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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED APRIL 3, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 001-13057
POLO RALPH LAUREN CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 13-2622036
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
650 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
212-318-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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Class A Common Stock, $.01 par value New York Stock
Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was approximately $644,680,000 at June 22, 1999.
At June 22, 1999, 33,602,889 shares of the registrant's Class A Common Stock,
$.01 par value, and 43,280,021 shares of the registrant's Class B Common Stock,
$.01 par value and 22,720,979 shares of the registrant's Class C Common Stock,
$.01 par value, were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT WHERE INCORPORATED
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Proxy Statement for Annual Meeting of Part III
Stockholders to be held August 19, 1999
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PART I
ITEM 1. BUSINESS.
Unless the context requires otherwise, references to the "Company" or to
"Polo" are to Polo Ralph Lauren Corporation and its subsidiaries. Due to the
collaborative and ongoing nature of the Company's relationships with its
licensees, such licensees are referred to in this Form 10-K as "licensing
partners" and the relationships between the Company and such licensees are
referred to in this Form 10-K as "licensing alliances." Notwithstanding these
references, however, the legal relationship between the Company and its
licensees is one of licensor and licensee, and not one of partnership.
Polo is a leader in the design, marketing and distribution of premium
lifestyle products. For more than 30 years, Polo's reputation and distinctive
image have been consistently developed across an expanding number of products,
brands and international markets. The Company's brand names, which include
"Polo," "Polo by Ralph Lauren," "Polo Sport," "Ralph Lauren," "RALPH," "Lauren,"
"Polo Jeans Co.," "RL" and "Chaps," among others, constitute one of the world's
most widely recognized families of consumer brands. Directed by Ralph Lauren,
the internationally renowned designer, the Company believes it has influenced
the manner in which people dress and live in contemporary society, reflecting an
American perspective and lifestyle uniquely associated with Polo and Ralph
Lauren.
Polo combines its consumer insight and design, marketing and imaging
skills to offer, along with its licensing partners, broad lifestyle product
collections in four categories: apparel, home, accessories and fragrance.
Apparel products include extensive collections of menswear, womenswear and
children's clothing. The Ralph Lauren Home Collection offers coordinated
products for the home including bedding and bath products, interior decor and
tabletop and gift items. Accessories encompass a broad range of products such as
footwear, eyewear, jewelry and leather goods (including handbags and luggage).
Fragrance and skin care products are sold under the Company's Polo, Lauren,
Safari and Polo Sport brands, among others.
On May 3, 1999, a wholly owned subsidiary of the Company completed its
acquisition, through a tender offer followed by a statutory compulsory
acquisition, of all of the outstanding shares of Club Monaco Inc., a corporation
organized under the laws of the Province of Ontario, Canada. Founded in 1985,
Club Monaco Inc. is an international specialty retailer of casual apparel and
other accessories for men, women and children under the brand name "Club Monaco"
and a number of associated trademarks. For purposes of the following description
of Polo's business, the activities of Club Monaco Inc. are not included.
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OPERATIONS
Polo's business consists of three integrated operations: wholesale, retail
and licensing. Each is driven by the Company's guiding philosophy of style,
innovation and quality.
Details of the Company's net revenues are shown in the table below.
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PRO FORMA
FISCAL
FISCAL YEAR 1997(1)
1999 1998 1997 (UNAUDITED)
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(IN THOUSANDS)
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Wholesale sales $ 845,704 $ 733,065 $ 663,358 $ 623,041
Retail sales ...... 659,352 570,751 379,972 508,645
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Net sales ......... 1,505,056 1,303,816 1,043,330 1,131,686
Licensing revenue . 208,009 167,119 137,113 137,113
Other income 13,794 9,609 7,774 7,774
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Net revenues ...... $1,726,859 $1,480,544 $1,188,217 $1,276,573
========== ========== ========== ==========
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(1) In February 1993, the Company entered into a joint venture to
combine certain of its retail operations with those of its joint
venture partner, Perkins Shearer Venture, to form Polo Retail
Corporation ("PRC"). On March 21, 1997, the Company entered into an
agreement, effective April 3, 1997, to acquire the 50% interest it
did not own from its joint venture partner (the "PRC Acquisition").
Prior to the PRC Acquisition, the Company accounted for its interest
in PRC under the equity method. Effective April 3, 1997, the Company
consolidated the operations of PRC in fiscal 1998 and accounted for
the transaction under the purchase method. On a pro forma basis for
fiscal 1997, wholesale net sales by the Company to PRC are
eliminated and PRC net revenues are reflected as retail sales.
WHOLESALE
During fiscal 1999, as part of a Company-wide restructuring, Polo
realigned its wholesale operations. Polo's wholesale business is now subdivided
into two new groups: Polo Brands and Collection Brands. The Company believes
this realignment will allow it to better service its customers by focusing each
business on its particular channel of distribution and further developing the
brands. In both of its wholesale groups, the Company offers several discrete
brand offerings. See "- Domestic Customers and Services."
POLO BRANDS
The Polo Brands Group sources, markets and distributes products under the
Polo by Ralph Lauren and Polo Sport men's brands, the Ralph Lauren Polo Sport
women's brand and the RLX Polo Sport and Polo Golf brands for men and women.
Representatives from each of the Company's design, merchandising, sales and
production staffs work together to conceive, develop and sell product groupings
organized to convey a variety of design concepts.
POLO BY RALPH LAUREN. The Polo by Ralph Lauren menswear collection is a
complete men's wardrobe consisting of products related by theme, style, color
and fabric. Polo by Ralph Lauren menswear is generally priced at a range of
price points within the men's
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premium, ready-to-wear, apparel market. This line is currently sold through
approximately 1,875 department store, specialty store and Polo store doors in
the United States, including approximately 1,300 department store
shop-within-shops.
POLO SPORT. The Polo Sport line of men's activewear and sportswear is
designed to meet the growing consumer demand for apparel for the active
lifestyle. Polo Sport is offered at a range of price points generally consistent
with prices for the Polo by Ralph Lauren line, and is distributed through the
same channels as Polo by Ralph Lauren.
RALPH LAUREN POLO SPORT. Similar to its menswear counterpart, the Ralph
Lauren Polo Sport line for women includes activewear, as well as weekend
sportswear. The Ralph Lauren Polo Sport line is currently carried by
approximately 365 doors in the United States, including approximately 160
shop-within-shops, and sells at a wide range of bridge prices.
RLX POLO SPORT. Introduced in Spring 1999, the RLX Polo Sport line of
menswear and womenswear consists of functional sport and outdoor apparel for
running, cross-training, skiing, snowboarding, cycling and tennis. RLX Polo
Sport is presently sold in the United States through approximately 470 athletic
specialty stores, in addition to limited department and Polo stores, at price
points competitive with those charged by other authentic sports apparel
companies.
POLO GOLF. The Polo Golf line of men's and women's golf apparel is
targeted at the golf and resort markets. Price points are similar to those
charged for products in the Polo Sport line. The Polo Golf line is presently
sold in the United States through approximately 2000 leading golf clubs, pro
shops and resorts, in addition to department, specialty and Polo stores.
COLLECTION BRANDS
The Collection Brands Group sources, markets and distributes products
under the Women's Ralph Lauren Collection, Ralph Lauren Black Label and Ralph RL
Lauren brands and the Men's Ralph Lauren/Purple Label Collection Brand. Each
line is directed by teams consisting of design, merchandising, sales and
production staff who work together to conceive, develop and merchandise product
groupings organized to convey a variety of design concepts.
RALPH LAUREN COLLECTION AND RALPH LAUREN BLACK LABEL. The Ralph Lauren
Collection, sold under the purple label and the Custom Collection Label (the
"Collection"), expresses the Company's up-to-the-moment fashion vision for
women. Ralph Lauren Black Label includes timeless versions of the Company's most
successful Collection styles, as well as newly-designed classic signature styles
which tend to remain in a women's wardrobe for several seasons. Collection and
Black Label are offered for limited distribution to premier fashion retailers
and through Polo stores. Price points are at the upper end or luxury ranges. The
lines are currently sold through over 80 doors in the United States by the
Company and over 270 international doors by the Company and its licensing
partners.
RALPH RL LAUREN. The RALPH/Ralph Lauren brand was established in 1994 to
present a distinct and more casual fashion identity for the bridge market, while
retaining
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a strong association with the Ralph Lauren Collection designer image. In Fall
1999, this line will be renamed Ralph RL Lauren and the RALPH/Ralph Lauren brand
will be relaunched and used in connection with a newly licensed young women's
(ages 16-24) line. The line is sold through approximately 150 doors in the
United States by the Company and over 360 doors internationally by the Company
and its licensing partners.
RALPH LAUREN/PURPLE LABEL COLLECTION. In Fall 1995, the Company introduced
its Purple Label Collection of men's tailored clothing and, in Fall 1997, to
complement the tailored clothing line, the Company launched its Purple Label
sportswear line. Purple Label Collection tailored clothing is manufactured and
distributed by a licensee, and dress shirts and ties and sportswear are sourced
and distributed by the Company. The Purple Label lines are sold through a
limited number of premier fashion retailers, currently numbering 47 doors in the
United States and nine internationally.
DOMESTIC CUSTOMERS AND SERVICE
GENERAL. Consistent with the appeal and distinctive image of its products
and brands, the Company sells its menswear, womenswear and home furnishings
products primarily to leading upscale department stores, specialty stores, golf
and pro shops and Polo stores located throughout the United States which have
the reputation and merchandising expertise required for the effective
presentation of Polo products. See " -- Licensing Alliances - Home Collection."
The Company's wholesale and home furnishings products are distributed
through the primary distribution channels listed in the table below. In
addition, the Company also sells excess and out-of-season products through
secondary distribution channels.
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APPROXIMATE NUMBER OF
DOORS AS OF APRIL 3, 1999
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POLO COLLECTION HOME
BRANDS BRANDS COLLECTION
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Department Stores . 1,550 350 1,295
Specialty Stores .. 755 70 20
Polo Stores ....... 40 60 35
Golf & Pro Shops .. 2,000 -- --
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Department stores represent the largest customer group of each wholesale
group and of Home Collection. Major department store customers include Federated
Department Stores, Inc., Dillard Department Stores, Inc. and The May Department
Stores Company. During fiscal 1999, Federated Department Stores, Inc., Dillard
Department Stores, Inc. and The May Department Stores Company accounted for
18.4%, 17.9% and 15.1%, respectively, of the Company's wholesale net sales.
Collection and Polo Brands and Home Collection products are primarily sold
through their respective sales forces aggregating approximately 157 salespersons
employed by Polo. The Polo Brands Group maintains its primary showroom at Polo's
New York City executive headquarters. Regional showrooms for Polo Brands are
located in Atlanta, Chicago, Dallas and Los Angeles. An independent sales
representative promotes sales to U.S. military exchanges. The Collection Brands
Group and Home Collection division also maintain their primary showrooms in New
York City. Regional sales representatives for
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the Home Collection are located in the Company's showrooms in Atlanta, Chicago,
Dallas and Los Angeles. The Company also operates a separate tabletop showroom
in New York City.
SHOP-WITHIN-SHOPS. As a critical element of its distribution to department
stores, the Company and its licensing partners utilize shop-within-shops to
enhance brand recognition, permit more complete merchandising of the Company's
lines and differentiate the presentation of products. The Company intends to add
approximately 270 shop-within-shops and refurbish approximately 150
shop-within-shops in fiscal 1999. At April 3, 1999, department store customers
in the United States had installed over 2,000 shop-within-shops dedicated to the
Company's products and over 1,800 shops-within-shops dedicated to Polo's
licensed products. The size of Polo shop-within-shops (excluding significantly
larger shop-within-shops in key department store locations) typically ranges
from approximately 1,000 to 1,500 square feet for Polo Brands, from
approximately 800 to 1,200 square feet for Collection Brands, and from
approximately 800 to 1,200 square feet for home furnishings. The Company
estimates that, in total, approximately 2.0 million square feet of department
store space in the United States is dedicated to Polo shop-within-shops. In
addition to shop-within-shops, the Company utilizes exclusively fixtured areas
in department stores.
BASIC STOCK REPLENISHMENT PROGRAM. Basic products such as knit shirts,
chino pants, oxford cloth shirts and navy blazers can be ordered at any time
through Polo's basic stock replenishment programs. For customers who reorder
basic products, Polo generally ships these products within one to five days of
order receipt. These products accounted for approximately 16.0% of wholesale net
sales in fiscal 1999. The Company has also implemented a seasonal quick response
program to allow replenishment of products which can be ordered for only a
portion of each year. Certain Home Collection licensing partners also offer a
basic stock replenishment program which includes towels, bedding and tabletop
products. Basic stock products accounted for approximately 75% of net sales of
Home Collection licensing partners in fiscal 1999.
DIRECT RETAILING
The Company operates retail stores dedicated to the sale of Polo products.
Located in prime retail areas, the Company's 33 Polo stores operate under the
Polo Ralph Lauren, Polo Sport and Polo Jeans Co. names. The Company's 99 outlet
stores are generally located in outlet malls and operate under the Polo Ralph
Lauren Factory Store, Polo Jeans Co. Factory Store and Lauren Ralph Lauren
Factory Store names.
In addition to its own retail operations, the Company has granted licenses
to independent parties to operate nine stores in the United States and 83 stores
internationally. The Company receives the proceeds from the sale of its Polo
Brands and Collection Brands products, which are included in wholesale net
sales, to these stores and also receives royalties, which are included in
licensing revenue, from its licensing partners who sell to these stores. The
Company generally does not receive any other compensation from these licensed
store operators. See "- Licensing Alliances."
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POLO STORES
In addition to generating sales of Polo Ralph Lauren products, Polo stores
set, reinforce and capitalize on the image of Polo's brands. The Company's five
flagship stores, consisting of its two flagship stores located on Madison Avenue
in New York City, one flagship store located on Rodeo Drive in Beverly Hills,
one flagship store located on Michigan Avenue in Chicago and one flagship store
located on New Bond Street in London which opened on May 5, 1999, showcase Polo
products and demonstrate Polo's most refined merchandising techniques. In
addition to its flagship stores, Polo operates 29 other Polo stores. Ranging in
size from approximately 2,000 to over 15,000 square feet, the non-flagship
stores are situated in upscale regional malls and major high street locations
generally in the largest urban markets in the United States. In aggregate, on
April 3, 1999 the Company operated 26 Polo Ralph Lauren stores, two Polo Sport
stores, four Polo Jeans Co. stores and one Polo Country store (offering
primarily leisure and weekend apparel). Stores are generally leased for initial
periods ranging from five to fifteen years with renewal options.
In fiscal 1999, Polo Ralph Lauren stores were opened in Chicago, Illinois
and Palm Beach, Florida, and Polo Jeans Co. stores were opened in Orlando,
Florida and Houston, Texas. In addition, in fiscal 1999, Polo converted its Polo
Ralph Lauren store in Santa Clara, California to a Polo Jeans Co. store. New
Polo Jeans Co. stores are planned for Burlingame, California, Miami, Florida,
McLean, Virginia, Bellevue, Washington and Beverly Hills, California. A new Polo
Sport store is planned to open in fiscal 2000 in the Soho district of New York
City. In addition, during fiscal 2000, Polo plans to convert two Polo Ralph
Lauren stores to new concepts that are expected to be more productive.
Effective March 31, 1997, the Company entered into a joint venture
agreement with a nonaffiliated partner to acquire real property in New York
City. The Company and its partner are discussing possible concepts for such
location. Concurrent with the signing of the agreement, the Company made an
initial contribution for its 50% interest in the joint venture in the amount of
$5.0 million. On December 16, 1997, the Company entered into another joint
venture agreement with this nonaffiliated partner. The entity formed through
this joint venture entered into a long-term lease of a building located in the
Soho District of New York City, where the Polo Sport store planned to open in
fiscal 2000 will be located.
OUTLET STORES
Polo extends its reach to additional consumer groups through its 75 Polo
Ralph Lauren Factory Stores and its 24 factory outlet concept stores,
consisting, as of April 3, 1999, of 14 Polo Jeans Co. Factory Stores and 10
Lauren Ralph Lauren Factory Stores. Polo Ralph Lauren Factory Stores offer
selections of the Company's menswear, womenswear, children's apparel,
accessories, home furnishings and fragrances. Ranging in size from 5,000 to
13,000 square feet, with an average of approximately 8,000 square feet, the
stores are generally located in major outlet centers in 34 states and Puerto
Rico. Polo Jeans Co. Factory Stores carry all classifications within the Polo
Jeans Co. line, including denim, knit and woven tops, sweaters, outerwear,
casual bottoms and accessories. Polo Jeans Co. Factory Stores range in size from
3,000 to 4,500 square feet, with an average of 3,300 square feet, and are
generally located in major outlet centers in 11 states. Lauren Ralph Lauren
Factory Stores offer both basic key items and fashion
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items from the Lauren line with coordinated accessories. Ranging in size from
3,200 to 4,100 square feet, with an average of 3,500 square feet, the Lauren
Ralph Lauren Factory Stores are generally located in major outlet centers in 10
states.
Outlet stores purchase products from Polo, its licensing partners and its
suppliers and from Polo stores in the United States. Outlet stores purchase
products from Polo generally at cost and from Polo's domestic product licensing
partners and Polo stores at negotiated prices. Outlet stores also source basic
products and styles directly from the Company's suppliers. In fiscal 1999, the
outlet stores purchased approximately 24%, 44% and 32% of products from the
Company, licensing partners and other suppliers, respectively.
The Company plans to add approximately 50 new outlet stores (net of
anticipated store closings) over the next three years including approximately 30
factory outlet concept stores (net of anticipated store closings).
LICENSING ALLIANCES
Through licensing alliances, Polo combines its consumer insight and
design, marketing and imaging skills with the specific product or geographic
competencies of its licensing partners to create and build new businesses. The
Company's licensing partners, who are often leaders in their respective markets,
generally contribute the majority of product development costs, provide the
operational infrastructure required to support the business and own the
inventory.
Product and international licensing partners are granted the right to
manufacture and sell at wholesale specified products under one or more of Polo's
trademarks. International licensing partners produce and source products
independently and in conjunction with the Company and its product licensing
partners. As compensation for the Company's contributions under these
agreements, each licensing partner pays royalties to the Company based upon its
sales of Polo Ralph Lauren products, subject generally, to payment of a minimum
royalty. With the exception of Home Collection licenses, these payments
generally range from five to eight percent of the licensing partners's sales of
the licensed products. See "- Home Collection" for a description of royalty
arrangements for Home Collection products. In addition, licensing partners are
required to allocate between two and four percent of their sales to advertise
Polo products. Larger allocations are required in connection with launches of
new products or in new territories.
Polo works in close collaboration with its licensing partners to ensure
that products are developed, marketed and distributed to address the intended
market opportunity and present consistently to consumers worldwide the
distinctive perspective and lifestyle associated with the Company's brands.
Virtually all aspects of the design, production quality, packaging,
merchandising, distribution, advertising and promotion of Polo products are
subject to the Company's prior approval and ongoing oversight. The result is a
consistent identity for Polo products across product categories and
international markets.
Polo has 20 product and 11 international licensing partners. A substantial
portion of the Company's net income is derived from licensing revenue received
from its licensing partners. The Company's largest licensing partners by
licensing revenue, Jones Apparel Group, Inc., Seibu Department Stores, Ltd.,
WestPoint Stevens, Inc. and Warnaco, Inc.
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accounted for 20%, 12.6%, 11.7% and 11.1%, respectively, of licensing revenue in
fiscal 1999.
PRODUCT LICENSING ALLIANCES
Polo has agreements with 20 product licensing partners relating to men's
and women's sportswear, men's tailored clothing, children's apparel,
personalwear, accessories and fragrances. The products offered by the Company's
product licensing partners as of April 3, 1999 are listed below.
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LICENSING PARTNER LICENSED PRODUCT CATEGORY
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Warnaco, Inc. Men's Chaps Sportswear
Sun Apparel, Inc., a subsidiary of Jones Men's & Women's Polo Jeans Co. Casual
Apparel Group, Inc. Apparel & Sportswear
Jones Apparel Group, Inc. Women's Lauren Better Sportswear
Chester Barrie, Ltd. Men's Purple Label Tailored Clothing
Pietrafesa Co. Men's Polo Tailored Clothing
Peerless Inc. Men's Chaps and Lauren Tailored Clothing
Oxford Industries, Inc. Boys Apparel
S. Schwab Company, Inc. Infants, Toddlers & Girls Apparel
Sara Lee Corporation Men's & Women's Personal Wear Apparel
Ralph Lauren Footwear, Inc., a Men's & Women's Dress,
subsidiary Casual and Performance Athletic Footwear
of Reebok International Ltd.
Wathne, Inc. Handbags & Luggage
Hot Sox, Inc. Men's, Women's & Children's Hosiery
New Campaign, Inc. Belts & other Small Leather Goods
Echo Scarves, Inc. Scarves for Men & Women
Carolee, Inc. Jewelry
Swany, Inc. Men's, Women's & Children's Gloves
L'Oreal S.A./Cosmair, Inc. Men's & Women's Fragrances and skin care products
Authentic Fitness Products, Inc. Women's & Girls' Swimwear
Burton Golf, Inc. Golf bags
Safilo USA, Inc. Eyewear
Pennaco, Inc. Sheer Hosiery
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HOME COLLECTION
With the introduction of the Ralph Lauren Home Collection in 1983, Polo
became one of the first major apparel designers to extend its design principles
and brands to a complete line of home furnishings. Today, in conjunction with
its licensing partners, Polo offers an extensive collection of home products
which both draw upon, and add to, the design themes of the Company's other
product lines, contributing to Polo's complete
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lifestyle concept. Products are sold under the Ralph Lauren Home Collection
brands in three primary categories: bedding and bath, interior decor, tabletop
and giftware.
In addition to developing the Home Collection, Polo acts as sales and
marketing agent for its domestic Home Collection licensing partners. Together
with its eight domestic home product licensing partners, representatives of the
Company's design, merchandising, product development and sales staffs
collaborate to conceive, develop and merchandise the various products as a
complete home furnishing collection. Polo's personnel market and sell the
products to domestic customers and certain international accounts. Polo's
licensing partners, many of which are leaders in their particular product
category, manufacture, own the inventory and ship the products. As compared to
its other licensing alliances, Polo performs a broader range of services for its
Home Collection licensing partners, which, in addition to sales and marketing,
include operating showrooms and incurring advertising expenses. Consequently,
Polo receives a higher royalty rate from its Home Collection licensing partners,
which rates typically range from 15% to 20%. Home Collection licensing alliances
generally have three to five-year terms and often grant the licensee conditional
renewal options.
Home Collection products are positioned at the upper tiers of their
respective markets and are offered at a range of price levels.
The Company's home furnishings products generally are distributed through
department stores, specialty furniture stores, interior design showrooms,
customer catalogs and home centers. As with its other products, the use of
shop-within-shops is central to the Company's distribution strategy. Certain
licensing partners, including those selling furniture, wall coverings, blankets,
bed pillows, tabletop, flatware, home fragrance and paint, also sell their
products directly through their own staffs to reach additional customer markets.
The home furnishings products offered by the Company and its domestic
licensing partners are listed below.
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CATEGORY PRODUCT LICENSING PARTNER
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Bedding and Bath Towels, sheets, pillowcases and WestPoint Stevens,
matching Inc.
bedding accessories
Blankets, bed pillows, comforters Pillowtex Corporation
and other decorative bedding
accessories excluding those
matched to sheets, and bath rugs
Interior Decor Upholstered furniture and case Henredon Furniture
goods Industries, Inc.
The Sherwin-Williams
Interior paints, special Company
finishes, and paint applications
Fabric and wallpaper P. Kaufmann, Inc.
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<TABLE>
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Table and Giftware Sterling, silverplate and Reed and Barton
stainless steel flatware Corporation
and picture frames
Crystal and glass tableware and RJS Scientific, Inc.
giftware, ceramic dinnerware and
giftware and home fragrances
(potpourri,
scented candles, etc.)
Placemats, tablecloths, napkins Designers Collection, Inc.
</TABLE>
The Company's three most significant Home Collection licensing partners
based on aggregate licensing revenue paid to the Company are WestPoint Stevens,
Inc., Pillowtex Corporation and Henredon Furniture Industries, Inc. WestPoint
Stevens, Inc. accounted for approximately 48% of Home Collection licensing
revenue in fiscal 1999.
INTERNATIONAL LICENSING ALLIANCES
The Company believes that international markets offer additional
opportunities for Polo's quintessential American designs and lifestyle image and
is committed to the global development of its businesses. International
expansion opportunities may include the roll out of new products and brands
following their launch in the U.S., the introduction of additional product
lines, the entrance into new international markets and the addition of Polo
stores in these markets. For example, following the successful launch of Polo
Jeans Co. in the U.S. in Fall 1996, the Company launched the line in Canada, the
U.K., Germany, Spain, Japan, Israel, Hong Kong, Singapore and Taiwan. Polo works
with its 11 international licensing partners to facilitate this international
expansion. International licensing partners also operate 83 stores, including 70
Polo Ralph Lauren stores, five Polo Sport stores and 8 Polo Jeans Co. stores.
In fiscal 1999, the Company added five new Polo Ralph Lauren stores in
international markets, including one in each of Australia, Hong Kong and Mexico
and two in Japan. In addition, in fiscal 1999, one new Polo Jeans Co. store was
added in each of St. Martin and Hong Kong. In May 1999, the Company added one
Polo Ralph Lauren store in Argentina. Additional stores are planned to open in
fiscal 2000 including two Polo Ralph Lauren stores in Australia and one Polo
Jeans Co. store in Mexico.
International licensing partners acquire the right to source, produce,
market and/or sell some or all Polo products in a given geographical area.
Economic arrangements are similar to those of domestic product licensing
partners. Licensed products are designed by the Company, either alone or in
collaboration with its domestic licensing partners. Domestic licensees generally
provide international licensing partners with product or patterns, piece goods,
manufacturing locations and other information and assistance necessary to
achieve product uniformity, for which they are, in many cases, compensated.
The most significant international licensing partners by licensing revenue
in fiscal 1999 were Seibu Department Stores, Ltd., which oversees distribution
of virtually all of the Company's products in Japan, Poloco, S.A., which
distributes men's and boys' Polo apparel, men's and women's Polo Jeans Co.
apparel and certain accessories in Europe and L'Oreal S.A., which distributes
fragrances and toiletries outside of the United States. The Company's ability to
maintain and increase licensing revenue under foreign licenses is dependent upon
certain factors not within the Company's control, including fluctuating currency
12
<PAGE> 13
rates, currency controls, withholding requirements levied on royalty payments,
governmental restrictions on royalty rates, political instability and local
market conditions.
DESIGN
The Company's products reflect a timeless and innovative American style
associated with and defined by Polo and Ralph Lauren. The Company's consistent
emphasis on innovative and distinctive design has been an important contributor
to the prominence, strength and reputation of the Polo Ralph Lauren brands. For
more than 30 years, the Company's designers have influenced, anticipated and
responded to evolving consumer tastes within the context of Polo's defining
aesthetic principles. Mr. Lauren, supported by Polo's design staff, has won
numerous awards for Polo's designs including the prestigious 1996 Menswear
Designer of the Year award and 1995 Womenswear Designer of the Year award, both
of which were awarded by the Council of Fashion Designers of America (the
"CFDA"). In addition, Mr. Lauren was honored with the CFDA Lifetime Achievement
Award in 1991 and the CFDA Award for Humanitarian Leadership in 1998, and is the
only person to have won all four of these awards.
Design teams are formed around the Company's brands and product categories
to develop concepts, themes and products for each of Polo's businesses. These
teams work in close collaboration with merchandising, sales and production staff
and licensing partners in order to gain market and other input.
All Polo Ralph Lauren products are designed by or under the direction of
Mr. Ralph Lauren and the Company's design staff, which is divided into three
departments: Menswear, Womenswear and Home Collection.
The Company operates a research, development and testing facility in
Greensboro, North Carolina, testing labs in New Jersey and Singapore and pattern
rooms in New York, New Jersey and Singapore.
MARKETING
Polo's marketing program communicates the themes and images of the Polo
Ralph Lauren brands and is an integral feature of its product offering.
Worldwide marketing is managed on a centralized basis through the Company's
advertising and public relations departments in order to ensure consistency of
presentation.
The Company creates the distinctive image advertising for all Polo Ralph
Lauren products, conveying the particular message of each brand within the
context of Polo's core themes. Advertisements generally portray a lifestyle
rather than a specific item and often include a variety of Polo products offered
by both the Company and its licensing partners. Polo's primary advertising
medium is print, with multiple page advertisements appearing regularly in a
range of fashion, lifestyle and general interest magazines including Elle,
Esquire, Forbes, GQ, Harper's Bazaar, The New York Times Magazine, Town and
Country, Vanity Fair and Vogue. Major print advertising campaigns are conducted
during the Fall and Spring retail seasons with additions throughout the year to
coincide with product deliveries. In addition to print, certain product
categories utilize television and outdoor media in their marketing programs.
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<PAGE> 14
The Company's licensing partners contribute a percentage (usually between
three and four percent) of their sales of Polo products for advertising. The
Company directly coordinates advertising placement for domestic product
licensing partners. During fiscal 1999, Polo and its licensing partners
collectively spent more than $178.2 million worldwide to advertise and promote
Polo products.
Polo conducts a variety of public relations activities. Each of the Spring
and Fall womenswear collections is introduced at major fashion shows in New York
which generate extensive domestic and international media coverage. In
recognition of the increasing role menswear plays in the fashion industry, each
of the Spring and Fall menswear collections is introduced at presentations
organized for the fashion press. In addition, Polo sponsors professional
golfers, organizes in-store appearances by its models and sponsors downhill
skiers, snowboarders, triathletes and sports teams.
SOURCING, PRODUCTION AND QUALITY
The Company's apparel products are produced for the Company by
approximately 180 different manufacturers worldwide. The Company contracts for
the manufacture of its products and does not own or operate any production
facilities. During fiscal 1999, approximately 39% (by dollar volume) of men's
and women's products were produced in the United States and its territories and
approximately 61% (by dollar volume) of such products were produced in Hong
Kong, Thailand and other foreign countries. Three manufacturers engaged by the
Company accounted for approximately 15%, 7% and 7%, respectively, of the
Company's total production during fiscal 1999. The primary production facilities
of these three manufacturers are located in: Hong Kong and Saipan, in the case
of the manufacturer that accounted for approximately 15% of the Company's total
production during fiscal 1999; in Hong Kong, in the case of the manufacturer
that accounted for approximately 7% of the Company's total production during
fiscal 1999; and in Malaysia, Hong Kong and Mauritius, in the case of the other
manufacturer that accounted for approximately 7% of the Company's total
production during fiscal 1999. No other manufacturer accounted for more than
five percent of the Company's total production in fiscal 1999.
Production is divided broadly into purchases of finished products, where
the supplier is responsible for the purchasing and carrying of raw materials,
and cut, make and trim ("CMT") purchasing, where the Company is responsible for
the purchasing and movement of raw materials to finished product assemblers
located throughout the world. CMT arrangements typically allow the Company more
latitude to incorporate unique detailing elements and to develop specialty
items. The Company uses a variety of raw materials, principally consisting of
woven and knitted fabrics and yarns.
The Company must commit to manufacture the majority of its garments before
it receives customer orders. In addition, the Company must commit to purchase
fabric from mills well in advance of its sales. If the Company overestimates the
demand for a particular product which it cannot sell to its primary customers,
it may use the excess for distribution in its outlet stores or sell the product
through secondary distribution channels. If the Company overestimates the need
for a particular fabric or yarn, that fabric or yarn can be used in garments
made for subsequent seasons or made into past season's styles for distribution
in its outlet stores.
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<PAGE> 15
The Company has been working closely with suppliers in recent years to
reduce lead times to maximize fulfillment (i.e., shipment) of orders and to
permit re-orders of successful programs. In particular, the Company has
increased the number of deliveries within certain brands each season so that
merchandise is kept fresh at the retail level.
Suppliers operate under the close supervision of Polo's product management
department in the United States, and in the Far East under that of a wholly
owned subsidiary which performs buying agent functions for the Company and third
parties. All garments are produced according to Polo's specifications.
Production and quality control staff in the United States and in the Far East
monitor manufacturing at supplier facilities in order to correct problems prior
to shipment of the final product to Polo. While final quality control is
performed at Polo's distribution centers, procedures have been implemented under
Polo's vendor certification program, so that quality assurance is focused as
early as possible in the production process, allowing merchandise to be received
at the distribution facilities and shipped to customers with minimal
interruption.
The Company retains independent buying agents in Europe and South America
to assist the Company in selecting and overseeing independent third-party
manufacturers, sourcing fabric and other products and materials, monitoring
quota and other trade regulations, as well as performing some quality control
functions.
COMPETITION
Competition is strong in the segments of the fashion and consumer product
industries in which the Company operates. The Company competes with numerous
designers and manufacturers of apparel and accessories, fragrances and home
furnishing products, domestic and foreign, some of which may be significantly
larger and have substantially greater resources than the Company. The Company
competes primarily on the basis of fashion, quality, and service. The Company's
business depends on its ability to shape, stimulate and respond to changing
consumer tastes and demands by producing innovative, attractive, and exciting
products, brands and marketing, as well as on its ability to remain competitive
in the areas of quality and price.
DISTRIBUTION
To facilitate distribution, men's products are shipped from manufacturers
to the Company's distribution center in Greensboro, North Carolina for
inspection, sorting, packing and shipment to retail customers. The Company's
distribution/customer service facility is designed to allow for high density
cube storage and utilizes bar code technology to provide inventory management
and carton controls. Product traffic management is coordinated from this
facility in conjunction with the Company's product management and buying agent
staffs. During fiscal 1999, womenswear distribution was provided by a "pick and
pack" facility under a warehousing distribution agreement with an unaffiliated
third party. This agreement provides that the warehouse distributor will perform
storage, quality control and shipping services for the Company. In return, the
Company must pay the warehouse distributor a per unit rate and special
processing charges for services such as ticketing, bagging and steaming. The
initial term of this agreement is through December 1, 2000 and is thereafter
renewable annually. Outlet store distribution and warehousing is principally
handled through the Greensboro distribution center as well as
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<PAGE> 16
satellite facilities also located in North Carolina. Polo store distribution is
provided by a facility in Columbus, Ohio and a facility in New Jersey which
services the Company's stores in New York City and East Hampton, New York.
During fiscal 2000 the Company plans to complete a significant expansion of its
Greensboro facility to handle increased volume and reduce reliance upon
satellite facilities. The Company's licensing partners are responsible for the
distribution of licensed products, including Home Collection products. The
Company continually evaluates the adequacy of its warehousing and distribution
facilities.
MANAGEMENT INFORMATION SYSTEM
The Company's management information system is designed to provide, among
other things, comprehensive order processing, production, accounting and
management information for the marketing, manufacturing, importing and
distribution functions of the Company's business. The Company has installed
sophisticated point-of-sale registers in its Polo stores and outlet stores that
enable it to track inventory from store receipt to final sale on a real-time
basis. The Company believes its merchandising and financial system, coupled with
its point-of-sale registers and software programs, allow for rapid stock
replenishment, concise merchandise planning and real-time inventory accounting
practices.
In addition, the Company utilizes an electronic data interchange ("EDI")
system to facilitate the processing of replenishment and fashion orders from its
wholesale customers, the movement of goods through distribution channels, and
the collection of information for planning and forecasting. The Company has EDI
relationships with customers who represent a significant majority of its
wholesale business and is working to expand its EDI capabilities to include most
of its suppliers. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Impact of the Year 2000 Issue."
CREDIT CONTROL
The Company manages its own credit and collection functions. The Company
sells its merchandise primarily to major department stores across the United
States and extends credit based on an evaluation of the customer's financial
condition, usually without requiring collateral. The Company monitors credit
levels and the financial condition of its customers on a continuing basis to
minimize credit risk. The Company does not factor its accounts receivables or
maintain credit insurance to manage the risks of bad debts. The Company's bad
debt write-offs were less than 1% of net revenues for fiscal 1999.
BACKLOG
The Company generally receives wholesale orders for apparel products
approximately three to five months prior to the time the products are delivered
to stores. All such orders are subject to cancellation for late delivery. At
April 3, 1999, Summer and Fall backlog was $379.4 million and $21.1 million, as
compared to $351.1 million and $20.5 million at March 28, 1998 for Polo Brands
and Collection Brands, respectively. The Company's backlog depends upon a number
of factors, including the timing of the market weeks for its particular lines,
during which a significant percentage of the Company's orders are received, and
the timing of shipments. As a consequence, a comparison of backlog from
16
<PAGE> 17
period to period is not necessarily meaningful and may not be indicative of
eventual shipments.
TRADEMARKS
The Company is the owner of the "Polo," "Ralph Lauren" and the famous polo
player astride a horse trademarks in the United States. Additional trademarks
owned by the Company include, among others, "Chaps," "Polo Sport," "Lauren/Ralph
Lauren," "RALPH" and "RRL"and certain trademarks pertaining to fragrances and
cosmetics. In connection with the adoption of the "RRL" trademarks by the
Company, pursuant to an agreement with the Company, Mr. Lauren retained the
royalty-free right to use as trademarks "Ralph Lauren," "Double RL" and "RRL" in
perpetuity in connection with, among other things, beef and living animals. The
trademarks "Double RL" and "RRL" are currently used by the Double RL Company, an
entity wholly owned by Mr. Lauren. In addition, Mr. Lauren engages in personal
projects involving non-Company related film or theatrical productions through
RRL Productions, Inc., a Company wholly owned by Mr. Lauren.
The Company's trademarks are the subject of registrations and pending
applications throughout the world for use on a variety of items of apparel,
apparel-related products, home furnishings and beauty products, as well as in
connection with retail services, and the Company continues to expand its
worldwide usage and registration of related trademarks. The Company regards the
license to use the trademarks and its other proprietary rights in and to the
trademarks as valuable assets in the marketing of its products and, on a
worldwide basis, vigorously seeks to protect them against infringement. As a
result of the appeal of its trademarks, Polo's products have been the object of
counterfeiting. The Company has a broad enforcement program which has been
generally effective in controlling the sale of counterfeit products in the
United States and in major markets abroad.
In markets outside of the United States, the Company's rights to some or
all of its trademarks may not be clearly established. In the course of its
international expansion, the Company has experienced conflicts with various
third parties which have acquired ownership rights in certain trademarks which
include "Polo" and/or a representation of a polo player astride a horse which
would have impeded the Company's use and registration of its principal
trademarks. While such conflicts are common and may arise again from time to
time as the Company continues its international expansion, the Company has in
the past successfully resolved such conflicts through both legal action and
negotiated settlements with third-party owners of such conflicting marks.
Two agreements by which the Company resolved conflicts with third-party
owners of other trademarks impose current restrictions or monetary obligations
on the Company. In one, the Company reached an agreement with a third party
which owned competing registrations in numerous European and South American
countries for the trademark "Polo" and a symbol of a polo player astride a
horse. By virtue of the agreement, Polo has acquired that third party's
portfolio of trademark registrations, in consideration of the payment (capped as
set forth below) of 30% of the Company's European and Mexican royalties and 50%
of its South American royalties (solely in respect of the Company's use of
trademarks which include "Polo" and the polo player symbol, and not, for
example, "Ralph Lauren" alone, "Lauren/Ralph Lauren," "RRL," etc.). Remittances
to this third
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<PAGE> 18
party are not reflected in licensing revenue in the Company's financial
statements and will cease no later than 2008, or sooner, when the remittances
with respect to Europe and Mexico to this third party aggregate $15.0 million.
As of April 3, 1999, the Company has paid approximately $12.0 million to this
third party. The Company's obligation to share royalties with respect to Central
and South America and parts of the Caribbean expires in 2013, but the Company
also has the right to terminate this obligation at any time by paying $3.0
million. The second agreement was reached with a third party which owned
conflicting registrations of the trademarks "Polo" and a polo player astride a
horse in the U.K., Hong Kong, and South Africa. Pursuant to the agreement, the
third party retains the right to use its "Polo" and polo player symbol marks in
South Africa and certain other African countries, and the Company agreed to
restrict use of those Polo marks in those countries to fragrances and cosmetics
(as to which the Company's use is unlimited) and to the use of the Ralph (polo
player symbol) Lauren mark on women's and girls' apparel and accessories. By
agreeing to those restrictions, the Company secured the unlimited right to use
its trademarks (without payment of any kind) in the United Kingdom and Hong
Kong, and the third party is prohibited from distributing products under those
trademarks in those countries.
GOVERNMENT REGULATION
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. These agreements, which have been negotiated bilaterally either under
the framework established by the Arrangement Regarding International Trade in
Textiles, known as the Multifiber Agreement, or other applicable statutes,
impose quotas on the amounts and types of merchandise which may be imported into
the United States from these countries. These agreements also allow the
signatories to adjust the quantity of imports for categories of merchandise
that, under the terms of the agreements, are not currently subject to specific
limits. The Company's imported products are also subject to United States
customs duties which comprise a material portion of the cost of the merchandise.
Apparel products are subject to regulation by the Federal Trade Commission
in the United States. Regulations relate principally to the labeling of the
Company's products. The Company believes that it is in substantial compliance
with such regulations, as well as applicable Federal, state, local, and foreign
rules and regulations governing the discharge of materials hazardous to the
environment. There are no significant capital expenditures for environmental
control matters either estimated in the current year or expected in the near
future. The Company's licensed products and licensing partners are, in addition,
subject to additional regulation. The Company's agreements require its licensing
partners to operate in compliance with all laws and regulations, and the Company
is not aware of any violations which could reasonably be expected to have a
material adverse effect on the Company's business.
Although the Company has not in the past suffered any material inhibition
from doing business in desirable markets, there can be no assurance that
significant impediments will not arise in the future as it expands product
offerings and additional trademarks to new markets.
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<PAGE> 19
CERTAIN RISKS
The Company believes that its success depends in substantial part on its
ability to originate and define product and fashion trends as well as to
anticipate, gauge and react to changing consumer demands in a timely manner.
There can be no assurance that the Company will continue to be successful in
this regard. If the Company misjudges the market for its products, it may be
faced with significant excess inventories for some products and missed
opportunities with others. In addition, weak sales and resulting markdown
requests from customers could have a material adverse effect on the Company's
business, results of operations and financial condition.
The industries in which the Company operates are cyclical. Purchases of
apparel and related merchandise and home products tend to decline during
recessionary periods and also may decline at other times. While the Company has
fared well in recent years in a difficult retail environment, there can be no
assurance that the Company will be able to maintain its historical rate of
growth in revenues and earnings, or remain profitable in the future. Further,
uncertainties regarding future economic prospects could affect consumer spending
habits and have an adverse effect on the Company's results of operations.
The Company is dependent on Mr. Ralph Lauren and other key personnel. Mr.
Lauren's leadership in the design, marketing and operational areas has been a
critical element of the Company's success. The loss of the services of Mr.
Lauren and any negative market or industry perception arising from such loss
could have a material adverse effect on the Company. The Company's other
executive officers have substantial experience and expertise in the Company's
business and have made significant contributions to its growth and success. The
unexpected loss of services of one or more of these individuals could adversely
affect the Company. The Company is not protected by a material amount of key-man
or similar life insurance for Mr. Lauren or any of its other executive officers.
In addition to the factors described above, the Company's business,
including its revenues and profitability, is influenced by and subject to a
number of factors including, among others: risks associated with the Company's
dependence on sales to a limited number of large department store customers,
including risks related to extending credit to customers; risks associated with
the Company's dependence on its licensing partners for a substantial portion of
its net income and risks associated with the Company's lack of operational and
financial control over its licensed businesses; risks associated with
consolidations, restructurings and other ownership changes in the retail
industry; risks associated with competition in the segments of the fashion and
consumer product industries in which the Company operates, including the
Company's ability to shape, stimulate and respond to changing consumer tastes
and demands by producing attractive products, brands and marketing, and its
ability to remain competitive in the areas of quality and price; risks
associated with uncertainty relating to the Company's ability to implement its
growth strategies; risks associated with the ability of the Company's third
party customers and suppliers and government agencies to timely and adequately
remedy any Year 2000 issues (for a discussion of the Company's efforts to assure
Year 2000 compliance, and the risks associated with such efforts, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of the Year 2000 Issue."; risks associated with the possible
adverse impact of the Company's unaffiliated manufacturers' inability to
manufacture in a timely manner, to meet quality
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<PAGE> 20
standards or to use acceptable labor practices; risks associated with changes in
social, political, economic and other conditions affecting foreign operations
and sourcing and the possible adverse impact of changes in import restrictions;
risks related to the Company's ability to establish and protect its trademarks
and other proprietary rights; risks related to fluctuations in foreign currency
as the Company's international licensing revenue generally is derived from sales
in foreign currencies including the Japanese yen and the French franc, and, in
addition, changes in currency exchange rates may also affect the relative prices
at which the Company and foreign competitors sell their products in the same
market; and, risks associated with the Company's control by Lauren family
members and the anti-takeover effect of multiple classes of stock.
The Company from time to time reviews its possible entry into new markets,
either through internal development activities or through acquisitions. The
entry into new markets (including the development and launch of new product
categories), such as the Company's entry into the technical sportswear market,
and the acquisition of businesses, such as the Company's acquisition of Club
Monaco Inc., is accompanied by risks inherent in any new business venture and
may require methods of operations and market strategies different from those
employed in the Company's other businesses. Certain new businesses may be lower
margin businesses and may require the Company to achieve significant cost
efficiencies. In addition, new markets may involve buyers, store customers
and/or competitors different from the Company's historical buyers, customers and
competitors. Furthermore, the Company's acquisition of other businesses entails
the normal risks inherent in such transactions, including without limitation,
possible difficulties, delays and/or unanticipated costs in integrating the
business, operations, personnel, and/or systems of the acquired entity; risks
that projected or satisfactory level of sales, profits and/or return on
investment will not be generated; risks that expenditures required for capital
items or working capital will be higher than anticipated; risks involving the
Company's ability to retain and appropriately motivate key personnel of the
acquired business; and risks associated with unanticipated events and unknown or
uncertain liabilities.
EMPLOYEES
As of April 3, 1999, the Company had approximately 6,800 employees,
including 6,500 in the United States and 300 in foreign countries. Approximately
30 of the Company's United States production and distribution employees in the
womenswear business are members of the Union of Needletrades, Industrial &
Textile Employees under an industry association collective bargaining agreement
which the Company's womenswear subsidiary has adopted. This contract was
renegotiated in fiscal 1998 and extended to May 31, 2000. The Company considers
its relations with both its union and non-union employees to be good.
ITEM 2. PROPERTIES
The Company does not own any real property except for its distribution
facility in Greensboro, North Carolina, the parcel of land adjacent to its
Greensboro, North Carolina distribution facility (upon which the expansion of
the distribution facility is being constructed) and a 50% joint venture interest
in a 44,000 square foot building located in the Soho district of New York City.
Certain information concerning the Company's
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principal facilities in excess of 100,000 rentable square feet and of its
existing flagship stores of 20,000 rentable square feet or more, all of which
are leased, is set forth below:
<TABLE>
<CAPTION>
APPROXIMATE CURRENT LEASE
LOCATION USE SQ. FT. TERM EXPIRATION
-------- --- ------- ---------------
<S> <C> <C> <C>
650 Madison Avenue, NYC Executive, 206,000 December 31, 2009
corporate
and design
offices,
men's showrooms
162,000
Lyndhurst, N.J. Corporate and February 28, 2008
retail
administrative
offices
115,000
Winston-Salem, N.C. Distribution June 30, 2000
202-A No. Chimney Interim warehouse 100,000 April 14, 2000
Rock Road, Greensboro, N.C. and office space
750 North Michigan Avenue, Direct retail and 36,000 November 14, 2017
Chicago, IL restaurant
27,000
867 Madison Avenue, NYC Direct retail December 31, 2004
1-5 New Bond Street, London Direct retail and 29,000 July 4, 2021
corporate and
retail
administrative
offices
1980 Northern Boulevard, Direct retail 26,000 September 30, 2011
Manhasset, N.Y.
</TABLE>
During fiscal 1999, the Company entered into a lease agreement for an
interim distribution facility in Greensboro, North Carolina.
The leases for the Company's non-retail facilities (approximately 28 in
all) provide for aggregate annual rentals of $17.8 million in fiscal 1999. The
Company anticipates that it will be able to extend those leases which expire in
the near future on terms satisfactory to the Company or, if necessary, locate
substitute facilities on acceptable terms.
As of April 3, 1999, the Company operated 33 Polo stores and 99 outlet
stores in leased premises. Aggregate annual rent paid for retail space by the
Company in fiscal 1999 totaled $35.7 million. Except for approximately two
stores for which the Company will not seek renewal upon lease expiration, the
Company anticipates that it will be able to extend those leases which expire in
the near future on satisfactory terms or to relocate to more desirable
locations.
The Company is currently re-evaluating its warehousing and distribution
needs for its retail operations. The Company believes that its existing
facilities are well maintained and in good operating condition, and plans to
expand its warehousing and distribution capacity over the next fiscal year.
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<PAGE> 22
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in a purported national class action lawsuit
filed in the Delaware Supreme Court in July 1997. The plaintiff has brought the
action allegedly on behalf of a class of persons who purchased products at the
Company's outlet stores throughout the United States at any time since July 15,
1991. The complaint alleges that advertising and marketing practices used by the
Company in connection with the sales of its products at its outlet stores
violate guidelines established by the Federal Trade Commission and the consumer
protection statutes of Delaware and other states with statutes similar to
Delaware's Consumer Fraud Act and Delaware's Consumer Contracts Act. The lawsuit
seeks, on behalf of the class, compensatory and punitive damages as well as
attorneys' fees. The Company answered the complaint and filed a motion for
judgment on the pleadings. At a hearing on that motion on March 5, 1999, the
Court ruled that the plaintiff must file an amended complaint within 30 days in
order to avoid dismissal. The plaintiff has filed an amended complaint,
essentially containing the same allegations as the initial complaint, which the
Company has answered. The Company intends to continue to vigorously defend this
lawsuit and believes that it has substantial and meritorious defenses.
In January 1999, two actions were filed in California naming as defendants
more than a dozen United States-based companies that source apparel garments
from Saipan (Commonwealth of the Northern Mariana Islands) and a large number of
Saipan-based factories. The actions assert that the Saipan factories engage in
unlawful practices relating to the recruitment and employment of foreign workers
and that the apparel companies, by virtue of their alleged relationships with
the factories, have violated various Federal and state laws. One action, filed
in California Superior Court in San Francisco by a union and three public
interest groups, alleges unfair competition and false advertising and seeks
equitable relief, unspecified amounts for restitution and disgorgement of
profits, interest and an award of attorney's fees. The second, filed in Federal
court for the Central District of California, is brought on behalf of a
purported class consisting of the Saipan factory workers. It alleges claims
under the Federal civil RICO statute, Federal peonage and involuntary servitude
laws, the Alien Tort Claims Act, and state tort law, and seeks equitable relief
and unspecified damages, including treble and punitive damages, interest and an
award of attorneys' fees. A third action, brought in Federal Court in Saipan
solely against the garment factory defendants on behalf of a putative class of
their workers, alleges violations of Federal and local wage and employment laws.
The Company has not been named as a defendant in any of these suits, but the
Company sources products in Saipan and counsel for the plaintiffs in these
actions has informed the Company that it is a potential defendant in these or
similar actions. The Company has denied any liability and is not at this
preliminary stage in a position to evaluate the likelihood of a favorable or
unfavorable outcome if it were named in any such suit.
