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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 1-6024
WOLVERINE WORLD WIDE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-1185150
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
9341 COURTLAND DRIVE, ROCKFORD, MICHIGAN 49351
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (616) 866-5500
Securities registered pursuant to Section 12(b) of the Securities
Exchange Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $1 Par Value New York Stock Exchange/Pacific Stock
Exchange
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
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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. [ ]
Number of shares outstanding of the registrant's Common Stock, $1 par value
(excluding shares of treasury stock) as of March 1, 1997: 27,877,914.
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant based on the closing price on the New York
Stock Exchange on March 1, 1997: $967,667,343.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the registrant's annual
stockholders' meeting to be held April 16, 1997, are incorporated by
reference into Part III of this report.
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PART I
ITEM 1. BUSINESS.
GENERAL.
Wolverine World Wide, Inc. (the "Company") is a leading designer,
manufacturer and marketer of a broad line of quality comfortable casual
shoes, rugged outdoor and work footwear, and constructed slippers and
moccasins. The Company, a Delaware corporation, is the successor of a 1969
reorganization of a Michigan corporation of the same name, originally
organized in 1906, which in turn was the successor of a footwear business
established in Grand Rapids, Michigan in 1883.
Consumers on six continents purchased approximately 33 million pairs
of Company branded footwear during fiscal 1996, making the Company a global
leader among U.S. shoe companies in the marketing of branded non-athletic
footwear. The Company's products generally feature contemporary styling
with patented technologies designed to provide maximum comfort. The
products are marketed throughout the world under widely recognized brand
names, including HUSH PUPPIES[REGISTERED], WOLVERINE[REGISTERED],
BATES[REGISTERED], CATERPILLAR[REGISTERED], COLEMAN[REGISTERED],
HY-TEST[REGISTERED] and TRU-STITCH[REGISTERED]. The Company believes that its
primary competitive strengths are its well recognized brand names, broad
range of comfortable footwear, patented comfort technologies, distribution
through numerous channels and diversified manufacturing and sourcing base.
The Company's footwear is sold under a variety of brand names designed
to appeal to most consumers of non-athletic footwear at numerous price
points. The Company's footwear products are organized under four operating
divisions: (i) The Hush Puppies Company, focusing on comfortable casual
shoes, (ii) the Wolverine Footwear Group, focusing on work, outdoor and
lifestyle boots and shoes, (iii) the CATERPILLAR[REGISTERED] Footwear
Group, focusing on the CATERPILLAR[REGISTERED] product line of work and
lifestyle products and (iv) the Wolverine Slipper Group, focusing on
slippers and moccasins under HUSH PUPPIES[REGISTERED] brand and other
private labels for third party retailers. The Company's Global Operations
Group is responsible for manufacturing and sourcing, including the operation
of the Company-owned pigskin tannery. The Company's footwear is distributed
domestically to approximately 35,000 department store, footwear chain,
catalog specialty retailer and mass merchant accounts, as well as 59
Company-owned retail stores. The Company's products are distributed
worldwide through approximately 150 licensees and distributors in over
90 countries. Footwear has accounted for 90% or more of the consolidated
revenues of the Company for each of the last three years. For further
financial information regarding the Company, see the consolidated financial
statements of the Company, which are attached as Appendix A to this Form
10-K.
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On March 22, 1996, the Company completed the acquisition of certain
assets of Hy-Test, Inc. ("Hy-Test") from The Florsheim Shoe Company. The
acquisition included various assets of the Hy-Test work, safety and
occupational footwear business. The Hy-Test business is operated as part
of the Wolverine Footwear Group. On August 24, 1996, the Company acquired
the rights to and certain assets of the HUSH PUPPIES[REGISTERED] wholesale
shoe business in the United Kingdom and Ireland from British Shoe
Corporation, a subsidiary of Sears Plc.
The Company, through its Wolverine Leathers Division, is one of the
premier tanners of quality pigskin leather for the shoe and leather goods
industries. The pigskin leather tanned by the Company is used in a
significant portion of the footwear manufactured and sold by the Company,
and is also sold to other domestic and foreign manufacturers of shoes.
PRODUCTS.
The Company's products include casual, dress, work and uniform shoes,
and work, sport and uniform boots as well as constructed slippers and
moccasins. Footwear is offered by the Company under many recognizable
brand names including HUSH PUPPIES[REGISTERED], WOLVERINE[REGISTERED],
BATES[REGISTERED], CATERPILLAR[REGISTERED], COLEMAN[REGISTERED] and
HY-TEST[REGISTERED]. The Company also manufactures constructed slippers and
moccasins and markets them on a private label basis through its Wolverine
Slipper Group. Through its manufacturing facilities and third-party
contractors, the Company combines quality materials and skilled workmanship
from around the world to produce footwear according to its specifications.
THE HUSH PUPPIES COMPANY. The Company believes that HUSH
PUPPIES'[REGISTERED] 39-year heritage as a pioneer of comfortable casual
shoes positions the brand to capitalize on the global trend toward more
casual workplace and leisure attire. The diverse product line includes
numerous styles for both work and casual wear and utilizes comfort
features, such as the COMFORT CURVE[REGISTERED] sole and patented
BOUNCE[REGISTERED] technology. The product line features the popular HUSH
PUPPIES[REGISTERED] Classics line of colorful, fashionable, casual shoes.
HUSH PUPPIES[REGISTERED] shoes are sold to men, women and children in over
70 countries and are distributed through a multi-tiered network of
department stores, specialty retailers, national chains, catalogs and
Company-owned stores.
THE WOLVERINE FOOTWEAR GROUP. The Wolverine Footwear Group is one of
the world's largest work and outdoor footwear companies, encompassing
multiple brands designed with performance and comfort features to serve a
variety of work, outdoor and lifestyle functions. The
WOLVERINE[REGISTERED] brand, which has been in existence for 113 years, is
identified with performance and quality and markets work and outdoor
footwear in two categories: (i) work and industrial footwear; and (ii)
rugged outdoor and sport footwear. The Wolverine Footwear Group also
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includes the BATES[REGISTERED], COLEMAN[REGISTERED] and
HY-TEST[REGISTERED] product lines. The product lines feature patented
technologies and designs, such as the DURASHOCKS[REGISTERED] and
DURASHOCKS SR<Trademark> systems, and the use of quality materials and
components.
The Company believes the WOLVERINE[REGISTERED] brand has built its
reputation by making quality, durable and comfortable work boots and shoes.
The development of DURASHOCKS[REGISTERED] technology allowed the
WOLVERINE[REGISTERED] brand to introduce a broad line of work footwear with
a focus on comfort. The WOLVERINE[REGISTERED] Work product line features
work boots and shoes, including steel toe boots and shoes, targeting male
and female industrial and farm workers. This product line is distributed
through department stores and specialty and independent retailers.
The WOLVERINE[REGISTERED] rugged outdoor and sport product lines
incorporate DURASHOCKS[REGISTERED] and DURASHOCKS SR<Trademark> technology
and other comfort features to products designed for rugged outdoor use.
This broad product line includes all-terrain sport boots, walking shoes,
trail hikers, rugged casuals and outdoor sandals. The line targets active
lifestyles and is distributed through department stores and specialty and
independent retailers. The Company also produces boots that target
hunters, fishermen and other active outdoor users. Warmth, waterproofing
and comfort are achieved through the use of GORTEX[REGISTERED],
THINSULATE[REGISTERED] and the Company's DURASHOCKS[REGISTERED] brand
technologies. This line is sold through specialty retail and catalog
distribution channels that serve hunting and fishing enthusiasts.
BATES. The Company's Bates Division is an industry leader in
supplying footwear to military and civilian uniform users. The Bates
Division utilizes DURASHOCKS[REGISTERED] and DURASHOCKS SR<Trademark>
and other proprietary comfort technologies in the design of its
military-style boots and oxfords. Civilian uniform uses, including the
ENFORCER<Trademark> footwear line, include police, security, postal,
restaurant and other industrial occupations. Bates Division products
are also distributed through specialty retailers and catalogs.
COLEMAN. The Company has been granted the exclusive rights to
manufacture, market, distribute and sell certain outdoor footwear under the
COLEMAN[REGISTERED] brand in the United States, Japan and Canada.
COLEMAN[REGISTERED] brand footwear products include lightweight hiking
boots, rubber footgear and outdoor sandals, which are sold primarily at
value-oriented prices through mass merchants.
HY-TEST. The HY-TEST[REGISTERED] product line consists primarily of
high quality work boots and shoes. HY-TEST[REGISTERED] brand footwear is
sold to male and female industrial workers, primarily through a network of
independent SHOEMOBILE<Trademark> distributors.
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THE CATERPILLAR[REGISTERED] FOOTWEAR GROUP. The
CATERPILLAR[REGISTERED] Footwear Group began operating as a separate
division of the Company in 1997. Previously, the CATERPILLAR[REGISTERED]
Footwear Group operated as part of the Wolverine Footwear Group. The
Company has been granted the exclusive worldwide rights to manufacture,
market and distribute certain footwear and related accessories under the
CATERPILLAR[REGISTERED], CAT DESIGN[REGISTERED] and other trademarks. The
Company believes the association with CATERPILLAR[REGISTERED] equipment
enhances the reputation of its boots for quality, ruggedness and
durability. The diversity of the product line and strong recognition of
the CATERPILLAR[REGISTERED] brand name allow the Company to distribute
products through a wide variety of channels, including mass merchants,
department stores and independent retailers. These products are primarily
targeted at work and industrial users.
THE WOLVERINE SLIPPER GROUP. Through the Wolverine Slipper Group, the
Company is one of the leading suppliers of constructed slippers in the
United States.
The styling of TRU-STITCH[REGISTERED] footwear reflects consumer
demand for the "rugged indoor" look by using natural leathers such as
moosehide, shearling and suede in constructed slipper and indoor and
outdoor moccasin designs. The Company designs and manufactures constructed
slippers and moccasins on a private label basis according to customer
specifications. Such products are manufactured for leading United States
retailers and catalogs, such as Nordstrom, J.C. Penney, L.L. Bean, Eddie
Bauer and Lands' End. In addition, in late 1996, the Wolverine Slipper
Group added branded HUSH PUPPIES[REGISTERED] Slippers to its traditional
line of private label slippers.
THE WOLVERINE LEATHERS DIVISION. The Company's Global Operations
Group includes the Wolverine Leathers Division, the largest domestic tanner
of pigskin, primarily for use in the footwear industry. WOLVERINE
LEATHERS[REGISTERED] brand products are manufactured in the Company's
pigskin tannery located in Rockford, Michigan. The Company believes these
leathers offer superior performance and cost advantages over cowhide
leathers. The Company's waterproof, stain resistant and washable leathers
are featured in all of the Company's domestic footwear lines and many
products offered by the Company's international licensees.
MARKETING.
The Company's overall marketing strategy is to develop brand-specific
plans and related promotional materials for the United States market which
foster a differentiated and globally consistent image for each of the
Company's core brands. Each brand group within the Company has its own
marketing personnel who develop the marketing strategy for products within
that group. Domestic marketing campaigns target both the Company's retail
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accounts and consumers, and strive to increase overall brand awareness for
the Company's products. The Company's advertisements typically emphasize
fashion and lifestyle aspects and the comfort and quality of its footwear,
in addition to durability, functionality and other performance aspects.
Components of the brand-specific plans include print, radio and television
advertising, in-store point of purchase displays, Shop-in-Shop design,
promotional materials, and sales and technical floor assistance.
The Company's brand groups provide its international licensees and
distributors with creative direction and materials to convey consistent
messages and brand images. Examples of assistance provided by the Company
to its licensees and distributors are (i) direction concerning the
categories of footwear to be promoted, (ii) photography and layouts, (iii)
broadcast advertising, including commercials and film footage, (iv) point
of purchase presentation specifications, blueprints and packaging, (v) sales
materials, and (vi) consulting concerning retail store layout and design.
The Company believes the strengths of its brand names provide a competitive
advantage. In support of this belief, the Company has significantly
increased its expenditures on marketing and promotion to support the
position of its products and enhance brand awareness.
DOMESTIC SALES AND DISTRIBUTION.
The Company uses a wide variety of distribution channels to distribute
its products. To meet the diverse needs of its broad customer base, the
Company uses four primary distribution strategies.
- Traditional wholesale distribution is used to service department
stores (such as J.C. Penney, Sears and Nordstrom), large footwear
chains (such as Famous Footwear and Chernin's), specialty
retailers, catalogs and independent retailers and military
outlets. A dedicated sales force and customer service team,
advertising and point of purchase support and in-stock inventories
are used to service these accounts.
- Volume direct programs provide branded and private label footwear
at competitive prices with limited marketing support. These
programs service major retail, mail order and government
customers.
- First cost agreements are primarily utilized to furnish brands
licensed by the Company to mass merchants (such as Wal-Mart) on a
royalty basis.
- A network of independent SHOEMOBILE<Trademark> distributors is
primarily used to distribute and sell HY-TEST[REGISTERED] brand
products. The Company may also distribute additional products
through this independent distributor network.
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In addition to its wholesale activities, the Company operated 59
domestic retail shoe stores as of March 21, 1997, under two formats,
consisting of factory outlet stores and mall-based speciality stores. In
fiscal 1990, the Company implemented a strategic plan to focus the majority
of its resources on its wholesale businesses. As a result, the Company's
retail operations were significantly downsized and repositioned from 176
stores operating under seven formats in 1990 to the current store base.
The Company expects the scope of its retail operations to remain relatively
consistent in the foreseeable future. Most of the Company's 52 factory
outlet stores carry a large selection of first quality Company branded
footwear at a discount to conventional retail prices. The 7 regional
mall-based full service, full price HUSH PUPPIES[REGISTERED] Specialty
Stores feature a broad selection of men's and women's HUSH
PUPPIES[REGISTERED] brand footwear and are used by the Company to test new
styles and merchandizing strategies.
A broad distribution base insulates the Company from dependence on any
one customer. No customer of the Company accounted for more than 10% of
the Company's net sales and other operating income in fiscal 1996.
Retail footwear sales are seasonal with significant increases in sales
experienced during the Christmas, Easter and back-to-school periods. Due
to this seasonal nature of footwear sales, the Company experiences some
fluctuation in the levels of working capital. The Company provides working
capital for such fluctuations through internal financing and through a
revolving credit agreement that the Company has in place. The Company
expects the seasonal sales pattern to continue in future years.
GLOBAL LICENSING.
The Company derives royalty income from licensing the HUSH
PUPPIES[REGISTERED], WOLVERINE[REGISTERED] and other trademarks to domestic
and foreign licensees for use on footwear and related products. The
Company, as a licensee, sells footwear bearing the CATERPILLAR[REGISTERED]
and COLEMAN[REGISTERED] trademarks through foreign distributors. Licensing
and distributing enables the Company to develop international markets
without the capital commitment required to maintain inventories or fund
localized marketing programs. In fiscal 1996, the Company's foreign
licensees and distributors sold an estimated 16.0 million pairs of
footwear, an increase from approximately 14.3 million pairs sold in fiscal
1995.
The Company continues to develop a global network of licensees and
distributors to market its footwear brands. The Company assists in
designing products that are appropriate to each foreign market but are
consistent with the global brand position. The licensees and distributors
then either manufacture their own product or purchase goods from either the
Company or third-party manufacturers. Each licensee and distributor is
responsible for the marketing and distribution of the Company's products.
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MANUFACTURING AND SOURCING.
Although approximately one half of the Company's product line is
purchased or sourced from third parties, the remainder is produced at
Company-owned facilities. The Company's footwear is manufactured in
several domestic and certain related foreign facilities located in
Michigan, Arkansas, Missouri, New York, the Caribbean Basin and Canada.
The Company has implemented a "twin plant" concept whereby a majority of
the labor intensive cutting and fitting construction of the "upper" is
performed at the Company's facilities in the Caribbean Basin, Mexico and
Canada and the technology intensive construction, or "bottoming," is
performed at the Company's domestic facilities.
The Company has retooled most of its factories since the beginning of
fiscal 1993, giving each facility the flexibility to produce a variety of
footwear, and has departed from the industry's historic practice of
dedicating a given facility for production of specific footwear products.
The traditional dedication of facilities at times caused internal conflicts
in manufacturing capacity and did not permit the Company to quickly respond
to changes in market preference and demand. The Company now produces
various products for both men and women in most of its domestic facilities,
providing greater flexibility for the Company to respond to both market and
customer-specific demand.
The Company sources certain footwear from a variety of foreign
manufacturing facilities in the Asia-Pacific region, Central and South
America and Europe. The Company maintains technical offices in the
Asia-Pacific region and in Europe to facilitate the sourcing and
importation of quality footwear. The Company has established guidelines
for each of its third-party manufacturers in order to monitor product
quality, labor practices, and financial viability.
The Company's domestic manufacturing operations allow the Company to
(i) reduce its lead time, enabling it to quickly respond to market demand
and reduce inventory risk, (ii) lower freight and shipping costs and (iii)
closely monitor product quality. The Company's foreign manufacturing
strategy allows the Company to (i) benefit from lower labor costs, (ii)
source the highest quality raw materials from around the world and (iii)
avoid additional capital expenditures necessary for factories and
equipment. The Company believes that its overall global manufacturing
strategy gives the Company maximum flexibility to properly balance the need
for timely shipments, high quality products and competitive pricing.
The Company owns and operates a pigskin tannery, which is one of the
premier tanners of quality leather for the footwear industry. The Company
and its licensees receive virtually all of their pigskin requirements from
the tannery. The Company believes the tannery provides a strategic
advantage for the Company by producing leather using proprietary technology
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at prices below those available from other sources. The continued
operation of this tannery is important to the Company's competitive
position in the footwear industry.
The Company's principal required raw material is quality leather,
which it purchases primarily from a select group of domestic suppliers,
including the Company's tannery. The global availability of shearling and
cowhide leather eliminates any reliance by the Company upon a sole
supplier. However, the Company currently purchases the vast majority of
the raw pigskins used in a significant portion of its tannery operations
from a single domestic source, which has been a reliable and consistent
supplier for over 30 years. The Company purchases all of its other raw
materials and component parts from a variety of sources, none of which is
believed by the Company to be a dominant supplier.
The Company is subject to the normal risks of doing business abroad
due to its international operations, including the risk of expropriation,
acts of war, political disturbances and similar events, and loss of most
favored nations trading status. With respect to international sourcing
activities, management believes that over a period of time, it could
arrange adequate alternative sources of supply for the products currently
obtained from its foreign suppliers. A sustained disruption of such
sources of supply could, particularly on a short-term basis, have an
adverse impact on the Company's operations.
TRADEMARKS, LICENSES AND PATENTS.
The Company holds a number of registered and common law trademarks
that identify its products. The trademarks that are most widely used by
the Company include HUSH PUPPIES[REGISTERED], WOLVERINE[REGISTERED],
BATES[REGISTERED], DURASHOCKS[REGISTERED], BOUNCE AND DESIGN[REGISTERED],
COMFORT CURVE[REGISTERED], TRU-STITCH[REGISTERED], SIOUX MOX[REGISTERED]
and HY-TEST[REGISTERED]. The Company is licensed to market certain
footwear under the COLEMAN[REGISTERED] trademark in the United States and
Canada and in Japan pursuant to agreements extending through December 31,
2000, and June 30, 1999, respectively. The Company is also licensed to
market certain footwear throughout the world under the
CATERPILLAR[REGISTERED] and CAT DESIGN[REGISTERED] trademarks pursuant to
an agreement that extends through December 31, 1999. Pigskin leather
produced by the Company is sold under the trademarks WOLVERINE
LEATHERS[REGISTERED], ALL SEASON WEATHER LEATHERS<Trademark> and SATIN
Suede<Trademark>.
The Company believes that its products are identified by consumers by
its trademarks and that its trademarks are valuable assets. The Company is
not aware of any infringing uses or any prior claims of ownership of its
trademarks that could materially affect its current business. It is the
policy of the Company to pursue registration of its primary marks whenever
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possible and to vigorously defend its trademarks against infringement or
other threats to the greatest extent practicable under the laws of the
United States and other countries. The Company is also the holder of
several patents, copyrights and various other proprietary rights. The
Company protects all of its proprietary rights to the greatest extent
practicable under applicable law.
ORDER BACKLOG.
At March 21, 1997, the Company had a backlog of orders of approximately
$141 million compared with a backlog of approximately $102 million at
March 21, 1996. While orders in backlog are subject to cancellation by
customers, the Company has not experienced significant cancellation of
orders in the past and the Company expects that substantially all of the
orders will be shipped in fiscal 1997. The backlog at a particular time is
affected by a number of factors, including seasonality and the scheduling
of the manufacture and shipment of products. Accordingly, a comparison of
backlog from period to period is not necessarily meaningful and may not be
indicative of eventual actual shipments.
COMPETITION.
The Company's footwear lines are manufactured and marketed in a highly
competitive environment. The Company competes with numerous manufacturers
(domestic and foreign) and importers of footwear, some of which are larger
and have greater resources than the Company. The Company's major
competitors for its brands of footwear are located in the United States.
The Company has at least ten major competitors in connection with the sale
of its work shoes and boots, at least eight major competitors in connection
with the sale of its sport boots, and at least fifteen major competitors in
connection with the sale of its casual and dress shoes. Product
performance and quality, including technological improvements, product
identity, competitive pricing, and the ability to adapt to style changes
are all important elements of competition in the footwear markets served by
the Company. The footwear industry in general is subject to changes in
consumer preferences. The Company strives to meet competition and maintain
its competitive position through promotion of brand awareness,
manufacturing efficiencies, its tannery operations, and the style, comfort
and value of its products. Future sales by the Company will be affected by
its continued ability to sell its products at competitive prices and to
meet shifts in consumer preference.
Because of the lack of reliable published statistics, the Company is
unable to state with certainty its position in the footwear industry. The
market share in the footwear industry is highly fragmented and no one
company has a dominant market position; however, the Company believes it is
one of the three largest domestic manufacturers of footwear.
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RESEARCH AND DEVELOPMENT.
In addition to normal and recurring product development, design and
styling activities, the Company engages in research and development related
to new and improved materials for use in its footwear and other products
and in the development and adaptation of new production techniques. The
Company's continuing relationship with the Biomechanics Evaluation
Laboratory at Michigan State University has led to specific biomechanical
design concepts, such as BOUNCE[REGISTERED], DURASHOCKS[REGISTERED] and
HIDDEN TRACKS[REGISTERED] comfort technologies, that have been incorporated
in the Company's footwear. The Company also maintains a footwear design
center in Italy to develop contemporary styling for the Company and its
international licensees. While the Company continues to be a leading
developer of footwear innovations, research and development costs do not
represent a material portion of operating expenses.
ENVIRONMENTAL MATTERS.
Compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment has
not had, nor is it expected to have, any material effect on the capital
expenditures, earnings or competitive position of the Company. The Company
uses and generates, and in the past has used and generated, certain
substances and wastes that are regulated or may be deemed hazardous under
certain federal, state and local regulations with respect to the
environment. The Company from time to time works with federal, state and
local agencies to resolve cleanup issues at various waste sites or other
regulatory issues.
EMPLOYEES.
As of December 28, 1996, the Company had approximately 6,775
domestic and foreign production, office and sales employees. Approximately
1,750 employees were covered by nine union contracts expiring at various
dates through 1998. The Company has experienced no work stoppages since
1990. The Company presently considers its employee relations to be good.
ITEM 2. PROPERTIES.
The Company owned or leased the following offices and manufacturing
facilities as of December 28, 1996:
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<TABLE>
<CAPTION> OWNED
LOCATION TYPE OF FACILITY LEASED SQUARE FOOTAGE
<S> <C> <C> <C>
Rockford, MI Administration/Sales Owned 123,300
Rockford, MI Admin/Sales Under Construction Owned 70,000
Jonesboro, AR Administration/Sales Leased 5,680
Malone, NY Administration/Sales Leased 11,718
New York, NY Administration/Sales Leased 3,811
Montecatine Terme, Italy Administration/Sales Leased 2,800
St. Laurent, Quebec, Canada Administration/Sales Leased 2,800
Taipei, Taiwan Administration/Sales Leased 2,800
Chungil, Taiwan Administration/Sales Leased 2,800
Leicechire, England, United Kingdom Administration/Sales Leased 13,250
TOTAL ADMINISTRATION/SALES 225,709
Rockford, MI Tannery Owned 160,000
Des Moines, IA Procurement Owned 6,200
Dyersburg, TN Procurement Leased 12,000
Durant, OK Procurement Leased 12,900
Dennison, KS Procurement Leased 1,855
TOTAL TANNERY AND PROCUREMENT 192,955
Jonesboro, AR Manufacturing Leased 79,197
Jonesboro, AR Manufacturing Owned 11,680
Walnut Ridge, AR Manufacturing Leased 41,174
Monette, AR Manufacturing Owned 18,030
Russellville, AR Manufacturing Leased 41,808
Rockford, MI Manufacturing Owned 20,833
Rockford, MI Manufacturing Owned 19,624
Rockford, MI Manufacturing Owned 7,790
Big Rapids, MI Manufacturing Owned 77,626
Kirksville, MO Manufacturing Owned 104,000
Malone, NY Manufacturing Owned 90,664
Malone, NY Manufacturing Owned 37,596
Malone, NY Manufacturing Owned 8,100
Malone, NY Manufacturing Owned 27,125
Bombay, NY Manufacturing Owned 58,980
Monterrey, MX Manufacturing Leased 60,000
Aquadilla, PR Manufacturing Leased 62,100
Sand Pedro, DR Manufacturing Leased 65,111
Santo Domingo, DR Manufacturing Leased 54,332
Alexandria, Ontario, Canada Manufacturing Owned 28,000
TOTAL MANUFACTURING 903,870
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Rockford, MI Warehouse Owned 304,278
Rockford, MI Warehouse Owned 93,140
Rockford, MI Warehouse Owned 75,000
Grand Rapids, MI Warehouse Leased 20,000
Cedar Springs, MI Warehouse Leased 32,900
Cedar Springs, MI Warehouse Leased 230,000
Big Rapids, MI Warehouse Owned 39,800
Sparks, NV Warehouse Leased 15,060
Malone, NY Warehouse Owned 115,211
Bombay, NY Warehouse Owned 26,000
Jonesboro, AR Warehouse Leased 13,600
St. Laurent, Quebec, Canada Warehouse Leased 33,000
TOTAL WAREHOUSE 999,879
</TABLE>
The Company believes that its current facilities are suitable and
adequate to meet its anticipated needs for the next twelve months.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in litigation and various legal matters
arising in the normal course of business, including certain environmental
compliance activities. The Company has considered facts that have been
ascertained and opinions of counsel handling these matters, and does not
believe the ultimate resolution of such proceedings will have a material
adverse effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table lists the names and ages of the Executive Officers
of the Company as of the date of this Annual Report on Form 10-K, and the
positions presently held with the Company. The information provided below
the table lists the business experience of each such Executive Officer
during the past five years. All Executive Officers serve at the pleasure
of the Board of Directors of the Company, or if not appointed by the Board
of Directors, they serve at the pleasure of management.
