Atlas; or (c) require any filing with, notice to or Consent from any Person that has not already been made or obtained, as applicable, and provided to the Buyer, including any such filing, notice or Consent under any Contract required due to the change of control of Atlas.  There is no order to which the Seller is subject, with respect to the Stock, or to which the Stock is subject.  This Agreement has been duly executed by the Seller and, assuming that this Agreement is a valid and binding obligation of the other Parties, constitutes the legal, valid and binding agreement of the Seller, enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by the Enforceability Exception.

2.2    Due Organization; Subsidiaries; Etc.  

(a)    Atlas is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all necessary corporate power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts to which it is a party or is bound.  Atlas has not conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name.  Atlas is not qualified, authorized, registered or licensed to do business as a foreign corporation in any jurisdiction.  Schedule 2.2(a) accurately sets forth (i) the names of the members of the board of directors of Atlas and (ii) the names and titles of the officers of Atlas. 

(b)    Except as set forth on Schedule 2.2(b), Atlas does not own any interest in any Entity and has not owned, beneficially or otherwise, within the previous five (5) years, any shares or other securities of, or any direct or indirect equity in, any Entity.  Atlas has not agreed nor is it obligated to make any future investment in or capital contribution to any Entity.  

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2.3    Constituent Documents; Records.  The Seller has delivered to the Buyer accurate and existing copies of:  (a) Atlas’s current Articles of Incorporation, as amended or restated, and current bylaws, as amended or restated; (b) the stock records (or other equity ownership records, as applicable) of Atlas; and (c) the existing minutes and other records of the meetings and other proceedings of the shareholders of Atlas, the board of directors of Atlas and all committees of the board of directors of Atlas (the items described in (a), (b) and (c) above, collectively, the “Atlas Constituent Documents”).  There has not been any violation of the Atlas Constituent Documents, and Atlas has not taken any action that is inconsistent in any material respect with the Atlas Constituent Documents.  The Atlas Constituent Documents, accounting and other records of Atlas are accurate, up to date and complete in all material respects, and have been maintained in material compliance with Legal Requirements and in accordance with reasonable business practices.

2.4    Capitalization, Etc.  The authorized capital stock of Atlas consists of 2,000 shares of common stock, with a stated value of $100 per share, of which 1,005 shares have been issued and are outstanding, all of which issued and outstanding shares (the “Stock”) are owned by the Seller.  There are no: (i) outstanding subscription, option, call, warrant or other rights (whether or not currently exercisable) to acquire any shares of capital stock or other securities of Atlas; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of capital stock or other securities of Atlas; (iii) Contracts under which Atlas is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) conditions or circumstances that may give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of Atlas.

2.5    Financial Statements.

(a)    The Seller has delivered to the Buyer the following financial statements and notes (collectively, the “Atlas Financial Statements”):

(i)    The reviewed balance sheets of Atlas as of December 31, 2011, December 31, 2010, December 31, 2009, December 31, 2008 and December 31, 2007, and the related reviewed statements of income, shareholders’ equity and cash flows of Atlas for the years then ended; and

(ii)    The unaudited balance sheets of Atlas as of December 31, 2013 and December 31, 2012, and the related unaudited statements of income, shareholders’ equity and cash flows of Atlas for the years then ended.

(b)    The Atlas Financial Statements present fairly in all material respects the financial position of Atlas as of the respective dates thereof (including an accurate summary of all of the assets of Atlas as of such respective dates) and the results of operations and cash flows of Atlas for the periods covered thereby.  Except as set forth on Schedule 2.5(b), the Atlas Financial Statements have been prepared in accordance with generally accepted accounting principles throughout the periods covered (“GAAP”), as consistently applied by Atlas, and, except as set forth on Schedule 2.5(b),  Atlas has not incurred contingent or other liabilities of any nature (including any Indebtedness), either matured or unmatured, except for: (i) liabilities identified as such in the “liabilities” column of the unaudited balance sheet of Atlas as of December 31, 2013 and (ii) current liabilities (other than Indebtedness) that have been incurred by Atlas in the ordinary course of business and consistent with Atlas’s past practices since December 31, 2013.  

(c)    Except as set forth on Schedule 2.5(c), Since December 31, 2013, Atlas has conducted its business and operations in the ordinary course of business (using, for these purposes, the ordinary course of business of Atlas as conducted over the year 2013).

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(d)    The CMC Deposit Amount represents deposits that have been made by Atlas in connection with two (2) purchase orders submitted to Card-Monroe Corp. for equipment to be delivered to Atlas after Closing.

2.6    Real Property.

(a)    Schedule 2.6(a) sets forth a correct and complete list of (i) all real property currently owned by Atlas; (ii) all material Contracts under which any Person has the right to occupy or use any real property owned by Atlas; (iii) all material Contracts under which Atlas has the right to occupy or use any real property owned by others; and (iv) any other material Contract of Atlas related to real property.

(b)    Atlas has good, valid and marketable title in fee simple to all real property listed on Schedule 2.6(a) as being owned by Atlas, free and clear of all Encumbrances (other than Permitted Encumbrances).

(c)    True and complete copies of all real property leases and other material Contracts of Atlas listed on Schedule 2.6(a) have been delivered to the Buyer.  All leases or other material Contracts of Atlas related to the use of the real property set forth on Schedule 2.6(a) are valid and in full force and effect and enforceable in accordance with their respective terms except as may be limited by the Enforceability Exception and are, as applicable, held by Atlas free and clear of all Encumbrances (other than Encumbrances in favor of the lessor and Permitted Encumbrances).  There is not under any such lease or other material Contract any existing default or event of default (or event that, with notice or passage of time, or both, would constitute a default) by Atlas, or to the Seller’s knowledge, by any other party thereto.  Atlas does not currently occupy or possess any real property other than such property owned as set forth on Schedule 2.6(a) or through the leases and other Contracts set forth on Schedule 2.6(a).

(d)    Except as set forth on Schedule 2.6(d), all buildings and other improvements located on the Real Property (including without limitation all water, sewer, gas, electrical, and HVAC systems servicing Atlas’ business) are all of the buildings and improvements necessary to the conduct of the business of Atlas as currently conducted, are structurally sound, are in satisfactory operating condition and repair (ordinary wear and tear excepted), and are adequate for the uses to which they are being put, and none of such buildings and other improvements located on the Real Property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature.  The Real Property has adequate means of ingress and egress, either directly or by means of perpetual easements or rights-of-way which run with the Real Property; has adequate parking that is sufficient to meet the needs of Atlas’ employees and business invitees and to comply with applicable Legal Requirements; and is not located in whole or in part within an area identified as a flood hazard area by any Governmental Body.

(e)Except as set forth on Schedule 2.6(e), to the Seller’s knowledge, all buildings and other improvements located on the Real Property, and the use of the Real Property by Atlas comply with all Legal Requirements relating to zoning, health and safety, the environment and land use and with all easements, covenants and other restrictions applicable to the Real Property, except where failure to comply would not reasonably be expected to result in any Material Adverse Effect, and there are no encroachments of improvements on the Real Property onto adjacent property or encroachments of improvements on adjacent properties onto any of the Real Property.

(f)Except as set forth on Schedule 2.6(f), no certificate of occupancy or other Permit is required to be obtained from any Governmental Body with respect to the Real Property occupied or leased by Atlas which has not already been obtained.  Set forth on Schedule 2.6(f) is a list of all environmental 

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reports or audits prepared by or for Atlas, the Seller or any Affiliate thereof relating to any Real Property, which is in the possession of Atlas, the Seller or any Affiliate thereof.

2.7    Personal Property and Intangible Property.  

(a)    Except as set forth on Schedule 2.7(a), as of the Closing, Atlas has good, valid and marketable title in fee simple to all personal property, Intellectual Property Rights (and goodwill thereto), accounts receivable and other current assets reflected as owned by Atlas on the unaudited balance sheet of Atlas as of December 31, 2013, free and clear of all Encumbrances except: (i) Permitted Encumbrances, (ii) dispositions of personal property made in the ordinary course of business since the date thereof, (iii) collections of accounts receivable made in the ordinary course of business since the date thereof and (iv) the payments to employees of Atlas in the aggregate amount as specified in Schedule 2.12(j) in cash immediately prior to Closing. 

(b)    Schedule 2.7(b) contains a list of all personal property owned and used in the conduct of business of Atlas, including personal property subject to leases under which Atlas is the lessee (or sublessee), together with (i) the location and nature of each of the properties; (ii) the termination date of each lease, if applicable; (iii) the name of the lessor, if applicable; (iv) all rental and other payments made or required to be made under any leases, if applicable; and (v) the date and amount of the next permitted increase in such payments, if applicable.  All leases are valid, subsisting in full force and effect and enforceable in accordance with their respective terms, except as may be limited by the Enforceability Exception, and are, in each case, free and clear of all Encumbrances (other than Encumbrances in favor of the lessor and Permitted Encumbrances).  There is not under any such lease any existing default or event of default (or event that, with notice or passage of time, or both, would constitute a default) by Atlas or, to the Seller’s knowledge, by any other party thereto.  True and complete copies of all such leases listed on Schedule 2.7(b) have been delivered to the Buyer heretofore.  The personal property listed on Schedule 2.7(b) is all of the personal property necessary or desirable to the conduct of the business of Atlas as currently conducted.

(c)    All personal property owned by Atlas and all personal property held by Atlas pursuant to personal property leases are in good operating condition and repair (ordinary wear and tear excepted), and are adequate for the uses to which they are being put, and none of such personal property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature.

2.8    Intellectual Property

(a)    Schedule 2.8(a) accurately identifies (i) each item of Registered IP in which Atlas or the Seller has or purports to have an ownership interest of any nature (whether exclusively, jointly with another Person, or otherwise); (ii) the jurisdiction in which such item of Registered IP has been registered or filed and the applicable registration or serial number; (iii) any other Person that has an ownership interest in such item of Registered IP and the nature of such ownership interest; and (iv) each product or service of Atlas that embodies, utilizes, or is based upon or derived from (or, with respect to products and services under development, that is expected to embody, utilize, or be based upon or derived from) such item of Registered IP.  Atlas or the Seller has provided complete and accurate copies of all applications, correspondence, and other material documents related to each such item of Registered IP.  

(b)    Schedule 2.8(b) accurately identifies (i) all Intellectual Property Rights licensed to or utilized by Atlas or the Seller (other than any Non Customized Software); (ii) the corresponding Contract or 

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Contracts pursuant to which such Intellectual Property Rights are licensed to Atlas or the Seller; and (iii) whether the license or licenses granted to Atlas or the Seller are exclusive or non-exclusive.

(c)    Schedule 2.8(c) accurately identifies each Contract pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any Atlas IP.  Neither the Seller nor Atlas is bound by, and no Atlas IP is subject to, any Contract containing any covenant or other provision that in any way limits or restricts the ability of Atlas or the Seller to use, exploit, assert, or enforce any Atlas IP for any purpose anywhere in the world.

(d)    Atlas owns all right, title, and interest to and in the Atlas IP (other than Intellectual Property Rights exclusively licensed to Atlas, as identified in Schedule 2.8(b)), free and clear of all Encumbrances.  All Atlas IP that is exclusively licensed to Atlas is free and clear of all Encumbrances other than the applicable licensor’s interest.

(e)    No Person has infringed, misappropriated, or otherwise violated, and no Person is currently infringing, misappropriating, or otherwise violating, any Atlas IP.  Schedule 2.8(e) accurately identifies (and the Seller has provided to the Buyer a complete and accurate copy of) each letter or other written or electronic communication or correspondence that has been sent or otherwise delivered in the last five (5) years by or to Atlas or any representative of Atlas regarding any actual, alleged, or suspected infringement or misappropriation of any Atlas IP, and provides a brief description of the current status of the matter referred to in such letter, communication, or correspondence.

(f)    Neither the execution, delivery, or performance of this Agreement (or any of the ancillary agreements) nor the consummation of any of the transactions contemplated by this Agreement (or any of the ancillary agreements) will, with or without notice or lapse of time, result in, or give any other Person the right or option to cause or declare, (i) a loss of, or Encumbrance on, any Atlas IP; (ii) a breach of any license agreement listed or required to be listed in Schedule 2.8(b); or (iii) the grant, assignment, or transfer to any other Person of any license or other right or interest under, to, or in any of the Atlas IP.

(g)Neither the Seller nor Atlas has infringed (directly, by contribution, by inducement, or otherwise), misappropriated, or otherwise violated any Intellectual Property Right of any Person.

(h)Except as set forth on Schedule 2.8(h), Atlas has not obtained any assignment of any Intellectual Property Rights of Atlas from any officer, director, shareholder or employee who has served or worked for Atlas and or any consultant who has performed any service for Atlas with regard to Atlas IP.

    
2.9    Contracts.  

(a)    Schedule 2.9(a) identifies each Atlas Contract specified below:

(i)any purchase order that contemplates or involves (A) the payment or delivery of cash or other consideration by Atlas in an amount or having a value in excess of $25,000 in the aggregate, or (B) the purchase or sale of any product from, or performance of services by, Atlas in an amount or having a value in excess of $25,000 in the aggregate;

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(ii)each Atlas Contract (other than purchase orders having a value of under $25,000) with or related to customers of Atlas, including any Contract in which a party agrees to pay or subsidize the fees of any customer of Atlas;

(iii)each Atlas Contract relating to the employment of, or the performance of services by, any Person, including any employee, consultant or independent contractor;

(iv)each Atlas Contract relating to the acquisition, transfer, use, development, sharing or license of any technology or any Intellectual Property Rights, or relating to the lease, use or occupancy of real or personal properties;

(v)each Atlas Contract imposing any restriction on Atlas’s right or ability (A) to compete with any other Person; (B) to acquire any product or other asset or any services from any other Person, to sell any product or other asset to, or perform any services for, any other Person or to transact business or deal in any other manner with any other Person; or (C) develop or distribute any technology;

(vi)each Atlas Contract creating or involving any agency relationship, distribution arrangement or franchise relationship;

(vii)each Atlas Contract relating to the acquisition, issuance or transfer of any securities;

(viii)each Atlas Contract relating to the creation of any Encumbrance with respect to any asset of Atlas;

(ix)each Atlas Contract involving or incorporating any guaranty, any pledge, any performance or completion bond, any indemnity or any surety arrangement or any indemnification for or assumption of any liability for any other Person;

(x)each Atlas Contract creating or relating to any partnership or joint venture or any sharing of revenues, profits, losses, costs or liabilities;

(xi)each Atlas Contract relating to the purchase or sale of any product or other asset by or to, or the performance of any services by or for, or the leasing or licensing of any real property, personal property or intangible assets by or to, any Related Party;

(xii)each Atlas Contract constituting or relating to a government Contract;

(xiii)each Atlas Contract relating to Indebtedness;

(xiv)each Atlas Contract involving the acquisition or disposition of any assets in an amount or having a value in excess of $25,000 in the aggregate;

(xv)each Atlas Contract that may be characterized as a requirements or supply contract; 
(xvi)any other material Atlas Contract that may not be terminated by Atlas (without penalty) within thirty (30) days after the delivery of a termination notice by Atlas; and

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(xvii)any other Atlas Contract in an amount or having a value in excess of $25,000 in the aggregate.