The Company is involved from time to time in legal claims involving
trademark and intellectual property, licensing, employee relations and other
matters incidental to its business. See "Item 1. Business - Trademarks." In the
opinion of the Company's management, the resolution of any matter currently
pending will not have a material adverse effect on the Company's financial
condition or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter
ended April 3, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Class A Common Stock is publicly traded on the New York
Stock Exchange under the symbol "RL." The following table sets forth the high
and low closing sales prices for each quarterly period from June 11, 1997 (i.e.,
the day the Class A Common Stock was priced in the initial public offering)
through April 1, 1999 as reported on the New York Stock Exchange Composite Tape.
The Company did not declare any cash dividends during fiscal 1998 and fiscal
1999 on its Common Stock other than dividends declared in fiscal 1998 in the
amount of $27.4 million and paid to holders of Class B Common Stock and Class C
Common Stock in connection with the Company's reorganization just prior to its
initial public offering on June 11, 1997.
<TABLE>
<CAPTION>
Market Price of Class A
Common Stock
-----------------------------
HIGH LOW
<S> <C> <C>
Fiscal 1999:
First Quarter.................. $31 $26.9375
Second Quarter ................. 29.6875 20.1250
Third Quarter..................... 24 16
Fourth Quarter................... 24.8750 18.1250
Fiscal 1998:
First Quarter (since June 11, 1997) $32.375 $26
Second Quarter ................. 28.0625 23.0625
Third Quarter..................... 28.75 22.3125
Fourth Quarter................... 30.8125 21.9375
</TABLE>
The Company anticipates that all of its earnings in the foreseeable future
will be retained to finance the continued growth and expansion of its business
and has no current intention to pay cash dividends on its Common Stock.
As of June 22, 1999, there were approximately 1,215 record holders of
Class A Common Stock, four record holders of Class B Common Stock and five
record holders of Class C Common Stock.
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<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA.
The selected historical financial data presented below as of and for each
of the fiscal years in the five-year period ended April 3, 1999 have been
derived from the Company's audited Consolidated Financial Statements. The
following table also includes unaudited pro forma statements of income for
fiscal 1998 and fiscal 1997 which give effect to the Reorganization, the initial
public offering and the PRC Acquisition as if they had occurred on March 31,
1996. The financial data should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and Notes thereto and other
financial data included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
APRIL 3, MARCH 28, MARCH 29, MARCH 30, APRIL 1,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME:
Net sales ................... $ 1,505,056 $ 1,303,816 $ 1,043,330 $ 909,720 $ 746,595
Licensing revenue ........... 208,009 167,119 137,113 110,153 100,040
Other income ................ 13,794 9,609 7,774 6,210 5,446
------------ ------------ ------------ ------------ ------------
Net revenues ................ 1,726,859 1,480,544 1,188,217 1,026,083 852,081
Cost of goods sold .......... 904,586 759,988 652,000 586,273 477,357
------------ ------------ ------------ ------------ ------------
Gross profit ................ 822,273 720,556 536,217 439,810 374,724
Selling, general and ........ 608,128 520,801 378,854 312,690 264,594
administrative expenses
Restructuring charge ........ 58,560 -- -- -- --
------------ ------------ ------------ ------------ ------------
Income from operations ...... 155,585 199,755 157,363 127,120 110,130
Interest expense ............ 2,759 159 13,660 16,287 16,450
Equity in net loss of joint .
venture ..................... -- -- 3,599 1,101 262
------------ ------------ ------------ ------------ ------------
Income before income taxes .. 152,826 199,596 140,104 109,732 93,418
Provision for income taxes .. 62,276 52,025 22,804 10,925 13,244
------------ ------------ ------------ ------------ ------------
Net income .................. $ 90,550 $ 147,571 $ 117,300 $ 98,807 $ 80,174
============ ============ ============ ============ ============
Net income per share-Basic
and Diluted.................. $ 0.91
============
Common shares outstanding
- - Basic...................... 99,813,328
============
Common shares outstanding
- - Diluted.................... 99,972,152
============
PRO FORMA STATEMENTS OF
INCOME (UNAUDITED) (1):
Net sales ................... $ 1,303,816 $ 1,131,686
Licensing revenue ........... 167,119 137,113
Other Income ................ 9,609 7,774
------------ ------------
Net revenues ................ 1,480,544 1,276,573
Cost of goods sold .......... 759,988 690,406
------------ ------------
Gross profit ................ 720,556 586,167
Selling, general and
administrative expenses ..... 520,801 433,534
------------ ------------
Income from operations ...... 199,755 152,633
Interest income ............. 3,003 1,629
------------ ------------
Income before income taxes .. 202,758 154,262
Provisions for income taxes . 82,631 64,790
------------ ------------
Net income .................. $ 120,127 $ 89,472
============ ============
Net income per share - Basic
and Diluted ................. $ 1.20 $ 0.89
============ ============
Common shares outstanding
- - Basic and Diluted.......... 100,222,444 100,222,444
============ ============
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
APRIL 3, MARCH 28, MARCH 29, MARCH 30, APRIL 1,
1999 1998 1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ........ $ 331,482 $ 354,206 $ 209,038 $ 262,844 $ 221,050
Inventories ............ 376,860 298,485 222,147 269,113 271,220
Total assets ........... 1,104,584 825,130 588,758 563,673 487,547
Total debt ............. 159,717 337 140,900 199,645 186,361
Stockholders' equity and
partners' capital ...... 658,905 584,326 260,685 237,653 188,579
</TABLE>
(1) The pro forma statements of income present the effects on the historical
financial statements of certain transactions as if they had occurred at
the beginning of the period. These statements reflect adjustments for: (i)
income taxes based upon pro forma pre-tax income as if the Company had
been subject to additional Federal, state and local income taxes
calculated using a pro forma effective tax rate of approximately 40.8% and
42.0% for the year ended March 28, 1998 and March 29, 1997, respectively;
(ii) the reduction of interest expense resulting from the application of
the net proceeds from the initial public offering to outstanding
indebtedness; and (iii) the PRC Acquisition, including the consolidation
of PRC's operations, the amortization of goodwill over 25 years associated
with the acquisition and the elimination of the Company's equity in the
net loss of PRC for the year ended March 29, 1997.
26
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and related notes thereto which
are included herein. The Company utilizes a 52-53 week fiscal year ending on the
Saturday nearest March 31. Accordingly, fiscal years 1999, 1998, 1997, 1996 and
1995 ended on April 3, 1999, March 28, 1998, March 29, 1997, March 30, 1996 and
April 1, 1995, respectively. Fiscal 1999 reflects a 53 week period.
Certain statements in this Form 10-K and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases,
and in oral statements made by or with the approval of authorized personnel
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements are based on current expectations and are indicated
by words or phrases such as "anticipate," "estimate," "project," "expect," "we
believe," "is or remains optimistic," "currently envisions" and similar words or
phrases and involve known and unknown risks, uncertainties and other factors,
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: risks associated with changes in the competitive
marketplace, including the introduction of new products or pricing changes by
the Company's competitors; changes in global economic conditions; risks
associated with the Company's dependence on sales to a limited number of large
department store customers, including risks related to extending credit to
customers; risks associated with the Company's dependence on its licensing
partners for a substantial portion of its net income and risks associated with
the Company's lack of operational and financial control over its licensed
businesses; risks associated with consolidations, restructurings and other
ownership changes in the retail industry; risks associated with competition in
the segments of the fashion and consumer product industries in which the Company
operates, including the Company's ability to shape, stimulate and respond to
changing consumer tastes and demands by producing attractive products, brands
and marketing, and its ability to remain competitive in the areas of quality and
price; risks associated with uncertainty relating to the Company's ability to
implement its growth strategies; risks associated with the ability of the
Company's third party customers and suppliers and government agencies to timely
and adequately remedy any Year 2000 issues; risks associated with the possible
adverse impact of the Company's unaffiliated manufacturers' inability to
manufacture in a timely manner, to meet quality standards or to use acceptable
labor practices; risks associated with changes in social, political, economic
and other conditions affecting foreign operations and sourcing and the possible
adverse impact of changes in import restrictions; risks related to the Company's
ability to establish and protect its trademarks and other proprietary rights;
risks related to fluctuations in foreign currency as the Company's international
licensing revenue generally is derived from sales in foreign currencies
including the Japanese yen and the French franc, and, in addition, changes in
currency exchange rates may also affect the relative prices at which the Company
and foreign competitors sell their products in the same market; and, risks
associated with the Company's control by Lauren family members and the
anti-takeover effect of multiple classes of stock. The Company undertakes no
obligation
27
<PAGE> 28
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
OVERVIEW
The Company began operations in 1968 as a designer and marketer of premium
quality men's clothing and sportswear. Since inception, the Company, through
internal operations and in conjunction with its licensing partners, has grown
through increased sales of existing product lines, the introduction of new
brands and products, expansion into international markets and development of its
retail operations. Over the last five years, net revenues have more than doubled
to $1.7 billion in fiscal 1999 from $852.1 million in fiscal 1995, while income
from operations has grown to $214.1 million in fiscal 1999, excluding the
restructuring charge, from $110.1 million in fiscal 1995. The Company's net
revenues are generated from its three integrated operations: wholesale, direct
retail and licensing. The following table sets forth net revenues for the last
five fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR
PRO FORMA
FISCAL 1997 (3)
1999 1998 1997 1996 1995 (UNAUDITED)
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Wholesale sales
(1)(2) ......................... $ 845,704 $ 733,065 $ 663,358 $ 606,022 $ 496,876 $ 623,041
Retail sales (2)................ 659,352 570,751 379,972 303,698 249,719 508,645
---------- ---------- ---------- ---------- ---------- ----------
Net sales....................... 1,505,056 1,303,816 1,043,330 909,720 746,595 1,131,686
Licensing revenue (1)........... 208,009 167,119 137,113 110,153 100,040 137,113
Other income.................... 13,794 9,609 7,774 6,210 5,446 7,774
---------- ---------- ---------- ---------- ---------- ----------
Net revenues ................... $1,726,859 $1,480,544 $1,188,217 $1,026,083 $ 852,081 $1,276,573
========== ========== ========== ========== ========== ==========
</TABLE>
(1) The Company purchased certain of the assets of its former womenswear
licensing partner in October 1995. The fiscal 1999, fiscal 1998, fiscal
1997 and fiscal 1996 net revenues reflect the inclusion of womenswear
wholesale net sales of $127.1 million, $98.4 million, $98.8 million and
$36.7 million, respectively, and an elimination of licensing revenue
associated with the operations of the womenswear business after the
acquisition.
(2) In February 1993, the Company entered into a joint venture to combine
certain of its retail operations with those of its joint venture partner,
Perkins Shearer Venture, to form Polo Retail Corporation ("PRC"). On March
21, 1997, the Company entered into an agreement, effective April 3, 1997,
to acquire the 50% interest it did not own from its joint venture partner
(the "PRC Acquisition"). Prior to the PRC Acquisition, the Company
accounted for its interest in PRC under the equity method. Effective April
3, 1997, the Company consolidated the operations of PRC in fiscal 1998 and
accounted for the transaction under the purchase method. On a pro forma
basis for fiscal 1997, wholesale net sales by the Company to PRC are
eliminated and PRC net revenues are reflected as retail sales.
(3) Pro forma financial information presented above gives effect to the PRC
Acquisition as if it had occurred on March 31, 1996, the first day of
fiscal 1997. Pro forma fiscal 1997 net revenues reflect the inclusion of
womenswear wholesale net sales of $79.6 million, and an elimination of
licensing revenue associated with the operations of the womenswear
business after the acquisition.
Wholesale net sales result from the sale by the Company of men's and
women's apparel to wholesale customers, principally to major department stores,
specialty stores and non-Company operated Polo stores located throughout the
United States. Net sales for the wholesale division have increased to $845.7
million in fiscal 1999 from $496.9
28
<PAGE> 29
million in fiscal 1995. This increase is primarily a result of growth in sales
of the Company's menswear and womenswear products driven by the introduction of
new brands and growth in sales of products under existing brands.
Polo's retail sales are generated from the Polo stores and outlet stores
operated by the Company. Since the beginning of fiscal 1995, the Company has
added 30 Polo stores (net of store closings, including 21 Polo stores acquired
in connection with the PRC Acquisition), and 52 outlet stores (net of store
closings). At April 3, 1999, the Company operated 33 Polo stores and 99 outlet
stores. Retail sales have grown to $659.4 million in fiscal 1999 from $249.7
million in fiscal 1995.
On May 3, 1999, a wholly owned subsidiary of the Company acquired, through
a tender offer and subsequent statutory compulsory acquisition, all of the
outstanding shares of Club Monaco Inc. ("Club Monaco"), a corporation organized
under the laws of the Province of Ontario, Canada. Founded in 1985, Club Monaco
is an international specialty retailer of casual apparel and other accessories
which are sold under the "Club Monaco" brand name and associated trademarks. As
of April 3, 1999, Club Monaco operated 57 freestanding stores in Canada and 13
in the United States. In addition, Club Monaco franchises three freestanding
stores in Canada, four freestanding stores and 20 shop-within-shops in Japan and
25 shop-within-shops in Korea and other parts of Asia. Club Monaco has also
granted licenses for the manufacture and distribution of silver jewelry and
eyewear in Canada and the United States. The Company used its new 1999 Credit
Facility (as defined) to finance this acquisition. See "-- Liquidity and Capital
Resources."
Licensing revenue consists of royalties paid to the Company under its
licensing alliances. In fiscal 1999, Product, International and Home Collection
licensing alliances accounted for 50.4%, 25.0% and 24.6% of total licensing
revenue, respectively. Through these alliances, Polo combines its core skills
with the product or geographic competencies of its licensing partners to create
and develop specific businesses. The growth of existing and development of new
businesses under licensing alliances has resulted in an increase in licensing
revenue to $208.0 million in fiscal 1999 from $100.0 million in fiscal 1995.
During the fourth quarter of fiscal 1999, the Company formalized its plans
to streamline operations within its wholesale and retail operations and reduce
its overall cost structure (the "Restructuring Plan"). The major initiatives of
the Restructuring Plan include the following: (1) an evaluation of the Company's
retail operations and site locations; (2) the realignment and operational
integration of the Company's wholesale operating units; and (3) the realignment
and consolidation of corporate strategic business functions and internal
processes.
In an effort to improve the overall profitability of its retail
operations, in fiscal 2000 the Company plans to close three Polo stores and
three outlet stores that were not performing at an acceptable level.
Additionally, the Company will convert two Polo stores and five outlet stores to
new concepts that are expected to be more productive. Costs associated with this
aspect of the Restructuring Plan include lease and contract termination costs,
store fixed asset (primarily leasehold improvements) and intangible asset write
downs and severance and termination benefits.
The Company's wholesale operations were realigned into two new operating
units: Polo Brands and Collection Brands. Aspects of this realignment included:
(i) the reorganization of the sales force and retail development areas; (ii) the
streamlining of the design and development process; and (iii) the consolidation
of the customer service departments. Additionally, the Company is in the process
of integrating the production and sourcing of its Polo Brands, outlet store and
licensees' products into one consolidated unit. Costs associated with the
wholesale realignment consist primarily of severance and termination benefits
and lease termination costs.
The Company's review of its corporate business functions and internal
processes resulted in a new management structure designed to better align
businesses with similar
29
<PAGE> 30
functions and the identification and elimination of duplicative processes. Costs
associated with the corporate realignment consist primarily of severance and
termination benefits and lease termination costs.
In connection with the implementation of the Restructuring Plan, the
Company recorded a restructuring charge of $58.6 million on a pre-tax basis in
its fourth quarter of fiscal 1999. The major components of the restructuring
charge included lease and contract termination costs of $24.7 million, asset
write downs of $17.8 million, severance and termination benefits of $15.3
million and other restructuring costs of $0.8 million. Total severance and
termination benefits as a result of the Restructuring Plan relate to
approximately 280 employees, 140 of which were terminated through May 1999. The
Company expects to substantially complete the implementation of the
Restructuring Plan during fiscal 2000.
In connection with the Company's growth strategy, the Company plans to
introduce new products and brands and expand its retail operations.
Implementation of these strategies may require significant investments for
advertising, furniture and fixtures, infrastructure, design and additional
inventory. Notwithstanding the Company's investment, there can be no assurance
that its growth strategies will be successful.
30
<PAGE> 31
PRO FORMA COMBINED STATEMENT OF INCOME FOR FISCAL 1997
The following table sets forth for fiscal 1997: (i) actual combined
statement of income; (ii) pro forma adjustments to reflect fiscal 1998
transactions, including the PRC Acquisition, the initial public offering and the
reorganization as if they had occurred on March 31, 1996; and (iii) pro forma
combined statement of income:
PRO FORMA COMBINED STATEMENT OF INCOME
FISCAL 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS COMBINED
-------- ----------- --------
<S> <C> <C> <C>
Net sales $1,043,330 $ 88,356 (1) $1,131,686
Licensing revenue 137,113 137,113
Other income 7,774 7,774
---------- ----------
Net revenues 1,188,217 1,276,573
Cost of goods sold 652,000 38,406 (1) 690,406
---------- ----------
Gross profit 536,217 586,167
Selling, general and
administrative expenses 378,854 53,812 (1) 433,534
868 (1)
--------- --------
Income from operations 157,363 152,633
Interest expense (income) 13,660 (15,289)(1)(2) (1,629)
Equity in net loss of joint venture 3,599 (3,599)(1)
---------- --------
Income before income taxes 140,104 154,262
Provision for income taxes 22,804 41,986 (3) 64,790
---------- ----------
Net income $ 117,300 $ 89,472
========== ==========
</TABLE>
(1) Effective April 3, 1997, the Company acquired the remaining 50%
interest in PRC. The adjustments above reflect the PRC Acquisition
which is accounted for under the purchase method. As a result of
this transaction, the Company's combined statement of income has
been adjusted to reflect the consolidation of PRC's operations from
March 31, 1996, the amortization of goodwill over 25 years and the
elimination of the Company's equity in net loss of PRC.
(2) Adjustment to reduce interest expense, assuming the application of
the net proceeds from the initial public offering were used to repay
outstanding indebtedness of the Company as of March 31, 1996.
(3) Adjustment to reflect income taxes based upon pro forma pre-tax
income as if the Company had been subject to additional Federal,
state and local income taxes, calculated using a pro forma effective
tax rate of 42.0% for fiscal 1997.
RESULTS OF OPERATIONS
The following discussion provides information and analysis of the
Company's results of operations for fiscal 1999 as compared to fiscal 1998 and
fiscal 1998 as compared to fiscal 1997. The discussion of the Company's results
of operations for fiscal 1997 is presented on a pro forma basis, assuming the
PRC Acquisition had occurred as of March 31, 1996. As a result of the Company's
initial public offering completed on June 17, 1997, and the use of a portion of
the net proceeds therefrom to reduce outstanding indebtedness, historical
interest expense is not discussed below because such information is not
meaningful. The effect of income taxes is also not discussed below because the
historic taxation of the operations of the Company is not meaningful with
respect to periods following the reorganization.
The table below sets forth the percentage relationship to net revenues of
certain items in the Company's statements of income, which have been
reclassified for comparative
31
<PAGE> 32
purposes, for fiscal 1999, fiscal 1998 and fiscal 1997 presented on a historical
and pro forma basis, as indicated:
<TABLE>
<CAPTION>
PRO
HISTORICAL FORMA
-------------------------------- ------
1999 1998 1997 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales .................................. 87.2% 88.1% 87.8% 88.7%
Licensing revenue .......................... 12.0 11.3 11.5 10.7
Other income ............................... 0.8 0.6 0.7 0.6
------ ------ ------ ------
Net revenues ............................... 100.0 100.0 100.0 100.0
------ ------ ------ ------
Gross profit ............................... 47.6 48.7 45.1 45.9
Selling, general and administrative expenses 35.2 35.2 31.9 33.9
Restructuring charge ....................... 3.4 -- -- --
------ ------ ------ ------
Income from operations ..................... 9.0% 13.5% 13.2% 12.0%
====== ====== ====== ======
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES. Net sales increased 15.4% to $1.5 billion in fiscal 1999 from
$1.3 billion in fiscal 1998. Wholesale net sales increased 15.4% to $845.7
million in fiscal 1999 from $733.1 million in fiscal 1998. Wholesale growth
primarily reflects volume-driven sales increases in existing menswear and
womenswear brands and increased menswear and womenswear sales resulting from the
timing of shipments to retailers. These unit increases were offset by decreases
in average selling prices resulting from changes in product mix. Retail sales
increased by 15.5% to $659.4 million in fiscal 1999 from $570.8 million in
fiscal 1998. Of this increase, $90.7 million is attributable to the opening of
four new Polo stores (net of two store closings) and 27 new outlet stores (net
of three store closings) in fiscal 1999, and the benefit of a full year of
operations for three new Polo stores and ten new outlet stores opened in fiscal
1998. Additionally, retail sales were favorably impacted by the inclusion in
fiscal 1999 of a 53rd week as compared to 52 weeks in fiscal 1998. Comparable
store sales for fiscal 1999 decreased by 2.0%, excluding the impact of the 53rd
week in fiscal 1999, largely due to the following: (i) the effects of a more
challenging economic environment compared to fiscal 1998; (ii) lower tourism,
most notably in the Company's West Coast and Hawaiian stores; (iii) issues
encountered during a conversion of the Company's retail merchandising systems
during its second fiscal quarter; and (iv) unseasonably warm weather conditions
throughout the United States during the fall selling season as well as other
weather issues and store closings. Comparable store sales represent net sales of
stores open in both reporting periods for the full portion of such periods.
LICENSING REVENUE. Licensing revenue increased 24.5% to $208.0 million in
fiscal 1999 from $167.1 million in fiscal 1998. This increase is primarily
attributable to an overall increase in sales of existing licensed products,
particularly Chaps, Lauren, Polo Jeans and Home Collection, and the Company's
continued expansion and growth in international markets.
32
<PAGE> 33
GROSS PROFIT. Gross profit as a percentage of net revenues decreased to
47.6% in fiscal 1999 from 48.7% in fiscal 1998. This decrease was primarily
attributable to lower retail gross margins due to higher markdowns. Wholesale
gross margins decreased slightly in fiscal 1999 in comparison to fiscal 1998.
These decreases were offset by an increase in licensing revenue as a percentage
of net revenues to 12.0% in fiscal 1999 from 11.3% in fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased by $87.3 million to $608.1 million in
fiscal 1999 from $520.8 million in fiscal 1998. The increase in SG&A expenses is
principally due to increased volume-related expenses to support revenue growth,
increased depreciation expense associated with the Company's shop-within-shops
development program and start-up costs associated with the expansion of the
Company's retail operations. Despite these increases, SG&A expenses as a
percentage of net revenues remained constant at 35.2%.
FISCAL 1998 (HISTORICAL BASIS) COMPARED TO FISCAL 1997 (PRO FORMA BASIS)
NET SALES. Net sales increased 15.2% to $1.30 billion in fiscal 1998 from
$1.13 billion in fiscal 1997. Wholesale net sales increased 17.7% to $733.1
million in fiscal 1998 from $623.0 million in fiscal 1997. Wholesale growth
primarily reflects increased menswear sales resulting from growth in the
Company's basic stock replenishment program, improved sales in existing brands,
a shift in the sales mix to higher priced wholesale products and sales from the
Company's third party wholesale trading business which began operations in the
fourth quarter of fiscal 1997. Wholesale growth also reflects increased
womenswear sales due to the introduction of Polo Sport in the fourth quarter of
fiscal 1997. Retail sales increased 12.2% to $570.8 million in fiscal 1998 from
$508.6 million in fiscal 1997. Of this increase, $60.9 million is attributable
to the opening of two new Polo stores (net of one store closing) and seven new
outlet stores (net of three store closings) in fiscal 1998 and the benefit of a
full year of operations for three new Polo stores and ten new outlet stores
opened in fiscal 1997.
LICENSING REVENUE. Licensing revenue increased 21.9% to $167.1 million in
fiscal 1998 from $137.1 million in fiscal 1997. This increase reflects the
benefit of a full year of licensing revenue in fiscal 1998 from the launch of
the Lauren women's line in the second quarter of fiscal 1997. Additionally,
licensing revenue improved due to an overall increase in sales of existing
licensed products, particularly Chaps and Home Collection, both of which
introduced new product categories.
GROSS PROFIT. Gross profit as a percentage of net revenues increased to
48.7% in fiscal 1998 from 45.9% in fiscal 1997. This increase was attributable
to improvements in each of the Company's integrated operations. Wholesale gross
margins increased significantly in fiscal 1998 over fiscal 1997 as a direct
result of increased fulfillment of customer orders, improved supply chain
management and a planned reduction in off-price sales. Retail gross margins also
increased significantly in fiscal 1998 as compared to fiscal 1997 primarily due
to the benefit of operating five new Polo stores (net of one store closing)
which were opened in fiscal 1998 and fiscal 1997, and an improved initial
markup. Licensing revenue increased as a percentage of net revenues to 11.3% in
fiscal 1998 from 10.7% in fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased to
$520.8 million or 35.2% of net revenues in fiscal 1998 from $433.5 million or
33.9% of net revenues in fiscal 1997. This increase as a percentage of net
revenues was attributable to increased depreciation expense associated with the
Company's shop-within-shops development program, increased advertising,
marketing and public relations expenditures to support the Company's brands and
a one-time charge under terms of a long-term contract with a former executive.
33
<PAGE> 34
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements primarily derive from working capital
needs, construction and renovation of shop-within-shops, retail expansion and
other corporate activities. The Company's main sources of liquidity are cash
flows from operations and credit facilities.
Net cash provided by operating activities decreased to $38.5 million in
fiscal 1999 from $96.2 million in fiscal 1998. This reduction was primarily
driven by increases in inventories due to timing of shipments, the overall
growth of the business and a build-up of excess seasonal basic product
inventories. The Company believes that the excess seasonal basic product
inventories are of high-quality and plans to reduce these inventory levels by
decreasing production commitments in fiscal 2000. The remaining decrease in cash
flow from operations was due to the timing of payments to vendors. Net cash used
in investing activities increased to $196.2 million in fiscal 1999 from $74.9
million in fiscal 1998 principally due to higher capital expenditures and the
investment of $44.2 million in an escrow account restricted for the fiscal 2000
acquisition of Club Monaco. Net cash provided by financing activities increased
to $143.4 million in fiscal 1999 from $7.8 million in fiscal 1998. This increase
primarily reflects the utilization of borrowings for operations and the fiscal
2000 acquisition of Club Monaco offset by repurchases of common stock in fiscal
1999.
On June 9, 1997, the Company entered into a credit facility with a
syndicate of banks which provides for a $225.0 million revolving line of credit
available for the issuance of letters of credit, acceptances and direct
borrowings and matures on December 31, 2002 (the "Credit Facility"). Borrowings
under the Credit Facility bear interest, at the Company's option, at a Base Rate
equal to the higher of: (i) the Federal Funds Rate, as published by the Federal
Reserve Bank of New York, plus 1/2 of one percent; and (ii) the prime commercial
lending rate of The Chase Manhattan Bank in effect from time to time, or at the
Eurodollar Rate plus an interest margin.
On March 30, 1999, in connection with the Company's acquisition of Club
Monaco, the Company entered into a $100.0 million senior credit facility (the
"1999 Credit Facility") with a syndicate of banks consisting of a $20.0 million
revolving line of credit and an $80.0 million term loan (the "Term Loan"). The
revolving line of credit is available for working capital needs and general
corporate purposes and matures on June 30, 2003. The Term Loan will be used to
finance the acquisition of all of the outstanding common stock of Club Monaco
and to repay indebtedness of Club Monaco, as further described below. The Term
Loan is repayable on June 30, 2003. Borrowings under the 1999 Credit Facility
bear interest, at the Company's option, at a Base Rate equal to the higher of:
(i) the Federal Funds Rate, as published by the Federal Reserve Bank of New
York, plus 1/2 of one percent; and (ii) the prime commercial lending rate of The
Chase Manhattan Bank in effect from time to time, or at the Eurodollar Rate plus
an interest margin. In April 1999, the Company entered into interest rate swap
agreements with a notional amount of $100.0 million to convert the variable
interest rate on the 1999 Credit Facility to a fixed rate of 5.5%.
The Credit Facility and 1999 Credit Facility (collectively, the "Credit
Facilities") contain customary representations, warranties, covenants and events
of default, including covenants regarding maintenance of net worth and leverage
ratios, limitations on indebtedness, loans, investments and incurrences of
liens, and restrictions on sales of
34
<PAGE> 35
assets and transactions with affiliates. Additionally, the agreements provide
that an event of default will occur if Mr. Lauren and related entities fail to
maintain a specified minimum percentage of the voting power of the Company's
common stock.
As of April 3, 1999, the Company had $115.5 million outstanding in direct
borrowings and $44.2 million outstanding under the Term Loan and was
contingently liable for $22.7 million in outstanding letters of credit related
to commitments for the purchase of inventory and in connection with its leases
under the Credit Facilities. The weighted average interest rate on amounts
outstanding under the Credit Facilities at April 3, 1999, was 6.9%.
Total cash outlays related to the Restructuring Plan are expected to be
approximately $39.5 million, $3.9 million of which was paid in fiscal 1999.
Capital expenditures were $141.7 million, $63.1 million and $35.3 million
in fiscal 1999, fiscal 1998 and fiscal 1997, respectively. The increase in
capital expenditures represents primarily expenditures associated with the
Company's shop-within-shops development program which includes new shops,
renovations and expansions, as well as expenditures incurred in connection with
the expansion of the Company's retail operations. Additionally, capital
expenditure increases reflect the purchase by the Company of a distribution
center in North Carolina for $16.0 million, which it had been previously
leasing. The Company plans to invest approximately $130.0 million, net of
landlord incentives, over the next fiscal year for its distribution facilities,
its retail concept and outlet stores, the shop-within-shops development program,
its information systems and other capital projects.
On April 6, 1999, PRL Acquisition Corp., a Nova Scotia unlimited liability
corporation and a wholly owned subsidiary of the Company, acquired, through a
tender offer, 98.83% of the outstanding shares of Club Monaco. On May 3, 1999,
PRL Acquisition Corp. acquired the remaining outstanding 1.17% shares pursuant
to a statutory compulsory acquisition. The total purchase price was
approximately $52.0 million in cash based on current exchange rates. The Company
used funds under its 1999 Credit Facility to finance this transaction and to
repay in full assumed debt of approximately $35.0 million. At April 3, 1999, in
connection with the tender offer, the Company had set aside approximately $44.2
million of cash in an escrow account restricted for the acquisition of the
common stock of Club Monaco.
In March 1998, the Board of Directors authorized the repurchase, subject
to market conditions, of up to $100.0 million of the Company's Class A Common
Stock. Share repurchases under this plan will be made from time to time in the
open market over a two-year period which commenced April 1, 1998. Shares
acquired under the repurchase program will be used for stock option programs and
for other corporate purposes. As of April 3, 1999, the Company had repurchased
603,864 shares of its Class A Common Stock at an aggregate cost of $16.1
million.
The Company extends credit to its customers, including those which have
accounted for significant portions of its net revenues. The Company had three
customers, Dillard Department Stores, Inc., Federated Department Stores, Inc.
and The May Department Stores Company, which in aggregate constituted
approximately 58.0% and 53.0% of trade accounts receivable outstanding at April
3, 1999 and March 28, 1998, respectively. Additionally, the Company had four
licensing partners, Jones Apparel Group, Inc. ("Jones"), Seibu Department
Stores, Ltd. ("Seibu"), WestPoint Stevens, Inc. ("WPS") and
35
<PAGE> 36
Warnaco, Inc., which in aggregate constituted approximately 55.0% of licensing
revenue in fiscal 1999. WPS, Seibu and Jones constituted, in aggregate,
approximately 35.0% of licensing revenue in fiscal 1998 while WPS, Seibu and
L'Oreal S.A./Cosmair Inc. constituted, in aggregate, approximately 39.0% of
licensing revenue in fiscal 1997. Accordingly, the Company may have significant
exposure in collecting accounts receivable from its wholesale customers and
licensees. The Company has credit policies and procedures which it uses to
manage its credit risk.
Management believes that cash from ongoing operations and funds available
under the Credit Facilities will be sufficient to satisfy the Company's current
level of operations, the Restructuring Plan, capital requirements, stock
repurchase program, acquisition of Club Monaco and other corporate activities
for the next 12 months. The Company does not currently intend to pay dividends
on its Common Stock in the next 12 months.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is affected by seasonal trends, with higher levels
of wholesale sales in its second and fourth quarters and higher retail sales in
its second and third quarters. These trends result primarily from the timing of
seasonal wholesale shipments to retail customers and key vacation travel and
holiday shopping periods in the retail segment. As a result of growth in the
Company's retail operations and licensing revenue, historical quarterly
operating trends and working capital requirements may not accurately reflect
future performances. In addition, fluctuations in sales and operating income in
any fiscal quarter may be affected by the timing of seasonal wholesale shipments
and other events affecting retail.
EXCHANGE RATES
Inventory purchases from contract manufacturers in the Far East are
primarily denominated in U.S. dollars; however, purchase prices for the
Company's products may be affected by fluctuations in the exchange rate between
the U.S. dollar and the local currencies of the contract manufacturers, which
may have the effect of increasing the Company's cost of goods sold in the
future. During the last two years, exchange rate fluctuations have not had a
material impact on the Company's inventory cost. Additionally, certain
international licensing revenue could be materially affected by currency
fluctuations. From time to time, the Company hedges certain exposures to foreign
currency exchange rate changes arising in the ordinary course of business.
NEW ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants'
("AICPA") Accounting Standards Executive Committee issued Statement of Position
No. 98-5 ("SOP 98-5"), Reporting on the Costs of Start-up Activities. SOP 98-5
requires that costs of start-up activities, including store pre-opening costs,
be expensed as incurred. The Company's current accounting policy is to
capitalize store pre-opening costs as prepaid expenses and amortize such costs
over a twelve month period following store opening. The Company will adopt the
provisions of SOP 98-5 in its first quarter of fiscal 2000, as required, and
record a charge of $3.9 million, after taxes, as the cumulative effect of a
change in accounting principle.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This
Statement
36
<PAGE> 37
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires the recognition of all derivatives as either
assets or liabilities in the statement of financial position and measurement of
those instruments at fair value. The accounting for changes in the fair value of
a derivative is dependent upon the intended use of the derivative. SFAS No. 133
will be effective in the Company's first quarter of the fiscal year ending March
31, 2001, and retroactive application is not permitted. The Company has not yet
determined whether the application of SFAS No. 133 will have a material impact
on its financial position or results of operations.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain of the
Company's computer programs have date-sensitive software which may recognize a
date using "00" as the year 1900 rather than the year 2000. This situation could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
In 1997, the Company, with the aid of outside consultants, initiated a
program to assess the impact of Year 2000 issues on its information technology
("IT") systems and its non-IT systems and has formulated a plan to address its
Year 2000 issues.
Through its assessment, the Company has identified potential date
deficiencies in its IT systems, both hardware and software and in its non-IT
systems (including functions involving embedded chip technology), and is in the
process of addressing these deficiencies through upgrades, replacements and
other remediation. The Company expects to complete remediation of its material
IT systems no later than the summer of 1999. In connection with other equipment
with date sensitive operating controls such as distribution center equipment,
HVAC, employee time clocks, security and other similar systems, the Company is
in the process of identifying those items which may require replacement or other
remediation and, in a significant majority of the cases, believes it has taken
steps adequate to ensure such equipment is Year 2000 compliant. The Company
expects to complete testing and replacement or other remediation of this
equipment no later than the summer of 1999.
The Company has made inquiries of third parties with whom it has material
business relationships (such as customers, suppliers, licensees, transportation
carriers, utility and other general service providers) to determine whether they
will be able to resolve in a timely manner any Year 2000 issues that will
materially and adversely impact the Company. This process includes the
solicitation of written responses to questionnaires, followed, in some cases, by
meetings with certain of such third parties. To date, approximately 60.0% of
those contacted have responded, none of whom have raised any Year 2000 issues
which the Company believes would have a materially adverse affect on the
Company. The Company is in the process of sending follow-up inquiries to third
parties and expects to complete its survey of third parties in the late summer
of 1999.
To date, the Company has incurred expenses of approximately $5.1 million
related to the assessment of its Year 2000 issues and development and
implementation of its remediation plan. The total remaining cost of the
Company's Year 2000 project is estimated at $1.0 to $2.0 million and is being
funded through operating cash flows. Such costs do not include internal
management time and the deferral of other projects, the
37
<PAGE> 38
effects of which are not expected to be material to the Company's results of
operations or financial condition. Of the total project cost, approximately $0.6
million is attributable to the purchase of new software which will be
capitalized. The remainder will be expensed as incurred. The costs of the Year
2000 project and the dates upon which the Company plans to complete its Year
2000 initiatives are based on management's best estimates, which were derived by
utilizing several assumptions of future events including continued availability
of certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved, and actual
results could differ materially from those plans.
The Company believes that it is difficult to identify its most reasonable
worst case Year 2000 scenario. However, a reasonable worst case Year 2000
scenario would be a failure by a significant third party in the Company's supply
and distribution chain (including, without limitation, utility or other general
service provider, government authority or third party with whom it has a
material business relationship) to remediate its Year 2000 deficiencies that
continues for several days or more. Any such failure could impair the
manufacture and/or delivery of products, and/or the processing of orders, and
shipments. In addition, a failure by the Company to remediate any of its
internal inventory management systems would adversely affect its stock
allocation program, resulting in mistimed shipments and potential order
cancellations. These scenarios would likely have a material adverse effect on
the Company's results of operations, and, in particular, would result in the
loss of sales and revenue. The extent of lost revenue as a result of these
scenarios cannot be estimated at this time.
The Company continues to develop contingency plans to limit the effect of
any Year 2000 issues on its operations and results, and intends to finalize its
contingency plans by no later than the summer of 1999. As an example, the
Company continues to explore, where possible, alternate service providers. The
Company's Year 2000 efforts are ongoing and its overall plan, as well as its
development of contingency plans, will continue to evolve as new information
becomes available. While the Company anticipates continuity of its business
activities, that continuity will be dependent upon its ability, and the ability
of third parties with whom the Company relies on directly, or indirectly, to be
Year 2000 compliant in a timely fashion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item appears beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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<PAGE> 39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The other information required to be included herein by Item 10 of Form
10-K will be included in the Company's Proxy Statement for the 1999 Annual
Meeting of Stockholders which will be filed within 120 days after the close of
the Company's fiscal year ended April 3, 1999 and such information is
incorporated herein by reference to such Proxy Statement.
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of June 22, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Ralph Lauren.................. 59 Chairman, Chief Executive Officer and
Director
Michael J. Newman............. 53 Vice Chairman, Chief Operating Officer and
Director
Richard A. Friedman........... 41 Director
Frank A. Bennack, Jr.......... 66 Director
Joel L. Fleishman............ 65 Director
Allen Questrom............... 59 Director
Terry S. Semel................ 56 Director
Peter Strom................... 70 Director
Victor Cohen.................. 45 Senior Vice President, General Counsel and
Secretary
F. Lance Isham................ 54 President
Nancy A. Platoni Poli......... 43 Senior Vice President and Chief Financial Officer
Karen L. Rosenbach............ 44 Senior Vice President, Human Resources and
Administration
Hamilton South................ 34 Group President, Chief Marketing Officer
</TABLE>
RALPH LAUREN has been a director of the Company since prior to the
commencement of the Company's initial public offering and was a member of the
Advisory Board or Board of Directors of the Company's predecessors since their
organization. Mr. Lauren is the Company's Chairman and Chief Executive Officer.
He founded Polo in 1968 and has provided leadership in the design, marketing and
operational areas since such time.
39
<PAGE> 40
MICHAEL J. NEWMAN has been a director of the Company since prior to the
commencement of the Company's initial public offering and was a member of the
Advisory Board of the Company's predecessor since April 1995. Mr. Newman has
been Vice Chairman and Chief Operating Officer of the Company since 1995. He was
President and Chief Operating Officer of the Company's Menswear operations from
1991 to 1994, and Executive Vice President from 1989 to 1991. Mr. Newman joined
Polo as Vice President of Finance and Chief Financial Officer in 1987. Prior to
joining the Company, Mr. Newman was Senior Vice President of Finance at
Kaiser-Roth Apparel.
F. LANCE ISHAM has been President of the Company since November 1998,
prior to which he served as Group President of the Menswear operations. Mr.
Isham is responsible for the day-to-day operations of sales, merchandising,
retail development, production, manufacturing services and distribution. He
joined Polo in 1982, and has held a variety of sales positions in the Company
including Executive Vice President of Sales and Merchandising.
RICHARD A. FRIEDMAN has been a director of the Company since prior to the
commencement of the Company's initial public offering and was a member of the
Advisory Board of the Company's predecessor since 1994. Mr. Friedman is a
Managing Director of Goldman, Sachs & Co., and head of the Principal Investment
Area. He joined Goldman, Sachs & Co. in 1981. Mr. Friedman is a member of the
Board of Directors of AMF Bowling, Inc. and Carmike Cinemas Inc.
FRANK A. BENNACK, JR. has been a director of the Company since January
1998. Mr. Bennack has been the President and Chief Executive Officer of The
Hearst Corporation since 1979. He is a member of the Board of Directors of The
Hearst Corporation, Hearst-Argyle Television, Inc., American Home Products
Corporation, The Chase Manhattan Corporation and The Chase Manhattan Bank.
JOEL L. FLEISHMAN has been a director of the Company since January 1999.
He has been a Professor of Law and Public Policy, Terry Sanford Institute of
Public Policy at Duke University since 1971 and the Director of the Samuel and
Ronnie Heyman Center for Ethics, Public Policy and the Professions at Duke
University since 1987. In addition, Mr. Fleishman has been the President of The
Atlantic Philanthropic Service Company, Inc. since 1993. Mr. Fleishman is a
member of the Board of Directors of Boston Scientific Corporation.
ALLEN QUESTROM has been a Director of the Company since September 1997.
Mr. Questrom has been the Chairman, President and Chief Executive Officer of
Barneys New York Inc. since May 1999 and was the Chairman and Chief Executive
Officer of Federated Department Stores, Inc. from February 1990 to May 1997. He
is a member of the Board of Directors of Interpublic Group of Companies, Inc.,
AEA Investors, Inc. and Barneys New York Inc.
TERRY S. SEMEL has been a director of the Company since September 1997.
Mr. Semel has been the Chairman of the Board and Co-Chief Executive Officer of
the Warner Bros. Division of Time Warner Entertainment LP ("Warner Brothers"),
since March 1994 and of Warner Music Group since November 1995. For more than
ten years prior to that he was President of Warner Brothers or its predecessor,
Warner Bros. Inc. Mr. Semel is a member of the Board of Directors of Revlon,
Inc.
PETER STROM has been a director of the Company since September 1997 and
was a member of the Advisory Board of the Company's predecessor from October
1994 until his retirement in April 1995. Mr. Strom was an initial officer of
Polo in 1968 and held various management positions in the Company, including, at
the time of his retirement, serving as the Company's Vice Chairman and Chief
Operating Officer.
VICTOR COHEN has been Senior Vice President, General Counsel and Secretary
of the Company since 1996. Mr. Cohen joined Polo in 1983 as its senior legal
officer responsible for all legal and corporate affairs. Prior to joining the
Company, he was associated with the law firm of Skadden, Arps, Slate, Meagher &
Flom.
40
<PAGE> 41
NANCY A. PLATONI POLI has been Chief Financial Officer of the Company
since 1996 and Senior Vice President since 1997. Ms. Poli was Vice President and
Controller from 1989 to 1996, and assumed responsibility for treasury functions
in addition to her controller functions in 1995. Prior to that, she was
Controller of Retail Finance. Ms. Poli joined the Company in 1984.
KAREN L. ROSENBACH has been Senior Vice President, Human Resources and
Administration of the Company since 1996. Ms. Rosenbach joined the Company in
1988 as Vice President of Human Resources. Prior to joining the Company, she was
Vice President of Human Resources, Real Estate Group at Chemical Bank.
HAMILTON SOUTH was appointed to the corporate position of Group President,
Chief Marketing Officer of the Company in March 1999. Mr. South joined Polo in
1996 as Senior Vice President, Worldwide Communications. Prior to joining Polo,
Mr. South was editor-at-large of Vanity Fair Magazine from 1990.
Each executive officer serves for a one-year term ending at the next
annual meeting of the Company's Board of Directors, subject to his or her
applicable employment agreement and his or her earlier death, resignation or
removal.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required to be included herein by Items 11 through 13 of
Form 10-K will be included in the Company's Proxy Statement for the 1999 Annual
Meeting of Stockholders, which will be filed within 120 days after the close of
the Company's fiscal year ended April 3, 1999 and such information is
incorporated herein by reference to such Proxy Statement.
41
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1, 2. Financial Statements and Schedules. See index on Page F-1.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Company's Registration Statement on Form
S-1 (No. 333-24733)) (the "S-1").*
3.2 Amended and Restated By-laws of the Company (filed as Exhibit
3.2 to the S-1).*
10.1 Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive
Plan (filed as Exhibit 10.1 to the S-1)*+
10.2 Polo Ralph Lauren Corporation 1997 Stock Option Plan for
Non-Employee Directors (filed as Exhibit 10.2 to the S-1)*+
10.3 Registration Rights Agreement dated as of June 9, 1997 by and
among Ralph Lauren, GS Capital Partners, L.P., GS Capital
Partners PRL Holding I, L.P., GS Capital Partners PRL Holding
II, L.P., Stone Street Fund 1994, L.P., Stone Street 1994
Subsidiary Corp., Bridge Street Fund 1994, L.P., and Polo
Ralph Lauren Corporation (filed as Exhibit 10.3 to the S-1)*
10.4 U.S.A. Design and Consulting Agreement, dated January 1, 1985,
between Ralph Lauren, individually and d/b/a Ralph Lauren
Design Studio, and Cosmair, Inc., and letter agreement related
thereto dated January 1, 1985** (filed as Exhibit 10.4 to the
S-1)*
10.5 Restated U.S.A. License Agreement, dated January 1, 1985,
between Ricky Lauren and Mark N. Kaplan, as Licensor, and
Cosmair, Inc., as Licensee, and letter agreement related
thereto dated January 1, 1985** (filed as Exhibit 10.5 to the
S-1)*
10.6 Foreign Design and Consulting Agreement, dated January 1,
1985, between Ralph Lauren, individually and d/b/a Ralph
Lauren Design Studio, as Licensor, and L'Oreal S.A., as
Licensee, and letter agreements related thereto dated January
1, 1985, September 16, 1994 and October 25, 1994** (filed as
Exhibit 10.6 to the S-1)*
10.7 Restated Foreign License Agreement, dated January 1, 1985,
between The Polo/Lauren Company, as Licensor, and L'Oreal
S.A., as Licensee, letter Agreement related thereto dated
January 1, 1985, and Supplementary Agreement thereto, dated
October 1, 1991** (filed as Exhibit 10.7 to the S-1)*
10.8 Amendment, dated November 27, 1992, to Foreign Design And
Consulting Agreement and Restated Foreign License Agreement**
(filed as Exhibit 10.8 to the S-1)*
10.9 License Agreement, made as of January 1, 1998, between Ralph
Lauren Home Collection, Inc. and WestPoint Stevens Inc.**
(filed as Exhibit 10.9 to the Company's Annual Report on Form
10-K for the fiscal year ended March 28, 1998 (the "Fiscal
1998 10-K")*
10.10 License Agreement, dated March 1, 1998, between The
Polo/Lauren Company, L.P. and Polo Ralph Lauren Japan Co.,
Ltd., and undated letter agreement related thereto** (filed as
Exhibit 10.10 to the S-1)*
10.11 Design Services Agreement, dated March 1, 1998, between Polo
Ralph Lauren Enterprises, L.P. and Polo Ralph Lauren Japan
Co., Ltd.** (filed as Exhibit 10-11 to the S-1)*
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.12 Deferred Compensation Agreement dated April 1, 1993, between
Michael J. Newman and Polo Ralph Lauren Corporation, assigned
October 31, 1994: to Polo Ralph Lauren, L.P. (filed as Exhibit
10.12 to the S-1)*+
10.13 Deferred Compensation Agreement dated April 2, 1995 between F.
Lance Isham and Polo Ralph Lauren, L.P.(filed as Exhibit 10.14
to the S-1)*+
10.14 Amendment to Deferred Compensation Agreement made as of
November 10, 1998 between F. Lance Isham and Polo Ralph Lauren
Corporation
10.15 Amended and Restated Employment Agreement dated October 26,
1993 between Michael J. Newman and Polo Ralph Lauren
Corporation, as amended and assigned October 31, 1994 to Polo
Ralph Lauren, L.P. and as further amended as of June 9, 1997
(filed as Exhibit 10.17 to the S-1)*+
10.16 Amended and Restated Employment Agreement effective November
10, 1998 between F. Lance Isham and Polo Ralph Lauren
Corporation+
10.17 Stockholders Agreement dated as of June 9, 1997 among Polo
Ralph Lauren Corporation, GS Capital Partners, L.P., GS
Capital Partners PRL Holding I, L.P., GS Capital Partners PRL
Holding II, L.P., Stone Street Fund 1994, L.P., Stone Street
1994 Subsidiary Corp., Bridge Street Fund 1994, L.P., Mr.
Ralph Lauren, RL Holding, L.P. and RL Family (filed as Exhibit
10.22 to the S-1)*
10.18 Form of Credit Agreement between Polo Ralph Lauren Corporation
and The Chase Manhattan Bank (filed as Exhibit 10.24 to the
S-1)*
10.19 Form of Guarantee and Collateral Agreement by Polo Ralph
Lauren Corporation in favor of The Chase Manhattan Bank (filed
as Exhibit 10.25 to the S-1)*
10.20 Credit Agreement between Polo Ralph Lauren Corporation and the
Chase Manhattan Bank dated as of March 30, 1999
10.21 Form of Indemnification Agreement between Polo Ralph Lauren
Corporation and its Directors and Executive Officers (filed as
Exhibit 10.26 to the S-1)*
10.22 Employment Agreement dated June 9, 1997 between Ralph Lauren
and Polo Ralph Lauren Corporation (filed as exhibit 10.27 to
the S-1)*+
10.23 Amended and Restated Employment Agreement effective April 4,
1999 between Ralph Lauren and Polo Ralph Lauren Corporation+
10.24 Employment Agreement effective November 10, 1998, between
Hamilton South and Polo Ralph Lauren Corporation+
10.25 Design Services Agreement, dated as of October 18, 1995, by
and between Polo Ralph Lauren Enterprises, L.P. and Jones
Apparel Group, Inc.** (filed as Exhibit 10.25 to the Fiscal
1998 10-K)*
10.26 License Agreement, dated as of October 18, 1995, by and
between Polo Ralph Lauren Enterprises, L.P. and Jones Apparel
Group, Inc.**
21.1 List of Significant Subsidiaries of the Company.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
* Incorporated herein by reference.
+ Exhibit is a management contract or compensatory plan or arrangement.
** Portions of Exhibits 10.4 - 10.11 and 10.24 and 10.25 have been omitted
pursuant to a request for confidential treatment and have been filed
separately with the Securities and Exchange Commission.
(b) The Company filed no reports on Form 8-K during the last quarter of the
period covered by this report.
43
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POLO RALPH LAUREN CORPORATION
(Registrant)
By: /s/ Ralph Lauren
----------------------------------------
Ralph Lauren
Chairman of the Board of Directors and
Chief Executive Officer
Date: June 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- --------- -------- ----
<S> <C> <C>
/s/ Ralph Lauren Chairman of the Board of Directors and June 25, 1999
- ---------------------------------- Chief Executive Officer
Ralph Lauren (Principal Executive Officer)
/s/ Michael J. Newman Vice Chairman of the Board of Directors June 25, 1999
- ---------------------------------- and Chief Operating Officer
Michael J. Newman
/s/ Nancy A. Platoni Poli Senior Vice President and Chief Financial June 25, 1999
- ---------------------------------- Officer (Principal Financial and Accounting
Nancy A. Platoni Poli Officer)
/s/ Frank A. Bennack, Jr. Director June 25, 1999
- ----------------------------------
Frank A. Bennack, Jr.