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<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD WITH THE COMPANY
---- --- -------------------------------
<S> <C> <C> <C>
Geoffrey B. Bloom 55 Chief Executive Officer and Chairman
of the Board
Steven M. Duffy 44 Executive Vice President
V. Dean Estes 47 Vice President and President of the
Wolverine Footwear Group
Stephen L. Gulis, Jr. 39 Executive Vice President, Chief Financial
Officer and Treasurer
Blake W. Krueger 43 Executive Vice President, General Counsel
and Secretary
Thomas P. Mundt 47 Vice President of Strategic Planning and
Corporate Communications
Timothy J. O'Donovan 51 President and Chief Operating Officer
Robert J. Sedrowski 47 Vice President of Human Resources
</TABLE>
Geoffrey B. Bloom has served the Company as Chief Executive Officer
and Chairman of the Board since April 1996. From 1993 to 1996 he served
the Company as President and Chief Executive Officer. From 1987 to 1993 he
served the Company as President and Chief Operating Officer.
Steven M. Duffy has served the Company as an Executive Vice President
since April 1996 and is President of the Company's Global Operations Group.
From 1993 to 1996 he served the Company as a Vice President. From 1989 to
April 1993 he served the Company in various senior manufacturing positions.
V. Dean Estes has served the Company as a Vice President since 1995.
Mr. Estes is also President of the Wolverine Footwear Group. Since he
joined the Company in 1975, Mr. Estes has served in various positions
relating to the sales, marketing and product development functions of the
Company's work boot and shoe and related businesses.
Stephen L. Gulis, Jr., has served the Company as Executive Vice
President, Chief Financial Officer and Treasurer since April 1996. From
1994 to April 1996 he served the Company as Vice President and Chief
Financial Officer. From 1993 to 1994 he served the Company as Vice
President of Finance and Corporate Controller, and from 1986 to 1993 he was
the Vice President of Administration and Control for The Hush Puppies
Company.
Blake W. Krueger has served the Company as Executive Vice President,
General Counsel and Secretary since April 1996. From 1993 to April 1996 he
served the Company as General Counsel and Secretary. From 1985 to 1996 he
was a partner of the law firm of Warner Norcross & Judd LLP.
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<PAGE>
Thomas P. Mundt has served the Company as Vice President of Strategic
Planning and Corporate Communications since April 1996. From December 1993
to April 1996, he served the Company as Vice President of Strategic
Planning and Treasurer. From 1988 to 1993 he served in various financial
and planning positions at Sears Roebuck & Co., including Vice President
Planning, Coldwell Banker's Real Estate Group and Director of Corporate
Planning for Sears Roebuck & Co.
Timothy J. O'Donovan has served the Company as President and Chief
Operating Officer since April 1996. From 1982 to April 1996 he served the
Company as Executive Vice President.
Robert J. Sedrowski has served the Company as Vice President of Human
Resources since October 1993. From 1990 to 1993 he served as Director of
Human Resources for the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Wolverine World Wide, Inc. common stock is traded on the New York
and Pacific Stock Exchanges under the symbol "WWW." The following table
shows the high and low sales prices by calendar quarter for 1996 and 1995
as reported on the New York Stock Exchange. The prices shown below have
been retroactively adjusted to reflect the three-for-two stock splits
announced in July 1996 and April 1995. The number of stockholders of
record of common stock on March 1, 1997 was 1,949.
<TABLE>
<CAPTION>
1996 1995
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C> <C>
1st quarter $20 1/8 $16 3/4 $12 3/4 $10 1/4
2nd quarter 22 5/8 19 5/8 16 1/8 2 1/2
3rd quarter 26 1/8 22 3/8 18 3/4 13 1/8
4th quarter 29 25 5/8 22 3/4 17
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CASH DIVIDENDS DECLARED PER SHARE:
1996 1995
---- ----
<S> <C> <C> <C>
1st quarter $.0233 $ .022
2nd quarter $.0267 $ .023
3rd quarter $.0267 $ .023
4th quarter $.0267 $ .023
</TABLE>
Cash dividends declared per share for 1996 and 1995 have been
retroactively adjusted to reflect the three-for-two stock splits announced
in July 1996 and April 1995. Dividends of $.0267 and $.0325 per share were
declared for the first quarter and second quarter, respectively, of fiscal
1997.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
FIVE-YEAR OPERATING AND FINANCIAL SUMMARY <F1>
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS<F2>
Net sales and other
operating income $511,029 $413,957 $387,534 $333,143 $293,136
Earnings from
continuing operations 32,856 24,067 16,598 11,492 4,620
Per share of common stock:
Primary earnings from con-
tinuing operations<F3><F4> $ 1.15 $ .94 $ .67 $ .49 $ .21
Cash dividends<F4><F5> .10 .09 .07 .05 .05
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C>
FINANCIAL POSITION AT YEAR END
Total assets $361,598 $283,554 $231,582 $205,112 $204,081
Long-term debt, less
current maturities 41,233 30,594 43,482 44,913 42,656
</TABLE>
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<PAGE>
NOTES TO FIVE-YEAR OPERATING AND FINANCIAL SUMMARY
1. This summary should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto, which are
attached as Appendix A to this Form 10-K.
2. The 1992 results from operations exclude discontinued operations and
are before the cumulative effect of accounting changes.
3. Primary earnings from continuing operations per share are based on the
weighted average number of shares of common stock outstanding during
the year and the assumed exercise of dilutive stock options.
4. On March 10, 1994, April 19, 1995 and July 11, 1996, the Company
announced three-for-two stock splits on shares of common stock
outstanding on March 21, 1994, May 1, 1995 and July 26, 1996,
respectively. All share and per share data has been retroactively
adjusted for the increased shares resulting from these stock splits.
5. Cash dividends per share represent the rates paid by the Company on
the shares outstanding at the dates of declaration.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OPERATIONS.
RESULTS OF OPERATIONS 1996--COMPARED TO 1995
Net sales and other operating income increased 23.4% to $511.0 million
during 1996 from $414.0 million in 1995. The Wolverine Footwear Group
continued its strong performance, accounting for $37.9 million (9.2%) of
the increase in consolidated net sales as sales for its products increased
by 21.3% over 1995. The Hush Puppies Wholesale Division reported a $19.2
million increase in net sales over 1995, reflecting the popularity of the
HUSH PUPPIES[REGISTERED] Classics product line. The Wolverine Leathers
Division experienced sales increases showing a $3.5 million improvement
over 1995 due in large part to the sale of leather to the Hush Puppies
Wholesale Division and Wolverine Footwear Group. Sales to the United
States Department of Defense increased by $13.5 million in 1996. Sales of
the Wolverine Slipper Group declined $4.6 million in 1996 when compared to
1995. Sales for the Hush Puppies Retail Division remained flat for 1996.
The Wolverine Footwear Group reported a $37.9 million (21.3%) net
sales improvement over 1995, its fifth consecutive year of over 20%
increases. CATERPILLAR[REGISTERED] brand was successful with a spring
product launch into casuals boasting a 64.2% revenue increase in the
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<PAGE>
domestic and international markets. HY-TEST[REGISTERED] Boots and Shoes
proved to be a strong addition to the group adding $24.6 million to net
sales in 1996 since the date of acquisition. BATES[REGISTERED] footwear
sales improved 11.0% as the civilian market continued to grow and military
shipments increased. WOLVERINE[REGISTERED] brand shipments slipped 4.7%
due to reduced demand during the first half of 1996 as the work boot market
was oversaturated with product.
The Hush Puppies Wholesale Division increased sales 18.9% over the
1995 levels. Strong second half shipments of the HUSH PUPPIES[REGISTERED]
Classics product line helped contribute to the increase. Net sales and
other operating income for the Hush Puppies International Division
increased $.4 million (4.0%) in 1996 over 1995 levels, reflecting the
growth of established programs throughout the world. Additionally, Hush
Puppies Retail Division same-store sales were up $.4 million (2.1%). Hush
Puppies (U.K.) Ltd. reported $27.3 million in net sales since its
acquisition in the third quarter of 1996.
Net sales for the Wolverine Slipper Group were $4.6 million (10.0%)
below the levels posted in 1995, reflecting strong competitive pressures
and decreases in catalogue house orders. Reduced orders for traditional
private label products were offset by the new HUSH PUPPIES[REGISTERED]
branded slipper business which resulted in shipments of approximately $4.0
million in its first year.
The Wolverine Leathers Division recorded a significant revenue
improvement of $3.5 million (15.6%) in 1996. This performance represented
the third consecutive year of revenue increases for the division and its
most successful year in nearly a decade. This growth was due in part to
increased demand for premium satin sueded products which was partially
offset by a reduction in procurement revenues totaling $1.3 million.
Gross margin increased $32.2 million in 1996 to $155.8 million as
compared to $123.5 million in 1995 and as a percentage of net sales and
other operating income increased to 30.5% in 1996 from 29.8% in 1995.
Improved margins were recorded in both the Hush Puppies Wholesale Division
($8.7 million) and the Wolverine Footwear Group ($21.6 million) through
improved initial pricing margins, increased licensing revenues and
manufacturing and sourcing efficiencies. The Wolverine Leathers Division
continued its strong performance reporting a $2.3 million gross margin
increase achieved by a more favorable product mix to higher margin
products. The Hush Puppies Retail Division also contributed to the
improved margins with a $1.8 million increase as inventory management
programs improved initial turnover which reduced reliance on promotional
programs and markdown allowances.
Selling and administrative expenses of $107.5 million in 1996
increased $21.5 million (26.2%) from $86.0 million in 1995, and as a
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<PAGE>
percentage of net sales increased to 21.0% in 1996 from 20.8% in 1995. The
1996 acquisitions of Hy-Test and Hush Puppies (U.K.) Ltd. accounted for
$6.4 million of the increase. Selling, administrative and distribution
costs associated with the higher sales volume, combined with a $3.5 million
increase in advertising and promotional investments in the Wolverine
Footwear Group and The Hush Puppies Company, increased costs by $11.1
million in 1996 over the prior year. Other drivers of general and
administrative costs were increases in profit sharing provisions,
information systems investments and costs associated with senior executive
stock incentive and retirement programs.
Interest expense of $3.1 million was $1.6 million (33.7%) less than
the 1995 level of $4.7 million as a result of lower average borrowings
throughout the year. The lower borrowing levels were primarily
attributable to a reduction in the balance of the Company's revolving
credit facility with funds generated by the November 1995 equity offering.
Interest income of $1.5 million increased $0.5 million in 1996 over
1995. The increase was generated by short-term investing of the available
funds from the equity offering during the first quarter of 1996.
The 1996 effective tax rate of 31.1% increased from 29.5% in 1995.
The effective tax rate increased due to the non-taxable net earnings of
foreign subsidiaries becoming a smaller percentage of total consolidated
earnings in 1996 as compared to 1995.
Net earnings of $32.9 million for 1996 reflect a 36.5% increase over
net earnings of $24.1 million reported for 1995. Primary earnings per
share for 1996 were $1.15 compared to $0.94 per share in 1995. Fully
diluted earnings per share of $1.15 and $0.93 were reported for 1996 and
1995, respectively. Increased net earnings are primarily a result of the
items noted above.
RESULTS OF OPERATIONS--1995 COMPARED TO 1994
Net sales and other operating income increased 6.8% to $414.0 million
during 1995 from $387.5 million in 1994. This growth was created by volume
increases in the Company's work and sport boot product lines which
increased 32.7% domestically and in the Company's Hush Puppies and
Wolverine International Divisions, which combined posted a 29.3% increase
in revenues. Additionally, sales increases of $8.7 million were generated
by United States Department of Defense contracts, which helped offset a
$9.6 million decrease in the Hush Puppies Retail Division resulting from a
1994 decision to downsize the retail operations. Sales in the Hush Puppies
Wholesale Division remained flat due to the generally difficult retail
environment for apparel and footwear in the United States.
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<PAGE>
The Wolverine Footwear Group continued to grow at a record pace in
1995. Net sales for the group improved $36.7 million (25.9%) on the
strength of core work products offered in both the WOLVERINE[REGISTERED]
and CATERPILLAR[REGISTERED] brands. These increases were partially offset
by a slight volume shortfall in the Bates Division, which continued to be
affected by military downsizing and reduced emphasis on export markets.
During 1995, the Bates Division strategy was focused on building a strong
civilian uniform business to complement its military business.
The Hush Puppies Wholesale Division fell short of 1994 net sales
levels by $1.8 million (2.4%). During 1995, the loss of certain Company
controlled distribution channels negatively affected wholesale revenues.
Net sales and other operating income for the Hush Puppies International
Division increased $1.6 million (17.0%) in 1995 over 1994 levels,
reflecting new international opportunities and the growth of established
programs. Additionally, Hush Puppies Retail Division sales were down $9.6
million, resulting primarily from the store closings noted above.
The Wolverine Slipper Group's net sales were $3.4 million (6.8%) below
the record levels posted in 1994 primarily due to a softening of sales in
the catalog sector at the end of 1995. Despite this reduction, Company
products were placed in several new distribution channels.
The Wolverine Leathers Division recorded a modest revenue improvement
of $0.4 million (1.1%) in 1995. This performance represented the second
consecutive year of revenue increases for the division. This growth was
due in part to favorable pricing opportunities in the pigskin procurement
markets and increased volume in proprietary sueded products. The
division's recent restructuring placed additional focus on proprietary
sueded product.
Gross margin as a percentage of net sales and other operating income
declined to 29.8% in 1995 from 31.8% in 1994. Aggressive promotional
pricing programs designed to generate business in the fourth quarter
resulted in margin erosion for the wholesale businesses. One-time
transition costs to upgrade manufacturing processes and increase
manufacturing flexibility in the Company's Arkansas facilities and costs
associated with increasing upper capacities in the Company's Caribbean
operations also resulted in lower gross margin levels.
Selling and administrative expenses of $86.0 million in 1995 declined
$8.0 million from $94.0 million in 1994, and as a percentage of net sales
dropped to 20.8% in 1995 from 24.3% in 1994. Selling, administrative and
distribution costs associated with the increased sales volume combined with
advertising and promotional investments for the Wolverine Footwear Group
increased costs by $4.2 million in 1995 over the prior year. Improved cost
controls throughout the remainder of the organization offset the above
noted increases. In addition, the Company lowered its employee benefit
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<PAGE>
expenses and reduced selling, general and administrative costs of the Hush
Puppies Retail Division operations by closing certain unprofitable stores.
Interest expense of $4.7 million is $0.4 million greater than the 1994
level of $4.3 million as a result of higher average borrowings throughout
the year to fund working capital requirements associated with sales growth.
The effect of higher average borrowings was partially offset by lower
average borrowing rates.
Interest income of $1.0 million increased $0.4 million. The Company
invested a portion of the funds from an equity offering in the fourth
quarter which accounted for approximately one-half of the increase.
The 1995 effective tax rate on earnings of 29.5% increased from 28.5%
in 1994. The reduction from the federal statutory rate of 35% was
principally a result of non-taxable earnings of the Company's Caribbean
operations.
Net earnings of $24.1 million ($0.94 per share) for 1995 reflect a
45.0% increase over earnings of $16.6 million ($0.67 per share) reported
for 1994. Increased net earnings are primarily a result of the items noted
above.
Primary earnings per share for 1995 were $0.94 compared to $0.67 per
share in 1994. Fully diluted earnings per share of $0.93 and $0.67 were
reported for 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES.
Net cash provided by operating activities was $14.9 million in 1996
compared to $1.4 million in 1995. Cash of $22.0 million in 1996 and $28.1
million in 1995 was used to fund working capital requirements. Accounts
receivable of $126.0 million at December 28, 1996 reflect a $42.6 million
(51.1%) increase over the $83.4 million balance at December 30, 1995.
Inventories of $117.4 million at December 28, 1996 reflect a $29.0 million
(32.9%) increase over the $88.4 million balance at December 30, 1995. A
portion of the increase in accounts receivable and inventories was due to
the 1996 acquisitions of the assets of Hy-Test, Inc. from The Florsheim
Shoe Company and Hush Puppies (U.K.) Ltd., which on a combined basis
contributed 11.8% and 10.8% of the respective increases. In addition,
accounts receivable increased due to a 40.9% increase in fourth quarter
shipments. Order backlog was approximately 40% higher at December 28,
1996, as compared to the previous year, supporting the need for increased
inventories to meet anticipated future demand in both wholesaling and
manufacturing operations. Accounts payable of $41.3 million at December
28, 1996 reflect a $26.1 million (71.7%) increase over the $15.2 million
balance at December 30, 1995. Of this increase, $17.7 million (16.8%) is
attributable to the 1996 acquisitions mentioned above.
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<PAGE>
Other current assets of $2.5 million at December 28, 1996 decreased
$3.3 million over the 1995 balance of $5.8 million, reflecting primarily
the collection of the final $4.0 million payment due on notes receivable
related to the 1992 disposition of the Brooks athletic footwear business.
Additions to property, plant and equipment of $20.6 million in 1996
compare to the $18.6 million reported in 1995. The majority of these
expenditures were related to the construction of a new corporate business
center, modernization of existing corporate buildings, expansion of
warehouse facilities and purchases of manufacturing equipment necessary to
continue to upgrade the Company's footwear and leather manufacturing
facilities. Depreciation and amortization of $7.1 million in 1996 compares
to $5.8 million in 1995. This increase was a result of the capital
investments noted above and the amortization of goodwill related to the two
1996 acquisitions.
The Company maintains short-term borrowing and commercial letter-of-
credit facilities of $68.5 million, of which $29.5 million and $25.5
million were outstanding at the end of 1996 and 1995, respectively.
Long-term debt, excluding current maturities, of $41.2 million at the end of
1996 increased 34.8% from the $30.6 million balance at the end of 1995 as a
result of borrowings under the Company's revolving credit facility to
support working capital requirements associated with sales growth.
It is expected that continued growth of the Company will require
increases in capital funding over the next several years. In the fourth
quarter of 1996, the Company renegotiated its long-term revolving debt
agreement and increased the amount available under its credit facilities
from $50 million to $100 million. In addition, the Company's subsidiary in
the United Kingdom entered into a $17.0 million, three-year variable rate
revolving credit agreement in January 1997 to support working capital
requirements. The combination of credit facilities and cash flows from
operations are expected to be sufficient to meet long- and short-term
capital needs.
The Company paid dividends of $3.0 million in 1996, or $.10 per share,
which reflects a 26.7% increase over the $2.3 million of dividends paid in
1995, which represented $0.09 per share. Additionally, shares issued under
stock incentive plans provided cash of $6.2 million in 1996 compared to
$4.3 million during 1995.
During 1996, the Company completed two acquisitions, the work, safety
and occupational footwear business of Hy-Test, Inc. from The Florsheim Shoe
Company and the rights to and certain assets of the Hush Puppies wholesale
shoe business in the United Kingdom and Ireland from British Shoe
Corporation, a subsidiary of Sears Plc. The combined purchase price of
these acquisitions was $31.5 million of which $29.2 million was paid in
cash in 1996. The Company has an active program to evaluate strategic
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<PAGE>
business acquisitions on a global basis and may, from time to time, make
additional acquisitions.
The current ratio at year end was 3.8 to 1.0 in 1996 compared with 5.7
to 1.0 in 1995. The Company's total debt to total capital ratio increased
to .15 to 1.0 in 1996 from .14 to 1.0 in 1995.
INFLATION.
Inflation has not had a significant impact on the Company over the
past three years nor is it expected to have a significant impact in the
foreseeable future. The Company continuously attempts to minimize the
effect of inflation through cost reductions and improved productivity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item is set forth in Appendix A of this Annual
Report on Form 10-K and is here incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors of the Company contained under the
captions "Board of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the definitive Proxy Statement of the Company
dated March 17, 1997, is incorporated herein by reference. The information
regarding Executive Officers is provided in the Supplemental Item following
Item 4 of Part I above.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the captions "Compensation of
Directors," "Executive Compensation," "Employment Agreements and
Termination of Employment and Change in Control Arrangements," and
"Compensation Committee Report on Executive Compensation" in the definitive
Proxy Statement of the Company dated March 17, 1997, is incorporated herein
by reference.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the captions "Ownership of Common
Stock" and "Securities Ownership of Management" contained in the definitive
Proxy Statement of the Company dated March 17, 1997, is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information regarding certain employee loans following the caption
"Executive Compensation," under the subheading "Stock Options," and the
information contained under the captions "Compensation of Directors" and
"Certain Relationships and Related Transactions" contained in the
definitive Proxy Statement of the Company dated March 17, 1997, are
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.
ITEM 14(A)(1). FINANCIAL STATEMENTS. Attached as Appendix A.
The following consolidated financial statements of Wolverine World
Wide, Inc. and subsidiaries are filed as a part of this report:
- Consolidated Balance Sheets as of December 28, 1996 and December
30, 1995.
- Consolidated Statements of Stockholders' Equity for the Fiscal
Years Ended December 28, 1996, December 30, 1995, and December
31, 1994.
- Consolidated Statements of Operations for the Fiscal Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994.
- Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994.
- Notes to Consolidated Financial Statements as of December 28,
1996.
- Report of Independent Auditors.
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<PAGE>
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES. Attached as Appendix
B.
The following consolidated financial statement schedule of
Wolverine World Wide, Inc. and subsidiaries is filed as a part of this
report:
- Schedule II--Valuation and qualifying accounts.
All other schedules (I, III, IV, and V) for which provision is made in
the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
ITEM 14(A)(3). EXHIBITS.
The following exhibits are filed as part of this report:
Exhibit
NUMBER DOCUMENT
3.1 Certificate of Incorporation, as amended. Previously filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the period ended June 15, 1996. Here incorporated by reference.
3.2 Amended and Restated Bylaws. Previously filed as Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995. Here incorporated by reference.
4.1 Certificate of Incorporation, as amended. See Exhibit 3.1 above.
4.2 Rights Agreement dated as of May 7, 1987, as amended and restated
as of October 24, 1990. Previously filed with Amendment No. 1 to
the Company's Form 8-A filed November 13, 1990. Here
incorporated by reference. This agreement has been amended by
the Second Amendment to Rights Agreement included as Exhibit 4.6
below.
4.3 Credit Agreement dated as of October 11, 1996 with NBD Bank as
Agent.
4.4 Note Purchase Agreement dated as of August 1, 1994 relating to
7.81% Senior Notes. Previously filed as Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the period ended
September 10, 1994. Here incorporated by reference.
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<PAGE>
4.5 The Registrant has several classes of long-term debt instruments
outstanding in addition to that described in Exhibit 4.4 above.
The amount of none of these classes of debt outstanding on March
1, 1997 exceeds 10% of the Company's total consolidated assets.
The Company agrees to furnish copies of any agreement defining
the rights of holders of any such long-term indebtedness to the
Securities and Exchange Commission upon request.
4.6 Second Amendment to Rights Agreement made as of October 28, 1994
(amending the Rights Agreement included as Exhibit 4.2 above).
Previously filed as Exhibit 4(f) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994. Here
incorporated by reference.
10.1 Stock Option Plan of 1979, and amendment.* Previously filed as
an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1988. Here incorporated by
reference.
10.2 1993 Stock Incentive Plan.* Previously filed as Exhibit 10(b) to
the Company's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994. Here incorporated by reference.
10.3 1988 Stock Option Plan.* Previously filed as an exhibit to the
Company's registration statement on Form S-8, filed July 21,
1988, Registration No. 33-23196. Here incorporated by reference.
10.4 Amended and Restated Directors Stock Option Plan.* Previously
filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994. Here incorporated by
reference.
10.5 Amended and Restated Agreement executed on May 26, 1994 and dated
as of July 24, 1992, between the Company and Thomas D. Gleason.*
Previously filed as Exhibit 10(e) to the Company's Quarterly
Report on Form 10-Q for the period ended June 18, 1994. Here
incorporated by reference.
10.6 Employment Agreement dated April 27, 1993, between the Company
and Geoffrey B. Bloom.* Previously filed as Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 1, 1994. Here incorporated by reference.
10.7 Executive Long-Term Incentive (Three Year) Plan 1996-1998 Period.*
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<PAGE>
10.8 1994 Directors' Stock Option Plan.* Previously filed as Exhibit
10(aa) to the Company's Quarterly Report on Form 10-Q for the
period ended June 18, 1994. Here incorporated by reference.
10.9 Stock Option Loan Program.* Previously filed as Exhibit 10(h) to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991. Here incorporated by reference.
10.10 Deferred Compensation Agreement dated as of August 24, 1989
between the Company and Thomas D. Gleason.* Previously filed as
part of Exhibit 10(i) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. Here incorporated by
reference.
10.11 Supplemental Executive Retirement Plan, as amended.* Previously
filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended June 15, 1996. Here incorporated by
reference. Each of the Company's executive officers participate
at the 2.4% level.