(b)    The Seller has delivered to the Buyer accurate and complete copies of all written Atlas Contracts.  Schedule 2.9(b) provides an accurate description of the terms of each Atlas Contract that are material to the business and not in written form.  Each Atlas Contract is valid, subsisting in full force and effect and is enforceable in accordance with its terms except as may be limited by the Enforceability Exception, and after the Closing will continue to be legal, valid, binding and enforceable on identical terms except as may be limited by the Enforceability Exception.  Except as set forth on Schedule 2.9(b), the consummation of the transactions contemplated hereby shall not (either alone or upon the occurrence of additional acts or events) result in any payment or payments becoming due from Atlas, or any of its Affiliates, to any Person under, or give any Person the right to terminate or alter the provisions of, any Atlas Contract.

(c)    Except as set forth on Schedule 2.9(b), no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to, (i) result in a violation or breach of any of the provisions of any Atlas Contract by Atlas or, to the Seller’s knowledge, by any other party thereto; (ii) give any other Person or, to the Seller’s knowledge, Atlas the right to declare a default or exercise any remedy under any Atlas Contract; (iii) give any other Person or, to the Seller’s knowledge, Atlas the right to accelerate the maturity or performance of any Atlas Contract; or (iv) give any other Person or, to the Seller’s knowledge, Atlas the right to cancel, terminate or modify any Atlas Contract.  Neither the Seller nor Atlas has received any written notice or other written communication regarding any actual or possible violation or breach of, or default under, any Atlas Contract.  Atlas has not waived any of its material rights under any Atlas Contract.  No Person is renegotiating, or has a right pursuant to the terms of any Atlas Contract to renegotiate, any amount paid or payable to Atlas under any Atlas Contract or any other material term or provision of any Atlas Contract.

(d)    The Atlas Contracts collectively and materially constitute all of the Contracts necessary to enable Atlas to conduct its business in the manner in which its business is currently being conducted.

2.10    Legal Proceedings; Orders. There is no pending Legal Proceeding, nor, to the Seller’s knowledge, has any Person threatened to commence any Legal Proceeding, and no claim, dispute or other condition or circumstance exists that will, or that could reasonably be expected to, give rise to or serve as a basis for the commencement of any such Legal Proceeding: (i) that involves Atlas or the Seller as a party or any of the assets owned, used or controlled by Atlas or any Person whose liability Atlas has or may have retained or assumed, either contractually or by operation of law; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the transactions contemplated by this Agreement.  There is no Order to which Atlas, or any of the assets owned or used by Atlas, is subject.

2.11    Compliance with Legal Requirements.  To the Seller’s knowledge, Atlas is, and at all times in the last five (5) years has been, in compliance in all material respects with all applicable Legal Requirements, except where failure to do so would not be reasonably expected to result in a Material Adverse Effect.  Atlas has not received any notice or other communication from any Governmental Body regarding any actual or possible violation of, or failure to comply with, any Legal Requirement.  All material Permits required for Atlas to conduct the business as currently conducted have been obtained by Atlas and are valid and in full force and effect. All fees and charges with respect to such Permits hereof have been paid in full when due.   Schedule 2.11 lists all current Permits issued to Atlas which are related to the conduct of the business as currently conducted including the names of the Permits and their respective dates of issuance and expiration.  

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No event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth on Schedule 2.11.

2.12    Tax Matters.

(a)    All Tax Returns required to be filed by or on behalf of Atlas with any Governmental Body on or before the Closing Date (the “Atlas Returns”) (i) have been filed on or before the applicable due date (including any extensions of such due date), and (ii) are true, correct and complete in all respects and (iii) were prepared in compliance with all applicable Legal Requirements.  All Taxes required to be paid with respect to Atlas, including estimated Taxes, whether or not shown to be due on the Atlas Returns, have been paid to the proper Tax authority.  The Seller has delivered to the Buyer accurate and complete copies of all Atlas Returns filed which have been requested by the Buyer.

(b)    Atlas has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party.

(c)    Except as provided in Schedule 2.12(c), no Atlas Return relating to Taxes has been audited by any Governmental Body during the six (6) year period prior to the Closing Date.  The Seller has delivered to the Buyer accurate and complete copies of all audit reports and similar documents (to which the Seller has access) that have been requested by the Buyer relating to the Atlas Returns for the last six (6) years.  No extension or waiver of the limitation period applicable to any of the Atlas Returns has been granted (by Atlas or any other Person), and no such extension or waiver has been requested from Atlas or the Seller.  Neither Atlas nor the Seller has participated in any “reportable transaction” as defined in Section 6707A of the Code or Treasury Regulation Section 1.6011-4 or any corresponding or similar provision of state or local law.

(d)    No Legal Proceeding is pending or has been threatened against or with respect to Atlas in respect of any Tax.  There are no unsatisfied liabilities for Taxes (including liabilities for interest, additions to tax and penalties thereon and related expenses) with respect to any notice of deficiency or similar document received by Atlas with respect to any Tax.  There are no liens for Taxes upon any of the assets of Atlas except liens for current Taxes not yet due and payable.  No written claim has ever been made by an authority in a jurisdiction where Atlas does not file Returns that Atlas is or may be subject to taxation in that jurisdiction.

(e)    Atlas does not have any obligation (current or contingent) to compensate any individual for Tax-related payments (including Taxes payable pursuant to Section 409A of the Code).

(f)    Atlas has not been a member of any “Affiliated Group” (as defined in Section 1504(a) of the Code) or any combined, consolidated or unitary group, and Atlas has no liability for Taxes of any other Person as a consequence thereof.  Atlas is not and has not ever been, a party to or bound by any tax indemnity agreement, tax sharing agreement, tax allocation agreement or similar Contract, other than customary commercial Contracts the principal subject matter of which is not Taxes and entered into the ordinary course of business.

(g)    Atlas was incorporated on September 15, 1969, and since November 30, 1983, has been a validly electing and qualifying S corporation within the meaning of Sections 1361 and 1362 of the Code at all times since its date of incorporation and will be a validly electing and qualifying S corporation up to and including the Closing Date.

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(h)    Atlas will not be obligated to pay any tax under Section 1374 of the Code in connection with the transactions contemplated by this Agreement (including with respect to the Section 338(h)(10) Election).

(i)    Atlas has not been, in the past five (5) years, a party to a transaction (i) reported or intended to qualify as a reorganization under Code section 368 or (ii) reported or intended to qualify as a distribution governed by Code sections 355 or 356.

(j)    Atlas has adopted proper corporate resolutions authorizing the payments to employees described in Section 2.7(a) and set forth in Schedule 2.12(j) in accordance with California law and the constituent organizational documents of Atlas. 

2.13    Benefit Plans.  

(a)    Schedule 2.13(a) identifies each “employee benefit plan” within the meaning of Section 3(3) of ERISA and each other employee benefit plan, program or arrangement at any time maintained, sponsored or contributed to (or required to be contributed to) by Atlas or with respect to which Atlas has any liability or potential liability including, but not limited to, Welfare Plans (as defined below), Pension Plans (as defined below), and any salary, bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance pay, termination pay, hospitalization, medical, life or other insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plan, program or agreement (collectively, the “Plans”).   
 
(b)    Atlas does not maintain, sponsor or contribute to, nor does Atlas have any actual or potential liability with respect to, nor has Atlas ever maintained, sponsored or contributed to a multiemployer plan (as defined in Section 3(37) of ERISA, whether or not excluded from coverage under any portion of ERISA).

(c)    Atlas does not maintain, sponsor or contribute to any employee welfare benefit plans (as defined in Section 3(1) of ERISA) (the “Welfare Plans”) other than those employee welfare benefit plans that are described in Schedule 2.13(a).

(d)    With respect to each Plan, Atlas has delivered to the Buyer:

(i)    an accurate and complete copy of such Plan (including all amendments thereto) or, if such Plan is not in writing, an accurate detailed written summary of the Plan; 

(ii)    an accurate and complete copy of the annual report, if required under ERISA, with respect to such Plan for the last two (2) years;

(iii)    an accurate and complete copy of the most recent summary plan description, together with each summary of material modifications, if required under ERISA, with respect to such Plan, and all material written employee communications relating to such Plan;

(iv)    if such Plan is funded through a trust or any third party funding vehicle, an accurate and complete copy of the trust or other funding agreement (including all amendments thereto) and accurate and complete copies of the most recent financial statements thereof;

(v)    accurate and complete copies of all Contracts relating to such Plan, including service provider agreements, insurance contracts, minimum premium contracts, stop-loss agreements, investment 

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management agreements, subscription and participation agreements and recordkeeping agreements;

(vi)    an accurate and complete copy of the most recent determination letter received from the Internal Revenue Service with respect to such Plan (if such Plan is intended to be qualified under Section 401(a) of the Code); and

(vii)    an accurate and complete copy of all material correspondence with any governmental entity with respect to such Plan.

(e)    Atlas is not required to be nor has it ever been required to be, treated as a single employer with any other Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code.  Atlas has not ever been a member of an “affiliated service group” within the meaning of Section 414(m) of the Code.  Atlas has not ever made a complete or partial withdrawal from a multiemployer plan, as such term is defined in Section 3(37) of ERISA, resulting in “withdrawal liability,” as such term is defined in Section 4201 of ERISA (without regard to subsequent reduction or waiver of such liability under either Section 4207 or 4208 of ERISA).

(f)    No Plan is under investigation or audit by any Governmental Body (including the Internal Revenue Service or Department of Labor).

(g)    No Welfare Plan described in Schedule 2.13(a) provides death, medical or health benefits (whether or not insured) with respect to any current or former Employee after any such Employee’s termination of service (other than (i) benefit coverage mandated by applicable law, including coverage provided pursuant to Section 4980B of the Code; (ii) deferred compensation benefits accrued as liabilities on the unaudited balance sheet of Atlas as of December 31, 2013; and (iii) benefits the full cost of which are borne by current or former Employees (or the Employees’ beneficiaries)).

(h)    With respect to each of the Welfare Plans described in Schedule 2.13(a) constituting a group health plan within the meaning of Section 4980B(g)(2) of the Code, the provisions of Section 4980B of the Code (“COBRA”) have been complied with in all material respects.

(i)Each of the Plans has been operated and administered in all material respects in accordance with applicable Legal Requirements, including but not limited to ERISA and the Code.

(j)Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated by this Agreement, either alone or in connection with any other event, will result in any liability to Atlas to any current or former employee or director of Atlas under any Plan, or increase the benefits payable under any Plan, or result in any acceleration of the time of payment or vesting of any such benefits, except in connection with the termination of the Atlas Plan (as defined below).

(k)Atlas has, effective before the Closing Date, taken such action as is appropriate and necessary to amend to comply with all applicable Legal Requirements and to terminate the Atlas Carpet Mills, Inc. 401(k) Profit Sharing Plan (the “Atlas Plan”) pursuant to its terms.  Such action is set forth on Schedule 2.13(k). 

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2.14    Employee and Labor Matters.

(a)    Schedule 2.14(a) contains a list of the employees of Atlas as of the date of this Agreement, and correctly reflects, in all material respects, their salaries, any other compensation payable to them (including compensation payable pursuant to bonus, deferred compensation or commission arrangements), their dates of employment and their positions.  

(b)    Atlas is in material compliance with all applicable Legal Requirements and Contracts relating to employment, employment practices, wages, bonuses and terms and conditions of employment, including employee classification and compensation matters.  Atlas has taken reasonable efforts to ensure that every employee of Atlas, whether a United States citizen or otherwise, is legally authorized to work for Atlas in the United States.

(c)    Atlas is not a party to any collective bargaining contract or other Contract with a labor union involving any of its employees.  Except as set forth on Schedule 2.14(c), all of the employees of Atlas are “at will” employees.  Atlas has good labor relations and neither the Seller nor Atlas has any reason to believe that (i) the consummation of the transactions contemplated by this Agreement will have a material adverse effect on Atlas’s labor relations; (ii) any employees of Atlas who are corporate-management level or above intends to terminate his or her employment with Atlas; or (iii) there is any pending or contemplated union organizing activity. 

(d)    Atlas has not incurred any liability under the Worker Adjustment Retraining and Notification Act (29 USC§§ 2101, et seq.) or any similar state law or statute relating to employment termination in connection with a mass layoff, plant closing or similar event (such as California Labor Code Section 1400, et seq.), in the six (6) months preceding the Closing, nor has there been any such event in the six (6) months preceding the Closing, and the transactions contemplated by this Agreement will not give rise to any such liability. 

2.15    Environmental Matters.  

(a)    Except as set forth on Schedule 2.15, to the Seller’s knowledge, no Hazardous Material (i) has, except in compliance with Environmental Laws and except as disclosed to Buyer (including, without limitation, in the March 2014 Phase I and draft Limited Phase II Environmental Site Assessments prepared for Buyer by CTI Engineers, Inc.), been released, placed, stored, generated, used, manufactured, treated, deposited, spilled, discharged or disposed of by or on behalf of Atlas on or under any real property currently or previously owned or leased by Atlas or is presently located in soil, soil vapor, or groundwater, in quantities requiring investigation or remediation under Environmental Laws, on or under any Real Property (or any property adjoining any Real Property); (ii) is required by any Environmental Law to be eliminated, removed, treated or mitigated by Atlas, given the nature of its present condition, location, nature, material or maintenance; or (iii) is of a present condition, location, nature, material or maintenance which requires special notification to third parties by or on behalf of Atlas under Environmental Law.