/s/ Joel L. Fleishman Director June 25, 1999
- ----------------------------------
Joel L. Fleishman
/s/ Richard A. Friedman Director June 25, 1999
- ----------------------------------
Richard A. Friedman
/s/ Allen Questrom Director June 25, 1999
- ----------------------------------
Allen Questrom
/s/ Terry S. Semel Director June 25, 1999
- ----------------------------------
Terry S. Semel
/s/ Peter Strom Director June 25, 1999
- ----------------------------------
Peter Strom
</TABLE>
44
<PAGE> 45
POLO RALPH LAUREN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
<S> <C>
Independent Auditors' Report ........................................................................... F-2
Consolidated Balance Sheets as of April 3, 1999 and March 28, 1998 ..................................... F-3
Consolidated Statements of Income for the years ended April 3, 1999, March 28, 1998 and March 29, 1997 F-4
Consolidated Statements of Stockholders' Equity and Partners' Capital for the years ended April 3, 1999,
March 28, 1998 and March 29, 1997 ...................................................................... F-5
Consolidated Statements of Cash Flows for the years ended April 3, 1999, March 28, 1998 and March 29,
1997 ................................................................................................... F-6
Notes to Consolidated Financial Statements ............................................................. F-8
FINANCIAL STATEMENT SCHEDULE:
Independent Auditors' Report ........................................................................... S-1
Schedule II - Valuation and Qualifying Accounts ........................................................ S-2
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
F-1
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Polo Ralph Lauren
Corporation New York, New York
We have audited the accompanying consolidated balance sheets as of April
3, 1999 and March 28, 1998 of Polo Ralph Lauren Corporation and subsidiaries
(the "Company") and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended and the combined statements of
income, partners' capital, and cash flows for the year ended March 29, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of April 3, 1999 and March
28, 1998, and the results of their operations and their cash flows for each of
the three years in the period ended April 3, 1999 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
May 21, 1999
F-2
<PAGE> 47
POLO RALPH LAUREN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1999 1998
-------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 44,458 $ 58,755
Accounts receivable, net of allowances of
$13,495 and $12,447, respectively 157,203 149,120
Inventories 376,860 298,485
Deferred tax assets 51,939 24,448
Prepaid expenses and other 48,994 25,656
----------- -----------
TOTAL CURRENT ASSETS 679,454 556,464
Property and equipment, net 261,799 175,348
Deferred tax assets 12,493 14,213
Restricted cash 44,217 --
Other assets, net 106,621 79,105
----------- -----------
$ 1,104,584 $ 825,130
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and acceptances payable - banks $ 115,500 $ --
Accounts payable 88,898 100,126
Income taxes payable 17,432 2,554
Accrued expenses and other 126,142 99,578
----------- -----------
TOTAL CURRENT LIABILITIES 347,972 202,258
Long-term debt 44,217 --
Other noncurrent liabilities 53,490 38,546
Commitments and contingencies (Note 13) -- --
Stockholders' equity
Common Stock
Class A, par value $.01 per share; 500,000,000 shares
authorized; 34,381,653 and 34,272,726 shares issued, respectively 344 343
Class B, par value $.01 per share; 100,000,000 shares
authorized; 43,280,021 shares issued and outstanding 433 433
Class C, par value $.01 per share; 70,000,000 shares
authorized; 22,720,979 shares issued and outstanding 227 227
Additional paid-in-capital 450,030 447,918
Retained earnings 227,288 136,738
Treasury Stock, Class A, at cost (603,864 shares) (16,084) --
Unearned compensation (3,333) (1,333)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 658,905 584,326
----------- -----------
$ 1,104,584 $ 825,130
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 48
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
APRIL 3, MARCH 28, MARCH 29,
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Net sales $1,505,056 $1,303,816 $1,043,330
Licensing revenue 208,009 167,119 137,113
Other income 13,794 9,609 7,774
---------- ---------- ----------
Net revenues 1,726,859 1,480,544 1,188,217
Cost of goods sold 904,586 759,988 652,000
---------- ---------- ----------
Gross profit 822,273 720,556 536,217
Selling, general and administrative expenses 608,128 520,801 378,854
Restructuring charge 58,560 -- --
---------- ---------- ----------
Income from operations 155,585 199,755 157,363
Interest expense 2,759 159 13,660
Equity in net loss of joint venture -- -- 3,599
---------- ---------- ----------
Income before income taxes 152,826 199,596 140,104
Provision for income taxes 62,276 52,025 22,804
---------- ---------- ----------
Net income $ 90,550 $ 147,571 $ 117,300
========== ========== ==========
PRO FORMA
-----------
Historical income before income taxes $ 199,596
Pro forma adjustments other than income taxes 3,162
-----------
Pro forma income before income taxes 202,758
Pro forma provision for income taxes 82,631
-----------
Pro forma net income $ 120,127
===========
Net income per share - Basic and Diluted $ 0.91 $ 1.20
=========== ===========
Common shares outstanding - Basic 99,813,328 100,222,444
=========== ===========
Common shares outstanding - Diluted 99,972,152 100,222,444
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 49
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS AND
---------------------- PAID-IN- PARTNERS' TREASURY STOCK, AT COST
SHARES AMOUNT CAPITAL CAPITAL SHARES AMOUNT
----------- -------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 30, 1996 -- -- -- $ 237,653 -- --
Net income 117,300
Distributions to partners (94,268)
---------- -------- ---------- ------------ --------- ----------
BALANCE AT MARCH 29, 1997 -- -- -- 260,685 -- --
Net income 147,571
Distributions to partners (45,640)
Reorganization 89,000,000 890 176,537 (177,427)
Dividend and Reorganization Notes paid (48,451)
Common stock issued in public offering, net 11,170,000 112 268,685
Common stock issued in PRC Acquisition 26,803 -- 697
Restricted stock grants 76,923 1 1,999
---------- -------- ---------- ------------ --------- ----------
BALANCE AT MARCH 28, 1998 100,273,726 1,003 447,918 136,738 -- --
Net income 90,550
Exercise of stock options 4,352 113
Repurchases of common stock 603,864 (16,084)
Restricted stock grants 104,575 1 1,999
----------- -------- ---------- ------------ --------- ----------
BALANCE AT APRIL 3, 1999 100,382,653 $ 1,004 $ 450,030 $ 227,288 603,864 $ (16,084)
=========== ======== ========== ============ ========= ==========
</TABLE>
<TABLE>
<CAPTION>
UNEARNED
COMPENSATION TOTAL
------------ --------
<S> <C> <C>
BALANCE AT MARCH 30, 1996 -- $237,653
Net income 117,300
Distributions to partners (94,268)
------- --------
BALANCE AT MARCH 29, 1997 -- 260,685
Net income 147,571
Distributions to partners (45,640)
Reorganization --
Dividend and Reorganization Notes paid (48,451)
Common stock issued in public offering, net 268,797
Common stock issued in PRC Acquisition 697
Restricted stock grants (1,333) 667
------- --------
BALANCE AT MARCH 28, 1998 (1,333) 584,326
Net income 90,550
Exercise of stock options 113
Repurchases of common stock (16,084)
Restricted stock grants (2,000) --
------- --------
BALANCE AT APRIL 3, 1999 $(3,333) $658,905
======= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 50
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
APRIL 3, MARCH 28, MARCH 29,
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 90,550 $ 147,571 $ 117,300
Adjustments to reconcile net income to net cash provided by
operating activities:
Benefit from deferred income taxes (25,771) (27,997) (938)
Depreciation and amortization 46,414 27,402 13,755
Equity in net loss of joint venture -- -- 3,599
Provision for losses on accounts receivable 1,060 1,155 833
Changes in deferred liabilities (4,782) 9,584 5,067
Provision for restructuring charge 19,040 -- --
Other 2,073 3,198 (5,069)
Changes in assets and liabilities, net of acquisitions
Accounts receivable (9,542) (4,352) (137)
Inventories (76,396) (48,942) 46,702
Prepaid expenses and other (25,526) (2,031) (9,223)
Other assets (9,095) (18,922) (3,385)
Accounts payable (13,452) 3,215 15,173
Income taxes payable and accrued expenses and other 43,950 6,325 19,943
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 38,523 96,206 203,620
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net (141,692) (63,079) (35,330)
Acquisition, net of cash acquired (6,981) (8,551) --
Restricted cash for Club Monaco Acquisition (44,217) -- --
Investments in joint ventures -- (5,812) --
Cash surrender value - officers' life insurance, net (3,339) 2,569 (3,230)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (196,229) (74,873) (38,560)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 113 268,797 --
Repurchases of common stock (16,084) -- --
Proceeds from (repayments of) short-term borrowings, net 115,500 (26,777) (46,954)
Repayments of borrowings against officers' life insurance policies -- (5,757) --
Repayments of long-term debt and subordinated notes (337) (135,134) (11,791)
Proceeds from long-term debt 44,217 -- --
Payment of Dividend and Reorganization Notes -- (48,451) --
Distributions paid to partners -- (44,855) (90,284)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 143,409 7,823 (149,029)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (14,297) 29,156 16,031
Cash and cash equivalents at beginning of period 58,755 29,599 13,568
--------- --------- ---------
Cash and cash equivalents at end of period $ 44,458 $ 58,755 $ 29,599
========= ========= =========
</TABLE>
F-6
<PAGE> 51
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
APRIL 3, MARCH 28, MARCH 29,
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 2,776 $ 4,410 $16,005
======= ======= =======
Cash paid for income taxes $77,877 $73,873 $22,280
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Foreign tax credits distributed to partners $ 509 $ 3,720
======= =======
Capital obligations for completed shop-within-shops $15,102 $ 8,600
======= =======
Fair value of assets acquired, excluding cash $14,868 $69,537
Less:
Cash paid 6,981 8,551
Promissory notes issued 5,000 --
Fair market value of common stock issued for acquisition -- 697
------- -------
Liabilities assumed $ 2,887 $60,289
======= =======
Fair market value of restricted stock grants $ 667
=======
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 52
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
1 BASIS OF PRESENTATION AND ORGANIZATION
(a) BASIS OF PRESENTATION
Polo Ralph Lauren Corporation ("PRLC") was incorporated in Delaware in
March 1997. PRLC and its subsidiaries are collectively referred to herein
as "Polo." On June 9, 1997, the partners and certain of their affiliates
contributed to PRLC all of the outstanding stock of, and partnership
interests in, the entities which comprised the predecessor group of
companies in exchange for common stock of PRLC and promissory notes (the
"Reorganization"). The accompanying combined financial statements for the
year ended March 29, 1997 include the accounts of Polo Ralph Lauren
Enterprises, L.P. ("Enterprises"), Polo Ralph Lauren, L.P. and subsidiaries
(collectively, the "Polo Partnership"), The Ralph Lauren Womenswear
Company, L.P. and subsidiaries (collectively, "Womenswear") and Polo Retail
Corporation and subsidiaries, a 50% joint venture with a previously
nonaffiliated partner ("PRC," and together with Enterprises, Polo
Partnership and Womenswear, the "Predecessor Company"). The controlling
interests of the Predecessor Company were held by Mr. Ralph Lauren, with a
28.5% interest held by certain investment funds affiliated with The Goldman
Sachs Group, Inc., successor to The Goldman Sachs Group, L.P.
(collectively, the "GS Group").
The accompanying consolidated financial statements as of and for the
year ended April 3, 1999, include the results of operations of Polo. The
accompanying consolidated financial statements as of and for the year ended
March 28, 1998, include the combined results of operations of the
Predecessor Company through June 9, 1997, and the consolidated results of
operations of Polo thereafter (Polo, together with the Predecessor Company,
is referred to herein as the "Company"). The financial statements of PRLC
have not been included prior to the Reorganization as PRLC was a shell
company with no business operations.
The financial statements of the Predecessor Company have been presented
on a combined basis because of their common ownership. The combined
financial statements have been prepared as if the entities had operated as
a single consolidated group since their respective dates of organization.
All significant intercompany balances and transactions have been
eliminated. The equity method of accounting was used for the Company's
investment in PRC during the year ended March 29, 1997, in which 50% of PRC
was owned by a previously nonaffiliated partner. Subsequent to the
Company's acquisition of the remaining 50% interest in PRC effective April
3, 1997, as discussed further in Note 1 (d) below, the results of
operations of PRC have been consolidated and the acquisition has been
accounted for as a purchase.
(b) INITIAL PUBLIC OFFERING
On June 17, 1997, PRLC completed the sale of 11.17 million shares of
its Class A Common Stock at $26.00 per share in connection with its initial
public offering. The net proceeds from the initial public offering, after
deducting underwriting discounts and commissions and offering expenses,
aggregated $268.8 million. The net proceeds from the initial public
offering were used
F-8
<PAGE> 53
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
as follows: (i) to repay borrowings outstanding under the Company's Credit
Facility (as defined see Note 7) in the amount of $163.5 million; (ii) to
pay the Dividend and Reorganization Notes (as defined - see Note 1 (c)) in
the amount of $43.0 million to Mr. Lauren and related entities and the GS
Group; and (iii) to repay subordinated notes and interest thereon in the
amount of $24.3 million to Mr. Lauren and the GS Group. The remaining $38.0
million was used for other general corporate purposes.
(c) DIVIDEND AND REORGANIZATION NOTES
On June 9, 1997, in connection with the Reorganization, the Company
declared a dividend and issued reorganization notes aggregating $43.0
million to Mr. Lauren and the GS Group representing estimated undistributed
earnings of the Predecessor Company through the closing of the
Reorganization ("Dividend and Reorganization Notes"). The Dividend and
Reorganization Notes were paid with a portion of the net proceeds of the
initial public offering (see Note 1 (b)). Effective June 9, 1997, the
Company declared a second dividend (the "Second Dividend") to Mr. Lauren
and the GS Group in an amount representing the difference between the
actual amount of undistributed earnings through the closing of the
Reorganization and the estimated amount of the Dividend and Reorganization
Notes. The Second Dividend amounted to $5.4 million and was paid in the
fourth quarter of fiscal 1998.
(d) ACQUISITION
On March 21, 1997, the Company entered into purchase agreements with
its joint venture partners to acquire the remaining 50% interest in PRC,
effective April 3, 1997, for consideration aggregating $10.4 million in
cash and Class A Common Stock of PRLC ("PRC Acquisition"). The PRC
Acquisition was completed simultaneously with the Company's initial public
offering. Prior to the PRC Acquisition, the Company sold products to PRC in
the amount of $40.3 million in fiscal 1997. Purchases by the Company from
PRC amounted to $6.7 million in fiscal 1997.
(e) BUSINESS
The Company designs, licenses, contracts for the manufacture of,
markets and distributes men's and women's apparel, accessories, fragrances,
skin care products and home furnishings. The Company's sales are
principally to major department and specialty stores located throughout the
United States. Additionally, the Company also sells directly to consumers
through Company-owned Polo stores, including flagship stores, and outlet
stores located throughout the United States.
The Company is party to licensing agreements which grant the licensee
exclusive rights to use the various trademarks owned by the Company in
connection with the manufacture and sale of designated products in
specified geographical areas. The license agreements typically provide for
designated terms with renewal options based on achievement of specified
sales targets. The agreements also require that certain minimum amounts be
spent on advertising for licensed products. Additionally, as part of the
licensing arrangements, each licensee is typically required to enter into a
design services agreement pursuant to which design and other creative
services are
F-9
<PAGE> 54
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
provided. The license and design services agreements provide for payments
based on specified percentages of net sales. Additionally, the Company has
granted royalty-free licenses to independent parties to operate Polo stores
to promote the sale of merchandise of the Company and its licensees both
domestically and internationally.
A significant amount of the Company's products are produced in the Far
East, through arrangements with independent contractors. As a result, the
Company's operations could be adversely effected by political instability
resulting in the disruption of trade from the countries in which these
contractors are located, by the imposition of additional duties or
regulations relating to imports, by the contractors' inability to meet the
Company's production requirements or by other factors.
2 SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest to March 31. All
references herein to "1999," "1998" and "1997" represent the 52 or 53 week
fiscal years ended April 3, 1999, March 28, 1998, and March 29, 1997,
respectively. Fiscal 1999 reflects a 53-week period and fiscal 1998 and
1997 reflect a 52-week period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less.
RESTRICTED CASH
At April 3, 1999, the Company had $44.2 million of cash held in escrow
for the acquisition of Club Monaco Inc. ("Club Monaco") (see Note 16).
INVENTORIES
Wholesale inventories are valued at the lower of cost (first-in,
first-out method) or market. Retail inventories are valued using the retail
method.
STORE PRE-OPENING COSTS
Costs associated with the opening of a new store are deferred and
amortized within one year commencing from the date of the store opening.
F-10
<PAGE> 55
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over the estimated useful lives of
the related assets on a straight-line basis. The range of useful lives is
as follows: buildings - 39.5 years; furniture and fixtures and machinery
and equipment - 3 to 8 years. Leasehold improvements are amortized using
the straight-line method over the lesser of the term of the related lease
or the estimated useful life. Major additions and betterments are
capitalized, and repairs and maintenance are charged to operations in the
period incurred. Additionally, the Company capitalizes its share of the
cost of constructing shop-within-shops under agreements with retailers and
amortizes such costs using the straight-line method over the lesser of
their estimated useful lives or the life of the underlying agreement.
GOODWILL
Goodwill represents the excess of purchase cost over the fair value of
net assets of businesses acquired. The Company amortizes goodwill on a
straight-line basis over its estimated useful life, ranging from 11 to 25
years .
IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS
The Company assesses the carrying value of long-lived and intangible
assets as current facts and circumstances suggest that they may be
impaired. In evaluating the fair value and future benefits of such assets,
the Company performs an analysis of the anticipated undiscounted future net
cash flows of the individual assets over the remaining amortization period
and would recognize an impairment loss if the carrying value exceeded the
expected future cash flows. The impairment loss would be measured based
upon the fair value. The Company has determined that its long-lived and
intangible assets presented in the accompanying balance sheets at April 3,
1999 and March 28, 1998, are not impaired. See Note 3 for long-lived and
intangible asset write downs recorded in connection with the Company's
fiscal 1999 Restructuring Plan (as defined see Note 3).
OFFICERS' LIFE INSURANCE
The Company maintains key man life insurance policies on several of its
senior executives, the majority of which contain split dollar arrangements.
The key man policies are recorded at their cash surrender value, while the
policies with split dollar arrangements are recorded at the lesser of their
cash surrender value or premiums paid. Amounts recorded under these
policies aggregated $31.5 million and $28.2 million at April 3, 1999 and
March 28, 1998, respectively, and are included in other assets in the
accompanying balance sheets.
REVENUE RECOGNITION
Sales are recognized upon shipment of products to customers and, in the
case of sales by Company-owned retail and outlet stores, when goods are
sold to consumers. Allowances for estimated uncollectible accounts and
discounts are provided when sales are recorded. Licensing revenue is
recognized as earned.
F-11
<PAGE> 56
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
CONCENTRATION OF CREDIT RISK
The Company sells its merchandise primarily to major upscale department
stores across the United States and extends credit based on an evaluation
of the customer's financial condition generally without requiring
collateral. Credit risk is driven by conditions or occurrences within the
economy and the retail industry and is principally dependent on each
customer's financial condition. A decision by the controlling owner of a
group of stores or any substantial customer to decrease the amount of
merchandise purchased from the Company or to cease carrying its products
could have a material adverse effect on the Company. The Company had three
customers who in aggregate constituted approximately 58.0% and 53.0% of
trade accounts receivable outstanding at April 3, 1999 and March 28, 1998,
respectively.
The Company had two significant customers that each accounted for
approximately 10.0% of net sales in fiscal 1999 and one significant
customer that accounted for approximately 11.0% of net sales in fiscal 1998
and 1997. Additionally, the Company had four significant licensees who in
aggregate constituted approximately 55.0% of licensing revenue in fiscal
1999 and three who in aggregate constituted approximately 35.0% and 39.0%
of licensing revenue in fiscal 1998 and 1997, respectively.
The Company monitors credit levels and the financial condition of its
customers on a continuing basis to minimize credit risk. The Company
believes that adequate provision for credit loss has been made in the
accompanying financial statements.
The Company is also subject to concentrations of credit risk with
respect to its cash and cash equivalents which it minimizes by placing
these funds with major banks and financial institutions and investing in
high-quality instruments.
ADVERTISING
The Company expenses the production costs of advertising, marketing and
public relations expenses upon the first showing of the related
advertisement. These expenses amounted to $76.2 million, $68.5 million and
$55.5 million in fiscal 1999, 1998 and 1997, respectively.
INCOME TAXES
The Company accounts for income taxes under the liability method.
Deferred tax assets and liabilities are recognized based on differences
between financial statement and tax bases of assets and liabilities using
presently enacted tax rates. A valuation allowance is recorded to reduce a
deferred tax asset to that portion which is expected to more likely than
not be realized.
The entities which comprised the Predecessor Company included
principally partnerships which were not subject to Federal or certain state
income taxes. Therefore, no provision was made in the accompanying combined
financial statements of the Predecessor Company through June 9, 1997, as
taxes were the liability of the partners. However, Federal, state and local
taxes have been provided on the income of all domestic C corporations in
the Predecessor Company.
F-12
<PAGE> 57
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
Foreign income taxes have also been provided on the income of the foreign
entities in the Predecessor Company.
DEFERRED RENT OBLIGATIONS
The Company accounts for rent expense under noncancellable operating
leases with scheduled rent increases and landlord incentives on a
straight-line basis over the lease term. The excess of straight-line rent
expense over scheduled payment amounts and landlord incentives are recorded
as a deferred liability. Unamortized deferred rent obligations amounted to
$40.7 million and $28.1 million at April 3, 1999 and March 28, 1998,
respectively, and are included in accrued expenses and other, and other
noncurrent liabilities in the accompanying balance sheets.
FINANCIAL INSTRUMENTS
The Company from time to time uses derivative financial instruments to
reduce its exposure to changes in foreign exchange and interest rates.
While these instruments are subject to risk of loss from changes in
exchange or interest rates, those losses would generally be offset by gains
on the related exposure. The Company does not hold or issue financial
instruments for trading or speculative purposes.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of a foreign
subsidiary of the Company are measured using the local currency as the
functional currency. Assets and liabilities are translated at the exchange
rate in effect at each year end. Results of operations are translated at
the average rate of exchange prevailing throughout the period. Translation
adjustments arising from differences in exchange rates from period to
period are included in the cumulative translation adjustment account. Gains
and losses from foreign currency transactions are included in operating
results and were not considered by the Company to be material in fiscal
1999, 1998 and 1997.
STOCK OPTIONS
The Company uses the intrinsic value method to account for stock-based
compensation in accordance with Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" and has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
COMPREHENSIVE INCOME
Effective March 29, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for reporting
of comprehensive income and its components in the financial statements. For
fiscal 1999, 1998 and 1997, comprehensive income approximated net income.
F-13
<PAGE> 58
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants'
("AICPA") Accounting Standards Executive Committee issued Statement of
Position No. 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up
Activities". SOP 98-5 requires that costs of start-up activities, including
store pre-opening costs, be expensed as incurred. The Company's current
accounting policy is to capitalize store pre-opening costs as prepaid
expenses and amortize such costs over a twelve month period following store
opening. The Company will adopt the provisions of SOP 98-5 in its first
quarter of fiscal 2000, as required, and record a charge of $3.9 million,
after taxes, as the cumulative effect of a change in accounting principle.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This Statement establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires the
recognition of all derivatives as either assets or liabilities in the
statement of financial position and measurement of those instruments at
fair value. The accounting for changes in the fair value of a derivative is
dependent upon the intended use of the derivative. SFAS No. 133 will be
effective in the Company's first quarter of the fiscal year ending March
31, 2001 and retroactive application is not permitted. The Company has not
yet determined whether the application of SFAS No. 133 will have a material
impact on its financial position or results of operations.
PRO FORMA ADJUSTMENTS (UNAUDITED)
The pro forma statement of income data for fiscal 1998 presents the
effects on the historical financial statements of certain transactions as
if they had occurred at March 30, 1997. The pro forma statement of income
data reflects adjustments for: (i) income taxes based upon pro forma
pre-tax income as if the Company had been subject to additional Federal,
state and local income taxes, calculated using a pro forma effective tax
rate of 40.8% (see Note 8); and (ii) the reduction of interest expense
resulting from the application of a portion of the net proceeds from the
initial public offering to outstanding indebtedness.
NET INCOME PER SHARE
Basic net income per share was calculated by dividing net income by the
weighted average number of shares outstanding during the period and
excluded any potential dilution. Diluted net income per share was
calculated similarly but includes potential dilution from the exercise of
stock options and awards. The weighted average number of shares outstanding
in fiscal 1999 represents the actual number of shares outstanding during
such period. For comparison purposes only, the weighted average number of
shares outstanding immediately following the completion of the initial
public offering were considered to be outstanding in fiscal 1998. The
difference between the basic and diluted weighted average shares
outstanding is due to the dilutive effect of stock options and restricted
stock awards issued under the Company's stock option plans.
F-14
<PAGE> 59
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
RECLASSIFICATIONS
For comparative purposes, certain prior period amounts have been
reclassified to conform to the current period's presentation.
3 RESTRUCTURING CHARGE
During the fourth quarter of fiscal 1999, the Company formalized its
plans to streamline operations within its wholesale and retail operations
and reduce its overall cost structure ("Restructuring Plan"). The major
initiatives of the Restructuring Plan include the following: (1) an
evaluation of the Company's retail operations and site locations; (2) the
realignment and operational integration of the Company's wholesale
operating units; and (3) the realignment and consolidation of corporate
strategic business functions and internal processes.
In an effort to improve the overall profitability of its retail
operations, the Company plans to close three Polo stores and three outlet
stores that were not performing at an acceptable level. Additionally, the
Company will convert two Polo stores and five outlet stores to new concepts
that are expected to be more productive. Costs associated with this aspect
of the Restructuring Plan include lease and contract termination costs,
store fixed asset (primarily leasehold improvements) and intangible asset
write downs and severance and termination benefits.
The Company's wholesale operations were realigned into two new
operating units: Polo Brands and Collection Brands. Aspects of this
realignment included: (i) the reorganization of the sales force and retail
development areas; (ii) the streamlining of the design and development
process; and (iii) the consolidation of the customer service departments.
Additionally, the Company is in the process of integrating the production
and sourcing of its Polo Brands, outlet store and licensees' products into
one consolidated unit. Costs associated with the wholesale realignment
consist primarily of severance and termination benefits and lease
termination costs.
The Company's review of its corporate business functions and internal
processes resulted in a new management structure designed to better align
businesses with similar functions and the identification and elimination of
duplicative processes. Costs associated with the corporate realignment
consist primarily of severance and termination benefits and lease
termination costs.
F-15
<PAGE> 60
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
In connection with the implementation of the Restructuring Plan, the
Company recorded a restructuring charge of $58.6 million on a pre-tax basis
in its fourth quarter of fiscal 1999. The major components of the
restructuring charge and the activity through April 3, 1999 were as
follows:
<TABLE>
<CAPTION>
LEASE AND
SEVERANCE AND ASSET CONTRACT
TERMINATION WRITE TERMINATION OTHER
BENEFITS DOWNS COSTS COSTS TOTAL
<S> <C> <C> <C> <C> <C>
1999 provision $ 15,277 $ 17,788 $ 24,665 $ 830 $ 58,560
1999 activity (3,318) (17,788) (1,112) (105) (22,323)
-------- -------- -------- -------- --------
April 3, 1999 $ 11,959 $ -- $ 23,553 $ 725 $ 36,237
======== ======== ======== ======== ========
</TABLE>
Total severance and termination benefits as a result of the
Restructuring Plan relate to approximately 280 employees, 140 of which were
terminated through May 1999. Total cash outlays related to the
Restructuring Plan are expected to be approximately $39.5 million, $3.9
million of which was paid in fiscal 1999. The Company expects to
substantially complete the implementation of the Restructuring Plan during
fiscal 2000.
4 INVENTORIES
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1999 1998
<S> <C> <C>
Raw materials $ 17,675 $ 26,364
Work-in-process 8,545 12,406
Finished goods 350,640 259,715
-------- --------
$376,860 $298,485
======== ========
</TABLE>
Merchandise inventories of $196.1 million and $130.9 million at April
3, 1999 and March 28, 1998, respectively, were valued utilizing the retail
method and are included in finished goods.
F-16
<PAGE> 61
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
5 PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1999 1998
<S> <C> <C>
Land and improvements $ 3,108 $ 656
Building 10,079 --
Furniture and fixtures 150,103 116,870
Machinery and equipment 32,582 22,189
Construction in progress 30,294 --
Leasehold improvements 187,512 158,255
-------- --------
413,678 297,970
Less: accumulated
depreciation and amortization 151,879 122,622
-------- --------
$261,799 $175,348
======== ========
</TABLE>
6 ACCRUED EXPENSES AND OTHER
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1999 1998
<S> <C> <C>
Accrued operating expenses $ 47,094 $ 40,841
Accrued restructuring charge 36,237 --
Accrued payroll and benefits 27,466 33,898
Accrued shop-within-shops 15,345 24,839
-------- --------
$126,142 $ 99,578
======== ========
</TABLE>
7 FINANCING AGREEMENTS
On June 9, 1997, the Company entered into a credit facility with a
syndicate of banks which consists of a $225.0 million revolving line of
credit available for the issuance of letters of credit, acceptances and
direct borrowings and matures on December 31, 2002 (the "Credit Facility").
Borrowings under the Credit Facility bear interest, at the Company's
option, at a Base Rate equal to the higher of: (i) the Federal Funds Rate,
as published by the Federal Reserve Bank of New York, plus 1/2 of one
percent; and (ii) the prime commercial lending rate of The Chase Manhattan
Bank in effect from time to time, or at the Eurodollar Rate plus an
interest margin. At April 3, 1999, the Company had $115.5 million
outstanding in direct borrowings and was contingently liable for $22.7
million in outstanding letters of credit related to commitments for the
purchase of inventory and in connection with its leases under the Credit
Facility. There were no borrowings outstanding under the Credit Facility at
March 28, 1998.
F-17
<PAGE> 62
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
On March 30, 1999, in connection with the Company's acquisition of Club
Monaco (see Note 16), the Company entered into a $100.0 million senior
credit facility (the "1999 Credit Facility") with a syndicate of banks
consisting of a $20.0 million revolving line of credit and an $80.0 million
term loan (the "Term Loan"). The revolving line of credit is available for
working capital needs and general corporate purposes and matures on June
30, 2003. The Term Loan will be used to finance the acquisition of the
stock of Club Monaco and to repay existing indebtedness, as further
described in Note 16. The Term Loan is repayable on June 30, 2003.
Borrowings under the 1999 Credit Facility bear interest, at the Company's
option, at a Base Rate equal to the higher of: (i) the Federal Funds Rate,
as published by the Federal Reserve Bank of New York, plus 1/2 of one
percent; and (ii) the prime commercial lending rate of The Chase Manhattan
Bank in effect from time to time, or at the Eurodollar Rate plus an
interest margin. On April 12, 1999, the Company entered into interest rate
swap agreements with a notional amount of $100.0 million to convert the
variable interest rate on the 1999 Credit Facility to a fixed rate of 5.5%.
At April 3, 1999, the Company had $44.2 million outstanding under the Term
Loan.
The Credit Facility and 1999 Credit Facility (the "Credit Facilities")
contain customary representations, warranties, covenants and events of
default, including covenants regarding maintenance of net worth and
leverage ratios, limitations on indebtedness, loans, investments and
incurrences of liens, and restrictions on sales of assets and transactions
with affiliates. Additionally, the agreements provide that an event of
default will occur if Mr. Lauren and related entities fail to maintain a
specified minimum percentage of the voting power of the Company's common
stock.
The Credit Facilities bore interest primarily at the institution's
prime rate (ranging from 5.25% to 7.75% at April 3, 1999). The weighted
average interest rate on borrowings was 7.4%, 8.0% and 7.7% in fiscal 1999,
1998 and 1997, respectively.
On June 9, 1997 in connection with the Reorganization, borrowings under
the Credit Facility were used to refinance existing debt from the Polo
Partnership credit facility of $104.5 million and to repay in full $56.7
million of aggregate borrowings outstanding under the Womenswear credit
facility and the PRC credit facility. These borrowings were repaid from the
net proceeds of the initial public offering (see Note 1 (b)).
F-18
<PAGE> 63
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
8 INCOME TAXES
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal $ 68,012 $ 60,265 $ 16,649
State and local 15,080 15,330 6,633
Foreign 4,955 4,427 460
-------- -------- --------
88,047 80,022 23,742
-------- -------- --------
Deferred:
Federal (19,654) (22,357) (652)
State and local (6,117) (5,640) (286)
-------- -------- --------
(25,771) (27,997) (938)
-------- -------- --------
$ 62,276 $ 52,025 $ 22,804
======== ======== ========
</TABLE>
The foreign and domestic components of income before income taxes were
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
1999 1998 1997
<S> <C> <C> <C>
Domestic $102,644 $162,529 $113,188
Foreign 50,182 37,067 26,916
-------- -------- --------
$152,826 $199,596 $140,104
======== ======== ========
</TABLE>
Concurrent with the Reorganization and the termination of the Company's
partnership status, the Company became fully subject to Federal, state and
local income taxes. As a result and in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes", the Company recorded a
deferred tax asset and a corresponding tax benefit in the amount of $27.4
million in its consolidated financial statements in the first quarter of
fiscal 1998. The deferred tax asset reflects the net tax effect of
temporary differences, primarily accounts receivable, uniform inventory
capitalization, depreciation and other accruals, between the carrying
amounts of assets and liabilities for financial reporting and the amounts
used for income tax purposes.
Pursuant to the PRC Acquisition, the Company acquired $7.9 million of
deferred tax assets.
F-19
<PAGE> 64
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
The components of the net deferred tax assets at April 3, 1999 and
March 28, 1998, were as follows:
<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
1999 1998
<S> <C> <C>
DEFERRED TAX ASSETS:
Restructuring reserves $20,249 $ --
Accounts receivable 17,533 11,230
Net operating loss carryforwards 7,475 8,275
Uniform inventory capitalization 8,306 7,215
Deferred compensation 6,546 5,685
Property and equipment -- 4,219
Accrued expenses 3,238 2,990
Other 3,406 1,368
------- -------
66,753 40,982
Less: Valuation allowance 2,321 2,321
------- -------
$64,432 $38,661
======= =======
</TABLE>
The Company had available Federal net operating loss carryforwards of
approximately $8.4 million and state net operating loss carryforwards of
approximately $35.4 million for tax purposes to offset future taxable
income. The net operating loss carryforwards expire beginning in fiscal
2007. The utilization of the Federal net operating loss carryforwards is
subject to the limitations of Internal Revenue Code Section 382 which
applies following certain changes in ownership of the entity generating the
loss carryforward. Management believes that the Company will more likely
than not generate sufficient future taxable income to realize the entire
deferred tax asset prior to expiration of any of these net operating loss
carryforwards.
Also, the Company has available additional state net operating loss
carryforwards of approximately $37.3 million for which no deferred tax
asset has been recognized. A full valuation allowance has been recorded
since management does not believe that the Company will more likely than
not be able to utilize these carryforwards to offset future taxable income.
Subsequent recognition of the deferred tax asset relating to these net
operating loss carryforwards would result in a reduction of goodwill
recorded in connection with the PRC Acquisition.
Provision has not been made for United States or additional foreign
taxes on approximately $26.0 million of undistributed earnings of foreign
subsidiaries. Those earnings have been and will continue to be reinvested.
These earnings could become subject to tax if they were remitted as
dividends, if foreign earnings were lent to PRLC or a subsidiary or U.S.
affiliate of PRLC, or if the stock of the subsidiaries were sold.
Determination of the amount of unrecognized deferred tax liability with
respect to such earnings is not practical. Management believes that the
amount of the additional taxes that might be payable on the earnings of
foreign subsidiaries, if remitted, would be partially offset by United
States foreign tax credits.
F-20
<PAGE> 65
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
The pro forma provision for income taxes represents the income tax
provision that would have been reported had the Company been subject to
additional Federal, state and local income taxes for the entire fiscal year.
The pro forma effective tax rate was 40.8% in fiscal 1998 and consisted of
the following:
<TABLE>
<CAPTION>
FISCAL YEAR
1998
(UNAUDITED)
<S> <C>
Current:
Federal $ 63,822
State and local 17,119
Foreign 4,427
--------
85,368
--------
Deferred:
Federal (1,043)
State and local (1,694)
--------
(2,737)
--------
$ 82,631
========
</TABLE>
The historical provision for income taxes in fiscal 1999 and the pro
forma provision for income taxes in fiscal 1998 differs from the amounts
computed by applying the statutory Federal income tax rate to income before
income taxes due to the following:
<TABLE>
<CAPTION>
FISCAL YEAR
1999 1998
(UNAUDITED)
<S> <C> <C>
Provision for income taxes
at statutory Federal rate $ 53,489 $ 70,965
Increase (decrease) due to:
State and local income taxes, net of Federal benefit 5,825 11,280
Foreign income, net of foreign credits 1,055 (1,213)
Other 1,907 1,599
-------- --------
$ 62,276 $ 82,631
======== ========
</TABLE>
F-21
<PAGE> 66
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
9 FINANCIAL INSTRUMENTS
The Company from time to time enters into forward foreign exchange
contracts as hedges relating to identifiable currency positions to reduce
the risk from exchange rate fluctuations. Gains and losses on these
contracts are deferred and recognized as adjustments to the bases of those
assets. Such gains and losses were not material in fiscal 1999, 1998 and
1997.
At March 28, 1998, the Company had a forward foreign exchange contract
outstanding with Goldman, Sachs & Co. ("GS& Co.") to deliver 1.0 billion
yen on April 15, 1998 in exchange for $9.1 million. This contract is a
hedge relating to foreign licensing revenues. At March 28, 1998, the fair
value of these contracts approximated carrying value due to their
short-term maturities.
The Company is exposed to credit losses in the event of nonperformance
by the counterparties to the interest rate swap agreements and forward
foreign exchange contracts, but it does not expect any counterparties to
fail to meet their obligations.
The carrying amounts of financial instruments reported in the
accompanying balance sheets at April 3, 1999 and March 28, 1998,
approximated their estimated fair values primarily due to either the
short-term maturity of the instruments or their adjustable market rate of
interest. Considerable judgment is required in interpreting certain market
data to develop estimated fair values for certain financial instruments.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts that the Company could realize in a current market exchange.
10 EMPLOYEE BENEFITS
PROFIT SHARING RETIREMENT SAVINGS PLANS
The Company sponsors two defined contribution benefit plans covering
substantially all eligible U.S. employees not covered by a collective
bargaining agreement. The plans include a savings plan feature under
Section 401(k) of the Internal Revenue Code. The Company makes
discretionary contributions to the plans and contributes an amount equal to
50% of the first 6% of an employee's contribution. Under the terms of the
plans, a participant is 100% vested in the Company's matching and
discretionary contributions after five years of credited service.
Contributions under these plans approximated $8.7 million, $6.0 million and
$5.0 million in fiscal 1999, 1998 and 1997, respectively.
UNION PENSION
Womenswear participates in a multi-employer pension plan and is
required to make contributions to the Union of Needletrades Industrial and
Textile Employees (the "Union") for dues based on wages paid to union
employees. A portion of such dues is allocated by the Union to a Retirement
Fund which provides defined benefits to substantially all unionized
workers. Womenswear does not participate in the management of the plan and
has not been furnished with information with respect to the type of
benefits provided, vested and nonvested benefits or assets.
F-22
<PAGE> 67
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
Under the Employee Retirement Income Security Act of 1974, as amended, an
employer, upon withdrawal from or termination of a multi-employer plan, is
required to continue funding its proportionate share of the plan's unfunded
vested benefits. Such withdrawal liability was assumed in conjunction with
the acquisition of certain assets from a nonaffiliated licensee. Womenswear
has no current intention of withdrawing from the plan.
DEFERRED COMPENSATION
The Company has deferred compensation arrangements for certain key
executives which generally provide for payments upon retirement, death or
termination of employment. The amounts accrued under these plans were $15.9
million and $14.2 million at April 3, 1999 and March 28, 1998,
respectively, and are reflected in other noncurrent liabilities in the
accompanying balance sheets. Total compensation expense recorded was $2.7
million, $4.9 million and $3.2 million in fiscal 1999, 1998 and 1997,
respectively. The Company funds a portion of these obligations through the
establishment of trust accounts on behalf of the executives participating
in the plans. The trust accounts are reflected in other assets in the
accompanying balance sheets.
11 COMMON STOCK
All of Polo's outstanding Class B Common Stock is owned by Mr. Lauren
and related entities and all of its outstanding Class C Common Stock is
owned by the GS Group. Shares of Class B Common Stock are convertible at
any time into shares of Class A Common Stock on a one-for-one basis and may
not be transferred to anyone other than affiliates of Mr. Lauren. Shares of
Class C Common Stock are convertible at any time into shares of Class A
Common Stock on a one-for-one basis and may not be transferred to anyone
other than among members of the GS Group or, until April 15, 2002, any
successor of a member of the GS Group. The holders of Class A Common Stock
generally have rights identical to holders of Class B Common Stock and
Class C Common Stock, except that holders of Class A Common Stock and Class
C Common Stock are entitled to one vote per share and holders of Class B
Common Stock are entitled to ten votes per share. Holders of all classes of
Common Stock (as hereinafter defined) entitled to vote, will vote together
as a single class on all matters presented to the stockholders for their
vote or approval except for the election and the removal of directors and
as otherwise required by applicable law. Class A Common Stock, Class B
Common Stock and Class C Common Stock are collectively referred to herein
as "Common Stock."
12 STOCK INCENTIVE PROGRAM
On June 9, 1997, the Board of Directors adopted the 1997 Long-Term
Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan
authorizes the grant of awards to any officer or other employee, consultant
to, or director of the Company or any of its subsidiaries with respect to a
maximum of 10.0 million shares of the Company's Class A Common Stock (the
"Shares"), subject to adjustment to avoid dilution or enlargement of
intended benefits in the event of certain significant corporate events,
which awards may be made in the form of: (i)
F-23
<PAGE> 68
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
nonqualified stock options; (ii) stock options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code; (iii)
stock appreciation rights; (iv) restricted stock and/or restricted stock
units; (v) performance awards; and (vi) other stock-based awards. At April 3,
1999, the Company had an additional 4.6 million Shares reserved for issuance
under this plan.
Stock options were granted in fiscal 1999 and 1998 under the Stock
Incentive Plan with an exercise price equal to the stock's fair market value
on the date of grant. These options vest in equal installments primarily over
three years for officers and other key employees and over two years for all
remaining employees. The options expire ten years from the date of grant. No
compensation cost has been recognized in the accompanying financial
statements in accordance with APB No. 25. If compensation cost had been
recognized for stock options granted under the Stock Incentive Plan based on
the fair value of the stock options at the grant date in accordance with SFAS
No. 123, the Company's historical net income and net income per share in
fiscal 1999 and pro forma net income and pro forma net income per share for
fiscal 1998 would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
FISCAL YEAR
1999 1998
<S> <C> <C>
Pro forma net income $ 77,953 $ 108,985
Pro forma net income per share -
Basic and Diluted $ 0.78 $ 1.09
</TABLE>
The Company used the Black-Scholes option-pricing model to determine
the fair value of grants made in fiscal 1999 and 1998. The weighted average
fair value of options granted was $14.02 and $12.62 per share in fiscal 1999
and 1998, respectively. The following assumptions were applied in determining
the pro forma compensation cost:
<TABLE>
<CAPTION>
FISCAL YEAR
1999 1998
<S> <C> <C>
Risk-free interest rate 5.46% 6.45%
Expected dividend yield 0% 0%
Weighted average expected option life 6.0yrs 5.45yrs
Expected stock price volatility 44.0% 42.0%
</TABLE>
On June 9, 1997, the Board of Directors adopted the 1997 Stock Option
Plan for Non-Employee Directors (the "Non-Employee Directors Plan"). Under
the Non-Employee Directors Plan, grants of options to purchase shares of
Class A Common Stock of up to 500,000 shares may be granted to non-employee
directors. Stock options vest in equal installments over two years and expire
ten years from the date of grant. In fiscal 1999 and 1998, the Board of
Directors granted options to purchase 28,500 and 30,000 shares, respectively,
of Class A Common Stock with exercise prices equal to the stock's fair market
value on the date of grant. At April 3, 1999, the Company had 441,500 options
reserved for issuance under this plan.
F-24
<PAGE> 69
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
Stock option activity for the Stock Incentive Plan and Non-Employee
Directors Plan in fiscal 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
BALANCE AT MARCH 29, 1997 -- $ --
Granted 4,550 26.00
Exercised -- --
Forfeited (466) 26.00
Expired -- --
------ ------
BALANCE AT MARCH 28, 1998 4,084 $26.00
Granted 1,736 27.70
Exercised (4) 26.00
Forfeited (518) 26.24
Expired -- --
------ ------
BALANCE AT APRIL 3, 1999 5,298 $26.53
====== ======
</TABLE>
At April 3, 1999, the weighted average remaining contractual life of
outstanding options was 8.5 years and 1.7 million shares were exercisable
at a weighted average exercise price of $26.00 per share. The price range
of options granted and outstanding at April 3, 1999, was $17.13 to $29.91
per share, 95.0% of which were in the range of $26.00 to $28.22 per share.
In March 1998, the Board of Directors authorized the repurchase,
subject to market conditions, of up to $100.0 million of the Company's
Class A Common Stock. Share repurchases under this plan will be made from
time to time in the open market over a two-year period which commenced
April 1, 1998. Shares acquired under the repurchase program will be used
for stock option programs and other corporate purposes. The repurchased
shares have been accounted for as treasury stock at cost. At April 3, 1999,
the Company had repurchased 603,864 shares of its Class A Common Stock at
an aggregate cost of $16.1 million.
13 COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office, warehouse and retail space and office
equipment under operating leases which expire through 2021. These leases
typically provide the Company with the option after the initial lease term
to either renew the lease at the current fair market rental value or
purchase the equipment at the current fair market value. The Company
generally expects that leases will be renewed or replaced by other leases
in the normal course of business.
F-25
<PAGE> 70
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
As of April 3, 1999, aggregate minimum annual rental payments under
noncancelable operating leases with lease terms in excess of one year were
payable as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
<S> <C>
2000 $ 63,987
2001 58,367
2002 46,852
2003 39,000
2004 47,318
Thereafter 245,805
--------
$501,329
========
</TABLE>
Rent expense charged to operations was $59.6 million, $53.9 million
and $40.8 million, net of sublease income of $1.6 million, $1.5 million and
$2.1 million, in fiscal 1999, 1998 and 1997, respectively. Substantially
all outlet and retail store leases provide for contingent rentals based
upon sales and require the Company to pay taxes, insurance and occupancy
costs. Certain rentals are based solely on a percentage of sales and one
significant lease requires a fair market value adjustment at January 1,
2004. Contingent rental charges included in rent expense were $4.1 million,
$3.2 million and $3.7 million in fiscal 1999, 1998 and 1997, respectively.
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with certain executives
which provide for compensation and certain other benefits. The agreements
also provide for severance payments under certain circumstances.
LEGAL MATTERS
The Company is a defendant in a purported national class action
lawsuit filed in the Delaware Supreme Court in July 1997. The plaintiff has
brought the action allegedly on behalf of a class of persons who purchased
products at the Company's outlet stores throughout the United States at any
time since July 15, 1991. The complaint alleges that advertising and
marketing practices used by the Company in connection with the sales of its
products at its outlet stores violate guidelines established by the Federal
Trade Commission and the consumer protection statutes of Delaware and other
states with statutes similar to Delaware's Consumer Fraud Act and
Delaware's Consumer Contracts Act. The lawsuit seeks, on behalf of the
class, compensatory and punitive damages as well as attorneys' fees. The
Company answered the complaint and filed a motion for judgment on the
pleadings. At a hearing on that motion on March 5, 1999, the Court ruled
that the plaintiff must file an amended complaint within 30 days in order
to avoid dismissal. The plaintiff has filed an amended complaint,
essentially containing the same allegations as the initial complaint, which
the Company has answered. The Company intends to continue to vigorously
defend this lawsuit and believes that it has substantial and meritorious
defenses.
F-26
<PAGE> 71
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
In January 1999, two actions were filed in California naming as
defendants more than a dozen United States-based companies that source
apparel garments from Saipan (Commonwealth of the Northern Mariana Islands)
and a large number of Saipan-based factories. The actions assert that the
Saipan factories engage in unlawful practices relating to the recruitment
and employment of foreign workers and that the apparel companies, by virtue
of their alleged relationships with the factories, have violated various
Federal and state laws. One action, filed in California Superior Court in
San Francisco by a union and three public interest groups, alleges unfair
competition and false advertising and seeks equitable relief, unspecified
amounts for restitution and disgorgement of profits, interest and an award
of attorney's fees. The second, filed in Federal Court for the Central
District of California, is brought on behalf of a purported class
consisting of the Saipan factory workers. It alleges claims under the
Federal civil RICO statute, Federal peonage and involuntary servitude laws,
the Alien Tort Claims Act, and state tort law, and seeks equitable relief
and unspecified damages, including treble and punitive damages, interest
and an award of attorney's fees. A third action, brought in Federal Court
in Saipan solely against the garment factory defendants on behalf of a
putative class of their workers, alleges violations of Federal and local
wage and employment laws. The Company has not been named as a defendant in
any of these suits, but the Company sources products in Saipan and counsel
for the plaintiffs in these actions has informed the Company that it is a
potential defendant in these or similar actions. The Company has denied any
liability and is not at this preliminary stage in a position to evaluate
the likelihood of a favorable or unfavorable outcome if it were named in
any such suit.
The Company is from time to time involved in legal claims, involving
trademark and intellectual property, licensing, employee relations and
other matters incidental to its business. In the opinion of the Company's
management, the resolution of any matter currently pending will not have a
material effect on the financial condition or results of operations of the
Company.
F-27
<PAGE> 72
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
14 QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of certain unaudited quarterly financial
information for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
JUNE 27, SEPT. 26, DEC. 26, APRIL 3,
FISCAL 1999 1998 1998 1998 1999
<S> <C> <C> <C> <C>
Net revenues $ 358,776 $ 474,806 $ 447,530 $ 445,747
Gross profit 182,614 233,711 206,869 199,079
Net income (loss) 22,711 49,919 25,351 (7,431)
Net income (loss) per share -
Basic and Diluted $ 0.23 $ 0.50 $ 0.25 ($ .07)
Shares outstanding - Basic 100,195 99,827 99,623 99,623
Shares outstanding - Diluted 100,570 99,878 99,674 99,783
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, SEPT. 27, DEC. 27, MARCH 28,
FISCAL 1998 1997 1997 1997 1998
<S> <C> <C> <C> <C>
Net revenues $289,650 $423,354 $408,297 $359,243
Gross profit 146,652 208,279 192,921 172,704
Net income 44,638 44,933 29,311 28,689
PRO FORMA DATA:
Net income 17,194 44,933 29,311 28,689
Net income per share -
Basic and Diluted $ 0.17 $ 0.45 $ 0.29 $ 0.29
Shares outstanding - Basic 100,222 100,222 100,222 100,222
Shares outstanding - Diluted 100,222 100,222 100,316 100,429
</TABLE>
Net income per share represents both the basic and diluted computation
in accordance with SFAS No. 128, "Earnings per Share", as described in Note
2. The fiscal 1998 pro forma data presents the effects on the historical
financial statements of the pro forma adjustments described in Note 2 as if
they had occurred at March 30, 1997. For comparison purposes only, the
weighted average number of shares outstanding immediately following the
completion of the initial public offering of 100.2 million were considered
to be outstanding in the quarter ended June 28, 1997. The actual weighted
average number of shares outstanding was used for all other periods
presented.