10.12 1995 Stock Incentive Plan.* Previously filed as an Appendix to
the Company's Definitive Proxy Statement with respect to the
Company's Annual Meeting of Stockholders held on April 19, 1995.
Here incorporated by reference.
10.13 Executive Long-Term Incentive (Three Year) Plan for the three
year period 1994-1996.* Previously filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995. Here incorporated by reference.
10.14 Executive Long-Term Incentive (Three Year) Plan for the three
year period 1995-1997.* Previously filed as Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995. Here incorporated by reference.
10.15 Termination of Employment and Change of Control Agreements.* The
form of agreement was previously filed as Exhibit 10(m) to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 2, 1993. Here incorporated by reference. An updated
participant schedule is attached as Exhibit 10.15.
10.16 Indemnification Agreements.* The form of agreement was
previously filed as Exhibit 10(n) to the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1993. Here
incorporated by reference. An updated participant schedule is
attached as Exhibit 10.16.
-26-
<PAGE>
10.17 Supplemental Retirement Benefits.* Previously filed as
Exhibit 10(l) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988. Here incorporated by
reference.
10.18 Benefit Trust Agreement dated May 19, 1987, and Amendments Number
1, 2 and 3 thereto.* Previously filed as Exhibit 10(p) to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 2, 1993. Here incorporated by reference.
10.19 1996 Executive Short-Term Incentive Plan (Annual Bonus Plan).*
Previously filed as Exhibit 10.19 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 30, 1995. Here
incorporated by reference.
10.20 Outside Directors' Deferred Compensation Plan.* Previously filed
as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the period ended June 15, 1996. Here incorporated by
reference.
10.21 1984 Executive Incentive Stock Purchase Plan, and amendment.*
Previously filed as Exhibit 10(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1988. Here
incorporated by reference.
10.22 Supplemental Director's Fee Agreement dated as of March 27, 1995,
between the Company and Phillip D. Matthews.* Previously filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the period ended March 25, 1995. Here incorporated by reference.
10.23 Restricted Stock Agreement dated as of March 27, 1995, between
the Company and Phillip D. Matthews.* Previously filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
period ended March 25, 1995. Here incorporated by reference.
11 Computation of Per Share Earnings.
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
____________________________
*Management contract or compensatory plan or arrangement.
-27-
<PAGE>
The Company will furnish a copy of any exhibit listed above to any
stockholder without charge upon written request to Mr. Blake W. Krueger,
Executive Vice President, General Counsel and Secretary, 9341 Courtland
Drive, Rockford, Michigan 49351.
ITEM 14(B). REPORTS ON FORM 8-K.
No reports on Form 8-K were filed in the fourth quarter of the fiscal
year ended December 28, 1996.
-28-
<PAGE>
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.
WOLVERINE WORLD WIDE, INC.
Dated: March 28, 1997 By:/S/STEPHEN L. GULIS, JR.
Stephen L. Gulis, Jr.
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
*/S/GEOFFREY B. BLOOM Chief Executive Officer March 28, 1997
Geoffrey B. Bloom and Chairman of the Board
of Directors
*/S/TIMOTHY J. O'DONOVAN President and Director March 28, 1997
Timothy J. O'Donovan
/S/STEPHEN L. GULIS, JR. Executive Vice President, March 28, 1997
Stephen L. Gulis, Jr. Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
*/S/DANIEL T. CARROLL Director March 28, 1997
Daniel T. Carroll
*/S/ALBERTO L. GRIMOLDI Director March 28, 1997
Alberto L. Grimoldi
-29-
<PAGE>
*/S/DAVID T. KOLLAT Director March 28, 1997
David T. Kollat
*/S/PHILLIP D. MATTHEWS Director March 28, 1997
Phillip D. Matthews
*/S/DAVID P. MEHNEY Director March 28, 1997
David P. Mehney
*/S/JOSEPH A. PARINI Director March 28, 1997
Joseph A. Parini
*/S/JOAN PARKER Director March 28, 1997
Joan Parker
*/S/ELIZABETH A. SANDERS Director March 28, 1997
Elizabeth A. Sanders
*BY/S/STEPHEN L. GULIS, JR.
Stephen L. Gulis, Jr.
Attorney-in-Fact
-30-
<PAGE>
APPENDIX A
<PAGE>
<TABLE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
AS OF FISCAL YEAR END
------------------------
(THOUSANDS OF DOLLARS) 1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,534 $ 27,088
Accounts receivable, less allowances (1996--$5,634;1995--$3,407) 125,999 83,392
Inventories:
Finished products 71,346 45,814
Raw materials and work-in-process 46,081 42,536
-------- --------
117,427 88,350
Refundable income taxes 2,062 2,935
Deferred income taxes 8,149 7,321
Other current assets 2,457 5,789
-------- --------
TOTAL CURRENT ASSETS 264,628 214,875
PROPERTY, PLANT AND EQUIPMENT:
Land 1,178 1,071
Buildings and improvements 40,284 30,930
Machinery and equipment 89,317 77,730
-------- --------
130,779 109,731
Less accumulated depreciation 67,776 62,846
-------- --------
63,003 46,885
OTHER ASSETS
Goodwill 8,362
Other intangibles 3,092
Cash value of life insurance 11,812 10,570
Prepaid pension costs 6,981 6,929
Other 3,720 4,295
-------- --------
33,967 21,794
-------- --------
TOTAL ASSETS $361,598 $283,554
======== ========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 1,026 $ 2,339
Accounts payable 41,273 15,188
Salaries, wages and other compensation 9,010 7,825
Taxes, other than income taxes 4,174 2,673
Other accrued expenses 14,251 9,538
Current maturities of long-term debt 76 84
-------- --------
TOTAL CURRENT LIABILITIES 69,810 37,647
LONG-TERM DEBT, LESS CURRENT MATURITIES 41,233 30,594
SUPPLEMENTAL EMPLOYEE RETIREMENT BENEFITS 7,353 8,883
DEFERRED INCOME TAXES 2,830 2,216
OTHER NONCURRENT LIABILITIES 1,080
STOCKHOLDERS' EQUITY:
Common stock, $1 par value:
Authorized: 40,000,000 shares
Issued, including treasury shares:
1996--28,356,538 shares; 1995--27,894,914 shares 28,357 27,895
Additional paid-in capital 67,303 61,604
Retained earnings 153,475 123,593
Accumulated translation adjustments 79 (324)
Unearned compensation (2,908) (1,827)
Cost of shares in treasury:
1996--557,323 shares; 1995--547,913 shares (7,014) (6,727)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 239,292 204,214
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $361,598 $283,554
======== ========
</TABLE>
() Denotes deduction.
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
FISCAL YEAR
--------------------------------------
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of the year $ 27,895 $ 24,759 $ 24,257
Proceeds from issuance of common stock 2,607
Common stock issued under stock incentive
plans (1996--462,018 shares;
1995 528,504 shares; 1994 501,675 shares) 462 529 502
-------- -------- --------
Balance at end of the year 28,357 27,895 24,759
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of the year 61,604 11,560 9,834
Proceeds from issuance of common stock 46,262
Excess of proceeds from awards under stock
incentive plans over par value of shares issued 5,699 3,782 2,028
Excess of cost of treasury shares over face
value of subordinated notes converted (302)
-------- -------- --------
Balance at end of the year 67,303 61,604 11,560
RETAINED EARNINGS
Balance at beginning of the year 123,593 101,873 86,986
Net earnings 32,856 24,067 16,598
Cash dividends--(1996--$.10 per share;
1995--$.09 per share; 1994--$.07 per share) (2,974) (2,347) (1,711)
-------- -------- --------
Balance at end of the year 153,475 123,593 101,873
ACCUMULATED TRANSLATION ADJUSTMENTS
Balance at beginning of the year (324) 332 398
Equity adjustments from foreign currency
translation 403 (656) (66)
-------- -------- --------
Balance at end of the year 79 (324) 332
UNEARNED COMPENSATION
Balance at beginning of the year (1,827) (1,181) (604)
Awards under stock incentive plans (2,469) (1,490) (1,016)
Compensation expense 1,388 844 439
-------- -------- --------
Balance at end of the year (2,908) (1,827) (1,181)
-3-
<PAGE>
COST OF SHARES IN TREASURY
Balance at beginning of the year (6,727) (6,000) (8,725)
Issuance of common stock from treasury
(1995--10,000 shares; 1994--250,000 shares
upon conversion of subordinated notes) 125 2,802
Common stock purchased for treasury
(1996--9,410 shares; 1995--23,921 shares;
1994--2,214 shares) (287) (852) (77)
-------- -------- --------
Balance at end of the year (7,014) (6,727) (6,000)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY AT END OF THE YEAR $239,292 $204,214 $131,343
======== ======== ========
</TABLE>
( ) Denotes deduction.
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
<TABLE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
FISCAL YEAR
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales and other operating income $511,029 $413,957 $387,534
Cost and expenses:
Cost of products sold 355,224 290,469 264,384
Selling and administrative expenses 107,492 85,993 93,982
Interest expense 3,127 4,717 4,283
Interest income (1,532) (1,039) (644)
Loss on disposal of business 1,700
Other expenses (income) -- net (949) (297) 606
-------- -------- --------
463,362 379,843 364,311
-------- -------- --------
Earnings before income taxes 47,667 34,114 23,223
Income taxes 14,811 10,047 6,625
-------- -------- --------
Net earnings $ 32,856 $ 24,067 $ 16,598
======== ======== ========
Net earnings per share:
Primary $ 1.15 $ .94 $ .67
Fully diluted 1.15 .93 .67
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
<TABLE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FISCAL YEAR
--------------------------------------
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 32,856 $ 24,067 $ 16,598
Adjustments necessary to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 7,147 5,765 5,664
Deferred income taxes (credit) (214) 1,878 217
Loss on disposal of business 1,700
Other (2,867) (2,271) 124
Changes in operating assets and liabilities:
Accounts receivable (32,752) (12,723) (8,307)
Inventories (19,526) (9,325) (11,081)
Other operating assets 154 (1,000) (398)
Accounts payable 26,085 (3,069) 5,682
Other operating liabilities 4,056 (1,950) 2,941
-------- -------- --------
Net cash provided by operating activities 14,939 1,372 13,140
INVESTING ACTIVITIES
Business acquisitions (29,158)
Additions to property, plant and equipment (20,639) (18,645) (9,858)
Other 4,086 3,632 (930)
-------- -------- --------
Net cash used in investing activities (45,711) (15,013) (10,788)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 2,907 4,000
Payments of short-term debt (1,313) (2,000) (4,516)
Proceeds from long-term borrowings 58,000 58,181 75,886
Payments of long-term debt (47,369) (71,289) (79,245)
Proceeds from issuance of common stock 48,869
Cash dividends (2,974) (2,347) (1,711)
Purchase of common stock for treasury (287) (852) (77)
Shares issued under stock incentive plans 6,161 4,311 2,530
-------- -------- --------
Net cash provided by (used in) financing activities 12,218 37,780 (3,133)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (18,554) 24,139 (781)
-6-
<PAGE>
Cash and cash equivalents at beginning of year 27,088 2,949 3,730
-------- -------- --------
Cash and cash equivalents at end of year $ 8,534 $ 27,088 $ 2,949
======== ======== ========
OTHER CASH FLOW INFORMATION
Interest paid $ 3,595 $ 5,187 $ 4,361
Income taxes paid 8,426 5,683 4,219
</TABLE>
( ) Denotes reduction in cash and cash equivalents.
See accompanying notes to consolidated financial statements.
-7-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Wolverine
World Wide, Inc. and its majority owned subsidiaries (collectively, the
Company). Upon consolidation, all intercompany accounts, transactions and
profits have been eliminated.
FISCAL YEAR
The Company's fiscal year is the 52- or 53-week period that ends on the
Saturday nearest the end of December. All fiscal years presented herein
are 52-week periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Revenue is recognized on the sale of products when the related goods have
been shipped and legal title has passed to the customer.
CASH EQUIVALENTS
All short-term investments with a maturity of three months or less when
purchased are considered cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for substantially all manufacturing
inventories (see Note D). Inventories of the Company's retail operations
are valued using the retail method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost and include
expenditures for new facilities, major renewals and betterments. Normal
repairs and maintenance are expensed as incurred.
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation of plant and equipment is computed using the straight-line
method. The depreciable lives for buildings and improvements range from
five to thirty years and from three to ten years for machinery and
equipment.
ADVERTISING COSTS
Advertising costs are expensed as incurred and totaled $21,186,000 in 1996,
$17,592,000 in 1995 and $17,942,000 in 1994.
INCOME TAXES
The provision for income taxes is based on the earnings reported in the
consolidated financial statements. A deferred income tax asset or
liability is determined by applying currently enacted tax laws and rates to
the cumulative temporary differences between the carrying value of assets
and liabilities for financial statement and income tax purposes. Deferred
income tax expense (credit) is measured by the net change in deferred
income tax assets and liabilities during the year.
EARNINGS PER SHARE
Primary earnings per share are computed based on the weighted average
shares of common stock outstanding during each period and the assumed
exercise of dilutive stock options. Fully diluted earnings per share for
1994 also include the effect of converting subordinated notes into common
stock.
Weighted average shares outstanding for purposes of calculating earnings
per share are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Primary 28,526,045 25,671,702 24,537,084
Fully diluted 28,677,852 25,855,769 24,922,253
</TABLE>
-2-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's financial instruments consist of cash and cash equivalents,
accounts and notes receivable, accounts payable and long-term debt. The
Company's estimate of the fair value of these financial instruments
approximates their carrying amounts at December 28, 1996 and December 30,
1995. Fair value was determined using discounted cash flow analysis and
current interest rates for similar instruments. The Company does not hold
or issue financial instruments for trading purposes.
The Company does not require collateral or other security on trade accounts
receivable.
RECLASSIFICATIONS
Certain amounts previously reported in 1995 and 1994 have been reclassified
to conform with the presentation used in 1996.
NOTE B - BUSINESS ACQUISITIONS
On March 22, 1996, the Company acquired the assets and assumed certain
liabilities of the work, safety and occupational footwear business of Hy-Test,
Inc. from The Florsheim Shoe Company for a cash purchase price of
$24,468,000, including related transaction expenses.
On August 24, 1996, the Company acquired the rights to and certain assets
of the Hush Puppies wholesale shoe business in the United Kingdom and
Ireland from British Shoe Corporation, a subsidiary of Sears Plc, for a
purchase price of $7,045,000 of which $2,355,000 is payable over a
three-year period beginning in 1997.
The acquisitions were accounted for using the purchase method and
accordingly, the operating results of these acquired businesses are
included in the consolidated statements of operations since the dates of
acquisition. The purchase prices were allocated to the net assets acquired
based on fair market value at the dates of acquisition. Goodwill and other
intangibles recognized in connection with these transactions totaled
$11,480,000 and are being amortized over periods ranging from five to
seventeen years.
-3-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE B - BUSINESS ACQUISITIONS (continued)
Consolidated net sales would have approximated $575,000,000 in 1996,
$518,000,000 in 1995 and $452,000,000 in 1994 on a pro forma basis if the
acquisitions had occurred at the beginning of 1994. Pro forma consolidated
earnings from continuing operations for all three years would not have been
materially different from reported amounts.
NOTE C - DISPOSAL OF BUSINESS
During the fourth quarter of 1994, the Company adopted a formal plan to
withdraw from its Lamonts leased shoe department business. In connection
with this exit plan, an estimated pre-tax loss of $1,700,000 was
recognized. The loss represents the anticipated incremental costs
associated with completing the exit plan. The exit plan was completed
in 1995.
The Lamonts business had net sales of $9,061,000 and a pre-tax loss from
operations of $500,000 in 1994. This business was previously reported as a
discontinued operation in the accompanying 1994 consolidated statement of
operations and has been reclassified as part of continuing operations.
NOTE D - INVENTORIES
Inventories of $99,483,000 at December 28, 1996 and $70,162,000 at
December 30, 1995 have been valued using the LIFO method. If the first-in,
first-out (FIFO) method had been used, inventories would have been
$19,695,000 and $22,171,000 higher than reported at December 28, 1996 and
December 30, 1995, respectively.
NOTE E - NOTES PAYABLE TO BANK
Notes payable to bank consist of unsecured short-term debt of the Company's
Canadian subsidiary. The notes bear interest at the Canadian prime rate
(4.75% at December 28, 1996).
The Company has short-term debt and commercial letter-of-credit facilities
that allow for total borrowings up to $68,543,000. In addition to the notes
payable to bank discussed above, amounts outstanding under these facilities
consist of letters-of-credit that totaled approximately $28,500,000 and
$23,200,000 at December 28, 1996 and December 30, 1995, respectively.
-4-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following obligations:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995
-------- --------
<S> <C> <C>
7.8% senior notes to insurance companies $ 30,000 $ 30,000
Revolving credit obligations 11,000
Other 309 678
-------- --------
41,309 30,678
Less current maturities 76 84
-------- --------
$ 41,233 $ 30,594
======== ========
</TABLE>
The 7.8% senior notes to insurance companies require equal annual principal
payments of $4,285,000 in 1998 through 2003 with the balance due on August
15, 2004.
In 1996, the Company amended its revolving credit agreement to increase its
borrowing limit to $100,000,000 ($50,000,000 in 1995). The agreement
requires that interest be paid at variable rates based on both LIBOR and
the prime rate (8.25% at December 28,1996) and expires on October 11, 2001.
Maximum borrowings under the agreement were $39,000,000 in 1996 and
$50,000,000 in 1995.
The revolving credit and insurance company loan agreements contain
restrictive covenants which, among other things, require the Company to
maintain certain financial ratios and minimum levels of tangible net worth.
At December 28, 1996, unrestricted retained earnings are $30,815,000. The
agreements also impose restrictions on securing additional debt, sale and
merger transactions and the disposition of significant assets.
Principal maturities of long-term debt during the four years subsequent to
1997 are as follows: 1998--$4,298,000; 1999--$4,505,000; 2000--$4,285,000:
2001--$15,285,000.
In January 1997, the Company's subsidiary in the United Kingdom entered
into a $17,000,000 three-year variable-rate revolving credit agreement to
support its working capital requirements.
-5-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE G - LEASES
The Company leases machinery, transportation equipment and certain
warehouse and retail store space under operating lease agreements which
expire at various dates through 2007. At December 28, 1996, minimum rental
payments due under all noncancelable leases are as follows (THOUSANDS OF
DOLLARS):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 5,609
1998 4,542
1999 3,600
2000 2,757
2001 1,376
Thereafter 3,954
--------
Total minimum lease payments $ 21,838
========
</TABLE>
Rental expense under all operating leases consisted primarily of minimum
rentals and totaled $7,468,000 in 1996, $6,275,000 in 1995 and $6,145,000
in 1994.
NOTE H - CAPITAL STOCK
The Company has 2,000,000 authorized shares of preferred stock ($1 par
value) of which none is issued and outstanding.
On March 10, 1994, April 19, 1995, and July 11, 1996, the Company announced
three-for-two stock splits on shares of common stock outstanding at March
21, 1994, May 1, 1995, and July 26, 1996, respectively. All share and per
share data included in the consolidated financial statements has been
retroactively adjusted for the increased shares resulting from these stock
splits.
The Company has a stock rights plan that is designed to protect stockholder
interests in the event the Company is confronted with coercive or unfair
takeover tactics. Under its terms, each stockholder received one right for
each share of common stock owned. The rights trade separately from common
stock and become exercisable only upon the occurrence of certain triggering
-6-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H - CAPITAL STOCK (continued)
events. Each right, when exercisable, will entitle the holder to purchase
one one-hundredth of a share of Series A junior participating preferred
stock for $40. The Company has designated 880,000 shares of preferred
stock as Series A junior participating preferred stock for possible future
issuance under the Company's stock rights plan. Upon issuance, each share
of Series A junior preferred stock will have 100 votes and a preferential
quarterly dividend equal to the greater of $6 per share or 100 times the
dividend declared on the Company's common stock.
In the event the Company is a party to a merger or other business
combination, regardless of whether the Company is the surviving
corporation, rights holders other than the party to the merger will be
entitled to receive common stock of the surviving corporation worth twice
the exercise price of the rights. The plan also provides for protection
against self-dealing transactions by a 15% stockholder or the activities of
an adverse person. The Company may redeem the rights for $.01 each at any
time prior to fifteen days after a triggering event. Unless redeemed
earlier, all rights expire on May 8, 1997.
The Company has stock incentive plans under which options to purchase
shares of common stock may be granted to officers, other key employees and
nonemployee directors. Options granted have ten-year terms and are
exercisable over three years. All unexercised options are available for
future grants upon their cancellation.
A summary of the transactions under the stock option plans is as follows:
-7-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H - CAPITAL STOCK (continued)
<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED-AVERAGE
OPTIONS OPTION PRICE
------------ ---------------
<S> <C> <C>
Outstanding at January 1, 1994 1,466,349 $ 3.51
Granted in 1994 442,407 6.59
Exercised (404,532) 10.13
Cancelled (10,206) 7.26
--------- -------
Outstanding at December 31, 1994 1,494,018 5.71
Granted in 1995 439,368 12.40
Exercised (432,916) 14.69
Cancelled (1,512) 10.24
--------- -------
Outstanding at December 30, 1995 1,498,958 8.15
Granted in 1996 416,444 19.57
Exercised (343,485) 20.77
Cancelled (10,732) 16.53
--------- -------
Outstanding at December 28, 1996 1,561,185 $ 11.56
========= =======
Available for grant:
At December 28, 1996 857,392
=========
At December 30, 1995 1,382,902
=========
</TABLE>
The weighted-average grant-date fair value was $6.40 for stock options
granted in 1996.
The exercise price of options outstanding at December 28, 1996 range from
$2.59 to $28.38. A summary of stock options outstanding at December 28,
1996 by range of option price is as follows:
-8-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H - CAPITAL STOCK (continued)
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
-----------------------------------------------
NUMBER OF OPTIONS OPTION PRICE REMAINING
OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE CONTRACTUAL LIFE
----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Less than $10 500,053 483,222 $ 4.92 $ 4.75 5.5 years
$10 to $20 970,193 463,096 14.00 12.81 8.2 years
Greater than $20 90,939 39,012 22.04 20.87 9.4 years
--------- ------- ------ ------ ---------
1,561,185 985,330 $11.56 $ 9.18 7.4 years
========= ======= ====== ====== =========
</TABLE>
The Company has elected to follow Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations in accounting for its stock incentive plans because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards (SFAS) No.123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, requires the use of option valuation models that were not
specifically developed for valuing the types of stock incentive plans
maintained by the Company. Under APB Opinion No. 25, compensation expense
is recognized when the market price of the underlying stock award on the
date of grant exceeds any related exercise price.
Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock awards since January 1, 1995 using the fair value
method. The fair value of these awards was estimated at the date of grant
using a Black-Sholes option pricing model with the following
weighted-average assumptions in 1996 and 1995: risk free interest rate of
6%; dividend yield of 0.5%; expected market price volatility factor of 0.32;
and an expected option life of four years.
The Black-Sholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting provisions and are
fully transferable. In addition, the model requires input of highly
subjective assumptions. Because the Company's stock options have
characteristics significantly different from traded options and the input
assumptions can materially affect the estimate of fair value, in
-9-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H - CAPITAL STOCK (continued)
management's opinion, the Black-Sholes option model does not necessarily
provide a reliable measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of stock
options are amortized to expense over the related vesting period. The
Company's pro forma information under SFAS No. 123 is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1996 1995
-------- --------
<S> <C> <C>
Pro forma net earnings $ 31,613 $ 23,589
Pro forma net earnings per share:
Primary $ 1.11 $ .93
Fully diluted 1.11 .92
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
1994, its pro forma effect will not be fully reflected until 1997.
The Company also has nonvested stock award plans for officers and other key
employees. Common stock issued under these plans is subject to certain
restrictions, including prohibition against any sale, transfer or other
disposition by the officer or employee, and a requirement to forfeit the
award upon termination of employment. These restrictions lapse over a
three- to five-year period from the date of the award. Shares aggregating
133,612 in 1996, 95,587 in 1995 and 97,143 in 1994 were awarded under these
plans. The weighted-average award-date fair value was $19.64 for the shares
awarded in 1996. Rights to 14,579 shares were cancelled in 1996 and there
were no cancellations in 1995 or 1994. Any future shares awarded reduce the
number of shares identified as available for future grants in the stock
option table. The market value of the shares awarded is recognized as
unearned compensation in the consolidated statements of stockholders'
equity and is amortized to operations as restrictions lapse.
NOTE I - RETIREMENT PLANS
The Company has noncontributory, defined benefit pension plans covering a
majority of its domestic employees. The Company's principal defined benefit
pension plan provides benefits based on the employee's years of service and
-10-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I - RETIREMENT PLANS (CONTINUED)
final average earnings (as defined), while the other plans provide benefits
at a fixed rate per year of service. The Company intends to annually
contribute amounts deemed necessary to maintain the plans on a sound
actuarial basis.
The Company also has individual deferred compensation agreements with
certain current and former employees that entitle them to receive payments
from the Company for a period of fifteen to eighteen years following
retirement. Under the terms of the individual contracts, the employees are
eligible for reduced benefits upon early retirement. The Company maintains
life insurance policies which are intended to fund these deferred benefits.
In addition, the Company sponsors a noncontributory, defined benefit plan
that provides postretirement life insurance benefits to full-time employees
who have worked ten or more consecutive years and attained age 60 while
employed by the Company. The Company does not provide postretirement
medical benefits.
The Company has a defined contribution money accumulation plan covering
substantially all employees that provides for Company contributions based
on earnings. This plan is combined with the principal defined benefit
pension plan for funding purposes. Contributions to the money accumulation
plan were $1,200,000 in 1996, $1,050,000 in 1995 and $935,000 in 1994.
