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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2000
Commission File Number 0-9831
LIZ CLAIBORNE, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2842791
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1441 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-354-4900
Securities registered pursuant to Section 12(b) of the Act:
Title of class Name of each exchange on which registered
Common Stock, par value $1 per share New York 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_____
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. [ X ]
Based upon the closing sale price on the New York Stock Exchange composite
tape on March 17, 2000, the aggregate market value of the registrant's Common
Stock, par value $1 per share, held by non-affiliates of the registrant on such
date was approximately $2,552,193,002.
Number of shares of the registrant's Common Stock, par value $1 per share,
outstanding as of March 17, 2000: 55,174,526 shares.
Documents Incorporated by Reference:
Registrant's Proxy Statement relating to its Annual Meeting of Stockholders
to be held on May 11, 2000 - Part III.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Liz Claiborne, Inc. designs and markets an extensive range of branded
women's and men's fashion apparel and accessories, appropriate for occasions
ranging from casual to dressy. The Company also markets fragrances for women and
men. The Company's brands include CLAIBORNE, CRAZY HORSE, CURVE, DANA BUCHMAN,
ELISABETH, EMMA JAMES, FIRST ISSUE, LAUNDRY BY SHELLI SEGAL, LIZ CLAIBORNE,
LUCKY BRAND, RUSS, SIGRID OLSEN and VILLAGER. In addition, the Company holds
exclusive licenses to design, produce, market and sell DKNY(R) JEANS and DKNY(R)
ACTIVE men's, junior's and women's sportswear, jeanswear and activewear in the
Western Hemisphere, women's apparel products under the KENNETH COLE NEW YORK,
UNLISTED.COM and REACTION KENNETH COLE trademarks in North America and certain
countries in Central and South America and CANDIE'S fragrance, cosmetic and
beauty products worldwide.
Products are manufactured to the Company's specifications in the United
States and abroad and are marketed through leading department and specialty
stores, mass merchandisers, national chains and other channels in the United
States, Canada, Europe, Asia, and Central and South America. The Company
believes that it is the largest "better" women's branded apparel company in the
United States. Generally, the Company's sportswear products are conceived and
marketed as "designer" items, but are priced in the "better" apparel range. The
Company also offers products at "bridge" and "moderate" price points.
At March 17, 2000, the Company's order book reflected unfilled customer
orders for approximately $785 million of merchandise, as compared to
approximately $862 million at February 26, 1999. Substantially all such orders
will be filled within the 2000 fiscal year. Order book data at any given date is
materially affected by the timing of recording orders and of shipments and
seasonal factors. Accordingly, order book data should not be taken as indicative
of eventual actual shipments or net sales, or as providing meaningful
period-to-period comparisons.
As used herein, the term "Company" refers to Liz Claiborne, Inc., a
Delaware corporation, together with its consolidated subsidiaries.
NARRATIVE DESCRIPTION OF BUSINESS
In order to reach a broad spectrum of consumers, the Company offers an
array of products under its portfolio of brands through a variety of
distribution channels at a broad range of price points. In its product offerings
the Company seeks to provide versatility to consumers in terms of individual
items, price points and key item classifications.
The Company operates the following business segments: Wholesale Apparel,
Wholesale Non-Apparel and Retail. In addition, the Company licenses to third
parties the right to manufacture, market and sell at wholesale selected products
bearing the Company's trademarks. Wholesale Apparel consists of businesses that
design, manufacture and market to the Company's wholesale customers women's and
men's apparel under various trademarks owned or licensed by the Company.
Wholesale Non-Apparel consists of businesses that design, manufacture and market
to the Company's wholesale customers accessories, cosmetics and jewelry products
under various trademarks owned or licensed by the Company. Retail consists of
businesses that sell merchandise designed and manufactured by the Wholesale
Apparel and Wholesale Non-Apparel segments to the public through
Company-operated specialty retail and outlet stores, as well as leased
departments.
Wholesale Apparel. The Company offers a variety of women's and men's
apparel products through its apparel business. Substantially all products in
each sportswear collection are sold at retail as separate items.
The Casual business offers casual sportswear in misses and petite sizes
under three of the Company's trademarks: LIZSPORT, which offers all-American
sportswear, including twill products, for less formal work settings and casual
occasions; LIZWEAR, which offers denim and denim-related sportswear, including
twills and fashion coordinates; and LIZ & CO., which offers versatile casual
knitwear.
The ELISABETH business offers classic careerwear, weekend casual and
wardrobe basics in large sizes (including petite proportions) under the
Company's ELISABETH and ELISABETH-LIZ & CO. trademarks. In March 1999, the
Company introduced a line of large-sized denim and denim-related sportswear
under the ELISABETH-INDIGO trademark. Shipping commenced in the second quarter
of 1999.
The CLAIBORNE business offers men's business-casual wear, sportswear and
dress shirts under the CLAIBORNE
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trademark.
The Career (COLLECTION) business offers professional careerwear with
desk-to-dinner versatility in misses and petite sizes under the LIZ CLAIBORNE
trademark.
The DANA BUCHMAN business offers collections of products for the women's
"bridge" market (the market between the "better" and "designer" markets) with
elegant styling in distinctive fabrics, in misses, large and petite sizes under
the Company's DANA BUCHMAN trademark and a line of "upscale" specialty store
products under the DANA BUCHMAN LUXE trademark. In September 1999, the Company
introduced a line of fashion forward specialty store casual products under the
DANA BUCHMAN INTUITION trademark, with shipping commencing in February 2000.