(b)    Except as set forth on Schedule 2.15, no notice, citation, summons or order has been received by or on behalf of Atlas, no notice has been given by or on behalf of Atlas and no complaint has been received by or on behalf of Atlas, and no penalty has been assessed and no investigation or review is pending or threatened by any Governmental Body, with respect to (i) any alleged violation by or on behalf of Atlas of any Environmental Law, (ii) any alleged failure by Atlas to have any environmental Permit required in connection with its business or properties, or (iii) any release, placement, storage, generation, use, manufacture, treatment, deposit, spill, discharge or disposal of any Hazardous Material by or on behalf of 

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Atlas.  Atlas has not received any request for information, notice of claim, demand or notification that it is or that indicates that it may be a “potentially responsible party” with respect to any investigation or remediation of any threatened or actual release of any Hazardous Material.  

(c)    Except as set forth on Schedule 2.15, to the Seller’s knowledge, none of the following have ever been present or located at any real property currently or formerly owned or leased by Atlas, except as disclosed to Buyer (including, without limitation, in the March 2014 Phase I and draft Limited Phase II Environmental Site Assessment prepared for Buyer by CTI Engineers, Inc.): (i) above-ground or underground storage tanks; (ii) friable asbestos-containing materials; (iii) polychlorinated biphenyls in excess of fifty (50) parts per million; or (iv) mold or other fungi at concentrations or in conditions that would presents a risk to human health, safety or the environment.

2.16    Insurance.  Schedule 2.16 identifies all insurance policies maintained by, at the expense of or for the benefit of Atlas and identifies any material claims made thereunder during the previous two (2) fiscal years or the current fiscal year, and the Seller has delivered to the Buyer accurate and complete copies of the insurance policies identified on Schedule 2.16.  Each of the insurance policies identified in Schedule 2.16 is in full force and effect.  Atlas has not received any written notice or other written communication regarding any actual or possible (a) cancellation or invalidation of any such insurance policy; (b) refusal of any coverage or rejection of any claim under any such insurance policy; or (c) material adjustment in the amount of the premiums payable with respect to any such insurance policy.  Atlas has timely and properly notified the appropriate insurance company of all facts or occurrences for which coverage would be provided under such insurance policies.  The insurance policies are of the type and in the amounts customarily carried by Persons conducting a business similar to Atlas and are sufficient for compliance with all applicable laws and Contracts to which Atlas is a party or by which it is bound.  Atlas has not allowed any insurance policy to lapse in coverage or defaulted on any premium payment due.

2.17    Inventory.  Except for the inventory set forth on Schedule 6.2(b), all inventory of Atlas, whether or not reflected in the Atlas Financial Statements, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value in the Atlas Financial Statements or for which adequate reserves have been established in the Atlas Financial Statements.  All such inventory is owned by Atlas free and clear of all Encumbrances (other than Permitted Encumbrances), and no inventory is held on a consignment basis. The quantities of each item of inventory (whether raw materials, work-in-process or finished goods) are not excessive, but are reasonable in the present circumstances of Atlas. 

2.18    Warranty and Liability Claims.  All products designated, manufactured, sold or delivered by Atlas (including, without limitation, all documentation furnished in connection therewith) materially conform with all customary and reasonable standards for products of such type, with all applicable contractual commitments and with all express and implied warranties, and Atlas has no liability except to the extent Atlas may have Liabilities for warranty claims in the ordinary course of business.

2.19    Outstanding Checks; Payroll.  As of the Closing, (i) Atlas has issued the checks listed on Schedule 2.19 and all such checks remain outstanding as of the Closing, and (ii) Atlas has on deposit in its bank accounts an amount of cash equal to the aggregate face amount of all such checks on Schedule 2.19, plus an additional $100,000.00, plus an aggregate amount sufficient for Atlas to pay all accrued wages, benefits and other employment costs, and all federal and state withholding, social security and employment taxes payable in connection therewith, for all of its employees through 11:59 p.m. on the Closing Date.  The 

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Seller acknowledges that the Purchase Price set forth in Section 1.2(a) includes $100,000.00 in reimbursement to the Seller for the additional $100,000.00 amount described above and left on deposit as of the Closing.  

2.20    No Misleading Statements.  The representations and warranties of the Seller contained in this Agreement and Schedules attached hereto are complete and accurate in all material respects and do not include any untrue statement of a material fact or omit to state any material fact necessary to make any statements made not misleading.  There is no material fact relating to the Stock or Atlas that has not been set forth or described in this Agreement or in the Schedules attached hereto.

3.    REPRESENTATIONS AND WARRANTIES OF THE BUYER 

The Buyer represents and warrants to the Seller as follows:
3.1    Corporation Existence and Power.  The Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and has all necessary power and authority required to conduct its business in the manner in which its business is currently being conducted. The Buyer has all requisite limited liability company power and authority to execute and deliver this Agreement and the other transaction documents referenced herein and to consummate the transactions contemplated hereby.

3.2    No Consent.  None of the execution and delivery of this Agreement, the consummation of the transactions provided for herein or contemplated hereby or the fulfillment by the Buyer of the terms hereof will (with or without notice or passage of time or both) require any filing with, notice to or Consent from any Person, other than any such filing, notice or Consent that has already been made or obtained.

3.3    Solvency.  At the Closing and immediately thereafter, the Buyer is solvent and capable of paying all of its debt obligations as they become due.  The consummation of the transactions contemplated herein will not render Buyer insolvent under any applicable Legal Requirements. The Buyer disclaims any reliance upon, and acknowledges that the Seller has not made any representations or warranties about any projections or forecasts presented by Atlas or any representatives on behalf of Atlas or the Seller.

4.    ADDITIONAL COVENANTS OF THE PARTIES

4.1    Public Announcements.  The Seller, Atlas and the Buyer shall not (and each shall not permit any of their respective Affiliates or Representatives to) issue any press release or make any public statement regarding this Agreement, or regarding any of the transactions contemplated by this Agreement, without the other’s prior written consent, provided, however, that nothing herein shall be deemed to prohibit the Seller, Atlas or the Buyer from making any public disclosure necessary under applicable Legal Requirements, in which case, each shall consult with the other regarding the contents thereof.

4.2    Confidentiality. 

(a)    As used in this Section 4.2(a), the term “Confidential Information” includes any of the following information held or used by or relating to Atlas:

(i)all information that is a trade secret;

(ii)all information concerning product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, 

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past, current, and planned research and development, current and planned manufacturing or distribution methods and processes, computer hardware, software, database technologies, systems, structures and architectures; and

(iii)all information concerning the business and affairs of Atlas, including historical and current financial statements, financial projections and budgets, tax returns and accountants’ materials, historical, current, and projected sales, capital spending budgets and plans, business plans, strategic plans, marketing and advertising plans, publications, client and customer and prospect lists and files, current and anticipated customer requirements, price lists, market studies, the names and backgrounds of key personnel and personnel training techniques and materials, however documented.

(b)    The Seller acknowledges the confidential and proprietary nature of the Confidential Information and agrees that the Seller shall, except to the extent required to fulfill his duties in the course of any employment with Atlas, from and after the Closing:  (i) keep the Confidential Information confidential and deliver promptly to the Buyer, or immediately destroy at the Buyer’s option, all embodiments and copies of the Confidential Information that are in the Seller’s possession; (ii) not use the Confidential Information for any reason or purpose; and (iii) without limiting the foregoing, not disclose the Confidential Information to any Person, except with the Buyer’s prior written consent.

(c)    Section 4.2(b) does not apply to that part of the Confidential Information that becomes generally available to the public other than as a result of a breach of Section 4.2(c) by the Seller.  Confidential Information shall not be deemed “generally available to the public” merely because it is included or incorporated in more general information that is publicly available or because it combines features which individually may be publicly available.  Notwithstanding the above, Confidential Information shall not include any information or material that is or becomes general knowledge of Atlas’ industry that is not particular or pertaining to Atlas or its affiliates, vendors or customers.

(d)    If the Seller becomes compelled in any Legal Proceeding to make any disclosure that is prohibited by Section 4.2(b), the Seller shall, to the extent legally permissible and to the extent possible, provide the Buyer and Atlas with prompt notice of such compulsion so that the Buyer and/or Atlas may seek an appropriate protective order or other appropriate remedy or waive compliance with the provisions of this Section 4.2(d).  In the absence of a protective order or other remedy, the Seller may disclose that portion (and only that portion) of the Confidential Information that, based upon the opinion of the Seller’s counsel, the Seller is legally compelled to disclose; provided, however, that the Seller shall use reasonable efforts to obtain written assurance that any Person to whom any Confidential Information is so disclosed shall accord confidential treatment to such Confidential Information.

(e)    Nothing in this Section 4.2(e) will diminish the protections and benefits under applicable Legal Requirements to which any trade secret of Atlas is entitled.  If any information that Atlas asserts to be a trade secret under applicable Legal Requirements is found by a court of competent jurisdiction not to be such a trade secret, such information will nonetheless be considered Confidential Information of Atlas for purposes of this Section 4.2(e).

4.3    Employees; Continuation of Employment and Employee Benefits.  

(a)    After Closing, Atlas shall continue to employ all employees of Atlas (provided that such employees meet the standard employment screening requirements of the Buyer), other than those listed on Schedule 4.3(a), the employment of which Atlas will have terminated immediately prior to Closing.  

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(b)    The Seller shall be responsible for all costs arising on account of periods ending on or immediately prior to the Closing or arising as a result of the Closing, with respect to the terminated employees listed on Schedule 4.3(a) (including, without limitation, all accrued wages, bonus, vacation and sick leave, retirement benefits, insurance and health benefits (including workers’ compensation benefit payable to any such Persons) and other employment costs, and all federal and state withholding, social security and employment taxes payable in connection therewith).  

(c)    After Closing, Buyer may terminate any of the Atlas employees in its sole discretion and Buyer shall be responsible for all costs arising on account of such termination.  Buyer anticipates that after the Closing it will terminate dyehouse employees who were employees of Atlas immediately prior to Closing, and Buyer shall offer such employees two (2) months’ severance, contingent upon such employees continuing to work for Buyer until released following the Closing.  The Buyer and the Seller agree and acknowledge that the Seller’s Severance Amount shall represent the Seller’s portion of such severance, and that any portion of the Seller’s Severance Amount not paid to such employees within four (4) months of Closing shall be paid by the Buyer to the Seller immediately.

(d)    Buyer shall retain all responsibilities and obligations for continuation of health coverage under state law or under the provisions of Section 4980B of the Code and Section 601 of ERISA for those terminated employees listed on Schedule 4.3(a) who are eligible for such continuation coverage and for all other M&A qualified beneficiaries (as defined in Treas. Reg. section 54.4980(B)-9, Q&A-4).

4.4    Post-Closing Environmental Issues.  

(a)    After Closing, Buyer may perform or cause to be performed environmental ground and subsurface water testing on the premises of the dyehouse (the “Dyehouse”).  Should the result of any environmental assessment indicate that there is evidence of subsurface contamination in amounts that would be reportable under Environmental Laws, the Seller shall have a reasonable time to conduct its own investigation, and shall have access to the Dyehouse premises in order to conduct additional testing, to confirm the findings of any evidence of sub-surface contamination and to object with respect to the finding to any Governmental Body with jurisdiction.  The Seller shall bear the responsibility for all costs and expenses up to $425,000.00 associated with remediation of any Hazardous Materials or environmental conditions not in compliance with Environmental Law necessary to obtain regulatory closure from the Governmental Body with jurisdiction, and the Seller shall directly pay for all such costs and expenses or reimburse the Buyer to the extent paid by the Buyer.  The Seller shall be entitled, at its election and at the Seller’s sole cost and expense, to control any defense or cleanup related to the foregoing, and the Buyer shall in no event settle any claims with respect to the foregoing without the Seller’s written consent, which shall not be unreasonably withheld.

(b)    After Closing, the Buyer shall cause to be removed all of the underground storage tanks (the “USTs”) located on the premises of the Dyehouse.  The Seller shall bear responsibility for all costs and expenses up to $150,000.00 associated with the proper removal and disposal of the USTs and the clean-up and remediation of all of the affected areas necessary to obtain regulatory closure from the Governmental Body with jurisdiction, and the Seller shall directly pay for such costs and expenses or reimburse the Buyer to the extent paid by the Buyer.

(c)    After Closing, and at any time upon any sale or proposed sale of the Dyehouse, if asbestos on the premises of the Dyehouse is required under applicable Environmental Laws or other applicable Legal Requirements to be removed as a condition of such sale, then, after 30 days’ written notice to the Seller and mutual agreement between the Buyer and the Seller on the reasonably necessary course of action, the 

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Seller shall directly pay and/or reimburse the Buyer for one-half (1/2) of all costs and expenses reasonably necessary for such removal of asbestos from the Dyehouse and the clean-up and remediation of all affected areas in accordance with applicable Environmental Laws or other applicable Legal Requirements.

4.5    Reimbursement for Outstanding Checks and Lockbox Amounts.  The Buyer shall reimburse the Seller (i) promptly after the Closing for any amounts received in the Atlas lockbox account with Wells Fargo National Bank as of 11:59 p.m. on the day before the Closing Date and which have not been transferred to the Atlas operating account prior to the Closing, and (ii) for the face amount of any check listed on Schedule 2.19 promptly upon the Buyer’s receipt of notice that any such check has been cancelled or promptly upon the failure of any such check to have been submitted for cashing or for deposit by the first (1st) anniversary of the Closing Date.  The Buyer shall not take any action that shall cause any of the checks listed on Schedule 2.19 not to be paid to the holders thereof.

4.6    Delivery of Audited Financial Statements.  Within ten (10) days after the Closing Date, the Seller shall deliver to the Buyer audited balance sheets of Atlas as of December 31, 2013 and December 31, 2012, and the related audited statements of income, shareholders’ equity and cash flows of Atlas for the years then ended. 