F-28
<PAGE> 73
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
15 SEGMENT REPORTING
The Company has three reportable business segments: wholesale, retail
and licensing. The Company's reportable segments are individual business
units that offer different products and services. They are managed
separately because each segment requires different strategic initiatives,
promotional campaigns, marketing, and advertising, based upon its own
individual positioning in the market. Additionally, these segments reflect
the reporting basis used internally by senior management to evaluate
performance and the allocation of resources.
The Company's wholesale segment consists of two operating units: Polo
Brands and Collection Brands. Each unit designs, sources, markets and
distributes discrete brands. Both units primarily sell products to major
department and specialty stores and to Company-owned and licensed retail
stores.
The retail segment operates two types of stores: outlet and Polo
stores, including flagship stores. The stores sell Polo products purchased
from the Company's wholesale segment, its licensees and its suppliers.
The licensing segment, which consists of product, international and
home collection, generates revenues from royalties through its licensing
alliances. The licensing agreements grant the licensee rights to use the
various trademarks owned by the Company in connection with the manufacture
and sale of designated products in specified geographical areas.
The accounting policies of the segments are consistent with those
described in Note 2, Significant Accounting Policies. Intersegment sales
and transfers are recorded at cost and treated as a transfer of inventory.
All intercompany revenues and profits or losses are eliminated in
consolidation. Senior management does not review these sales when
evaluating segment performance. The Company's senior management evaluates
each segment's performance based upon income or loss from operations before
interest, nonrecurring gains and losses and income taxes. Corporate
overhead expenses are allocated to each segment based upon each segment's
usage of corporate resources.
The Company's net revenues, income from operations, depreciation and
amortization, total assets and capital expenditures for each segment for
fiscal 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
1999 1998 1997
<S> <C> <C> <C>
NET REVENUES:
Wholesale $ 859,498 $ 742,674 $ 671,132
Retail 659,352 570,751 379,972
Licensing 208,009 167,119 137,113
---------- ---------- ----------
$1,726,859 $1,480,544 $1,188,217
========== ========== ==========
</TABLE>
F-29
<PAGE> 74
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
<TABLE>
<CAPTION>
INCOME FROM OPERATIONS:
<S> <C> <C> <C>
Wholesale $ 59,796 $ 48,889 $ 43,666
Retail 31,840 61,622 41,084
Licensing 122,509 89,244 72,613
---------- ---------- ----------
214,145 199,755 157,363
Less: Unallocated Restructuring
Charge 58,560 -- --
---------- ---------- ----------
$ 155,585 $ 199,755 $ 157,363
========== ========== ==========
DEPRECIATION AND AMORTIZATION:
Wholesale $ 21,111 $ 13,350 $ 7,402
Retail 20,349 10,956 4,116
Licensing 4,954 3,096 2,237
---------- ---------- ----------
$ 46,414 $ 27,402 $ 13,755
========== ========== ==========
SEGMENT ASSETS:
Wholesale $ 376,154 $ 348,687 $ 293,257
Retail 424,203 286,500 169,744
Licensing 73,389 71,531 34,760
Corporate 230,838 118,412 90,997
---------- ---------- ----------
$1,104,584 $ 825,130 $ 588,758
========== ========== ==========
CAPITAL EXPENDITURES:
Wholesale $ 32,013 $ 23,470 $ 17,424
Retail 59,568 30,129 11,977
Licensing 7,817 4,178 3,660
Corporate 42,294 5,302 2,269
---------- ---------- ----------
$ 141,692 $ 63,079 $ 35,330
========== ========== ==========
</TABLE>
A substantial portion of the Company's net revenues and income from
operations are derived from, and identifiable assets are located in, the
United States.
F-30
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Polo Ralph Lauren Corporation
New York, New York
We have audited the consolidated financial statements as of and for the years
ended April 3, 1999 and March 28, 1998 and the combined financial statements for
the year ended March 29, 1997 of Polo Ralph Lauren Corporation and subsidiaries
(the "Company"), and have issued our report thereon dated May 21, 1999; such
report is included elsewhere in this Form 10-K. Our audits also included the
consolidated and combined financial statement schedule of Polo Ralph Lauren
Corporation and subsidiaries, listed in Item 14. This consolidated and combined
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such consolidated and combined financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
May 21, 1999
S-1
<PAGE> 76
SCHEDULE II
POLO RALPH LAUREN CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 3, 1999
Allowance for doubtful accounts $ 6,647 $ 1,060 $ 0 $ 560 (a) $ 7,147
Allowance for sales discounts 5,800 34,320 0 33,772 6,348
------- ------- ------- ------- -------
$12,447 $35,380 $ 0 $34,332 $13,495
======= ======= ======= ======= =======
YEAR ENDED MARCH 28, 1998
Allowance for doubtful accounts $ 6,289 $ 1,155 $ 0 $ 797 (a) $ 6,647
Allowance for sales discounts 6,556 30,539 0 31,295 5,800
------- ------- ------- ------- -------
$12,845 $31,694 $ 0 $32,092 $12,447
======= ======= ======= ======= =======
YEAR ENDED MARCH 29, 1997
Allowance for doubtful accounts $ 5,554 $ 833 $ 0 $ 98 (a) $ 6,289
Allowance for sales discounts 5,500 27,308 0 26,252 6,556
------- ------- ------- ------- -------
$11,054 $28,141 $ 0 $26,350 $12,845
======= ======= ======= ======= =======
</TABLE>
- -----------------------------------
(a) ACCOUNTS WRITTEN-OFF AS UNCOLLECTIBLE.
S-2
<PAGE> 77
POLO RALPH LAUREN CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
-------- ------------------------------------------------------------------ ----
EXHIBIT
NUMBER DESCRIPTION PAGE
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (File No. 333-24733) (the "S-1")).*
3.2 Amended and Restated By-laws of the Company (filed as Exhibit 3.2
to the S-1).*
10.1 Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive Plan
(filed as Exhibit 10.1 to the S-1)*+
10.2 Polo Ralph Lauren Corporation 1997 Stock Option Plan for
Non-Employee Directors (filed as Exhibit 10.2 to the S-1)*+
10.3 Registration Rights Agreement dated as of June 9, 1997 by and
among Ralph Lauren, GS Capital Partners, L.P., GS Capital Partners
PRL Holding I, L.P., GS Capital Partners PRL Holding II, L.P.,
Stone Street Fund 1994, L.P., Stone Street 1994 Subsidiary Corp.,
Bridge Street Fund 1994, L.P., and Polo Ralph Lauren Corporation
(filed as Exhibit 10.3 to the S-1)*
10.4 U.S.A. Design and Consulting Agreement, dated January 1, 1985,
between Ralph Lauren, individually and d/b/a Ralph Lauren Design
Studio, and Cosmair, Inc., and letter agreement related thereto
dated January 1, 1985** (filed as Exhibit 10.4 to the S-1)*
10.5 Restated U.S.A. License Agreement, dated January 1, 1985, between
Ricky Lauren and Mark N. Kaplan, as Licensor, and Cosmair, Inc.,
as Licensee, and letter agreement related thereto dated January 1,
1985** (filed as Exhibit 10.5 to the S-1)*
10.6 Foreign Design and Consulting Agreement, dated January 1, 1985,
between Ralph Lauren, individually and d/b/a Ralph Lauren Design
Studio, as Licensor, and L'Oreal S.A., as Licensee, and letter
agreements related thereto dated January 1, 1985, September 16,
1994 and October 25, 1994** (filed as Exhibit 10.6 to the S-1)*
10.7 Restated Foreign License Agreement, dated January 1, 1985, between
The Polo/Lauren Company, as Licensor, and L'Oreal S.A., as
Licensee, letter Agreement related thereto dated January 1, 1985,
and Supplementary Agreement thereto, dated October 1, 1991**
(filed as Exhibit 10.7 to the S-1)*
10.8 Amendment, dated November 27, 1992, to Foreign Design And
Consulting Agreement and Restated Foreign License Agreement**
(filed as Exhibit 10.8 to the S-1)*
10.9 License Agreement, made as of January 1, 1998, between Ralph
Lauren Home Collection, Inc. and WestPoint Stevens Inc. ** (filed
as Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the Fiscal Year ended March 28, 1998 (the "Fiscal 1998 10-K"))
10.10 License Agreement, dated March 1, 1998, between The Polo/Lauren
Company, L.P. and Polo Ralph Lauren Japan Co., Ltd., and undated
letter agreement related thereto** (filed as Exhibit 10.10 to the
S-1)*
10.11 Design Services Agreement, dated March 1, 1998, between Polo Ralph
Lauren Enterprises, L.P. and Polo Ralph Lauren Japan Co., Ltd.**
(filed as Exhibit 10-11 to the S-1)*
10.12 Deferred Compensation Agreement dated April 1, 1993, between
Michael J. Newman and Polo Ralph Lauren Corporation, assigned
October 31, 1994 to Polo Ralph Lauren, L.P. (filed as Exhibit
10.12 to the S-1)*+
</TABLE>
<PAGE> 78
<TABLE>
<S> <C> <C>
10.13 Deferred Compensation Agreement dated April 2, 1995 between F.
Lance Isham and Polo Ralph Lauren, L.P.(filed as Exhibit 10.14 to
the S-1)*+
10.14 Amendment to Deferred Compensation Agreement made as of
November 10, 1998 between F. Lance Isham and Polo Ralph
Lauren Corporation+
10.15 Amended and Restated Employment Agreement dated October 26, 1993
between Michael J. Newman and Polo Ralph Lauren Corporation, as
amended and assigned October 31, 1994 to Polo Ralph Lauren, L.P.
and as further amended as of June 9, 1997 (filed as Exhibit 10.17
to the S-1)*+
10.16 Amended and Restated Employment Agreement effective November 10,
1998 between F. Lance Isham and Polo Ralph Lauren Corporation+
10.17 Stockholders Agreement dated as of June 9, 1997 among Polo Ralph
Lauren Corporation, GS Capital Partners, L.P., GS Capital Partners
PRL Holding I, L.P., GS Capital Partners PRL Holding II, L.P.,
Stone Street Fund 1994, L.P., Stone Street 1994 Subsidiary Corp.,
Bridge Street Fund 1994, L.P., Mr. Ralph Lauren, RL Holding, L.P.
and RL Family (filed as Exhibit 10.22 to the S-1)*
10.18 Form of Credit Agreement between Polo Ralph Lauren Corporation and
The Chase Manhattan Bank (filed as Exhibit 10.24 to the S-1)*
10.19 Form of Guarantee and Collateral Agreement by Polo Ralph Lauren
Corporation in favor of The Chase Manhattan Bank (filed as Exhibit
10.25 to the S-1)*
10.20 Credit Agreement between Polo Ralph Lauren Corporation and the
Chase Manhattan Bank dated as of March 30, 1999
10.21 Form of Indemnification Agreement between Polo Ralph Lauren
Corporation and its Directors and Executive Officers (filed as
Exhibit 10.26 to the S-1)*
10.22 Employment Agreement dated June 9, 1997 between Ralph Lauren and
Polo Ralph Lauren Corporation (filed as Exhibit 10.27 to the
S-1)*+
10.23 Amended and Restated Employment Agreement effective April 4, 1999
between Ralph Lauren and Polo Ralph Lauren Corporation+
10.24 Employment Agreement effective November 10, 1998 between Hamilton
South and Polo Ralph Lauren Corporation+
10.25 Design Services Agreement, dated as of October 18, 1995,
by and between Polo Ralph Lauren Enterprises, L.P. and
Jones Apparel Group, Inc. ** (filed as Exhibit 10.25 to
the Fiscal 1998 10-K.)*
10.26 License Agreement, dated as of October 18, 1995, by and between
Polo Ralph Lauren Enterprises, L.P. and Jones Apparel Group,
Inc.** (filed as Exhibit 10.26 to the Fiscal 1998 10-K)*
21.1 List of Significant Subsidiaries of the Company.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
* Incorporated herein by reference.
+ Exhibit is a management contract or compensatory plan or
arrangement.
** Portions of Exhibits 10.4 - 10.11 and 10.24 and 10.25 have been
omitted pursuant to a request for confidential treatment and have
been filed separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.14
AMENDMENT TO
DEFERRED COMPENSATION AGREEMENT
Agreement made as of the 10th day of November, 1998, by and between
POLO RALPH LAUREN CORPORATION, a Delaware corporation (the "Company"), and F.
Lance Isham (the "Executive").
The Company (as successor to Polo Ralph Lauren, L.P.) and Executive are
parties to a Deferred Compensation Agreement, made as of the 2nd day of April,
1995 (the "Deferred Compensation Agreement").
Executive has been with effect from this day appointed President of the
Company and, in connection therewith and with related actions taken with respect
to that certain Amended and Restated Employment, dated as of the date hereof,
between the Company and Executive, the parties wish to modify the Deferred
Compensation Agreement.
NOW, THEREFORE, intending to be bound the parties hereby agree as
follows:
1. Capitalized terms defined in the Deferred Compensation Agreement and
used herein shall have the same meaning herein. All references to the Company in
the Deferred Compensation Agreement are to Polo Ralph Lauren Corporation.
2. Section 1(a) of the Deferred Compensation Agreement is hereby
amended so that no crediting to the Deferred Compensation Account shall be made
with respect to incentive or bonus payments for any period after fiscal 1999
(i.e., the fiscal year ending April 3, 1999), provided that crediting with
respect to Executive's bonus for fiscal 1999, if any, under the Company's
Executive Incentive Plan, shall be made even if such bonus is paid in fiscal
2000.
3. The Deferred Compensation Agreement remains in full force and effect
and unmodified except as herein provided.
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement
as of the date first written above.
POLO RALPH LAUREN CORPORATION,
a Delaware corporation
By: /s/ Michael J. Newman
---------------------
Michael J. Newman
EXECUTIVE:
By: /s/ F. Lance Isham
----------------------
F. Lance Isham
<PAGE> 1
EXHIBIT 10.16
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") made
effective as of the 10th day of November, 1998, by and between Polo Ralph Lauren
Corporation, a Delaware corporation (the "Corporation"), and F. Lance Isham (the
"Executive").
WHEREAS, the Executive is currently employed by the Corporation
pursuant to an employment agreement dated as of April 2, 1995, (the "Prior
Agreement");
WHEREAS, the Executive has been elected to be the Corporation's
President by the Board of Directors (the "Board");
WHEREAS, the Corporation and the Executive wish to amend and restate
the Prior Agreement as evidenced by this Agreement effective as of the date
hereof in order to provide for the modification of certain provisions of the
Prior Agreement relating to the Executive's annual and incentive compensation,
equity opportunities and restrictive covenants;
NOW, THEREFORE, intending to be bound the parties hereby agree as
follows with effect from the date first above written.
1. Employment/Prior Agreement. The Corporation hereby agrees to employ
the Executive, and the Executive hereby agrees to serve the Corporation, on the
terms and conditions set forth herein. From and after the date hereof, the terms
of this Agreement shall supersede in all respects the terms of the Prior
Agreement which shall cease to be of any further force and effect.
2. Term. The employment of the Executive by the Corporation as provided
in Section 1 pursuant to this Agreement will be effective on the date hereof.
The Executive will serve at the direction and pleasure of the Board. The term of
the Executive's employment under this Employment Agreement shall continue until
the close of business of the fifth anniversary of the date of this Agreement,
subject to earlier termination in accordance with the terms of this Agreement
(the "Term"). The Term shall be automatically extended for successive one year
periods thereafter unless either party notifies the other in writing of its
intention not to so extend the Term at least twelve (12) months prior to the
commencement of the next scheduled one year extension.
3. Position and Duties. The Executive shall serve as President of the
Corporation and shall have such responsibilities, duties and authority as he may
have as of the date hereof (or which arise from any comparable position as a key
executive officer to which he may be
1
<PAGE> 2
appointed after the date hereof) and as may from time to time be assigned to the
Executive by the Board that are consistent with such responsibilities, duties
and authority. The Executive shall devote substantially all his working time and
efforts to the business and affairs of the Corporation.
4. Compensation and Related Matters.
(a) Salary and Incentive Bonus
(i) Salary. From and after the date of this Agreement
the Corporation shall pay to the Executive an annual salary of
not less than $900,000. Such salary shall be paid in
substantially equal installments on a basis consistent with
the Corporation's payroll practices and shall be subject to
such increases, if any, as may be determined in the sole
discretion of the Board.
(ii) Incentive Bonus. Executive shall participate in
the Corporation's Executive Incentive Plan (the "EIP") and be
eligible to earn an annual cash bonus for each fiscal year
during the term of this Agreement (the "Bonus"). For fiscal
year 1999, Executive's Bonus opportunity shall be based on his
actual salary earnings for the year but otherwise shall be
unchanged and calculated as if Executive had remained Group
President and COO of the Corporation's men's division for the
full fiscal year. Beginning for fiscal year 2000 and for each
fiscal year thereafter Executive's Bonus opportunity shall
range from 115% to 230% of Executive's annual salary based
upon the extent to which corporate performance goals
established by the Compensation Committee (the "Compensation
Committee") of the Board are achieved. The Bonus, if any,
payable to the Executive in respect of each fiscal year will
be paid at the same time that bonuses are paid to other
executives under the EIP. Notwithstanding any provision of
this Agreement to the contrary, the Executive's entitlement to
payment of an annual incentive bonus during any period when
the compensation payable to the Executive pursuant to this
Agreement is subject to the deduction limitations of section
162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), shall be subject to shareholder approval of a plan or
arrangement evidencing such annual incentive bonus opportunity
that complies with the requirements of section 162(m) of the
Code.
(b) Expenses. During the term of the Executive"s employment
hereunder, the Executive shall be entitled to receive prompt
reimbursement for all reasonable and customary expenses incurred by the
Executive in performing services hereunder, including all expenses of
travel and living expenses while away from home on business or at the
request of and in the service of the Corporation, provided that such
expenses are
2
<PAGE> 3
incurred and accounted for in accordance with the policies and
procedures established by the Corporation.
(c) Other Benefits. During the term of the Executive's
employment hereunder, the Executive shall be entitled to participate in
or receive benefits under any medical, pension, profit sharing or other
employee benefit plan or arrangement generally made available by the
Corporation now or in the future to its executives and key management
employees (or to their family members), subject to and on a basis
consistent with the terms, conditions and overall administration of
such plans and arrangements. Nothing paid to the Executive under any
plan or arrangement presently in effect or made available in the future
shall be deemed to be in lieu of the salary payable to the Executive
pursuant to paragraph (a) of this Section.
(d) Vacations. The Executive shall be entitled to reasonable
vacations consistent with past practice.
(e) Restricted Stock. Executive shall be granted a number of
restricted shares of the Corporation's Class A Common Stock with a fair
market value equal to $2 million as of the date hereof, based upon the
mean between the high and low sales price per share for such stock on
this date as reported on the Composite tape for securities traded on
the New York Stock Exchange; provided that any fractional share will be
paid to the Executive in cash. The restricted shares will vest with
respect to one third (1/3) of the aggregate number of restricted shares
so granted on each of the third, fourth and fifth anniversaries of the
date of this Agreement subject to the Executive's continued employment
through each vesting date.
(f) Options. With respect to fiscal years 2000 and 2001,
Executive shall be granted options to purchase at least 100,000 shares
of the Corporation's Class A Common Stock pursuant to the terms of the
Corporation's 1997 Long-Term Stock Incentive Plan. Options granted to
the Executive pursuant to the foregoing will vest and become
exercisable ratably over three (3) years on each of the first three
anniversaries of the date of grant, subject to the Executive's
continued employment through each vesting date, and will have an
exercise price equal to the fair market value per shares as of the date
of grant.
5. Termination.
(a) Termination by Corporation. The Executive's employment
hereunder may be terminated by the Board at any time with or without
Cause.
3
<PAGE> 4
(b) Termination by The Executive. The Executive may terminate
his employment hereunder with or without Good Reason. For purposes of
this Agreement, "Good Reason" shall mean (A) a material diminution in
the Executive's duties or the assignment to the Executive of a title or
duties inconsistent with his position as President of the Corporation,
(B) a reduction in the Executive's salary or annual incentive bonus
opportunity, (C) a failure of the Corporation to comply with any
material provision of this Agreement or (D) the Executive's ceasing to
be entitled to the payment of an annual incentive bonus as a result of
the failure of the Corporation's shareholders to approve a plan or
arrangement evidencing such annual incentive bonus in a manner that
complies with the requirements of section 162(m) of the Internal
Revenue Code of 1986; provided that the events described in clauses
(A), (B) and (C) above shall not constitute Good Reason unless and
until such diminution, reduction or failure (as applicable) has not
been cured within thirty (30) days after notice of such noncompliance
has been given by the Executive to the Corporation.
(c) Any termination of the Executive's employment by the
Corporation or by the Executive (other than termination pursuant to
Section 6(d)(i) hereof) shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 10
hereof. If termination is pursuant to Sections 6(d)(ii)-(iii) or 5(b)
hereof, the "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
6. Compensation Upon Termination.
(a) If the Corporation shall terminate the Executive's
employment for any reason other than an Enumerated Reason as set forth
in Section 6(d) hereof and other than due to the Corporation's election
not to extend the Term of this Agreement as contemplated by Section 2,
or if the Executive resigns for Good Reason pursuant to Section 5(b)
hereof, then so long as the Executive complies with Section 8 hereof
the Executive shall be entitled to the following:
(i) an amount equal to the greater of:
(A) the sum of (I) three (3) times the
Executive's salary at the rate in effect on such date
(unless employment is terminated by the Executive for
Good Reason pursuant to Section 5(b) hereof as a
result of a salary reduction, in which case, at the
rate in effect prior to such reduction), plus (II)
two (2) times the average annual incentive bonus paid
to the Executive over the preceding two years; plus a
pro rata annual incentive bonus for
4
<PAGE> 5
the year of termination (based on the average annual
incentive bonus paid to the Executive over the
preceding two years and based upon the percentage of
the calendar year in which such termination occurs
that shall have elapsed through the date of
termination (a "Pro Rata Annual Incentive Bonus"));
and
(B) the sum of (i) five (5) minus the
number of years (including fractions thereof) that
shall have elapsed from the date of this Agreement
times the Executive's salary at the rate in effect on
such date (unless employment is terminated by the
Executive for Good Reason pursuant to Section 5(b)
hereof as a result of a salary reduction, in which
case, at the rate in effect prior to such reduction),
plus (ii) two (2) times the average annual incentive
bonus paid to the Executive over the preceding two
(2) years; plus a Pro Rata Annual Incentive Bonus for
the year of termination.
Any amounts paid pursuant to either clause (A) or clause (B) above
shall be paid in equal monthly installments for a period of thirty-six (36)
months (the "Severance Period") from the date of termination, except that the
Pro Rata Annual Incentive Bonus shall be paid in a lump sum in cash within
thirty (30) days following the date of the Executive's termination of
employment.
(ii) Continued participation in the Corporation's
health benefit plans during the Severance Period; provided
that if the Executive is provided with similar coverage by a
successor employer, any such coverage by the Corporation shall
cease;
(iii) Continued use of the Corporation automobile
until the then existing auto lease term expires;
(iv) Waiver of collateral interest securing return to
the Corporation of premiums paid by the Corporation for the
Executive's existing split dollar life insurance policy;
(v) Any unvested restricted shares granted to the
Executive pursuant to Section 4(e) will continue to vest on
their scheduled vesting dates, subject to and conditioned upon
the Executive's compliance with Section 8 hereof;
(vi) Any unvested options granted to the Executive
pursuant to Section 4(f) will continue to vest on their
scheduled vesting dates, subject to and conditioned upon the
Executive's compliance with Section 8 hereof and subject to
and conditioned upon the Executive's compliance with Section
8, any vested options granted to the Executive pursuant to
Section 4(f) (including any options
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<PAGE> 6
that continue to vest as described above) will remain
exercisable until the latest to occur of (x) five (5) years
from the date of this Agreement, (y) one (1) year from the
date the Executive's termination of employment and (z) thirty
(30) days from the date the option becomes vested and
exercisable;
(vii) If a Change of Control shall have occurred
prior to the date of termination the Executive shall be
entitled at his option, exercisable in writing within fifteen
days of the date of termination, to receive the salary and
bonus payments pursuant to subsection (i) above in an
equivalent amount in two equal lump sum installments, the
first payable within 30 days of the date of termination and
the second on the first anniversary of the date of
termination. Executive's right to receive the other benefits
provided for in this Section 6(a) shall otherwise be
unaffected. As used herein, the term "Change of Control" shall
mean Ralph Lauren or members of his family (or trusts or
entities created for their benefit) no longer control 50% or
more of the voting power of the then outstanding securities of
the Corporation entitled to vote for the election of the
Corporation's directors; and
(viii) Except as provided above, the Corporation will
have no further obligations to the Executive under this
Agreement following the Executive's termination of employment
under the circumstances described in this Section 6(a).
(b) If the Executive's employment is terminated by his death
or by the Corporation due to the Executive's Disability (as defined
below):
(i) The Corporation shall pay any amounts due to the
Executive through the date of his death or the date of his
termination due to Disability, including a Pro Rata Annual
Incentive Bonus for the year of termination;
(ii) Any unvested restricted shares granted to the
Executive pursuant to Section 4(e) shall vest immediately;
(iii) Any unvested options granted to the Executive
pursuant to Section 4(f) will vest and all such options held
by the Executive, or his estate, will remain exercisable for
three (3) years from the date of the Executive's death or
termination due to disability; and
(iv) Except as provided above, the Corporation will
have no further obligations to the Executive under this
Agreement following the Executive's termination of employment
under the circumstances described in this Section 6(b).
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(c) If the Executive's employment shall be terminated by the
Corporation pursuant to section 6(d)(iii) for Cause or by the
Executive for other than Good Reason (including due to the Executive's
election not to extend the Term as contemplated by Section 2), the
Corporation shall pay the Executive his full salary through the date of
termination at the rate in effect prior to such termination and the
Corporation shall have no further obligations to the Executive under
this Agreement but the Executive shall be bound by Section 8 hereof.
Following any such termination, any then unvested restricted shares
granted to the Executive pursuant to Section 4(e) shall be forfeited
and any options granted to the Executive pursuant to Section 4(f) that
have not theretofore been exercised shall cease to be exercisable and
shall terminate as of the date of such termination of employment.
(d) The term "Enumerated Reason" with respect to termination
by the Corporation of the Executive's employment shall mean any one of
the following reasons:
(i) Death. The Executive's employment hereunder shall
terminate upon his death.
(ii) Disability. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive
shall have been absent from his duties hereunder on a
full-time basis for the entire period of six consecutive
months, and within thirty (30) days after written Notice of
Termination is given (which may occur before or after the end
of such six month period) shall not have returned to the
performance of his duties hereunder on a full-time basis (a
"Disability"), the Corporation may terminate the Executive's
employment hereunder.
(iii) Cause. The Corporation shall have "Cause" to
terminate the Executive's employment hereunder upon (1) the
willful and continued failure by the Executive to
substantially perform his duties hereunder after demand for
substantial performance is delivered by the Corporation that
specifically identifies the manner in which the Corporation
believes the Executive has not substantially performed his
duties, or (2) Executive's conviction of, or plea of nolo
contendere to, a crime (whether or not involving the
Corporation) constituting any felony or (3) the willful
engaging by the Executive in gross misconduct relating to the
Executive's employment that is materially injurious to the
Corporation, monetarily or otherwise (including, but not
limited to, conduct that constitutes competitive activity, in
violation of Section 8) or which subjects, or if generally
known, would subject the Corporation to public ridicule or
embarrassment. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be considered
"willful" unless done, or omitted to be done, by him not in
good
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faith and without reasonable belief that his action or
omission was in the best interest of the Corporation.
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause without (x)
reasonable written notice to the Executive setting forth the
reasons for the Corporation's intention to terminate for
Cause, (y) an opportunity for the Executive, together with his
counsel, to be heard before the Board, and (z) delivery to the
Executive of a Notice of Termination, as defined in Section
5(c) hereof, from the Board finding that in the good faith
opinion of the Board the Executive was guilty of conduct set
forth above in clauses (A) through (C) hereof, and specifying
the particulars thereof in detail.
(e) If the Executive's employment with the Corporation shall
terminate due to the Corporation's election not to extend the Term of
this Agreement as contemplated by Section 2:
(i) The Executive shall be entitled to receive an
amount, payable in equal monthly installments over a one year
period, equal to the sum of (x) his annual salary, plus (y)
his average annual incentive bonus paid over the preceding two
years;
(ii) Any unvested restricted shares granted to the
Executive pursuant to Section 4(e) will continue to vest on
their scheduled vesting dates, subject to and conditioned upon
the Executive's compliance with Section 8 hereof;
(iii) Any unvested options granted to the Executive
pursuant to Section 4(f) will continue to vest on their
scheduled vesting dates, subject to and conditioned upon the
Executive's compliance with Section 8 hereof and subject to
and conditioned upon the Executive's compliance with Section
8, any vested options granted to the Executive pursuant to
Section 4(f) (including any options that continue to vest as
described above) will remain exercisable until the latest to
occur of (x) five (5) years from the date of this Agreement,
(y) one (1) year from the date the Executive's termination of
employment and (z) thirty (30) days from the date the option
becomes vested and exercisable; and
(iv) Except as provided above, the Corporation shall
have no further obligations to the Executive under this
Agreement following the Executive's termination of employment
under the circumstances described in this Section 6(e).
7. Mitigation. The Executive shall have no duty to mitigate the
payments provided for in Sections 6(a) or 6(e) by seeking other employment or
otherwise and such payment shall not be subject to reduction for any
compensation received by the Executive from employment in any
8
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capacity following the termination of the Executive's employment with the
Corporation.
9
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8. Noncompetition.
(a) The Executive agrees that for the duration of his
employment and for a period three (3) years from the date of
termination thereof, he will not, on his own behalf or on behalf of any
other person or entity, hire, solicit, or encourage to leave the employ
of the Corporation or its subsidiaries, affiliates or licensees any
person who is an employee of any of such companies.
(b) The Executive agrees that for the duration of his
employment and for a period of three (3) years from the date of
termination thereof, the Executive will take no action which is
intended, or would reasonably be expected, to harm (e.g. making public
derogatory statements or misusing confidential Corporation information,
it being acknowledged that the Executive's employment with a competitor
in and of itself shall not be deemed to be harmful to the Corporation
for purposes of this Section 8(b)) the Corporation or any of its
subsidiaries, affiliates or licensees or their reputation.
(c) The Executive agrees that during the duration of his
employment and;
(i) in the event of the Executive's termination of
employment due to the Executive's resignation without Good
Reason, until the later of (x) five (5) years from the date of
this Agreement and (y) two (2) years from the date of such
termination of employment; and
(ii) in the event of the Executive's termination of
employment by the Corporation without Cause or the Executive's
resignation for Good Reason pursuant to Section 5(b), for two
(2) years from the date of such termination of employment; and
(iii) in the event of the Executive's termination of
employment by the Corporation for Cause, at the election of
the Corporation in consideration for the payment to the
Executive of an amount equal to the Executive's salary and
annual incentive bonus (equal to the average annual incentive
bonus paid to the Executive over the preceding two years) for
each year within such period, for a period of up to two (2)
years from the date of such termination of employment,
then, during the period specified in clause (i), (ii) or (iii) above, as
applicable, the Executive shall not, directly or indirectly, (A) engage in any
"Competitive Business" (as defined below) for his own account, (B) enter into
the employ of, or render any services to, any person engaged in a Competitive
Business, or (C) become interested in any entity engaged in a Competitive
Business, directly or indirectly as an individual, partner, shareholder,
officer, director, principal, agent,
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employee, trustee, consultant, or in any other relationship or capacity;
provided that the Executive may own, solely as an investment, securities of any
entity which are traded on a national securities exchange if the Executive is
not a controlling person of, or a member of a group that controls such entity
and does not, directly or indirectly, own 2% or more of any class of securities
of such entity.
For purposes of this Agreement the term "Competitive Business" shall
mean any of the brands and companies that the Corporation and the Executive may
agree to and acknowledge in writing from time to time based upon a good faith
determination that such brands or companies compete with the Corporation or its
subsidiaries, affiliates or licensees.
The provisions of this Section 8(c) shall not apply if Executive elects
to terminate his employment with the Corporation other than for Good Reason
following the appointment of a person other than Ralph Lauren, Michael Newman or
Executive to the position of chief executive officer of the Corporation,
provided (i) Executive has remained in his position for a period of nine months
following any such appointment, (ii) Executive has given the Corporation no less
than 90 day's prior written notice of such termination referring to the
provisions of this Section and (iii) no more than 18 months shall have elapsed
from the date of any such appointment prior to the giving of notice of
termination hereunder by Executive.
(d) The Executive will not at any time (whether during or
after his employment with the Corporation) disclose or use for his own
benefit or purposes or the benefit or purposes of any other person,
entity or enterprise, other than the Corporation or any of its
subsidiaries or affiliates, any trade secrets, information, data, or
other confidential information relating to customers, development
programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, manufacturing processes,
financing methods, plans or the business and affairs of the Corporation
generally, or any subsidiary, affiliate or licensee of the Corporation;
provided that the foregoing shall not apply to information which is not
unique to the Corporation or which is generally known to the industry
or the public other than as a result of the Executive's breach of this
covenant. The Executive agrees that upon termination of his employment
with the Corporation for any reason, he will return to the Corporation
immediately all memoranda, books, papers, plans, information, letters
and other data, and all copies thereof or therefrom, in any way
relating to the business of the Corporation or its subsidiaries or
affiliates or licensees.
(e) If the Executive breaches, or threatens to commit a breach
of, any of the provisions of this Section 8 (the "Restrictive
Covenants"), the Corporation shall have the following rights and
remedies, each of which rights and remedies shall be independent of the
other and severally enforceable, and all of which rights and remedies
shall be in
11
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addition to, and not in lieu of, any other rights and remedies
available to the Corporation under law or equity:
(i) The right and remedy to have the Restrictive
Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to
the Corporation and that money damages will not provide an
adequate remedy to the Corporation;
(ii) The right and remedy to require the Executive to
account for and pay over to the Corporation all compensation,
profits, monies, accruals, increments or other benefits
(collectively, "Benefits") derived or received by the
Executive as the result of any transactions constituting a
breach of any of the Restrictive Covenants, and the Executive
shall account for and pay over such Benefits to the
Corporation; and
(iii) The right to discontinue the payment of any
amounts owing to the Executive under the Agreement.
(f) If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected
and shall be given full effect, without regard to the invalid portion.
In addition, if any court construes any of the Restrictive Covenants,
or any part thereof, to be unenforceable because of the duration of
such provision or the area covered thereby, such court shall have the
power to reduce the duration or area of such provision and, in its
reduced form, such provision shall then be enforceable and shall be
enforced.
9. Successors; Binding Agreement.
(a) The Corporation will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Corporation would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Corporation" shall mean the Corporation as hereinbefore
defined and any successor to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Section
9 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives,
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executors, administrators, successors, heirs, distributees, devisees
and legatees. If the Executive should die while any amounts are payable
to him hereunder all such amounts unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
10. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered with receipt
acknowledged or five business days after having been mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Mr. F. Lance Isham
205 East 78th Street
New York, New York 10021
with a copy to:
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attention: Jeffrey P. Englander, Esq.
If to the Corporation:
Polo Ralph Lauren Corporation
650 Madison Avenue
New York, New York 10022
Attention: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Corporation as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at
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any prior or subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
York without regard to its conflicts of law principles.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
the City of New York before a single arbitrator who shall be a retired federal
judge in accordance with the then obtaining employment rules of the American
Arbitration Association. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that the Corporation shall be
entitled to seek a restraining order or injunction in any court of competent
jurisdiction to prevent any continuation of any violation of the provisions of
Section 8 of this Agreement and the Executive hereby consents that such
restraining order or injunction may be granted without the necessity of the
Corporation's posting any bond, and provided further that the Executive shall be
entitled to seek specific performance of his right to be paid until the date of
termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement. Fees and expenses payable to the American
Arbitration Association and the arbitrator shall be shared equally by the
Corporation and by the Executive, but the parties shall otherwise bear their own
costs in connection with the arbitration; provided that the arbitrator shall be
entitled to include as part of the award to the prevailing party the reasonable
legal fees and expenses incurred by such party in an amount not to exceed
$25,000.
15. Withholding. The Corporation may withhold from any amounts payable
under this Agreement such federal, state and local taxes as may be required to
be withheld pursuant to applicable law or regulation.
16. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
duly executed and the Executive has hereunto set his hand, each on the date set
forth below, but effective as of the 10th day of November, 1998.
POLO RALPH LAUREN CORPORATION
By: /s/ Ralph Lauren
----------------
Date: March 10, 1999
/s/ F. Lance Isham
-----------------
Executive: F. Lance Isham
Date: February 24, 1999
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EXHIBIT 10.20
EXECUTION COPY
================================================================================
----------
CREDIT AGREEMENT
Dated as of March 30, 1999
----------
Among
POLO RALPH LAUREN CORPORATION,
as Borrower
THE LENDERS AND OTHER FINANCIAL
INSTITUTIONS PARTIES HERETO,
THE CHASE MANHATTAN BANK,
as Agent
and
CHASE SECURITIES INC.,
as Book Manager and Lead Arranger
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. DEFINITIONS.................................................. 1
1.1 Defined Terms................................................ 1
1.2 Other Definitional Provisions................................ 21
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS............. 21
2.1 Revolving Credit Commitments................................. 21
2.2 Revolving Credit Notes....................................... 22
2.3 Procedure for Revolving Credit Borrowing..................... 22
2.4 Use of Proceeds.............................................. 22
SECTION 3. AMOUNT AND TERMS OF TERM LOANS............................... 22
3.1 Term Loan Commitments........................................ 22
3.2 Term Notes................................................... 23
3.3 Procedure for Term Loan Borrowing............................ 23
3.4 Use of Proceeds.............................................. 23
SECTION 4. AMOUNT AND TERMS OF LETTERS OF CREDIT........................ 24
4.1 Letters of Credit............................................ 24
4.2 Issuance of Commercial Letters of Credit..................... 24
4.3 Issuance of Standby Letters of Credit........................ 25
4.4 Participating Interests...................................... 25
4.5 Procedure for Opening Letters of Credit...................... 25
4.6 Payments..................................................... 26
4.7 Further Assurances........................................... 27
4.8 Letter of Credit Applications................................ 27
4.9 Use of Letters of Credit..................................... 27
SECTION 5. ACCEPTANCES.................................................. 27
5.1 Acceptances.................................................. 27
5.2 Participating Interests...................................... 28
5.3 Payments..................................................... 28
5.4 Termination of Acceptance Commitments........................ 29
5.5 Mandatory Prepayment of Acceptance........................... 29
SECTION 6. GENERAL PROVISIONS APPLICABLE TO LOANS....................... 30
6.1 Interest Rates and Payment Dates............................. 30
6.2 Commitment and Other Fees.................................... 30
6.3 Commercial Letter of Credit Fees............................. 31
6.4 Standby Letter of Credit Fees................................ 31
6.5 Acceptance Fees.............................................. 31
6.6 Computation of Interest and Fees............................. 32
6.7 Optional Prepayments......................................... 32
</TABLE>
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<TABLE>
<S> <C> <C>
6.8 Termination or Reduction of Commitments...................... 32
6.9 Pro Rata Treatment and Payments.............................. 33
6.10 Conversion and Continuation Options.......................... 34
6.11 Minimum Amounts and Maximum Number of Tranches............... 34
6.12 Inability to Determine Interest Rate......................... 34
6.13 Illegality................................................... 35
6.14 Indemnity.................................................... 35
6.15 Change of Lending Office..................................... 36
6.16 Taxes........................................................ 36
6.17 Requirements of Law.......................................... 37
6.18 Obligations Absolute......................................... 39
6.19 Mandatory Prepayments........................................ 40
6.20 Cash Collateralization of Letter of Credit Obligations and
Acceptance Obligations.................................... 40
SECTION 7. CONDITIONS PRECEDENT ........................................ 41
7.1 Conditions to Initial Loans.................................. 41
7.2 Conditions to All Extensions of Credit....................... 43
7.3 Tender Offer Funding Procedures.............................. 43
SECTION 8. REPRESENTATIONS AND WARRANTIES............................... 44
8.1 Financial Condition.......................................... 44
8.2 No Change.................................................... 45
8.3 Existence; Compliance with Law............................... 45
8.4 Power; Authorization; Enforceable Obligations................ 45
8.5 No Legal Bar................................................. 46
8.6 No Material Litigation....................................... 46
8.7 No Default................................................... 46
8.8 Ownership of Property; Liens................................. 46
8.9 No Burdensome Restrictions................................... 46
8.10 Taxes........................................................ 46
8.11 Federal Regulations.......................................... 47
8.12 ERISA........................................................ 47
8.13 Investment Company Act; Other Regulations.................... 47
8.14 Subsidiaries................................................. 47
8.15 Chief Executive Office....................................... 48
8.16 General Partners' Existence; Compliance with Law............. 48
8.17 General Partners' Power; Authorization; Enforceable
Obligations................................................ 48
8.18 Certain Documents............................................ 48
8.19 Accuracy of Information...................................... 48
8.20 Environmental Matters........................................ 49
8.21 Year 2000 Matters............................................ 50
8.22 Guarantors................................................... 50
SECTION 9. AFFIRMATIVE COVENANTS........................................ 50
9.1 Financial Statements and Information......................... 50
9.2 Corporate Existence; Nature of Business...................... 51
9.3 Payment of Obligations....................................... 52
9.4 Maintenance of Properties; Insurance......................... 52
</TABLE>
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<TABLE>
<S> <C> <C>
9.5 Maintain Trademarks.......................................... 52
9.6 Inspection; Books and Records................................ 52
9.7 Notices...................................................... 53
9.8 Guarantee Agreement Supplement............................... 53
9.9 Use of Proceeds.............................................. 54
9.10 Observance of Agreements..................................... 54
SECTION 10. NEGATIVE COVENANTS.......................................... 54
10.1 Consolidated Net Worth...................................... 54
10.2 Consolidated Indebtedness Ratio............................. 54
10.3 Limitation on Indebtedness.................................. 54
10.4 Limitation on Liens......................................... 55
10.5 Sale of Assets.............................................. 57
10.6 Limitation on Fundamental Changes........................... 58
10.7 Limitation on Loans, Advances and Other Investments......... 58
10.8 Compliance with ERISA....................................... 60
10.9 Transactions with Affiliates................................ 60
SECTION 11. EVENTS OF DEFAULT........................................... 61
SECTION 12. THE AGENT AND ISSUING LENDER................................ 64
12.1 Appointment; Authorization.................................. 64
12.2 Delegation of Duties........................................ 64
12.3 Exculpatory Provisions...................................... 65
12.4 Reliance by Agent and Issuing Lender........................ 65
12.5 Notice of Default........................................... 65
12.6 Non-Reliance on Agent, Issuing Lender or Other Lenders...... 66
12.7 Indemnification............................................. 66
12.8 Agent in Its Individual Capacity............................ 67
12.9 Successor Agent............................................. 67
SECTION 13. MISCELLANEOUS............................................... 67
13.1 Amendments and Waivers...................................... 67
13.2 Notices..................................................... 68
13.3 No Waiver; Cumulative Remedies.............................. 69
13.4 Survival of Representations and Warranties.................. 69
13.5 Payment of Expenses and Taxes............................... 69
13.6 Successors and Assigns; Participations...................... 70
13.7 Adjustments; Set-Off........................................ 72
13.8 Confidentiality............................................. 73
13.9 Severability................................................ 73
13.10 Counterparts................................................ 74
13.11 No Third Party Beneficiaries................................ 74
13.12 SUBMISSION TO JURISDICTION; WAIVERS......................... 74
13.13 GOVERNING LAW............................................... 75
13.14 Integration................................................. 75
13.15 Acknowledgments............................................. 75
13.16 Satisfaction in Dollars..................................... 76
</TABLE>
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SCHEDULES:
Schedule 1.1 - Commitments
Schedule 8.6 - Litigation
Schedule 8.8 - Ownership of Property
Schedule 8.12 - ERISA
Schedule 8.14 - Subsidiaries
Schedule 8.22 - Guarantors
Schedule 10.3 - Existing Indebtedness
Schedule 10.4 - Existing Liens
Schedule 10.7 - Existing Investments
Schedule 10.9 - Transactions with Affiliates
EXHIBITS:
EXHIBIT A-1 - Form of Revolving Credit Note
EXHIBIT A-2 - Form of Term Loan Note
EXHIBIT B - Form of Guarantee
EXHIBIT C - Form of Standby Letter of Credit Application
EXHIBIT D-1 - Form of Opinion of Paul, Weiss, Rifkind, Wharton &
Garrison
EXHIBIT D-2 - Form of Opinion of Senior Vice President and General Counsel
of the Borrower
EXHIBIT E - Form of Borrower Officer's Certificate
EXHIBIT F - Form of Guarantor Officer's Certificate
EXHIBIT G - Form of Notice of Borrowing
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CREDIT AGREEMENT, dated as of March 30, 1999, among POLO RALPH
LAUREN CORPORATION, a Delaware corporation (the "Borrower"), the banks and
other financial institutions from time to time parties hereto (the "Lenders")
and THE CHASE MANHATTAN BANK ("Chase"), a New York banking corporation, as
agent for the Lenders hereunder.
W I T N E S S E T H :
WHEREAS, the Borrower, through PRL Acquisition Corp, a wholly
owned Subsidiary organized under the laws of the Province of Nova Scotia (the
"Offeror"), has made an offer (the "Tender Offer") to purchase all the
outstanding shares of common stock (the "Target Stock") of Club Monaco Inc.,
a corporation organized under the laws of Ontario (the "Target") , including
all Target Stock that may be issued pursuant to the exercise of outstanding
options, at a price of Canadian $13.00 per share pursuant to an Offer to
Purchase dated March 8, 1999 (as amended, modified or otherwise supplemented
from time to time to the extent permitted by subsection 7.1(a)(iv), the
"Offer to Purchase");
WHEREAS, pursuant to the Tender Offer, and subject to the terms
and conditions set forth in the Offer to Purchase, the Offeror will purchase
all of the validly tendered and not withdrawn shares of Target Stock (the
"Amalgamation Voting Shares");
WHEREAS, following the completion of the Tender Offer, the
Offeror will either (i) acquire the shares not tendered pursuant to the
Tender Offer (the "Untendered Target Stock") at a price of Canadian $13.00
per share in accordance with Section 188 of the Business Corporations Act
(Ontario), as amended ("OBCA") (such acquisition being referred to herein as
the "Compulsory Acquisition"), and, promptly thereafter, the Offeror will
amalgamate with the Target (the "Amalgamation") such that the Borrower will
be the direct owner of all of the shares of the Capital Stock of the
resulting entity (the "Amalgamated Entity"); or (ii) pursue other means of
acquiring, directly or indirectly, all the Untendered Target Stock in
accordance with applicable law, including by way of a statutory arrangement,
amalgamation, capital reorganization or other transactions involving the
Target and the Offeror or an affiliate of the Offeror (a "Second-Step
Transaction");
WHEREAS, to (i) finance the Tender Offer and the subsequent
Compulsory Acquisition or Second-Step Transaction, (ii) refinance existing
indebtedness of the Target, (iii) pay fees and expenses in connection with
the Tender Offer and the financing thereof and (iv) provide for the working
capital and general corporate needs of the Borrower and its Subsidiaries
prior to and following the completion of the foregoing, the Borrower has
requested that the Lenders and the Agent enter into this Credit Agreement;
NOW THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
<PAGE> 7
2
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in
effect on such day, and (b) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the
rate of interest per annum publicly announced from time to time by Chase
as its prime rate in effect at its principal office in New York City (the
Prime Rate not being intended to be the lowest rate of interest charged by
Chase in connection with extensions of credit to debtors); "Federal Funds
Effective Rate" shall mean, for any day, the weighted average of the rates
on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers on such day, as published
on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business
Day, the average of the quotations for the day of such transactions
received by the Agent from three federal funds brokers of recognized
standing selected by it. If for any reason the Agent shall have determined
(which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate for any reason,
including the inability or failure of the Agent to obtain sufficient
quotations in accordance with the terms thereof, the ABR shall be
determined without regard to clause (b) of the first sentence of this
definition until the circumstances giving rise to such inability no longer
exist. Any change in the ABR due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
upon the ABR.
"Acceptance": as defined in subsection 5.1.
"Acceptance Commission": as defined in subsection 6.5(a).
"Acceptance Discount Rate": with respect to any Acceptance at any
particular time, the bid rate in effect at the principal office of the
Issuing Lender in New York City at such time for discount by the Issuing
Lender of commercial drafts or bills in the same face amount, with the
same maturity, and of the same type as such Acceptance.
"Acceptance Documents": the collective reference to the Drafts, the
Acceptances and any other documents arising out of or in connection with
the creation of Acceptances hereunder.
"Acceptance Obligations": at any particular time, all liabilities of
the Borrower on or with respect to Acceptances, whether for reimbursement
obligations due or to become due to the Issuing Lender or payments of
Acceptances and whether or not such liability is contingent or unmatured,
<PAGE> 8
3
including the sum of (a) the then outstanding Acceptance Reimbursement
Loans plus (b) the aggregate face amount of all unmatured Acceptances then
outstanding.
"Acceptance Participating Interest": with respect to any Acceptance,
(a) in the case of the Issuing Lender, its undivided interest in such
Acceptance after giving effect to the granting of any participating
interests therein and (b) in the case of any Participating Lender, its
undivided participating interest in such Acceptance.
"Acceptance Reimbursement Loan": as defined in subsection 5.3(b).
"Acceptance Reimbursement Obligation": the obligation of the
Borrower to pay the Issuing Lender in accordance with subsection 5.3(a) in
respect of any Acceptances created by the Issuing Lender for the account
of the Borrower or any of its Subsidiaries.
"Accounts": as to any Person, all rights to receive payment for
goods sold or leased by such Person or for services rendered in the
ordinary course of business of such Person to the extent not evidenced by
an instrument or chattel paper, together with all interest, finance
charges and other amounts payable by an account debtor in respect thereof.
"Adjustment Date": the fifth Business Day following receipt by the
Agent of both (i) the financial statements required to be delivered
pursuant to subsection 9.1(a) or 9.1(b), as the case may be, for the most
recently completed fiscal period and (ii) the certificate required to be
delivered pursuant to subsection 9.1(d) with respect to such fiscal
period.
"Affiliate": with respect to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control"
(including, with correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of Voting Stock, by contract or otherwise), provided that, in
any event, any Person which owns directly or indirectly Voting Stock
having 10% or more of the ordinary voting power for the election of
directors or other governing body of a Person (other than as a limited
partner of such other Person) shall be deemed to control such other
Person. Notwithstanding the foregoing, no individual shall be deemed to be
an Affiliate of a Person solely by reason of his or her being an officer
or director of such Person.
"Agent": Chase, together with its affiliates, as the arranger of the
Term Loan Commitments and the Revolving Credit Commitments and as the
agent for the Lenders under this Agreement and the other Credit Documents.
<PAGE> 9
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"Aggregate Revolving Credit Extensions of Credit": on any date of
determination thereof, the sum of (a) the aggregate principal amount of
the Revolving Credit Loans outstanding on such date, (b) the aggregate
amount of the Letter of Credit Obligations on such date and (c) the
aggregate amount of the Acceptance Obligations on such date.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Amalgamated Entity": as defined in the recitals hereto.
"Amalgamation": as defined in the recitals hereto.
"Amalgamation Voting Shares": as defined in the recitals hereto.
"Annual Increase": for any Fiscal Year, an amount equal to 50% of
the Net Income of the Borrower and its Subsidiaries for such Fiscal Year
less the amount of any Restricted Payments during such Fiscal Year.