The Special Markets business offers women's updated career and casual
clothing at more moderate prices under five Company trademarks: EMMA JAMES
(related separates for the casual workplace, sold in department stores
nationally), VILLAGER (relaxed separates for soft career and weekend dressing,
sold in regional department stores), FIRST ISSUE (relaxed career and everyday
wear, sold exclusively in Sears department stores), RUSS (casual separates, sold
in Wal-Mart stores), and CRAZY HORSE (casual separates, sold exclusively at J.C.
Penney stores). See "Competition; Certain Risks" below.
The Company holds the exclusive license to design, produce, market and sell
men's, junior's and women's sportswear, jeanswear and activewear under the
DKNY(R) JEANS and DKNY(R) ACTIVE trademarks and logos for sale in the Western
Hemisphere. DKNY(R) JEANS products commenced shipping in the first quarter of
1998; DKNY(R) ACTIVE products commenced shipping in the first quarter of 1999.
In October 1999, the Company consummated an additional exclusive license
agreement covering a line of women's career and casual sportswear for the
"better" market, under a trademark, to be determined, which is expected to be a
derivative of the DKNY(R) trademark. Shipping of this line is anticipated to
commence in early 2001.
In October 1999, the Company increased its equity interest in Segrets, Inc.
("Segrets") to 87.5%, from the 84.5% acquired in February 1999, by purchasing
stock held by a former Segrets stockholder. Segrets offers a range of women's
sportswear in misses, large and petite sizes under several trademarks, including
SIGRID OLSEN SPORT, SIGRID OLSEN COLLECTION, SO BLUE BY SIGRID OLSEN, SIGRID
OLSEN WOMAN and SIGRID OLSEN PETITES.
Each of the above businesses presented four seasonal collections during
1999, except DANA BUCHMAN which presented three seasonal collections.
In June 1999, the Company completed the purchase of 85% of the equity
interest of Lucky Brand Dungarees, Inc. ("Lucky"). Lucky offers women's and
men's denim-based sportswear under the LUCKY BRAND, HOT PINK and TRIPLE XXX
brand names.
In August 1999, the Company consummated a license agreement with Kenneth
Cole Productions, Inc. to manufacture, design, market and distribute, in North
America and certain countries in Central America and South America, "better"
women's contemporary sportswear under the KENNETH COLE NEW YORK label, with
shipping anticipated to commence in the third quarter of 2000. The license
includes the right to manufacture, design, market and distribute a junior-sized
apparel line under the UNLISTED.COM label and a women's status denim and
sportswear line under the REACTION KENNETH COLE label, each of which is
anticipated to be launched in 2001.
In November 1999, the Company acquired all of the equity interest of Podell
Industries, Inc., which owns all of the assets comprising Laundry ("Laundry").
Laundry offers contemporary womens' sportswear and dresses under the
LAUNDRY BY SHELLI SEGAL label, primarily to select department and specialty
stores. In addition, Laundry offers a smaller collection of products under the
SHELLI SEGAL label to a limited number of doors.
For further information regarding the Segrets, Lucky, and Laundry
businesses, see Note 2 of Notes to Consolidated Financial Statements. For
further information regarding the DKNY and Kenneth Cole arrangements, see Note 3
of Notes to Consolidated Financial Statements.
In February 2000, the Company licensed the Liz Claiborne and Elisabeth
dress businesses to Leslie Fay Marketing, Inc., a subsidiary of the Leslie Fay
Company. The Company will continue to produce dresses as part of the collection,
LIZSPORT, LIZWEAR, LIZ & CO. and ELISABETH sportswear lines. See Note 19 of
Notes to Consolidated Financial Statements.
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Wholesale Non-Apparel. The Company offers a wide variety of accessory
products through its handbag/small leather goods, fashion accessories and
jewelry businesses, primarily under the LIZ CLAIBORNE trademark. These offerings
mirror major fashion trends and are intended to complement many of the Company's
other product lines. The Company phased out its DANA BUCHMAN accessories line in
1999.
The Company's cosmetics business offers fragrance and bath and body-care
products under the Company's LIZ CLAIBORNE, REALITIES, VIVID, CLAIBORNE FOR MEN,
CLAIBORNE SPORT, CURVE (for women and men), and LIZSPORT trademarks. The Company
holds the exclusive license to manufacture, market, distribute and sell
worldwide a collection of CANDIE'S fragrances, cosmetics and beauty products;
shipping of CANDIES products commenced in the third quarter of 1999.
Retail. The Company operates specialty retail stores located throughout the
United States, which carry solely Company products. At March 17, 2000, the
Company operated a total of 99 retail stores: 33 LIZ CLAIBORNE stores, 44
ELISABETH large-size apparel stores, 2 CLAIBORNE men's stores, 5 Dana Buchman
stores, 2 DKNY(R) JEANS stores, 12 LUCKY BRAND DUNGAREES stores, and one LAUNDRY
BY SHELLI SEGAL store. The LIZ CLAIBORNE flagship store, an approximately 17,000
square foot facility, is located on Fifth Avenue in New York City. The other
stores range in size from 1,300 to 12,000 square feet. During 1999, the Company
closed a number of underperforming specialty retail stores. See Note 10 of Notes
to Consolidated Financial Statements.
At March 17, 2000, the Company operated 144 outlet stores in the United
States, virtually all of which are located in "outlet centers" comprised
primarily of manufacturer-operated stores. In Western Europe, the Company's
sales are made primarily through leased departments, or concessions.