5.    TAX MATTERS

5.1    Section 338(h)(10) Election.  The Seller shall join with the Buyer in making a timely and effective election provided for by Section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations (and any corresponding election under state or local Tax law) with respect to the purchase and sale of the Stock (the “Election”) and the Seller shall deliver an executed IRS Form 8023 with respect to the transaction at Closing.  The Buyer, the Seller and Atlas shall cooperate with each other to take all actions necessary and appropriate, including filing such additional forms, returns, elections, schedules and other documents as may be required to effect and preserve timely the Election in accordance with the provisions of Section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations promulgated thereunder or any successor provisions (and the corresponding provisions of any state or local Tax law).  Specifically, the Seller, Atlas and the Buyer shall, as soon as reasonably practice and in no event later than five (5) days prior to the date such forms are required to be filed under applicable law, exchange completed and executed copies of IRS Forms 8023 and 8883, and the required schedules thereto.  If changes are required in any of these forms as a result of information which is first available after the date on which any such form is completed and executed pursuant to the preceding sentence, the Parties will act in good faith to agree on such changes and, if necessary, will amend and re-execute the forms.  The Seller, Atlas and the Buyer shall report the purchase and sale of the Stock consistent with the Election, and neither the Buyer nor the Seller shall take a position inconsistent with the Election in any amended Tax Return, any proceeding before any Tax authority or otherwise, except as required by applicable law.  

5.2    Allocation.  On or before the Closing or as soon as reasonably practicable thereafter, the Buyer and the Seller shall jointly prepare in good faith an allocation of the “aggregate deemed sales price,” as defined in Treasury Regulation Section 1.338-4, among Atlas’s assets, which allocation shall be made in accordance with Section 338(b)(5) of the Code and any applicable Treasury Regulations and shall reflect the Purchase Price.  The Buyer and the Seller and their respective Affiliates shall (i) be bound by any such allocation for purposes of determining any Taxes; (ii) prepare and file their Tax Returns on a basis consistent with such determination of the aggregate deemed sales price and such allocation; and (iii) take no position inconsistent with such determination and allocation on any applicable Tax Return, in any proceeding before any Tax authority or otherwise, except in each case as required by applicable law.  In the event that any of the allocations are disputed by any Tax authority, the Party receiving notice of the dispute shall promptly notify the other Party concerning resolution of the dispute.

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5.3    Filing Tax Returns; Payment of Taxes.  The following provisions (which shall take precedence over any other provision of this Agreement in the event of a conflict) shall govern the allocation of responsibility as among the Buyer, Atlas and the Seller for certain Tax matters following the Closing:

(a)    The Seller shall be responsible for the preparation of all of his Tax Returns and the payment of all Taxes of the Seller and any other Taxes arising from or related to the transactions contemplated by this Agreement (except for Transaction Taxes, as described in Section 5.6 below). 

(b)    The Seller shall timely prepare and file or cause to be prepared and filed at the Seller’s expense, after giving the Buyer the opportunity to review and approve, all Tax Returns related to Atlas for all periods ending on or before the Closing Date (a “Pre-Closing Tax Period”) to the extent such Tax return was not filed prior to the Closing Date, and the Seller shall pay or cause to be paid all of the Taxes relating to Atlas due for any Pre-Closing Tax Period.  

(c)    The Buyer or Atlas shall timely prepare and file or cause to be prepared and filed all Tax Returns related to Atlas for all periods from and after the Closing Date (a “Post-Closing Tax Period”) and all Straddle Periods (as defined below) required to be filed after the Closing Date and, subject to the Buyer’s rights under Section 6.2, shall pay the Taxes relating to Atlas due for any Post-Closing Tax Period.

(d)    In accordance with the applicable provisions of the Code, a short taxable year of Atlas for federal income tax purposes shall end on and include the Closing Date.  The Taxes of Atlas for a portion of the taxable year for federal income tax purposes or a period for state or local tax purposes that begins before and ends after the Closing Date (a “Straddle Period”) shall be allocated between a Pre-Closing Tax Period and a Post-Closing Tax Period.  The Taxes for the Pre-Closing Tax Period shall be determined by assuming that the taxable year or period ended on and included the Closing Date, except that exemptions, allowances or deductions that are calculated on an annual basis and annual property Taxes shall be prorated on the basis of the number of days in the annual period elapsed through the Closing Date as compared to the number of days in the annual period elapsing after the Closing Date.  The remainder of the Taxes for the Straddle Period shall be allocated to the Post-Closing Tax Period. 

5.4    Assistance on Tax Matters.  The Buyer and the Seller shall provide each other with such assistance as may reasonably be requested by the others in connection with the preparation of any return or report of Taxes, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liabilities for Taxes.  Each Party will bear its own out-of-pocket expenses incurred in providing assistance.  The Buyer and the Seller will retain for the full period of any statute of limitations and provide the others with any records or information that may be relevant to such preparation, audit, examination, proceeding or determination.

5.5    Audits.  

(a)    If in connection with any examination, investigation, audit or other proceeding in respect of any Tax Return of Atlas for any Pre-Closing Tax Period, any Governmental Body issues to Atlas or the Seller a written notice of deficiency, a notice of reassessment, a proposed adjustment, an assertion of claim or demand concerning the taxable period covered by such return, the Seller shall notify the Buyer of its receipt of such communication from the Governmental Body within fifteen (15) Business Days after receiving such notice of deficiency, reassessment, adjustment or assertion of claim or demand.  No failure or delay of the Buyer or the Seller in the performance of the foregoing shall reduce or otherwise affect the obligations or liabilities of the Seller pursuant to this Agreement, except to the extent that such failure or 

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delay materially adversely affects the Seller’s ability to defend against the applicable notice of deficiency, notice of reassessment, proposed adjustment or assertion of claim or demand that the Seller is obligated to pay hereunder.

(b)    The Seller shall control and resolve any examination, investigation, audit, or other proceeding in respect of any Tax Return of Atlas for any Pre-Closing Tax Period at the Seller’s cost and expense; provided, however, (i) the Buyer shall have the nonexclusive right, at its sole cost and expense, to participate in such examination, investigation, audit, or other proceeding; and (ii) if the applicable taxing authority unequivocally offers in writing to settle a matter on terms acceptable to the Seller, the Seller may agree to pay the Buyer and Atlas the amount of Taxes that it would be required to pay if the settlement was accepted (and thereafter be relieved of any liability for Taxes and other costs with respect to the matter settled and any entitlement to any Tax reductions or refunds with respect to such matter), provided that the Buyer or Atlas shall pay such Taxes over to the relevant Governmental Body.

(c)    If there is an adjustment to any Tax Returns of Atlas which creates a deficiency in any Taxes (or the repayment of any Tax refund) for which the Seller is liable under the provisions of this Article 5, including any assessment or adjustment for unclaimed property, whether or not denominated a tax, the Seller shall pay to the Buyer the amount of such deficiency in Taxes incurred by Atlas.  If there is an adjustment to any Tax Returns of Atlas which results in a reduction or refund of any Taxes for which the Seller is liable under the provisions of this Article 5, the Buyer shall pay to the Seller the amount of such reduction or refund.  All payments required to be made pursuant to this Section 5.5(c) shall be made within ten (10) Business Days of demand thereof or three (3) Business Days prior to the date such Taxes are due or refunded, whichever is later. 

5.6    Certain Taxes and Fees.  All transfer, documentary, sales, use, stamp, recording, value added, registration and other similar Taxes and all conveyance fees, recording fees and other similar charges (all including penalties, interest and other charges with respect thereto, collectively “Transaction Taxes”) incurred in connection with the consummation of the transactions contemplated by this Agreement shall be paid by the Buyer when due.  

6.    SURVIVAL AND INDEMNIFICATION

6.1    Survival.  The representations, warranties, covenants and agreements of the Parties contained herein shall survive the Closing.  The representations and warranties set forth in this Agreement will terminate on the 18 month anniversary of the Closing Date, provided, however, that the Fundamental Representations shall survive the Closing until the expiration of any statute of limitations period applicable to the underlying subject matter of such representation or warranty.

6.2    Indemnification by the Seller.  

(a)    Subject to Sections 6.2(b) and 6.2(c) hereof, from and after the Closing, the Seller agrees to indemnify the Buyer and its Affiliates (including Atlas), their successors and assigns, and any of their respective employees, officers and directors (the “the Buyer Indemnified Parties”), against, and hold the Buyer Indemnified Parties harmless from, any and all Damages suffered by any Buyer Indemnified Party to the extent arising out of (i) any breach of or any inaccuracy in any representation or warranty made by the Seller in Article 2 of this Agreement; (ii) any failure by the Seller to perform the covenants and obligations set forth in this Agreement; (iii) all Taxes of the Seller or of Atlas for any Pre-Closing Tax Periods; and (iv) any Fraud committed by or on behalf of the Seller or Atlas in any way related to the transactions contemplated hereby.

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(b)    From and after the Closing, the Seller agrees to indemnify the Buyer Indemnified Parties against and hold the Buyer Indemnified Parties harmless from, any and all Damages suffered by any Buyer Indemnified Party to the extent that any inventory of Atlas set forth on Schedule 6.2(b) is sold after the Closing at a price below its full cost as recorded on the books of Atlas as of the Closing Date less selling expenses (3% terms, plus applicable commissions, for finished goods, and dyeing and finishing costs, plus 3% terms, plus applicable commissions, for greige goods) (each an “Inventory Claim”); provided, however, that the Buyer shall charge any such Inventory Claim (and satisfy the Seller’s indemnification obligation) against the Inventory Holdback (as established by Section 6.2(b)).  Anything to the contrary in this Agreement notwithstanding, the Seller shall have no indemnification obligation with respect to Inventory Claims, or otherwise with respect to any inventory of Atlas, in excess of the Inventory Holdback, except in the case of Fraud committed by or on behalf of the Seller or Atlas in any way related to the transactions contemplated hereby.

(c)    From and after the Closing, the Seller agrees to indemnify the Buyer Indemnified Parties against and hold the Buyer Indemnified Parties harmless from, any and all Damages suffered by any Buyer Indemnified Party with respect to any Product Claim in excess of the claims reserve as set forth on the balance sheet of Atlas as of the Closing Date; provided, however, that the Buyer shall charge any Product Claim asserted after the Closing Date (and satisfy the Seller’s indemnification obligation) first against the reserve as set forth on Atlas’ balance sheet as of the Closing Date, and then against the Claims Holdback as established by Section 1.2(d).  Anything to the contrary in this Agreement notwithstanding, the Seller shall have no indemnification obligation with respect to Product Claims, in excess of the sum of the balance sheet reserve and the Claims Holdback, except in the case of Fraud committed by or on behalf of the Seller or Atlas in any way related to the transactions contemplated hereby.

6.3    Indemnification by the Buyer.   From and after the Closing, the Buyer agrees to indemnify the Seller and his successors (the “the Seller Indemnified Parties”), against, and hold the Buyer Indemnified Parties harmless from, any and all Damages suffered by any Seller Indemnified Party to the extent arising out of (i) any breach of or any inaccuracy in any representation or warranty made by the Buyer in Article 3 of this Agreement; (ii) any failure by the Buyer to perform the covenants and obligations set forth in this Agreement; and (iii) any Fraud committed by or on behalf of the Buyer or the Buyer’s parent entity in any way related to the transactions contemplated hereby.

6.4    Limitation on Liability.

(a)    The Seller shall not have any liability with respect to the payment of any indemnification amounts to which the Buyer Indemnified Parties would be entitled pursuant to this Agreement until such time as the aggregate amount of Damages incurred by the Buyer Indemnified Parties for which the Buyer Indemnified Parties would otherwise be entitled to indemnification pursuant to this Agreement exceeds Fifty Thousand and 00/100 Dollars ($50,000.00) (the “Indemnification Threshold”) and, thereafter, only to the extent of such Damages in excess of the Indemnification Threshold; provided, however, that the Seller’s maximum aggregate indemnification liability, pursuant to this Agreement shall be an amount equal to Five Hundred Thousand and 00/100 Dollars ($500,000.00) (“Indemnification Cap”).  

(b)    Notwithstanding anything herein to the contrary, the Indemnification Threshold and Indemnification Cap shall not apply to any indemnification claims arising under Section 6.2(a)(ii), (iii) or (iv), any indemnification claims arising out of or relating to any breach of or any inaccuracy in any Fundamental Representations.

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7.    MISCELLANEOUS PROVISIONS  

7.1    Further Assurances.  Each Party hereto shall execute and cause to be delivered to each other Party hereto such instruments and other documents, and shall take such other actions, as such other Party may reasonably request for the purpose of carrying out or evidencing any of the transactions contemplated by this Agreement.

7.2    Fees and Expenses.  Each Party to this Agreement shall bear and pay all fees, costs and expenses (including legal fees and accounting fees) that have been or are incurred by such Party in connection with the transactions contemplated by this Agreement. 

7.3    Attorneys’ Fees.  If any Legal Proceeding relating to this Agreement is brought against any Party hereto, the prevailing Party shall be entitled to recover reasonable attorneys’ fees, costs and disbursements (in addition to any other relief to which the prevailing Party may be entitled).

7.4    Notices.  Any notice or other communication required or permitted to be delivered to any Party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service) to the address set forth beneath the name of such Party below (or to such other address as such Party shall have specified in a written notice given to the other Parties hereto):

if to the Buyer:
TDG Operations, LLC
2208 S. Hamilton Street
Dalton, GA 30721-4974
Attn:     Jon A. Faulkner

with a copy to (which copy shall not constitute notice):
Miller & Martin PLLC
832 Georgia Avenue
Chattanooga, Tennessee  37402
Attn:    John F. Henry
Fax:    (423) 321-1567

if to the Seller:
James Horwich
630 North Maple Drive
Beverly Hills, CA 90210
Fax:    (310) 273-9670

with a copy to (which copy shall not constitute notice):
Greenberg Glusker Fields Claman & Machtinger LLP
1900 Avenue of the Stars, 21st Floor
Los Angeles, California 90067
Attn:    Richard J. Sweet
Fax:    (310) 201-2392

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7.5    Counterparts.  This Agreement may be executed in several counterparts (including by facsimile or .pdf attached to an email), each of which shall constitute an original and all of which, when taken together, shall constitute one agreement.