The following summarizes the status of the Company's pension assets and
related obligations for its defined benefit pension plans:
-11-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I - RETIREMENT PLANS (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------
(THOUSANDS OF DOLLARS) 1996 1995
-------- --------
<S> <C> <C>
Pension assets at fair value $104,673 $ 99,484
Actuarial present value of accumulated plan benefits:
Vested 60,315 52,628
Nonvested 1,048 497
-------- --------
61,363 53,125
Effect of estimated future increases in compensation 11,914 9,145
-------- --------
Projected benefit obligation for service rendered to date 73,277 62,270
-------- --------
Excess pension assets $ 31,396 $ 37,214
======== ========
Components of excess pension assets:
Prepaid pension costs recognized in other assets $ 6,981 $ 6,929
Unrecognized amounts, net of amortization:
Transition assets 2,834 3,768
Prior service costs (4,601) (3,048)
Experience gains 26,182 29,565
-------- --------
$ 31,396 $ 37,214
======== ========
</TABLE>
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 7.5% and 5%, respectively, in 1996 and 1995. Additional
plan participants in connection with the acquisition of Hy-Test, Inc. and
certain new supplemental retirement benefits increased the projected
benefit obligation by $5,162,000 at September 30, 1996.
Plan assets were invested in listed equity securities (83%), fixed income
funds (11%) and short-term and other investments (6%). Equity securities
include 225,675 shares of the Company's common stock with a fair value of
$6,262,000 at September 30, 1996.
-12-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I - RETIREMENT PLANS (CONTINUED)
The following is a summary of net pension income recognized by the Company:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost pertaining to benefits earned
during the year $ (4,704) $ (2,540) $ (2,410)
Interest cost on projected benefit obligation (2,426) (3,771) (3,292)
Actual net investment income 8,066 28,495 3,317
Net amortization and deferrals 665 (20,865) 3,116
-------- -------- --------
Net pension income $ 1,601 $ 1,319 $ 731
======== ======== ========
</TABLE>
The expected long-term return on plan assets was 10% in both 1996 and 1995
and 9% in 1994.
The Company's accumulated postretirement life insurance benefit obligation
is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995
-------- -------
<S> <C> <C>
Retirees $ 812 $ 775
Active plan participants 255 215
------- -------
Accumulated postretirement benefit obligation 1,067 990
Unrecognized experience losses (126) (153)
Obligation recognized as a noncurrent liability $ 941 $ 837
</TABLE>
The discount rate used in determining the accumulated postretirement life
insurance benefit obligation was 7.5% in 1996 and 1995. The expense
associated with postretirement life insurance benefits was not significant.
-13-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J - INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal $ 9,652 $ 4,610 $ 3,658
State and foreign 5,373 3,559 2,750
Deferred (credit) (214) 1,878 217
-------- -------- --------
$ 14,811 $ 10,047 $ 6,625
======== ======== ========
</TABLE>
A reconciliation of the Company's total income tax expense and the amount
computed by applying the statutory federal tax rate of 35% to earnings
before income taxes is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income taxes at statutory rate $ 16,683 $ 11,940 $ 8,128
State income and foreign taxes, net of federal
income tax reduction 1,572 731 757
Nontaxable earnings of Puerto Rican
subsidiary and foreign affiliates (2,881) (1,898) (1,712)
Reduction of deferred income tax asset
valuation allowance (1,000)
Other (563) (726) 452
-------- -------- --------
$ 14,811 $ 10,047 $ 6,625
======== ======== ========
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities as of the end of 1996 and 1995 are as follows:
-14-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J - INCOME TAXES (continued)
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1996 1995
-------- --------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable and inventory valuation allowances $ 5,175 $ 4,308
Deferred compensation accruals 1,959 2,466
Other amounts not deductible until paid 5,107 4,233
-------- --------
Total deferred income tax assets 12,241 11,007
Deferred income tax liabilities:
Tax over book depreciation (2,699) (2,190)
Prepaid pension costs (2,632) (2,340)
Unremitted earnings of Puerto Rican subsidiary (1,343) (1,154)
Other (248) (218)
-------- --------
Total deferred income tax liabilities (6,922) (5,902)
-------- --------
Net deferred income tax assets $ 5,319 $ 5,105
======== ========
</TABLE>
The Company has provided for substantially all taxes that would be payable
if accumulated earnings of its Puerto Rican subsidiary were distributed.
Similar taxes on the unremitted earnings of the Company's foreign
affiliates have not been provided because such earnings are considered
permanently invested. The additional taxes that would be payable if
unremitted earnings of its foreign affiliates were distributed are not
significant.
NOTE K - LITIGATION
The Company is involved in various environmental claims and other legal
actions arising in the normal course of business. After taking into
consideration legal counsel's evaluation of such actions, management is of
the opinion that their outcome will not have a significant effect on the
Company's consolidated financial position or results of operations.
-15-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L - INDUSTRY INFORMATION
The Company is principally engaged in the manufacture and sale of footwear,
including casual shoes, slippers, moccasins, dress shoes, boots, uniform
shoes and work shoes. The Company is also the largest domestic tanner of
pigskin, which is used in a significant portion of shoes manufactured and
sold by the Company and is sold to other domestic and foreign manufacturers
of shoes and other products. Royalty income is derived from licensing the
Company's trademarks to domestic and foreign licensees. As part of its
footwear business, the Company operates a number of domestic retail shoe
stores that sell Company-manufactured products as well as footwear
manufactured by unaffiliated companies. Foreign operations consist of a
75%-owned Canadian subsidiary and factories located in the Dominican
Republic and Mexico which produce shoe uppers for domestic operations.
Export sales, foreign operations and related assets are not significant.
The Company markets its products primarily to customers in the retail
sector. Although the Company closely monitors the credit worthiness of its
customers and adjusts its credit policies and limits as needed, a
substantial portion of its debtors' ability to discharge amounts owed is
dependent upon the retail economic environment. The Company does not
believe that it is dependent upon any single customer, since none account
for more than 10% of consolidated net sales.
NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company reports its quarterly results of operations on the basis of
12-week periods for each of the first three quarters and a 16-week period
for the fourth quarter.
The Company's unaudited quarterly results of operations are as follows:
-16-
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1996
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales and other operating income $ 83,842 $ 94,153 $120,466 $212,568
Gross margin 25,323 31,317 36,013 63,152
Net earnings 3,393 5,433 7,350 16,680
Net earnings per share:
Primary $ .12 $ .19 $ .26 $ .58
Fully diluted .12 .19 .26 .58
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------
FIRST SECOND THIRD FOURTH
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales and other operating income $ 76,331 $ 86,289 $100,460 $150,877
Gross margin 22,788 27,490 28,753 44,457
Net earnings 2,497 3,897 5,207 12,466
Net earnings per share:
Primary $ .10 $ .15 $ .21 $ .48
Fully diluted .10 .15 .21 .47
</TABLE>
-17-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Wolverine World Wide, Inc.
We have audited the accompanying consolidated balance sheets of Wolverine
World Wide, Inc. and subsidiaries as of December 28, 1996 and December 30,
1995, and the related consolidated statements of stockholders' equity,
operations and cash flows for each of the three fiscal years in the period
ended December 28, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Wolverine World Wide, Inc. and subsidiaries at December 28, 1996
and December 30, 1995, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended
December 28, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/Ernst & Young LLP
Grand Rapids, Michigan
February 7, 1997
<PAGE>
APPENDIX B
<PAGE>
<TABLE>
Schedule II - Valuation and Qualifying Accounts of Continuing Operations
Wolverine World Wide, Inc. and Subsidiaries
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES (DESCRIBE) (DESCRIBE) PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 28, 1996
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $2,657,000 $ 2,005,000 $ 434,000<FA> $4,228,000
ALLOWANCE FOR CASH DISCOUNTS 750,000 4,896,000 4,240,000<FB> 1,406,000
INVENTORY VALUATION ALLOWANCES 1,317,000 5,535,000 3,898,000<FC> 2,954,000
---------- ----------- ---------- ----------
$4,724,000 $12,436,000 $8,572,000 $8,588,000
========== =========== ========== ==========
Fiscal Year Ended December 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $3,510,000 $ (746,000) $ 107,000<FA> $2,657,000
Allowance for cash discounts 449,000 2,851,000 2,550,000<FB> 750,000
Inventory valuation allowances 1,753,000 4,261,000 4,697,000<FC> 1,317,000
---------- ------------ ---------- ----------
$5,712,000 $ 6,366,000 $7,354,000 $4,724,000
========== =========== ========== ==========
Fiscal Year Ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $3,141,000 $ 1,722,000 $1,353,000<FA> $3,510,000
Allowance for cash discounts 270,000 1,236,000 1,057,000<FB> 449,000
Inventory valuation allowances 1,703,000 3,760,000 3,710,000<FC> 1,753,000
---------- ----------- ---------- ----------
$5,114,000 $ 6,718,000 $6,120,000 $5,712,000
========== =========== ========== ==========
<FA> ACCOUNTS CHARGED OFF, NET OF RECOVERIES.
<FB> DISCOUNTS GIVEN TO CUSTOMERS.
<FC> ADJUSTMENT UPON DISPOSAL OF RELATED INVENTORIES.
</TABLE>
<PAGE>
Commission File No. 1-6024
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM 10-K
For the Fiscal Year Ended
December 28, 1996
Wolverine World Wide, Inc.
9341 Courtland Drive
Rockford, Michigan 49351
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
3.1 Certificate of Incorporation, as amended. Previously
filed as Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the period ended June 15, 1996. Here
incorporated by reference.
3.2 Amended and Restated Bylaws. Previously filed as Exhibit 3.2
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995. Here incorporated by reference.
4.1 Certificate of Incorporation, as amended. See Exhibit
3.1 above.
4.2 Rights Agreement dated as of May 7, 1987, as amended
and restated as of October 24, 1990. Previously filed
with Amendment No. 1 to the Company's Form 8-A filed
November 13, 1990. Here incorporated by reference.
This agreement has been amended by the Second
Amendment to Rights Agreement included as Exhibit 4.6
below.
4.3 Credit Agreement dated as of October 11, 1996 with NBD Bank as
Agent.
4.4 Note Purchase Agreement dated as of August 1, 1994
relating to 7.81% Senior Notes. Previously filed as
Exhibit 4(d) to the Company's Quarterly Report on Form
10-Q for the period ended September 10, 1994. Here
incorporated by reference.
4.5 The Registrant has several classes of long-term debt
instruments outstanding in addition to that described
in Exhibit 4.4 above. The amount of none of these
classes of debt outstanding on March 1, 1997 exceeds
10% of the Company's total consolidated assets. The
Company agrees to furnish copies of any agreement
defining the rights of holders of any such long-term
indebtedness to the Securities and Exchange Commission
upon request.
4.6 Second Amendment to Rights Agreement made as of
October 28, 1994 (amending the Rights Agreement
included as Exhibit 4.2 above). Previously filed as
Exhibit 4(f) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
Here incorporated by reference.
<PAGE>
10.1 Stock Option Plan of 1979, and amendment.* Previously
filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended January 2, 1988.
Here incorporated by reference.
10.2 1993 Stock Incentive Plan.* Previously filed as
Exhibit 10(b) to the Company's Annual Report on Form
10-K for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10.3 1988 Stock Option Plan.* Previously filed as an
exhibit to the Company's registration statement on
Form S-8, filed July 21, 1988, Registration
No. 33-23196. Here incorporated by reference.
10.4 Amended and Restated Directors Stock Option Plan.*
Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended January
1, 1994. Here incorporated by reference.
10.5 Amended and Restated Agreement executed on May 26,
1994 and dated as of July 24, 1992, between the
Company and Thomas D. Gleason.* Previously filed as
Exhibit 10(e) to the Company's Quarterly Report on
Form 10-Q for the period ended June 18, 1994. Here
incorporated by reference.
10.6 Employment Agreement dated April 27, 1993, between the
Company and Geoffrey B. Bloom.* Previously filed as
Exhibit 10(f) to the Company's Annual Report on Form
10-K for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10.7 Executive Long-Term Incentive (Three Year) Plan 1996-1998
Period.*
10.8 1994 Directors' Stock Option Plan.* Previously filed
as Exhibit 10(aa) to the Company's Quarterly Report on
Form 10-Q for the period ended June 18, 1994. Here
incorporated by reference.
10.9 Stock Option Loan Program.* Previously filed as
Exhibit 10(h) to the Company's Annual Report on Form
10-K for the fiscal year ended December 28, 1991.
Here incorporated by reference.
-2-
<PAGE>
10.10 Deferred Compensation Agreement dated as of August 24,
1989 between the Company and Thomas D. Gleason.*
Previously filed as part of Exhibit 10(i) of the
Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993. Here incorporated by
reference.
10.11 Supplemental Executive Retirement Plan, as amended.*
Previously filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended
June 15, 1996. Here incorporated by reference. Each
of the Company's executive officers participate at the
2.4% level.
10.12 1995 Stock Incentive Plan.* Previously filed as an
Appendix to the Company's Definitive Proxy Statement
with respect to the Company's Annual Meeting of
Stockholders held on April 19, 1995. Here incorporated
by reference.
10.13 Executive Long-Term Incentive (Three Year) Plan for
the three year period 1994-1996.* Previously filed as
Exhibit 10.13 to the Company's Annual Report on Form
10-K for the fiscal year ended December 30, 1995.
Here incorporated by reference.
10.14 Executive Long-Term Incentive (Three Year) Plan for
the three year period 1995-1997.* Previously filed as
Exhibit 10.14 to the Company's Annual Report on Form
10-K for the fiscal year ended December 30, 1995.
Here incorporated by reference.
10.15 Termination of Employment and Change of Control
Agreements.* The form of agreement was previously
filed as Exhibit 10(m) to the Company's Annual Report
on Form 10-K for the fiscal year ended January 2,
1993. Here incorporated by reference. An updated
participant schedule is attached as Exhibit 10.15.
10.16 Indemnification Agreements.* The form of agreement
was previously filed as Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 2, 1993. Here incorporated by reference. An
updated participant schedule is attached as
Exhibit 10.16.
-3-
<PAGE>
10.17 Supplemental Retirement Benefits.* Previously filed as
Exhibit 10(l) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1988.
Here incorporated by reference.
10.18 Benefit Trust Agreement dated May 19, 1987, and
Amendments Number 1, 2 and 3 thereto.* Previously
filed as Exhibit 10(p) to the Company's Annual Report
on Form 10-K for the fiscal year ended January 2,
1993. Here incorporated by reference.
10.19 1996 Executive Short-Term Incentive Plan (Annual Bonus
Plan).* Previously filed as Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1995. Here incorporated by
reference.
10.20 Outside Directors' Deferred Compensation Plan.*
Previously filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended
June 15, 1996. Here incorporated by reference.
10.21 1984 Executive Incentive Stock Purchase Plan, and
amendment.* Previously filed as Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1988. Here incorporated by
reference.
10.22 Supplemental Director's Fee Agreement dated as of
March 27, 1995, between the Company and Phillip D.
Matthews.* Previously filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period
ended March 25, 1995. Here incorporated by reference.
10.23 Restricted Stock Agreement dated as of March 27, 1995,
between the Company and Phillip D. Matthews.*
Previously filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended
March 25, 1995. Here incorporated by reference.
11 Computation of Per Share Earnings.
21 Subsidiaries of Registrant.
-4-
<PAGE>
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
___________________________
*Management contract or compensatory plan or arrangement.
-5-
<PAGE>
EXHIBIT 4.3
CREDIT AGREEMENT
DATED AS OF OCTOBER 11, 1996
BY AND AMONG
WOLVERINE WORLD WIDE, INC.,
THE BANKS PARTY HERETO
AND
NBD BANK, AS AGENT
<PAGE>
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II. THE COMMITMENTS . . . . . . . . . . . . . . . . . . . . . .10
2.1 Commitments of the Banks.. . . . . . . . . . . . . . . . . . .10
2.2 Termination and Reduction of Commitments.. . . . . . . . . . .10
2.3 Facility Fees. . . . . . . . . . . . . . . . . . . . . . . . .10
2.4 Agent's Fee. . . . . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE III. THE LOANS. . . . . . . . . . . . . . . . . . . . . . . . .11
3.1 Disbursement of Loans. . . . . . . . . . . . . . . . . . . . .11
3.2 Conditions for Disbursement of Initial Loan. . . . . . . . . .12
3.3 Conditions for Disbursement of Each Loan.. . . . . . . . . . .13
3.4 Minimum Amounts. . . . . . . . . . . . . . . . . . . . . . . .13
3.5 Subsequent Elections as to Loans.. . . . . . . . . . . . . . .13
3.6 Discretion of the Banks as to Manner of Funding. . . . . . . .14
ARTICLE IV. PAYMENTS AND PREPAYMENTS OF LOANS . . . . . . . . . . . . .14
4.1 Principal Payments.. . . . . . . . . . . . . . . . . . . . . .14
4.2 Interest Payments. . . . . . . . . . . . . . . . . . . . . . .14
4.3 Optional Prepayment. . . . . . . . . . . . . . . . . . . . . .15
4.4 Mandatory Prepayment.. . . . . . . . . . . . . . . . . . . . .15
4.5 Payment Method.. . . . . . . . . . . . . . . . . . . . . . . .15
4.6 No Setoff or Deduction.. . . . . . . . . . . . . . . . . . . .15
4.7 Payment on Non-Business Day; Payment Computations. . . . . . .16
ARTICLE V. YIELD PROTECTION AND CONTINGENCIES. . . . . . . . . . . . . .16
5.1 Additional Costs.. . . . . . . . . . . . . . . . . . . . . . .16
5.2 Limitation of Requests and Elections.. . . . . . . . . . . . .17
5.3 Illegality and Impossibility.. . . . . . . . . . . . . . . . .17
5.4 Additional Contingencies.. . . . . . . . . . . . . . . . . . .17
5.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . .18
5.6 Capital Adequacy.. . . . . . . . . . . . . . . . . . . . . . .18
ARTICLE VI. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . .19
6.1 Corporate Existence and Power. . . . . . . . . . . . . . . . .19
6.2 Corporate Authority. . . . . . . . . . . . . . . . . . . . . .20
6.3 Binding Effect.. . . . . . . . . . . . . . . . . . . . . . . .20
6.4 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . .20
6.5 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . .20
6.6 Financial Condition. . . . . . . . . . . . . . . . . . . . . .20
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6.7 Use of Loans.. . . . . . . . . . . . . . . . . . . . . . . . .21
6.8 Consents, Etc. . . . . . . . . . . . . . . . . . . . . . . . .21
6.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
6.10 Title to Properties. . . . . . . . . . . . . . . . . . . . . .21
6.11 Existing Note Agreements.. . . . . . . . . . . . . . . . . . .21
6.12 Environmental and Safety Matters.. . . . . . . . . . . . . . .22
6.13 Indebtedness.. . . . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE VII. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . .22
7.1 Affirmative Covenants. . . . . . . . . . . . . . . . . . . . .22
(a) Preservation of Corporate Existence, Etc.. . . . . . . . .23
(b) Compliance with Laws, Etc. . . . . . . . . . . . . . . . .23
(c) Maintenance of Insurance.. . . . . . . . . . . . . . . . .23
(d) Reporting Requirements.. . . . . . . . . . . . . . . . . .23
(e) Access to Records, Books, Etc. . . . . . . . . . . . . . .25
7.2 Negative Covenants.. . . . . . . . . . . . . . . . . . . . . .25
(a) Tangible Net Worth.. . . . . . . . . . . . . . . . . . . .25
(b) Total Liabilities to Tangible Net Worth. . . . . . . . . .25
(c) Fixed Charge Coverage Ratio. . . . . . . . . . . . . . . .25
(d) Indebtedness.. . . . . . . . . . . . . . . . . . . . . . .25
(e) Liens.. . . . . . . . . . . . . . . . . . . . . . . . . .26
(f) Merger; Sale of Assets; Etc. . . . . . . . . . . . . . . .26
(g) Nature of Business.. . . . . . . . . . . . . . . . . . . .27
(h) Debt to Tangible Net Worth for Subsidiaries. . . . . . . .27
ARTICLE VIII. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . .27
8.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . .27
8.2 Remedies.. . . . . . . . . . . . . . . . . . . . . . . . . . .30
ARTICLE IX. THE AGENT AND THE BANKS. . . . . . . . . . . . . . . . . . .30
9.1 Appointment of Agent.. . . . . . . . . . . . . . . . . . . . .30
9.2 Scope of Agency. . . . . . . . . . . . . . . . . . . . . . . .31
9.3 Duties of Agent. . . . . . . . . . . . . . . . . . . . . . . .31
9.4 Resignation of Agent.. . . . . . . . . . . . . . . . . . . . .32
9.5 Pro Rata Sharing by Banks. . . . . . . . . . . . . . . . . . .32
ARTICLE X. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . .33
10.1 Amendments; Etc. . . . . . . . . . . . . . . . . . . . . . . .33
10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .33
10.3 Conduct No Waiver; Remedies Cumulative. . . . . . . . . . . .34
10.4 Reliance on and Survival of Various Provisions.. . . . . . . .34
10.5 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . .34
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10.6 Successors and Assigns.. . . . . . . . . . . . . . . . . . . .35
10.7 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . .36
10.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . .36
10.9 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.10 Construction of Certain Provisions. . . . . . . . . . . . . .36
10.11 Integration and Severability. . . . . . . . . . . . . . . . .36
10.12 Interest Rate Limitation. . . . . . . . . . . . . . . . . . .37
10.13 Independence of Covenants.. . . . . . . . . . . . . . . . . .37
10.14 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . .37
SCHEDULE 6.4 Subsidiaries
SCHEDULE 6.5 Litigation
SCHEDULE 6.12 Environmental and Safety Matters
SCHEDULE 6.13 Indebtedness Greater than $100,000
EXHIBIT A REVOLVING CREDIT NOTE
EXHIBIT B REQUEST FOR LOAN
EXHIBIT C REQUEST FOR CONTINUATION OR CONVERSION OF LOAN
EXHIBIT D ASSIGNMENT AND ACCEPTANCE
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THIS CREDIT AGREEMENT, dated October 11, 1996 (this "Agreement"), is
among WOLVERINE WORLD WIDE, INC., a Delaware corporation (the "Company"),
the banks party hereto from time to time (collectively, the "Banks" and,
individually, a "Bank"), and NBD BANK, a Michigan banking corporation, as
agent for the Banks (in such capacity, the "Agent").
RECITAL
The Company desires to amend and restate in its entirety the Amended
and Restated Credit Agreement among the Company, the banks party thereto and
NBD Bank, as agent, dated as of October 13, 1994 (as amended, the "Prior
Credit Agreement"), in order to obtain a revolving bank credit in principal
sum not to exceed $100,000,000 to provide funds for its general corporate
and working capital purposes, and the Banks are willing to so amend and
restate the Prior Credit Agreement on the terms and conditions herein set
forth.
AGREEMENT
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree that the Prior Credit Agreement shall
be amended and restated in its entirety as follows:
ARTICLE I. DEFINITIONS
1.1 As used herein the following terms shall have the following
respective meanings:
"Affiliate", when used with respect to any Person, means any Person
which, directly or indirectly, controls or is controlled by or is under
common control with such Person. For purposes of this definition, control
(including the correlative meanings of the terms "controlled by" and
"under common control with"), with respect to any Person, means possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership
of voting securities or by contract or otherwise.
"Applicable Margin" means the following margins for purposes of
determining the Eurodollar Rate and the facility fee under Section 2.3, as
indicated in the following table:
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<TABLE>
<CAPTION>
FIXED CHARGE Applicable Margin Applicable Margin
COVERAGE RATIO FOR EURODOLLAR RATE FOR FACILITY FEE
- --------------- ------------------- ----------------
<S> <C> <C>
Equal to or greater
than 1.7 but less
than or equal to 2.0 .45% .25%
Greater than
2.0 but less than
or equal to 2.5 .35% .20%
Greater than
2.5 but less than
or equal to 3.5 .30% .15%
Greater than
3.5 but less than
or equal to 4.5 .265% .135%
Greater than
4.5 .23% .12%
</TABLE>
The Applicable Margin shall be adjusted as of the first day of each
fiscal quarter of the Company based on the Fixed Charge Coverage Ratio at
the end of the fiscal quarter immediately preceding the fiscal quarter
most recently ended.
"Assignment and Acceptance" is defined in Section 10.6.
"Business Day" means a day other than a Saturday, Sunday or other day
on which the Agent or any Bank is not open for the transaction of
substantially all of its banking functions.
"Change of Control" shall mean and include each and every issue,
transfer, or other disposition of shares of the stock of the Company
(including without limitation, pursuant to a merger or consolidation
otherwise permitted hereunder) which results in a Person or Group (other
than the Current Management Group) beneficially owning or controlling,
directly or indirectly, greater than 50% of the Voting Stock of the
Company. As used in this definition,: "Current Management Group" shall
mean (i) Geoffrey B. Bloom, Steven M. Duffy, Stephen L. Gulis, Jr., Blake
Krueger and Timothy J. O'Donovan or (ii) any Group which includes and is
under the general direction of any of the above-named persons; "Group" shall
mean any Group or related persons constituting a "group" for the purposes of
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Section 13(d) of the Securities Exchange Act of 1934, as amended, or any
successor provision; and "Voting Stock" shall mean securities of any class
or classes, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
"Commitments" means the commitments of the Banks to lend hereunder
pursuant to Section 2.1, in the respective amounts set forth next to the name
of such Bank on the signature page hereof or as subsequently set forth in any
Assignment and Acceptance, as such amounts may be reduced from time to time
pursuant to Section 2.2 or modified pursuant to Section 10.6.
"Contingent Liabilities" of any Person means, as of any date, all
obligations of such Person or of others for which such Person is contingently
liable, as obligor, guarantor, surety or in any other capacity, or in respect
of which obligations such Person assures a creditor against loss or agrees to
take any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including
without limitation all reimbursement obligations of such Person in respect of
any letters of credit or similar obligations and all obligations of such Person
to advance funds to, or to purchase assets, property or services from, any
other Person in order to maintain the financial condition of such other Person.