Licensing. The Company has sixteen license arrangements pursuant to which
third party licensees produce merchandise under Company trademarks in accordance
with designs furnished or approved by the Company, the present terms of which
(not including renewal terms) expire at various dates through 2010. Current
licenses cover women's career, casual and sport shoes; dresses; home furnishing
products; women's and men's outerwear; women's swimwear and related merchandise;
women's intimate apparel; women's and men's ophthalmic frames for prescription
eyewear; women's and men's sunglasses and readers; men's tailored clothing;
men's accessories; men's formalwear and accessories; men's and boys' neckwear;
tabletop products; boys' apparel; children's apparel; and women's sleepwear
apparel. Each of the licenses provides for the payment to the Company of a
percentage of the licensee's sales of the licensed products against a guaranteed
minimum royalty which generally increases over the term of the agreement.
SALES AND MARKETING
The Company's wholesale sales are made primarily to department store chains
and specialty store customers throughout the United States. Retail sales are
made through the Company's own retail stores and outlet stores, as well as to
international customers, military exchanges and other outlets.
At 1999 year-end, Company products were being sold in over 70 markets
outside the United States. In Canada, the Company operates a wholesale business
which sells primarily to department store chains and specialty stores. During
1999, the Company continued its LIZ CLAIBORNE, DANA BUCHMAN, EMMA JAMES and
DKNY(R) JEANS product distribution, and further expanded the distribution of
VILLAGER product, in Canada. The Company's sales in Western Europe are conducted
primarily through leased departments, or concessions, and are concentrated in
the United Kingdom and Spain, with additional concessions in Denmark, Belgium,
Ireland and France.
In other international markets, the Company operates principally through
retail store licenses with third parties and dedicated department store shops.
The Company has a joint venture with Jusco Co. Ltd. to open and operate
free-standing stores and department store shop-in-shops in Japan under the LIZ
CLAIBORNE and DANA BUCHMAN marks. Two Liz Claiborne stores opened in Japan in
the fourth quarter of 1999. Under a separate arrangement, Jusco Co. Ltd. will
manufacture customized EMMA JAMES branded apparel for sale in Japan and will
open and operate department store shop-in-shops under the EMMA JAMES trademark.
At year-end 1999, international retail operations were comprised of 109 licensed
stores and dedicated department store shop-in-shops in 27 countries.
Approximately 84% of 1999 sales were made to the Company's 100 largest
customers. Except for Dillard's Department Stores, Inc., which accounted for
approximately 15% of 1999 and 1998 sales, no single customer accounted
for more than 6% of 1999 or 1998 sales. However, certain of the Company's
customers are under common ownership; when considered together as a group under
common ownership, sales to the eight department store customers which were owned
at year-end 1999 by The May Department Stores Company accounted for
approximately 16% of 1999 and 18% of 1998 sales, and sales to the eight
department store customers which were owned at year-end 1999 by Federated
Department Stores, Inc.
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accounted for approximately 17% of 1999 and 1998 sales. See Note 8 of Notes to
Consolidated Financial Statements. Many major department store groups make
centralized buying decisions; accordingly, any material change in the Company's
relationship with any such group could have a material adverse effect on the
Company's operations. The Company expects that its largest customers will
continue to account for a significant percentage of its sales. Sales to the
Company's department and specialty store customers are made primarily through
the Company's New York City showrooms.
Orders from the Company's customers generally precede the related shipping
periods by several months. The Company's largest customers discuss with the
Company retail trends and their plans regarding their anticipated levels of
total purchases of Company products for future seasons. These discussions are
intended to assist the Company in planning the production and timely delivery of
its products. The Company continually monitors retail sales in order to directly
assess consumer response to its products.
The Company continues to implement in-stock reorder programs in several
divisions to enable customers to reorder certain items through electronic means
for quick delivery. See "Manufacturing" below. In January 1999, the Company
discontinued LIZRIM, an internal inventory replenishment system used by a number
of retail customers; former LIZRIM customers currently participate in the
Company's in-stock reorder programs through their own internal replenishment
systems.
During 1999, the Company continued to expand its in-store sales, marketing
and merchandising programs designed to encourage multiple item, regular price
sales, build one-on-one relationships with consumers and maintain the Company's
merchandise presentation standards. The LIZEDGE program services the Company's
LIZ CLAIBORNE and ELISABETH apparel brands by training sales associates on
suggested selling, product, merchandise presentation and client development
strategies. The Company's men's, DANA BUCHMAN, DKNY(R) JEANS, Laundry and
accessories businesses have service and merchandising programs similar to
LIZEDGE.
In 1999, the Company further expanded its program designed to enhance the
presentation of the Company's products on retail selling floors generally
through the use of proprietary fixturing, merchandise presentations and in-store
graphics. At year-end 1999, over 1,400 LIZVIEW shops were installed in more than
800 stores, representing over 1,800,000 square feet of upgraded selling space
for LIZ CLAIBORNE brands. In addition, at year-end 1999, approximately 400
accessories, 400 CLAIBORNE, 13 DANA BUCHMAN, 70 EMMA JAMES and 800 DKNY(R) JEANS
shops were installed in department stores. Furthermore, at year-end 1999,
approximately 1,100 CRAZY HORSE shops were installed in JC Penney stores and
approximately 175 FIRST ISSUE shops were installed in SEARS stores. In 2000, the
Company plans to install, in the aggregate, approximately 3,000 additional
in-store shops. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Position, Capital Resources and
Liquidity."
The Company spent approximately $40 million on national advertising in
1999; current plans call for 2000 national advertising expenditures of a
comparable amount. This compares with approximately $32 million spent in 1998.
In addition, the Company maintains cooperative advertising programs under which
it generally shares the costs of each customer's advertising and promotional
expenditures, up to a stated percentage of the customer's purchases. The Company
incurred costs under these cooperative advertising programs of approximately $64
million in 1999, compared with $57 million in 1998.