"Applicable Commitment Rate Percentage": .175%; provided that the
Applicable Commitment Rate Percentage will be adjusted, on each Adjustment
Date to occur hereafter, to the Applicable Commitment Rate Percentage set
forth on Annex A opposite the column titled "Margin Level Status" of the
Borrower which is in effect on such Adjustment Date and provided, further,
that in the event that the financial statements required to be delivered
pursuant to subsection 9.1(a) or 9.1(b), as applicable, and the related
certificate required to be delivered pursuant to subsection 9.1(d), are
not delivered when due, then during the period commencing five Business
Days after the date upon which such financial statements were required to
be delivered until five Business Days following the date upon which they
are actually delivered, the Applicable Commitment Rate Percentage shall be
.25%.
"Applicable Margin": .75%; provided that the Applicable Margin for
Eurodollar Loans, Acceptances and Standby Letters of Credit will be
adjusted, on the first Adjustment Date to occur hereafter, to the
Applicable Margin for Eurodollar Loans, Acceptances and Standby Letters of
Credit set forth on Annex A opposite the column titled "Margin Level
Status" of the Borrower which is in effect on such Adjustment Date, and
provided, further, that in the event that the financial statements
required to be delivered pursuant to subsection 9.1(a) or 9.1(b), as
applicable, and the related certificate required to be delivered pursuant
to subsection 9.1(d), are not delivered when due, then during the period
commencing five Business Days after the date upon which such financial
statements were required to be delivered until five Business Days
following the date upon which they are actually delivered, the Applicable
Margin shall be 1.25%.
<PAGE> 10
5
"Applicable Sight Draft Fee Percentage": .10%; provided that the
Applicable Sight Draft Fee Percentage shall be adjusted, on the first
Adjustment Date to occur hereafter to the Applicable Sight Draft Fee
Percentage set forth on Annex A opposite the column titled "Margin Level
Status" of the Borrower which is in effect on such Adjustment Date, and
provided, further, that in the event that the financial statements
required to be delivered pursuant to subsection 9.1(a) or 9.1(b), as
applicable, and the related certificate required to be delivered pursuant
to subsection 9.1(d), are not delivered when due, then during the period
commencing five Business Days after the date upon which such financial
statements were required to be delivered until five Business Days
following the date upon which they are actually delivered, the Applicable
Sight Draft Fee Percentage shall be .125%.
"Approved Foreign Currency": as defined in subsection 4.2(b).
"Assignee": as defined in subsection 13.6(c).
"Available Revolving Credit Commitment": as to any Lender at any
time, an amount equal to the excess, if any, of (a) the amount of such
Lender's Revolving Credit Commitment over (b) the amount of such Lender's
Aggregate Revolving Credit Extensions of Credit.
"Available Term Loan Commitment": as to any Lender at any time, an
amount equal to the excess, if any, of (a) the amount of such Lender's
Term Loan Commitment over (b) the aggregate principal amount of Term Loans
theretofore made hereunder by such Lender.
"Board": the Board of Governors of the Federal Reserve System or any
successor thereof.
"Borrowing Date": any Business Day specified in a notice or
application pursuant to subsection 2.3, 3.3, 4.2 or 4.3 as a date on which
the Borrower requests the Lenders to make Loans or requests the Issuing
Lender to issue Letters of Credit hereunder.
"Business": as defined in subsection 8.20(b).
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close.
"Capital Expenditures": with respect to any Person for any period,
the sum of the aggregate of all expenditures (whether paid in cash or
accrued as a liability) by such Person and its Subsidiaries during that
period which, in accordance with GAAP, are or should be included in
"additions to property, plant or equipment" or similar items reflected in
the consolidated statement of cash flows of such Person.
<PAGE> 11
6
For purposes of this definition, the purchase price of equipment which is
purchased simultaneously with the trade-in of existing equipment owned by
the Borrower or any Subsidiary or with insurance proceeds (as permitted
hereunder) shall be included in Capital Expenditures only to the extent of
the gross amount of such purchase price less any credit granted by the
seller of such equipment for the equipment being traded in at such time or
the amount of such proceeds, as the case may be.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"Capitalized Lease": shall mean any lease which is required to be
capitalized on the balance sheet of the lessee pursuant to GAAP.
"Cash Equivalents": (a) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, (b) time deposits and certificates of deposit of
any of the Lenders or any domestic commercial bank having capital and
surplus of at least $100,000,000, (c) commercial paper of any Person
organized under the laws of the United States or any State thereof that is
not a Subsidiary or an Affiliate of the Borrower rated at least A-2 by
Standard & Poor's Ratings Group or at least P-2 by Moody's Investors
Service, Inc., (d) securities with maturities of one year or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States or by any political subdivision, taxing
authority or foreign government (as the case may be) that are rated at
least A by Standard & Poor's Rating Group or A by Moody's Investors
Service, Inc., (e) securities with maturities of one year or less from the
date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b) of
this definition, (f) shares of money market mutual or similar funds having
assets in excess of $250,000,000 and which invest exclusively in assets
satisfying the requirements of clause (a) of this definition or (g) shares
of money market mutual or similar funds having assets in excess of
$500,000,000 and which invest exclusively in assets satisfying the
requirements of clauses (b) through (e) of this definition.
"Closing Date": the date on which the conditions precedent set forth
in subsection 7.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Combined Loan Percentage": as to any Lender at any time, the
percentage which (a) the sum of (i) such Lender's Revolving Credit
Commitment (or, at any time after the Revolving Credit Commitments shall
have expired or terminated,
<PAGE> 12
7
such Lender's portion of the then Aggregate Revolving Credit Extensions of
Credit) plus (ii) the sum of such Lender's then Available Term Loan
Commitment and such Lender's Term Loans then outstanding, then constitutes
of (b) the sum of (1) the aggregate Revolving Credit Commitments of all
Lenders (or, at any time after the Revolving Credit Commitment shall have
expired or terminated, the then Aggregate Revolving Credit Extensions of
Credit) plus (2) the sum of the then Available Term Loan Commitments of
all the Lenders and the aggregate principal amount of Term Loans of all
the Lenders then outstanding.
"Commercial Letter of Credit": a commercial documentary letter of
credit issued by the Issuing Lender for the account of the Borrower or any
of its Subsidiaries for the purchase of goods in the ordinary course of
business.
"Commercial Letter of Credit Application": as defined in subsection
4.2(a).
"Commitments": collectively, the Term Loan Commitments and the
Revolving Credit Commitments.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Borrower or any Guarantor and which is treated as a single employer under
Section 414 of the Code.
"Compulsory Acquisition": as defined in the recitals hereto.
"Consolidated Indebtedness": as of the date of any determination
thereof, the aggregate of all Indebtedness of the Borrower and its
Subsidiaries, on a consolidated basis after eliminating all inter-company
items, in accordance with GAAP.
"Consolidated Indebtedness Ratio": for any period, the ratio of (a)
the average of Consolidated Indebtedness outstanding on the last day of
each Fiscal Quarter ending during such period to (b) Net Income of the
Borrower and its Subsidiaries for such period plus depreciation,
amortization, federal and state income taxes and Interest Expense deducted
in determining such Net Income.
"Consolidated Net Worth": as of any date of determination thereof,
the excess of (a) the aggregate consolidated net book value of the assets
of the Borrower and its Subsidiaries (other than patents, patent rights,
trademarks, trade names, franchises, copyrights, licenses, permits,
goodwill and other similar intangible assets properly classified as such
in accordance with GAAP) after all appropriate adjustments in accordance
with GAAP (including, without limitation, reserves for doubtful
receivables, obsolescence, depreciation and amortization and excluding the
amount of any write-up or revaluation of any asset) over (b) all of the
aggregate liabilities of the Borrower and its Subsidiaries, including all
items
<PAGE> 13
8
which, in accordance with GAAP, would be included on the liability side of
the balance sheet (other than Capital Stock, treasury stock, capital
surplus and retained earnings) in each case consolidated (after
eliminating all inter-company items) in accordance with GAAP.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Credit Documents": the collective reference to this Agreement, the
Notes, the Letter of Credit Documents, the Guarantee and the Acceptance
Documents.
"Credit Parties": the collective reference to the Borrower and the
Guarantors.
"Default": any of the events specified in Section 11, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Dollar Equivalent": (a) with respect to any calculation involving
the face amount of any Letter of Credit issued in an Approved Foreign
Currency, the amount in Dollars into which the relevant amount in such
Approved Foreign Currency would be converted based upon the relevant
Exchange Rate in effect at 10:00 A.M., New York City time, on the date of
issuance of such Letter of Credit and (b) with respect to any calculation
involving the amount of any drawing under any Letter of Credit, the amount
in Dollars into which the relevant amount in such Approved Foreign
Currency would be converted based upon the relevant Exchange Rate in
effect at the time the Issuing Lender makes payment under such Letter of
Credit.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Domestic Subsidiary": any Subsidiary of the Borrower organized
under the laws of any jurisdiction within the United States.
"Drafts": as defined in subsection 5.1.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of human health or
the environment, as now or may at any time hereafter be in effect.
<PAGE> 14
9
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto) dealing
with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board)
maintained by a member bank of the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum equal
to the rate at which Chase is offered Dollar deposits at or about 10:00
A.M., New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank Eurodollar market where the Eurodollar
and foreign currency and exchange operations in respect of its Eurodollar
Loans are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its Eurodollar Loan to be outstanding during
such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which
is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 11,
provided that any requirement for the giving of notice, the lapse of time,
or both, or any other condition, event or act has been satisfied.
"Exchange Rate": with respect to any Approved Foreign Currency, the
arithmetic mean of the spot exchange rates for the purchase of such
Approved Foreign Currency with Dollars as listed on the WRLD screen of the
Reuters News Service, and if the Reuters spot exchange rates are
unavailable, the Telerate equivalent shall be used.
"Existing Credit Agreement": the Credit Agreement, dated as of June
9, 1997, among the Borrower, the several banks and other financial
institutions parties thereto and Chase, as agent for such banks and
financial institutions, as
<PAGE> 15
10
heretofore amended, supplemented or otherwise modified and in effect on
the date hereof (without giving effect to any future amendments,
supplements or other modifications thereto) .
"Existing Closing Date": the "Closing Date", as defined in the
Existing Credit Agreement.
"Existing Termination Date": the "Termination Date", as defined in
the Existing Credit Agreement.
"Federal Funds Effective Rate": as defined in the definition of
"ABR" set forth above.
"Fiscal Quarter": with respect to the Borrower and its Subsidiaries,
and with respect to any Fiscal Year, (a) each of the quarterly periods
ending 13 calendar weeks, 26 calendar weeks, 39 calendar weeks and 52 or
53 calendar weeks, as the case may be, after the end of the prior Fiscal
Year or (b) such other quarterly periods as the Borrower shall adopt after
giving prior written notice thereof to the Lenders.
"Fiscal Year": with respect to the Borrower and its Subsidiaries,
(a) the 52- or 53-week annual period, as the case may be, ending on the
Saturday nearest to March 31 of each calendar year or (b) such other
fiscal year as the Borrower shall adopt with the prior written consent of
the Required Lenders (which consent shall not be unreasonably withheld).
Any designation of a particular Fiscal Year by reference to a calendar
year shall mean the Fiscal Year ending during such calendar year.
"Foreign Subsidiary": any Subsidiary of the Borrower organized under
the laws of any jurisdiction outside of the United States of America.
"GAAP": generally accepted accounting principles in the United
States of America in effect from time to time.
"Gap Period": the period commencing on the date of the Existing
Credit Agreement and ending on the date hereof.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee": the Guarantee to be executed and delivered by each
Guarantor, substantially in the form of Exhibit B, as the same may be
amended, supplemented or otherwise modified from time to time.
<PAGE> 16
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"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has issued
a reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (A) for the purchase or payment of any such
primary obligation or (B) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of
the primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assume or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (x) an amount equal to the
stated or determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (y) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may
be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Guarantor": each Subsidiary of the Borrower (the names of which are
listed on Schedule 8.22) which is a party to the Guarantee and Collateral
Agreement (as defined in the Existing Credit Agreement) on the date hereof
and each other Person which is or will become a guarantor under the
Guarantee pursuant to the terms of this Agreement or in the sole
discretion of the Borrower.
"Indebtedness": with respect to any Person, as of the date of any
determination thereof, (a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services (other
than current trade liabilities or employment or consulting compensation
incurred in the ordinary course of business and payable in accordance with
customary practices), (b) all indebtedness for borrowed money secured by
any Lien on any property owned by such Person to the extent of such
Person's interest in such property, even though such Person has not
assumed or become liable for the payment thereof, (c) any other
indebtedness of such Person which is evidenced by a note, bond, debenture
or similar instrument, (d) all obligations of such Person as lessee under
Capitalized Leases, (e) all obligations of such Person in respect of
acceptances issued or
<PAGE> 17
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created for the account of such Person, and (f) all Guarantee Obligations
of such Person in respect of Indebtedness of any other Person. For
purposes of all calculations provided for in this Agreement, there shall
be disregarded any Guarantee Obligations of any Person in respect of any
Indebtedness of any other Person with which the accounts of such first
Person are then required to be consolidated in accordance with GAAP.
"Insolvency": with respect to any Multiemployer Plan the condition
that such plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Expense": for any period, net interest expense in respect
of Indebtedness of the Borrower and its Subsidiaries (including, without
duplication, all interest capitalized or to be capitalized on the books of
the Borrower and its Subsidiaries properly charged or chargeable to income
for such period in accordance with GAAP) for such period.
"Interest Payment Date": (a) as to any ABR Loan, the last day of
each March, June, September and December to occur while such Loan is
outstanding, (b) as to any Eurodollar Loan having an Interest Period of
three months or less, the last day of such Interest Period, and (c) as to
any Eurodollar Loan having an Interest Period longer than three months,
each day which is three months, or a whole multiple thereof, after the
first day of such Interest Period and the last day of such Interest
Period.
"Interest Period": with respect to any Eurodollar Loan:
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, or, if
available, four, five or nine months or one year thereafter, as
selected by the Borrower in its notice of borrowing or notice of
conversion, as the case may be, given with respect thereto; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan
and ending one, two, three or six months thereafter, or, if
available, four, five or nine months or one year thereafter, as
selected by the Borrower by irrevocable notice to the Agent not less
than three Business Days prior to the last day of the then current
Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
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(1) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Business Day, such
Interest Period shall be extended to the next succeeding Business
Day unless the result of such extension would be to carry such
Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(2) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date or the final date
of maturity of the Term Loans, in the case of interest payable on
the Term Loans;
(3) any Interest Period pertaining to a Eurodollar Loan 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) shall end on the last
Business Day of a calendar month; and
(4) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Investment": as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of Capital Stock or other
securities of, or any assets constituting a business unit of, any other
Person, or any direct or indirect loan, advance or capital contribution by
such Person to any other Person. In computing the amount involved in any
Investment at the time outstanding, (a) undistributed earnings of, and
unpaid interest accrued in respect of Indebtedness owing by, such other
Person shall not be included, (b) there shall not be deducted from the
amounts invested in such other Person any amounts received as earnings (in
the form of dividends, interest or otherwise) on such Investment or as
loans from such other Person and (c) unrealized increases or decreases in
value, or write-ups, write-downs or write-offs, of Investments in such
other Person shall be disregarded.
"ISP98": International Standby Practices ISP98, International
Chamber of Commerce Publication No. 590, as the same may be amended from
time to time.
"Issuing Lender": Chase, in its capacity as issuer of the Letters of
Credit and as creator of Acceptances.
"Lauren": Ralph Lauren, an individual.
"Letter of Credit Applications": the collective reference to
Commercial Letter of Credit Applications and Standby Letter of Credit
Applications.
<PAGE> 19
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"Letter of Credit Documents": the collective reference to the Letter
of Credit Applications, and the Letters of Credit and any other documents
arising out of or in connection with the issuance of and participation in
Letters of Credit hereunder.
"Letter of Credit Obligations": at any particular time, all
liabilities of the Borrower with respect to Letters of Credit, whether or
not such liabilities are contingent or unmatured, including, without
limitation, the sum of (a) the then outstanding Letter of Credit
Reimbursement Loans plus (b) the then aggregate undrawn face amount of all
then outstanding Letters of Credit.
"Letter of Credit Participating Interest": with respect to any
Letter of Credit, (a) in the case of the Issuing Lender, its undivided
interest in such Letter of Credit, the related Letter of Credit
Application, after giving effect to the granting of any participating
interests therein and (b) in the case of any Participating Lender, its
undivided participating interest in such Letter of Credit and the related
Letter of Credit Application.
"Letter of Credit Reimbursement Deficiency": as defined in
subsection 4.6(b).
"Letter of Credit Reimbursement Loan": as defined in subsection
4.6(b).
"Letter of Credit Reimbursement Loan Account": as defined in
subsection 4.6(b).
"Letter of Credit Reimbursement Obligation": the obligation of the
Borrower to reimburse the Issuing Lender in accordance with subsection
4.6(a) for any payment made by the Issuing Lender under any Letter of
Credit issued for the account of the Borrower or any of its Subsidiaries.
"Letters of Credit": the collective reference to Commercial Letters
of Credit and Standby Letters of Credit.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement and any Capitalized Lease having substantially the same economic
effect as any of the foregoing).
"Loans": the collective reference to the Revolving Credit Loans and
the Term Loans and any other loans and extensions of credit made by the
Lenders from time to time in accordance with the terms of this Agreement.
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"Margin Level I Status": shall exist on an Adjustment Date if the
Consolidated Indebtedness Ratio as of the last day of the period covered
by the financial statements relating to such Adjustment Date is greater
than or equal to 2.0 to 1.
"Margin Level II Status": shall exist on an Adjustment Date if the
Consolidated Indebtedness Ratio as of the last day of the period covered
by the financial statements relating to such Adjustment Date is less than
2.0 to 1 but greater than or equal to 1.50 to 1.
"Margin Level III Status": shall exist on an Adjustment Date if the
Consolidated Indebtedness Ratio as of the last day of the period covered
by the financial statements relating to such Adjustment Date is less than
1.5 to 1 but greater than or equal to 1.25 to 1.
"Margin Level IV Status": shall exist on an Adjustment Date if the
Consolidated Indebtedness Ratio as of the last day of the period covered
by the financial statements relating to such Adjustment Date is less than
1.25 to 1.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property or condition (financial or otherwise) of
the Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement or any of the other Credit Documents or
the rights or remedies of the Agent or the Lenders hereunder or
thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated
as such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Income" ("Net Loss"): with respect to any Person or group of
Persons, as the case may be, for any fiscal period, the difference between
(a) gross revenues of such Person or group of Persons and (b) all costs,
expenses and other charges incurred in connection with the generation of
such revenue (including, without limitation, taxes on income), determined
on a consolidated or combined basis, as the case may be, and in accordance
with GAAP.
"Non-Excluded Taxes": as defined in subsection 6.16(a).
"Notes": the collective reference to the Revolving Credit Notes and the
Term Notes; each, individually, a 'Note'.
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"OBCA": as defined in the recitals hereto.
"Offer to Purchase": as defined in the recitals hereto.
"Offeror": as defined in the recitals hereto.
"Participants": as defined in subsection 13.6(b).
"Participating Lender": any Lender (other than the Issuing Lender),
in its capacity as an acquiror of Letter of Credit Participating Interests
in Letters of Credit and as an acquiror of Acceptance Participating
Interests in Acceptances.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Acquisition": any acquisition by the Borrower or any
Subsidiary, on or after the Closing Date, (whether effected through a
purchase of Capital Stock or assets or through a merger, consolidation or
amalgamation), of (i) another Person or (ii) the assets constituting an
entire business or operating business unit of another Person, provided
that:
(a) the assets so acquired or, as the case may be, the assets
of the Person so acquired shall be in a Related Line of
Business;
(b) no Default or Event of Default shall have occurred and be
continuing at the time thereof or would result therefrom;
(c) the Borrower shall have delivered to the Agent, as soon as
available but in no event later than the date of disclosure by
the Borrower to the public, a copy of the executed purchase
agreement with respect thereto (without exhibits, except to
the extent available and requested by the Agent); and
(d) such acquisition shall be effected in such manner so that
the acquired Capital Stock or assets are owned either by the
Borrower or a Subsidiary and, if effected by merger,
consolidation or amalgamation, the Borrower or a Subsidiary
shall be the continuing, surviving or resulting entity.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
<PAGE> 22
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"Plan": at any particular time, any employee benefit plan other than
a Multiemployer Plan which is covered by ERISA and in respect of which the
Borrower or a Commonly Controlled Entity is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" as defined in Section 3(5) of ERISA.
"Properties": as defined in subsection 8.20(a).
"Register": as defined in subsection 13.6(d).
"Regulation U": Regulation U of the Board as in effect from time to
time.
"Related Line of Business": (a) any line of business in which the
Borrower or any of its Subsidiaries is engaged as of, or immediately prior
to, the Closing Date, (b) any wholesale, retail or other distribution of
products or services under any Trademark or any derivative thereof or (c)
any similar business and any business which provides a service and/or
supplies products in connection with any business described in clause (a)
or (b) above.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b)
of ERISA, other than those events as to which the thirty day notice period
is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Section 2615.
"Required Lenders": at a particular time, Lenders the Combined Loan
Percentages of which aggregate at least 51%.
"Requirement of Law": as to any Person, the Articles or Certificate
of Incorporation and By-Laws or Certificate of Partnership or partnership
agreement or other organizational or governing documents of such Person,
and any law, treaty, rule or regulation or determination of an arbitrator
or a court or other Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Reserve Determination": as defined in subsection 5.4.
"Responsible Officer": with respect to the Borrower, the chief
executive officer, the chief operating officer, the president or any vice
president of the Borrower, and with respect to financial matters, the
chief financial officer or the Vice President-Finance or the Vice
President-Treasurer of the Borrower.
"Restricted Payment": with respect to the Borrower and any of its
Subsidiaries, (a) any declaration or payment of any dividend on, or the
making of or provision for any distribution on account of, shares of any
class of Capital Stock
<PAGE> 23
18
of such Person (other than to the Borrower or another Subsidiary of the
Borrower), now or hereafter outstanding, whether in cash or property or in
obligations of the Borrower or any of its Subsidiaries, and (b) any
purchase, redemption or other acquisition or retirement for value of any
shares of any class of Capital Stock of such Person (other than from the
Borrower or another Subsidiary of the Borrower), or any warrants, rights
or options to acquire any such shares, now or hereafter outstanding.
"Revolving Credit Commitment": at any time, with respect to each
Lender, the amount set forth opposite such Lender's name on Schedule 1.1
in the section entitled "Revolving Credit Commitments", as such amount may
be reduced or increased from time to time in accordance with the
provisions of this Agreement.
"Revolving Credit Commitment Percentage": as to any Lender at any
particular time, the percentage of the aggregate Revolving Credit
Commitments then constituted by such Lender's Revolving Credit Commitment
(or, at any time after the Revolving Credit Commitments shall have expired
or terminated, the percentage which such Lender's portion of the Aggregate
Revolving Credit Extensions of Credit constitutes of the Aggregate
Revolving Credit Extensions of Credit).
"Revolving Credit Commitment Period": the period from and including
the Closing Date to but not including the Termination Date or such earlier
date as the Revolving Credit Commitments shall terminate as provided
herein.
"Revolving Credit Loans": as defined in subsection 2.1.
"Revolving Credit Note": as defined in subsection 2.2.
"SEC": the Securities and Exchange Commission.
"Second-Step Transaction": as defined in the recitals hereto.
"Sight Draft Letter of Credit": a Commercial Letter of Credit
providing for payment of sight drafts when presented for honor thereunder
in accordance with the terms thereof and when accompanied by documents
complying with the terms thereof.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Standby Letter of Credit": an irrevocable letter of credit pursuant
to which the Issuing Lender agrees to make payments in Dollars for the
account of the Borrower or any of its Subsidiaries in respect of
obligations of the Borrower or any of its Subsidiaries incurred pursuant
to contracts made or performances undertaken or to be undertaken or like
matters relating to contracts to which the Borrower or
<PAGE> 24
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any of its Subsidiaries is or proposes to become a party in the ordinary
course of the Borrower's or any of its Subsidiaries' business, including,
without limiting the foregoing, for insurance purposes and in connection
with lease transactions.
"Standby Letter of Credit Application": as defined in subsection
4.3(a).
"Subordinated Indebtedness": any Indebtedness of the Borrower,
provided that with respect to any such Indebtedness (i) no part of the
principal of such Indebtedness is stated to be payable or is required to
be paid (whether by way of mandatory sinking fund, mandatory redemption,
mandatory prepayment or otherwise) prior to the Termination Date and the
payment of principal of which and (subject to clause (ii) below) any other
obligations of the Borrower in respect thereof are subordinated to the
prior payment in full of principal of and interest (including
post-petition interest) on the Notes, the Letter of Credit Obligations,
the Acceptance Obligations and all other obligations and liabilities of
the Borrower to the Agent and the Lenders hereunder on terms and
conditions first approved in writing by the Required Lenders, (ii) no part
of the interest accruing on such Indebtedness (other than interest payable
solely in kind which shall be similarly subordinated) is payable after a
Default or Event of Default has occurred and is continuing, and (iii) such
Indebtedness otherwise contains terms, covenants and conditions in form
and substance reasonably satisfactory to the Required Lenders, as
evidenced by their prior written approval thereof.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having voting
power (other than stock having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries (including a wholly owned
Subsidiary of such Person), or both, by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.
"Support Agreement": the Support Agreement, dated as of February 28,
1999, among the Offeror, the Borrower and the Target.
"Target": as defined in the recitals hereto.
"Target Stock": as defined in the recitals hereto.
"Tender Offer": as defined in the recitals hereto.
"Term Loan": as defined in subsection 3.1.
"Term Loan Commitment": as to any Lender, the obligation of such
Lender to make Term Loans in the aggregate amount set forth opposite such
<PAGE> 25
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Lender's name on Schedule 1.1 in the section entitled "Term Loan
Commitments", as such amount may be reduced from time to time in
accordance with the provisions of this Agreement.
"Term Loan Commitment Period": the period from and including the
Closing Date to but not including the Term Loan Termination Date.
"Term Loan Exposure": means, with respect to any Lender at any time,
the outstanding principal amount of such Lender's Term Loan at such time.
"Term Loan Percentage": as to any Lender at any time, (a) in
relation to any borrowing of Term Loans, the percentage of the aggregate
Term Loan Commitments then constituted by such Lender's Term Loan
Commitment and (b) otherwise, the percentage of the aggregate Term Loans
then constituted by such Lender's Term Loan.
"Term Loan Termination Date": the earlier of (a) the date which is
120 days after the Closing Date and (b) the date on which the Tender Offer
lapses and is not extended by the Offeror or is withdrawn by the Offeror.
"Term Note": as defined in subsection 3.2.
"Termination Date": June 30, 2003.
"Time Draft Letter of Credit": a Commercial Letter of Credit
providing for acceptance by the Issuing Lender of time drafts when
presented for honor thereunder in accordance with the terms thereof,
provided that no such draft shall be payable more than 180 days after
sight or later than 90 days after the Termination Date, and provided,
further, that each such draft is accompanied by documents complying with
the terms of such Letter of Credit.
"Time Draft and Standby Fee Percentage:" at any time, a percentage
equal to the Applicable Margin then in effect.
"Trademarks": as defined in subsection 9.5.
"Tranche": the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, as the same may be amended from time to time.
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"Untendered Target Stock": as defined in the recitals hereto.
"Voting Stock": stock of any class or classes (however designated),
or other equity ownership interests, of any Person, the holders of which
are at the time entitled, as such holders, to vote for the election of the
directors or other governing body of the Person involved, whether or not
the right so to vote exists by reason of the happening of a contingency.
1.2 Other Definitional Provisions. (a) Unless otherwise defined
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes and the other Credit Documents or any certificate or
other document made or delivered pursuant hereto or in connection herewith.
(b) As used herein and in the Notes, the other Credit Documents and
any certificate or other document made or delivered pursuant hereto or in
connection herewith, accounting terms relating to the Borrower and its
Subsidiaries not defined in subsection 1.1, and accounting terms partly defined
in subsection 1.1 to the extent not defined, shall have the respective meanings
given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF REVOLVING
CREDIT COMMITMENTS
2.1 Revolving Credit Commitments. Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit
loans ("Revolving Credit Loans") to the Borrower from time to time during the
Revolving Credit Commitment Period in an aggregate principal amount at any
one time outstanding not to exceed the amount of such Lender's Revolving
Credit Commitment; provided, that no Revolving Credit Loan shall be made if,
after giving effect thereto, the Available Revolving Credit Commitments would
be less than zero. During the Revolving Credit Commitment Period the Borrower
may use the Revolving Credit Commitments by borrowing, prepaying the
Revolving Credit Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. The Revolving Credit Loans
may from time to time be (i) Eurodollar Loans, (ii) ABR Loans, or (iii) a
combination thereof, as determined by the Borrower and notified to the Agent
in accordance with subsections 2.3 and 6.10, provided that no Revolving
Credit Loan shall be made as a Eurodollar Loan after the day that is one
month prior to the Termination Date.
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2.2 Revolving Credit Notes. The Revolving Credit Loans made by
each Lender shall be evidenced by a promissory note of the Borrower,
substantially in the form of Exhibit A-1 hereto, with appropriate insertions
as to payee, date and principal amount (individually, a "Revolving Credit
Note"; collectively, the "Revolving Credit Notes"), payable to the order of
such Lender and in a principal amount equal to the lesser of (a) the amount
set forth opposite each Lender's name on Schedule 1.1 in the section entitled
"Revolving Credit Commitments" and (b) the aggregate unpaid principal amount
of all Revolving Credit Loans made by such Lender. Each Lender is hereby
authorized to record the date and amount of each such Revolving Credit Loan
made by such Lender, each continuation thereof and the date and amount of
each payment or prepayment of principal thereof, on the schedule annexed to
and constituting a part of its Revolving Credit Note, and any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded. Each Revolving Credit Note shall (i) be dated the
Closing Date, (ii) be stated to mature on the Termination Date, and (iii)
provide for the payment of interest in accordance with subsection 6.1.
2.3 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give
the Agent irrevocable telephonic notice (which notice must be received by the
Agent prior to 11:00 A.M., New York City time, (a) three Business Days prior
to the requested Borrowing Date, if all or any part of the requested
Revolving Credit Loans are to be initially Eurodollar Loans or (b) on the
requested Borrowing Date, otherwise), specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is
to be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the amounts of
such Type of Loan and the lengths of the initial Interest Periods therefor.
Each borrowing under the Revolving Credit Commitments shall be in an amount
equal to (x) in the case of ABR Loans, $500,000 or a whole multiple thereof
(or, if the then Available Revolving Credit Commitments are less than
$500,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000, or a whole multiple of $500,000 in excess thereof. Upon receipt
of any such notice from the Borrower, the Agent shall promptly notify each
Lender thereof. Each Lender will make the amount of its pro rata share of
each borrowing available to the Agent for the account of the Borrower at the
office of the Agent specified in subsection 13.2 prior to 1:00 P.M., New York
City time, on the Borrowing Date requested by the Borrower in funds
immediately available to the Agent. Such borrowing will then be made
available to the Borrower by the Agent crediting the account of the Borrower
on the books of such office with the aggregate of the amounts made available
to the Agent by the Lenders and in like funds as received by the Agent.
2.4 Use of Proceeds. The proceeds of the Revolving Credit Loans
shall be used by the Borrower for general corporate purposes, including to
finance the operations of the Borrower and its Subsidiaries in the ordinary
course of their businesses and to finance capital expenditures.
SECTION 3. AMOUNT AND TERMS OF TERM LOANS
3.1 Term Loan Commitments. Subject to the terms and conditions
hereof, each Lender severally agrees to make term loans ("Term Loans") to the
Borrower from time to time
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during the Term Loan Commitment Period in an aggregate amount not to exceed such
Lender's Term Loan Commitment.
3.2 Term Notes. The Term Loans made by each Lender shall be
evidenced by a promissory note of the Borrower, substantially in the form of
Exhibit A-2 hereto, with appropriate insertions as to payee, date and
principal amount (individually, a "Term Note"; collectively, the "Term
Notes"), payable to the order of such Lender and in a principal amount equal
to the lesser of (a) the amount set forth opposite each Lender's name on
Schedule 1.1 in the section entitled "Term Loan Commitments" and (b) the
aggregate unpaid principal amount of all Term Loans made by such Lender.
Each Lender is hereby authorized to record the date and amount of each such
Term Loan made by such Lender, each continuation thereof and the date and
amount of each payment or prepayment of principal thereof, on the schedule
annexed to and constituting a part of its Term Note, and any such recordation
shall constitute prima facie evidence of the accuracy of the information so
recorded. Each Term Note shall (i) be dated the Closing Date, (ii) be stated
to mature in one payment on June 30, 2003, and (iii) provide for the payment
of interest in accordance with subsection 6.1.
3.3 Procedure for Term Loan Borrowing. The Borrower may borrow
under the Term Loan Commitments during the Term Loan Commitment Period on any
Business Day, provided that the Borrower shall give the Agent irrevocable
telephonic notice (which notice must be received by the Agent prior to 11:00
A.M., New York City time, (a) three Business Days prior to the requested
Borrowing Date, if all or any part of the requested Term Loans are to be
initially Eurodollar Loans or (b) on the requested Borrowing Date,
otherwise), specifying (i) the aggregate amount to be borrowed, (ii) the
requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar
Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be
entirely or partly of Eurodollar Loans, the amounts of such Type of Loan and
the lengths of the initial Interest Period therefor. Each borrowing under
the Term Loan Commitments shall be in an amount equal to (x) in the case of
ABR Loans, $500,000 or a whole multiple thereof (or, if the then Available
Term Loan Commitments are less than $500,000, such lesser amount) and (y) in
the case of Eurodollar Loans, $5,000,000, or a whole multiple of $500,000 in
excess thereof. Upon receipt of any such notice from the Borrower, the Agent
shall promptly notify each Lender thereof. Each Lender will make the amount
of its pro rata share of each borrowing available to the Agent for the
account of the Borrower at the office of the Agent specified in subsection
13.2 prior to 1:00 P.M., New York City time, on the Borrowing Date requested
by the Borrower in funds immediately available to the Agent. Such borrowing
will then be made available to the Borrower by the Agent crediting the
account of the Borrower on the books of such office with the aggregate of the
amounts made available to the Agent by the Lenders and in like funds as
received by the Agent.
3.4 Use of Proceeds. The proceeds of the Term Loans shall be
used by the Borrower to finance the Tender Offer and the Compulsory
Acquisition or the Second-Step Transaction (provided that the aggregate
amount paid in connection therewith shall not exceed approximately Canadian
$85,000,000) and the repayment of approximately Canadian $44,000,000 of
currently existing Indebtedness of the Target and to pay related fees and
expenses.
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SECTION 4. AMOUNT AND TERMS OF LETTERS OF CREDIT
4.1 Letters of Credit. Subject to the terms and conditions
hereof, the Issuing Lender and each Participating Lender agree to extend
credit by the Issuing Lender's issuing Letters of Credit in the form of
Commercial Letters of Credit or Standby Letters of Credit for the account of
the Borrower and its Subsidiaries, and by each Participating Lender's
acquiring its Letter of Credit Participating Interest in each such Letter of
Credit issued by the Issuing Lender, from time to time during the Revolving
Credit Commitment Period in an aggregate face amount at any one time
outstanding not to exceed in the case of Standby Letters of Credit,
$15,000,000, provided, that no Letter of Credit shall be issued hereunder if,
after giving effect thereto, the Available Revolving Credit Commitments would
be less than zero. During the Revolving Credit Commitment Period, the
Borrower may use the Revolving Credit Commitments in this manner by having
the Issuing Lender issue Letters of Credit, having such Letters of Credit
expire undrawn upon or, if drawn upon, reimbursing the Issuing Lender for
such drawing, and having the Issuing Lender issue new Letters of Credit, all
in accordance with the terms and conditions hereof.
4.2 Issuance of Commercial Letters of Credit. (a) Subject to
the terms and conditions hereof (including, without limitation, subsection
4.1), the Borrower may request the Issuing Lender to issue a Commercial
Letter of Credit in favor of sellers of goods to the Borrower and its
Subsidiaries on any Business Day during the Revolving Credit Commitment
Period by delivering to the Agent at its address specified in subsection 13.2
(or such other lending office of the Agent as the Agent shall request) a
commercial letter of credit application (executed by the Borrower and, in the
case of any Letter of Credit to be issued for the account of any Subsidiary
of the Borrower, such Subsidiary) by a transmission in accordance with past
practice (a "Commercial Letter of Credit Application"), completed to the
satisfaction of the Issuing Lender, together with such other certificates,
documents and other papers and information as the Issuing Lender may
reasonably request. Subject to the provisions of the last sentence of
subsection 4.8, the Borrower hereby agrees to observe and perform its
covenants, duties and obligations under each Commercial Letter of Credit
Application.
(b) Each Commercial Letter of Credit issued hereunder shall,
among other things, (i) be either a Sight Draft Letter of Credit or a Time
Draft Letter of Credit, (ii) have an expiry date occurring not later than one
year after the date of issuance of such Commercial Letter of Credit and in no
event later than 90 days after the Termination Date, and (iii) be denominated
in Dollars (except for Commercial Letters of Credit denominated in foreign
currencies acceptable to the Issuing Lender in its sole discretion (each an
"Approved Foreign Currency"; provided that the aggregate undrawn face amount
of all such Commercial Letters of Credit issued in an Approved Foreign
Currency shall not exceed the Dollar Equivalent of $10,000,000 at any time
outstanding). Each Commercial Letter of Credit Application and each
Commercial Letter of Credit shall be subject to the Uniform Customs and, to
the extent not inconsistent therewith, the laws of the State of New York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Commercial Letter of Credit hereunder if such issuance would
conflict with, or cause the Issuing
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Lender or any Participating Lender to exceed any limits imposed by, any
applicable Requirements of Law.
4.3 Issuance of Standby Letters of Credit. (a) Subject to the
terms and conditions hereof (including, without limitation, subsection 4.1),
the Borrower may request the Issuing Lender to issue a Standby Letter of
Credit for the account of the Borrower or any of its Subsidiaries, on any
Business Day during the Revolving Credit Commitment Period by delivering to
the Agent at its address specified in subsection 13.2 (or such other lending
office of the Agent as the Agent shall request) a standby letter of credit
application (executed by the Borrower and, in the case of any Letter of
Credit issued for the account of any Subsidiary of the Borrower, such
Subsidiary) substantially in the form of Exhibit D hereto (a "Standby Letter
of Credit Application"), completed to the satisfaction of the Issuing Lender,
together with such other certificates, documents and other papers and
information as the Issuing Lender may reasonably request. Subject to the
provisions of the last sentence of subsection 4.8, the Borrower hereby agrees
to observe and perform its covenants, duties and obligations under each
Standby Letter of Credit Application.
(b) Each Standby Letter of Credit issued hereunder shall, among
other things, (i) be in such form and for such purposes requested by the
Borrower as shall be acceptable to the Issuing Lender in its sole discretion,
(ii) have an expiry date occurring not later than one year after the date of
issuance of such Standby Letter of Credit and in no event occurring later
than 90 days after the Termination Date and (iii) be denominated in Dollars
and have a minimum face amount of $25,000. Each Standby Letter of Credit
Application and each Standby Letter of Credit shall be subject to ISP 98 and,
to the extent not inconsistent therewith, the laws of the State of New York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Standby Letter of Credit hereunder if such issuance would conflict
with, or cause the Issuing Lender or any Participating Lender to exceed any
limits imposed by, any applicable Requirements of Law.
4.4 Participating Interests. Effective in the case of each
Letter of Credit as of the date of the issuance thereof, the Issuing Lender
agrees to allot and does allot, to itself and each Participating Lender, and
each Participating Lender irrevocably agrees to take and does take, a Letter
of Credit Participating Interest in each Letter of Credit, the related Letter
of Credit Application and all obligations of the Borrower with respect
thereto (other than fees payable to the Issuing Lender pursuant to
subsections 6.3(b) and 6.4(b)) in a percentage equal to such Lender's
Revolving Credit Commitment Percentage. Each Participating Lender hereby
agrees that its participation obligations described in the immediately
preceding sentence shall be irrevocable and unconditional.
4.5 Procedure for Opening Letters of Credit. Upon receipt of
any Letter of Credit Application from the Borrower, the Issuing Lender will
process such Letter of Credit Application and the other certificates,
documents and other papers delivered to the Issuing Lender in connection
therewith, in accordance with its customary procedures and shall promptly
open such Letter of Credit by issuing the original of such Letter of Credit
to the beneficiary thereof and by furnishing a copy thereof to the Borrower.
The Issuing Lender will send monthly reports to each
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Participating Lender and the Borrower, on the third Business Day of each
calendar month, indicating the Letters of Credit opened during the previous
month.
4.6 Payments. (a) The Borrower agrees to reimburse the Issuing
Lender in Dollars and in immediately available funds, forthwith on the date
the Issuing Lender is presented with a draft under any Letter of Credit
(whether issued for the account of the Borrower or any Subsidiary of the
Borrower) and otherwise in accordance with the terms of the Letter of Credit
Application relating thereto, for any payment made by the Issuing Lender
under any Sight Draft Letter of Credit and any Standby Letter of Credit
issued for its account. In the case of any Letter of Credit issued in an
Approved Foreign Currency, such reimbursement obligation with respect to any
payment thereunder made in an Approved Foreign Currency shall be in an amount
equal to the Dollar Equivalent of the amount of such payment. The Issuing
Lender is hereby authorized to charge the account(s) maintained by the
Borrower at Chase for all amounts payable pursuant to this subsection 4.6(a).
(b) The failure by the Borrower on any day to have sufficient
aggregate Dollar funds on deposit in its account(s) maintained at Chase to
pay all Letter of Credit Reimbursement Obligations due on such day in
accordance with subsection 4.6(a) (such deficiency being hereinafter referred
to as a "Letter of Credit Reimbursement Deficiency") shall constitute the
making by the Issuing Lender of a loan to the Borrower (a "Letter of Credit
Reimbursement Loan") in a principal amount equal to the amount of the Letter
of Credit Reimbursement Deficiency as of such day. Each Letter of Credit
Reimbursement Loan shall (i) be payable on demand, (ii) be evidenced by a
loan account maintained on the books and records of the Issuing Lender (the
"Letter of Credit Reimbursement Loan Account") and (iii) bear interest from
the date of the creation of the applicable Letter of Credit Reimbursement
Obligation until paid in full at a rate per annum equal to (x) for the
Business Day on which such Letter of Credit Reimbursement Loan is created,
the ABR and (y) thereafter, the ABR plus 2%. Interest on each Letter of
Credit Reimbursement Loan shall be payable on demand. The entries in the
Letter of Credit Reimbursement Loan Account shall constitute prima facie
evidence of the accuracy of the information set forth therein.
(c) In the event that the Issuing Lender makes a Letter of
Credit Reimbursement Loan in accordance with subsection 4.6(b), the Issuing
Lender will promptly notify each Participating Lender. Forthwith upon its
receipt of any such notice, each Participating Lender will transfer to the
Issuing Lender, in Dollars and in immediately available funds, an amount
equal to such Participating Lender's Revolving Credit Commitment Percentage
of such Letter of Credit Reimbursement Loan plus interest thereon calculated
from the date of such notice at the Federal Funds Effective Rate.
(d) Whenever, at any time after the Issuing Lender has made
payment under any Sight Draft Letter of Credit or Standby Letter of Credit
and has received from each Participating Lender its Revolving Credit
Commitment Percentage of any Letter of Credit Reimbursement Loan in
accordance with subsection 4.6(c), the Issuing Lender receives any payments
related to such Letter of Credit Reimbursement Loan (whether received
directly from the Borrower or otherwise, including proceeds of collateral
applied thereto by the Issuing Lender), or any payment of interest on account
thereof, the Issuing Lender will distribute to each Participating
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Lender its pro rata share thereof; provided, however, that in the event that the
receipt by the Issuing Lender of such payments or such payment of interest (as
the case may be) is required to be returned, each Participating Lender will
return to the Issuing Lender any portion thereof previously distributed by the
Issuing Lender to it.
(e) Within fifteen days after the end of each calendar quarter,
the Issuing Lender will notify each Participating Lender (with copies to the
Borrower) of (i) each payment made by the Issuing Lender during such calendar
quarter under any Sight Draft Letter of Credit or Standby Letter of Credit
and (ii) each payment made by the Borrower during such calendar quarter to
the Issuing Lender in reimbursement of amounts paid by the Issuing Lender
under any such Letter of Credit.
4.7 Further Assurances. The Borrower hereby agrees to do and
perform, from time to time, any and all acts and to execute any and all
further instruments reasonably requested by the Issuing Lender more fully to
effect the purposes of this Agreement and the issuance of the Letters of
Credit opened hereunder for its account.
4.8 Letter of Credit Applications. The provisions of this
Section 4 in respect of any Letters of Credit are supplemental to, and not in
derogation of, any rights and remedies of the Issuing Lender and the Lenders
under the Letter of Credit Applications related to such Letters of Credit and
under ISP98 (in the case of Standby Letters of Credit) or the Uniform Customs
(in the case of other Letters of Credit) and other applicable laws. In the
event of any conflict between the terms of this Agreement and the terms of
the Letter of Credit Applications, the terms set forth in this Agreement
shall control.
4.9 Use of Letters of Credit. The Commercial Letters of Credit
opened for the account of the Borrower and its Subsidiaries shall be used
solely to finance purchases of inventory by such Persons in the ordinary
course of their business, and the Standby Letters of Credit shall be used
solely for the purposes described in the definition of such term in
subsection 1.1.
SECTION 5. ACCEPTANCES
5.1 Acceptances. The Issuing Lender and each Participating
Lender confirm that the Issuing Lender's issuance of Time Draft Letters of
Credit and each Participating Lender's acquisition of Letter of Credit
Participating Interests therein constitutes an agreement by the Issuing
Lender and the Participating Lenders to extend credit by the Issuing Lender's
accepting drafts ("Drafts") for the account of the Borrower that are
presented for honor under Time Draft Letters of Credit in compliance with the
terms thereof (each such accepted Draft, an "Acceptance") and each
Participating Lender's acquiring its Acceptance Participating Interest in
such Acceptance created by the Issuing Lender, from time to time during the
period from the Closing Date to and including the Termination Date, provided,
that each Draft shall be denominated in Dollars and shall be stated to mature
on a Business Day which is 30, 60, 90 or 180 days after the date thereof, at
the option of the Borrower. From and after the Closing Date, all then
outstanding Acceptances, if any, created under, and as defined in, the
Existing Credit
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Agreement shall be deemed for all purposes hereunder to be Acceptances created
under this Agreement on the Closing Date.
5.2 Participating Interests. Effective in the case of each
Acceptance as of the date of the creation thereof, the Issuing Lender agrees
to allot and does allot, to itself and each Participating Lender, and each
Participating Lender irrevocably agrees to take and does take, an Acceptance
Participating Interest in each Acceptance, the related Draft and all
obligations of the Borrower with respect thereto (other than fees payable to
the Issuing Lender pursuant to subsection 6.5(b)) in a percentage equal to
such Lender's Revolving Credit Commitment Percentage. Each Participating
Lender hereby agrees that its participation obligations described in the
immediately preceding sentence shall be irrevocable and unconditional.
5.3 Payments. (a) The Borrower shall be obligated, and hereby
unconditionally agrees, to pay to the Issuing Lender the face amount of each
Acceptance created by the Issuing Lender hereunder on the maturity thereof,
or such earlier date on which the obligations of the Borrower under this
Agreement become due and payable. The Issuing Lender is hereby authorized to
charge the account(s) maintained by the Borrower at Chase for all amounts
payable pursuant to this subsection 5.3(a).
(b) The failure by the Borrower on any day to have sufficient
aggregate Dollar funds on deposit in its account(s) maintained at Chase to
pay all Acceptance Reimbursement Obligations due on such day in accordance
with subsection 5.3(a) (such deficiency being hereinafter referred to as an
"Acceptance Reimbursement Deficiency") shall constitute the making by the
Issuing Lender of a loan to the Borrower (an "Acceptance Reimbursement Loan")
in a principal amount equal to the amount of the Acceptance Reimbursement
Deficiency as of such day. Each Acceptance Reimbursement Loan shall (i) be
payable on demand, (ii) be evidenced by a loan account maintained on the
books and records of the Issuing Lender (the "Acceptance Reimbursement Loan
Account"), and (iii) bear interest from the date of the creation of the
applicable Acceptance Reimbursement Obligation until paid in full at a rate
per annum equal to (x) for the Business Day on which such Acceptance
Reimbursement Loan is created, the ABR and (y) thereafter, the ABR plus 2%.
Interest on each Acceptance Reimbursement Loan shall be payable on demand.
The entries in the Acceptance Reimbursement Loan Account shall constitute
prima facie evidence of the accuracy of the information set forth therein.
(c) If the Issuing Lender makes an Acceptance Reimbursement Loan
in accordance with subsection 5.3(b), the Issuing Lender will promptly notify
each Participating Lender. Forthwith upon receipt of such notice, each
Participating Lender will transfer to the Issuing Lender, in Dollars and in
immediately available funds, an amount equal to such Participating Lender's
Revolving Credit Commitment Percentage of such Acceptance Reimbursement Loan
plus interest thereon calculated from the date of such notice at the Federal
Funds Effective Rate.
(d) Upon each Participating Lender's payment in full to the
Issuing Lender of its Revolving Credit Commitment Percentage of any
Acceptance Reimbursement Loan in accordance with subsection 5.3(b), such
Participating Lender shall acquire the Issuing Lender's claim against the
Borrower in respect of such Acceptance Reimbursement Loan to the extent of
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the amount paid by such Participating Lender. Each Participating Lender agrees
that the Issuing Lender shall have full authority and responsibility for
enforcing all claims against the Borrower with respect to Acceptances and
Acceptance Reimbursement Loans and exercising all rights and remedies with
respect thereto.
(e) Whenever, at any time after the Issuing Lender has received
from each Participating Lender its pro rata share of any Acceptance
Reimbursement Loan in accordance with subsection 5.3(c), the Issuing Lender
receives any payments related to such Acceptance Reimbursement Loan (whether
received directly from the Borrower or otherwise, including proceeds of
collateral applied thereto by the Issuing Lender), or any payment of interest
on account thereof, the Issuing Lender will distribute to each Participating
Lender its pro rata share thereof; provided, however, that in the event that
the receipt by the Issuing Lender of such payments or such payment of
interest (as the case may be) is required to be returned, each Participating
Lender will return to the Issuing Lender any portion thereof previously
distributed by the Issuing Lender to it.
(f) Within fifteen days after the end of each calendar quarter,
the Issuing Lender will notify each Participating Lender and the Borrower of
(i) each creation of an Acceptance by the Issuing Lender during such calendar
quarter and (ii) each payment made by the Borrower to the Issuing Lender
during such calendar quarter on account of any Acceptance Reimbursement
Obligation.
5.4 Termination of Acceptance Commitments. In the event that
(a) there is a determination made by any regulatory body or instrumentality
thereof (including, without limitation, any Federal Reserve Lender or any
bank examiner), or there is a change in, or change in interpretation of, any
applicable law, rule or regulation (such determination or such change, a
"Reserve Determination"), in either case to the effect that bankers'
acceptances created hereunder or in connection with a substantially similar
facility (whether or not the Borrower or any Lender is directly involved as
parties) will be ineligible for reserve-free treatment (or if already
discounted, should have been ineligible for reserve-free treatment) with
Federal Reserve Banks, and as a result any Lender is required to maintain, or
determines as a matter of prudent banking that it is appropriate for it to
maintain, additional reserves, or (b) any restriction is imposed on any
Lender (including, without limitation, any change in acceptance limits
imposed on any Lender) which would prevent such Lender from creating or
purchasing participating interests in bankers' acceptances, as the case may
be, or otherwise performing its obligations in respect of Acceptances, then,
with the consent of the Participating Lenders, the Issuing Lender may, or
upon the direction of any Participating Lender, the Issuing Lender shall, by
notice to the Borrower in accordance with subsection 13.2, terminate the
obligation of the Issuing Lender to issue Time Draft Letters of Credit and to
create Acceptances in whole, effective on the date on which the Issuing
Lender gives such notice, and the Issuing Lender shall have no further
obligation to issue Time Draft Letters of Credit.