7.6    Governing Law; Jurisdiction and Venue.

(a)    This Agreement shall be construed in accordance with, and governed in all respects by, the internal laws of the State of California (without giving effect to principles of conflicts of laws).

(b)    Any Legal Proceeding relating to this Agreement shall be brought or otherwise commenced exclusively in any state or federal court located in Los Angeles County, California.  The Seller and the Buyer each:

(i)    expressly and irrevocably consents and submits to the jurisdiction of each state and federal court located in Los Angeles County, California, in connection with any Legal Proceeding;

(ii)    agrees that each state and federal court located in Los Angeles County, California shall be deemed to be a convenient forum; and

(iii)    agrees not to assert (by way of motion, as a defense or otherwise), in any such Legal Proceeding commenced in any state or federal court located in Los Angeles County, California, any claim that it is not subject personally to the jurisdiction of such court, that such Legal Proceeding has been brought in an inconvenient forum, that the venue of such proceeding is improper or that this Agreement or may not be enforced in or by such court.

7.7    Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the Parties hereto and their permitted successors and assigns (if any).  Neither the Seller nor Horwich may assign this Agreement or any rights or obligations hereunder (by operation of law or otherwise) to any Person.  The Buyer may freely assign any or all of its rights under this Agreement (including its rights under Article 6), in whole or in part, to any of its affiliates or, collaterally, to any of its or its affiliates lenders (it being understood and agreed that any such assignment shall not release the Buyer or any successor from any of its obligations hereunder).

7.8    Remedies Cumulative; Specific Performance.  The rights and remedies of the Parties hereto shall be cumulative (and not alternative).  The Parties to this Agreement agree that, in the event of any breach or threatened breach by any Party to this Agreement of any covenant, obligation or other provision set forth in this Agreement for the benefit of any other Party to this Agreement, such other Party shall be entitled (in addition to any other remedy that may be available to it) to (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (b) an injunction restraining such breach or threatened breach.

7.9    Waiver; Amendment.  No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.  No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a 

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written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.  This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of each of the Parties hereto.

7.10    Severability.  In the event that any provision of this Agreement, or the application of any such provision to any Person or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, shall not be impaired or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by law.

7.11    Entire Agreement.  This Agreement (including all exhibits and schedules) sets forth the entire understanding of the Parties hereto relating to the subject matter hereof and supersedes all prior agreements and understandings among the Parties relating to the subject matter hereof.

7.12    Construction.

(a)    The Parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

(b)    As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”

(c)    Except as otherwise indicated, all references in this Agreement to “Sections” and “Exhibits” are intended to refer to Sections of this Agreement and Exhibits to this Agreement.

(d)    Whenever any statement herein or in any Schedule, Exhibit, certificate or other document delivered to any party pursuant to this Agreement is made “to the Seller’s knowledge” or containing words of similar intent or effect, the knowledge of the Seller will be deemed to mean the knowledge of the Seller, Scott Price, Mark Nestler, Corozon Fabricante and Markos Zarpos.  The Seller and such Persons shall be required to make such inquiries with respect to the matters set forth herein as a reasonably prudent person would make under the circumstances.  

7.13    Guaranty.  Subject to the provisions hereof, Horwich hereby absolutely, unconditionally and irrevocably guarantees to the Buyer Indemnified Parties, as primary obligor and not merely as surety, the due and prompt performance of all covenants, obligations and liabilities of any kind of the Seller under or in respect of this Agreement, whether absolute or contingent, due or to become due, fixed or otherwise, as such covenants, obligations and liabilities may be limited by this Agreement.  Subject to the limitations set forth herein, a separate action may be brought against Horwich to enforce this Agreement, whether or not any action is brought against the Seller or whether or not the Seller is joined in any such action. The foregoing guaranty is a continuing a guaranty of payment and not of collection and shall be binding upon Horwich, his heirs and successors.

[Signature Page to Follow]

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The Parties hereto have caused this Agreement to be executed and delivered as of the date first set forth above.
THE BUYER: 

TDG OPERATIONS, LLC
a Georgia limited liability company

By:      /s/ Jon A. Faulkner                        
Name:     Jon A. Faulkner                        
Title:     President                

THE SELLER:

/s/ James Horwich
James Horwich, Trustee under the Horwich Trust 
of 1973, dated July 13, 1973

/s/ James Horwich
 James Horwich, in his individual capacity

26ex10_2_8thamendment

EXHIBIT 10.2

EIGHTH AMENDMENT TO CREDIT AGREEMENT

This EIGHTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of March 14, 2014, is entered into by and among THE DIXIE GROUP, INC., a Tennessee corporation (“Dixie”), CANDLEWICK YARNS, LLC, an Alabama limited liability company (“Candlewick”), FABRICA INTERNATIONAL, INC., a California corporation (“Fabrica”), TDG OPERATIONS, LLC, a Georgia limited liability company, formerly known as Masland Carpets, LLC (“TDG”; together with Dixie, Candlewick and Fabrica, are referred to hereinafter each individually as a “Borrower”, and individually and collectively, jointly and severally, as the “Borrowers”), the persons identified as the Lenders on the signature pages hereto (the “Lenders”), and WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, “Agent”).
W I T N E S S E T H:

WHEREAS, pursuant to the Credit Agreement dated as of September 13, 2011, as amended by the First Amendment to Credit Agreement dated as of November 2, 2012, the Second Amendment to Credit Agreement dated as of April 1, 2013, the Third Amendment to Credit Agreement dated as of May 22, 2013, the Fourth Amendment to Credit Agreement dated as of July 1, 2013, the Fifth Amendment to Credit Agreement dated as of July 30, 2013, the Sixth Amendment to Credit Agreement dated as of August 30, 2013, and the Seventh Amendment to Credit Agreement dated as of January 20, 2014 (as amended hereby and as the same may be further amended, modified, supplemented, renewed, restated or replaced, the “Credit Agreement”), among Agent, the Lenders and the Borrowers, the Lenders have made loans and advances and provided other financial accommodations to the Borrowers; and

WHEREAS, the Borrowers have requested that Agent and Lenders enter into this Amendment to make certain changes to the Credit Agreement, and Agent and the Lenders are willing to amend the Credit Agreement, subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the agreements herein contained and other good and valuable consideration, the parties hereby agree as follows:

		
	I.
	  INTERPRETATION AND AMENDMENTS TO CREDIT AGREEMENT

1.1.    Interpretation.  Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, have the meanings provided in the Credit Agreement. 

1.2.    References to Masland and TDG.  The Credit Agreement is hereby amended by deleting the introductory paragraph on page 1 of the Credit Agreement and inserting the following in lieu thereof:

THIS CREDIT AGREEMENT (this “Agreement”), is entered into as of September 13, 2011, by and among the lenders identified on the signature pages hereof (each of such lenders, together with their respective successors and permitted assigns, are referred to hereinafter as a “Lender”, as that term is hereinafter further defined), WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, “Agent”), WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as arranger (in such capacity, “Arranger”) and book runner (in such capacity, “Book Runner”), THE DIXIE GROUP, INC., a Tennessee corporation (“Dixie”), 

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CANDLEWICK YARNS, LLC, an Alabama limited liability company (“Candlewick”), FABRICA INTERNATIONAL, INC., a California corporation (“Fabrica”), TDG OPERATIONS, LLC, a Georgia limited liability company formerly known as Masland Carpets, LLC (“TDG” or “Masland”; TDG or Masland, as the case may be, together with Dixie, Candlewick and Fabrica, are referred to hereinafter each individually as a “Borrower”, and individually and collectively, jointly and severally, as the “Borrowers”).  
1.3.    Revolver Advances.  The Credit Agreement is hereby amended by deleting Section 2.1 and inserting the following in lieu thereof:

2.1    Revolver Advances.
(a)(i)    Tranche A Advances.  Subject to the terms and conditions of this Agreement, and during the term of this Agreement, each Lender with a Tranche A Commitment agrees (severally, not jointly or jointly and severally) to make revolving loans (“Tranche A Advances”) to Borrowers in an amount at any one time outstanding not to exceed the lesser of:
(A)such Lender’s Tranche A Commitment, or

(B)such Lender’s Pro Rata Share of an amount equal to the lesser of:

(1)the Tranche A Maximum Revolver Amount less the sum of (aa) the Letter of Credit Usage at such time, plus (bb) the principal amount of Swing Loans outstanding at such time, and

(2)the Tranche A Borrowing Base at such time less the sum of (aa) the Letter of Credit Usage at such time, plus (bb) the principal amount of Swing Loans outstanding at such time.

(ii)    Tranche B Advances.  Subject to the terms and conditions of this Agreement, until the Tranche B Maturity Date, each Lender with a Tranche B Commitment agrees (severally, not jointly or jointly and severally) to make revolving loans (“Tranche B Advances”) to Borrowers in an amount at any one time outstanding not to exceed the lesser of:

(A)such Lender’s Tranche B Commitment, or

(B)such Lender’s Pro Rata Share of an amount equal to the lesser of:

(1)the Tranche B Maximum Revolver Amount, and

(2)the Tranche B Borrowing Base at such time.

(b)    Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement.  The outstanding principal amount of the Tranche A Advances, together with interest accrued and unpaid thereon, shall be due and payable on the Tranche A Maturity Date or, if earlier, on the date on which they are declared due and payable pursuant to the terms of this Agreement.  The outstanding principal amount of the Tranche B Advances, together with interest accrued and unpaid thereon, shall be due and payable on the Tranche B Maturity Date or, if earlier, on the date on which they are declared due and payable pursuant to the terms of this Agreement.

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(c)    Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the right (but not the obligation) to establish, increase, reduce, eliminate, or otherwise adjust reserves from time to time against the Tranche A Borrowing Base, the Tranche B Borrowing Base, the Maximum Revolver Amount, the Tranche A Maximum Revolver Amount and/or the Tranche B Maximum Revolver Amount in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate, including (i) reserves in an amount equal to the Bank Product Reserve Amount, (ii) reserves with respect to (A) sums that any Borrower or any of its Subsidiaries is required to pay under this Agreement or any other Loan Document (such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and has failed to pay when due, and (B) amounts owing by any Borrower or any of its Subsidiaries to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (other than a Permitted Lien which is a permitted purchase money Lien or the interest of a lessor under a Capital Lease), which Lien or trust, in the Permitted Discretion of Agent likely would have a priority superior to Agent’s Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes where given priority under applicable law) in and to such item of the Collateral, (iii) without duplication of any reduction in the Fixed Asset Availability Amount or the Susan Street Real Property Availability Amount, reserves with respect to downward adjustments (as reflected in an updated appraisal received by Agent in accordance with the terms hereof) in the appraised value of Eligible Real Property or Eligible M&E, (iv) the Convertible Debentures Reserve, (v) the Environmental Reserve, and (vi) a reserve in the amount of $7,000,000, as reduced to the extent that the 1995 Bonds are paid off on or after the Closing Date (the “1995 Bond Reserve”).

1.4.    Tranche B Advances Are First In, Last Out.  The Credit Agreement is hereby amended by inserting the following new Section 2.1(d):

(d)    Notwithstanding anything to the contrary set forth herein, Borrowers shall not request, and no Lender shall be under any obligation to fund, any Tranche A Advance unless Borrowers have borrowed Tranche B Advances in an amount equal to the Tranche B Maximum Revolver Amount then in effect (to the extent that the Tranche B Commitments have not be terminated in accordance with this Agreement).  If, at any time, the amount of Tranche B Advances outstanding exceeds the Tranche B Maximum Revolver Amount, Borrowers shall be deemed to have requested Tranche A Advances in an amount equal to such excess, the proceeds of such Tranche A Advances to be used to repay Tranche B Advances in an amount equal to such excess.  If, at any time prior to the Tranche B Maturity Date that Tranche A Advances are outstanding, the amount of Tranche B Advances outstanding is less than the Tranche B Maximum Revolver Amount, Borrowers shall be deemed to have requested Tranche B Advances in an amount equal to the lesser of such shortfall and the amount of Tranche A Advances then outstanding, the proceeds of such Tranche B Advances to be used to repay Tranche A Advances in an amount equal to such shortfall or the amount of Tranche A Advances then outstanding, as applicable.  If any Tranche B Advances are repaid pursuant to the terms of this Agreement, any Advances requested by Borrowers (including, without limitation, Tranche A Advances) shall be deemed to be requests for Tranche B Advances until the amount of Tranche B Advances outstanding is equal to the Tranche B Maximum Revolver Amount.

1.5.    Revolver Increases Applicable to Tranche A Only.  The Credit Agreement is hereby amended by (a) deleting each reference to “Commitment” and “Commitments” set forth in Section 2.2 and inserting “Tranche A Commitment” and “Tranche A Commitments”, as applicable, in lieu thereof, and (b) deleting each reference to “Advances” set forth in Section 2.2 and inserting “Tranche A Advance” in lieu thereof.