The Company maintains a consumer website (www.lizclaiborne.com) which
provides information on LIZ CLAIBORNE and ELISABETH branded apparel and
accessories products. In addition, the Company maintains a consumer website
(www.luckybrandjeans.com) which provides information on LUCKY BRAND branded
apparel and offers a selection of LUCKY BRAND apparel for sale directly to
consumers.
MANUFACTURING
The Company does not own any product manufacturing facilities; all of its
products are manufactured in accordance with its specifications through
arrangements with independent suppliers.
A very substantial portion of the Company's sales is represented by
products produced abroad, mainly in the Far East, the Caribbean and Central
America. The Company also sources in the United States and other regions. The
Company does not itself own quota and, therefore, must obtain quota from its
suppliers and vendors. During 1999, the Company's products were manufactured by
several hundred suppliers. The Company's products are currently manufactured in
approximately 35 different countries, including China, Saipan, the Dominican
Republic, Taiwan, Sri Lanka, the United States and South Korea. The Company
continually seeks additional suppliers throughout the world for its sourcing
needs. The Company's largest supplier of finished products manufactured less
than 6% of the Company's purchases of finished products during 1999.
Approximately 35% of the Company's 1999 purchases of finished products, as
compared to 30% of the Company's 1998 and 1997 purchases, were manufactured by
its ten largest suppliers. The Company expects that the percentage of production
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represented by its largest suppliers will continue to increase in light of the
Company's ongoing worldwide factory certification initiative, under which the
Company is planning to allocate even larger portions of its production
requirements to suppliers which appear to have superior capacity, quality (of
product and operations) and financial resources. The Company's purchases from
its suppliers are affected through individual purchase orders specifying the
price and quantity of the items to be produced. The Company does not have any
long-term, formal arrangements with any of the suppliers which manufacture its
products.
The Company believes that it is the largest customer of many of its
manufacturing suppliers and considers its relations with such suppliers to be
satisfactory. Most of the Company's fabrics, trimmings and other materials are
obtained in bulk from various foreign and domestic suppliers. Where the Company
purchases completed product "packages" from its contractors, the contractor is
responsible to purchase all necessary raw materials and other product
components. Inasmuch as the Company intends to continue to move towards
purchasing an increasing portion of its products as "packages," the Company
continues its development of a group of "approved suppliers" to supply raw
materials and other product components to its contractors for use in "packages";
the Company anticipates continuing the practice of purchasing a substantial
portion of its products as "packages" in 2000. During 1999, the raw materials
used in Company products were obtained from several hundred suppliers, located
primarily in the United States, Japan, Taiwan, South Korea, China, Italy and
Ireland. Approximately 29% of the Company's raw materials during 1999 and 33%
during 1998 were obtained from its five largest raw material suppliers, with no
single raw material supplier accounting for more than 9% of 1999 raw material
purchases. The Company does not have any long-term, formal arrangements with any
supplier of raw materials. To date, the Company has experienced little
difficulty in satisfying its raw material requirements and considers its sources
of supply adequate.
The Company operates under substantial time constraints in producing each
of its collections. See "Sales and Marketing." In order to deliver, in a timely
manner, merchandise which reflects current tastes, the Company attempts to
schedule a substantial portion of its materials and manufacturing commitments
relatively late in the production cycle, thereby favoring suppliers able to make
quick adjustments in response to changing production needs. However, in order to
secure necessary materials and manufacturing facilities, the Company must make
substantial advance commitments, often as much as seven months prior to the
receipt of firm orders from customers for the items to be produced. The Company
continues to seek to reduce the time required to move products from design to
the customer.
If the Company should misjudge its ability to sell its products, it could
be faced with substantial outstanding fabric and/or manufacturing commitments,
resulting in excess inventories. See "Competition; Certain Risks" below.
The Company's arrangements with foreign suppliers are subject to the risks
of doing business abroad, including currency fluctuations and revaluations,
restrictions on the transfer of funds and, in certain parts of the world,
political, economic and currency instability. The Company's operations have not
been materially affected by any such factors to date. However, due to the large
portion of the Company's products which are produced abroad, any substantial
disruption of its relationships with its foreign suppliers could adversely
affect the Company's operations.
IMPORT AND IMPORT RESTRICTIONS
Virtually all of the Company's merchandise imported into the United States
is subject to United States duties. In addition, bilateral agreements between
the major exporting countries and the United States impose quotas that limit the
amount of certain categories of merchandise that may be imported into the United
States. The majority of such agreements contain "consultation" clauses which
allow the United States, under certain circumstances, to impose unilateral
restrictions on the importation of certain categories of merchandise that are
not subject to specified limits under the terms of an agreement. These bilateral
agreements have been negotiated under the framework of the MultiFiber
Arrangement ("MFA"), which has been in effect since 1974. The United States, a
participant in international negotiations known as the "Uruguay Round", ratified
legislation enacting and implementing the various agreements of the Uruguay
Round, effective January 1, 1995, including the Uruguay Round Agreement on
Textiles and Clothing which requires World Trade Organization member countries
to phase out textile and apparel quotas in three stages over a ten year period.
In addition, it regulates trade in non-integrated textile and apparel quotas
during the ten year transition period. However, even with respect to integrated
textile and apparel quota categories, the United States remains free to
establish numerical restraints in response to a particular product being
imported in such increased quantities as to cause (or threaten) serious damage
to the relevant domestic industry. United States legislation implementing the
Uruguay Round also changed the rule of origin for many textiles and apparel
products effective July 1, 1996, with certain minor exceptions. This change now
determines country of origin based on "assembly" for most textile and apparel
products. The Uruguay Round also incorporates modest duty reductions for textile
and apparel products over a ten year staging schedule. This will likely result
in a modification of current patterns of international trade with respect to
apparel and textiles. See "Competition; Certain Risks" below.