"Dollars" and "$" means the lawful money of the United States of America.
"Effective Date" means the effective date specified in the final
paragraph of this Agreement.
"Environmental Laws" at any date means all provisions of law, statute,
ordinances, rules, regulations, judgments, writs, injunctions, decrees, orders,
awards and standards (but only to the extent such standards could be
determined to be legally binding or the violation of such standards could give
rise to liability of the Company or any of its Subsidiaries) promulgated by
the government of the United States of America or any foreign government or by
any state, province, municipality or other political subdivision thereof or
therein or by any court, agency, instrumentality, regulatory authority or
commission of any of the foregoing concerning the protection of, or regulating
the discharge of substances into, the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Business Day" means, with respect to any Eurodollar Rate Loan,
a day which is both a Business Day and a day on which dealings in Dollar
deposits are carried out in the interbank market selected by the Agent with
respect to such Eurodollar Rate Loan.
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"Eurodollar Interest Period" means, with respect to any Eurodollar Rate
Loan, the period commencing on the day such Eurodollar Rate Loan is made or
converted to a Eurodollar Rate Loan and ending on the date 1, 2, 3, or 6
months thereafter, as the Company may elect under Section 3.1 or 3.5, and
each subsequent period commencing on the expiry of the immediately preceding
Eurodollar Interest Period and ending on the date 1, 2, 3, or 6 months
thereafter, as the Company may elect under Section 3.1 or 3.5, provided,
however, that (a) any Eurodollar Interest Period which commences on the last
Eurodollar Business Day of a calendar month (or on any day for which there is
no numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Eurodollar Business Day of the appropriate subsequent
calendar month, (b) each Eurodollar Interest Period which would otherwise end
on a day which is not a Eurodollar Business Day shall end on the next
succeeding Eurodollar Business Day or, if such next succeeding Eurodollar
Business Day falls in the next succeeding calendar month, on the next preceding
Eurodollar Business Day, and (c) no Eurodollar Interest Period shall be
permitted which would end after the Termination Date.
"Eurodollar Rate" means, with respect to any Eurodollar Rate Loan and the
related Eurodollar Interest Period, the per annum rate that is equal to the
sum of:
(a) the Applicable Margin, plus
(b) the per annum rate of interest determined by dividing (i) the per
annum rate of interest at which deposits in Dollars for such Eurodollar
Interest Period in an aggregate amount comparable to the amount of the Agent's
portion of such Eurodollar Rate Loan are offered to NBD Bank by other prime
banks in the London interbank market, selected in the Agent's discretion, at
approximately 11:00 a.m. Detroit time, as the case may be, on the second
Eurodollar Business Day prior to the first day of such Eurodollar Interest
Period; by (ii) a percentage equal to 100% minus that percentage (expressed
as a decimal) that is specified on the first day of such Eurodollar Interest
Period by the Board of Governors of the Federal Reserve System (or any
successor agency thereto) for determining the maximum reserve requirement
(including, without limitation, any marginal, emergency or special reserves)
with respect to eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) maintained by a member bank of
such System;
all as conclusively determined by the Agent, such sum to be rounded up, if
necessary, to the nearest whole multiple of 1/100 of 1%, and such Eurodollar
Rate to be adjusted as and when any change occurs in the reserve requirements
referred to in subparagraph (b) above.
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"Eurodollar Rate Loan" means any Loan which bears interest at the
Eurodollar Rate.
"Event of Default" means any of the events or conditions described in
Section 8.1.
"Existing Note Agreements" means the Note Agreements, each dated as of
August 1, 1994, Re: $30,000,000 7.81% Senior Notes Due August 15, 2004,
together with any document or instrument executed pursuant thereto, between the
Company and each of Teachers Insurance and Annuity Association of America, The
Minnesota Mutual Life Insurance Company, Farm Bureau Life Insurance Company of
Michigan, FB Annuity Company, Federated Life Insurance Company and Federated
Mutual Insurance Company, as each of the foregoing is amended by a First
Amendment to Note Agreement and Consent in the form delivered to the
Banks.
"Fixed Charge Coverage Ratio" shall have the meaning ascribed thereto in
Section 7.2(c).
"Fixed Charges" means, for any period, the sum of (i) the excess of (x)
all Interest expense on all Indebtedness (including imputed interest charges
with respect to any lease, which in accordance with generally accepted
accounting principles, is or should be capitalized on the books of the lessee)
of the Company and its Subsidiaries payable with respect to such period over
(y) all interest earnings received during such period and (ii) all Rentals
(excluding Rentals payable with respect to leases which are or should be
capitalized on the books of the lessee) payable during such period by the
Company and its Subsidiaries.
"Floating Rate Loan" means any Loan which bears interest at the Prime
Rate.
"Generally Accepted Accounting Principles" means generally accepted
accounting principles in effect from time to time applied on a basis
consistent with that reflected in the financial statements referred to in
Section 6.6.
"Indebtedness" of any Person means, as of any date, (a) all obligations
of such Person for borrowed money, (b) all obligations as lessee under any
lease which, in accordance with generally accepted accounting principles, is
or should be capitalized on the books of the lessee, and (c) all obligations
of others similar in character to those described in clauses (a) and (b) of
this definition for which such Person is liable, contingently or otherwise,
as obligor, guarantor or in any other capacity, or in respect of which
obligations such Person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for the collection in the ordinary course of business), including
without limitation all reimbursement obligations of such Person in respect of
letters of credit or similar obligations and all obligations of such Person to
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<PAGE>
advance funds to, or to purchase assets, property or services from, any other
Person in order to maintain the financial condition of such Person; except
that 'Indebtedness' shall not include obligations now or in the future owing
to the Company by any of its Subsidiaries.
"Interest" means, for any period, all interest and all amortization of
debt discount and expense on any particular Indebtedness for which such
calculations are being made.
"Interest Payment Date" means (a) with respect to any Floating Rate
Loan, the first Business Day of each month, commencing with the first such
day occurring after the Effective Date, and (b) with respect to any Eurodollar
Rate Loan, the last day of the Interest Period with respect to such Eurodollar
Rate Loan and, if such Interest Period exceeds three months, the day in the
third month following the month the Loan proceeds were disbursed (or, in the
case of the continuation of a Loan as, or conversion of a Loan to, a
Eurodollar Rate Loan, the day in the third month following the month in which
such continuation or conversion occurred) that numerically corresponds to the
date on which the Loan proceeds were disbursed (or to the date on which such
continuation or conversion occurred) or, if there is no numerically
corresponding day, the last Eurodollar Business Day of that third month.
"Interest Period" means any Eurodollar Interest Period.
"Loan" means any borrowing under Section 3.1 and "Loans" means all of the
borrowings under Section 3.1.
"Majority Banks" means Banks holding not less than 66-2/3% of the
aggregate principal amount of the Notes then outstanding (or 66-2/3% of the
Commitments if no principal amount is outstanding under the Notes).
"Material Subsidiary" shall mean any Subsidiary of the Company if:
(1) The assets of such Subsidiary (valued at the greater of book or fair
market) as at the end of the immediately preceding fiscal year exceed 5% of
Consolidated Total Assets (as defined in the Existing Note Agreements) of the
Company and its Subsidiaries; or
(2) The aggregate sum of all assets (valued at the greater of book or
fair market) of such Subsidiary, when combined with the assets of all other
Subsidiaries to which Section 8.1(i) would have applied if not for the
limitations set forth herein at any time during the three-year period
immediately preceding the date of such determination, exceeds 5% of
Consolidated Total Assets of the Company and its Subsidiaries; or
(3) The percentage of Consolidated Net Earnings (as defined in the
Existing Note Agreements) of the Company and its Subsidiaries contributed by
such Subsidiary during the immediately preceding fiscal year exceeds 5%; or
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<PAGE>
(4) 5% is less than the sum of (i) the percentage of Consolidated Net
Earnings of the Company and its Subsidiaries contributed by such Subsidiary
during its Applicable Year and (ii) the percentage of Consolidated Net Earnings
of the Company and its Subsidiaries contributed during its Applicable Year by
each other Subsidiary of the Company to which Section 8.1(i) would have applied
at any time during the three-year period immediately preceding the date of such
determination if not for the limitations set forth herein. The "Applicable
Year" for each such Subsidiary shall be the last complete fiscal year of the
Company and its Subsidiaries immediately preceding the date of the occurrence
of the relevant event or circumstance described in Section 8.1(i).
"Net Income" of any Person means, for any period, the net income (after
deduction for income and other taxes of such Person determined by reference to
income or profits of such Person) for such period, all as determined in
accordance with generally accepted accounting principles.
"Net Income Available for Fixed Charges" means, for any period, the sum
of (i) consolidated Net Income of the Company and its Subsidiaries during such
period plus (ii) to the extent deducted in determining Net Income, all
provisions for all federal, state or other income taxes made by the Company
and its Subsidiaries during such period plus (iii) consolidated Fixed Charges
of the Company and its Subsidiaries during such period.
"Notes" means the promissory notes of the Company issued to the Banks
evidencing the Loans, in substantially the form annexed hereto as Exhibit A,
as amended or modified from time to time and together with any promissory note
or notes issued in exchange or replacement therefor.
"Overdue Rate" means (a) in respect of principal on Floating Rate Loans,
a rate per annum that is equal to the sum of three percent (3%) plus the Prime
Rate, (b) in respect of Eurodollar Rate Loans, a rate per annum that is equal
to the sum of three percent (3%) plus the per annum rate in effect thereon
until the end of the then-current Eurodollar Interest Period for such Loan and
thereafter a rate per annum that is equal to the sum of three percent (3%) plus
the Prime Rate, and (c) in respect of other amounts payable by the Company
hereunder (other than interest) a per annum rate that is equal to the sum of
three percent (3%) plus the Prime Rate.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
-8-
<PAGE>
"Person" shall include an individual, a corporation, an association, a
partnership, a trust or estate, a joint stock company, an unincorporated
organization, a joint venture, a government (foreign or domestic), and any
agency or political subdivision thereof, and any other entity.
"Plan" means, with respect to any Person, any employee benefit or other
plan maintained by such Person for its employees and covered by Title IV of
ERISA or to which Sec. 412 of the Internal Revenue Code of 1986, as amended
from time to time, applies.
"Prime Rate" means the greater of (a) the per annum rate announced by
the Agent from time to time as its "prime rate", which "prime rate" may not
be the lowest rate charged by the Agent to any of its customers, such Prime
Rate to change simultaneously with any change in such "prime rate", and (b)
the per annum rate equal to the sum of one-half of one percent (1/2%) per
annum plus the per annum rate established and announced by the Agent from
time to time as the opening federal funds rate paid or payable by the Agent
in its regional federal funds market for overnight borrowings from other
banks.
"Rentals" means, with respect to any period, the excess of (x) all fixed
rents (including all payments which the lessee is obligated to make to the
lessor on termination of the lease or surrender of the property) payable with
respect to such period by the Company or its Subsidiaries as lessee or
sublessee under a lease of real or Personal property (exclusive of any amounts
required to be paid by the Company or its Subsidiaries, whether designated as
rents or additional rents, on account of maintenance, repairs, insurance,
taxes and similar charges) over (y) all such amounts received by the Company
and its Subsidiaries as lessor under a lease of real or Personal property
during such period.
"Subsidiary" of any Person means any corporation (whether now existing or
hereafter organized or acquired) in which at least a majority of the securities
of each class having ordinary voting power for the election of directors (other
than securities which have such power only by reason of the happening of a
contingency), at the time as of which any determination is being made, is
owned, beneficially and of record, by such Person or by one or more of the
other Subsidiaries of such Person or by any combination thereof.
"Tangible Net Worth" of any Person means, as of any date (a) the amount
of any capital stock or similar ownership liability plus (or minus in the case
of a deficit) the capital surplus and retained earnings of such Person and the
amount of any foreign currency translation adjustment account shown as a
capital account of such Person, less (b) the net book value of all items of
the following character which are included in the assets of such Person: (i)
goodwill, including without limitation the excess of cost over book value of
any asset, (ii) organization or experimental expenses, (iii) unamortized debt
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discount and expense, (iv) stock discount and expense, (v) patents,
trademarks, trade names and copyrights, (vi) treasury stock, (vii) deferred
taxes and deferred charges, (viii) franchises, licenses and permits, and (ix)
other assets which are deemed intangible assets under generally accepted
accounting principles.
"Termination Date" means the earlier to occur of (a) October 11, 2001,
and (b) the date on which the Commitments shall be terminated pursuant to
Section 2.2 or 8.2.
"Total Liabilities" of any Person means, as of any date, all obligations
which, in accordance with generally accepted accounting principles, are or
should be classified as liabilities on a balance sheet of such Person.
"Total Liabilities to Tangible Net Worth Ratio" means, as of any date,
the ratio of consolidated Total Liabilities of the Company and its
Subsidiaries to consolidated Tangible Net Worth of the Company and its
Subsidiaries.
1.2 As used herein, the terms "Agent", "Bank", "Banks", "Company" and
"this Agreement" shall have the respective meanings ascribed thereto in the
introductory paragraph of this Agreement. Such terms, together with the other
terms defined in Section 1.1, shall include both the singular and the plural
forms thereof and shall be construed accordingly. All computations required
hereunder and all financial terms used herein shall be made or construed in
accordance with generally accepted accounting principles unless such
principles are inconsistent with the express requirements of this Agreement.
Use of the terms "herein", "hereof", and "hereunder" shall be deemed
references to this Agreement in its entirety and not to the Section or clause
in which such term appears.
ARTICLE II. THE COMMITMENTS
2.1 COMMITMENTS OF THE BANKS. Each Bank agrees, for itself only,
subject to the terms and conditions of this Agreement, to lend to the Company
from time to time from the Effective Date until the Termination Date, sums not
to exceed in aggregate principal amount at any time outstanding the amount of
its Commitment. Each borrowing under this Section 2.1 shall be made from the
Banks pro rata in accordance with their Commitments.
2.2 TERMINATION AND REDUCTION OF COMMITMENTS. The Company shall have
the right to terminate or reduce the aggregate Commitments at any time and
from time to time, provided that (a) the Company shall give five days' prior
written notice of such termination or reduction to the Agent (with sufficient
executed copies for each Bank) specifying the amount and effective date
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thereof, (b) each partial reduction of the aggregate Commitments shall be in
a minimum amount of $5,000,000 and in an integral multiple of $1,000,000, and
shall reduce all Commitments proportionately, (c) no such termination or
reduction shall be permitted with respect to any portion of the Commitments as
to which a request for a Loan pursuant to Section 3.1 is then pending, and (d)
the Commitments may not be terminated if any Loans are then outstanding and
may not be reduced below the principal amount of Loans then outstanding. The
Commitments or any portion hereof so terminated or reduced may not be
reinstated.
2.3 FACILITY FEES. The Company agrees to pay to the Agent for the pro
rata benefit of the Banks a facility fee on the daily average amount of the
Commitments, whether used or unused, for the period from the Effective Date
to but excluding the Termination Date, in arrears, at a rate equal to the
Applicable Margin. Accrued facility fees shall be payable quarterly, in
arrears, on the first Business Day of each January, April, July and October,
commencing on such Business Day in the month of January, 1997, and on the
Termination Date.
2.4 AGENT'S FEE. The Company agrees to pay to the Agent an agency fee
for its services as Agent under this Agreement in such amounts and at such
times as may be agreed upon by the Company and the Agent.
ARTICLE III. THE LOANS
3.1 DISBURSEMENT OF LOANS. (a) The Company shall give the Agent notice
of each requested Loan in substantially the form of Exhibit B hereto (with
sufficient executed copies for each Bank) not later than 11:00 a.m. Detroit
time (i) three Eurodollar Business Days prior to the date of such requested
Loan in the case of any Eurodollar Rate Loan, and (ii) on the date of such
requested Loan in the case of a Floating Rate Loan, which notice shall
specify whether a Eurodollar Rate Loan or Floating Rate Loan is requested and,
in the case of each requested Eurodollar Rate Loan, the Interest Period to be
initially applicable to such Loan. The Agent shall provide notice of such
requested Loan to each Bank by 2:00 p.m. Detroit time on the date such notice
is received by the Agent.
(b) Subject to the terms and conditions of this Agreement, the
proceeds of any such requested Loan shall be made available to the Company by
depositing the proceeds thereof, in immediately available funds, in an account
maintained and designated by the Company at the principal office of the Agent,
provided, that the proceeds of the initial Loan shall be used to pay all
amounts owing to the Banks pursuant to the Prior Credit Agreement and the
promissory notes issued by the Company thereunder, at which time the
commitments of the Banks under the Prior Credit Agreement shall be terminated.
Each Bank, on the date of any such requested Loan, shall make its pro rata
share of such Loan available in immediately available funds at the principal
office of the Agent for disbursement to the Company. Unless the Agent shall
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have received notice from any Bank prior to the date of any requested
borrowing under this Section 3.1 that such Bank will not make available to
the Agent such Bank's pro rata portion of such borrowing, the Agent may
assume that such Bank has made such portion available to the Agent on the
date of such borrowing in accordance with this Section 3.1(b). If and to
the extent such Bank shall not have so made such pro rata portion available
to the Agent, the Agent may (but shall not be obligated to) make such amount
available to the Company, and such Bank and the Company severally agree to
pay to the Agent forthwith on demand such amount together with interest
thereon, for each day from the date such amount is made available to the
Company by the Agent until the date such amount is paid to the Agent, at a
rate per annum equal to the rate at which overnight borrowings are available
to the Agent from other banks in its regional federal funds market. If such
Bank shall pay to the Agent such amount, the amount so paid shall constitute
a Loan by such Bank as a part of such borrowing for purposes of this
Agreement. The failure of any Bank to make its pro rata portion of any such
borrowing available to the Agent shall not relieve any other Bank of its
obligations to make available its pro rata portion of such borrowing on the
date of such borrowing, but no Bank shall be responsible for failure of any
other Bank to make such pro rata portion available to the Agent on the date
of any such borrowing. Acceptance by the Company of any Loan in an amount
less than the amount requested by the Company as a result of any Bank's
failure to make its pro rata portion of such borrowing available shall not
constitute a waiver of the Company's right against such Bank for any damages
resulting therefrom.
(c) All borrowings hereunder shall be evidenced by the Notes, and
all such borrowings shall be due and payable and bear interest as provided in
Article IV hereof. Each Bank is hereby authorized by the Company to note on
the schedule attached to its Note or on its books and records, the date, the
amount of its pro rata share of and the type of each Loan and the duration of
the related Interest Period (if applicable), the amount of each payment or
prepayment of principal thereon, and the other information provided for on
such schedule, which schedule shall constitute prima facie evidence of the
information so noted, provided that failure of any Bank to make any such
notation shall not relieve the Company of its obligation to repay the
outstanding principal amount of the Loans, all accrued interest thereon and
other amounts payable with respect thereto in accordance with the terms of
the Notes and this Agreement. Subject to the terms and conditions of this
Agreement, the Company may borrow, prepay pursuant to Section 4.1 and reborrow
Loans under this Section 3.1.
3.2 CONDITIONS FOR DISBURSEMENT OF INITIAL LOAN. The obligation of the
Banks to make the initial Loan hereunder is subject to receipt by each Bank of
the following documents and satisfaction of the following conditions, each in
form and substance satisfactory to each Bank:
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(a) Certificates of recent date of the appropriate authority or
official of the Company's state of incorporation listing all charter documents
of the Company on file in that office and certifying as to the good standing
and corporate existence of the Company, together with copies of such charter
documents of the Company certified as of a recent date by such authority or
official and certified as true and correct as of the Effective Date by a duly
authorized officer of the Company;
(b) Copies of the by-laws of the Company, together with all
authorizing resolutions and evidence of other corporate action taken by the
Company to authorize the execution, delivery and performance by the Company of
this Agreement and the Notes and the consummation of the transactions
contemplated hereby, each certified as true and correct as of the Effective
Date by a duly authorized officer of the Company;
(c) Certificates of incumbency of the Company containing, and
attesting to the genuineness of, the signatures of those officers authorized
to act on behalf of the Company in connection with this Agreement and the
Notes and the consummation of the transactions contemplated hereby, certified
as true and correct as of the Effective Date by a duly authorized officer of
the Company;
(d) The Notes duly executed on behalf of the Company, appropriately
completed for each Bank and dated on or before the date of such Loan;
(e) The favorable written opinion of Warner, Norcross & Judd LLP,
counsel for the Company, with respect to each of the matters as any of the
Banks may reasonably request; and
(f) Simultaneously with disbursement of the initial Loan hereunder,
payment in full of all principal of all promissory notes issued pursuant to the
Prior Credit Agreement and all accrued interest thereon through the Effective
Date, together with payment in full of all other indebtedness under the Prior
Credit Agreement, including without limitation the payment of all commitment
and facility fees accrued through the Effective Date under the Prior Credit
Agreement, and on the Effective Date all commitments to lend under the Prior
Credit Agreement shall terminate.
3.3 CONDITIONS FOR DISBURSEMENT OF EACH LOAN. The obligation of the
Banks to make any Loan (including the initial Loan) is subject to the
satisfaction of the following conditions precedent:
(a) The representations and warranties contained in Article VI
shall be true and correct on and as of the date such Loan is made as if such
representations and warranties were made on and as of such date; and
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(b) No Event of Default, and no event or condition which would
become such an Event of Default with notice or lapse of time, or both, shall
exist or shall have occurred and be continuing on the date such Loan is made.
The Company shall be deemed to have made a certification to the Banks at the
time of the making of each Loan to the effects set forth in clauses (a) and (b)
of this Section 3.3.
3.4 MINIMUM AMOUNTS. Except for conversions and prepayments of all
Loans of a particular type and conversions or payments required pursuant to
Section 4.4 or Article V, each Eurodollar Rate Loan and each conversion and
prepayment thereof shall be in a minimum amount of $5,000,000 and in an
integral multiple of $1,000,000, and each Floating Rate Loan and each
conversion and prepayment thereof shall be in a minimum amount of $1,000,000
and in an integral multiple of $100,000.
3.5 SUBSEQUENT ELECTIONS AS TO LOANS. The Company may elect to continue
a Eurodollar Rate Loan of one type as a Eurodollar Rate Loan of the
then-existing type or may elect to convert a Eurodollar Rate Loan of one type
to a Loan of another type by giving notice thereof to the Agent (with
sufficient executed copies for each Bank) in substantially the form of Exhibit
C hereto not later than 11:00 a.m. Detroit time (a) three Eurodollar Business
Days prior to the date any such continuation of or conversion to a Eurodollar
Rate Loan is to be effective, and (b) on the date such continuation or
conversion is to be effective in all other cases, provided that an outstanding
Eurodollar Rate Loan may only be converted on the last day of the then-current
Interest Period with respect to such Loan and, provided further, if a
continuation of a Loan as, or a conversion of a Loan to, a Eurodollar Rate
Loan is requested, such notice shall also specify the Interest Period to be
applicable thereto upon such continuation or conversion. The Agent shall
provide notice of such election to each Bank by 2:00 p.m. Detroit time on the
date such notice is received by the Agent. If the Company shall fail to
timely deliver such a notice with respect to any outstanding Eurodollar Rate
Loan, the Company shall be deemed to have elected to convert such Loan to a
Floating Rate Loan on the last day of the then-current Interest Period with
respect to such Loan.
3.6 DISCRETION OF THE BANKS AS TO MANNER OF FUNDING. Notwithstanding
any provision of this Agreement to the contrary, each Bank shall be entitled
to fund and maintain its funding of all or any part of its portion of the
Loans in any manner it sees fit, it being understood, however that for the
purposes of this Agreement all determinations hereunder shall be made as if
each Bank had actually funded and maintained each Eurodollar Rate Loan during
each related Interest Period through the purchase of deposits in the relevant
interbank market having a maturity corresponding to such related Interest
Period and bearing an interest rate equal to the Eurodollar Rate for such
Interest Period.
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ARTICLE IV. PAYMENTS AND PREPAYMENTS OF LOANS
4.1 PRINCIPAL PAYMENTS. Unless earlier payment is required under this
Agreement, the Company shall pay to the Banks on the Termination Date the
outstanding principal amount of the Loans.
4.2 INTEREST PAYMENTS. The Company shall pay interest to the Banks on
the unpaid principal amount of each Loan, for the period commencing on the
date such Loan is made until such Loan is paid in full, on each Interest
Payment Date and at maturity (whether at stated maturity, by acceleration or
otherwise), and thereafter on demand, at the following rates per annum:
(a) During such periods that such Loan is a Floating Rate Loan,
the Prime Rate.
(b) During such periods that such Loan is an Eurodollar Rate Loan,
the Eurodollar Rate applicable to such Loan for each related Eurodollar
Interest Period.
(c) Notwithstanding any of the foregoing paragraphs, the Company
hereby agrees to pay interest on demand at the Overdue Rate on the outstanding
principal amount of any Loan and any other amount payable by the Company
hereunder (other than interest) commencing upon the occurrence and continuing
thereafter during the continuance of any Event of Default.
4.3 OPTIONAL PREPAYMENT. The Company may at any time and from time to
time prepay all or a portion of the Loans without premium or penalty, provided
that the Company may not prepay any portion of any such Loan as to which an
election for a continuation of or a conversion to any Eurodollar Rate Loan is
pending pursuant to Section 3.5 and, provided, further, that unless earlier
payment is required under this Agreement, any such Eurodollar Rate Loan may
only be prepaid on the last day of the then-current Interest Period with
respect to such Loan.
4.4 MANDATORY PREPAYMENT. In addition to all other payments and
prepayments made by the Company on the Loans, if at any time the aggregate
Loans exceed the aggregate Commitment of the Banks, the Company shall
forthwith pay to the Banks an amount not less than the amount of such excess.