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1.6.    Protective Advances and Optional Overadvances.  The Credit Agreement is hereby amended by deleting Section 2.3(d)(ii)(A) and inserting the following in lieu thereof:

(A) after giving effect to such Advances, the outstanding Tranche A Revolver Usage does not exceed the Tranche A Borrowing Base by more than 7.5% of the Maximum Revolver Amount, and
1.7.    Application of Payments Before Application Event.  The Credit Agreement is hereby amended by deleting Section 2.4(b)(i) and inserting the following in lieu thereof:

(i)    So long as no Application Event has occurred and is continuing and except as otherwise provided herein with respect to Defaulting Lenders, all principal and interest payments received by Agent shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and all payments of fees and expenses received by Agent (other than fees or expenses that are for Agent’s separate account or for the separate account of the Issuing Lender) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Commitment or Obligation to which a particular fee or expense relates.  All payments to be made hereunder by Borrowers shall be remitted to Agent and all (subject to Section 2.4(b)(iv), Section 2.4(d)(ii), and Section 2.4(e)) such payments, and all proceeds of Collateral received by Agent, shall be applied, so long as no Application Event has occurred and is continuing, first, to reduce the balance of the Tranche A Advances outstanding, then, to reduce the balance of the Tranche B Advances outstanding, and, thereafter, to Borrowers (to be wired to the Designated Account) or such other Person entitled thereto under applicable law.
1.8.    Application of Payments After Application Event.  The Credit Agreement is hereby amended by deleting clauses (I) through (N) of Section 2.4(b)(ii) and inserting the following in lieu thereof:

(I)    ninth, ratably, to pay interest accrued in respect of the Tranche A Advances (other than Protective Advances) until paid in full,

(J)    tenth, ratably (i) to pay the principal of all Tranche A Advances until paid in full, (ii) to Agent, to be held by Agent, for the benefit of Issuing Lender (and for the ratable benefit of each of the Lenders that have an obligation to pay to Agent, for the account of the Issuing Lender, a share of each Letter of Credit Disbursement), as cash collateral in an amount up to 105% of the Letter of Credit Usage (to the extent permitted by applicable law, such cash collateral shall be applied to the reimbursement of any Letter of Credit Disbursement as and when such disbursement occurs and, if a Letter of Credit expires undrawn, the cash collateral held by Agent in respect of such Letter of Credit shall, to the extent permitted by applicable law, be reapplied pursuant to this Section 2.4(b)(ii), beginning with tier (A) hereof), (iii) to Agent to pay the principal and accrued interest on any portion of the 1995 Bonds (to the extent due) outstanding, to be shared with the Lenders in accordance with their Pro Rata Shares in the 1995 Bonds, and (iv) ratably, in an amount up to the Bank Product Reserve Amount, to the Hedge Providers based upon amounts then certified by the applicable Hedge Provider to Agent (in form and substance satisfactory to Agent) to be due and payable to such Hedge Providers on account of Hedge Obligations,

(K)    eleventh, ratably, to pay interest accrued in respect of the Tranche B Advances (other than Protective Advances) until paid in full,

    

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(L)    twelfth, to pay the principal of all Tranche B Advances until paid in full,

(M)    thirteenth, ratably, to the Bank Product Providers based upon amounts then certified by the applicable Bank Product Provider to Agent (in form and substance satisfactory to Agent) to be due and payable to such Bank Product Providers on account of Bank Product Obligations (other than Hedge Obligations),

(N)    fourteenth, to pay any other Obligations other than Obligations owed to Defaulting Lenders,

(O)    fifteenth, ratably to pay any Obligations owed to Defaulting Lenders; and

(P)    sixteenth, to Borrowers (to be wired to the Designated Account) or such other Person entitled thereto under applicable law.

1.9.    Termination of Commitments.  The Credit Agreement is hereby amended by deleting the first sentence of Section 2.4(c) and inserting the following in lieu thereof:

The Tranche A Commitments shall terminate on the Tranche A Maturity Date, and the Tranche B Commitments shall terminate on the Tranche B Maturity Date.
1.10.    Borrowing Base Excess.  The Credit Agreement is hereby amended by deleting Section 2.4(e)(i) and inserting the following in lieu thereof:

(i)Borrowing Base.  If, at any time, (A) the Tranche A Revolver Usage on such date exceeds the Tranche A Borrowing Base (such excess being referred to as the “Tranche A Borrowing Base Excess”), then Borrowers shall immediately prepay the Obligations in accordance with Section 2.4(f) in an aggregate amount equal to the Tranche A Borrowing Base Excess, and (B) the Tranche B Revolver Usage on such date exceeds the Tranche B Borrowing Base (such excess being referred to as the “Tranche B Borrowing Base Excess”), then Borrowers shall immediately prepay the Obligations in accordance with Section 2.4(f) in an aggregate amount equal to the Tranche B Borrowing Base Excess.

1.11.    Repayment at Maturity.  The Credit Agreement is hereby amended by deleting the last sentence of Section 2.5 and inserting the following in lieu thereof:

Borrowers promise to pay the Obligations (including principal, interest, fees, costs, and expenses) in full on the Tranche A Maturity Date or, if earlier, on the date on which the Obligations (other than the Bank Product Obligations) become due and payable pursuant to the terms of this Agreement.  Without limiting the generality of the foregoing, Borrowers promise to pay the Tranche B Advances (including principal, interest, fees, costs, and expenses) in full on the Tranche B Maturity Date or, if earlier, on the date on which such Obligations become due and payable pursuant to the terms of this Agreement.
1.12.    Interest Rates.  The Credit Agreement is hereby amended by deleting Section 2.6(a)(i) and inserting the following in lieu thereof:

(i)    if the relevant Obligation is a LIBOR Rate Loan or an Index Rate Loan, at a per annum rate equal to the LIBOR Rate or the Index Rate, as applicable, plus the Applicable Margin, and

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1.13.    Letter of Credit Fee.  The Credit Agreement is hereby amended by deleting Section 2.6(b) and inserting the following in lieu thereof:

(b)    Letter of Credit Fee.  Borrowers shall pay Agent (for the ratable benefit of the Lenders with a Commitment), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.11(e)) which shall accrue at a per annum rate equal to the Applicable Margin for Tranche A Advances which constitute LIBOR Rate Loans times the Daily Balance of the undrawn amount of all outstanding Letters of Credit.
1.14.    Letter of Credit Sublimit.  The Credit Agreement is hereby amended by deleting clauses (i), (ii) and (iii) of Section 2.11(a) and inserting the following in lieu thereof (it being agreed that the language following the second line of such clause (iii) is not deleted or modified by this subsection):
 
(i)the Letter of Credit Usage would exceed the Tranche A Borrowing Base less the outstanding amount of Tranche A Advances (inclusive of Swing Loans), or

(ii)the Letter of Credit Usage would exceed $10,000,000, or

(iii)the Letter of Credit Usage would exceed the Maximum Revolver Amount less the outstanding amount of Tranche A Advances (including Swing Loans).

1.15.    LIBOR Rate and Index Rate Provisions; Match Funding.  The Credit Agreement is hereby amended by deleting Section 2.12(d) and Section 2.12(e) and inserting the following in lieu thereof:

(d)    Special Provisions Applicable to LIBOR Rate and Index Rate.

(i)The LIBOR Rate and the Index Rate may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of maintaining or obtaining any eurodollar deposits or increased costs, in each case, due to changes in applicable law (other than changes in laws relative to Taxes, which shall be governed by Section 16) occurring subsequent to the commencement of the then applicable Interest Period or the making of the applicable Index Rate Loan, including changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), which additional or increased costs would increase the cost of funding or maintaining loans bearing interest at the LIBOR Rate or the Index Rate, as applicable.  In any such event, the affected Lender shall give Borrowers and Agent notice of such a determination and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender, Borrowers may, by notice to such affected Lender (y) require such Lender to furnish to Borrowers a statement setting forth the basis for adjusting such LIBOR Rate or Index Rate, as applicable, and the method for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans or Index Rate Loans, as applicable, with respect to which such adjustment is made (together with any amounts due under Section 2.12(b)(ii)).

(ii)In the event that any change in market conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation or application thereof, shall at any time after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR Rate Loans or Index Rate Loans or 

6

to continue such funding or maintaining, or to determine or charge interest rates at the LIBOR Rate or the Index Rate, as applicable, such Lender shall give notice of such changed circumstances to Agent and Borrowers and Agent promptly shall transmit the notice to each other Lender and (x) in the case of any LIBOR Rate Loans of such Lender that are outstanding, the date specified in such Lender’s notice shall be deemed to be the last day of the Interest Period of such LIBOR Rate Loans, (y) interest upon the LIBOR Rate Loans or Index Rate Loans, as applicable, of such Lender thereafter shall accrue interest at the rate then applicable to Base Rate Loans, and (z) Borrowers shall not be entitled to elect the LIBOR Option until such Lender determines that it would no longer be unlawful or impractical to do so.

(e)    No Requirement of Matched Funding.  Anything to the contrary contained herein notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest accrues at the LIBOR Rate or Index Rate, as applicable.
1.16.    Tranche B Advances as Index Rate Loans Rather than Base Rate Loans.  The Credit Agreement is hereby amended by inserting the following new Section 2.12(f):

(f)    Tranche B Advances as Index Rate Loans.  Notwithstanding anything to the contrary contained in this Agreement, except in the circumstances described in Section 2.12(d)(ii), any Tranche B Advance that would otherwise constitute a Base Rate Loan hereunder shall constitute an Index Rate Loan.  The foregoing applies only to Tranche B Advances, and no Tranche A Advance shall constitute an Index Rate Loan at any time.

1.17.    Capital Requirements.  The Credit Agreement is hereby amended by inserting the words “or Index Rate Loans, as applicable” immediately following the words “LIBOR Rate Loans” in each place they appear in Section 2.13(b).

1.18.    Certain References to Maturity Date.  The Credit Agreement is hereby amended by deleting each reference to “Maturity Date” set forth in Section 2.15(d)(iii) and inserting “Tranche A Maturity Date”.

1.19.    Maturity and Effect of Maturity.  The Credit Agreement is hereby amended by deleting Section 3.3 and Section 3.4 and inserting the following in lieu thereof:

3.3.    Maturity.  This Agreement shall continue in full force and effect for a term ending on (a) with respect to the Tranche A Advances, Letters of Credit and other Obligations other than Tranche B Advances, March 14, 2019 (the “Tranche A Maturity Date”), and (b) with respect to the Tranche B Advances, June 30, 2014 (the “Tranche B Maturity Date”).  The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default.
3.4.    Effect of Maturity.  On the Tranche B Maturity Date, the Tranche B Commitments shall automatically be terminated and all Tranche B Advances and all accrued interest thereon shall become due and payable without notice or demand and Borrowers shall be required to repay all Obligations relating to Tranche B Advances in full.  On the Tranche A Maturity Date, the Tranche A Commitments and all other commitments of the Lender Group to provide additional credit hereunder shall automatically be terminated and all of the Obligations immediately shall become due and payable 

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without notice or demand and Borrowers shall be required to repay all of the Obligations in full.  No termination of the obligations of the Lender Group (other than payment in full of the Obligations and termination of the Commitments) shall relieve or discharge any Loan Party of its duties, obligations, or covenants hereunder or under any other Loan Document and Agent’s Liens in the Collateral shall continue to secure the Obligations and shall remain in effect until all Obligations have been paid in full and the Commitments have been terminated.  When all of the Obligations have been paid in full and the Lender Group’s obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Agent will, at Borrowers’ sole expense, execute and deliver any termination statements, lien releases, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, Agent’s Liens and all notices of security interests and liens previously filed by Agent.
1.20.    Revision to Amendment Provisions.  The Credit Agreement is hereby amended by deleting Section 14.1(a)(xii) and inserting the following in lieu thereof:

(xii)    amend, modify, or eliminate the definition of Tranche A Borrowing Base or Tranche B Borrowing Base or any of the defined terms (including the definitions of Eligible Accounts, Eligible Inventory, Eligible M&E, Eligible Real Property, Eligible In-Transit Inventory and Eligible Landed Inventory) that are used in either such definition to the extent that any such change results in more credit being made available to Borrowers based upon the Tranche A Borrowing Base or the Tranche B Borrowing Base, but not otherwise, or the definitions of Maximum Revolver Amount, Tranche A Maximum Revolver Amount or Tranche B Maximum Revolver Amount, or change Section 2.1(c).
1.21.    Additional Definitions.  As used herein, the following terms shall have the meanings given to them below, and the Credit Agreement is hereby amended to include, in addition and not in limitation, the following new definitions in appropriate alphabetical order in Schedule 1.1:

“Atlas” means Atlas Carpet Mills, Inc., a California corporation.
“Atlas Acquisition” means: (a) the acquisition by TDG of all of the Stock of Atlas on the Eighth Amendment Effective Date in accordance with the Atlas Acquisition Documents in consideration for cash in an aggregate amount not to exceed $15,000,000 plus the assumption of Capital Leases in an aggregate amount not to exceed $5,000,000, (b) the merger of Atlas with and into TDG (with TDG as the surviving limited liability company) on the Eighth Amendment Effective Date, and (c) all of the other transactions contemplated by the Atlas Acquisition Documents or related thereto.
“Atlas Acquisition Documents” means, collectively, the following (as the same may be amended, modified, supplemented, renewed, restated or replaced): (a) the Stock Purchase Agreement, dated as of March 19, 2014, between TDG, as buyer, and James Horwich, as Trustee of the Horwich Trust of 1973, as seller, (b) the Agreement and Plan of Merger, dated as of March 20, 2014, between Atlas and TDG, (c) the Articles of Merger of Atlas Carpet Mills, Inc. with and into TDG Operations, LLC (the “Atlas Articles of Merger”) to be filed with the Secretary of State of the State of Georgia and the Secretary of State of the State of California on or promptly following the Eighth Amendment Effective Date, and (d) all of the other agreements, documents and instruments executed and delivered in connection with the foregoing or related thereto.
“Eighth Amendment” means the Eighth Amendment to Credit Agreement, dated as of March 14, 2014, by and among Borrowers, Lenders and Agent, as acknowledged and agreed to by the Guarantors.

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“Eighth Amendment Effective Date” shall have the meaning given to such term in Section II of the Eighth Amendment.

“Index Rate” means, for any day, the per annum rate appearing on Macro*World’s (www.capitalmarkets.mworld.com; the “Service”) Page BBA LIBOR- USD (or on any successor or substitute page of such Service, or any successor to or substitute for such Service), for a term of one month and in an amount comparable to the amount of the Index Rate Loan requested by Borrowers in accordance with the Agreement (and, if any such rate is below zero, the Index Rate shall be deemed to be zero), which determination shall be made by Agent on each Business Day and shall be conclusive in the absence of manifest error.  When interest is determined in relation to the Index Rate, each change in the interest rate shall become effective each Business Day that Agent determines that the Index Rate has changed.