In addition, each of the countries in which the Company's products are sold
have laws and regulations regarding import
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restrictions and quotas. Because the United States and other countries in which
the Company's products are manufactured and sold may, from time to time, impose
new quotas, duties, tariffs, surcharges or other import controls or
restrictions, or adjust presently prevailing quota allocations or duty or tariff
rates or levels, the Company maintains a program of intensive monitoring of
import and quota-related developments. The Company seeks continually to minimize
its potential exposure to import and quota-related risks through, among other
measures, allocation of production to merchandise categories that are not
subject to quota pressures, adjustments in product design and fabrication,
shifts of production among countries and manufacturers, as well as through
geographical diversification of its sources of supply.
In light of the very substantial portion of the Company's products which
are manufactured by foreign suppliers, the enactment of new legislation or the
administration of current international trade regulations, or executive action
affecting textile agreements, could adversely affect the Company's operations.
DISTRIBUTION
The Company distributes its products through facilities that are owned or
leased by the Company, as well as through third-party facilities operated by
independent contractors. Principal distribution facilities are located in
Alabama, California, Indiana, New Jersey and Pennsylvania. See "Properties"
below.
TRADEMARKS
The Company owns and/or uses a variety of trademarks in connection with its
businesses and products, including CLAIBORNE, CLAIBORNE SPORT, CRAZY HORSE,
CURVE, DANA BUCHMAN, DANA BUCHMAN INTUITION, DANA BUCHMAN LUXE, ELISABETH, EMMA
JAMES, FIRST ISSUE, J.H. COLLECTIBLES, LEATHER CO., LAUNDRY BY SHELLI SEGAL,
LIZ, LIZ & CO., LIZ CLAIBORNE, LIZ CLAIBORNE COLLECTION, LIZ CLAIBORNE STUDIO,
LIZSPORT, LIZWEAR, REALITIES, RUSS, VILLAGER, VIVID, its LC logomark, its
triangular logomark and its leaf design. The Company has exclusive rights, under
license, to the DKNY(R) JEANS and DKNY(R) ACTIVE trademarks and logos for men's
and women's sportswear, jeanswear and activewear in the Western Hemisphere. The
Company is also the exclusive licensee of the KENNETH COLE NEW YORK,
UNLISTED.COM and REACTION KENNETH COLE trademarks for women's wear in North
America and certain countries in Central America and South America, as well as
the CANDIE'S trademark for fragrance, cosmetic and beauty products worldwide.
See Note 3 of Notes to Consolidated Financial Statements. By virtue of its
ownership interests, the Company controls the Segrets' trademarks, which include
SIGRID OLSEN SPORT, SIGRID OLSEN COLLECTION, SO BLUE BY SIGRID OLSEN, SIGRID
WOMAN and SIGRID OLSEN PETITES, and the Lucky trademarks, which include LUCKY
BRAND, HOT PINK, TRIPLE XXX, LUCKYVILLE and Lucky's four leaf clover design and
pocket design.
The Company has registered or applied for registration of a multitude of
trademarks, including those referenced above, for use on apparel and
apparel-related products, including accessories, cosmetics and jewelry in the
United States as well as numerous foreign territories. The Company also has a
number of design patents. The Company regards its trademarks and other
proprietary rights as valuable assets and believes that they have significant
value in the marketing of its products. The Company vigorously protects its
trademarks and other intellectual property rights against infringement.
COMPETITION; CERTAIN RISKS
The apparel and related product markets are highly competitive, both within
the United States and abroad.
The Company's ability to successfully compete depends on a number of
factors, including the Company's ability to effectively anticipate, gauge and
respond to changing consumer demands and tastes, to translate market trends into
appropriate, saleable product offerings relatively far in advance, and to
operate within substantial production and delivery constraints. In addition,
consumer and customer acceptance and support (especially by the Company's
largest customers) depend upon, among other things, product, value and service.
The Company believes that, based on sales, it is among the largest apparel
companies operating in the United States. Although the Company is unaware of any
comprehensive trade statistics, it believes, based on its knowledge of the
market and available trade information, that measured by sales, it is the
largest "better" women's branded apparel company in the United States. Principal
competitors within the "better" women's sportswear market include Jones Apparel
Group, Inc., Polo Ralph Lauren Corporation and Tommy Hilfiger Corporation.
In addition to the competitive factors described above, the Company's
business, including its revenues and profitability, is influenced by and subject
to a number of factors which are inherently uncertain and therefore difficult to
predict, including, among others: changes in regional, national and global
economic conditions; risks associated with changes in the competitive
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marketplace, including the levels of consumer confidence and spending, and the
financial condition of the apparel industry and the retail industry, as well as
adverse changes in retailer or consumer acceptance of the Company's products as
a result of fashion trends or otherwise and the introduction of new products or
pricing changes by the Company's competitors; risks associated with the
Company's dependence on sales to a limited number of large department store
customers, including risks related to customer requirements for vendor margin
support and those related to extending credit to customers; risks associated
with consolidations, restructurings and other ownership changes in the retail
industry; risks associated with Year 2000 issues that may arise with the
Company, third party customers or suppliers in connection with systems that
have not been fully vested (see "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Year 2000 Issue/Information
Systems Upgrade."); uncertainties relating to the Company's ability to
implement its growth strategies; the Company's ability to correctly balance
the level of its fabric and/or merchandise commitments with actual orders; the
Company's ability to effectively distribute its products within its targeted
markets (including distribution to and through wholesale accounts and Company
operated retail stores and concession locations); risks associated with the
possible inability of the Company's unaffiliated manufacturers to manufacture
and deliver products in a timely manner, to meet quality standards or to comply
with the Company's policies regarding labor practices; the chance of
substantial disruption of the Company's relationships with its suppliers,
manufacturers and employees; and risks associated with changes in social,
political, economic and other conditions affecting foreign operations and
sourcing. See also Note 8 of Notes to Consolidated Financial Statements. With
respect to foreign sourcing, the Company notes that legislation which would
further restrict the importation and/or increase the cost of textiles and
apparel produced abroad has periodically been introduced in Congress. Although
it is unclear whether any new legislation will be enacted into law, it appears
likely that various new legislative or executive initiatives will be proposed.