4.5 PAYMENT METHOD. All payments to be made by the Company hereunder
will be made in Dollars and in immediately available funds to the Agent for the
account of the Banks at its address set forth in Section 10.2 not later than
11:00 a.m. Detroit time on the date on which such payment shall become due.
Payments received after 11:00 a.m. Detroit time shall be deemed to be payments
made prior to 11:00 a.m. Detroit time on the next succeeding Business Day. At
the time of making each such payment, the Company shall specify to the Agent
that obligation of the Company hereunder to which such payment is to be applied
or, in the event that the Company fails to so specify or if an Event of Default
shall have occurred and be continuing, the Agent may apply such payments as it
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may determine in its sole discretion. On the day such payments are deemed
received, the Agent shall remit to the Banks their pro rata shares of such
payments, in immediately available funds, (a) in the case of payments of
principal of and interest on the Loans, determined with respect to each such
Bank by the ratio which the outstanding principal balance of its Note bears to
the outstanding principal amount of all Notes, and (b) in the case of fees
paid pursuant to Article II and other amounts payable hereunder, determined
with respect to each such Bank by the ratio which the Commitment of such Bank
bears to the Commitments of all the Banks.
4.6 NO SETOFF OR DEDUCTION. All payments of principal of and interest on
the Loans and other amounts payable by the Company hereunder shall be made by
the Company without setoff or counterclaim, and free and clear of, and without
deduction or withholding for, or on account of, any present or future taxes,
levies, imposts, duties, fees, assessments, or other charges of whatever
nature, imposed by any governmental authority, or by any department, agency or
other political subdivision or taxing authority.
4.7 PAYMENT ON NON-BUSINESS DAY; PAYMENT COMPUTATIONS. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan outstanding hereunder or any other
amount due hereunder becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day
and, in the case of any installment of principal, interest shall be payable
thereon at the rate per annum determined in accordance with this Agreement
during such extension. Computations of interest and other amounts due under
this Agreement shall be made on the basis of a year of 360 days for the actual
number of days elapsed, including the first day but excluding the last day of
the relevant period.
ARTICLE V. YIELD PROTECTION AND CONTINGENCIES
5.1 ADDITIONAL COSTS. In the event that the adoption after the Effective
Date of any applicable law, treaty, rule or regulation (whether domestic or
foreign), or any interpretation or administration after the Effective Date of
any applicable law, treaty, rule or regulation (whether domestic or foreign) by
any governmental authority charged with the interpretation or administration
thereof, or compliance by any Bank with any request or directive of any such
authority (whether or not having the force of law), shall (a) affect the basis
of taxation of payments to any Bank of any amounts payable by the Company under
this Agreement (other than federal or state income taxes or taxes imposed on
the overall net income of the Bank or the Michigan Single Business Tax), or (b)
shall impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by any Bank, or (c) shall impose any penalty or other condition with
respect to this Agreement, the Notes or the Loans, and the result of any of the
foregoing is to increase the cost to any Bank of making or maintaining any
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Eurodollar Rate Loan or to reduce the amount of any sum receivable by such Bank
thereon, then, provided the Bank has complied with the notice provisions of
this Section 5.1, the Company shall pay to such Bank, from time to time upon
request by such Bank, additional amounts sufficient to compensate the Bank for
such increased cost to or reduced sum receivable by the Bank to the extent such
Bank is not expressly compensated therefor in the computation of the interest
rate applicable to such Loan. Any Bank seeking reimbursement shall give the
Company written notice, in reasonable detail, of the law, treaty, rule or
regulation, or any interpretation or administration thereof, which may give
rise to the increased cost or reduced sum receivable to the Bank and the
reimbursement obligation of the Company. Such notice, together with a detailed
statement as to the amount of such increased cost or reduced sum receivable,
prepared in good faith, shall be given to the Company within 90 days after such
Bank has actual notice of such law, treaty, rule or regulation, or any
applicable interpretation or administration thereof, and the Company shall make
payment to such Bank of the amount due within 15 days after receipt by the
Company of such notice and statement.
5.2 LIMITATION OF REQUESTS AND ELECTIONS. Notwithstanding any other
provision of this Agreement to the contrary, if, upon receiving a request for a
Eurodollar Rate Loan pursuant to Section 3.1, or a request for a continuation
of a Eurodollar Rate Loan as a Eurodollar Rate Loan of the then existing type
pursuant to Section 3.5, or conversion of a Loan to a Eurodollar Rate Loan
pursuant to Section 3.5, (a) in the case of any Eurodollar Rate Loan, deposits
in Dollars for periods comparable to the Interest Period elected by the Company
are not available to any Bank in the relevant inter-bank or secondary market,
or (b) the Eurodollar Rate will not adequately and fairly reflect the cost to
any Bank of making or maintaining the related Eurodollar Rate Loan, as the case
may be, or (c) by reason of national or international financial, political or
economic conditions or by reason of any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect, or the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Bank
with any request or directive of such authority (whether or not having the
force of law), including without limitation exchange controls, it is
impracticable, unlawful or impossible for any Bank (i) to make the relevant
Eurodollar Rate Loan or (ii) to continue such Eurodollar Rate Loan as a
Eurodollar Rate Loan of the then existing type or (iii) to convert a Loan to
such a Eurodollar Rate Loan, then the Company shall not be entitled, so long
as such circumstances continue, to request a Eurodollar Rate Loan of the
affected type pursuant to Section 3.1 or a continuation of or conversion to a
Eurodollar Rate Loan of the affected type pursuant to Section 3.5. In the
event that such circumstances no longer exist, the Banks shall again consider
requests for Eurodollar Rate Loans of the affected type pursuant to Section
3.1, and requests for continuations of and conversions to Eurodollar Rate
Loans of the affected type pursuant to Section 3.5.
5.3 ILLEGALITY AND IMPOSSIBILITY. In the event that any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
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effect and whether or not presently applicable to any Bank, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Bank
with any request or directive of such authority (whether or not having the
force of law), including without limitation exchange controls, shall make it
unlawful or impossible for any Bank to maintain any Eurodollar Rate Loan under
this Agreement, the Company shall upon receipt of notice thereof from such
Bank, repay in full to all of the Banks the then outstanding principal amount
of each Eurodollar Rate Loan so affected together with all accrued interest
thereon to the date of payment and all amounts due to the Banks, if any, under
Section 5.5, (a) on the last day of the then-current Interest Period
applicable to such Loan if the Bank may lawfully continue to maintain such
Loan to such day, or (b) immediately if the Bank may not continue to maintain
such Loan to such day.
5.4 ADDITIONAL CONTINGENCIES. If by reason of the adoption after the
Effective Date of any applicable law, treaty, rule or regulation, or any
interpretation or administration after the Effective Date of any applicable
law, treaty, rule or regulation by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Bank with any
request or directive of such authority (whether or not having the force of
law), the ability of the Agent to establish the Prime Rate shall be limited or
restricted (other than by limitations or restrictions affecting the charging
of interest generally), the Agent shall promptly provide notice thereof to the
Company and the Banks. Thereafter, the Company, the Agent and the Banks shall
negotiate with a view to agreeing to a mutually acceptable alternative basis
to make and maintain Floating Rate Loans. If an alternative basis is agreed
upon within 30 days after the date of such notice, it shall apply in
accordance with the terms of such agreement. If such alternative basis is not
agreed upon within such 30-day period, the Company shall on the 31st day after
such notice is given repay in full the then-outstanding principal amount of
each Floating Rate Loan so affected together with accrued interest thereon
(computed at the rate applicable to such Floating Rate Loans immediately
preceding the imposition of such limitations or restrictions for the period
after such imposition) and, during the continuance of such circumstances, the
Company shall not be entitled to request Floating Rate Loans so affected
pursuant to Section 3.1 or continuations of or conversions to Floating Rate
Loans so affected pursuant to Section 3.5.
5.5 INDEMNIFICATION. If the Company makes any payment of principal with
respect to any Eurodollar Rate Loan on any other date than the last day of an
Interest Period applicable thereto (whether pursuant to Section 4.4, Section
5.3, Section 8.2 or otherwise), or if the Company fails to borrow any
Eurodollar Rate Loan after notice has been given in accordance with Section
3.1 (except if such failure is due to circumstances described in Section 5.2),
or fails to make any payment of principal or interest in respect of a
Eurodollar Rate Loan when due, the Company shall reimburse each Bank on demand
for any resulting loss or expense incurred by each such Bank, including without
limitation any loss incurred in obtaining, liquidating or employing deposits
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from third parties, PROVIDED that (a) the Company shall not be required to
reimburse any Bank under this Section 5.5 for any such loss or expense not
attributable to the relevant Loan (i.e., the Loan with respect to which such
nonconforming payment is made, or the Loan that is not borrowed by the Company
after such notice is given, or the Loan with respect to which such due payment
is not made) being a Eurodollar Rate Loan, and (b) the Company shall have no
liability under this Section 5.5 with respect to any prepayment pursuant to
Section 5.3 that is required due to the application of any law, treaty, rule
or regulation, any interpretation or administration thereof, or any request or
directive, as the case may be, in effect prior to the Effective Date. A
detailed statement as to the amount of such loss or expense, prepared in good
faith and submitted by such Bank to the Company, shall be prima facie evidence
of the amount thereof.
5.6 CAPITAL ADEQUACY. In the event that the adoption after the
Effective Date of any applicable law, treaty, rule or regulation (whether
domestic or foreign), or any interpretation or administration after the
Effective Date of any applicable law, treaty, rule or regulation by any
governmental authority charged with the interpretation or administration
thereof, or compliance by any Bank or any corporation controlling such Bank
with any request or directive of any such authority (whether or not having
force of law) regarding capital adequacy or a change therein, or compliance by
any Bank, any such controlling corporation or any of their branches with any
request or directive regarding capital adequacy of any such authority, has or
would have the effect of reducing the rate of return on such Bank's or such
controlling corporation's capital as a consequence of its obligations
hereunder to a level below that which such Bank or such controlling
corporation would have achieved but for any of the foregoing by an amount
deemed by such Bank to be material, the Company shall pay to such Bank, from
time to time upon request by such Bank, additional amounts sufficient to
compensate such Bank or such controlling corporation for such reduction,
PROVIDED that the Company shall not be required to pay such compensation to
any Bank or corporation controlling such Bank, as the case may be, to the
extent such reduction is attributable to any such law, treaty, rule or
regulation, or interpretation or administration thereof, or request or
directive, as the case may be, that is not generally applicable to (a) in the
case of each Bank that is a national bank, all national banks, or (b) in the
case of any of the Banks, all banks organized under the same authority as such
Bank (i.e., if such Bank is a State of Michigan chartered bank, all State of
Michigan chartered banks and if such Bank is a federal savings bank, all
federal savings banks, etc.) in any of the states in which such Bank has an
office. Any Bank seeking reimbursement shall give the Company written notice,
and reasonable detail, of the law, treaty, rule or regulation, or any
interpretation or administration thereof, which may give rise to the increased
cost or reduced sum receivable to the Bank or such controlling corporation and
the reimbursement obligation of the Company. Such notice, together with a
detailed statement as to the amount of such increased cost or reduce some
receivable, prepared in good faith, shall be given to the Company within
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ninety (90) days after such Bank has actual notice of such law, treaty, rule
or regulation, or any applicable interpretation or administration thereof, and
the Company shall make payment to such Bank of the amount due within fifteen
(15) days after receipt by the Company of such notice and statement.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants that:
6.1 CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and is duly qualified to do business in each additional
jurisdiction in which (a) such qualification is necessary under applicable law
and (b) the failure to be so qualified would have a material adverse effect on
the properties, business, prospects, profits or condition (financial or
otherwise) of the Company or of the Company and its Subsidiaries taken as a
whole. The Company has all requisite corporate power to own its properties
and to carry on its business as now being conducted and as proposed to be
conducted, and to execute and deliver this Agreement and the Notes and to
engage in the transactions contemplated by this Agreement.
6.2 CORPORATE AUTHORITY. The execution, delivery and performance by the
Company of this Agreement and the Notes are within its corporate powers, have
been duly authorized by all necessary corporate action and are not in
contravention of any law, rule or regulation, or any judgment, decree, writ,
injunction, order or award of any arbitrator, court or governmental authority,
or of the terms of the Company's charter or by-laws, or of any contract or
undertaking to which the Company is a party or by which the Company or its
property may be bound or affected.
6.3 BINDING EFFECT. This Agreement is, and the Notes when delivered
hereunder will be, legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting enforcement of creditors'
rights generally and by general principles of equity (whether applied in a
proceeding at law or in equity).
6.4 SUBSIDIARIES. SCHEDULE 6.4 hereto correctly sets forth the
corporate name, jurisdiction of incorporation and ownership percentage with
respect to each Subsidiary of the Company. Each such Subsidiary and each
corporation becoming a Subsidiary of the Company after the date hereof is and
will be a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and is and will be duly
qualified to do business in each additional jurisdiction in which (a) such
qualification is necessary under applicable law and (b) the failure to be so
qualified would have a material adverse effect on the properties, business,
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prospects, profits or condition (financial or otherwise) of the Company or of
the Company and its Subsidiaries taken as a whole. Each Subsidiary of the
Company has and will have all requisite corporate power to own its properties
and to carry on its business as now being conducted and as proposed to be
conducted. All outstanding shares of capital stock of each class of each
Subsidiary of the Company have been and will be validly issued and are fully
paid and nonassessable and, except as otherwise indicated in SCHEDULE 6.4
hereto or disclosed in writing to the Banks from time to time, are and will
be owned, beneficially and of record, by the Company or another Subsidiary
of the Company free and clear of any liens, charges, encumbrances or rights
of others whatsoever.
6.5 LITIGATION. Except as disclosed on SCHEDULE 6.5 hereto, there is no
action, suit or proceeding pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any of its Subsidiaries before
or by any court, governmental authority, or arbitrator, which if adversely
decided might result, either individually or collectively, in any material
adverse change in the business, properties, operations or conditions, financial
or otherwise, of the Company or of the Company and its Subsidiaries taken as a
whole, and, to the best of the Company's knowledge, there is no basis for any
such action, suit or proceeding.
6.6 FINANCIAL CONDITION. The consolidated balance sheet of the Company
and its Subsidiaries and the consolidated statements of income, retained
earnings and changes in financial position of the Company and its Subsidiaries
for the fiscal year ended December 31, 1995, and certified by Ernst & Young,
independent certified public accountants, and the interim consolidated balance
sheet and interim consolidated statements of income, retained earnings and
changes in financial position of the Company and its Subsidiaries, as of or
for the third quarter ended on September 7, 1996, copies of which have been
furnished to the Banks, fairly present the consolidated financial position
of the Company and its Subsidiaries as at the respective dates thereof, and
the consolidated results of operations of the Company and its Subsidiaries
for the respective periods indicated, all in accordance with generally
accepted accounting principles consistently applied (subject, in the case of
said interim statements, to year-end audit adjustments). There has been no
material adverse change in the business, properties, operations or condition,
financial or otherwise, of the Company or of the Company and its Subsidiaries
taken as a whole, since December 31, 1995.
6.7 USE OF LOANS. Neither the Company nor any of its Subsidiaries
extends or maintains, in the ordinary course of business, credit for the
purpose, whether immediate, incidental, or ultimate, of buying or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Loan will be
used for the purpose, whether immediate, incidental, or ultimate, of buying or
carrying any such margin stock or maintaining or extending credit to others
for such purpose.
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6.8 CONSENTS, ETC. No consent, approval or authorization of or
declaration, registration or filing with any governmental authority or any
nongovernmental Person or entity, including without limitation any creditor or
stockholder of the Company or any of its Subsidiaries, is required on the part
of the Company in connection with the execution, delivery and performance of
this Agreement or the Notes or the transactions contemplated hereby or as a
condition to the legality, validity or enforceability of this Agreement or
the Notes.
6.9 TAXES. The Company and its Subsidiaries have filed all tax returns
(federal, state and local) required to be filed and have paid all taxes shown
thereon to be due, including interest and penalties, or have established
adequate financial reserves on their respective books and records for payment
thereof.
6.10 TITLE TO PROPERTIES. Except as set forth in the financial statements
described in Section 6.6 or as otherwise disclosed in the financial statements
delivered pursuant to Section 7.1(d), the Company and its Subsidiaries have
good and marketable title to, and valid indefeasible ownership interests in,
all of their respective material properties and assets free and clear of any
lien, charge, security interest or other encumbrance of any kind, except such
as are permitted by Section 7.2(e).
6.11 EXISTING NOTE AGREEMENTS. There is no default under any Existing
Note Agreement, as amended or modified from time to time, or under any
agreement, document or instrument issued in exchange or substitution therefor
or as a supplement thereto, nor is there any event or condition which would,
unless sooner cured, become such a default with notice or lapse of time, or
both.
6.12 ENVIRONMENTAL AND SAFETY MATTERS. Except as described on SCHEDULE
6.12 attached hereto, (a) the Company and each Subsidiary is in substantial
compliance with all federal, state and local laws, ordinances and regulations
relating to safety and industrial hygiene or to the environmental condition,
including without limitation all Environmental Laws in jurisdictions in which
the Company or any Subsidiary owns or operates, or has owned or operated, a
facility or site, or arranges or has arranged for disposal or treatment of
hazardous substances, solid waste, or other wastes, accepts or has accepted
for transport any hazardous substances, solid wastes or other wastes or holds
or has held any interest in real property or otherwise; (b) no material demand,
claim, notice, suit, suit in equity, action, administrative action,
investigation or inquiry whether brought by any governmental authority, private
Person or entity or otherwise, arising under, relating to or in connection with
any Environmental Laws is pending or threatened against the Company or any of
its Subsidiaries, any real property in which the Company or any such Subsidiary
holds or has held an interest or any past or present operation of the Company
or any Subsidiary; (c) neither the Company nor any of its Subsidiaries (i) is
the subject of any federal or state investigation evaluating whether any
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remedial action is needed to respond to a release of any toxic substances,
radioactive materials, hazardous wastes or related materials into the
environment, (ii) has received any notice of any toxic substances, radioactive
materials, hazardous waste or related materials in, or upon any of its
properties in violation of any Environmental Laws, or (iii) knows of any basis
for any such investigation, notice or violation; and (d)no material release,
threatened release or disposal of hazardous waste, solid waste or other wastes
is occurring or has occurred on, under or to any real property in which the
Company or any of its Subsidiaries holds any interest or performs any of its
operations, in violation of any Environmental Law. Notwithstanding the
foregoing, the Company will not be in default or breach of this Section unless
and until any of the events or matters referenced in this Section is reasonably
expected to result in any material adverse change in the business, operations,
properties, or condition, financial or otherwise, of the Company and its
Subsidiaries, on a consolidated basis.
6.13 INDEBTEDNESS. All Indebtedness of the Company and its Subsidiaries
in a principal amount equal to or greater than $100,000, other than the
Existing Note Agreements, is listed on SCHEDULE 6.13 hereto.
ARTICLE VII. COVENANTS
7.1 AFFIRMATIVE COVENANTS. The Company covenants and agrees that, until the
Termination Date and thereafter until the payment in full of the principal of
and accrued interest on the Notes and the performance of all other obligations
of the Company under this Agreement, unless the Majority Banks shall otherwise
consent in writing, it shall, and except as to subsection (d), shall cause
each of its Subsidiaries to:
(a) PRESERVATION OF CORPORATE EXISTENCE, ETC. Except as otherwise
permitted under Section 7.2(f), preserve and maintain its corporate existence,
rights, privileges, licenses, franchises and permits and qualify and remain
qualified as a validly existing corporation in good standing in each
jurisdiction where the failure to so qualify and be in good standing would
have a material adverse effect on the business, property, operations or
condition, financial or otherwise, of the Company or of the Company and its
Subsidiaries taken as a whole.
(b) COMPLIANCE WITH LAWS, ETC. Comply in all material respects
with all applicable laws, rules, regulations and orders of any governmental
authority (compliance to include, without limitation, paying before the same
become delinquent all taxes, assessments and governmental charges imposed upon
it or upon its property), noncompliance with which could materially and
adversely affect the financial condition or operations of the Company or of
the Company and its Subsidiaries taken as a whole, or the legality, validity
or enforceability of this Agreement or the Notes, except to the extent that
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compliance with any of the foregoing is then being contested in good faith by
appropriate legal proceedings and with respect to which adequate financial
reserves have been established on the books and records of the Company or such
Subsidiary.
(c) MAINTENANCE OF INSURANCE. Maintain insurance with responsible
and reputable insurance companies or associations in such amounts and covering
such risks as is usually carried by companies engaged in similar businesses
and owning similar properties similarly situated.
(d) REPORTING REQUIREMENTS. Furnish to the Banks the following:
(i) Immediately after becoming aware of the occurrence of any
Event of Default or any event or condition which, with notice or lapse of
time, or both, would constitute an Event of Default, a statement of the
chief financial officer of the Company setting forth details of such Event
of Default or such event or condition and the action which the Company has
taken and proposes to take with respect thereto;
(ii) As soon as available and in any event within 45 days
after the end of each of the first three fiscal quarters of each fiscal
year of the Company, the consolidated balance sheet of the Company and its
Subsidiaries as of the end of such quarter, and the related consolidated
statements of income, retained earnings and changes in financial position
for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, setting forth in each case in
comparative form the corresponding figures for the corresponding date or
period of the preceding fiscal year, all in reasonable detail and duly
certified (subject to year-end and audit adjustments) by the chief
financial officer of the Company as having been prepared in accordance
with generally acceptable accounting principles, together with a
certificate of the chief financial officer of the Company stating (A)
that no Event of Default or event or condition which, with notice or
lapse of time, or both, would constitute an Event of Default, has
occurred and is continuing or, if an Event of Default or such an event
or condition has occurred and is continuing, a statement setting
forth the details thereof and the action which the Company has taken and
proposes to take with respect thereto, and (B) that a computation (which
computation shall accompany such certificate and shall be in reasonable
detail) showing whether compliance with Sections 7.2(a), (b) (c) and (h)
is in conformity with the terms of this Agreement;
(iii) As soon as available and in any event within 90 days
after the end of each fiscal year of the Company, a copy of the
consolidated balance sheet of the Company and its Subsidiaries as of
the end of such fiscal year and the related consolidated statements of
income, retained earnings and changes in financial position of the
Company and its Subsidiaries for such fiscal year, with a customary
audit report of Ernst & Young or other independent certified public
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accountants selected by the Company and acceptable to the Agent, without
qualifications unacceptable to either the Agent or the Majority Banks,
together with a certificate of such accountants stating (A) that they
have reviewed this Agreement and stating further whether, in the course
of their review of such financial statements, they have become aware of
any Event of Default or any event or condition which, with notice or
lapse of time, or both, would constitute an Event of Default and, if
such an Event of Default or such a condition or event then exists and
is continuing, a statement setting forth the nature and status thereof,
and (B) that a computation by the Company (which computation shall
accompany such certificate and shall be in reasonable detail) showing
whether compliance with Sections 7.2(a), (b), (c) and (h)), is in
conformity with the terms of this Agreement;
(iv) Promptly after the sending or filing thereof, copies of
all reports, proxy statements and financial statements which the Company
or any of its Subsidiaries sends to any of their respective security
holders or to any securities exchange or to the Securities and Exchange
Commission or any successor agency thereof;
(v) Promptly, written notice of any extension, renewal,
supplement, amendment, modification, substitution, restatement or
replacement of, to or for any Existing Note Agreement, together with a
copy of such extension, renewal, supplement, amendment, modification,
substitution, restatement or replacement, as the case may be, and all
documents issued in connection therewith; and
(vi) Promptly, such other information regarding the business,
properties or the condition or operations, financial or otherwise, of the
Company or any of it Subsidiaries as any Bank may from time to time
reasonably request.
(e) ACCESS TO RECORDS, BOOKS, ETC. At any reasonable time and from
time to time, permit any Bank or any agents or representatives thereof to
examine and make copies of and abstracts from the records and books of account
of, and visit the properties of, the Company and its Subsidiaries, and to
discuss the affairs, finances and accounts of the Company and its Subsidiaries
with their respective officers and employees.
7.2 NEGATIVE COVENANTS. Until the Termination Date and thereafter until
payment in full of the principal of and accrued interest on the Notes and the
performance of all other obligations of the Company under this Agreement, the
Company agrees that, unless the Majority Banks shall otherwise consent in
writing, it shall not itself and shall not permit any Subsidiary to:
(a) TANGIBLE NET WORTH. Permit or suffer consolidated Tangible Net
Worth of the Company and its Subsidiaries to be less than the sum of (i)
$170,000,000 plus (ii) an amount equal to 40% of the Net Income of the Company
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and its Subsidiaries for each fiscal year of the Company, such Net Income for
each fiscal year of the Company to be added effective as of the last day of
such fiscal year, commencing with the fiscal year ending December 31, 1996,
provided that if such Net Income is negative in any fiscal year, it shall not
be subtracted from the amount required to be maintained pursuant to this
subsection or from any future amount to be added to the amount of Tangible Net
Worth to be maintained under this subsection.
(b) TOTAL LIABILITIES TO TANGIBLE NET WORTH. Permit or suffer the
ratio of consolidated Total Liabilities of the Company and its Subsidiaries to
consolidated Tangible Net Worth of the Company and its Subsidiaries to be
greater than 1.5 to 1.0 at any time.
(c) FIXED CHARGE COVERAGE RATIO. Permit or suffer, as of the end of
any fiscal quarter of the Company, the ratio of (i) the consolidated Net Income
Available for Fixed Charges for the four fiscal quarters then ending to (ii) the
consolidated Fixed Charges of the Company and its Subsidiaries for such four
fiscal quarters (the "Fixed Charge Coverage Ratio") to be less than 1.7 to 1.0.