5.5 Mandatory Prepayment of Acceptance. The Borrower shall,
within one Business Day of its receipt of a notice of termination from the
Issuing Lender pursuant to subsection 5.4, prepay the Acceptance Obligations
with respect to each Acceptance then outstanding by paying to the Issuing
Lender the face amount of each Acceptance less a
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prepayment discount calculated by the Issuing Lender based upon the then
prevailing rate for U.S. Treasury Bills maturing on or about the maturity date
of such Acceptance (and communicated to the Borrower in its notice of
termination pursuant to subsection 5.4); provided that in the event the Borrower
fails to make such prepayment as provided in this subsection 5.5, each Lender's
pro rata share of the Acceptance Obligation with respect to each Acceptance then
outstanding shall be deemed to be a Revolving Credit Loan made on the Business
Day on which such prepayment was due in a principal amount equal to such
Lender's pro rata share of the face amount of such Acceptance and subject to the
terms and conditions of Section 2 and Section 6 hereof.
SECTION 6. GENERAL PROVISIONS APPLICABLE TO LOANS
6.1 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such
day plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal
to the ABR.
(c) If all or a portion of (i) the principal amount of any Loan,
(ii) any interest payable thereon or (iii) any commitment fee or other amount
payable hereunder shall not be paid when due (whether at the stated maturity,
by acceleration or otherwise), such overdue amount shall bear interest at a
rate per annum which is (x) in the case of overdue principal, the rate that
would otherwise be applicable thereto pursuant to the foregoing provisions of
this subsection plus 2% or (y) in the case of overdue interest, commitment
fee or other amount, the rate described in paragraph (b) of this subsection
plus 2%, in each case from the date of such non-payment until such amount is
paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (c) of
this subsection shall be payable from time to time on demand.
6.2 Commitment and Other Fees. (a) The Borrower agrees to pay
to the Agent, for the account of the Lenders, a commitment fee for the period
from and including the first day of the Term Loan Commitment Period to the
Term Loan Termination Date, computed at the rate per annum equal to the
Applicable Commitment Rate Percentage on the average daily amount of the
Available Term Loan Commitments during the period for which payment is made,
payable quarterly in arrears on the last day of each March, June, September
and December and on the Term Loan Termination Date, commencing on the first
of such dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Agent, for the account of
the Lenders, a commitment fee for the period from and including the first day
of the Revolving Credit Commitment Period to the Termination Date, computed
at the rate per annum equal to the Applicable Commitment Rate Percentage on
the average daily amount of the Available Revolving Credit Commitments during
the period for which payment is made, payable quarterly
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in arrears on the last day of each March, June, September and December and on
the Termination Date, commencing on the first of such dates to occur after the
date hereof.
(c) The Borrower agrees to pay to the Agent, for the account of
the Agent, the fees described in the fee letter dated February 26, 1999
between the Borrower and the Agent.
6.3 Commercial Letter of Credit Fees. (a) The Borrower agrees
that on the date of each drawing under a Commercial Letter of Credit, it will
pay to the Agent, for the account of the Issuing Lender, a Commercial Letter
of Credit fee. In the case of a Sight Draft Letter of Credit, such fee
shall be equal to the higher of (i) $50 and (ii) the Applicable Sight Draft
Fee Percentage then in effect of the amount of such drawing (calculated on
the basis of the Dollar Equivalent thereof in the case of any Letter of
Credit issued in an Approved Foreign Currency). In the case of a Time Draft
Letter of Credit, such fee shall equal the higher of (i) $120 and (ii) a
percentage of the amount of such drawing equal to the Applicable Margin then
in effect (calculated on the basis of the Dollar Equivalent thereof in the
case of any Letter of Credit issued in an Approved Foreign Currency). On the
last day of each March, June, September and December, the Issuing Lender will
allocate and pay to each Participating Lender a fee equal to such
Participating Lender's pro rata share of the amount of such fees received
from the Borrower during the immediately preceding three-month period
calculated on the basis of the Applicable Sight Draft Fee Percentage or the
Applicable Margin.
(b) The Borrower agrees to pay to the Issuing Lender for its own
account the customary fees (including, without limitation, issuing fees,
amendment fees and processing fees) charged by the Issuing Lender in
connection with its issuance and administration of commercial letters of
credit.
6.4 Standby Letter of Credit Fees. (a) The Borrower agrees to
pay the Agent, for the account of the Issuing Lender and the Participating
Lenders, a Standby Letter of Credit fee calculated at the rate per annum
equal to the Applicable Margin from time to time in effect of the amount
available to be drawn under each Standby Letter of Credit issued for its
account (and in no event less than $500 with respect to each such Standby
Letter of Credit), payable to the Issuing Lender semi-annually in advance on
the date of issue of any Standby Letter of Credit and, thereafter, on each
six-month anniversary of such date of issue. The Issuing Lender will
promptly pay to the Participating Lenders their pro rata shares of any
amounts received from the Borrower in respect of any such fees.
(b) The Borrower agrees to pay to the Issuing Lender for its own
account the customary fees (including, without limitation, issuing fees and
processing fees) charged by the Issuing Lender in connection with its
issuance and administration of standby letters of credit.
6.5 Acceptance Fees. (a) The Borrower agrees to pay the
Issuing Lender an acceptance commission (an "Acceptance Commission") on the
face amount of each Acceptance created by the Issuing Lender hereunder for
the period from the date of such Acceptance to the date of its maturity at a
rate per annum equal to the Acceptance Discount Rate in effect on the date of
creation of such Acceptance plus the Applicable Margin, payable in full on
the date of creation of such Acceptance; provided that such Acceptance
Commission shall be an amount
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equal to at least $120. On the last day of each March, June, September and
December, the Issuing Lender will allocate and pay to each Participating Lender
such Participating Lender's pro rata share of the Applicable Margin portion of
the Acceptance Commissions paid during the immediately preceding three-month
period.
(b) The Borrower agrees to pay to the Issuing Lender for its own
account the customary fees (including, without limitation, processing fees)
charged by the Issuing Lender in connection with its creation and
administration of bankers' acceptances.
6.6 Computation of Interest and Fees. (a) Interest on ABR
Loans, Letter of Credit Reimbursement Loans, Acceptance Reimbursement Loans,
Letter of Credit Reimbursement Obligations and Acceptance Reimbursement
Obligations, and per annum fees shall be calculated on the basis of a 365-
(or 366, as the case may be) day year for the actual days elapsed; otherwise
interest shall be calculated on the basis of a 360-day year for the actual
days elapsed. The Agent shall as soon as practicable notify the Borrower and
the Lenders of each determination of a Eurodollar Rate. Any change in the
interest rate on a Loan (or on any other obligation accruing interest under
the terms hereof) resulting from a change in the ABR or the Eurocurrency
Reserve Requirements shall become effective as of the opening of business on
the day on which such change becomes effective. The Agent shall as soon as
practicable notify the Borrower and the Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the Agent
pursuant to any provision of this Agreement shall be conclusive and binding
on the Borrower and the Lenders in the absence of manifest error.
6.7 Optional Prepayments. The Borrower may at any time and from
time to time prepay the Loans, in whole or in part, without premium or
penalty, upon irrevocable notice to the Agent prior to 11:00 A.M. on such
date of prepayment, specifying the date and amount of prepayment and whether
the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof,
and, if of a combination thereof, the amount allocable to each. Upon receipt
of any such notice the Agent shall promptly notify each Lender thereof. If
any such notice is given, the amount specified in such notice shall be due
and payable on the date specified therein, together with any amounts payable
pursuant to subsection 6.14 and, in the case of prepayments of the Term Loans
only, accrued interest to such date on the amount prepaid. Amounts prepaid
on account of the Term Loans may not be reborrowed. Partial prepayments
shall be in an aggregate principal amount of $500,000 or a whole multiple of
$100,000 in excess thereof. In the event any prepayment pursuant to this
subsection 6.7 of Eurodollar Loans is not made on the last day of an Interest
Period, the Borrower shall be obligated to reimburse the Lenders in respect
thereof pursuant to subsection 6.14.
6.8 Termination or Reduction of Commitments. (a) The Borrower
shall have the right, upon not less than five Business Days' notice to the
Agent, to terminate the Term Loan Commitments or, from time to time, to
reduce the amount of the Term Loan Commitments. Any such reduction shall be
in an amount equal to $1,000,000 or a whole multiple of $100,000 in excess
thereof and shall reduce permanently the Term Loan Commitments then in effect.
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(b) The Borrower shall have the right, upon not less than five
Business Days' notice to the Agent, to terminate the Revolving Credit
Commitments or, from time to time, to reduce the amount of the Revolving
Credit Commitments, provided that no such termination or reduction shall be
permitted to the extent that, after giving effect thereto and to any
prepayments of the Loans made on the effective date thereof, the Aggregate
Revolving Credit Extensions of Credit then outstanding would exceed the
Revolving Credit Commitments then in effect. Any such reduction shall be in
an amount equal to $1,000,000 or a whole multiple of $100,000 in excess
thereof and shall reduce permanently the Revolving Credit Commitments then in
effect.
6.9 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrower from the Lenders under the Revolving Credit Commitments, each
payment by the Borrower on account of any commitment fee hereunder in respect
of the Revolving Credit Commitments and any reduction of the Revolving Credit
Commitments of the Lenders shall be made pro rata according to the respective
Revolving Credit Commitment Percentages of the Lenders. Each borrowing by
the Borrower from the Lenders under the Term Loan Commitments, each payment
by the Borrower on account of any commitment fee hereunder in respect of the
Term Loan Commitments and any reduction of the Term Loan Commitments of the
Lenders shall be made pro rata according to the respective Term Loan
Commitment Percentages of the Lenders. Each payment (including each
prepayment) by the Borrower on account of principal of and interest on the
Loans shall be made pro rata according to the respective outstanding
principal amounts of the Loans then held by the Lenders. All payments
(including prepayments) to be made by the Borrower hereunder and under the
Notes, whether on account of principal, interest, fees or otherwise, shall be
made without set off or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Agent at the Agent's
office specified in subsection 13.2, in Dollars and in immediately available
funds. The Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds as received. If any payment hereunder becomes due and
payable on a day other than a Business Day, such payment shall be due on the
next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
(b) Unless the Agent shall have been notified in writing by any
Lender prior to a Borrowing Date that such Lender will not make the amount
that would constitute its Revolving Credit Commitment Percentage or Term Loan
Percentage, as the case may be, of the borrowing on such date available to
the Agent, the Agent may assume that such Lender has made such amount
available to the Agent on such Borrowing Date, and the Agent may, in reliance
upon such assumption, make available to the Borrower a corresponding amount.
If such amount is made available to the Agent on a date after such Borrowing
Date, such Lender shall pay to the Agent on demand an amount equal to the
product of (i) the daily average Federal Funds Effective Rate during such
period as quoted by the Agent, times (ii) the amount of such Lender's
Revolving Credit Commitment Percentage or Term Loan Percentage, as the case
may be, of such borrowing, times (iii) a fraction the numerator of which is
the number of days that have elapsed from and including such Borrowing Date
to the date on which such Lender's Revolving Credit Commitment Percentage or
Term Loan Percentage, as the case may be, of such borrowing shall have become
immediately available to the Agent and the denominator of which is 360. A
certificate of the Agent submitted to any Lender with respect to any amounts
owing under this subsection shall be conclusive in the absence of manifest
error. If such Lender's Revolving
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Credit Commitment Percentage or Term Loan Percentage, as the case may be, of
such borrowing is not in fact made available to the Agent by such Lender within
three Business Days of such Borrowing Date, the Agent shall be entitled to
recover (without duplication) such amount with interest thereon at the rate per
annum applicable to ABR Loans hereunder, on demand, from the Borrower.
6.10 Conversion and Continuation Options. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to ABR Loans by giving
the Agent at least two Business Days' prior irrevocable notice of such
election, provided that in the event any such conversion of Eurodollar Loans
is not made on the last day of an Interest Period, the Borrower shall be
obligated to reimburse the Lenders in respect thereof pursuant to subsection
6.14. The Borrower may elect from time to time to convert ABR Loans to
Eurodollar Loans by giving the Agent at least three Business Days' prior
irrevocable notice of such election. Any such notice of conversion to
Eurodollar Loans shall specify the length of the initial Interest Period or
Interest Periods therefor. Upon receipt of any such notice the Agent shall
promptly notify each Lender thereof. All or any part of outstanding
Eurodollar Loans and ABR Loans may be converted as provided herein, provided
that (i) no Loan may be converted into a Eurodollar Loan when any Event of
Default has occurred and is continuing and the Agent has or the Required
Lenders have determined that such a conversion is not appropriate and (ii) no
Loan may be converted into a Eurodollar Loan after the date that is one month
prior to the Revolving Credit Termination Date or, as the case may be, the
date on which the Term Loans mature.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Agent, in accordance with the applicable
provisions of the term "Interest Period" set forth in subsection 1.1, of the
length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan may be continued as such (i) when any Event of
Default has occurred and is continuing and the Agent has or the Required
Lenders have determined that such a continuation is not appropriate or (ii)
after the date that is one month prior to the Termination Date or, as the
case may be, the day on which the Term Loans mature and provided, further,
that if the Borrower shall fail to give such notice or if such continuation
is not permitted such Loans shall be automatically converted to ABR Loans on
the last day of such then expiring Interest Period.
6.11 Minimum Amounts and Maximum Number of Tranches. All
borrowings, conversions and continuations of Loans hereunder and all
selections of Interest Periods hereunder shall be in such amounts and be made
pursuant to such elections so that, after giving effect thereto, the
aggregate principal amount of the Loans comprising each Eurodollar Tranche
shall be equal to $5,000,000 or a whole multiple of $500,000 in excess
thereof. In no event shall there be more than 10 Eurodollar Tranches
outstanding at any time.
6.12 Inability to Determine Interest Rate. If prior to the
first day of any Interest Period:
(a) the Agent shall have determined (which determination shall
be conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant
<PAGE> 40
35
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period, or
(b) the Agent shall have received notice from the Required
Lenders that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to
such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower
and the Lenders as soon as practicable thereafter. Unless the Borrower shall
have notified the Agent promptly upon receipt of such notice that if it
wishes to rescind or modify its request (x) any Eurodollar Loans requested to
be made on the first day of such Interest Period shall be made as ABR Loans
and (y) any Loans that were to have been converted on the first day of such
Interest Period to Eurodollar Loans shall be converted to or continued as ABR
Loans. In addition, in the case any such notice is given, any outstanding
Eurodollar Loans shall be converted, on the first day of such Interest
Period, to ABR Loans. Until such notice has been withdrawn by the Agent, no
further Eurodollar Loans shall be made or continued as such, nor shall the
Borrower have the right to convert Loans to Eurodollar Loans.
6.13 Illegality. Notwithstanding any other provision herein, if
the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender
to make or maintain Eurodollar Loans as contemplated by this Agreement, (a)
the commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall
forthwith be cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to ABR Loans on
the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of
the then current Interest Period with respect thereto, the Borrower shall pay
to such Lender such amounts, if any, as may be required pursuant to
subsection 6.14.
6.14 Indemnity. The Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender
may sustain or incur as a consequence of (a) default by the Borrower in
making a borrowing of, conversion into or continuation of Eurodollar Loans
after the Borrower has given a notice requesting the same in accordance with
the provisions of this Agreement, (b) default by the Borrower in making any
prepayment of Eurodollar Loans after the Borrower has given notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day which is not the last day of an
Interest Period with respect thereto. Such indemnification may include an
amount equal to the excess, if any, of (i) the amount of interest which would
have accrued on the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of such failure
to borrow, convert or continue to the last day of such Interest Period (or,
in the case of a failure to borrow, convert or continue, the Interest Period
that would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Loans provided for herein (excluding,
however, the Applicable Margin included therein, if any) over (ii) the amount
of interest (as reasonably determined by such
<PAGE> 41
36
Lender) which would have accrued to such Lender on such amount by placing such
amount on deposit for a comparable period with leading banks in the interbank
eurodollar market. A certificate setting forth the calculations as to any
additional amounts payable pursuant to this subsection 6.14 shall be submitted
by an officer of a Lender, through the Agent, to the Borrower and shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans, the Notes, the
Acceptance Obligations, the Letter of Credit Obligations and all other amounts
payable hereunder.
6.15 Change of Lending Office. Each Lender agrees that if it
makes any demand for payment under subsection 6.16 or 6.17, or if any
adoption or change of the type described in subsection 6.13 shall occur with
respect to it, it will use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts
would not be disadvantageous to it, as determined in its sole discretion) to
designate a different lending office if the making of such a designation
would reduce or obviate the need for the Borrower to make payments under
subsection 6.16 or 6.17, or would eliminate or reduce the effect of any
adoption or change described in subsection 6.13.
6.16 Taxes. (a) All payments shall be made by the Borrower
under this Agreement and the Notes free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, excluding, in the case of the Agent
and each Lender, net income and franchise taxes (imposed in lieu of net
income taxes) imposed on the Agent or such Lender, as the case may be, as a
result of a present or former connection between the Agent or such Lender and
the jurisdiction of the Governmental Authority imposing such tax, or any
political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or
enforced, this Agreement or any Note). If any such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions and withholdings
("Non-Excluded Taxes") are required to be withheld from any amounts payable
to the Agent or any Lender hereunder or under the Notes, the amounts so
payable to the Agent or such Lender shall be increased to the extent
necessary to yield to the Agent or such Lender (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement and the Notes,
provided, however, that the Borrower shall not be required to increase any
such amounts payable to any Lender that is not organized under the laws of
the United States of America or a state thereof (a "Non-U.S. Lender") with
respect to any taxes that are attributable to such Non-U.S. Lender's failure
to comply with the requirements of paragraph (b) of this subsection.
Whenever any Non-Excluded Taxes specified in the preceding sentence are
payable by the Borrower, as promptly as possible thereafter the Borrower
shall send to the Agent for its own account or for the account of such
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to
pay any Non-Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by
the Agent or any Lender as a result of any such failure. The agreements in
this subsection shall survive the termination of this Agreement and
<PAGE> 42
37
the payment of the outstanding Notes, Acceptance Obligations, Letter of Credit
Obligations and all other amounts payable hereunder.
(b) Each Non-U.S. Lender agrees that prior to the first Interest
Payment Date it will deliver to the Borrower and the Agent (i) two duly
completed copies of United States Internal Revenue Service Form 1001 or 4224
or successor applicable form, as the case may be, and (ii) an Internal
Revenue Service Form W-8 or W-9 or successor applicable form. Each such
Lender also agrees to deliver to the Borrower and the Agent two new, duly
completed copies of the said Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms or other manner of certification, as the case may
be, on or before the date that any such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower, and such extensions or renewals
thereof as may reasonably be requested by the Borrower or the Agent. Such
Lender shall certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under the Agreement without deduction or
withholding of any United States federal income taxes, unless in any such
case an event (including, without limitation, any change in treaty, law or
regulations) has occurred after the Closing Date and prior to the date on
which any such delivery would otherwise be required which renders all such
forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender advises the
Borrower that it is not capable of so receiving payments without any
deduction or withholding, and (ii) in the case of a Form W-8 or W-9, that it
is entitled to a complete exemption from United States backup withholding
tax. Each Person that shall become a Lender or a Participant pursuant to
subsection 13.6 shall, upon the effectiveness of the related transfer, be
required to provide all of the forms and statements required pursuant to this
subsection, provided that in the case of a Participant, such Participant
shall furnish all such required forms and statements to the Lender from which
the related participation shall have been purchased.
(c) Each Lender agrees to use reasonable efforts (including
reasonable efforts to change the office in which it is booking its Loans)
consistent with its internal policy and legal and regulatory restrictions and
so long as such efforts would not be disadvantageous to it, as determined in
its sole discretion, to avoid or minimize any amounts which might otherwise
be payable pursuant to this subsection 6.16.
(d) If the Agent or any Lender receives a refund which in the
good faith judgment of such Lender is allocable to Non-Excluded Taxes paid by
the Borrower, it shall promptly pay such refund, together with any other
amounts paid by the Borrower in connection with such refunded Non-Excluded
Taxes, to the Borrower, net of all out-of-pocket expenses of such Lender
incurred in obtaining such refund, provided, however, that the Borrower
agrees to promptly return such refund to the Agent or the applicable Lender,
as the case may be, if it receives notice from the Agent or applicable Lender
that such Agent or Lender is required to repay such refund.
6.17 Requirements of Law. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the dates hereof:
<PAGE> 43
38
(i) does or shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Eurodollar Loan,
any Letter of Credit Document or any Acceptance Document, or change the
basis of taxation of payments to such Lender in respect thereof (except
for Non-Excluded Taxes covered by subsection 6.16 and changes in the rate
of tax on the overall net income of such Lender);
(ii) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan, assessment or similar requirement
against Letters of Credit issued by the Issuing Lender or participated in
by the Participating Lender or against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other extensions
of credit by, or any other acquisition of funds by, any office of such
Lender which is not otherwise included in the determination of the
Eurodollar Rate hereunder; or
(iii) does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender
of making, converting into, continuing or maintaining Eurodollar Loans,
issuing, maintaining or participating in any Letter of Credit or creating or
participating in any Acceptance, or to reduce any amount receivable hereunder
in respect thereof, then, in any such case, the Borrower shall promptly pay
such Lender, upon its demand, any additional amounts necessary to compensate
such Lender for such additional increased cost or reduced amount receivable.
If any Lender becomes entitled to claim any additional amounts pursuant to
this subsection, it shall promptly notify the Borrower, through the Agent, of
the event by reason of which it has become so entitled. A certificate as to
any additional amounts payable pursuant to this paragraph, submitted by such
Lender, through the Agent, to the Borrower shall be conclusive in the absence
of manifest error.
(b) In the event that any Acceptance created hereunder is not,
for any reason, a bankers' acceptance with respect to which no reserves are
required to be maintained by the Issuing Lender or any Participating Lender
under Regulation D of the Board in effect from time to time or under any
other law or regulation (an "Eligible Acceptance"), the Borrower shall, upon
demand by the Agent, pay to the Agent for the account of the Lenders, such
additional amounts as are sufficient to indemnify each Lender against any
additional costs, as determined by the Lenders and notified in writing to the
Agent, incurred by the Lenders (including, without limitation, costs
resulting from any Reserve Determination, or reserve requirements, or premium
liability to the Federal Deposit Insurance Corporation, or a higher discount
rate) resulting from such Acceptance not constituting an Eligible Acceptance
hereunder.
(c) In the event that after the date hereof, any Lender shall
determine that the adoption of any Requirement of Law, rule, regulation or
guideline regarding capital adequacy or any change in any Requirement of Law,
rule, regulation or guideline regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender with any
request or directive regarding capital adequacy (whether or not having the
force of law) from any Governmental Authority, including, without limitation,
the issuance of any final rule, regulation or guideline, does or shall have
the effect of reducing the rate of return on such Lender's capital as a
consequence of its obligations hereunder (including, without limitation, the
issuance of or
<PAGE> 44
39
participation in any Letters of Credit and the creation and discount of or
participation in Acceptances) to a level below that which such Lender could have
achieved but for such Requirement of Law, rule, regulation or guideline, change
or compliance (taking into consideration such Lender's policies with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time, after submission by such Lender to the Borrower (with a copy to
the Agent) of a written request therefor, the Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender for such
reduction.
(d) The agreements in this subsection 6.17 shall survive the
termination of this Agreement and payment of the outstanding Notes,
Acceptance Obligations, Letter of Credit Obligations and all other amounts
payable hereunder.
6.18 Obligations Absolute. (a) The Borrower's payment
obligations under this Agreement shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Agreement under
all circumstances, including, without limitation, the existence of any claim,
set-off, defense or other right which the Borrower may have at any time
against the Issuing Lender, any Participating Lender, any Lender or the
Agent, or against any beneficiary of any Letter of Credit or any holder of
any Acceptance, or any transferee from any such beneficiary or holder (or any
Person for whom any such beneficiary, holder or transferee may be acting), or
against any other Person, whether in connection with this Agreement, the
transactions contemplated hereby, or any unrelated transaction; provided,
however, that this provision shall be deemed a waiver by the Borrower of the
assertion of a compulsory counterclaim only to the extent permitted by
applicable law. The Borrower assumes all risks of the acts or omissions of
the users of the Letters of Credit and Acceptances and all risks of the
misuse of the Letters of Credit and Acceptances. Neither the Issuing Lender,
nor any of its correspondents, nor any Participating Lender, nor the Agent
shall be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document specified in any of the Letter of
Credit Documents, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any of the Letters of Credit or any of the
rights or benefits thereunder or proceeds thereof in whole or in part, which
may prove to be invalid or ineffective for any reason; (iii) for failure of
any draft to bear any reference or adequate reference to any of the Letters
of Credit, or failure of anyone to note the amount of any draft on the
reverse of any of the Letters of Credit or to surrender or to take up any of
the Letters of Credit or to send forward any such document apart from drafts
as required by the terms of any of the Letters of Credit, each of which
provisions, if contained in a Letter of Credit itself, it is agreed, may be
waived by the Issuing Lender; (iv) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in cipher; (v) for any
error, neglect, default, suspension or insolvency of any correspondents of
the Issuing Lender; (vi) for errors in translation or for errors in
interpretation of technical terms; (vii) for any loss or delay, in the
transmission or otherwise, of any such document or draft or of proceeds
thereof; or (viii) for any other circumstances whatsoever in making or
failing to make payment under a Letter of Credit, except only that the
Borrower shall have a claim against the Issuing Lender, and the Issuing
Lender shall be liable to the Borrower, to the extent, but only to the
extent, of any direct, as opposed to consequential, damages suffered by the
Borrower which the Borrower proves were caused by the Issuing Lender's
willful misconduct or gross negligence
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40
in determining whether documents presented under a Letter of Credit comply with
the terms of such Letter of Credit. None of the foregoing shall affect, impair
or prevent the vesting of any of the rights or powers of the Issuing Lender, the
Agent or any of the Participating Lenders. The Issuing Lender or the Agent shall
have the right to transmit the terms of the Letter of Credit involved without
translating them.
(b) In furtherance and extension and not in limitation of the
specific provisions in subsection 6.18(a), (i) any action taken or omitted by
the Issuing Lender, the Agent or by any of their respective correspondents
under or in connection with any of the Letters of Credit, if taken or omitted
in good faith, shall be binding upon the Borrower and shall not put the
Issuing Lender, the Agent or their respective correspondents under any
resulting liability to the Borrower and (ii) the Issuing Lender may accept
documents that appear on their face to be in order, without responsibility
for further investigation, regardless of any notice or information to the
contrary; provided that if the Issuing Lender shall receive written
notification from both the beneficiary of a Letter of Credit and the Borrower
that sufficiently identifies (in the opinion of the Issuing Lender) documents
to be presented to the Issuing Lender which are not to be honored, the
Issuing Lender agrees that it will not honor such documents.
6.19 Mandatory Prepayments. If, at any time during the Revolving
Credit Commitment Period, the Aggregate Revolving Credit Extensions of Credit
exceed the aggregate Revolving Credit Commitments then in effect, the
Borrower shall, without notice or demand, immediately prepay the Revolving
Credit Loans in an aggregate principal amount equal to such excess, together
with interest accrued to the date of such payment or prepayment and any
amounts payable under subsection 6.14. Prepayments shall be applied, first
to ABR Loans and second, to Eurodollar Loans. To the extent that after
giving effect to any prepayment of the Revolving Credit Loans required by the
first sentence of this paragraph, the Aggregate Revolving Credit Extensions
of Credit exceed the aggregate Revolving Credit Commitments then in effect,
the Borrower shall, without notice or demand, immediately deposit in a cash
collateral account with the Agent, having terms and conditions satisfactory
to the Agent, as cash collateral security for the liability of the Issuing
Lender (whether direct or contingent) under any Letters of Credit or
Acceptances then outstanding, an aggregate amount equal to the amount by
which the Aggregate Revolving Credit Extensions of Credit exceed the
aggregate Revolving Credit Commitments then in effect.
6.20 Cash Collateralization of Letter of Credit Obligations and
Acceptance Obligations. With respect to all Letters of Credit and
Acceptances that shall not have matured or been paid or with respect to which
presentment for honor shall not have occurred on or prior to the Termination
Date, the Borrower shall, on the Termination Date, deposit in a cash
collateral account maintained by the Agent (and under the exclusive dominion
and control of the Agent) an amount equal to the aggregate amount of the
Letter of Credit Obligations plus the aggregate amount of Acceptance
Obligations for application to payments of drafts drawn under Letters of
Credit and to payment of Acceptances at maturity, and the unused portion
thereof after such application, if any, shall be applied to repay other
obligations of the Borrower hereunder or under the Notes or any of the other
Credit Documents, and after all Letters of Credit have expired, all drafts
and Acceptances have matured and been repaid and all other obligations of the
Borrower
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41
hereunder or any of the other Credit Documents are paid in full, the balance, if
any, shall be returned to the Borrower.
SECTION 7. CONDITIONS PRECEDENT
7.1 Conditions to Initial Loans. The agreement of each Lender
to make the initial Loan requested to be made by it is subject to the
satisfaction, immediately prior to or concurrently with the making of such
Loan, on the Closing Date of the following conditions precedent (provided,
that such conditions shall have been satisfied on or before May 1, 1999):
(a) Minimum Amount of Shares; Completion of Tender Offer; etc.
Each of the statements set forth in clauses (i) through (v) below shall
be true and correct, and the Agent shall have received a certificate of
a Responsible Officer of the Borrower to such effect: (i) the Borrower
shall have accepted for payment prior to or concurrently with the
making of such Loans (A) at least 66-2/3% of the Amalgamation Voting
Shares (on a fully diluted basis) and (B) not less than 50.1% of the
outstanding Amalgamation Voting Shares (on a fully diluted basis)
excluding any of such Amalgamation Voting Shares that may not be
included as part of the minority approval of the Amalgamation; (ii) the
aggregate purchase price of the Target Stock pursuant to the Tender
Offer, plus the aggregate amount required to be paid in connection with
the Compulsory Acquisition or the Second-Step Transaction shall be
approximately Canadian $85,000,000; (iii) the Tender Offer shall have
been completed in all material respects in accordance with all
applicable United States federal and state laws and regulations, and
all applicable Canadian federal and provincial laws and regulations;
(iv) the Tender Offer shall have been consummated without modification,
waiver or amendment of any of the conditions precedent set forth in the
Offer to Purchase or of any other terms without the approval of the
Agent, except for extensions of the period for the deposit of shares of
Target Stock, at any time and from time to time, so long as such period
ends on a date no later than 120 days after the Closing Date; and (v)
after the consummation of the Tender Offer, the Target shall have no
material Indebtedness except the approximately Canadian $44,000,000 of
Indebtedness to be repaid at the time of Amalgamation or the completion
of the Second-Step Transaction.
(b) Depositary Certificate. The Agent shall have received a copy
of a report from Montreal Trust Company of Canada (the "Depositary") to
the effect that as of the Closing Date, (i) not less than 66-2/3% of
the Amalgamation Voting Shares (on a fully diluted basis) and (ii) not
less than 50.1% of the outstanding Amalgamation Voting Shares (on a
fully diluted basis) excluding any of such Amalgamation Voting Shares
that may not be included as part of the minority approval of the
Amalgamation, have been properly tendered and not withdrawn pursuant to
the Tender Offer.
(c) Governmental Approval. All governmental and third party
approvals necessary in connection with the Tender Offer, the financing
contemplated hereby and the continuing operations of the Borrower and
its Subsidiaries shall have been obtained and be in full force and
effect, and all applicable waiting periods shall have expired without
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42
any action being taken or threatened by any competent authority that
would restrain, prevent or otherwise impose adverse conditions on the
Tender Offer, the Amalgamation or the financing thereof.
(d) Notes. The Agent shall have received a Revolving Credit
Note and/or a Term Note, as applicable, for each Lender, each
conforming to the requirements hereof and executed by a duly authorized
officer of the Borrower.
(e) Legal Opinions. The Agent shall have received, with a
counterpart for each Lender, an opinion of Paul, Weiss, Rifkind,
Wharton & Garrison, counsel to the Borrower and the Guarantors,
substantially in the form of Exhibit D-1 and an opinion of the Senior
Vice President and General Counsel of the Borrower substantially in the
form of Exhibit D-2, and covering, in each case, such other matters
incident to the transactions contemplated by this Agreement, the Notes
and the other Credit Documents as the Agent or any Lender may
reasonably request.
(f) Guarantee. The Agent shall have received, with a
counterpart for each Lender, the Guarantee, satisfactory to the Agent,
duly executed and delivered by the parties thereto and which shall be
in full force and effect.
(g) Closing Certificates. The Agent shall have received, with a
counterpart for each Lender, (i) a closing certificate of the Borrower,
dated the Closing Date, substantially in the form of Exhibit E,
executed by a duly authorized officer of the Borrower and (ii) a
closing certificate of each Guarantor, dated the Closing Date,
substantially in the form of Exhibit F, executed by a duly authorized
officer of such Guarantor, in each case with appropriate attachments
thereto.
(h) Other Documents. The Agent shall have received, with a copy
for each Lender, such other certificates, opinions, documents and
instruments relating to the transactions contemplated hereby as may
have been reasonably requested by any Lender.
(i) Corporate Proceedings of the Borrower. The Agent shall have
received a copy of the resolutions, in form and substance satisfactory
to the Agent, of the Board of Directors of the Borrower authorizing the
execution, delivery and performance of the Credit Documents to which
the Borrower is a party, certified by the Secretary or an Assistant
Secretary of the Borrower as of the Closing Date, which certificate
shall be in form and substance satisfactory to the Agent and shall
state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
(j) Corporate Documents. The Agent shall have received true and
complete copies of the certificate of incorporation and by-laws of the
Borrower, certified as of the Closing Date as complete and correct
copies thereof by the Secretary or an Assistant Secretary of the
Borrower.
(k) Additional Matters. All corporate and other proceedings and
all other documents (including, without limitation, all documents
referred to herein and not
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43
appearing as exhibits hereto) and legal matters in connection with the
transactions contemplated by this Agreement, the Notes and the other
Credit Documents shall be satisfactory in form and substance to the Agent.
(l) Fees. The Agent shall have received the fees required to be
paid on the Closing Date pursuant to the fee letter referred to in
subsection 6.2 hereof and the fees and disbursements of Simpson Thacher
& Bartlett, counsel to the Agent.
7.2 Conditions to All Extensions of Credit. The obligation of
each Lender to make any Loan and the obligation of the Issuing Lender to
issue any Letter of Credit or create any Acceptance (including the Revolving
Credit Loan made or initial Letter of Credit or Acceptance issued hereunder)
is subject to the satisfaction of the following conditions precedent on the
date such Loan is made or such Letter of Credit or Acceptance is issued or
created:
(a) Payments. All applicable fees and commissions and any other
amounts payable pursuant to this Agreement shall have been paid in full.
(b) Representations and Warranties. The respective
representations and warranties made by each of the Borrower and the
other Credit Parties in the Credit Documents to which each is a party
or which are contained in any certificate, document or financial or
other statement furnished at any time under or in connection herewith
shall be true and correct in all material respects on and as of such
date as if made on and as of such date (other than (i) such
representations as are made as of a specific earlier date, in which
case such representations and warranties shall be true and correct in
all material respects as of such earlier date and (ii) as previously
notified to the Agent and waived by the Required Lenders).
(c) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on such date or after
giving effect to the Loans to be made, the Letters of Credit to be
issued or the Acceptances to be created and discounted, on such date.
(d) Delivery of Documents. All documents required or otherwise
requested in connection with the issuance of any Letters of Credit or
the creation of any Acceptances hereunder shall have been delivered to
the Issuing Lender, the Participating Lenders, the Lenders or the
Agent, as the case may be, completed in a manner in form and substance
satisfactory to the party to whom such documents are delivered.
Each borrowing by the Borrower hereunder and each issuance of a
Letter of Credit or creation of an Acceptance shall constitute a
representation and warranty by the Borrower as of the date of such borrowing
or issuance that the conditions in clauses (b) and (c) of this subsection 7.2
have been satisfied.
7.3 Tender Offer Funding Procedures. Anything in this Agreement
to the contrary notwithstanding and to accommodate the funding needs of the
Borrower related to the
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44
March 30, 1999 expiry date of the Tender Offer, the Borrower shall request that
the initial Loans be made hereunder on March 30, 1999 as ABR Loans by means of a
notice of borrowing in substantially the form of Exhibit G, duly executed by the
Borrower and the Depositary. If the condition set forth in Section 7.1(a)(i)
shall not be satisfied on March 30, 1999, (a) the Depositary shall be obligated
in accordance with its agreements set forth in such notice of borrowing to
return to the Agent on March 31, 1999 all funds made available to it by the
Lenders (through the Agent) as a consequence of such notice of borrowing, (b)
the Borrower shall be obligated to repay to the Lenders on March 31, 1999 all
funds made available to the Borrower hereunder on March 30, 1999 (which
obligation may be satisfied, to the extent of any such funds made available to
the Depositary, by the return of such funds by the Depositary pursuant to clause
(a) above), together with interest thereon at the rate specified in subsection
6.1(b), (c) the closing documents delivered to the Agent pursuant to subsections
7.1(a) and (b) shall be returned to the Borrower and deemed never to have been
delivered and (d) no Loans shall be deemed to have been made on March 30, 1999
for purposes of subsections 2.1 and 3.1 of this Agreement.
SECTION 8. REPRESENTATIONS AND WARRANTIES
To induce the Agent, the Issuing Lender and the Lenders to enter
into this Agreement and to make the Loans, issue and participate in the
Letters of Credit and create and participate in the Acceptances as herein
provided, the Borrower hereby represents and warrants to the Agent, the
Issuing Lender and to each Lender that:
8.1 Financial Condition. (a) The consolidated balance sheet of
the Borrower and its Subsidiaries as at March 28, 1998 and the related
consolidated statements of income and retained earnings and of changes in
financial position for the fiscal year ended on such date, reported on by
Deloitte & Touche LLP, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the consolidated
financial condition of the Borrower and its Subsidiaries as at such date, and
the results of their operations and changes in financial position for the
fiscal year then ended. The unaudited consolidated balance sheet of the
Borrower and its Subsidiaries as at December 26, 1998 and the related
consolidated statements of income and retained earnings and of changes in
financial position for the nine-month period ended on such date, certified by
a Responsible Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the financial condition
of the Borrower and its Subsidiaries as at such date, and the results of
their operations and changes in financial position for such period. All such
financial statements, including the related schedules and notes to all such
financial statements, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as concurred in by such
accountants or Responsible Officers, as the case may be, and as disclosed
therein). Neither the Borrower nor any of its Subsidiaries had, at the date
of the most recent balance sheet referred to above, any material Guarantee
Obligation, contingent liabilities or liability for taxes, long-term lease or
unusual forward or long-term commitment, which is not reflected in the
foregoing statements or in the notes thereto (and, in the case of such lease
or commitment, which is required in accordance with GAAP to be reflected in
such statements or notes) or which has not otherwise been disclosed to the
Lenders in writing.
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(b) The consolidated projected pro forma balance sheet of the
Borrower and its Subsidiaries as at April 3, 1999, adjusted to give effect to
the Tender Offer and the Compulsory Acquisition or the Second-Step
Transaction, as the case may be, presents fairly on a pro forma basis the
financial condition of the Borrower and its Subsidiaries as at such date
after giving effect to the Tender Offer and the Compulsory Acquisition or the
Second-Step Transaction, as the case may be and was prepared in good faith on
assumptions deemed reasonable at the time made.
8.2 No Change. Since March 28, 1998 (a) there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect and (until the Closing Date) there has been no
material adverse change in the business, operations, property or financial or
other condition of the Borrower and its Subsidiaries, taken as a whole; and
(b) prior to the Closing Date, no dividends or other distributions have been
declared, paid or made upon any shares of Capital Stock of the Borrower or
any of its Subsidiaries and neither the Borrower nor any of its Subsidiaries
has redeemed, retired, purchased or otherwise acquired for value any of its
own Capital Stock, except such shares as may have been acquired pursuant to
the Borrower's stock repurchase plan.
8.3 Existence; Compliance with Law. Each Credit Party (a) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate or partnership, as
the case may be, power and authority and the legal right to own and operate
its property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged and in which it proposes to be
engaged after the Closing Date, (c) is duly qualified as a foreign
corporation or partnership, as the case may be, and in good standing under
the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except
where the failure to so qualify could not have a Material Adverse Effect and
(d) is in compliance with all Requirements of Law, except to the extent that
the failure to comply therewith could not, in the aggregate, have a Material
Adverse Effect.
8.4 Power; Authorization; Enforceable Obligations. (a) The
Borrower has the corporate power and authority and the legal right to
execute, deliver and perform the Credit Documents to which it is a party and
to borrow hereunder and has taken all necessary action to authorize the
borrowings on the terms and conditions of this Agreement and the Notes and to
authorize the execution, delivery and performance of the Credit Documents to
which it is a party. Each other Credit Party has the power and authority and
the legal right to execute, deliver and perform the Credit Documents to which
it is a party and has taken all necessary action to authorize the execution,
delivery and performance of the Credit Documents to which it is a party.
(b) No consent or authorization of, filing with or other act by
or in respect of any Governmental Authority or any other Person is required
in connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of the Credit Documents, except for
those which have been duly obtained or made and are in full force and effect.
<PAGE> 51
46
(c) This Agreement has been and each other Credit Document has
been or will be (as the case may be) duly executed and delivered on behalf of
each Credit Party thereto, and each constitutes or will constitute (as the
case may be) a legal, valid and binding obligation of such Credit Party
enforceable against such Credit Party in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
8.5 No Legal Bar. The execution, delivery and performance of
the Credit Documents, the borrowings hereunder and the use of the proceeds
thereof will not violate any applicable usury laws or any other Requirement
of Law applicable to, or any Contractual Obligation of, any Credit Party, and
will not result in, or require, the creation or imposition of any Lien on any
of its or their respective properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation.
8.6 No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending
or, to the best knowledge of the Borrower, threatened by or against any
Credit Party or any of its Subsidiaries or against any of its or their
respective properties or revenues (i) with respect to any of the Credit
Documents to which any of them is a party or any of the transactions
contemplated hereby or thereby, or (ii) which could reasonably be expected to
have a Material Adverse Effect. Schedule 8.6 lists all litigation pending on
the date hereof against the Borrower or any of its Subsidiaries in which the
amount in controversy or potential liability of the Borrower or any of its
Subsidiaries exceeds $5,000,000 and is not covered by insurance.
8.7 No Default. Neither the Borrower nor any other Credit Party
is in default under or with respect to any Contractual Obligation or any
order, award or decree of any Governmental Authority or arbitrator binding
upon it or its properties in any respect which could reasonably be expected
to have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
8.8 Ownership of Property; Liens. Except as set forth in Schedule
8.8, each Credit Party has good record and marketable title in fee simple to
or valid leasehold interests in all its real property that is material to the
operation of its business, and good title to all its other property, and none
of such property is subject to any Lien, except as permitted by subsection
10.4.
8.9 No Burdensome Restrictions. No Contractual Obligation of
the Borrower or any other Credit Party and no Requirement of Law could
reasonably be expected to have a Material Adverse Effect.
8.10 Taxes. Each Credit Party has filed or caused to be filed
all material tax returns which to the knowledge of the Borrower are required
to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other material taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than those the amount or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in
<PAGE> 52
47
conformity with GAAP have been provided on the books of such Credit Party), and
no material tax Liens have been filed and, to the knowledge of the Borrower, no
material claims are being asserted with respect to any such taxes, fees or other
charges.
8.11 Federal Regulations. No part of the proceeds of any Loans
hereunder will be used, directly or indirectly, for "purchasing" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U of the Board as now and from time to time
hereafter in effect or for any purpose which violates, or which would be
inconsistent with, the provisions of the Regulations of such Board. If
requested by the Agent or any Lender, the Borrower will furnish to the Agent
and each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form U-1 referred to in said Regulation U, as the case may
be.
8.12 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 or ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Single
Employer Plan, and each Plan and, to the Borrower's knowledge, Multiemployer
Plan, has complied, and has been administered in compliance, in all material
respects with the applicable provisions of ERISA and the Code. No
termination of a Single Employer Plan has occurred, and no Lien in favor of
the PBGC or a Plan has arisen, during such five-year period. The present
value of all accrued benefits under each Single Employer Plan maintained by
the Borrower or any Commonly Controlled Entity (based on those assumptions
used to fund such Plan) did not, as of the last annual valuation date
applicable thereto, exceed the value of the assets of such Plan allocable to
such accrued benefits. Except as disclosed on Schedule 8.12, neither the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan, and the liability to which the
Borrower or any Commonly Controlled Entity would become subject under ERISA
if the Borrower or any such Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the valuation date most closely
preceding the date on which this representation is made or deemed made is not
in excess of $5,000,000. To the knowledge of the Borrower, no such
Multiemployer Plan is in Reorganization or Insolvent. The present value
(determined using actuarial and other assumptions which are reasonable in
respect of the benefits provided and the employees participating) of the
liability of the Borrower and each Commonly Controlled Entity for post
retirement benefits to be provided to their current and former employees
under Plans which are welfare benefit plans (as defined in Section 3(1) of
ERISA) does not in the aggregate, exceed the assets under all such Plans
allocable to such benefits by an amount in excess of $5,000,000.
8.13 Investment Company Act; Other Regulations. No Credit Party
is an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as
amended. The Borrower is not subject to regulation under any Federal or
state statute or regulation (other than Regulation X of the Board) which
limits its ability to incur Indebtedness.
8.14 Subsidiaries. Schedule 8.14 sets forth as of the date
hereof the name, and, where applicable, the jurisdiction of organization,
number of authorized and issued shares and
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48
ownership of each Subsidiary of the Borrower and each general partner of each
Credit Party which is a partnership.
8.15 Chief Executive Office. The Borrower's chief executive
office on the date hereof is located at 650 Madison Avenue, New York, New
York 10022.
8.16 General Partners' Existence; Compliance with Law. The
corporate general partner of each Credit Party that is a partnership (a) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) has the power and authority and the
legal right to own and operate its property, to lease the property it
operates and to conduct the business in which it is currently engaged and in
which it proposes to be engaged after the Closing Date, (c) is duly qualified
as a foreign corporation or partnership, as the case may be, and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except where the failure to so qualify could not have a
Material Adverse Effect, and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in
the aggregate, reasonably be expected to have a Material Adverse Effect.
8.17 General Partners' Power; Authorization; Enforceable
Obligations. The general partner of any Credit Party that is a partnership
has the power and authority and the legal right to make, deliver and perform
on behalf of the Credit Party of which it is a general partner, and thereby
legally bind such Credit Party to perform, (a) in the case of the Borrower,
this Agreement, and has taken all necessary action to authorize the
borrowings by the Borrower on the terms and conditions of this Agreement and
any Notes and (b) in the case of each such Credit Party (including the
Borrower), the Credit Documents to which it is a party and has taken all
necessary action to authorize the execution and delivery on behalf of such
Credit Party of, and thereby legally bind such Credit Party to perform, this
Agreement, the Notes and the other Credit Documents to which such Credit
Party is a party. This Agreement has been, and each of the other Credit
Documents has been or will be (as the case may be), duly executed and
delivered by each such general partner on behalf of each Credit Party which
is a party thereto.
8.18 Certain Documents. The Borrower has delivered to the Agent a
complete and correct copy of (a) the Support Agreement, and (b) the Offer to
Purchase and all other Tender Offer Documents (including all exhibits,
schedules and disclosure letters referred to therein or delivered pursuant
thereto, if any). The Support Agreement has not been amended or otherwise
modified in any material respect and is in full force and effect, and the
Board of Directors of the Target has not withdrawn its recommendation of the
Tender Offer. The representations and warranties of the Borrower and the
Offeror and, to the best of the knowledge of the Borrower, the Target set
forth in the Support Agreement are true and correct in all material respects
on the date hereof.
8.19 Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of any Credit Party
or any of its Affiliates to the Agent or any Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all other such factual information hereafter furnished by or on behalf of any
Credit Party or any of its Affiliates to the Agent or any Lender will be,
true and accurate
<PAGE> 54
49
in all material respects, taken as a whole, on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information not misleading at such time.
8.20 Environmental Matters.
(a) To the best knowledge of the Borrower, the facilities and
properties owned, leased or operated by the Borrower or any of its
Subsidiaries (the "Properties") do not contain any Materials of
Environmental Concern in amounts or concentrations which (i) constitute
a violation of, or (ii) could reasonably be expected to give rise to
liability to the Borrower or any of its Subsidiaries under, any
Environmental Law which would have a Material Adverse Effect.
(b) To the best knowledge of the Borrower, the Properties and
all operations at the Properties are in compliance, and have in the
last five years been in compliance, in all material respects with all
applicable Environmental Laws, and there is no contamination at, under
or about the Properties or violation of any Environmental Law with
respect to the Properties or the business operated by the Borrower or
any of its Subsidiaries (the "Business") which could materially
interfere with the continued operation of the Properties.
(c) To the best knowledge of the Borrower, neither the Borrower
nor any of its Subsidiaries has received any notice of violation,
alleged violation, non-compliance, liability or potential liability
regarding environmental matters or compliance with Environmental Laws
with regard to any of the Properties or the Business, nor does the
Borrower have knowledge or reason to believe that any such notice will
be received or is being threatened except insofar as such notice or
threatened notice, or any aggregation thereof, does not involve a
matter or matters that could reasonably be expected to have a Material
Adverse Effect.
(d) To the best knowledge of the Borrower, Materials of
Environmental Concern have not been transported or disposed of from the
Properties in violation of, or in a manner or to a location which could
reasonably be expected to give rise to liability under, any
Environmental Law, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the
Properties in violation of, or in a manner that could reasonably be
expected to give rise to liability under, any applicable Environmental
Law except insofar as any such violation or liability referred to in
this paragraph, or any aggregation thereof, could not reasonably be
expected to have a Material Adverse Effect.
(e) To the best knowledge of the Borrower, no judicial
proceeding or governmental or administrative action is pending or, to
the knowledge of the Borrower, threatened, under any Environmental Law
to which the Borrower or any Subsidiary is or will be named as a party
with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders
or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law
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50
with respect to the Properties or the Business except insofar as such
proceeding, action, decree, order or other requirement, or any aggregation
thereof, could not reasonably be expected to have a Material Adverse
Effect.
(f) To the best knowledge of the Borrower, there has been no
release or threat of release of Materials of Environmental Concern at
or from the Properties, or arising from or related to the operations of
the Borrower or any Subsidiary in connection with the Properties or
otherwise in connection with the Business, in violation of or in
amounts or in a manner that could reasonably give rise to liability
under Environmental Laws except insofar as any such violation or
liability referred to in this paragraph, or any aggregation thereof,
could not reasonably be expected to have a Material Adverse Effect.