These initiatives may include a reevaluation of the trading status of certain
countries, including Normal Trade Relations ("NTR") treatment for the People's
Republic of China ("PRC") and/or retaliatory duties, quotas or other trade
sanctions, which, if enacted, would increase the cost of products purchased
from suppliers in such countries. The PRC's Permanent NTR treatment was renewed
in July 1999 for an additional year. In light of the very substantial portion
of the Company's products which are manufactured by foreign suppliers, the
enactment of new legislation or the administration of current international
trade regulations, or executive action affecting international textile
agreements, could adversely affect the Company's operations. See "Import and
Import Restrictions" and "Sales and Marketing" above.
The Company from time to time reviews its possible entry into new markets,
either through internal development activities or through acquisitions. The
entry into new markets (including the development and launch of new product
categories), such as the Company's entry into the moderate market, and the
acquisition of businesses, such as the Company's acquisitions of Segrets, Lucky
and Laundry, is accompanied by risks inherent in any new business venture and
may require methods of operations and marketing strategies different from those
employed in the Company's other businesses. Moreover, certain new businesses may
be lower margin businesses and may require the Company to achieve significant
cost efficiencies. In addition, new markets may involve buyers, store customers
and/or competitors different from the Company's historical buyers, customers and
competitors. Furthermore, the Company's acquisition of other businesses entails
the normal risks inherent in such transactions, including, without limitation,
possible difficulties, delays and/or unanticipated costs in integrating the
business, operations, personnel, and/or systems of the acquired entity; risks
that projected or satisfactory level of sales, profits and/or return on
investment will not be generated; risks that expenditures required for capital
items or working capital will be higher than anticipated; risks involving the
Company's ability to retain and appropriately motivate key personnel of the
acquired business; and risks associated with unanticipated events and unknown or
uncertain liabilities.
EMPLOYEES
At January 1, 2000, the Company had approximately 7,700 full-time
employees, as compared with approximately 7,000 full-time employees at January
2, 1999. The Company considers its relations with its employees to be
satisfactory and to date has not experienced any interruption of operations due
to labor disputes.
The Company is bound by a national collective bargaining agreement with the
Union of Needletrades, Industrial and Textile Employees (UNITE), agreements with
various locals and a Jobbers Agreement with UNITE. These agreements cover
approximately 1,800 of the Company's full-time employees and expire on May 31,
2000. Most of the union-represented employees are employed in warehouse and
distribution facilities the Company operates in New Jersey, Pennsylvania and
Alabama. While relations between the Company and the union have historically
been amicable, the Company believes it prudent to prepare for the possibility of
a labor dispute at one or more of its facilities. While the Company does not
foresee the likelihood of a prolonged labor dispute, any substantial labor
disruption could adversely affect the Company's operations.
ITEM 2. PROPERTIES.
The Company's showrooms and executive offices, as well as its sales,
merchandising and design staffs, are located at 1441 Broadway, New York, New
York, where the Company leases approximately 287,000 square feet under a master
lease which, pursuant to amendments entered into effective in 1999, expires at
the end of 2012 and contains certain renewal
8
<PAGE> 9
options and rights of first refusal for additional space. The Company currently
leases office space at two other buildings in New York City covering
approximately 29,000 and 93,000 square feet (with terms expiring in 2003 and
2013, respectively) and licenses space in another building covering
approximately 39,000 square feet. These properties are used in all of the
Company's business segments.
The Company owns an approximately 450,000 square foot New Jersey warehouse
and distribution facility (plus mezzanine space of approximately 170,000 square
feet) located at One Claiborne Avenue, North Bergen, New Jersey. This facility
also houses the Company's production and certain administrative personnel. The
Company also owns an approximately 300,000 square foot office facility at this
location. The Company presently leases approximately 955,000 square feet in
other New Jersey warehouse and distribution facilities, the current terms of
which expire through 2008. The Company also owns a warehouse and distribution
facility located on 80 acres in Mt. Pocono, Pennsylvania. An expansion of the
Pocono facility, which now includes approximately 630,000 square feet of
warehouse and distribution space (plus mezzanine space of approximately 600,000
square feet), was completed in 1999. In addition, the Company occupies an
approximately 150,000 square foot warehouse and distribution facility in Mt.
Pocono, Pennsylvania under a sublease which expires in 2002. The Company leases
pursuant to industrial development financing an approximately 290,000 square
foot warehouse and distribution facility (plus mezzanine space of approximately
380,000 square feet) located on a 124 acre site in Montgomery, Alabama.