(d) INDEBTEDNESS. Create, incur, assume, guaranty or in any manner
become liable in respect of, or suffer to exist, at any time any Funded Debt or
Guaranty other than any Funded Debt or Guaranty permitted by Section 5.8, or
5.11, respectively, of the Existing Note Agreements (including all subsections
thereof as modified below), which entire Sections 5.8 and 5.11 of the Existing
Note Agreements as modified below, together with definitions of defined terms
used therein and exhibits referred to therein, is by this reference
incorporated and made a part of this Agreement with the same force and effect
as though herein set forth in full, except that reference to "20% of
Consolidated Adjusted Net Worth" contained in Section 5.8(a)(3) of the Existing
Note Agreements as incorporated herein shall be deemed reference to 20% of
consolidated Tangible Net Worth (as defined in this Agreement) of the Company
and its Subsidiaries.
(e) LIENS. Create, incur or suffer to exist, any lien (including
without limitation any pledge, mortgage, title retaining contract or other type
of security interest, hereinafter "Liens") to exist on any of its property,
real, Personal or mixed, tangible or intangible, whether now owned or hereafter
acquired, except Liens permitted by Section 5.9 of the Existing Note Agreements
(including all subsections thereof) as modified below, which entire Section 5.9
of the Existing Note Agreements as modified below, together with defined terms
used therein and exhibits referred to therein, is by this reference
incorporated in and made a part of this Agreement with the same force and
effect as though herein set forth in full, except that (A) Section 5.9(A)(7)
of the Existing Note Agreements is excluded and not incorporated herein, and
all Liens described in such Section 5.9(a)(7) shall not be permitted unless
otherwise permitted by Section 5.9(a)(9) of the Existing Note Agreements as
incorporated herein; and (B) reference to "20% of Consolidated Adjusted Net
Worth" contained in Section
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5.8(a)(3) of the Existing Note Agreements (as incorporated herein pursuant to
Section 5.9(a)(9) of the Existing Note Agreements) shall be deemed reference
to 20% of consolidated Tangible Net Worth (as defined in this Agreement) of
the Company and its Subsidiaries.
(f) MERGER; SALE OF ASSETS; ETC. Sell, lease, transfer or otherwise
dispose of all or a substantial portion of its assets or business to any Person
or purchase or otherwise acquire all or a substantial portion of any assets of
any Person, or all or a substantial portion of the shares of stock of or other
ownership interest in any other Person, nor sell, lease, transfer, abandon or
otherwise dispose of assets, nor sell, pledge or otherwise dispose of any
shares of the stock (including as "stock" for the purposes of this Section any
options or warrants to purchase stock or other Securities exchangeable for or
convertible into stock) of a Subsidiary or any Debt of any Subsidiary, nor will
any Subsidiary issue, sell, pledge or otherwise dispose of any shares of its own
Subsidiary Stock; nor merge or consolidate with any other Person; provided,
however, (i) any of the foregoing shall be permitted if permitted under Section
5.10 of the Existing Note Agreements, which Section 5.10 of the Existing Note
Agreements (including all subsections thereof), together with all defined terms
used therein and exhibits referred to therein, is by this reference
incorporated in and made a part of this Agreement with the same force and effect
as though herein set forth in full, except that (A) Section 5.10(a)(3) of the
Existing Note Agreements is excluded and not incorporated herein, and all
transactions described therein shall not be permitted, and (B) all references in
Section 5.10(a)(2) of the Existing Note Agreements to the "Notes" and "this
Agreement" shall be deemed references to the Notes issued by the Company to the
Banks hereunder and this Agreement among the Company, the Banks and the Agent,
respectively, and all references in Section 5.10 of the Existing Note
Agreements to an "Event of Default" and "Default" shall mean an Event of
Default hereunder and any event or condition which with notice or lapse of
time, or both, would become such an Event of Default hereunder, respectively,
and (ii) any Subsidiary may be dissolved or merged out of existence so long as
any assets of such Subsidiary are transferred to the Company or any other
Subsidiary.
(g) NATURE OF BUSINESS. Engage in any business if, as a result, the
general nature of the business, taken on a consolidated basis, which would then
be engaged in by the Company and its Subsidiaries would be substantially
changed from the general nature of the business engaged in by the Company and
its Subsidiaries on the Effective Date.
(h) DEBT TO TANGIBLE NET WORTH OF SUBSIDIARIES. Permit or suffer
the ratio of (i) the consolidated Indebtedness of the Subsidiaries of the
Company to (ii) the consolidated Tangible Net Worth of the Company and its
Subsidiaries to be greater than 0.2 to 1.0 at any time.
Whenever any section or other provision of the Existing Note Agreements is
incorporated in Sections 7.2(d), (e) and (f) hereof or otherwise in this
Agreement, such sections and provisions shall be incorporated in the form
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contained in the Existing Note Agreements in the form as certified by the
Company to the Banks as of the Effective Date and without giving effect to
any retroactive or other amendments thereto executed at any time unless
described in such certification and included therewith as of the Effective
Date, and such sections and provisions shall be and continue effective
regardless of whether the Existing Note Agreements continue in effect or the
promissory notes issued thereunder are paid, and no supplement, amendment,
modification, waiver, consent or termination of the Existing Note Agreements
made or granted after the Effective Date shall have any effect whatsoever upon
the sections and provisions thereof as they are incorporated herein.
ARTICLE VIII. DEFAULT
8.1 EVENTS OF DEFAULT. The occurrence of any one of the following
events or conditions shall be deemed an "Event of Default" hereunder unless
waived pursuant to Section 10.1:
(a) The Company shall (i) fail to pay when due any principal of the
Notes, or (ii) fail to pay within five days after the date when due any
interest on the Notes or any commitment or facility fees or any other amount
payable hereunder; or
(b) Any representation or warranty made by the Company in Article
VI hereof, or in any other document or certificate furnished by or on behalf of
the Company in connection with this Agreement, shall prove to have been
incorrect in any material respect when made; or
(c) The Company shall fail to perform or observe any term, covenant
or agreement contained in Section 7.2 other than subsection (e); or
(d) The Company shall fail to perform or observe any term, covenant
or agreement contained in subsection (e) of Section 7.2 and, if such failure
relates to a nonconsensual Lien, either (i) such failure shall remain
unremedied for 30 calendar days after the earlier of (1) the day on which the
President, the Chief Executive Officer, the Chief Financial Officer or the
Treasurer of the Company first obtains knowledge of such failure or (2) the
day on which notice of such failure is given to the Company by the Agent or
any Bank (the "Commencement Date") or (ii) the Company or its Subsidiary, as
the case may be, shall fail, before the expiration of 15 calendar days after
the Commencement Date, to begin, and at all times thereafter to continue, to
contest such nonconsensual Lien in good faith by appropriate legal
proceedings; or
(e) The Company shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement (other than such failures
addressed in Sections 8.1(c) and (d) above), and any such failure shall remain
unremedied for 30 calendar days after notice thereof shall have been given to
the Company by the Agent or any Bank; or
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(f) (i) Any Indebtedness of the Company or any of its Subsidiaries
aggregating more than $5,000,000 (other than Indebtedness hereunder) becomes or
is declared to be due and payable prior to the stated maturity thereof as a
result of any default or event of default occurring with respect thereto, or
(ii) any part of the principal of, the premium, if any, or the interest on, or
any other payment of money due under, any Indebtedness of the Company or any of
its Subsidiaries aggregating more than $5,000,000 is not paid when due or
within the period of grace, if any, provided with respect thereto, or (iii) the
Company or any of its Subsidiaries fails to perform or observe any other
covenant or agreement contained in any document(s) evidencing or securing any
Indebtedness aggregating more than $5,000,000, or in any agreement(s) or
instrument(s) under which any such Indebtedness was issued or created, and such
nonperformance or nonconformity continues beyond the period of grace, if any,
provided with respect thereto, if the effect of such failure is to cause, or
permit the holder or holders of such Indebtedness (or a trustee on behalf of
such holder or holders) to cause, or permit any party to such document to
cause, any payment in respect of such Indebtedness aggregating more than
$5,000,000 to become due prior to their respective due dates, including
without limitation the occurrence of any event of default of the Company or
any of its Subsidiaries under any of the Existing Note Agreements; or
(g) One or more judgments or orders for the payment of money which,
together with other such judgments or orders which are not otherwise covered by
insurance or reserves, exceed the aggregate amount of $5,000,000, shall be
rendered against the Company or any of its Subsidiaries and (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment(s) or
order(s) in such aggregate amount and for a period of 20 consecutive days after
commencement of such proceedings (A) such judgment(s) or order(s) in such
aggregate amount shall have remained unsatisfied and (B) such proceedings shall
have remained unstayed, or (ii) for a period of 20 consecutive days, such
judgment(s) or order(s) in such aggregate amount shall have remained
unsatisfied and a stay of enforcement thereof, by reason of pending appeal or
otherwise, shall not have been in effect, or (iii) the total of such
judgment(s) or order(s) with respect to which at least one of the foregoing
clauses (i) and (ii) applies shall equal or exceed $5,000,000; or
(h) The occurrence of any "reportable event," as defined in ERISA,
which is finally determined after all applicable appeal periods have expired
to constitute grounds (i) for termination by the PBGC of any Plan maintained
by or on behalf of the Company or any trade or business (whether or not
incorporated) which together with the Company would be treated as a single
employer under Section 4001 of ERISA or (ii) for the appointment by the
appropriate United States District Court of a trustee to administer such Plan
and such reportable event is not corrected and such determination is not
revoked within 30 days after notice thereof has been given to the
administrator of such Plan or to the Company or such trade or business, as the
case may be; or the institution of proceedings by the PBGC to terminate any
such Plan or to appoint a trustee to administer such Plan and the failure of
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the Company to (i) appropriately, diligently and in good faith successfully
contest such proceedings within the applicable required period therefor or
(ii) to establish adequate financial reserves on its books and records with
respect thereto; or the appointment of a trustee by the appropriate United
States District Court to administer any such Plan; or
(i) The Company or any of its Material Subsidiaries shall generally
not pay its debts as they become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the benefit
of creditors, or shall institute, or there shall be instituted against the
Company or any of its Material Subsidiaries, any proceeding or case seeking to
adjudicate it a bankrupt or insolvent or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief or protection of debtors or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property, and, if
such proceeding is instituted against the Company or such Material Subsidiary
and is being contested by the Company or such Material Subsidiary, as the case
may be, in good faith by appropriate proceedings, such proceedings shall
remain undismissed or unstayed for a period of 60 days; or the Company or such
Material Subsidiary shall take any action (corporate or other) to authorize or
further any of the actions described above in this subsection; or
(j) The occurrence of any Change of Control.
8.2 REMEDIES. (a) Upon the occurrence and during the continuance of any
Event of Default, the Agent shall, upon being directed to do so by the
Majority Banks, by notice to the Company terminate the Commitments or declare
the outstanding principal of, and accrued interest on, the Notes and all other
amounts due under this Agreement to be immediately due and payable, or both,
whereupon the Commitments shall terminate forthwith or all such amounts shall
become immediately due and payable, or both, as the case may be, PROVIDED
that in the case of any event or condition described in Section 8.1(i) with
respect to the Company, the Commitments shall automatically terminate forthwith
and all such amounts shall automatically become immediately due and payable
without notice; in each case without demand, presentment, protest, diligence,
notice of dishonor or other formality, all of which are hereby expressly
waived.
(b) Upon the occurrence and during the continuance of any Event of
Default, the Agent may, and upon being directed to do so by the Majority Banks
shall, in addition to the remedies provided in Section 8.2(a), enforce its
rights and those of the Banks either by suit in equity, or by action at law, or
by other appropriate proceedings, whether for the specific performance (to the
extent permitted by law) of any covenant or agreement contained in this
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Agreement or in the Notes or in aid of the exercise of any power granted in
this Agreement or the Notes, and may enforce the payment of the Notes and any
of its other rights available to the Agent or the Banks at law or in equity.
(c) Upon the occurrence and during the continuance of any Event of
Default hereunder and, except for the occurrence of any Event or Default set
forth in Section 8.1(i), a declaration of acceleration pursuant to Section
8.2(a), each Bank may at any time and from time to time, without notice to the
Company (any requirement for such notice being expressly waived by the Company)
set off and apply against any and all of the obligations of the Company to the
Banks and the Agent now or hereafter existing under this Agreement any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Bank to or for the
credit or the account of the Company and any property of the Company from time
to time in possession of such Bank, irrespective of whether the Banks shall
have made any demand hereunder and although such obligations may be contingent
and unmatured. The rights of the Banks under this Section 8.2(c) are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which the Banks may have.
ARTICLE IX. THE AGENT AND THE BANKS
9.1 APPOINTMENT OF AGENT. NBD Bank is hereby appointed Agent for the
Banks and accepts such appointment and agrees to act as such upon the
conditions herein set forth. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement, and shall
not, by reason of this Agreement, have a fiduciary relationship with any Bank.
9.2 SCOPE OF AGENCY. Neither the Agent nor any of its directors,
officers or agents shall be liable for any action taken or omitted by any of
them hereunder or under the Notes, except for its, his or her own gross
negligence or willful misconduct and except as provided in Section 9.3; or be
responsible for any recitals, warranties or representations herein or in the
Notes or for the execution or validity of this Agreement or the Notes; or be
required to make any inquiry concerning the performance by the Company of any
of its obligations under this Agreement or the Notes. In the absence of gross
negligence or willful misconduct, the Agent shall be entitled to rely, without
liability therefor, upon any certificate or other document or other
communication believed by it to be genuine and correct and to have been signed
or sent by the proper officer or Person and upon the advice of legal counsel
(which may be legal counsel for the Company), independent public accountants
and other experts concerning all matters pertaining to the agency. The
Company agrees, upon demand, to pay or to reimburse the Agent for the payment
of all reasonable compensation of such counsel, accountants and other experts
and all other reasonable out-of-pocket expenses of the Agent. To the extent
that the Company shall fail to pay or to reimburse the Agent for the payment
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of the same, each Bank shall reimburse the Agent pro rata in accordance with
the Commitments, and any such amount so paid shall be immediately due and
payable to the Banks by the Company. The Banks agree to indemnify the Agent
ratably in accordance with the Commitments for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in its capacity as
such in any way relating to or arising out of this Agreement or the
transactions contemplated hereby, provided that no Bank shall be liable for
any of the foregoing to the extent they arise from the Agent's gross
negligence or willful misconduct.
9.3 DUTIES OF AGENT. In carrying out the agency, the Agent shall have
only the duties and responsibilities expressly set forth in this Agreement and
in performing such duties and responsibilities the Agent shall exercise the
same degree of care as it would if the Loans were entirely for its own account,
but the Agent shall not be deemed to have knowledge of the occurrence of any
Event of Default, or any event or condition which with notice or lapse of time,
or both, could become such an Event of Default and need not take or continue
any action with respect thereto or toward the enforcement of this Agreement or
the Notes, nor prosecute or defend any suit with respect to this Agreement or
the Notes, unless directed to do so by the Majority Banks and unless
indemnified to its satisfaction against any loss, cost, liability or expense
which it might incur as a consequence of taking such action. The Agent may
employ agents and attorneys and shall not be answerable for the negligence or
misconduct of any such agents or attorneys selected by it with reasonable care.
The Agent in its capacity as a Bank hereunder shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though it were
not acting as the Agent hereunder. Each Bank agrees that it has, independently
and without reliance on the Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of the Company and its Subsidiaries in connection with its decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent or any other Bank, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement.
9.4 RESIGNATION OF AGENT. The Agent may resign as such at any time upon
30 days' prior written notice to the Company and the Banks. In the event of
any such resignation, the Majority Banks shall, by an instrument in writing
delivered to the Company and the Agent, appoint a successor which shall be an
incorporated bank or trust company. If a successor is not so appointed or does
not accept such appointment at least 5 days before the Agent's resignation
becomes effective, the Agent may appoint a temporary successor to act until
such appointment by the Majority Banks is made and accepted. Any successor to
the Agent shall execute and deliver to the Company and the Banks an instrument
accepting such appointment and thereupon such successor Agent, without further
act, deed, conveyance or transfer shall become vested with all of the
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properties, rights, interests, powers, authorities and obligations of its
predecessor hereunder with like effect as if originally named as Agent
hereunder. Upon request of such successor Agent, the Company and the Agent
ceasing to act shall execute and deliver such instruments of conveyance,
assignment and further assurance and do such other things as may reasonably be
required for more fully and certainly vesting and confirming in such successor
Agent all such properties, rights, interests, powers, authorities and
obligations.
9.5 PRO RATA SHARING BY BANKS. Each Bank agrees with every other Bank
that, in the event that it shall receive and retain any payment on account of
any Note in excess of its pro rata portion, according to the principal amount
of the Notes then outstanding, of the payment due all of the Banks, whether
such payment be voluntary, involuntary or by operation of law, by application
of set-off of any indebtedness or otherwise, then such Bank shall promptly
purchase from the other Banks, without recourse, for cash and at face value,
ratably in accordance with the principal amount of the Notes then outstanding,
interests in the Notes of the other Banks in such an amount that each Bank
shall have received payment pro rata on account of the Notes in accordance
with the unpaid principal amount thereof then owing to it; PROVIDED, that if
any such purchase be made by any Bank and if any such excess payment relating
thereto or any part thereof is thereafter recovered from such Bank,
appropriate adjustment in the related purchase from the other Banks shall be
made by rescission and restoration of the purchase price as to the portion of
such excess payment so recovered. It is further agreed that, to the extent
there is then owing by the Company to any Bank Indebtedness other than that
evidenced by the Notes, to which such Bank may apply any involuntary payments
of indebtedness by the Company, including those resulting from exercise of
rights of set-off or similar rights, such Bank shall apply all such
involuntary payments first to obligations of the Company to the Banks
hereunder and under the Notes and then to such other Indebtedness owed to
such Bank by the Company.
ARTICLE X. MISCELLANEOUS
10.1 AMENDMENTS; ETC. This Agreement and any term or provision hereof may
be amended, waived or terminated by an instrument in writing executed by the
Company and the Majority Banks, provided that, except by an instrument in
writing executed by the Company and all of the Banks, no such amendment, waiver
or termination shall:
(a) Authorize or permit the extension of the time or times of
payment or prepayment of the principal of, or interest on, the Notes or any of
them, including without limitation amending the Termination Date, or the
increase or reduction in principal amount thereof or the reduction in the rate
of interest thereon, or the rate of any fees or compensating balances or any
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<PAGE>
other modification in the terms of the payment or prepayment of the principal
of or interest on the Notes; or
(b) Amend or change the respective amounts of the Banks' Commitments
set forth in Section 2.1, or reduce the percentage of the aggregate principal
amount of the Notes required by the provisions of this Section for the taking
of any action under this Section 10.1; or
(c) Permit the termination of the obligations of any Bank hereunder,
provided that upon any such termination, (i) the Company shall have the option
to select a bank to replace such terminating Bank and to assume the rights and
obligations of such Bank hereunder, provided that such replacement bank is
acceptable to each non-terminating Bank, and (ii) in the event that such
terminating Bank is not so replaced, each non-terminating Bank shall be
entitled, but shall not be obligated, to increase its Commitment by an amount
equal to that amount of the terminating Bank's Commitment bearing the same
ratio to such terminating Bank's Commitment as such non-terminating Bank's
Commitment bears to the aggregate Commitment of all non-terminating Banks. In
the event that any non-terminating Bank shall not elect to increase its
Commitment as specified in clause (ii), each Bank making such election shall
be entitled, but shall not be obligated, to further increase its Commitment by
an amount equal to that amount of each non-electing Bank's Commitment bearing
the same ratio to such non-electing Bank's Commitment as such electing Bank's
Commitment bears to the aggregate Commitment of all electing Banks. The
procedure set forth in the preceding sentence shall be followed until the
entire Commitment of the terminating Bank is allocated or until no
non-terminating Bank shall desire to further increase its Commitment.
Any such amendment, waiver or termination shall be effective only in the
specific instance and for the specific purpose for which given.
10.2 NOTICES. (a) Except as otherwise provided in Section 10.2(c), all
notices, requests, consents and other communications hereunder shall be in
writing and shall be delivered or sent to the Company at 9341 Courtland Drive,
Rockford, Michigan 49351, Attention: Treasurer; and to the Agent at 611
Woodward Avenue, Detroit, Michigan 48226, Attention: Michigan Banking
Division; and to the Banks at the respective addresses for notices set forth
on the signature pages hereof, or to such other address as may be designated
by the Company, the Agent or any Bank by notice to the other parties hereto.
All notices shall be deemed to have been given at the time of actual delivery
thereof to such address or, if sent by the Agent or any Bank to the Company by
certified or registered mail, postage prepaid, to such address, on the date of
mailing.
(b) Notices by the Company with respect to terminations or
reductions of the Commitments pursuant to Section 2.2, requests for Loans
pursuant to Section 3.1, requests for continuations or conversions of Loans
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<PAGE>
pursuant to Section 3.5 and notices of prepayment pursuant to Section 4.3 shall
be irrevocable and binding on the Company.
(c) Any notice to be given by the Company to the Banks pursuant to
Sections 3.1, 3.5 or 4.3 and any notice to be given by the Banks hereunder, may
be given by telephone or by facsimile transmission and must be immediately
confirmed in writing in the manner provided in Section 10.2(a). Any such
notice given by telephone and facsimile transmission shall be deemed effective
upon receipt thereof by the party to whom such notice is given.
10.3 CONDUCT NO WAIVER; REMEDIES CUMULATIVE. No course of dealing on the
part of the Agent or the Banks, nor any delay or failure on the part of the
Agent or the Banks in exercising any right, power or privilege hereunder shall
operate as a waiver of such right or privilege or otherwise prejudice the
Agent's or any Bank's rights and remedies hereunder; nor shall any single or
partial exercise thereof preclude any further exercise thereof or the exercise
of any other right, power or privilege. No right or remedy conferred upon or
reserved to the Banks under this Agreement is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative and in
addition to every other right or remedy given hereunder or now or hereafter
existing under any applicable law. Every right and remedy given by this
Agreement or by applicable law to the Agent or the Banks may be exercised from
time to time and as often as may be deemed expedient by them.
10.4 RELIANCE ON AND SURVIVAL OF VARIOUS PROVISIONS. All terms,
covenants, agreements, representations and warranties of the Company made
herein or in any certificate or other document delivered pursuant hereto shall
be deemed to be material and to have been relied upon by each Bank,
notwithstanding any investigation heretofore or hereafter made by any Bank or
on any Bank's behalf, and those covenants and agreements of the Company set
forth in Article V and in Section 10.5 shall survive the repayment in full of
the Loans and the termination of the Commitments.
10.5 EXPENSES. The Company agrees to pay and save the Agent and the Banks
harmless from liability for the payment of (a) the reasonable fees and expenses
of Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Agent, in
connection with the preparation, execution and delivery of this Agreement and
the Notes and the consummation of the transactions contemplated hereby, and in
connection with any amendments, waivers or consents in connection therewith,
and (b) all reasonable costs and expenses of the Agent and the Banks (including
reasonable fees and expenses of counsel) in connection with any Event of
Default or the enforcement of this Agreement or the Notes.
10.6 SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, PROVIDED that the Company may not, without the prior consent of
the Banks, assign its rights or obligations hereunder or under the Notes and
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<PAGE>
the Banks shall not be obligated to make any Loan hereunder to any entity
other than the Company.
(b) Any Bank may sell a participation interest to any financial
institution or institutions, and such financial institution or institutions may
further sell, a participation interest (undivided or divided) in, the Loans and
such Bank's rights and benefits under this Agreement and the Notes, and to the
extent of that participation, such participant or participants shall have no
rights or benefits against the Company hereunder, PROVIDED, HOWEVER, that (i)
such Bank's obligations under this Agreement shall remain unmodified and fully
effective and enforceable against such Bank, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) such Bank shall remain the holder of its Note for all
purposes of this agreement, (iv) the Company, the Agent and the other Banks
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement, and (v) such Bank shall
not grant to its participant any rights to consent or withhold consent to any
action taken by such Bank or the Agent under this Agreement other than action
requiring the consent of all of the Banks hereunder.
(c) Each Bank may, with the prior consent of the Company and the
Agent (and not otherwise), assign to one or more banks or other entities all or
a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Loans owing to it
and the Note or Notes held by it); PROVIDED, HOWEVER, that (i) each such
assignment shall be of a uniform, and not a varying, percentage of all rights
and obligations, (ii) except in the case of an assignment of all of a Bank's
rights and obligations under this Agreement, (A) the amount of the Commitment
of the assigning Bank being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to
such assignment) shall in no event be less than $5,000,000, and in integral
multiples of $1,000,000 thereafter, or such lesser amount as the Company and
the Agent may consent to and (B) after giving effect to each such assignment,
the amount of the Commitment of the assigning Bank when the Commitments are at
their lower amounts shall in no event be less than $5,000,000, and (iii) the
parties to each such assignment shall execute and deliver to the Agent, for
its acceptance and recording, an Assignment and Acceptance in the form of
Exhibit D hereto (an "Assignment and Acceptance"), together with any Note or
Notes subject to such assignment and a processing fee of $5,000. Upon such
execution, delivery, acceptance and recording, from and after the effective
date specified in such Assignment and Acceptance, (x) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and Acceptance,
have the rights and obligations of a Bank hereunder and (y) the Bank assignor
thereunder shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under this Agreement (and, in the
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<PAGE>
case of an Assignment and Acceptance covering all of the remaining portion of
an assigning Bank's rights and obligations under this Agreement, such Bank
shall cease to be a party hereto).
(d) The Agent shall at all times maintain a minimum Commitment of
$10,000,000, unless such Commitment is terminated pursuant to Section 2.2 or
8.2.
10.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart, and this Agreement shall enter into force and effect only
if counterparts executed by the Company and by each Bank named in Section
2.1(a) are returned to and executed by the Agent. Upon such execution by the
Agent, this Agreement shall be deemed effective as of the Effective Date.
10.8 GOVERNING LAW. This Agreement is a contract made under, and the
rights and obligations of the parties hereunder shall be governed by and
construed in accordance with, the laws of the State of Michigan applicable to
contracts made and to be performed entirely within such State.