8.21 Year 2000 Matters. Any reprogramming, modification or
replacement required to permit the proper functioning (but only to the extent
that such proper functioning would otherwise be impaired by the occurrence of
the year 2000) in and following the year 2000 of computer systems and other
equipment containing embedded microchips, in either case owned or operated by
the Borrower or any of its Subsidiaries or, to the Borrower's knowledge, used
or relied upon in the conduct of their business (including any such systems
and other equipment supplied by others), and the testing of all such systems
and other equipment as so reprogrammed, modified or replaced is expected to
be completed in all material respects by June 30, 1999. The costs to the
Borrower and its Subsidiaries that have not been incurred as of the date
hereof for such reprogramming, modification and/or replacement and testing
and for the other reasonably foreseeable consequences to them of any improper
functioning of other computer systems and equipment containing embedded
microchips due to the occurrence of the year 2000 could not reasonably be
expected to have a Material Adverse Effect.
8.22 Guarantors. Set forth on Schedule 8.22 is a complete and
correct list of all the Subsidiaries which are parties to the Guarantee and
Collateral Agreement (as defined in the Existing Credit Agreement) on the
date hereof.
SECTION 9. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Revolving Credit
Commitments remain in effect, any Note, any Letter of Credit Obligation or
any Acceptance Obligation remains outstanding and unpaid or any other amount
is owing to any Lender or the Agent hereunder, the Borrower shall and shall
cause each of its Subsidiaries to:
9.1 Financial Statements and Information. Deliver to each
Lender:
(a) as soon as available and, in any event, within 90 days
following the end of each Fiscal Year, the Annual Report of the
Borrower on Form 10-K for such Fiscal Year signed by a Responsible
Officer of the Borrower;
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51
(b) as soon as available and, in any event, within 75 days after
the end of each Fiscal Quarter of the Borrower, the Quarterly Report of
the Borrower on Form 10-Q for the relevant Fiscal Quarter signed by a
Responsible Officer of the Borrower;
(c) concurrently with the delivery of each set of the financial
statements referred to in paragraph (a) above, a certificate of the
Accountants certifying such financial statements, stating that in
making the examination necessary therefor no knowledge was obtained of
any Default or Event of Default (except as specified in such
certificate);
(d) concurrently with the delivery of each set of the financial
statements referred to in paragraphs (a) and (b) above, a certificate
of a Responsible Officer of the Borrower (i) stating that such Officer
has obtained no knowledge of any Default or Event of Default (except as
specified in such certificate) and (ii) showing in reasonable detail
the calculations supporting such statement in respect of subsections
10.1, 10.2, 10.3, 10.4, 10.7 and 10.9;
(e) forthwith upon the occurrence of any Default or Event of
Default, a certificate of a Responsible Officer of the Borrower setting
forth the details thereof and the action which the Borrower is taking
or proposes to take with respect thereto;
(f) immediately upon any authorized officer of the Borrower or
any Guarantor or of any Commonly Controlled Entity obtaining knowledge
of the occurrence of any (i) "reportable event", as such term is
defined in Section 4043 of ERISA, or (ii) "prohibited transaction", as
such term is defined in Section 4975 of the Code, in connection with
any Plan or any trust created thereunder, a written notice specifying
the nature thereof, what action the Borrower or such Guarantor has
taken, is taking or proposes to take with respect thereto, and, when
known, any action taken or threatened by the Internal Revenue Service
or the PBGC with respect thereto, provided that, with respect to the
occurrence of any "reportable event" as to which the PBGC has waived
the 30-day reporting requirement, such written notice need be given
only at the time notice is given to the PBGC;
(g) from time to time, such additional information regarding the
business, affairs or financial or other position of the Borrower, any
Guarantor and any other Credit Party as any Lender may reasonably
request, such information to be provided as soon as practicable after
such request; and
(h) within five days after the same are sent, copies of all
financial statements and reports which the Borrower and/or its
Subsidiaries sends to its public holders of Capital Stock or
debtholders, and within five days after the same are filed, copies of
all financial statements and reports which the Borrower may make to, or
file with, the SEC or any successor or analogous Governmental Authority.
9.2 Corporate Existence; Nature of Business. Except as
otherwise permitted under this Agreement, preserve and maintain its
partnership or corporate or other (as the case may be) existence and all of
its material rights, privileges and franchises; comply with all
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Requirements of Law, except to the extent that failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect;
and pay and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its property prior to the
date on which penalties attach thereto, unless the failure to pay and discharge
any such taxes, assessments or governmental charges or levies could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; not discontinue, and will actively
engage in and continue to pursue, the current business of the Borrower and its
Subsidiaries, taken as a whole, and no other business which is not a Related
Line of Business, provided that nothing in this subsection shall be deemed to
prevent the Borrower or any Subsidiary from making an Investment permitted by
subsection 10.7(g) in the Capital Stock of, or any assets constituting a
business unit of, any other Person (including the Borrower or any of its
Subsidiaries) which is engaged in a business that is not a Related Line of
Business.
9.3 Payment of Obligations. Pay, discharge or otherwise satisfy
when the same shall become due, all its obligations of whatever nature,
except when the amount or validity thereof is currently being contested in
good faith by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the Borrower or the appropriate
Subsidiary, as the case may be, in accordance with GAAP and, except to the
extent that failure to comply with this subsection 9.3 results from a good
faith error (which shall be corrected promptly following the Borrower
becoming aware of such error) and such failure could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
9.4 Maintenance of Properties; Insurance. Maintain or cause to
be maintained in good working order and condition, ordinary wear and tear
excepted, all material properties used in the businesses of the Borrower and
its Subsidiaries, provided that the Borrower and its Subsidiaries, may in
accordance with good business practices, make determinations with respect to
the timeliness of necessary repairs. The Borrower and its Subsidiaries will
maintain or cause to be maintained such insurance with respect to their
respective properties and businesses as a prudent Person engaged in the same
or similar business of a similar size and otherwise similarly situated would
maintain.
9.5 Maintain Trademarks. Take all action reasonably necessary or
desirable in accordance with good business practices to (a) maintain in full
force and effect such domestic and foreign patents, trademarks, service marks,
trade names, copyrights and licenses and such material rights with respect to
the foregoing, in each case necessary for the conduct of its business as now
conducted (collectively, the "Trademarks") and (b) protect all domestic and
foreign Trademarks against infringement by third parties.
9.6 Inspection; Books and Records. Keep proper books of records
and accounts in which full, true and correct entries in conformity with GAAP
and all Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities. The Borrower and each other Credit
Party will permit on an annual basis at the request of the Agent (or at any
time and from time to time after the occurrence and during the continuance of a
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Default or Event of Default) any authorized representatives designated by the
Lenders to visit and inspect any of the properties of the Borrower and such
Credit Party, all during reasonable business hours, including their respective
books of accounts, and to make copies and take extracts therefrom, and to
analyze such data of the Borrower and such Credit Party, and to discuss their
respective affairs, finances and accounts with their respective officers and the
Accountants (and by this provision the Borrower and each Credit Party authorize
the Accountants to discuss with such representatives the affairs, finances and
accounts of the Borrower and any such Credit Party, whether or not a
representative of the Borrower or such Credit Party is present). The Borrower
shall reimburse the Lenders for all reasonable costs and expenses incurred by
such Lenders in connection with the audit and verification activities
contemplated by the immediately preceding sentence. So long as no Default or
Event of Default shall have occurred and be continuing, the Agent shall, prior
to commencing any such verification activities, provide an estimate to the
Borrower of the costs thereof, but any failure to give such an estimate shall
not impair any of the rights of the Agent and the Lenders under this subsection.
9.7 Notices. Promptly give notice to the Agent and each Lender:
(a) of the occurrence of any Default or Event of Default
(including, without limitation, any event referred to in Section 11(j));
(b) of any (i) default or event of default under any Contractual
Obligation of the Borrower or any other Credit Party or (ii)
litigation, investigation (known to the Borrower) or proceeding which
may exist at any time between the Borrower or any other Credit Party
and any Governmental Authority or Person, which in either case, if not
cured or if adversely determined, as the case may be, would have a
Material Adverse Effect;
(c) as soon as possible and in any event within five days after
the Borrower knows or has reason to know of the following events: (i)
the occurrence of any Reportable Event with respect to any Plan, or any
withdrawal from, or the termination, Reorganization or Insolvency of,
any Multiemployer Plan or (ii) the institution of proceedings or the
taking of any other action by PBGC, the Borrower or any Commonly
Controlled Entity, or any Multiemployer Plan with respect to the
withdrawal from, Reorganization or Insolvency of, any Multiemployer
Plan, or the terminating of any Plan; and
(d) of a material adverse change in the business, operations,
property or financial or other condition of the Borrower and its
Subsidiaries taken as a whole.
Each notice pursuant to this subsection 9.7 shall be accompanied by a
statement of a Responsible Officer setting forth details of the occurrence
referred to therein and stating what action the Borrower proposes to take
with respect thereto.
9.8 Guarantee Agreement Supplement. Each Domestic Subsidiary
that is or becomes a "significant subsidiary" (as that term is defined in
Regulation S-X (part 210 of the Code of Federal Regulations) shall promptly
execute and deliver to the Agent (with a counterpart
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for each Lender) a supplement to the Guarantee pursuant to which such Subsidiary
shall become a party thereto as a Guarantor, together with such other documents
and opinions as the Lenders shall reasonably request.
9.9 Use of Proceeds. The proceeds of the Loans shall be used by
the Borrower solely for the purposes set forth in subsections 2.4 and 3.4.
No portion of the proceeds of any Loan shall be used by the Borrower in any
manner which might cause the borrowing or the application of such proceeds to
violate Regulation T, U or X of the Board or any other regulation of such
Board.
9.10 Observance of Agreements. Observe and perform all the
terms and conditions of all material agreements to which any of them or any
other Credit Party is party and shall diligently protect and enforce their
respective rights under all such agreements in a manner consistent with
prudent business judgment.
SECTION 10. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Revolving Credit
Commitments remain in effect, any Note, any Letter of Credit Obligation or
any Acceptance Obligation remains outstanding and unpaid or any other amount
is owing hereunder to any Lender or the Agent:
10.1 Consolidated Net Worth. The Borrower will not permit
Consolidated Net Worth as at the end of any Fiscal Quarter ending after the
Closing Date to be less than $300,000,000.
10.2 Consolidated Indebtedness Ratio. The Borrower will not
permit, for any period of four consecutive Fiscal Quarters ending after the
Closing Date, the Consolidated Indebtedness Ratio to be greater than 2.25 : 1.
10.3 Limitation on Indebtedness. The Borrower will not, nor
will it permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Indebtedness except:
(a) Indebtedness not secured by any Lien (including the
Indebtedness incurred hereunder) in an aggregate principal amount (when
added to the aggregate amount of such Indebtedness incurred during the
Gap Period) not to exceed $200,000,000, provided that (i) no part of
the principal of such Indebtedness (except in the case of any such
Indebtedness in an aggregate principal amount, when added to the
aggregate principal amount of Indebtedness then outstanding as
permitted by subsections 10.3(g) and (h), not greater than $50,000,000)
is stated to be payable or is required to be paid (whether by way of
mandatory sinking fund, mandatory redemption, mandatory prepayment or
otherwise) prior to the Termination Date, (ii) the material terms,
conditions and restrictive covenants contained in the instrument
governing such Indebtedness, taken as a whole, are no less favorable to
the Borrower or any of its Subsidiaries, as the case may be, than the
terms, conditions and restrictive covenants contained in this Agreement
and (iii) no Default or Event of Default shall have occurred after
giving effect to the incurrence of such Indebtedness;
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(b) Indebtedness secured by Liens permitted by subsection
10.4(g) in an aggregate amount at any one time outstanding not in
excess of the amount set forth in said subsection;
(c) Indebtedness existing on the Existing Closing Date, not
otherwise permitted under this Agreement, described in Schedule 10.3
hereto, Indebtedness incurred under the Existing Credit Agreement, and
any refinancings, refundings, renewals or extensions thereof on terms
no less favorable (taken as a whole) to the Borrower or such
Subsidiary, as the case may be, provided that the principal amount of
such Indebtedness is not increased;
(d) Subordinated Indebtedness;
(e) Indebtedness incurred under this Agreement;
(f) Indebtedness of the Borrower to its Subsidiaries or
Indebtedness of any Subsidiary of the Borrower to the Borrower or any
of its Subsidiaries;
(g) Indebtedness of any Person which became a Subsidiary after
the date of the Existing Credit Agreement or which becomes a Subsidiary
of the Borrower after the date hereof (provided that (i) such
Indebtedness was in existence on the date such Person became a
Subsidiary, (ii) such Indebtedness was not created, incurred or assumed
in anticipation thereof, and (iii) the aggregate principal amount of
such Indebtedness at any one time outstanding, when added to the
aggregate principal amount of Indebtedness then outstanding as
permitted by the parenthetical phrase included in clause (i) of the
proviso to subsection 10.3(a), shall not be in excess of $50,000,000)
and any Indebtedness resulting from the refinancing of any such
Indebtedness; and
(h) Indebtedness secured by Liens permitted by subsection
10.4(k) provided that the aggregate principal amount of such
Indebtedness at any one time outstanding, when added to the aggregate
principal amount of Indebtedness then outstanding as permitted by the
parenthetical phrase included in clause (i) of the proviso to
subsection 10.3(a), shall not be in excess of $50,000,000.
For purposes of this subsection 10.3, any Person becoming a
Subsidiary of the Borrower after the date of this Agreement or, in the case
of subsection 10.3(g), after the date of the Existing Credit Agreement shall
be deemed to have incurred all of its then outstanding Indebtedness at the
time it becomes or, in the case of such subsection 10.3(g), became a
Subsidiary.
10.4 Limitation on Liens. The Borrower will not, nor will it
permit any of its Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of its property or assets, whether now owned or hereafter
acquired, or upon any income or profits therefrom, or acquire any property
pursuant to any conditional sale, lease purchase or other title retention
agreement, except:
<PAGE> 61
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(a) Liens created pursuant to the Security Documents or securing
the Notes, the Letter of Credit Obligations, the Acceptance Obligations (as
each such term is defined in the Existing Credit Agreement) and all
amendments, extensions, renewals and substitutions thereof;
(b) Liens existing on the Existing Closing Date, not otherwise
permitted under this Agreement, described in Schedule 10.4 hereto, securing
the Indebtedness described in such Schedule, and extensions, renewals and
substitutions thereof, provided that the principal amount so secured is not
increased and the Lien is not extended to any other property;
(c) Liens for taxes and duties, assessments, governmental
charges or levies not yet due or which are being contested in good faith and
by appropriate proceedings promptly initiated and diligently conducted, if
adequate reserves with respect thereto are maintained on the books of the
Company and its Subsidiaries in accordance with GAAP;
(d) Liens incurred in the ordinary course of and incidental to
the conduct of the business of the Borrower and its Subsidiaries or the
ownership of its property, including, without limitation, Liens incurred in
connection with the sale, lease, transfer or other disposition of any credit
card receivable of the Borrower or any of its Subsidiaries and Liens for
workmen's compensation, bids, tenders, lessors, vendors, bank deposits, trade
letters of credit and trust receipts, which were not incurred in connection
with the borrowing of money and which do not in the aggregate materially
detract from the value of the property of the Borrower and its Subsidiaries,
taken as a whole, or materially impair the use thereof in the operation of
the business of the Borrower and its Subsidiaries;
(e) Liens imposed by law in favor of mechanics, repairmen,
carriers or warehousemen for sums not yet due or which are being contested in
good faith and by appropriate proceedings promptly initiated and diligently
conducted, if adequate reserves with respect thereto are maintained on the
books of the Borrower and its Subsidiaries in accordance with GAAP;
(f) Liens existing on property or assets of a Person immediately
prior to its becoming a Subsidiary of the Borrower and which Lien was not
created, incurred or assumed in anticipation thereof, provided that such Lien
shall at all times be confined solely to the property subject thereto at the
time such Person becomes a Subsidiary of the Borrower;
(g) Liens securing Indebtedness of the Borrower and its
Subsidiaries (and any refinancings, refundings, renewals or extensions
thereof on terms no less favorable (taken as a whole) to the Borrower or such
Subsidiary, as the case may be, provided that the principal amount of such
Indebtedness is not increased) incurred after the Existing Closing Date
solely for the purpose of financing the acquisition by the Borrower or any of
its Subsidiaries of real or personal property or solely for the purpose of
financing the cost of construction or improvements to or on real or personal
property, or Liens existing on such property so acquired at the time of
acquisition thereof, provided that:
(i) each such Lien shall at all times be confined solely to the
property so acquired;
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(ii) the principal amount of Indebtedness secured by each such
Lien shall at no time exceed the lesser of (A) the cost to such Person
of the property subject thereto or (B) the fair value of such property
(as determined in good faith by the Board of Directors of such Person)
at the time of the acquisition thereof or completion of construction
thereon.
(h) Liens solely constituting the right of any other Person to a
share of any licensing royalties (pursuant to a licensing agreement or other
related agreement entered into by the Borrower or any of its Subsidiaries
with such Person in the ordinary course of the Borrower's or such
Subsidiary's business) otherwise payable to the Borrower or any of its
Subsidiaries, provided that such right shall have been conveyed to such
Person for consideration received by the Borrower or such Subsidiary on an
arm's-length basis;
(i) in the case of real property owned by the Borrower or any of
its Subsidiaries, easements, rights of way, restrictive covenants,
encroachments and other non-monetary Liens which Liens would not have,
individually or in the aggregate, a Material Adverse Effect;
(j) Liens arising from precautionary Uniform Commercial Code
financing statement filings with respect to operating leases entered into by
the Borrower or any of its Subsidiaries in the ordinary course of business;
and
(k) additional Liens on property or assets (other than
receivables, Trademarks, inventory and/or licensing revenues) of the Borrower
and its Subsidiaries securing Indebtedness permitted under subsection 10.3(h).
For purposes of this subsection 10.4, any Person becoming a
Subsidiary of the Borrower after the date hereof shall be deemed to have
incurred all of its then outstanding Liens at the time it becomes a
Subsidiary of the Borrower, and any Person extending, renewing or refunding
any Indebtedness secured by any Lien shall be deemed to have incurred such
Lien at the time of such extension, renewal or refunding.
10.5 Sale of Assets. Except in the ordinary course of business
(including the sale, lease, transfer or other disposition of any credit card
receivable of the Borrower or any of its Subsidiaries), the Borrower will
not, nor will it permit any of its Subsidiaries to, sell, lease, transfer or
otherwise dispose of any of its assets or sell, transfer or otherwise dispose
of any of the Capital Stock of any of its Subsidiaries, provided that, so
long as no Default or Event of Default shall have occurred and be continuing
or would result therefrom, no such disposition of assets or Capital Stock out
of the ordinary course of business shall constitute a violation of this
subsection 10.5 so long as (i) the aggregate fair market value of the assets
or Capital Stock so disposed of during any Fiscal Year of the Borrower shall
not exceed 10% of Consolidated Net Worth as at the end of the preceding
Fiscal Year, or (ii) the net cash proceeds are used within 180 days after the
receipt thereof to purchase assets to be utilized by the Borrower in any
Related Line of Business and if not so used within such time period or used
within such time period to prepay Term Loans or reduce Revolving Credit
Commitments (as each such term in this sentence is defined in the Existing
Credit Agreement), such proceeds shall be applied to the prepayment of
principal of any outstanding Term Loans in inverse order of maturity and
thereafter, 50% of such proceeds shall, if Margin Level I Status then exists,
be applied to the mandatory reduction of the
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Revolving Credit Commitments. Notwithstanding anything contained in this
subsection 10.5 to the contrary, neither the Borrower nor any of its
Subsidiaries shall dispose of any of its right, title or interest in any
Collateral (as defined in the Existing Credit Agreement) or any material
Trademark or any receivables arising out of licensings of Trademarks, except for
(i) licensing of Trademarks and sales of inventory in the ordinary course of
business and (ii) sales, leases, transfers or other dispositions of Trademarks
by the Borrower to any of its Subsidiaries which is a Guarantor or by any
Subsidiary to any other Subsidiary which is a Guarantor or to the Borrower.
10.6 Limitation on Fundamental Changes. The Borrower will not,
nor will it permit any of its Subsidiaries to, enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of its property,
business or assets, except:
(a) any Subsidiary of the Borrower may be merged or consolidated
with or into the Borrower (provided that the Borrower shall be the
continuing or surviving entity) or with or into any one or more wholly
owned Subsidiaries of the Borrower (provided that the wholly owned
Subsidiary or Subsidiaries shall be the continuing or surviving
entity);
(b) any wholly owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Borrower or any other wholly owned
Subsidiary of the Borrower;
(c) the Borrower or any Subsidiary may effect any Investment
permitted by subsections 10.7(h), (i) or (j) by means of a merger of
the Person that is the subject of such acquisition with the Borrower or
any of its Subsidiaries (provided that, in the case of a merger with
the Borrower, the Borrower is the survivor); and
(d) the Borrower may, and may permit any of its Subsidiaries to,
enter into any transaction otherwise permitted pursuant to subsection
10.5.
10.7 Limitation on Loans, Advances and Other Investments. The
Borrower will not, nor will it permit any of its Subsidiaries to, make any
Investment other than:
(a) advances or loans made in the ordinary course of business to
employees of the Borrower or any of its Subsidiaries;
(b) Investments in Cash Equivalents;
(c) Investments by the Borrower in and to its Domestic
Subsidiaries and any Foreign Subsidiary that becomes a party to the
Guarantee as a Guarantor or of which 66% of such Foreign Subsidiary's
Capital Stock is pledged to the Lenders and the lenders under the
Existing Credit Agreement pursuant to a pledge agreement in form and
substance reasonably satisfactory to the Agent;
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(d) Investments by any Subsidiaries of the Borrower in and to
the Borrower and any of its Domestic Subsidiaries;
(e) Investments in Foreign Subsidiaries in an aggregate amount
(when added to the aggregate amount of such Investments made during the
Gap Period) not in excess of $150,000,000, provided, however, that the
unused amount of such $150,000,000 basket at any time shall be subject
to reduction (by an aggregate amount not to exceed $75,000,000) by the
amount of each Investment in a Foreign Subsidiary made subsequent to
the date hereof pursuant to subsection 10.7(c);
(f) existing Investments not otherwise permitted under this
Agreement and described in Schedule 10.7 hereto;
(g) Investments received in connection with the bona fide
settlement of any defaulted Indebtedness or other liability owed to the
Borrower or any Subsidiary;
(h) Investments in Permitted Acquisitions provided that if, as a
result of Permitted Acquisition, a new Domestic Subsidiary shall be
created and such Domestic Subsidiary is a "Significant Subsidiary" (as
that term is defined in Regulation S-X (part 210 of the Code of Federal
Regulations)), such Domestic Subsidiary shall become a party to the
Guarantee as a Guarantor;
(i) Investments in Permitted Acquisitions in Persons organized
under the laws of a jurisdiction outside of the United States in an
aggregate amount (when added to the aggregate amount of such
Investments made during the Gap Period) not in excess of the sum of (x)
$200,000,000 plus (y) the Annual Increase for each full Fiscal Year
which shall have been completed and for which financial statements and
the related compliance certificate shall have been delivered pursuant
to subsections 9.1(a) and (d) hereof, during the period from the
Existing Closing Date through the date at which compliance with this
paragraph is being determined (as reflected in such financial
statements and compliance certificate) less an amount equal to the
aggregate amount of Investments, if any, made pursuant to clause (j) of
this subsection 10.7 in excess of $100,000,000; and
(j) additional Investments in an amount (when added to the
aggregate amount of such Investments made during the Gap Period) not in
excess of an amount equal to the sum of (x) $100,000,000, and (y) the
Annual Increase for each full Fiscal Year which shall have been
completed, and for which financial statements and the related
compliance certificate shall have been delivered pursuant to
subsections 9.1(a) and (d) hereof, during the period from the Existing
Closing Date through the date as at which compliance with this
paragraph is being determined (as reflected in such financial
statements and compliance certificate) less an amount equal to the
aggregate amount of Investments, if any, made pursuant to clause (i) of
this subsection 10.7 in excess of $200,000,000; provided that the
Investments under this subsection 10.7(j) (when added to the aggregate
amount of such Investments made during the Gap Period) shall in no
event exceed $175,000,000.
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10.8 Compliance with ERISA. The Borrower and its Subsidiaries
will not:
(a) knowingly engage in any transaction in connection with which
the Borrower or any Subsidiary might reasonably be likely to be subject
to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, terminate any Plan in a
manner, or take any other action with respect to any such Plan, which
is likely to result in any liability of the Borrower or any Subsidiary
to the PBGC, fail to make full payment when due of all amounts which,
under the provisions of any Plan, the Borrower or any Subsidiary is
required to pay as contributions thereto, or permit to exist any
accumulated funding deficiency, whether or not waived, with respect to
any Plan (other than a Multiemployer Plan), if, in any such case, such
penalty or tax or such liability, or the failure to make such payment,
or the existence of such deficiency, as the case may be, would have a
Material Adverse Effect; or
(b) permit at any time the aggregate complete or partial
withdrawal liability of the Borrower and its Subsidiaries under Title
IV of ERISA with respect to Multiemployer Plans to exceed 5% of
Consolidated Net Worth as at the end of the then most recently ended
Fiscal Quarter.
For purposes of subdivision (b) of this subsection 10.8, the amount of the
withdrawal liability of the Borrower or its Subsidiaries at any date shall be
the aggregate present value of the amount claimed to have been incurred less
any portion thereof as to which the Borrower or its Subsidiaries reasonably
believes, after appropriate consideration of possible adjustments arising
under Sections 4219 and 4221 of ERISA, it and its Subsidiaries will have no
liability, provided that the Borrower and its Subsidiaries shall obtain
prompt written advice from independent actuarial consultants supporting such
determination. The Borrower and its Subsidiaries shall, promptly upon
request by any Lender, transmit a copy of any current statement of withdrawal
liability from each Multiemployer Plan, if and when available, after the
Borrower or any Subsidiary receives the same. As used in this subsection
10.8, the term "accumulated funding deficiency" has the meaning specified in
Section 301 of ERISA and Section 412 of the Code, and the terms "accrued
benefit" and "current value" have the meanings specified in Section 3 of
ERISA.
10.9 Transactions with Affiliates. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, enter
into any transactions, including, without limitation, the purchase, sale or
exchange of property, the making of any Investment or the rendering of any
service, with any Affiliate of the Borrower or a spouse or any relative (by
blood, adoption or marriage) within the third degree of any such Affiliate or
any other Person which is an Affiliate of any such spouse or relative, except
(a) in the ordinary course of business and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon
reasonable terms no less favorable to the Borrower or such Subsidiary than
would obtain in a comparable arm's-length transaction with a Person which is
not an Affiliate of the Borrower, (b) any transaction listed in Schedule 10.9
hereto and (c) any transaction between the Borrower and any Subsidiary of the
Borrower or between any Subsidiary and any other Subsidiary.
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SECTION 11. EVENTS OF DEFAULT
Upon the occurrence of any of the following events:
(a) (i) The Borrower shall fail to pay any principal of any
Note, any Letter of Credit Obligation or any Acceptance Obligation, in
each case within two days after such principal or Obligation becomes
due or (ii) the Borrower shall fail to pay any interest on any Note,
any Letter of Credit Obligation or any Acceptance Obligation, or any
fee, commission or other amount owing hereunder, in each case within
five days after such interest, fee or other amount is due; or
(b) Any representation or warranty made or deemed made by the
Borrower herein or by the Borrower or any other Credit Party in any
other Credit Document or which is contained in any certificate,
document or financial or other statement furnished at any time under or
in connection with this Agreement shall prove to have been incorrect in
any material respect on or as of the date made or deemed made; or
(c) The Borrower shall default in the observance or performance
of any covenant or agreement contained in Section 10 or subsection
6.19; or
(d) The Borrower shall default in the observance or performance
of any covenant or agreement contained in this Agreement (other than in
Section 10 or subsection 6.19 hereof); or any other Credit Party shall
default in the observance or performance of any covenant or agreement
contained in any Credit Document to which it is a party, and, in each
case, such default is not remediable or, if remediable, continues
unremedied for a period of 30 days after the earlier to occur of (i)
the date on which such default is known or reasonably should have
become known to any officer of the Borrower or such other Credit Party
and (ii) the date on which the Agent or any Lender shall have notified
the Borrower or such other Credit Party of such default; or
(e) The Guarantee shall cease, for any reason, to be in full force
and effect, or
(f) The Borrower, any other Credit Party or any Foreign
Subsidiary shall (A) default in any payment of principal of or interest
on any Indebtedness (other than the Notes, the Acceptance Obligations
or the Letter of Credit Obligations) or in the payment of any Guarantee
Obligation in respect of Indebtedness (other than the Guarantee), the
aggregate principal amount of which exceeds $5,000,000 in the case of
the Borrower or any Subsidiary, beyond the period (without giving
effect to any extensions, waivers, amendments or other modifications of
or to such period) of grace, if any, provided in the instrument or
agreement under which such Indebtedness or Guarantee Obligation was
created; or (B) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Guarantee
Obligation or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder
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or holders or beneficiary or beneficiaries) to cause, with the giving of
notice or the lapse of time, or both, if required, such Indebtedness to
become due prior to its stated maturity or such Guarantee Obligation to
become payable; or
(g) (i) The Borrower, any other Credit Party or any Foreign
Subsidiary shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief
of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
assets, or the Borrower, any other Credit Party or any Foreign
Subsidiary shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower, any
other Credit Party or any Foreign Subsidiary any case, proceeding or
other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a
period of 45 days; or (iii) there shall be commenced against the
Borrower, any other Credit Party or any Foreign Subsidiary any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its assets which results in the entry of an order for any such
relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 45 days from the entry thereof; or (iv)
the Borrower, any other Credit Party or any Foreign Subsidiary shall
take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii) or (iii) above; or (v) the Borrower, any other Credit Party
or any Foreign Subsidiary shall generally not, or shall be unable to,
or shall admit in writing its inability to, pay its debts as they
become due; provided, however, that the occurrence of any of the events
specified in this paragraph (g) with respect to any Person other than
the Borrower shall not be deemed to be an Event of Default unless (x)
the net assets of such Person, determined in accordance with GAAP,
shall have exceeded $3,000,000 as of the date of the most recent
audited financial statements delivered to the Lenders pursuant to
subsection 9.1 or on the date of occurrence of any such event and/or
(y) the aggregate net assets of all Credit Parties and Foreign
Subsidiaries in respect of which any of the events specified in this
paragraph (g) shall have occurred shall have exceeded $5,000,000 as of
the date of the most recent audited financial statements delivered to
the Lenders pursuant to subsection 9.1 or on the date of occurrence of
any such event; or
(h) (i) Any Person shall engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of the Borrower or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or
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appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes
of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Borrower or any Commonly
Controlled Entity shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability (except as set forth in
Schedule 8.12) in connection with a withdrawal from, or the Insolvency
or Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each case
in clauses (i) through (vi) above, such event or condition, together
with all other such events or conditions, if any, could subject the
Borrower or any other Credit Party to any tax, penalty or other
liabilities in the aggregate material in relation to the business,
operations, property or financial or other condition of the Borrower
and its Subsidiaries taken as a whole; or
(i) One or more judgments or decrees shall be entered against
the Borrower, any other Credit Party or any Foreign Subsidiary
involving in the aggregate a liability (not paid or fully covered by
insurance) of $5,000,000 or more and all such judgments or decrees
shall not have been vacated, discharged, stayed or bonded pending
appeal within 60 days from the entry thereof; or
(j) Lauren, his estate or Persons related to him by blood,
adoption or marriage and/or trusts or other entities principally for
the benefit of any of the foregoing (the "Lauren Interests") shall
cease to own in the aggregate, directly or indirectly either (x) Voting
Stock of the Borrower having the voting power to elect a majority of
the Board of Directors of the Borrower or (y) Voting Stock representing
more than 25% of the voting power of the Borrower's Capital Stock;
then, and in any such event, (A) if such event is an Event of Default in
respect of the Borrower specified in clause (i) or (ii) of paragraph (g)
above, automatically the Revolving Credit Commitments shall immediately
terminate and the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement (including, without limitation, all
amounts of Letter of Credit Obligations whether or not the beneficiaries
thereof shall have presented the documents required thereunder and all
amounts of Acceptance Obligations whether or not matured) and the Notes shall
immediately become due and payable, and (B) if such event is any other Event
of Default, any or all of the following actions may be taken: the Agent may,
or upon the direction of the Required Lenders, the Agent shall, (i) declare
the Revolving Credit Commitments to be terminated forthwith, whereupon the
Revolving Credit Commitments shall immediately terminate; (ii) declare the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement (including, without limitation, all amounts of Letter of
Credit Obligations whether or not the beneficiaries thereof shall have
presented the documents required thereunder and all amounts of Acceptance
Obligations whether or not matured) and the Notes to be due and payable
forthwith, whereupon the same shall immediately become due and payable; and
(iii) exercise any and all remedies and other rights provided pursuant to
this Agreement and/or the other Credit Documents.
With respect to all Letters of Credit and Acceptances that shall
not have matured or been paid or with respect to which presentment for honor
shall not have occurred, upon the
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occurrence of an Event of Default, the Borrower shall deposit in an interest
bearing cash collateral account opened by the Agent (and under the exclusive
dominion and control of the Agent) an amount equal to the aggregate amount of
the Letter of Credit Obligations plus the aggregate outstanding amount of
Acceptance Obligations for application to payments of drafts drawn under Letters
of Credit and to payment of Acceptances at maturity, and the unused portion
thereof after such application, if any, shall be applied to repay other
obligations of the Borrower hereunder or under the Notes or any of the other
Credit Documents, and after all Letters of Credit have expired, all drafts and
Acceptances have matured and been repaid and all other obligations of the
Borrower hereunder or any of the other Credit Documents are paid in full, the
balance, if any, shall be returned to the Borrower.
Except as expressly provided above in this Section 11,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived.
SECTION 12. THE AGENT AND ISSUING LENDER
12.1 Appointment; Authorization. Each Lender hereby irrevocably
designates and appoints Chase as the Agent of such Lender under this
Agreement and each of the other Credit Documents, and each such Lender
irrevocably authorizes (a) Chase, as the Agent for such Lender, to take such
action on its behalf under the provisions of this Agreement and each of the
other Credit Documents and to exercise such powers and perform such duties as
are expressly delegated to the Agent by the terms of this Agreement and the
other Credit Documents, together with such other powers as are reasonably
incidental thereto and (b) Chase, in its capacity as Issuing Lender, to issue
the Letters of Credit, subject to the terms and conditions hereof, to pay the
amount of any draft presented under any Letter of Credit upon presentation of
documents which, upon their face, conform to the terms of such Letter of
Credit, to create Acceptances, to receive from the Borrower reimbursement for
the amount of each draft paid under each Letter of Credit and each Acceptance
and payment of all commissions, charges and interest in respect of the
Letters of Credit and the Acceptances, and to take such action on behalf of
such Lender under this Agreement, the Letter of Credit Documents and the
Acceptance Documents and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of the
Issuing Lender by the terms hereof and thereof, together with such powers as
are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, neither the Agent nor the Issuing
Lender shall have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or the other Credit Documents or otherwise
exist against the Agent or the Issuing Lender.
12.2 Delegation of Duties. Each of the Agent and the Issuing
Lender may execute any of its duties under this Agreement or the other Credit
Documents by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. Neither
the Agent nor the Issuing Lender shall be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care.
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12.3 Exculpatory Provisions. Neither the Agent nor the Issuing
Lender nor any of their respective officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
this Agreement or any Credit Document (except for its or such Person's own
gross negligence or willful misconduct), or (ii) responsible in any manner to
any of the Lenders for any recitals, statements, representations or
warranties made by the Borrower, any other Credit Party or any officer
thereof contained in this Agreement or any other Credit Document or in any
certificate, report, statement or other document referred to or provided for
in, or received by the Agent or the Issuing Lender under or in connection
with, this Agreement or any other Credit Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement,
any other Credit Document or the Notes or for any failure of the Borrower or
any other Credit Party to perform its or his obligations hereunder or
thereunder. Neither the Agent nor the Issuing Lender shall be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Credit Document, or to inspect the properties, books
or records of the Borrower or any other Credit Party.
12.4 Reliance by Agent and Issuing Lender. Each of the Agent
and the Issuing Lender shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Agent or the Issuing Lender, as
the case may be. The Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Agent. Each
of the Agent and the Issuing Lender shall be fully justified in failing or
refusing to take any action under this Agreement or any other Credit Document
unless it shall first receive such advice or concurrence of the Required
Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action. Each of the Agent and the Issuing Lender shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement, the
Credit Documents and the Notes in accordance with a request of the Required
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Notes.
12.5 Notice of Default. Neither the Agent nor the Issuing
Lender shall be deemed to have knowledge or notice of the occurrence of any
Default or Event of Default hereunder unless the Agent has received written
notice from a Lender or the Borrower referring to this Agreement, describing
such Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Agent receives such a notice, the Agent
shall give notice thereof to the Lenders. The Agent shall take such action
with respect to any Default or Event of Default as shall be reasonably
directed by the Required Lenders, provided that unless and until the Agent
shall have received such directions, the Agent may (but shall not be
obligated to) take
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such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
12.6 Non-Reliance on Agent, Issuing Lender or Other Lenders.
Each Lender expressly acknowledges that neither the Agent nor the Issuing
Lender nor any of their respective officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
it and that no act by the Agent or the Issuing Lender hereinafter taken,
including any review of the affairs of the Borrower or any other Credit
Party, shall be deemed to constitute any representation or warranty by the
Agent or the Issuing Lender to any Lender. Each Lender represents to the
Agent and the Issuing Lender that it has, independently and without reliance
upon the Agent, the Issuing Lender or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and the
other Credit Parties and made its own decision to make its Loans, to purchase
Acceptance Participating Interests, to purchase Letter of Credit
Participating Interests and to enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the Agent,
the Issuing Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower and the other Credit Parties.
Except for notices, reports and other documents expressly required to be
furnished to the Lenders by the Agent or the Issuing Lender hereunder,
neither the Agent nor the Issuing Lender shall have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, financial and other condition
or creditworthiness of the Borrower or any other Credit Party, which may come
into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
12.7 Indemnification. The Lenders agree to indemnify the Agent
and the Issuing Lender in their capacities as such (to the extent not
reimbursed by the Borrower and without limiting the obligation of the
Borrower to do so), ratably according to their respective Combined Loan
Percentages in effect on the date on which indemnification is sought under
this subsection (or, if indemnification is sought after the date upon which
the Revolving Credit Commitments shall have terminated and the Loans shall
have been paid in full, ratably in accordance with their Combined Loan
Percentages immediately prior to such date), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at
any time (including, without limitation, at any time following the payment of
the Notes and all other amounts payable hereunder) be imposed on, incurred by
or asserted against the Agent or the Issuing Lender, as the case may be, in
any way relating to or arising out of this Agreement, the Notes, the other
Credit Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action
taken or omitted by the Agent or the Issuing Lender, as the case may be,
under or in connection with any of the foregoing; provided that no Lender
shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the Agent's or Issuing
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67
Lender's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Notes and all other amounts
payable hereunder.
12.8 Agent in Its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in
any kind of business with the Borrower and the other Credit Parties as though
the Agent were not the Agent hereunder. With respect to Loans made or
renewed by it, Acceptances created by it, Letters of Credit issued by it, and
any Note issued to it, Chase shall have the same rights and powers under this
Agreement as any Lender (as well as those of the Issuing Lender) and may
exercise the same as though it were not the Agent, and the terms "Lender" and
"Lenders" shall include Chase in its individual capacity.
12.9 Successor Agent. The Agent may resign as Agent upon 10
days' notice to the Lenders. If the Agent shall resign as Agent under this
Agreement and the other Credit Documents, then the Required Lenders shall
appoint a successor agent for the Lenders (and if no successor agent shall
have been so appointed within 10 days of the retiring Agent's having given
notice of its resignation, then the retiring Agent shall, on behalf of the
Lenders, appoint a successor agent), which successor agent shall be approved
by the Borrower (which approval shall not be unreasonably withheld),
whereupon such successor agent shall succeed to the rights, powers and duties
of the Agent, and the term "Agent" shall mean such successor agent effective
upon its appointment, and the former Agent's rights, powers and duties as
Agent shall be terminated, without any other or further act or deed on the
part of such former Agent or any of the parties to this Agreement or any
holders of the Notes. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Section 12 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.
SECTION 13. MISCELLANEOUS
13.1 Amendments and Waivers. Neither this Agreement, any Note,
any other Credit Document nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection 13.1. Upon the written consent of the Required Lenders, the Agent
(or, in the case of the Letter of Credit Documents and the Acceptance
Documents, the Issuing Lender) and the Borrower may, from time to time, enter
into written amendments, supplements or modifications for the purpose of
adding, deleting or changing any provisions to this Agreement, the Notes or
the other Credit Documents or changing in any manner the rights of the
Lenders or of the Borrower hereunder or thereunder or waiving, on such terms
and conditions as the Agent (or the Issuing Lender, as the case may be) may
specify in such instrument, any of the requirements of this Agreement or the
Notes or the other Credit Documents or any Default or Event of Default and
its consequences; provided, however, that no such waiver and no such
amendment, supplement or modification shall (a) extend the Termination Date,
the Term Loan Termination Date or the maturity of any Note or any installment
thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any fee payable to the Lenders hereunder, or reduce the
principal amount of any Note, or increase the amount of any Lender's
Revolving Credit Commitment or Term Loan Commitment, or amend, modify or
waive any provision of this subsection 13.1, or amend or modify the
percentage included in the definition of Required Lenders, or consent to the
release of all or
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substantially all of the Guarantors, or consent to the assignment or transfer by
the Borrower of any of its rights and obligations under this Agreement, in each
case without the written consent of all the Lenders, or (b) amend, modify or
waive any provision of Section 12 without the written consent of the then Agent
and Issuing Lender. Any such waiver and any such amendment, supplement or
modification shall apply to each of the Lenders equally and shall be binding
upon the Borrower, the Lenders, the Issuing Lender, the Agent and all future
holders of the Notes. In the case of any waiver, the Borrower, the Lenders and
the Agent shall be restored to their former position and rights hereunder and
under the outstanding Notes, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
13.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telegraph or facsimile), and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when delivered by hand, or
five days after being deposited in the United States mail, postage prepaid
and return receipt requested, or, in the case of telegraphic notice, when
delivered to the telegraph Borrower, or, in the case of facsimile, when sent,
telephonic confirmation received, addressed as follows, or to such other
address as may be hereafter notified by the respective parties hereto and any
future holders of the Notes:
The Borrower: Polo Ralph Lauren Corporation
650 Madison Avenue
New York, New York 10022
Attention: Michael Newman,
Vice Chairman and C.O.O.
and Victor Cohen, Esq.,
Senior Vice President,
General Counsel and Secretary
Telecopier: (212) 318-7183
Telephonic Confirmation: (212) 318-7351
with a copy to:
Polo Ralph Lauren Corporation
9 Polito Avenue
Lyndhurst, New Jersey 07071
Attention: Nancy Platoni Poli
Senior Vice President-Chief Financial Officer
Facsimile No: (201) 896-9628
Telephonic Confirmation: (201) 531-6250
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The Agent and
the Issuing
Lender: The Chase Manhattan Bank
111 West 40th Street, 10th Floor
New York, New York 10018
Attention: John Mulvey
Vice President
Facsimile: (212) 403-5081
Telephonic Confirmation: (212) 403-5112
with a copy to:
The Chase Manhattan Bank
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Janet Belden
Loan Agency Service Group
Facsimile No: (212) 552-5658
Telephonic Confirmation: (212) 552-7277
The Lenders: To the addresses set forth on Schedule 1.1 hereto
provided that any notice, request or demand to or upon the Agent, the Issuing
Lender or the Lenders pursuant to subsections 2.3, 3.3, 4.2, 4.3, 6.7 and 6.8
shall not be effective until received.
13.3 No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Credit Documents,
shall operate as a waiver thereof; nor shall any single or partial exercise
of any right, remedy, power or privilege hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein
provided or provided in the other Credit Documents are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
13.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Credit Documents
and in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this
Agreement and the Notes.
13.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse the Agent for all its reasonable out-of-pocket costs and
expenses incurred in connection with the negotiation, preparation and
execution of, and any amendment, supplement or modification to, this
Agreement, the Notes, the other Credit Documents and any other
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documents prepared in connection herewith or therewith, and the consummation of
the transactions contemplated hereby and thereby, including, without limitation,
the disbursements and reasonable fees of counsel to the Agent, (b) to pay or
reimburse each Lender and the Agent for all their costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, the Notes, the other Credit Documents and any such other documents,
including, without limitation, disbursements and reasonable fees of counsel to
the Agent and to the several Lenders, (c) to pay, indemnify, and hold each
Lender and the Agent harmless from, any and all recording and filing fees, and
any and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation of any
of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, the Notes, the other Credit Documents and any such other documents
and (d) to pay, indemnify, and hold each Lender and the Agent harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the Notes, the other Credit
Documents and any such other documents (all the foregoing, collectively, the
"indemnified liabilities"), provided that the Borrower shall have no obligation
hereunder to the Agent or any Lender with respect to indemnified liabilities
arising from (i) the gross negligence or willful misconduct of the Agent or any
such Lender, or (ii) legal proceedings commenced against the Agent or any such
Lender by any other Lender or by any Participant. The agreements in this
subsection 13.5 shall survive repayment of the Notes and all other amounts
payable hereunder.
13.6 Successors and Assigns; Participations. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agent, all future holders of the Notes and their respective
successors and assigns, except that the Borrower may not assign or transfer
any of its rights or obligations under this Agreement without the prior
written consent of each Lender. Assignments by any Lender of its rights and
obligations hereunder may be either in whole or in part.
(b) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to
one or more banks or other entities ("Participants") participating interests
in any Loan owing to such Lender, any Note held by such Lender, the Revolving
Credit Commitment of such Lender, any Acceptance Participating Interest, any
Letter of Credit Participating Interest or any other interest of such Lender
hereunder. In the event of any such sale by a Lender of participating
interests to a Participant, such Lender's obligations under this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Note for
all purposes under this Agreement, and the Borrower, the Agent and the
Issuing Lender shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement.
Each participation agreement entered into between any Lender and any
Participant shall provide that such Lender shall not be required to seek the
consent of such Participant before agreeing to amend, waive or otherwise
modify any Credit Document or taking any other action with respect thereto,
except that such participation agreement may provide that the selling Lender
thereunder must obtain the prior written consent
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of the Participant thereunder to extend the Termination Date or the maturity of
any Note or any installment thereof or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount of any Note. The
Borrower agrees that if amounts outstanding under this Agreement and the Notes
are due or unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement or any Note, provided that such right of setoff shall be subject
to the obligation of such Participant to share with the Lenders, and the Lenders
agree to share with such Participant, as provided in subsection 13.7. The
Borrower also agrees that each Participant shall be entitled to the benefits of
subsections 6.14, 6.16 and 6.17 with respect to its participation in the
Commitments, the Acceptances, the Letters of Credit and the Loans outstanding
from time to time; provided that no Participant shall be entitled to receive any
greater amount pursuant to such subsections than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its commercial
lending business and in accordance with applicable law, at any time and from
time to time assign to any Lender or any affiliate thereof or, with the
consent of the Borrower and the Agent (which in each case shall not be
unreasonably withheld), to any additional bank, financial institution or
other lending entity (each an "Assignee"), all or any part of its rights and
obligations under this Agreement and the Notes pursuant to an Assignment and
Acceptance Agreement, in form and substance satisfactory to the Agent (each
an "Assignment and Acceptance"), executed by such Assignee, such assigning
Lender (and, in the case of an Assignee that is not then a Lender or an
affiliate thereof, by the Agent and the Borrower) and delivered to the Agent
for its acceptance and recording in the Register (as defined in paragraph (d)
below); provided that any such assignment (in the case of any assignment to
an Assignee that is not then a Lender or an affiliate thereof) shall be in an
amount at least equal to $5,000,000 and that, in the event of an assignment
of less than all of such rights and obligations of any Lender, such assigning
Lender after such assignment shall retain Commitments and/or Loans
aggregating at least $5,000,000; provided, further, that any such assignment
by the Agent shall be in an amount or amounts in the sole and absolute
discretion of the Agent. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have
the rights and obligations of a Lender hereunder with a Revolving Credit
Commitment and Term Loans as set forth therein, and (y) the assigning Lender
thereunder shall, to the extent provided in such Assignment and Acceptance,
be released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such
assigning Lender shall cease to be a party hereto).
(d) The Agent shall maintain at its address referred to in
subsection 13.2 a copy of each Assignment and Acceptance delivered to it and
a register (the "Register") for the recordation of the names and addresses of
the Lenders and the Revolving Credit Commitment and Term Loans of, and
principal amount of the Loans owing to, each Lender from time to time.
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The entries in the Register shall be conclusive, in the absence of manifest
error, and the Borrower, the Agent and the Lenders may treat each Person whose
name is recorded in the Register as the owner of the Loan recorded therein for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof, by the Agent and the Borrower)
together with payment to the Agent of a registration and processing fee of
$4,000 (or $1,500 in the case of an Assignment to a Lender or affiliate
thereof), the Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Borrower. On or prior to
such effective date, the Borrower, at its own expense, shall execute and
deliver to the Agent (in exchange for the Notes of the assigning Lender) new
Notes to the order of such Assignee in an amount equal to the Revolving
Credit Commitment and Term Loan assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained a Revolving Credit
Commitment and a Term Loan hereunder, new Notes to the order of the assigning
Lender in an amount equal to the Revolving Credit Commitment and Term Loan
retained by it hereunder. Such new Notes shall be dated the Closing Date and
shall otherwise be in the form of the Notes replaced thereby.
(f) The Borrower authorizes each Lender to disclose to any
Participant, Assignee and any prospective Participant or Assignee any and all
financial information in such Lender's possession concerning the Borrower and
its affiliates which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such
Lender by or on behalf of the Borrower in connection with such Lender's
credit evaluation of the Borrower and its affiliates prior to becoming a
party to this Agreement; provided that any prospective Participant or
Assignee shall have acknowledged in writing that it is receiving such
information subject to the provisions of subsection 13.8.
(g) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions
do not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
13.7 Adjustments; Set-Off. (a) If any Lender (a "Benefitted
Lender") shall at any time receive any payment of all or part of its Loans,
or interest thereon, or any other amount payable to it hereunder, or receive
any collateral in respect thereof or any amount under any guarantee in
respect thereof (whether voluntarily or involuntarily, by set-off, pursuant
to events or proceedings of the nature referred to in paragraph (g) of
Section 11, or otherwise) in a greater proportion than any such payment to
and collateral received by any other Lender, if any, in respect of such other
Lender's Loans, or interest thereon, or any other amount payable to it
hereunder, such Benefitted Lender shall purchase for cash from the other
Lender such portion of such other Lender's Loans, or shall provide such other
Lender with the benefits of any such
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collateral, or the proceeds thereof, as shall be necessary to cause such
Benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
Benefitted Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. The
Borrower agrees that each Lender so purchasing a portion of another Lender's
Loans may exercise all rights of payment (including, without limitation, rights
of set-off) with respect to such portion as fully as if such Lender were the
direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders
provided by law, upon the occurrence of an Event of Default and acceleration
of the obligations owing in connection with this Agreement, each Lender shall
have the right, without prior notice to the Borrower, any such notice being
expressly waived by the Borrower to the extent permitted by applicable law,
to set-off and apply against any indebtedness, whether matured or unmatured,
of the Borrower to such Lender, any amount owing from such Lender to the
Borrower, at or at any time after, the happening of any of the
above-mentioned events, and the aforesaid right of set-off may be exercised
by such Lender against the Borrower or against any trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, receiver or
executor, judgment or attachment creditor of the Borrower, or against anyone
else claiming through or against the Borrower or such trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, receiver or
executor, judgment or attachment creditor, notwithstanding the fact that such
right of set-off shall not have been exercised by such Lender prior to the
making, filing or issuance, or service upon such Lender of, or of notice of,
any such petition, assignment for the benefit of creditors, appointment or
application for the appointment of a receiver, or issuance of execution,
subpoena, order or warrant. Each Lender agrees promptly to notify the
Borrower and the Agent after any such set-off and application made by such
Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
13.8 Confidentiality. Each Lender agrees that it will not
disclose Confidential Information (as hereinafter defined) to any Person
other than (a) as may be consented to by the Borrower, (b) as may be required
by law or pursuant to legal process and (c) to prospective Participants and
Assignees and those of such Lender's directors, officers, employees,
examiners and professional advisors who have a need to know the Confidential
Information in accordance with customary banking practices and who receive
the Confidential Information having been made aware of the restrictions of
this subsection 13.8. As used herein, the term "Confidential Information"
means all information contained in materials relating to the Borrower and its
Subsidiaries provided to the Lenders by the Borrower or its representatives
or agents other than (i) information which is at the time so provided or
thereafter becomes generally available to the public other than as a result
of a disclosure by one or more Lenders, (ii) information which was available
to any Lender prior to its disclosure to the Lenders by the Borrower, its
representatives or agents and (iii) information which becomes available to
one or more Lenders from a source other than the Borrower, its
representatives or agents.