“Index Rate Loan” means each portion of the Tranche B Advances that bears interest at a rate determined by reference to the Index Rate.  Notwithstanding anything to the contrary contained in the Agreement, any language referencing a Tranche B Advance bearing interest based upon the LIBOR Rate shall refer solely to a LIBOR Rate Loan and not to an Index Rate Loan, no Index Rate Loan shall constitute a LIBOR Rate Loan, and no Tranche A Advance shall constitute an Index Rate Loan.

“Tranche A Advances” has the meaning specified therefor in Section 2.1(a)(i) of the Agreement.
“Tranche A Borrowing Base” means, as of any date of determination, the result of:
(a)85% of the amount of Eligible Accounts, less the amount, if any, of the Dilution Reserve, plus 

(b)the lower of 

(i)$130,000,000, 

(ii)the sum of

(A)the lower of

(1)70% of the value (calculated on a blended basis across Inventory categories at the lower of cost or market on a basis consistent with Borrowers’ historical accounting practices) of Eligible Landed Inventory, and

(2)85% times the most recently determined Net Liquidation Percentage times the value (calculated at the lower of cost or market on a basis consistent with Borrowers’ historical accounting practices) of Borrowers’ Eligible Landed Inventory, plus

(B)the lesser of (1) $2,500,000 and (2) the lesser of (aa) 70% of the aggregate undrawn amount of outstanding Qualified Import Letters of Credit, and (bb) 85% times the most recently determined Net Liquidation Percentage times the value (calculated at the lower of cost or market on a basis consistent with Borrowers’ 

9

historical accounting practices) of the Eligible Inventory subject to such Qualified Import Letters of Credit, plus

(c)the sum of the Fixed Asset Availability Amount and the Susan Street Real Property Availability Amount, minus

(d)the aggregate amount of reserves established by Agent under Section 2.1(c) of the Agreement;

provided, that, the applicable amounts of Eligible Accounts, Eligible Inventory, Eligible M&E and Eligible Real Property to be included in clauses (a), (b), and (c) above, and the amount of reserves under clause (d) above, shall each be calculated without duplication of deductions and reserves otherwise taken into account in the calculation of Eligible Accounts, Eligible Inventory, Eligible M&E and Eligible Real Property.
“Tranche A Commitment” means, with respect to each Lender, its Tranche A Commitment and, with respect to all Lenders, their Tranche A Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 or in the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.
“Tranche A Maturity Date” has the meaning specified therefor in Section 3.3 of the Agreement.

“Tranche A Maximum Revolver Amount” means (a) at any time prior to the Tranche B Maturity Date, the difference between $150,000,000 minus the Tranche B Maximum Revolver Amount, or (b) at any time on or after the Tranche B Maturity Date, $150,000,000, in each case as such applicable amount may be increased by the amount of Additional Commitment Amounts in accordance with Section 2.2 of the Agreement or decreased by the amount of reductions in the Commitments made in accordance with Section 2.4(c) of the Agreement.
“Tranche A Revolver Usage” means, as of any date of determination, the sum of (a) the amount of outstanding Tranche A Advances, plus (b) the amount of the Letter of Credit Usage.
“Tranche B Advances” has the meaning specified therefor in Section 2.1(a)(ii) of the Agreement.
“Tranche B Borrowing Base” means, as of any date of determination, the result of (a) 5% of the amount of Eligible Accounts, plus (b) 5% of the lesser of (i) the value (calculated on a blended basis across Inventory categories at the lower of cost or market on a basis consistent with Borrowers’ historical accounting practices) of Eligible Landed Inventory, and (ii) the most recently determined Net Liquidation Percentage times the value (calculated at the lower of cost or market on a basis consistent with Borrowers’ historical accounting practices) of Borrowers’ Eligible Landed Inventory.
“Tranche B Commitment” means, with respect to each Lender, its Tranche B Commitment and, with respect to all Lenders, their Tranche B Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 or in the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, 

10

as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.
“Tranche B Maturity Date” has the meaning specified therefor in Section 3.3 of the Agreement.
“Tranche B Maximum Revolver Amount” shall mean the lesser of (a) $15,000,000 and (b) the Tranche B Borrowing Base determined in connection with the most recent Borrowing Base Certificate and related supporting documentation delivered to Agent in compliance with Section 5.2 of the Agreement.
“Tranche B Revolver Usage” means, as of any date of determination, the amount of outstanding Tranche B Advances.
1.22.    Revised Definitions.  The Credit Agreement is hereby amended by deleting the definitions of “Advances”, “Applicable Margin”, “Application Event”, “Business Day”, “Commitment”, “Excess Availability”, “Fixed Asset Availability Amount”, “Interest Period”, “Maximum Revolver Amount”, “Pro Rata Share”, “Prohibited Preferred Stock”, “Revolver Usage”, “Susan Street Real Property Availability Amount” and “Trigger Level” set forth in Schedule 1.1 to the Credit Agreement and inserting the following respective new definitions in lieu thereof:

“Advances” means the Tranche A Advances and the Tranche B Advances.

“Applicable Margin” means, as of any date of determination, the following margin based upon the average daily Excess Availability, less the average daily outstanding principal balance of Tranche B Advances, in each case during the preceding calendar month:

	
						
	 
	 
	Tranche A Loans
	Tranche B Loans

	Level
	Average Excess Availability Less Average Outstanding Principal Balance of Tranche B Advances
	Applicable Margin for Base Rate Loans
	Applicable Margin for LIBOR Rate Loans
	Applicable Margin for Base Rate Loans
	Applicable Margin for LIBOR Rate Loans and Index Rate Loans

	I
	Greater than $34,500,000
	0.50%
	1.50%
	2.50%
	3.50%

	II
	Less than or equal to $34,500,000 and greater than $23,000,000
	0.75%
	1.75%
	2.50%
	3.50%

	III
	Less than or equal to $23,000,000
	1.00%
	2.00%
	2.50%
	3.50%

“Application Event” means the occurrence of (a) a failure by Borrowers to repay (i) all of the Obligations with respect to the Tranche B Advances in full on the Tranche B Maturity Date, or (ii) all of the Obligations in full on the Tranche A Maturity Date or any earlier date upon which the Obligations become due and payable in full, or (b) an Event of Default and the election by Agent or the Required Lenders to require that payments and proceeds of Collateral be applied pursuant to Section 2.4(b)(ii) of the Agreement.

“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the state of Georgia, except that, if a determination of a Business 

11

Day shall relate to a LIBOR Rate Loan or an Index Rate Loan, the term “Business Day” also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market. 

“Commitment” shall mean each of the Tranche A Commitments and the Tranche B Commitments, sometimes being collectively referred to herein as the “Commitments.”

“Excess Availability” means, as of any date of determination:
(a)    the lesser of:
(i)    the Maximum Revolver Amount, minus applicable reserves established by Agent under Section 2.1(c) of the Agreement, including the Convertible Debentures Reserve and the 1995 Bond Reserve, or 
(ii)    the Tranche A Borrowing Base; minus 
(b)    the sum of:
(i)    the Tranche A Revolver Usage, plus
(ii)    the aggregate amount, if any, of all trade payables (other than payables which are being disputed in good faith by a Loan Party) of the Loan Parties aged in excess of 30 days and all book overdrafts of the Loan Parties in excess of historical practices with respect thereto, in each case as determined by Agent in its Permitted Discretion.
“Fixed Asset Availability Amount” means the lesser of (a) $19,736,768, and (b) the sum of (i) 85% of the net orderly liquidation value of Eligible M&E set forth in an appraisal of such Eligible M&E conducted by an appraisal company selected by Agent, plus (ii) 75% of the fair market value (as determined on the basis of a 12-month sale period) of Borrowers’ Eligible Real Property (other than the Susan Street Real Property) set forth in an appraisal of such Eligible Real Property conducted by an appraisal company selected by Agent, as such lesser amount is reduced on a monthly basis (on the first day of each calendar month) by (A) $164,473.06, which represents a 10-year straight-line amortization schedule, from the first day of the calendar month following the Eighth Amendment Effective Date until the first anniversary of the Eighth Amendment Effective Date, (B) $193,497.72, which represents an 8.5-year straight-line amortization schedule, from the first anniversary of the Eighth Amendment Effective Date until the second anniversary of the Eighth Amendment Effective Date, and (C) $234,961.52, which represents a 7-year straight-line amortization schedule, from the second anniversary of the Eighth Amendment Effective Date onwards.
In no event shall any increase in the appraised value of any Eligible M&E or Eligible Real Property, as set forth in any appraisal obtained after the Eighth Amendment Effective Date, be taken into account in the calculation of the Fixed Asset Availability Amount.
“Interest Period” means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such LIBOR Rate Loan (or the continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a LIBOR Rate Loan) and ending 1, 2, or 3 months thereafter; provided, however, that (a) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (b) any Interest Period that would end on a day that is not a Business Day shall be 

12

extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (c) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, or 3 months after the date on which the Interest Period began, as applicable, and (d) Borrowers may not elect an Interest Period (i) with respect to Tranche A Advances, which will end after the Tranche A Maturity Date, and (ii) with respect to Tranche B Advances, which will end after the Tranche B Maturity Date.
“Maximum Revolver Amount” means the sum of the Tranche A Maximum Revolver Amount, plus the Tranche B Maximum Revolver Amount.
“Pro Rata Share” means, as of any date of determination: 
(a)with respect to a Lender’s obligation to make Tranche A Advances and right to receive payments of principal, interest, fees, costs, and expenses with respect thereto, (i) prior to the Tranche A Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such Lender’s Tranche A Commitment, by (z) the aggregate Tranche A Commitments of all Lenders, and (ii) from and after the time that the Tranche A Commitments have been terminated or reduced to zero, the percentage obtained by dividing (y) the outstanding principal amount of such Lender’s Tranche A Advances by (z) the outstanding principal amount of all Tranche A Advances,

(b)with respect to a Lender’s obligation to make Tranche B Advances and right to receive payments of principal, interest, fees, costs, and expenses with respect thereto, (i) prior to the Tranche B Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such Lender’s Tranche B Commitment, by (z) the aggregate Tranche B Commitments of all Lenders, and (ii) from and after the time that the Tranche B Commitments have been terminated or reduced to zero, the percentage obtained by dividing (y) the outstanding principal amount of such Lender’s Tranche B Advances by (z) the outstanding principal amount of all Tranche B Advances,

(c)with respect to a Lender’s obligation to participate in Letters of Credit and Reimbursement Undertakings, to reimburse the Issuing Lender, and right to receive payments of fees with respect thereto, (i) prior to the Tranche A Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such Lender’s Tranche A Commitment, by (z) the aggregate Tranche A Commitments of all Lenders, and (ii) from and after the time that the Tranche A Commitments have been terminated or reduced to zero, the percentage obtained by dividing (y) the outstanding principal amount of such Lender’s Tranche A Advances by (z) the outstanding principal amount of all Tranche A Advances; provided, however, that if all of the Tranche A Advances have been repaid in full and Letters of Credit remain outstanding, Pro Rata Share under this clause shall be determined based upon subclause (i) of this clause as if the Tranche A Commitments had not been terminated or reduced to zero and based upon the Tranche A Commitments as they existed immediately prior to their termination or reduction to zero, and

(d)with respect to all other matters as to a particular Lender (including the indemnification obligations arising under Section 15.7 of the Agreement), (i) prior to the Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such Lender’s Commitment, by (z) the aggregate amount of Commitments of all Lenders, and (ii) from and after the time that the Commitments have been terminated or reduced to zero, the percentage obtained by dividing (y) the 

13

outstanding principal amount of such Lender’s Advances, by (z) the outstanding principal amount of all Advances; provided, however, that if all of the Advances have been repaid in full and Letters of Credit remain outstanding, Pro Rata Share under this clause shall be determined based upon subclause (i) of this clause as if the Commitments had not been terminated or reduced to zero and based upon the Commitments as they existed immediately prior to their termination or reduction to zero.

“Prohibited Preferred Stock” means any Preferred Stock that by its terms is mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends, other than dividends of shares of Preferred Stock of the same class and series payable in kind or dividends of shares of common stock) on or before a date that is less than 1 year after the Tranche A Maturity Date, or, on or before the date that is less than 1 year after the Tranche A Maturity Date, is redeemable at the option of the holder thereof for cash or assets or securities (other than distributions in kind of shares of Preferred Stock of the same class and series or of shares of common stock). 
“Revolver Usage” means, as of any date of determination, the sum of (a) Tranche A Revolver Usage, plus (b) Tranche B Revolver Usage.
“Susan Street Real Property Availability Amount” means the lesser of (a) $15,562,500, and (b) 75% of the fair market value (as determined on the basis of a 12-month sale period) of Borrowers’ Susan Street Real Property set forth in an appraisal of such Eligible Real Property conducted by an appraisal company selected by Agent, as such lesser amount is reduced on a monthly basis by $86,458.33 on the first day of each calendar month, which amount constitutes a 15-year straight-line amortization schedule.

In no event shall any increase in the appraised value of the Susan Street Real Property, as set forth in any appraisal obtained after the Eighth Amendment Effective Date, be taken into account in the calculation of the Susan Street Real Property Availability Amount.
“Trigger Level” means (a) $14,440,000 through and including May 31, 2014, and (b) $16,500,000 from and after June 1, 2014.
1.23.    Elimination of Certain Definitions.  The Credit Agreement is hereby amended by deleting the definitions of “Borrowing Base”, “Borrowing Base Excess”, “Fixed Asset Updated Appraisal Date”, “Fixed Asset Updated Appraisals” and “Maturity Date” set forth in Schedule 1.1.