10.9 HEADINGS. The headings of the various subdivisions hereof are for
the convenience of reference only and shall in no way modify any of the terms
or provisions hereof.
10.10 CONSTRUCTION OF CERTAIN PROVISIONS. All computations required
hereunder and all financial terms used herein shall be made or construed in
accordance with generally accepted accounting principles unless such principles
are inconsistent with the express requirements of this Agreement. If any
provision of this Agreement refers to any action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person, whether or
not expressly specified in such provision.
10.11 INTEGRATION AND SEVERABILITY. This Agreement embodies the
entire agreement and understanding among the Company, the Agent and the Banks,
and supersedes all prior agreements and understandings relating to the subject
matter hereof. In case any one or more of the obligations of the Company under
this Agreement or the Notes shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Company shall not in any way be affected or impaired thereby,
and such invalidity, illegality or enforceability in one jurisdiction shall not
affect the validity, legality or enforceability of the obligations of the
Company under this Agreement or the Notes in any other jurisdiction.
10.12 INTEREST RATE LIMITATION. Notwithstanding any provisions of this
Agreement or the Notes, in no event shall the amount of interest paid or agreed
to be paid by the Company exceed an amount computed at the highest rate of
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<PAGE>
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of this Agreement or the Notes at the
time performance of such provision shall be due, shall involve exceeding the
interest rate limitation validly prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then, IPSO FACTO, the obligations to
be fulfilled shall be reduced to an amount computed at the highest rate of
interest permissible under applicable law, and if for any reason whatsoever
the Banks shall ever receive as interest an amount which would be deemed
unlawful under such applicable law, such interest shall be automatically
applied to the payment of principal of the Loans outstanding hereunder
(whether or not then due and payable) and not to the payment of interest, or
shall be refunded to the Company if such principal has been paid in full.
10.13 INDEPENDENCE OF COVENANTS. All covenants contained herein shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant shall
not avoid the occurrence of an Event of Default if such action is taken or
condition exits.
10.14 WAIVER OF JURY TRIAL. THE Banks and the Agent and the Company,
after consulting or having had the opportunity to consult with counsel,
knowingly, voluntarily and intentionally waive any right any of them may have
to a trial by jury in any litigation based upon or arising out of this
Agreement or any related instrument or agreement or any of the transactions
contemplated by this Agreement or any course of conduct, dealing, statement
(whether oral or written) or actions of any of them. Neither any Bank, the
Agent, nor the Company shall seek to consolidate, by counterclaim or otherwise,
any such action in which a jury trial has been waived with any other action in
which a jury trial cannot be or has not been waived. These provisions shall
not be deemed to have been modified in any respect or relinquished by any party
thereto except by a written instrument executed by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the 11th day of October, 1996, which shall be
the Effective Date of this Agreement, notwithstanding the day and year first
above written.
Address for Notices: WOLVERINE WORLD WIDE, INC.
9341 Courtland Drive
Rockford, Michigan 49351 By: ___________________________
Attention: Steve Gulis,
Chief Financial Officer Its: ______________________
Telephone: (616) 866-5570
Telecopy: (616) 866-0257
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<PAGE>
Address for Notices: NBD Bank, individually
as a Bank and as Agent
611 Woodward Avenue
Detroit, Michigan 48226 By: ___________________________
Attention: Michigan Banking Division William C. Goodhue
Telephone: (313) 225-2227 Its: Vice President
Telecopy: (313) 226-0855
Commitment Amount: $35,000,000
Address for Notices: HARRIS TRUST AND SAVINGS BANK
111 West Monroe Street
P.O. Box 755
Chicago, Illinois 60690 By: ___________________________
Attention: Peter Krawchuk Peter Krawchuk
Telephone: (312) 461-2783 Its: Vice President
Telecopy: (312) 461-2591
Commitment Amount: $25,000,000
Address for Notices: COMERICA BANK
99 Monroe Avenue, N.W.
Grand Rapids, Michigan 49503 By: ___________________________
Attention: Kevin Ringenberg Kevin Ringenberg
Telephone: (616) 776-6380 Its: Vice President
Telecopy: (616) 776-7885
Commitment Amount: $20,000,000
Address for Notices: OLD KENT BANK
Corporate Banking Department
1 Vandenberg Center By: ___________________________
Grand Rapids, Michigan 49503
Attention: David Kistler Its: ___________________
Telephone: (616) 771-4479
Telecopy: (616) 771-4641
Commitment Amount: $10,000,000
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<PAGE>
Address for Notices: ABN AMRO NORTH AMERICA, INC.
135 South LaSalle Street
Chicago, Illinois 60674-9135 By: ___________________________
Attention: Stephen J. Czech Stephen J. Czech
Telephone: (312) 904-6051 Its: Vice President
Telecopy: (312) 606-8425
Commitment Amount: $10,000,000 By: ___________________________
Its: ______________________
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<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
$______________ October 11, 1996
Detroit, Michigan
FOR VALUE RECEIVED, the undersigned, WOLVERINE WORLD WIDE, INC., a
Delaware corporation (the "Company"), hereby promises to pay to the order of
_______________ (the "Bank"), at the principal banking office of the Agent at
611 Woodward Avenue, Detroit, Michigan, in lawful money of the United States of
America and in immediately available funds, the principal sum of
_________________ Dollars ($____________) or such lesser aggregate principal
sum outstanding of loans made by the Bank to the Company under the Credit
Agreement referred to below, on the Termination Date; and to pay interest on
the unpaid principal balance hereof from time to time outstanding, in like
money and funds, for the period from the date hereof until such loans shall be
paid in full, at the rates per annum and on the dates provided in the Credit
Agreement referred to below.
The Bank is hereby authorized by the Company to note on the schedule
attached to this Note, or on its books and records, the date, amount and type
of each loan made by the Bank under the Credit Agreement, the interest rate
and duration of the related Interest Period (if applicable), the amount of
each payment or prepayment of principal thereon and the other information
provided for on such schedule, which schedule or such books and records, as
the case may be, shall constitute prima facie evidence of the information so
noted, provided that any failure by the Bank to make any such notation shall
not relieve the Company of its obligation to repay the outstanding principal
amount of this Note, all accrued interest hereon and any amount payable with
respect hereto in accordance with the terms of this Note and the Credit
Agreement.
The Company and each endorser or guarantor hereof waives demand,
presentment, protest, diligence, notice of dishonor and any other formality in
connection with this Note. Should the indebtedness evidenced by this Note or
any part thereof be collected in any proceeding or be placed in the hands of
attorneys for collection, the Company agrees to pay, in addition to the
principal and interest due and payable hereon, all costs of collecting this
Note, including attorneys' fees and expenses.
This Note evidences one or more loans made by the Bank under a Credit
Agreement dated on or about the date hereof (as amended, supplemented, extended
or otherwise modified from time to time, the "Credit Agreement"), by and among
the Company, the banks (including the Bank) named therein and NBD Bank, as
agent, to which reference is hereby made for a statement of the circumstances
under which this Note is subject to prepayment and under which its due date may
be accelerated. Capitalized terms used but not defined in this Note shall have
the respective meanings assigned to them in the Credit Agreement.
<PAGE>
WOLVERINE WORLD WIDE, INC.
By:_________________________________
Its:____________________________
<PAGE>
<TABLE>
Schedule to Revolving Credit Note, dated
October 11, 1996 made by Wolverine World Wide, Inc.
in favor of ___________)
<CAPTION>
PRINCIPAL
AMOUNT
DATE LOAN PRINCIPAL TYPE INTEREST PAID, PRE- PRINCIPAL
MADE OR AMOUNT OF OF INTEREST PERIOD (IF PAID OR BALANCE NOTATION
CONVERTED LOAN LOAN RATE APPLICABLE) CONVERTED OUTSTANDING MADE BY
- --------- --------- ----- -------- ----------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B
REQUEST FOR LOAN
[Date]
NBD Bank, as Agent
The undersigned (the "Company") hereby requests a Loan pursuant to Section
3.1 of the Credit Agreement, dated as of October 11, 1996 (as amended,
supplemented, extended or otherwise modified from time, the "Credit
Agreement"), among the Company, each of you, and NBD Bank, as agent, in the
amount of $_____________, to be made on _______________, 19__, and to be
evidenced by the Company's Note. After giving effect to such Loan, the
aggregate outstanding principal amount of the Loans on the date thereof will
be $__________. Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the Credit Agreement.
Such Loan shall be a ____________________[insert either Eurodollar Rate
Loan or Floating Rate Loan] and the initial Interest Period, if such requested
Loan is a Eurodollar Rate Loan, shall be ________________ [insert permitted
Interest Period].
In support of this request, the Company hereby certifies that:
1. The representations and warranties contained in Article VI of the
Credit Agreement are true and correct on and as of the date hereof, and will be
true and correct on the date of the making of such Loan, as if such
representations and warranties were made on and as of such dates.
2. No Event of Default, and no event or condition which might become
such an Event of Default with notice or with lapse of time, or both, has
occurred and is continuing or will exist on the date of the making of such
Loan.
<PAGE>
Acceptance of the proceeds of such Loan by the Company shall be deemed to be a
further representation that the representations made herein are true and
correct at the time such proceeds are disbursed.
WOLVERINE WORLD WIDE, INC.
By:___________________________
Its:_____________________
<PAGE>
EXHIBIT C
REQUEST FOR CONTINUATION OR CONVERSION OF LOAN
[Date]
NBD Bank, as Agent
The undersigned (the "Company") hereby requests that $_______ of the
principal amount of the Loan originally made on _______________, 19__, which
Loan is currently a ________________________ [insert type of Loan based on type
of interest rate applicable], be continued as or converted to, as the case may
be, a _______________________ [insert type of Loan requested based on type of
interest rate desired] on _______________, 19__. If such Loan is requested to
be converted to a Eurodollar Rate Loan, the Company hereby elects an Interest
Period for such Loan of ______________________ [insert permitted Interest
Period]. Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the Amended and Restated Credit
Agreement, dated as of October 11, 1996 (as amended, supplemented, extended or
otherwise modified from time to time, the "Credit Agreement") among the
Company, each of you and NBD Bank, as agent.
In support of this request, the Company hereby certifies that:
1. The representations and warranties contained in Article VI of the
Credit Agreement are true and correct on and as of the date hereof, and will be
true and correct on the date of the continuation or conversion of such Loan, as
if such representations and warranties were made on and as of such dates.
2. No Event of Default, and no event or condition which might become such
an Event of Default with notice or with lapse of time, or both, has occurred and
is continuing or will exist on the date of the continuation or conversion of
such Loan.
<PAGE>
Acceptance of the continuation or conversion of such Loan by the Company shall
be deemed to be a further representation that the representations made herein
are true and correct at the time such proceeds are disbursed.
WOLVERINE WORLD WIDE, INC.
By: ________________________________
Its:___________________________
<PAGE>
EXHIBIT D
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of October 11, 1996
(as amended or modified from time to time, the "Credit Agreement"), among
WOLVERINE WORLD WIDE, INC., a Delaware corporation (the "Borrower"), the banks
party thereto (the "Banks") and NBD BANK, as agent for the Banks (the "Agent").
Terms defined in the Credit Agreement are used herein with the same meaning.
1. The "Assignor" and the "Assignee" referred to on Schedule 1
agree as follows:
2. The Assignor hereby sells and assigns (without recourse) to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement as of the date hereof equal to the percentage interest specified on
Schedule 1 of all outstanding rights and obligations under the Credit
Agreement. After giving effect to such sale and assignment, the Assignee's
Commitments and the amounts of the Loans owing to the Assignee will be as set
forth on Schedule 1.
3. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement or any other instrument or
document furnished pursuant thereto; (iii) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under the Credit Agreement or any other instrument or document
furnished pursuant thereto; and (iv) attaches the Note or Notes held by the
Assignor and requests that the Agent exchange such Note or Notes for a new
Note or Notes payable to the order of the Assignee in an amount equal to the
Commitments assumed by the Assignee pursuant hereto and the Assignor in an
amount equal to the Commitments retained by the Assignor under the Credit
Agreement, respectively, as specified on Schedule 1.
4. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to therein
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Assignment and
Acceptance; (ii) agrees that it will, independently and without reliance upon
the Agent, the Assignor or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement;
(iii) appoints and authorizes the Agent to take such action as agent on its
<PAGE>
behalf and to exercise such powers and discretion under the Credit Agreement
as are delegated to the Agent by the terms thereof, together with such powers
and discretion as are reasonably incidental thereto; (iv) agrees that it will
perform in accordance with their terms of all of the obligations that by the
terms of the Credit Agreement are required to be performed by it as a Bank;
and (v) if the Assignee is organized under the laws of a jurisdiction outside
the United States, attaches the forms prescribed by the Internal Revenue
Service of the United States certifying as to the Assignee's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to the Assignee under the Credit Agreement
and the Notes or such other documents as are necessary to indicate that all
such payments are subject to such taxes at a rate reduced by an applicable tax
treaty.
5. Following the execution of this Assignment and Acceptance, it will be
delivered to the Agent for acceptance by the Agent. The effective date for
this Assignment and Acceptance (the "Effective Date") shall be the date of
acceptance hereof by the Agent, unless otherwise specified on Schedule 1.
6. Upon such acceptance by the Agent, as of the Effective Date, (i) the
Assignee shall be a party to the Credit Agreement and, to the extent provided
in this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement. All representations and agreements
by the Assignor and the Assignee herein may be relied upon by the Agent and
the Banks under the Credit Agreement.
7. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement
and the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment fees with
respect thereto) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments under the Credit Agreement and the Notes
for periods prior to the Effective Date directly between themselves.
8. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of Michigan.
9. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of Schedule 1 to this Assignment and Acceptance by
telecopier shall be effective as delivery of a manually executed counterpart
of this Assignment and Acceptance.
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<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date described in Section 4 above.
[ASSIGNOR]
By:________________________________
Its:___________________________
[ASSIGNEE]
___________________________________
By:________________________________
Its:___________________________
Accepted and Agreed:
WOLVERINE WORLD WIDE, INC.
By: _____________________________________
Its: _________________________________
Dated: __________________________________
NBD BANK, as Agent
By: _____________________________________
Its: _________________________________
Dated: __________________________________
-3-
<PAGE>
EXHIBIT 10.7
WOLVERINE WORLD WIDE, INC.
EXECUTIVE LONG-TERM INCENTIVE (THREE YEAR) PLAN
1996 - 1998 PERIOD
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.1 The Wolverine World Wide, Inc. Executive Long-Term Incentive (Three
Year) Plan, as summarized herein is established by Wolverine World
Wide, Inc. (Company) for the three year fiscal period of 1996 - 1998
and may be continued, intact or as amended, from year to year, at the
Company's option.
1.2 The primary purposes of the plan are to:
a. Encourage longer range strategic planning and not stress
over-dependence on short-term performance which could be at the
expense of long-term increases in stockholder value and/or
achieving a strategic position/advantage in the marketplace.
b. Encourage cooperation among all the units of the Company so as to
foster a closer and more cooperative association and sense of
teamwork.
c. Encourage key management individuals to enter and continue in the
employ of the Company.
ARTICLE II
CONCEPT OF THE PLAN
2.1 a. The primary concept of the plan is to establish a financial goal
for each three year time period for the Company. These periods
are overlapping. The goal needs to be both closely identified
with the interests of the stockholders and easily understood.
b. The goals for all plans through 1998 are expressed in terms of
earnings per share (E.P.S.). The Compensation Committee has
determined that this goal meets the objectives stated above. The
definition of "earnings per share," for this purpose, is the
Company's net after tax earnings per common share of stock after
all expenses and taxes, except for the payment of the three year
bonus itself.
<PAGE>
ARTICLE III
<TABLE>
GOALS FOR PLAN
(EARNINGS PER SHARE, POST '96 SPLIT)
<CAPTION>
YEAR THRESHOLD TARGET MAXIMUM
- ---- --------- ------ -------
<S> <C> <C> <C>
1996 $1.03 $1.08 $1.13
1997 1.13 1.24 1.35
1998 1.25 1.43 1.62
----- ----- -----
TOTAL $3.41 $3.75 $4.10
</TABLE>
Note: In order to pay a bonus, E.P.S. in the third year must be at least
20% of the total E.P.S. goal for the three year period (e.g. at Threshold,
E.P.S. for 1998 must be $.682 cents per share, 20% x $3.41).
SPECIAL NOTE
The Compensation Committee reserves the right to reduce any participant's
bonus if his/her performance was not satisfactory during any year of the
Plan and/or if his/her unit did not achieve 80% of the Unit Target Goal for
the three year period (as noted in the Executive Annual Bonus Plan) and/or
if the Chief Executive Officer recommends a reduction in an individual's
bonus.
PAYOUT AGAINST GOALS
Payout under the 1996-98 Plan as a percentage of each participant's
individual target bonus will be made within thirty days of acceptance of
the fiscal year 1998 certified audit by the Board of Directors, according
to the final schedule:
<TABLE>
<CAPTION>
GOAL PAYOUT AS % OF TARGET BONUS<F*>
- ---- -------------------------------
<S> <C> <C>
Threshold $3.41 50%
Target $3.75 100%
Maximum $4.10 150%
<FN>
<F*>For E.P.S. between the goals shown, the payout as a percentage of Target
Bonus will be determined by straight line interpolation.
</FN>
</TABLE>
-2-
<PAGE>
ARTICLE IV
TERMINATION OF PARTICIPATION
4.1 Retirement, Death, or Total Disability.
If a participant ceases to be a participant before the end of any
performance period and more than twelve months after the beginning of
such performance period because of death, normal or early retirement
under the Company's retirement plan, as then in effect, or total
disability under the Company's long-term disability plan, an award
shall be paid to him or his estate after the end of such performance
period prorated as follows. The award, if any, for such performance
period shall be the amount that he would have received if he had been
a participant during the entire performance period, multiplied by the
ratio of his full months as a participant during that performance
period to the number of months in that performance period.
4.2 Other Termination.
If an employee ceases to be a participant during any performance
period(s), or prior to actual receipt of the award for a previous
period because of the participant's termination of employment for any
reason other than described in Section 4.1 above, the participant will
not be entitled to any award for such performance period. If a
participant continues in Wolverine's employment but no longer is
approved by the Compensation Committee of the Board of Directors to
participate in future periods, his/her eligibility for a prorated
award in current periods will be determined solely by the Compensation
Committee and communicated to the employee. Factors used in this
determination could include the employee's past and current
performance, reasons for the change in participation and other job
related factors as determined by the Compensation Committee.
ARTICLE V
SUMMARY
This communication is meant to summarize the major elements of the
Wolverine World Wide, Inc. Executive Long-Term Incentive Plan. The Plan
shall not be construed to give and does not give any employee the right to
be retained in the employ of the Company.
The Board may discontinue the Plan at any time, suspend the Plan at any
time or from time to time, and from time to time amend the Plan in any
respect, except that no amendment may be made which either would cause any
participant to be deprived of any award previously earned but not paid or
would adversely affect any award such participant might receive for any
performance period which commenced before such amendment was made. The
Board may review at any time the Plan and its administration to determine
-3-
<PAGE>
whether the objectives of the Plan continue to be met. Where appropriate,
the Chief Executive Officer will recommend changes in the Plan for adoption
by the Board of Directors.
-4-
<PAGE>
EXHIBIT 10.15
The Company has entered into Termination of Employment and Change of
Control Agreements with Steven M. Duffy, Stephen L. Gulis, Jr., V. Dean
Estes, Blake W. Krueger, Thomas P. Mundt, Timothy J. O'Donovan, and
Robert J. Sedrowski which are identical to the form of agreement which is
incorporated by reference from Exhibit 10(m) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1993.
<PAGE>
EXHIBIT 10.16
Each of the officers and directors of the Company listed below
(including Mr. Gleason and Mr. Northrop, who retired as directors during
fiscal year 1996) have entered into an Indemnification Agreement identical
to the one which is incorporated by reference from Exhibit 10(n) of the
Company's Annual Report on Form 10-K for the fiscal year ended January 2,
1993.
Geoffrey B. Bloom
Daniel T. Carroll
Steven M. Duffy
V. Dean Estes
Thomas D. Gleason
Alberto L. Grimoldi
Stephen L. Gulis, Jr.
David T. Kollat
Blake W. Krueger
Phillip D. Matthews
David P. Mehney
Thomas P. Mundt
Stuart J. Northrop
Timothy J. O'Donovan
Joseph A. Parini
Joan Parker
Elizabeth A. Sanders
Robert J. Sedrowski
<PAGE>
<TABLE>
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS<FA>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 27,694,629 24,830,963 23,734,790
Net effect of dilutive stock options 831,416 840,740 802,295
----------- ----------- -----------
Total 28,526,045 25,671,702 24,537,084
----------- ----------- -----------
Net earnings $32,856,000 $24,067,000 $16,598,000
=========== =========== ===========
Per share amount $ 1.15 $ 0.94 $ 0.67
=========== =========== ===========
FULLY DILUTED
Actual shares outstanding 27,694,629 24,830,963 23,734,790
Net effect of dilutive stock options 983,223 1,024,806 860,162
Number of shares to be issued assuming
conversion of convertible notes to stock -- -- 327,302
----------- ----------- -----------
Total 28,677,852 25,855,769 24,922,253
Net earnings $32,856,000 $24,067,000 $16,598,000
=========== =========== ===========
Interest expense on convertible notes
assuming conversion at beginning of year 78,795
Tax effect of interest expense -- -- (29,154)
----------- ----------- -----------
<PAGE>
Total $32,856,000 $24,067,000 $16,647,641
=========== =========== ===========
Per share amount $ 1.15 $ 0.93 $ 0.67
=========== =========== ===========
<FN>
<FA> On March 10, 1994, April 19, 1995 and July 11, 1996, the Company
announced three-for-two stock splits on shares of common stock outstanding
on March 21, 1994, May 1, 1995 and July 26, 1996, respectively. All share
and per share data has been retroactively adjusted for the increased shares
resulting from these stock splits.
</FN>
</TABLE>
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF THE REGISTRANT
WOLVERINE WORLD WIDE, INC.
<CAPTION>
State or Country of
Name Incorporation or Organization
<S> <C>
Aquadilla Shoe Corporation Michigan
BSI Shoes, Inc. Michigan
Brooks France, S.A. France
Dominican Wolverine Shoe Company Cayman Islands
Limited
Frolic de Mexico S.A. de C.V. Mexico
Spartan Shoe Company Limited Cayman Islands
WWW Europe, Ltd. England
Hush Puppies Retail, Inc. Michigan
d/b/a Little Red Shoe House
Hush Puppies Factory Direct
Wolverine Design Center, Inc. Michigan
Hy-Test, Inc. Michigan
Wolverine Procurement, Inc. Michigan
Wolverine Sourcing, Inc. Michigan
Hush Puppies Canada Footwear, Ltd. Canada
Hush Puppies (UK) Ltd. England
</TABLE>
All of the subsidiaries of the Registrant are wholly owned.
<PAGE>
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-63689, 33-55213, 33-64854, 33-23195, 33-23196, 2-92600
and 2-68548) pertaining to various stock option and incentive plans of
Wolverine World Wide, Inc. of our report dated February 7, 1997, with
respect to the consolidated financial statements and schedule of Wolverine
World Wide, Inc. and subsidiaries included in the Annual Report on
Form 10-K for the fiscal year ended December 28, 1996.
/s/Ernst & Young LLP
Grand Rapids, Michigan
March 27, 1997
<PAGE>
EXHIBIT 24--POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
February 7, 1997 /S/ GEOFFREY B. BLOOM
<PAGE>
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
February 6, 1997 /S/ DANIEL T. CARROLL
<PAGE>
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
March 5, 1997 /S/ ALBERTO L. GRIMOLDI
<PAGE>
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
February 7, 1997 /S/ DAVID T. KOLLAT
<PAGE>
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
February 17, 1997 /S/ PHILLIP D. MATTHEWS
<PAGE>
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
February 7, 1997 /S/ DAVID P. MEHNEY
<PAGE>
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
February 7, 1997 /S/ TIMOTHY J. O'DONOVAN
<PAGE>
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
February 9, 1997 /S/ JOSEPH A. PARINI
<PAGE>
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
March 19, 1997 /S/ JOAN PARKER
<PAGE>
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Wolverine World Wide, Inc., does hereby
appoint GEOFFREY B. BLOOM; TIMOTHY J. O'DONOVAN; STEPHEN L. GULIS, JR.;
BLAKE W. KRUEGER; and JEFFREY A. OTT, or any of them, his or her attorneys
or attorney, with full power of substitution, to execute in his or her name
an Annual Report of Wolverine World Wide, Inc. on Form 10-K for its fiscal
year ended December 28, 1996, and any amendments to that report, and to
file it or them with the Securities and Exchange Commission. Each attorney
shall have power and authority to do and perform in the name and on behalf
of the undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned could
do in person, and the undersigned hereby ratifies and approves the acts of
such attorneys.
DATE SIGNATURE
February 10, 1997 /S/ ELIZABETH A. SANDERS
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES FOR THE PERIOD ENDED
DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 8,534
<SECURITIES> 0
<RECEIVABLES> 125,999
<ALLOWANCES> 5,634
<INVENTORY> 117,427
<CURRENT-ASSETS> 264,628
<PP&E> 130,779
<DEPRECIATION> 67,776
<TOTAL-ASSETS> 361,598
<CURRENT-LIABILITIES> 69,810
<BONDS> 41,233
<COMMON> 28,357
0
0
<OTHER-SE> 210,935
<TOTAL-LIABILITY-AND-EQUITY> 361,598
<SALES> 511,029
<TOTAL-REVENUES> 511,029
<CGS> 355,224
<TOTAL-COSTS> 355,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,127
<INCOME-PRETAX> 47,667
<INCOME-TAX> 14,811
<INCOME-CONTINUING> 32,856
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,856
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