13.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any
<PAGE> 79
74
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provisions in any other jurisdiction.
13.10 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement signed by all
the parties shall be lodged with the Borrower and the Agent.
13.11 No Third Party Beneficiaries. This Agreement is solely
for the benefit of the Agent, the Lenders (and Participants and Assignees to
the extent provided in subsection 13.6) and the Borrower, and nothing
expressed in, or to be implied from, this Agreement shall or shall be deemed
to confer upon anyone other than the Borrower, the Agent and the Lenders (and
such Participants and Assignees) any benefit, or legal or equitable right,
remedy or claim under or by virtue of this Agreement or any provision hereof,
including, without limitation, the right to insist upon or to enforce the
performance or observance of any of the obligations contained herein. All
conditions to the obligations of the Lenders to make the Loans, the Issuing
Lender and the Participating Lenders to issue and participate in the Letters
of Credit and the Lenders to create and participate in the Acceptances are
imposed solely and exclusively for the benefit of the Lenders, and no other
Person shall have standing to require satisfaction of such conditions in
accordance with their terms or be entitled to assume that the Lenders will
not refuse to make such extensions of credit in the absence of strict
compliance with any or all thereof and no other Person shall under any
circumstances be deemed to be a beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by the Lenders at any time if,
in their sole discretion, the Lenders deem it advisable or desirable to do so.
13.12 SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH OF THE
BORROWER, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT TO
WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH
ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT
TO PLEAD OR CLAIM THE SAME;
<PAGE> 80
75
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SUBSECTION 13.2 OR AT SUCH
OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO; AND
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
(b) EACH OF THE BORROWER, THE AGENT AND THE LENDERS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN PARAGRAPH (a) ABOVE.
13.13 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE OTHER
CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
AGREEMENT, THE NOTES AND THE OTHER CREDIT DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
13.14 Integration. This Agreement and the other Credit
Documents represent the agreement of the Borrower, the Agent and the Lenders
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Agent or any Lender
relative to the subject matter hereof not expressly set forth herein or in
the other Credit Documents.
13.15 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement, the Notes and the other Credit
Documents;
(b) neither the Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Credit Documents,
and the relationship between the Agent and the Lenders, on one hand,
and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
<PAGE> 81
76
13.16 Satisfaction in Dollars. The obligation of the Borrower
hereunder, under the Notes and in respect of Letter of Credit Obligations and
Acceptance Obligations to make payments in Dollars shall not be discharged or
satisfied by any tender or recovery pursuant to any judgment expressed in or
converted into any currency other than Dollars or any other realization in
such currency, whether as proceeds of set-off, security, guarantee,
distributions, or otherwise, except to the extent to which such tender,
recovery or realization shall result in the effective receipt by the Agent
and the Lenders of the full amount of Dollars expressed to be payable
hereunder, under the Notes and in respect of Letter of Credit Obligations and
Acceptance Obligations and the Borrower shall indemnify the Agent and each
Lender (as an alternative or additional cause of action) for the amount (if
any) by which such effective receipt shall fall short of the full amount of
Dollars expressed to be payable hereunder, under the Notes and in respect of
Letter of Credit Obligations and Acceptance Obligations and such obligation
to indemnify shall not be affected by judgment being obtained for any other
sums due under this Agreement, the Notes and in respect of Letter of Credit
Obligations and Acceptance Obligations.
IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly executed and delivered as of the date first above
written.
POLO RALPH LAUREN CORPORATION
By: /s/ Michael J. Newman
-----------------------------
Name: MICHAEL J. NEWMAN
Title: VICE CHAIRMAN AND CHIEF
OPERATING OFFICER
THE CHASE MANHATTAN BANK, as Agent,
Issuing Lender and a Lender
By: /s/ John Mulvey
-----------------------------
Name: John Mulvey
Title: VP
<PAGE> 82
77
FLEET BANK, as a Lender
By: /s/ Steven R. Navarro
-----------------------------
Name: Steven R. Navarro
Title: Senior Vice President
THE BANK OF NEW YORK, as a Lender
By: /s/ Joanne M. Collett
-----------------------------
Name: Joanne M. Collett
Title: Vice President
EUROPEAN AMERICAN BANK, as a Lender
By: /s/ George L. Stirling
-----------------------------
Name: George L. Stirling
Title: Vice President
ISRAEL DISCOUNT BANK OF NEW YORK, as a Lender
By: /s/ Scott Fishbein
-----------------------------
Name: Scott Fishbein
Title: Vice President
By: /s/ Ron Bongiovanni
-----------------------------
Name: Rob Bongiovanni
Title: Vice President
<PAGE> 83
78
SUNTRUST BANKS, INC., as a Lender
By: /s/ Laura Kahn
-----------------------------
Name: Laura Kahn
Title: Senior Vice President
UNION BANK OF CALIFORNIA, N.A., as a Lender
By: /s/ Terry Rocha
-----------------------------
Name: Terry Rocha
Title: Vice President
NATIONSBANK, N.A., as a Lender
By: /s/ Leesa C. Sluder
-----------------------------
Name: Leesa C. Sluder
Title: Senior Vice President
CANADIAN IMPERIAL BANK OF COMMERCE,
as a Lender
By: /s/ Mario Biscardi
-----------------------------
Name: Mario Biscardi
Title: Commercial Lending Specialist
<PAGE> 84
79
COMERICA BANK, as a Lender
By: /s/ David W. Shirey
-----------------------------
Name: David W. Shirey
Title: Assistant Vice President
FIRST UNION NATIONAL BANK, as a Lender
By: /s/ Christopher M. McLaughlin
--------------------------------
Name: Christopher M. McLaughlin
Title: Vice President
MERCANTILE BANK OF ST. LOUIS, as a Lender
By: /s/ Timothy W. Hassler
--------------------------------
Name: Timothy W. Hassler
Title: Vice President
<PAGE> 1
EXHIBIT 10.23
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AGREEMENT made effective as of the 4th day of April, 1999, between
Polo Ralph Lauren Corporation, a Delaware corporation (the "Company"), and Ralph
Lauren (the "Executive").
The Executive is the founder of the predecessor entities of the
Company and has acted as Chief Executive Officer of such entities for more than
thirty-one years.
The Executive has heretofore been employed by the Company pursuant
to an employment agreement made effective as of June 9, 1997 (the "Prior
Agreement");
The Company recognizes that the Executive's talents and abilities
are unique and have been integral to the success of the Company. The Company
wishes to retain the services of the Executive and recognizes that the
Executive's contribution to the growth and success of the Company will be
substantial. The Company desires to provide for the continued employment of the
Executive and to make employment arrangements that which will reinforce and
encourage the attention and dedication to the Company of the Executive as a
member of the Company's senior management, in the best interest of the Company.
The Executive is willing to commit himself to serve the Company, on the terms
and conditions herein provided.
The Company and the Executive wish to amend and restate the Prior
Agreement as evidenced by this Agreement effective as of the date hereof in
order to provide for the modification of certain provisions of the Prior
Agreement;
In order to effect the foregoing, the Company and the Executive wish
to enter into an Agreement on the terms and conditions set forth below.
Accordingly, in consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Employment. Effective as of April 4, 1999, the Executive's employment
with the Company shall be governed by this Agreement, which restates and
supercedes the Prior Agreement.
2. Term. The term of the Executive's employment hereunder shall commence
as of the date hereof and shall continue until the close of business on June 17,
2002, subject to earlier termination in accordance with the terms of this
Agreement (the "Term"). The Term shall be automatically extended for successive
one year periods thereafter unless either party notifies the other in writing of
its intention not to so extend the Term at least ninety (90) days prior to the
commencement of the next scheduled one year extension.
<PAGE> 2
3. Position and Duties.
(a) Title and Duties. The Executive shall serve as Chief Executive Officer
of the Company and Chairman of the Board of Directors of the Company (the
"Board"), and shall have such duties, authority and responsibilities as are
normally associated with and appropriate for such positions. The Executive shall
report directly to the Board. The Executive shall devote substantially all of
his working time and efforts to the business and affairs of the Company.
(b) Office and Facilities. The Executive shall be provided with
appropriate office and secretarial facilities in each of the Company's principal
executive offices in New York City and any other location that the Executive
reasonably deems necessary to have an office and support services in order for
the Executive to perform his duties to the Company. In addition, the Executive
shall continue to be entitled to have certain employees of the Company perform
services for the Executive which are non-Company related in a manner consistent
with past practice; provided that the Executive reimburses the Company for the
full amount of salary, benefits and other expenses relating to such employees.
4. Compensation.
(a) Base Salary. During the Term, the Company shall pay to the Executive
an annual base salary of $1,000,000. The Executive's base salary shall be paid
in substantially equal installments on a basis consistent with the Company's
payroll practices and shall be subject to such increases, if any, as may be
determined in the sole discretion of the Board. The Executive's base salary, as
in effect at any time, is hereinafter referred to as the "Base Salary."
(b) Annual Bonus. For each fiscal year of the Company that occurs during
the Term (including the fiscal year beginning on April 4, 1999 and ending April
1, 2000), the Executive shall be eligible to earn an annual cash bonus (the
"Bonus") based upon the achievement by the Company and its subsidiaries of
performance goals for each such fiscal year established by the Compensation
Committee of the Board of Directors (the "Compensation Committee"). The
Compensation Committee shall establish objective criteria to be used to
determine the extent to which such performance goals have been satisfied. The
range of the Bonus opportunity for each fiscal year will be $0 to $8,000,000
based upon the extent to which such performance goals are achieved. The Bonus,
if any, payable to the Executive in respect of each such fiscal year will be
paid at the same time that bonuses are paid to other executives of the Company,
but in any event within seventy-five days after the conclusion of each
applicable fiscal year. Notwithstanding any provision of this Agreement to the
contrary, the Executive's entitlement to payment of a Bonus during any period
when the compensation payable to the Executive pursuant to this Agreement is
subject to the deduction limitations of section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), shall be subject to shareholder approval
of a plan or arrangement evidencing such Bonus opportunity that complies with
the requirements of section 162(m) of the Code.
2
<PAGE> 3
5. Stock Options.
(a) For at least each of the fiscal year ending April 1, 2000 and the
fiscal year ending March 31, 2001, as of a date no later than June 11 of each
fiscal year (or the first business day thereafter if June 11 falls on a
holiday), the Executive will be granted options (the "Annual Options") to
purchase 250,000 shares of the Class A Common Stock of the Company (the "Common
Shares") pursuant to the terms of the Company's 1997 Long-Term Stock Incentive
Plan (the "Option Plan"). The Annual Options will have a term of ten (10) years
(subject to earlier termination as described below and in Section 7) and will be
transferable by the Executive to family members (or trusts for their benefit)
pursuant to the terms of the Option Plan.
(b) The Annual Options will vest and become exercisable ratably over three
(3) years on each of the first three anniversaries of the date of grant, subject
to the Executive's continued employment through each vesting date and subject to
the provisions of Section 7, and will have an exercise price per Common Share
equal to the fair market value per Common Share as of the date of grant.
6. Employee Benefits.
(a) Benefit Plans. The Executive shall continue to participate in all
existing employee benefit plans, perquisite and fringe benefit arrangements of
the Company or its affiliates in which he is currently participating and shall
be entitled to participate in any future employee benefit plans, perquisite and
fringe benefit arrangements of the Company or its affiliates that are provided
to other officers of the Company on terms no less favorable than are provided to
any other senior executive of the Company.
(b) Life Insurance. The Company shall, until fully funded in accordance
with applicable insurance projections, continue to maintain, and make premium
contributions with respect to, those certain split dollar and other life
insurance arrangements between the Company and the Executive, his family members
and/or life insurance trusts for the benefit of any of them, that are currently
maintained or contributed to by the Company or its affiliates or predecessor
entities.
(c) Expenses. The Executive shall be entitled to receive prompt
reimbursement for all reasonable and customary expenses incurred by the
Executive in performing services hereunder, including all expenses of travel and
living expenses while away from home on business or at the request of and in the
service of the Company (including hotel, travel and meal expenses for the
Executive's spouse should the Executive's spouse elect to travel with
Executive), provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.
3
<PAGE> 4
(d) Perquisites. The Company shall (i) provide the Executive with a car
and driver for his use during the term of his employment with the Company and
(ii) reimburse the Executive for club dues and initiation fees at a social club
or country club of the Executive's choosing.
(e) Corporate Aircraft. For security purposes, the Executive and his
family members shall be required to use the Company's or other acceptable
private aircraft for any travel; provided that in connection with any use which
is solely for personal non-business reasons, the Executive shall reimburse the
Company at swap rates charged to owners of airplanes, which rates are set by an
independent management company.
(f) Vacations. The Executive shall be entitled to vacations and holidays
on a basis consistent with that offered to other senior executive officers of
the Company.
(g) Indemnification. The Company shall indemnify the Executive to the
fullest extent permitted by applicable law against damages and expenses
(including fees and disbursements of counsel) in connection with his status or
performance of duties as an officer or director of the Company and its
affiliates (including any predecessor entities) and shall use reasonable
commercial efforts to maintain customary and appropriate directors and officers
liability insurance for the benefit of the Executive's protection. The Company's
obligations under this Section 6(g) shall survive any termination of the
Executive's employment hereunder.
7. Termination of Employment. The Company and the Executive may each
terminate the Executive's employment hereunder and the Term for any reason.
(a) Termination by the Company without Cause, Non-Extension of Term or by
the Executive for Good Reason. If the Company shall terminate the Executive's
employment without "Cause" (as defined in Section 7(e)), if the Company elects
not to extend the Term, or if the Executive resigns for Good Reason (as defined
in Section 7(e)) then, the Executive shall be entitled to the following:
(i) A lump sum cash payment equal to the sum of:
(1) The Executive's Base Salary that would be payable
through the later of (A) June 11, 2002, or (B) three years
from the date of the Executive's termination of employment
(the "Severance Period");
(2) Any accrued but unpaid compensation as of the date
of termination of employment; and
(3) A Bonus for each full or partial fiscal year that
occurs during the Severance Period equal to the average annual
bonus paid to the
4
<PAGE> 5
Executive in each of the immediately preceding two fiscal
years prior to the Executive's termination of employment,
provided, however, that the amount of the Bonus for any
partial fiscal year beyond the third fiscal year following the
date of the Executive's termination of employment will be
prorated; and
(ii) During the Severance Period, the Company shall (A) continue to
provide the Executive with office facilities and secretarial assistance in
New York City and any other location that the Executive maintained an
office during the term of his employment that the Executive reasonably
deems necessary, (B) permit the Executive to continue to participate in
all welfare and medical plans on the same terms as active officers of the
Company, and (C) continue to provide the Executive with the use of a car
and driver; and
(iii) Any unvested options granted pursuant to Section 5 will of
this Agreement and Section 5 of the Prior Agreement continue to vest on
their scheduled vesting dates, subject to and conditioned upon the
Executive's compliance with Section 9 hereof. In addition, subject to, and
conditioned upon, the Executive's compliance with Section 9 hereof, any
vested options (and any options that continue to vest as described above)
will remain exercisable until the latest to occur of (A) June 11, 2002,
(B) one (1) year from the date of the Executive's termination of
employment and (C) thirty (30) days from the date the option becomes
vested and exercisable.
(iv) Except as expressly provided above and for the Company's
obligations under Sections 6(b) and (6)g hereof, the Company will have no
further obligations to the Executive hereunder following the Executive's
termination of employment under the circumstances described in this
Section 7(a).
(b) Termination due to Death or Disability. If the Executive's employment
is terminated due to his death or "Disability" (as defined in Section 7(e)), the
Executive (or his estate) shall be entitled to the following:
(i) A lump sum cash payment equal to the sum of:
(1) the Executive's Base Salary through the date on which his
termination due to death or Disability occurred;
(2) any accrued and unpaid compensation for any prior fiscal
year; and
(3) a pro-rata portion of the Bonus he would otherwise have
received for the fiscal year in which his termination due to death
or Disability occurred; and
5
<PAGE> 6
(ii) Any unvested options granted pursuant to Section 5 of this
Agreement and Section 5 of the Prior Agreement will vest immediately and
options held by the Executive, or his estate, will remain exercisable for
three (3) years from the date of the Executive's death or termination due
to Disability.
(iii) Except as expressly provided above and for the Company's
obligations under Sections 6(b) and 6(g) hereof, the Company will have no
further obligations to the Executive hereunder following the Executive's
termination of employment under the circumstances described in this
Section 7(b).
(c) Termination by the Company for Cause, by Executive Other than for Good
Reason or Due To The Executive's Election Not To Extend The Term. If the
Executive's employment is terminated by the Company for Cause, by the Executive
other than for Good Reason or due to the Executive's election not to extend the
Term, the Executive shall be entitled to:
(i) an immediate lump sum cash payment equal to the sum of:
(1) his Base Salary through the date of termination; and any
accrued but unpaid compensation for any prior fiscal year; and
(2) a pro-rata portion of his Bonus for the fiscal year in
which the termination occurred, to be paid when bonuses are paid to
other executives of the Company; and
(ii) Any options granted pursuant to Section 5 of this Agreement and
Section 5 of the Prior Agreement that have not previously been exercised
shall be forfeited.
(iii) Except as expressly provided above and for the Company's
obligations under Sections 6(b) and 6(g) hereof, the Company will have no
further obligations to the Executive hereunder following the Executive's
termination of employment under the circumstances described in this
Section 7(c).
(d) Notice of Termination. Any termination of the Executive's employment
by the Company or by the Executive (other than termination pursuant to the
Executive's death) shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 11 hereof. If the Company
terminates the Executive's employment for Cause or due to Disability or if the
Executive resigns for Good Reason, the "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
6
<PAGE> 7
(e) Definitions. For purpose of this Agreement:
(i) "Cause" shall mean (A) the willful and continued failure by the
Executive to substantially perform his duties hereunder after demand for
substantial performance is delivered by the Company that specifically
identifies the manner in which the Company believes the Executive has not
substantially performed his duties; or (B) the Executive's conviction of,
or plea of nolo contendre to, a crime (whether or not involving the
Company) constituting a felony; or (C) willful engaging by the Executive
in gross misconduct relating to the Executive's employment that is
materially injurious to the Company or subjects the Company, monetarily or
otherwise (including, but not limited to, conduct that constitutes
competitive activity, in violation of Section 9) or which subjects, or if
generally known, would subject the Company to public ridicule or
embarrassment. For purposes of this paragraph, no act, or failure to act,
on the Executive's part shall be considered "willful" unless done, or
omitted to be done, by him not in good faith and without reasonable belief
that his action or omission was in the best interest of the Company.
Notwithstanding the forgoing, the Executive shall not be deemed to have
been terminated for Cause without (x) reasonable written notice to the
Executive setting forth the reasons for the Company's intention to
terminate for Cause, (y) an opportunity for the Executive, together with
his counsel, to be heard before the Board, and (z) delivery to the
Executive of a Notice of Termination, as defined in Section 7(d) hereof,
from the Board finding that in the good faith opinion of the Board the
Executive was guilty of conduct set forth above in clauses (A) through (C)
hereof, and specifying the particulars thereof in detail.
(ii) "Good Reason" shall mean (A) a material diminution in the
Executive's duties or the assignment to the Executive of a title or duties
inconsistent with his position as Chairman of the Board and Chief
Executive Officer of the Company, (B) a reduction in the Executive's
salary or annual incentive bonus opportunity, (C) a failure of the Company
to comply with any material provision of this Agreement or (D) the
Executive's ceasing to be entitled to the payment of an annual incentive
bonus as a result of the failure of the Company's shareholders to approve
a plan or arrangement evidencing such annual incentive bonus in a manner
that complies with the requirements of section 162(m) of the Internal
Revenue Code of 1986; provided that the events described in clauses (A),
(B) and (C) above shall not constitute Good Reason unless and until such
diminution, reduction or failure (as applicable) has not been cured within
thirty (30) days after notice of such noncompliance has been given by the
Executive to the Company.
(iii) For purposes of this Agreement, "Disability" shall mean that
as a result of the Executive's incapacity due to physical or mental
illness, the Executive shall have been absent from his duties hereunder on
a full-time basis for the entire period of six consecutive months, and
within thirty (30) days after written Notice of Termination is given by
the Company (which may occur before or after the end of such six month
7
<PAGE> 8
period) the Executive shall not have returned to the performance of his
duties hereunder on a full-time basis.
8. No Mitigation. The Executive shall have no duty to mitigate the
payments provided for hereunder by seeking other employment or otherwise and
such payment shall not be subject to reduction for any compensation received by
the Executive from employment in any capacity following the termination of the
Executive's employment with the Company.
9. Non-Solicitation/Non-Competition.
(a) The Executive agrees that for the duration of his employment and for a
period of three (3) years from the date of termination thereof, he will not, on
his own behalf or on behalf of any other person or entity, hire, solicit, or
encourage to leave the employ of the Company or its subsidiaries or affiliates
any person who is an employee of any of such companies.
(b) The Executive agrees that for the duration of his employment and for a
period of three (3) years from the date of termination thereof, the Executive
will take no action which is intended, or would reasonably be expected, to harm
(e.g., making public derogatory statements or misusing confidential Company
information, it being acknowledged that the Executive's employment with a
competitor in and of itself shall not be deemed to be harmful to the Company for
purposes of this Section 9(b)) the Company or any of its subsidiaries or
affiliates of their reputation.
(c) The Executive agrees that during the duration of his employment and;
(i) in the event of the Executive's termination of employment
due to the Executive's resignation without Good Reason, until the
later of (x) June 11, 2002 and (y) two (2) years from the date of
such termination of employment; and
(ii) in the event of the Executive's termination of employment
by the Company without Cause or the Executive's resignation for Good
Reason pursuant to Section 7(a), for two (2) years from the date of
such termination of employment; and
(iii) in the event of the Executive's termination of
employment by the Company for Cause, at the election of the Company
in consideration for the payment to the Executive of an amount equal
to the Executive's salary and Bonus (equal to the average Bonus paid
to the Executive over the preceding two years) for each year within
such period, for a period of up to two (2) years from the date of
such termination of employment,
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<PAGE> 9
then, during the period specified in clause (i), (ii) or (iii)
above, as applicable, the Executive shall not, directly or
indirectly, (A) engage in any "Competitive Business" (as defined
below) for his own account, (B) enter into the employ of, or render
any services to, any person engaged in a Competitive Business, or
(C) become interested in any entity engaged in a Competitive
Business, directly or indirectly as an individual, partner,
shareholder, officer, director, principal, agent, employee, trustee,
consultant, or in any other relationship or capacity; provided that
the Executive may own, solely as an investment, securities of any
entity which are traded on a national securities exchange if the
Executive is not a controlling person of, or a member of a group
that controls such entity and does not, directly or indirectly, own
2% or more of any class of securities of such entity.
(iv) For purposes of this Agreement the term "Competitive
Business" shall include the design, manufacture, sale, marketing or
distribution of branded or designer apparel and other products in
the categories of products sold by, or under license from, the
Company or its affiliates within the United States.
(d) The Executive will not at any time (whether during or after his
employment with the Company) disclose or use for his own benefit or purposes or
the benefit or purposes of any other person, entity or enterprise, other than
the Company or any of its affiliates, any trade secrets, information, data, or
other confidential information relating to customers, development programs,
costs, marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans or the
business and affairs of the Company generally, or any affiliate of the Company;
provided that the foregoing shall not apply to information which is not unique
to the Company or which is generally known to the industry or the public other
than as a result of the Executive's breach of this covenant. The Executive
agrees that upon termination of his employment with the Company for any reason,
he will return to the Company immediately all memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in any
way relating to the business of the Company and its affiliates.
(e) If the Executive breaches, or threatens to commit a breach of, any of
the provisions of this Section 9 (the "Restrictive Covenants"), the Company
shall have the following rights and remedies, each of which rights and remedies
shall be independent of the other and severally enforceable, and all of which
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity:
(i) The right and remedy to have the Restrictive Covenants
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company;
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(ii) The right and remedy to require the Executive to account for
and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively, "Benefits") derived or
received by the Executive as the result of any transactions constituting a
breach of any of the Restrictive Covenants, and the Executive shall
account for and pay over such Benefits to the Company; and
(iii) The right to discontinue the payment of any amounts owing to
the Executive under the Agreement.
(f) If any court determines that any of the Restrictive Covenants, or any
part thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect, without
regard to the invalid portion. In addition, if any court construes any of the
Restrictive Covenants, or any part thereof, to be unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
10. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as herein defined and any successor
to its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 10 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are payable
to him hereunder all such amounts unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
11. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered with receipt
acknowledged or five business days after having been mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
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If to the Executive:
Mr. Ralph Lauren
c/o Polo Ralph Lauren Corporation
650 Madison Avenue
New York, New York 10022
If to the Company:
Polo Ralph Lauren Corporation
650 Madison Avenue
New York, New York 10022
Attention: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. Miscellaneous. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York without regard to its conflicts of law principles.
13. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in the City of
New York in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that the Company shall be entitled to
seek a restraining order or injunction in any court of competent jurisdiction to
prevent
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any continuation of any violation of the provisions of Section 9 of this
Agreement and the Executive hereby consents that such restraining order or
injunction may be granted without the necessity of the Company's posting any
bond, and provided further that the Executive shall be entitled to seek specific
performance of his right to be paid until the date of termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
16. Withholding. The Company may withhold from any amounts payable under
this Agreement such federal, state and local taxes as may be required to be
withheld pursuant to applicable law or regulation.
17. Prior Agreements; Entire Agreement. This Agreement sets forth the
entire agreement of the parties hereto in respect of the subject matter
contained herein and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto; and any
prior agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and canceled.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive has hereunto set his hand, effective as of the 4th
day of April, 1999.
POLO RALPH LAUREN CORPORATION
By: /s/ Michael J. Newman
--------------------------------
/s/ Ralph Lauren
------------------------------------
Executive: Ralph Lauren
<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made effective as of the 10th
day of November, 1998, by and between Polo Ralph Lauren Corporation, a Delaware
corporation (the "Corporation"), and Hamilton South (the "Executive").
WHEREAS, the Executive is currently employed by the Corporation as its
Senior Vice President of Worldwide Communications and Special Projects;
WHEREAS, the Corporation has appointed Executive, effective as of this
date, to be its Group President and Chief Marketing Officer;
WHEREAS, the Corporation and the Executive wish to enter into an
employment agreement effective as of the date hereof and intend this Agreement
to supersede all prior agreements between the Corporation and Executive;
NOW, THEREFORE, intending to be bound the parties hereby agree as
follows with effect from the date first above written.
1. Employment/Prior Agreement. The Corporation hereby agrees to employ
the Executive, and the Executive hereby agrees to serve the Corporation, on the
terms and conditions set forth herein. From and after the date hereof, the terms
of this Agreement shall supersede in all respects the terms of any prior
arrangement or agreement, if any, dealing with the matters herein.
2. Term. The employment of the Executive by the Corporation as provided
in Section 1 pursuant to this Agreement will be effective on the date hereof.
The term of the Executive's employment under this Employment Agreement shall
continue until the close of business of the third anniversary of the date of
this Agreement, subject to earlier termination in accordance with the terms of
this Agreement (the "Term"). The Term shall be automatically extended for
successive one year periods thereafter unless either party notifies the other in
writing of its intention not to so extend the Term at least twelve (12) months
prior to the commencement of the next scheduled one year extension.
3. Position and Duties. The Executive shall serve as a Group President
and Chief Marketing Officer of the Corporation with responsibilities for the
Corporation's advertising, public and investor relations and marketing
activities and such other related responsibilities and duties as may be assigned
to him from time to time by the Chairman and Chief Executive Officer or the Vice
Chairman and Chief Operating Officer (who comprise the Office of the Chairman)
of
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the Corporation, to whom Executive shall report jointly. The Executive shall
devote substantially all his working time and efforts to the business and
affairs of the Corporation.
4. Compensation and Related Matters.
(a) Salary and Incentive Bonus
(i) Salary. From and after the date of this Agreement
the Corporation shall pay to the Executive an annual salary of
not less than $500,000. Such salary shall be paid in
substantially equal installments on a basis consistent with
the Corporation's payroll practices and shall be subject to
annual increases, if any, as may be determined in the sole
discretion of the Corporation.
(ii) Incentive Bonus. Executive shall participate in
the Corporation's Executive Incentive Plan (the "EIP"), and
any substitute therefor, and be eligible to earn an annual
cash bonus for each fiscal year during the term of this
Agreement (the "Bonus"). For fiscal year 1999, Executive's
Bonus opportunity shall be prorated, with the applicable Bonus
opportunity percentages referred to in the following sentence
multiplied against base salary earned during the period from
the date of this Agreement to the end of the fiscal year.
Beginning with fiscal year 2000 and for each fiscal year
thereafter Executive's Bonus opportunity shall range from 50%
to 100% of Executive's annual salary based upon the extent to
which corporate performance goals established by the
Compensation Committee (the "Compensation Committee") of the
Corporation's Board of Directors (the "Board") are achieved.
The Bonus, if any, payable to the Executive in respect of each
fiscal year will be paid at the same time that bonuses are
paid to other executives under the EIP. Notwithstanding any
provision of this Agreement to the contrary, the Executive's
entitlement to payment of an annual incentive bonus during any
period when the compensation payable to the Executive pursuant
to this Agreement is subject to the deduction limitations of
section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), shall be subject to shareholder approval
of a plan or arrangement evidencing such annual incentive
bonus opportunity that complies with the requirements of
section 162(m) of the Code.
(b) Expenses. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt
reimbursement for all reasonable and customary expenses incurred by the
Executive in performing services hereunder, including all expenses of
travel (at the standard established from time to time for Group
Presidents) and living expenses while away from home on business or at
the request of and in the service of the Corporation, provided that
such expenses are incurred and
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accounted for in accordance with the policies and procedures
established by the Corporation.
(c) Other Benefits. During the term of the Executive's
employment hereunder, the Executive shall be entitled to participate in
or receive benefits under any medical, pension, profit sharing or other
employee benefit plan or arrangement generally made available by the
Corporation now or in the future to its executives and key management
employees (or to their family members), subject to and on a basis
consistent with the terms, conditions and overall administration of
such plans and arrangements. Nothing paid to the Executive under any
plan or arrangement presently in effect or made available in the future
shall be deemed to be in lieu of the salary payable to the Executive
pursuant to paragraph (a) of this Section.
(d) Vacations. The Executive shall be entitled to reasonable
vacations consistent with past practice.
(e) Options. Effective on or prior to the end of the third
quarter of fiscal 1999, Executive shall be granted options to purchase
25,000 shares of the Corporation's Class A Common Stock pursuant to the
terms of the Corporation's 1997 Long-Term Stock Incentive Plan.
Executive shall thereafter, during at least fiscal years 2000 and 2001,
be eligible to receive grants of additional options at the level of a
Group President, the determination whether to make such grants,
individually and/or as a group, and the amount thereof being in the
sole discretion of the Compensation Committee. Options granted to the
Executive pursuant to the foregoing will vest and become exercisable
ratably over three (3) years on each of the first three anniversaries
of the date of grant, subject to the Executive's continued employment
through each vesting date, and will have an exercise price equal to the
fair market value per shares as of the date of grant. Options
hereinafter granted to Executive shall provide that, to the extent
vested at or prior to the termination of Executive's employment with
the Corporation and unless they expire sooner, they shall remain
exercisable for a period of no less than 120 days from the date of such
termination; provided that if Executive's employment is terminated by
the Corporation pursuant to Section 6(d)(iii) for Cause or by the
Executive for other than Good Reason (excluding a Permitted Resignation
pursuant to Section 8(c) hereof) then such options shall only be
exercisable prior to the date of termination.
5. Termination.
(a) Termination by Corporation. The Executive's employment
hereunder may be terminated at any time with or without Cause.
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(b) Termination by The Executive. The Executive may terminate
his employment hereunder with or without Good Reason. For purposes of
this Agreement, "Good Reason" shall mean (A) a material diminution in
the Executive's duties or the assignment to the Executive of a title or
duties inconsistent with his position as a Group President and Chief
Marketing Officer of the Corporation, (B) a material change in
Executive's reporting line (as hereinafter defined), (C) a reduction in
the Executive's salary or annual incentive bonus opportunity or the
Corporation's electing to eliminate the EIP without substituting
therefor a plan which provides for a reasonably comparable annual
incentive bonus opportunity or the Executive's ceasing to be entitled
to the payment of an annual incentive bonus as a result of the failure
of the Corporation's shareholders to approve a plan or arrangement
evidencing such annual incentive bonus in a manner that complies with
the requirements of Section 162(m) of the Code, or (D) a failure of the
Corporation to comply with any material provision of this Agreement
provided that the events described in clauses (A), (B), (C) and (D)
above shall not constitute Good Reason unless and until such
diminution, change, reduction or failure (as applicable) has not been
cured within thirty (30) days after notice of such noncompliance has
been given by the Executive to the Corporation. A material change in
Executive's reporting line shall mean Executive no longer reports to
the Office of the Chairman (as defined in Section 3 hereof), provided
that if such office no longer exists or no longer comprises the primary
functions of the Corporation's chief executive officer then a material
change in Executive's reporting function shall exist if Executive does
not report to the chief executive officer or to the chief executive
officer and chief operating officer jointly.
(c) Any termination of the Executive's employment by the
Corporation or by the Executive (other than termination pursuant to
Section 6(d)(i) hereof) shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 10
hereof. If termination is pursuant to Sections 6(d)(ii)-(iii) or 5(b)
hereof, the "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
6. Compensation Upon Termination.
(a) If the Corporation shall terminate the Executive's
employment for any reason other than an Enumerated Reason as set forth
in Section 6(d) hereof and other than due to the Corporation's election
not to extend the Term of this Agreement as contemplated by Section 2,
or if the Executive resigns for Good Reason pursuant to Section 5(b)
hereof, then so long as the Executive complies with Section 8 hereof
the Executive shall be entitled to the following:
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(i) an amount equal to the greater of:
(A) the sum of (I) two (2) times the
Executive's salary at the rate in effect on such date
(unless employment is terminated by the Executive for
Good Reason pursuant to Section 5(b) hereof as a
result of a salary reduction, in which case, at the
rate in effect prior to such reduction), plus (II)
one and one-half (1-1/2) times the average annual
incentive bonus paid to the Executive over the
preceding two years; plus a pro rata annual incentive
bonus for the year of termination (based on the
average annual incentive bonus paid to the Executive
over the preceding two years and based upon the
percentage of the calendar year in which such
termination occurs that shall have elapsed through
the date of termination (a "Pro Rata Annual Incentive
Bonus")); and
(B) the sum of (I) (three (3) minus the
number of years (including fractions thereof) that
shall have elapsed from the date of this Agreement
times the Executive's salary at the rate in effect on
such date (unless employment is terminated by the
Executive for Good Reason pursuant to Section 5(b)
hereof as a result of a salary reduction, in which
case, at the rate in effect prior to such reduction),
plus (II) one and one-half (1-1/2) times the average
annual incentive bonus paid to the Executive over the
preceding two (2) years; plus a Pro Rata Annual
Incentive Bonus for the year of termination.
Any amounts paid pursuant to either clause (A) or clause (B) above
shall be paid in equal monthly installments from the date of termination for a
period two (2) years in the case of clause (A) above and for a period of up to
three (3) years less the fraction of a year which shall have elapsed from the
date of this Agreement in the case of clause (B) above (such periods, whichever
is applicable, hereinafter referred to as the "Severance Period"), except that
the Pro Rata Annual Incentive Bonus shall be paid in a lump sum in cash within
thirty (30) days following the date of the Executive's termination of
employment.
(ii) Continued participation in the Corporation's
health benefit plans during the Severance Period; provided
that if the Executive is provided with similar coverage by a
successor employer, any such coverage by the Corporation shall
cease;
(iii) Continued use of the Corporation automobile
during the Severance Period or until the then existing auto
lease term expires, whichever is shorter;
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(iv) Waiver of collateral interest securing return to
the Corporation of premiums paid by the Corporation for the
Executive's existing split dollar life insurance policy;
(v) If a Change of Control shall have occurred prior
to the date of termination, the Executive shall be entitled at
his option, exercisable in writing within fifteen days of the
date of termination, to receive the equivalent of the salary
and bonus payments pursuant to subsection (i) above in two
equal lump sum installments, the first payable within 30 days
of the date of termination and the second on the first
anniversary of the date of termination. As used herein, the
term "Change of Control" shall mean Ralph Lauren or members of
his family (or trusts or entities created for their benefit)
no longer control 50% or more of the voting power of the then
outstanding securities of the Corporation entitled to vote for
the election of the Corporation's directors; and
(vi) Except as provided above, the Corporation will
have no further obligations to the Executive under this
Agreement following the Executive's termination of employment
under the circumstances described in this Section 6(a).
(b) If the Executive's employment is terminated by his death
or by the Corporation due to the Executive's Disability (as defined
below), the Corporation shall pay any amounts due to the Executive
through the date of his death or the date of his termination due to
Disability, including a Pro Rata Annual Incentive Bonus for the year of
termination. The Corporation will have no further obligations to the
Executive under this Agreement.
(c) If the Executive's employment shall be terminated by the
Corporation pursuant to Section 6(d) (iii) for Cause or by the
Executive for other than Good Reason, the Corporation shall pay the
Executive his full salary through the date of termination at the rate
in effect prior to such termination and the Corporation shall have no
further obligations to the Executive under Section 6 of this Agreement
or otherwise but the Executive shall be bound by Section 8 hereof as
applicable.
(d) The term "Enumerated Reason" with respect to termination
by the Corporation of the Executive's employment shall mean any one of
the following reasons:
(i) Death. The Executive's employment hereunder shall
terminate upon his death.
(ii) Disability. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive
shall have been absent from his duties
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hereunder on a full-time basis for the entire period of six
consecutive months, and within thirty (30) days after written
Notice of Termination is given (which may occur before or
after the end of such six month period) shall not have
returned to the performance of his duties hereunder on a
full-time basis (a "Disability"), the Corporation may
terminate the Executive's employment hereunder.
(iii) Cause. The Corporation shall have "Cause" to
terminate the Executive's employment hereunder upon (1) the
willful and continued failure by the Executive to
substantially perform his duties hereunder after demand for
substantial performance is delivered by the Corporation that
specifically identifies the manner in which the Corporation
believes the Executive has not substantially performed his
duties, or (2) Executive's conviction of, or plea of nolo
contendere to, a crime (whether or not involving the
Corporation) constituting any felony or (3) the willful
engaging by the Executive in gross misconduct relating to the
Executive's employment that is materially injurious to the
Corporation, monetarily or otherwise (including, but not
limited to, conduct that constitutes competitive activity, in
violation of Section 8) or which subjects, or if generally
known, would subject the Corporation to public ridicule or
embarrassment. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be considered
"willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his action or
omission was in the best interest of the Corporation.
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause without (x)
reasonable written notice to the Executive setting forth the
reasons for the Corporation's intention to terminate for
Cause, (y) the opportunity to cure (if curable) within 10 days
of such written notice the event(s) giving rise to such
notice, and (z) an opportunity for the Executive, together
with his counsel, to be heard.
(e) If the Executive's employment with the Corporation shall
terminate due to the Corporation's election not to extend the Term of
this Agreement as contemplated by Section 2, Executive shall be
entitled to receive an amount, payable in equal monthly installments
over a one year period, equal to the sum of (x) his annual salary, plus
(y) his average annual incentive bonus paid over the two years
preceding the date of termination. Except as provided in the foregoing
sentence and in Section 6(f), the Corporation shall have no further
obligations to the Executive under this Agreement following the
Executive's termination of employment under the circumstances described
in this Section 6(e).
(f) If the Executive's employment with the Corporation shall
terminate due to either the Corporation's or Executive's election not
to extend the Term of this Agreement as contemplated by Section 2,
Executive shall be entitled to receive his full salary through
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the date of termination plus the Bonus, if any, that Executive would
have been entitled to receive had he remained in the Corporation's
employment through the end of its fiscal year, prorated to the date of
termination. Such prorated Bonus shall be payable at the same time as
the Corporation pays bonuses to other executives under the EIP.
7. Mitigation. The Executive shall have no duty to mitigate the
payments provided for in Sections 6(a) or 6(e) by seeking other employment or
otherwise and such payment shall not be subject to reduction for any
compensation received by the Executive from employment in any capacity following
the termination of the Executive's employment with the Corporation.
8. Noncompetition.
(a) The Executive agrees that for the duration of his
employment and for a period two (2) years from the date of termination
thereof, he will not, on his own behalf or on behalf of any other
person or entity, hire, solicit, or encourage to leave the employ of
the Corporation or its subsidiaries, affiliates or licensees any person
who is an employee of any of such companies.
(b) The Executive agrees that for the duration of his
employment and for a period of two (2) years from the date of
termination thereof, the Executive will take no action which is
intended, or would reasonably be expected, to harm (e.g. making public
derogatory statements or misusing confidential Corporation information,
it being acknowledged that the Executive's employment with a competitor
in and of itself shall not be deemed to be harmful to the Corporation
for purposes of this Section 8(b)) the Corporation or any of its
subsidiaries, affiliates or licensees or their reputation.
(c) The Executive agrees that during the duration of his
employment and;
(i) in the event of the Executive's termination of
employment due to the Executive's resignation without Good
Reason, until the later of (x) three (3) years from the date
of this Agreement and (y) twelve (12) months from the date of
such termination of employment; and
(ii) in the event of the Executive's termination of
employment by the Corporation without Cause or the Executive's
resignation for Good Reason pursuant to Section 5(b), for
twelve (12) months from the date of such termination of
employment; and
(iii) in the event of the Executive's termination of
employment by the Corporation for Cause, at the election of
the Corporation in consideration for the payment to the
Executive of an amount equal to the Executive's salary and
annual
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incentive bonus (equal to the average annual incentive bonus
paid to the Executive over the preceding two years) for each
year within such period, for a period of up to twelve (12)
months from the date of such termination of employment,
then, during the period specified in clause (i), (ii) or (iii) above, as
applicable, the Executive shall not, directly or indirectly, (A) engage in any
"Competitive Business" (as defined below) for his own account, (B) enter into
the employ of, or render any services to, any person engaged in a Competitive
Business, or (C) become interested in any entity engaged in a Competitive
Business, directly or indirectly as an individual, partner, shareholder,
officer, director, principal, agent, employee, trustee, consultant, or in any
other relationship or capacity; provided that the Executive may own, solely as
an investment, securities of any entity which are traded on a national
securities exchange if the Executive is not a controlling person of, or a member
of a group that controls such entity and does not, directly or indirectly, own
2% or more of any class of securities of such entity.
For purposes of this Agreement the term "Competitive Business" shall
mean any of the brands and companies that the Corporation and the Executive have
jointly designated in writing as being in competition with the Corporation or
its subsidiaries, affiliates or licensees, and any modification thereto which
the parties may agree to in writing from time to time.
The provisions of this Section 8(c) shall not apply if Executive elects
to terminate his employment with the Corporation other than for Good Reason
after the date Ralph Lauren ceases to be chief executive officer of the
Corporation, provided (i) Executive has remained in his position for a period of
nine months following such date, (ii) Executive has given the Corporation no
less than 90 days' prior written notice of such termination referring to the
provisions of this section and (iii) no more than 18 months shall have elapsed
from the date of Ralph Lauren's ceasing to be the chief executive officer of the
Corporation, prior to the giving of notice of termination hereunder by Executive
(a "Permitted Resignation").
(d) The Executive will not at any time (whether during or
after his employment with the Corporation) disclose or use for his own
benefit or purposes or the benefit or purposes of any other person,
entity or enterprise, other than the Corporation or any of its
subsidiaries or affiliates, any trade secrets, information, data, or
other confidential information relating to customers, development
programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, manufacturing processes,
financing methods, plans or the business and affairs of the Corporation
generally, or any subsidiary, affiliate or licensee of the Corporation;
provided that the foregoing shall not apply to information which is not
unique to the Corporation or which is generally known to the industry
or the public other than as a result of the Executive's breach of this
covenant or to disclosure which is required by law or to enforce the
terms
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of this Agreement upon reasonable notice to the Corporation and further
provided Executive may disclose to his attorneys and accountants
confidential information reasonably required in connection with their
services to Executive provided they sign and agree to be bound to the
terms of a confidentiality agreement with the Corporation. The
Executive agrees that upon termination of his employment with the
Corporation for any reason, he will return to the Corporation
immediately all memoranda, books, papers, plans, information, letters
and other data, and all copies thereof or therefrom, in any way
relating to the business of the Corporation or its subsidiaries or
affiliates or licensees.
(e) If the Executive breaches, or threatens to commit a breach
of, any of the provisions of this Section 8 (the "Restrictive
Covenants"), the Corporation shall have the following rights and
remedies, each of which rights and remedies shall be independent of the
other and severally enforceable, and all of which rights and remedies
shall be in addition to, and not in lieu of, any other rights and
remedies available to the Corporation under law or equity:
(i) The right and remedy to have the Restrictive
Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to
the Corporation and that money damages will not provide an
adequate remedy to the Corporation;
(ii) The right and remedy to require the Executive to
account for and pay over to the Corporation all compensation,
profits, monies, accruals, increments or other benefits
(collectively, "Benefits") derived or received by the
Executive as the result of any transactions constituting a
breach of any of the Restrictive Covenants, and the Executive
shall account for and pay over such Benefits to the
Corporation; and
(iii) The right to discontinue the payment of any
amounts owing to the Executive under the Agreement.
(f) If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected
and shall be given full effect, without regard to the invalid portion.
In addition, if any court construes any of the Restrictive Covenants,
or any part thereof, to be unenforceable because of the duration of
such provision or the area covered thereby, such court shall have the
power to reduce the duration or area of such provision and, in its
reduced form, such provision shall then be enforceable and shall be
enforced.
10
<PAGE> 11
9. Successors; Binding Agreement.
(a) The Corporation will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Corporation would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Corporation" shall mean the Corporation as hereinbefore
defined and any successor to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Section
9 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are payable to him hereunder all
such amounts unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the
Executive's estate.
10. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered with receipt
acknowledged or five business days after having been mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Mr. Hamilton South
458 Greenwich Street, Apt. 3
New York, New York 10013
If to the Corporation:
Polo Ralph Lauren Corporation
650 Madison Avenue
New York, New York 10022
Attention: General Counsel
11
<PAGE> 12
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Corporation as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York without regard to its conflicts of law principles.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
the City of New York before a single arbitrator in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
the Corporation shall be entitled to seek a restraining order or injunction in
any court of competent jurisdiction to prevent any continuation of any violation
of the provisions of Section 8 of this Agreement and the Executive hereby
consents that such restraining order or injunction may be granted without the
necessity of the Corporation's posting any bond, and provided further that the
Executive shall be entitled to seek specific performance of his right to be paid
until the date of termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. Fees and expenses payable to
the American Arbitration Association and the arbitrator shall be shared equally
by the Corporation and by the Executive, but the parties shall otherwise bear
their own costs in connection with the arbitration; provided that the arbitrator
shall be entitled to include as part of the award to the prevailing party the
reasonable legal fees and expenses incurred by such party in an amount not to
exceed $25,000.
12
<PAGE> 13
15. Withholding. The Corporation may withhold from any amounts payable
under this Agreement such federal, state and local taxes as may be required to
be withheld pursuant to applicable law or regulation.
16. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
duly executed and the Executive has hereunto set his hand, each on the date set
forth below, but effective as of the 10th day of November, 1998.
POLO RALPH LAUREN CORPORATION
By: /s/ Michael J. Newman
----------------------
Date: March 29, 1999
/s/ Hamilton South
----------------------
Executive: Hamilton South
Date: March 25, 1999
13
<PAGE> 1
EXHIBIT 21.1
POLO RALPH LAUREN CORPORATION
SIGNIFICANT SUBSIDIARIES
All the significant subsidiaries are wholly-owned by Polo Ralph Lauren
Corporation and/or one or more of its wholly-owned subsidiaries.
<TABLE>
<CAPTION>
Jurisdiction in
Name which Organized
---- ---------------
<S> <C>
Fashions Outlet of America, Inc. Delaware
PRL USA Holdings, Inc. Delaware
PRL International, Inc. Delaware
</TABLE>
<PAGE> 1
Exhibit 24.1
POWER-OF-ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph Lauren, Michael Newman and Nancy A. Platoni
Poli, and each of them, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and revocation, for such person and in
such person's name, place and stead, in any and all capacities to sign any and
all amendments to the Annual Report on Form 10-K for the fiscal year ended April
3, 1999 of Polo Ralph Lauren Corporation, and to file the same with all exhibits
thereto, and the other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
things requisite and necessary to be done, as fully to all intents and purposes
as such person might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- --------- -------- ----
<S> <C> <C>
/s/ Ralph Lauren Chairman of the Board of Directors and June 25, 1999
- ---------------------------------- Chief Executive Officer
Ralph Lauren (Principal Executive Officer)
/s/ Michael J. Newman Vice Chairman of the Board of Directors June 25, 1999
- ---------------------------------- and Chief Operating Officer
Michael J. Newman
/s/ Nancy A. Platoni Poli Senior Vice President and Chief Financial June 25, 1999
- ---------------------------------- Officer (Principal Financial and Accounting
Nancy A. Platoni Poli Officer)
/s/ Frank A. Bennack, Jr. Director June 25, 1999
- ----------------------------------
Frank A. Bennack, Jr.
/s/ Joel L. Fleishman Director June 25, 1999
- ----------------------------------
Joel L. Fleishman
/s/ Richard A. Friedman Director June 25, 1999
- ----------------------------------
Richard A. Friedman
/s/ Allen Questrom Director June 25, 1999
- ----------------------------------
Allen Questrom
/s/ Terry S. Semel Director June 25, 1999
- ----------------------------------
Terry S. Semel
/s/ Peter Strom Director June 25, 1999
- ----------------------------------
Peter Strom
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-END> APR-03-1999
<CASH> 44,458
<SECURITIES> 0
<RECEIVABLES> 170,698
<ALLOWANCES> 13,495
<INVENTORY> 376,860
<CURRENT-ASSETS> 679,454
<PP&E> 413,678
<DEPRECIATION> 151,879
<TOTAL-ASSETS> 1,104,584
<CURRENT-LIABILITIES> 347,972
<BONDS> 0
0
0
<COMMON> 1,004
<OTHER-SE> 657,901
<TOTAL-LIABILITY-AND-EQUITY> 1,104,584
<SALES> 1,505,056
<TOTAL-REVENUES> 1,726,859
<CGS> 904,586
<TOTAL-COSTS> 904,586
<OTHER-EXPENSES> 666,688
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,759
<INCOME-PRETAX> 152,826
<INCOME-TAX> 62,276
<INCOME-CONTINUING> 90,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,550
<EPS-BASIC> $0.91
<EPS-DILUTED> $0.91
</TABLE>