1.24.    Limit on Consigned Inventory.  The Credit Agreement is hereby amended by deleting the proviso at the end of clause (l)(iii) of the definition of “Eligible Landed Inventory” set forth in Schedule 1.1 and inserting the following in lieu thereof:

provided, that, the aggregate Dollar amount included in clause (b)(ii)(A) of the definition of Tranche A Borrowing Base based on Inventory held on consignment by third parties shall not at any time exceed $700,000, or
1.25.    Atlas Acquisition Permitted.  The Credit Agreement is hereby amended by deleting clause (m) of the definition of “Permitted Investment” set forth in Schedule 1.1 and inserting the following in lieu thereof:

14

"(m)    (i) so long as no Event of Default has occurred and is continuing or would result therefrom, the ColorMaster Purchase, (ii) so long as no Event of Default has occurred and is continuing or would result therefrom, the Robertex Acquisition, (iii) so long as no Event of Default has occurred and is continuing or would result therefrom, the Atlas Acquisition, and (iv) so long as no Event of Default has occurred and is continuing or would result therefrom, and the Payment Conditions have been satisfied, any other Investments (including Acquisitions) other than Investments in Dixie Shanghai;" and
1.26.    Capital Leases of Atlas.  The Credit Agreement is hereby amended by deleting clause (m) of the definition of “Permitted Indebtedness” set forth in Schedule 1.1 and inserting the following in lieu thereof:

(m)    Acquired Indebtedness in an aggregate amount outstanding at any one time not to exceed the sum of (i) Capitalized Lease Obligations assumed on the Eighth Amendment Effective Date in connection with the Atlas Acquisition in an aggregate amount not to exceed $5,000,000, plus (ii) $2,000,000,

1.27.    Revised Schedules and Exhibits.  The Credit Agreement is hereby amended by deleting Exhibit A-1 (Form of Assignment and Acceptance), Exhibit B-1 (Form of Borrowing Base Certificate) and Schedule C-1 (Commitments) and substituting the Exhibit A-1 (Form of Assignment and Acceptance), Exhibit B-1 (Form of Borrowing Base Certificate), and Schedule C-1 (Commitments) attached hereto in lieu thereof.

1.28.    Supplements to Schedules 4.13 and 4.30.  The Credit Agreement is hereby amended by supplementing Schedule 4.13 (Intellectual Property) and Schedule 4.30 (Locations of Inventory and Equipment) with the additional information set forth on the Supplement to Schedule 4.13 (Additional Intellectual Property) and the Supplement to Schedule 4.30 (Additional Locations of Inventory and Equipment) attached hereto.

1.29.    Certain References to Borrowing Base.  The Credit Agreement is hereby amended by deleting the references to “the Borrowing Base” set forth in clauses (c) and (e) of Schedule 5.2 (Collateral Reporting) and substituting “the Tranche A Borrowing Base or the Tranche B Borrowing Base” in lieu thereof.

1.30.    Issuance of Stock by Dixie.  Borrowers hereby covenant and agree to promptly provide Agent and the Lenders with reasonable advance written notice prior to any public offering of securities of Dixie and to provide such information regarding any contemplated public offering of securities of Dixie and Borrowers’ use of the proceeds thereof as Agent or any Lender may reasonably request from time to time, Borrowers covenant and agree that the proceeds from the public sale of any securities of Dixie shall not be used for any purpose prohibited by the Credit Agreement.  In reliance on the representations, warranties, covenants and agreements set forth herein, Agent and Lenders hereby agree that, so long as no Application Event has occurred and is continuing, Borrowers shall not be required to prepay the Obligations with the Net Cash Proceeds of a public offering of common stock of Dixie, par value $3.00 per share, as otherwise required by Section 2.4(e)(v) of the Credit Agreement so long as any such offering is consummated prior to August 1, 2014.  However, Borrowers covenant and agree in favor of Agent and the Lenders that, within 3 Business Days following the receipt of funds as a result of the consummation of any public offering of securities of Dixie, Borrowers shall cause Excess Availability, less the aggregate outstanding principal balance of Tranche B Advances, to be at least $20,000,000 for at least one Business Day.

15

1.31.    Fixed Charge Coverage Ratio as of February 28, 2014.  If Excess Availability is less than the Trigger Level at any time from March 14, 2014 through and including April 13, 2014 (the “Applicable Period”), then, notwithstanding such shortfall, the Lenders and Agent hereby agree that (a) such shortfall shall not result in a measurement of the Fixed Charge Coverage Ratio set forth in Section 7 of the Credit Agreement as of the fiscal month ending February 28, 2014 during the Applicable Period, and (b) any noncompliance by Borrowers with such Section 7 for the twelve-fiscal-month period ending on February 28, 2014 during the Applicable Period shall not constitute an Event of Default.  Nothing contained in this paragraph shall be construed to exempt Borrowers from compliance with the Fixed Charge Coverage Ratio for any twelve-fiscal-month period ending on or after March 31, 2014 if Excess Availability is less than the Trigger Level at any time, regardless of whether or not such shortfall occurred during the Applicable Period.

1.32.    Atlas Assets in the Borrowing Base.  Borrowers hereby represent and warrant to Agent and the Lenders that Borrowers intend to merge Atlas with and into TDG (with TDG as the surviving entity) as soon as possible (and in any event within one Business Day) following the purchase of the outstanding capital stock of Atlas by TDG.  In order to facilitate such stock purchase, and in reliance on Borrowers’ representation and warranty regarding such merger, Agent and Lenders hereby acknowledge and agree that the Inventory and Equipment of Atlas which would constitute Eligible Inventory and Eligible M&E, as applicable, if it were owned by TDG shall be eligible for inclusion in the Borrowing Base for one Business Day following the Eighth Amendment Effective Date.  Thereafter, no such Inventory or Equipment shall be included in the Borrowing Base unless (a) Agent shall have received a certified copy of the Atlas Articles of Merger, as filed with the Secretary of State of the State of Georgia and the Secretary of State of the State of California, and (b) such Inventory and Equipment qualify as Eligible Inventory and Eligible M&E, as applicable.  Borrowers acknowledge and agree that no Accounts of Atlas arising on or prior to the Eighth Amendment Effective Date shall constitute Eligible Accounts at any time.

2.    CONDITIONS PRECEDENT

This Amendment shall become effective as of the date hereof (the “Eighth Amendment Effective Date”), subject to the following conditions precedent having been satisfied or waived by Agent:

2.1.    Execution of Amendment.  Agent shall have received fully executed counterparts of this Amendment, duly authorized, executed and delivered by each Borrower, Guarantor and the Required Lenders.

2.2    Atlas Acquisition.  Agent shall have received, in form and substance satisfactory to Agent, true, correct and complete copies of the Atlas Acquisition Documents, in each case duly authorized, executed and delivered by the parties thereto, and TDG shall consummate the Atlas Acquisition (including, without limitation, the merger of Atlas with and into TDG, with TDG as the surviving limited liability company) simultaneously with the effectiveness of this Amendment.

2.3.    Opinion.  Agent shall have received an opinion of counsel to the Loan Parties in form and substance reasonably satisfactory to Agent.

2.4    Amendment Fee.  Agent shall have received an amendment fee in the amount of $70,000 (with each Lender to receive its Pro Rata Share thereof), and Borrowers hereby authorize Agent to charge the Loan Account for such amendment fee.

2.5    Accuracy of Representations and Warranties.  Each of the representations and warranties of the Loan Parties set forth in Section 4 of the Credit Agreement shall be true and correct in all material respects 

16

(except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof).

2.6    Other Documents.  Agent shall have received such other agreements, documents, instruments and information executed and/or delivered by the Loan Parties as Agent may reasonably request.

3.    MISCELLANEOUS

3.1.    No Additional Obligations.  The Borrowers acknowledge and agree that the execution, delivery and performance of this Amendment shall not create (nor shall the Borrowers rely upon the existence of or claim or assert that there exists) any obligation of any of Agent or Lenders to consider or agree to any other amendment of or waiver or consent with respect to the Credit Agreement or any other instrument or agreement to which Agent or any Lender is a party (collectively, an “Additional Amendment” or “Consent”), and in the event that Agent and the Lenders subsequently agree to consider any requested Additional Amendment or Consent, neither the existence of this Amendment nor any other conduct of Agent or the Lenders related hereto, shall be of any force or effect on the Lenders’ consideration or decision with respect to any such requested Additional Amendment or Consent, and the Lenders shall not have any obligation whatsoever to consider or agree to any such Additional Amendment or Consent.

3.2.    Acknowledgments and Stipulations.  In order to induce Agent and Lenders to enter into this Amendment, each Borrower acknowledges, stipulates and agrees that (a) the Loan Documents executed by each Borrower are legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally; (b) the Liens granted by each Borrower to Agent in the Collateral are valid and duly perfected, first priority Liens, subject only to Permitted Liens; (c) each of the recitals contained at the beginning of this Amendment is true and correct; and (d) prior to executing this Amendment, each Borrower consulted with and had the benefit of advice of legal counsel of its own selection and has relied upon the advice of such counsel, and in no part upon the representation of Agent, any Lender or any counsel to Agent or any Lender concerning the legal effects of this Amendment or any provision hereof.

3.3.    Additional Representations and Warranties of the Borrowers.  Each Borrower hereby represents and warrants that on the Eighth Amendment Effective Date and after giving effect to the amendments and waivers contained herein:  (a) the representations and warranties contained in Section 4 of the Credit Agreement shall be correct in all material respects on and as of such date as though made on and as of such date, (b) no Default or Event of Default exists under the Credit Agreement on and as of such date.  Without limitation of the preceding sentence, each Borrower hereby expressly re-affirms the validity, effectiveness and enforceability of each Loan Document to which it is a party (in each case, as the same may be modified by the terms of this Amendment).  

3.4.    Effect of this Agreement.  Except as expressly amended pursuant hereto, no other changes or modifications to the Credit Agreement or any of the other Loan Documents are intended or implied, and in all other respects, the Credit Agreement and each of the other Loan Documents is hereby specifically ratified, restated and confirmed by all parties hereto as of the date hereof.  To the extent that any provision of the Credit Agreement or any of the other Loan Documents are inconsistent with the provisions of this Amendment, the provisions of this Amendment shall control.  All references in the Credit Agreement (including without limitation the Schedules thereto) to the “Agreement” and 

17

all references in the other Loan Documents to the “Credit Agreement” shall be deemed to refer to the Credit Agreement, as amended hereby.

3.5    Costs and Expenses.  Without limiting the generality of anything contained in the Credit Agreement and the other Loan Documents, Borrowers hereby jointly and severally agree to reimburse Agent for all fees, costs and expenses incurred in connection with this Amendment and the transactions contemplated hereby, including appraisal costs and the reasonable fees and expenses of legal counsel to Agent.

3.6.    Further Assurances.  The Loan Parties shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Agent to effectuate the provisions and purposes hereof.

3.7    This Amendment Constitutes a Loan Document.  Without limiting the generality of anything contained in the Credit Agreement, this Amendment constitutes a Loan Document.  The breach of any representation, covenant, agreement or obligation of any Borrower set forth herein shall constitute an Event of Default and shall not be subject to any notice or cure period.

3.8.    Governing Law.  THE VALIDITY OF THIS AMENDMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO, AND ANY CLAIMS, CONTROVERSIES OR DISPUTES ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA.

3.9.    Binding Effect.  This Amendment shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties hereto.

3.10.    Counterparts; Electronic Execution.  This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same agreement.  Delivery of an executed counterpart of this Amendment by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Amendment.  Any party delivering an executed counterpart of this Amendment by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Amendment but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.

3.11.    Successors and Assigns.  This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

[Remainder of Page Intentionally Left Blank]
                    

18

Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.

	
		
	BORROWERS:
	THE DIXIE GROUP, INC.

By:/s/ Jon A. Faulkner
Name:Jon A. Faulkner
Title:VP/CFO

	 
	CANDLEWICK YARNS, LLC

By:/s/ Jon A. Faulkner
Name:Jon A. Faulkner
Title:President

	 
	FABRICA INTERNATIONAL, INC.

By:/s/ Jon A. Faulkner
Name:Jon A. Faulkner
Title:President

	 
	TDG OPERATIONS, LLC

By:/s/ Jon A. Faulkner
Name:Jon A. Faulkner
Title:President

	
		
	AGENT AND LENDERS:
	WELLS FARGO CAPITAL FINANCE, LLC, 
as Agent and as a Lender

By:   /s/ Douglas Tindle
Name:   Douglas Tindle
Title:     SVP

	 
	BANK OF AMERICA, N.A.,
as a Lender

By:  /s/ Robert B. H. Moore
Name:     Robert B. H. Moore
Title:     Senior Vice President

19

GUARANTOR’S ACKNOWLEDGEMENT

The undersigned, a guarantor of the Obligations of THE DIXIE GROUP, INC., a Tennessee corporation (“Dixie”), CANDLEWICK YARNS, LLC, an Alabama limited liability company (“Candlewick”), FABRICA INTERNATIONAL, INC., a California corporation (“Fabrica”), TDG OPERATIONS, LLC, a Georgia limited liability company, formerly known as Masland Carpets, LLC (“TDG”; together with Dixie, Candlewick and Fabrica, are referred to hereinafter each individually as a “Borrower”, and collectively, the “Borrowers”), under and as defined in that certain Credit Agreement, dated as of September 13, 2011, as amended by the First Amendment to Credit Agreement, dated as of November 2, 2012, the Second Amendment to Credit Agreement, dated as of April 1, 2013, the Third Amendment to Credit Agreement, dated as of May 22, 2013, the Fourth Amendment to Credit Agreement, dated as of July 1, 2013, the Fifth Amendment to Credit Agreement, dated as of July 30, 2013, the Sixth Amendment to Credit Agreement dated as of August 30, 2013, the Seventh Amendment to Credit Agreement dated as of January 20, 2014, and the Eighth Amendment (the “Eighth Amendment”), dated as of the date hereof (as amended, restated, supplemented, or otherwise modified prior to the date hereof, the “Credit Agreement”) among the Borrowers, the lenders party thereto (the “Lenders”), WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the “Agent”), hereby (a) acknowledges receipt of the foregoing Eighth Amendment; (b) consents to the terms thereof and the execution thereof by the Borrowers; (c) reaffirms its obligations pursuant to the terms of the Guaranty Agreement, dated as of September 13, 2011, by the undersigned in favor of Agent and Lenders (the “Guaranty”); and (d) acknowledges that Agent and the Lenders may amend, restate, extend, renew or otherwise modify the Credit Agreement and any indebtedness or agreement of the Borrowers, or enter into any agreement or extend additional or other credit accommodations to the Borrowers, without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under the Guaranty for the Borrowers’ present and future Obligations.  Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement.

	
		
	 
	C-KNIT APPAREL, INC.

By: By:/s/ Jon A. Faulkner
Name:Jon A. Faulkner
Title:President

20

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