Additionally, the Company occupies an approximately 120,000 square foot
warehouse facility in Montgomery, Alabama under a lease which, pursuant to a
renewal option exercised by the Company in 1999, expires at the end of 2001. The
Company also leases showroom, warehouse and office space in various other
domestic and international locations. These properties are used in each of the
Company's business segments. The Company also uses unaffiliated third parties to
provide distribution services at several additional facilities. The Company is
seeking to sell its approximately 270,000 square foot facility in Augusta,
Georgia (located on a 98-acre site and previously used in connection with a
dyeing and finishing joint venture).
The Company leases space for its 99 retail specialty stores (aggregating
approximately 410,000 square feet) and its 144 outlet stores (aggregating
approximately 1,141,091 square feet).
The Company believes that its existing facilities are well maintained, in
good operating condition and, upon occupancy of additional space, will be
adequate for its present level of operations. See Note 8 of Notes to
Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
Various legal actions are pending against the Company. Although the outcome
of any such actions cannot be determined with certainty, management is of the
opinion that the final outcome of any of these actions should not have a
material adverse effect on the Company's results of operations or financial
position. See Note 8 and Note 18 of Notes to Consolidated Financial Statements.
In January 1999, two actions were filed in California naming as defendants
more than a dozen United States-based apparel companies that source garments
from Saipan (Commonwealth of the Northern Mariana Islands) and a large number of
Saipan-based garment factories. The actions assert that the Saipan factories
engage in unlawful practices relating to the recruitment and employment of
foreign workers and that the apparel companies, by virtue of their alleged
relationship with the factories, have violated various federal and state laws.
One action, filed in California Superior Court in San Francisco by a union and
three public interest groups, alleges unfair competition and false advertising
(the "State Court Action"). The State Court Action seeks equitable relief,
unspecified amounts for restitution and disgorgement of profits, interest and an
award of attorney's fees. The second, filed in the United States District Court
for the Central District of California, and later transferred to the District of
Hawaii, is brought on behalf of a purported class consisting of the Saipan
factory workers (the "Federal Court Action"). The Federal Court Action alleges
claims under the civil RICO statute and the Alien Tort Claims Act, premised on
supposed violations of the federal anti-peonage and indentured servitude
statutes, as well as other violations of Saipan and international law, and seeks
equitable relief and unspecified damages, including treble and punitive damages,
interest and an award of attorney's fees. A third action, brought in Federal
Court in Saipan solely against the garment factory defendants on behalf of a
putative class of their workers, alleges violations of federal and Saipanese
wage and employment laws.
The Company sources products in Saipan but was not named as a defendant in
the actions. The Company, and certain other apparel companies not named as
defendants, were advised in writing, however, that they would be added as
parties if a consensual resolution of the claims could not be reached. The
Company has since reached an agreement to settle all claims that were or could
have been asserted in the Federal or State Court Actions. To date, fifteen other
apparel companies have also agreed to settle these claims. The settlement
agreements are subject to federal court approval. Under the terms of the
agreement, if the settlement does not receive final federal court approval, the
Company will be entitled to a refund of the
9
<PAGE> 10
entire settlement amount except for funds of up to $10,000 spent on costs of
notice. Because the litigation is at a preliminary stage, with no merits
discovery having taken place, if the settlement is not finally approved by the
federal court, we cannot at this juncture determine the likelihood of a
favorable or unfavorable outcome or the magnitude of the latter if it were to
occur.
In addition, the Company was a party to a putative class action, Chun Hua
Mui v. Union of Needletrades Industrial and Textile Employees, 97 Civ. 7270,
filed in the United States District Court for the Southern District of New York
by three current and former employees of Mademoiselle Knitware, Inc.
(Mademoiselle"), a former knitgoods supplier for the Company, against the
Company and three labor unions - the Union of Needletrades, Industrial and
Textile Employees ("Unite"), Unite Local 23-25, which represents a substantial
number of the Company's employees and Unite Local 155, which represented
Madamoiselle employees. On August 18, 1998, all of the claims against the
Company were dismissed. On February 4, 2000, counsel for the plaintiffs
confirmed that the plaintiffs were not appealing from the order dismissing all
claims in the action against the Company. Accordingly, the dismissal is final.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT.
Information as to the executive officers of the Company, as of March 17, 2000,
is set forth below:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Paul R. Charron 57 Chairman of the Board and Chief Executive Officer
Denise V. Seegal 46 President
Jorge L. Figueredo 39 Senior Vice President - Human Resources; President-International
John R. Thompson 48 Senior Vice President - Service, Systems and Distribution
Robert J. Zane 60 Senior Vice President - Manufacturing and Sourcing
Richard F. Zannino 41 Senior Vice President - Finance and Administration, Chief
Financial Officer
</TABLE>
Executive officers serve at the discretion of the Board of Directors.
Mr. Charron joined the Company as Vice Chairman and Chief Operating
Officer, and became a Director, in 1994. In 1995, Mr. Charron became President
(a position he held until October 1996) and Chief Executive Officer of the
Company. In 1996, Mr. Charron became Chairman of the Board of the Company. Prior
to joining the Company, Mr. Charron served in various executive capacities with
VF Corporation, an apparel manufacturer, from 1988.
Ms. Seegal joined the Company in 1996 as President. Prior to joining the
Company, Ms. Seegal served as President of the CK Men's and Women's divisions of
Calvin Klein, Inc. from 1994 to 1996 and as President of the DKNY divisions of
the Donna Karan Company from 1989 to 1994.
Mr. Figueredo joined the Company in 1984 as Administrator, Warehouse
Employee Relations and served in various management positions thereafter. In
1992, Mr. Figueredo was promoted to Vice President, Human Resources Operations.
Since 1994, Mr. Figeuredo has served as Senior Vice President - Human Resources,
and in 1999, Mr. Figueredo became President of the Company's International
Division.
Mr. Thompson joined the Company in 1995 and has served since as Senior Vice
President of Service, Systems and Reengineering. From 1995 to 2000, Mr. Thompson
also served as Chief Information Officer. Prior to joining the Company, Mr.
Thompson served as Executive Vice President for Business Systems/Logistics and
Chief Information Officer of Goody's Family Clothing, Inc., an apparel retailer,
from 1993 to 1995.
10
<PAGE> 11
Mr. Zane joined the Company in 1995 as Senior Vice President -
Manufacturing and Sourcing. Prior to joining the Company, Mr. Zane owned and
operated Medallion Tekstil, a private label manufacturing company he founded in
1989.
Mr. Zannino joined the Company in October 1998 as Senior Vice President -
Finance and Administration, Chief Financial Officer. Prior to joining the
Company, Mr. Zannino was Executive Vice President, Chief Financial Officer at
General Signal Corporation from April 1998 to October 1998. He served as
Executive Vice President and Chief Financial Officer of Saks Holdings, Inc. and
its wholly owned subsidiary Saks & Company ("Saks"), retail merchants, and
Treasurer of Saks Holdings, Inc. from July 1996 to April 1998, as Senior Vice
President, Strategic Planning and Business Development of Saks from May 1994 to
July 1996 and as Vice President and Treasurer of Saks from January 1993 to May
1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the New York Stock Exchange ("NYSE")
under the symbol LIZ. The table below sets forth the high and low closing sale
prices of the Common Stock (based on the NYSE composite tape) for the periods
indicated.
<TABLE>
<CAPTION>
Calendar Period High Low
--------------- ---- ---
1999:
<S> <C> <C>
1st Quarter 38-3/16 31-7/16
2nd Quarter 39-1/16 31-7/16
3rd Quarter 39-5/8 31
4th Quarter 40 32 -1/4
1998:
1st Quarter 53 - 3/8 38
2nd Quarter 54 - 3/4 45 - 3/4
3rd Quarter 53 - 9/16 25 - 1/2
4th Quarter 34 - 1/2 25 - 9/16
</TABLE>
On March 6, 2000, the closing sale price of the Company's Common Stock was
$41-1/8. As of March 6, 2000, the approximate number of record holders of Common
Stock was 8,068.
The Company has paid regular quarterly cash dividends since May 1984.
Quarterly dividends for the last two fiscal years were paid as follows:
<TABLE>
<CAPTION>
Calendar Period Dividends Paid per Common Share
--------------- -------------------------------
1999:
<S> <C>
1st Quarter $.1125
2nd Quarter $.1125
3rd Quarter $.1125
4th Quarter $.1125
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Calendar Period Dividends Paid per Common Share
--------------- -------------------------------
1998:
<S> <C>
1st Quarter $.1125
2nd Quarter $.1125
3rd Quarter $.1125
4th Quarter $.1125
</TABLE>
The Company currently plans to continue paying quarterly cash dividends on
its Common Stock. The amount of any such dividend will depend on the Company's
earnings, financial position, capital requirements and other relevant factors.
In December 1989, the Board of Directors first authorized the repurchase,
as market and business conditions warranted, of the Company's Common Stock for
cash in open market purchases and privately negotiated transactions. From time
to time thereafter, the Board has authorized additional repurchases. As of March
6, 2000, the Company had expended an aggregate of $1.272 billion of the $1.525
billion authorized under its stock repurchase program, covering approximately 40
million shares. See Note 8 to Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain information regarding the Company's
operating results and financial position and is qualified in its entirety by the
consolidated financial statements and notes thereto which appear elsewhere
herein:
(All dollar amounts in thousands except per common share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 2,806,548 $ 2,535,268 $ 2,412,601 $ 2,217,518 $ 2,081,630
Gross profit 1,097,582 997,102 969,658 876,435 790,701
Net income 192,442 169,377* 184,644 155,665 126,914
Working capital 506,298 711,942 729,763 815,429 757,199
Total assets 1,411,801 1,392,791 1,305,285 1,382,750 1,329,243
Stockholders' equity 902,169 981,110 921,627 1,020,492 988,226
Per common share data:
Basic earnings 3.13 2.59* 2.65 2.15 1.69
Diluted earnings 3.12 2.57* 2.63 2.14 1.69
Book value at year end 15.91 15.34 13.94 14.37 13.41
Dividends paid .45 .45 .45 .45 .45
Weighted average
common shares
outstanding 61,523,465 65,502,852 69,619,167 72,396,130 75,002,861
Weighted average
common shares
and share equivalents
outstanding 61,719,591 65,846,776 70,191,115 72,845,100 75,299,746
</TABLE>
* Includes the after tax effect of a restructuring charge of $17,100
($27,000 pretax) or $.26 per common share in 1998.
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<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth items in the Consolidated Statements of Income of
the Company as a percent of net sales and the percentage change of those items
as compared to the prior year.
<TABLE>
<CAPTION>
FISCAL YEARS YEAR TO YEAR
PERCENT OF SALES % CHANGE
--------------------------------------------------------------
1999 1998
VS VS
1999 1998 1997 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 10.7% 5.1%
Cost of goods sold 60.9 60.7 59.8 11.1 6.6
39.1 39.3 40.2 10.1 2.8
GROSS PROFIT
Selling, general and
administrative expenses 28.4 28.1 28.7 12.0 2.9
OPERATING INCOME
(BEFORE RESTRUCTURING CHARGE) 10.7 11.2 11.5 5.3 2.7
Restructuring charge -- 1.1 -- (100.0) --
OPERATING INCOME 10.7 10.2 11.5 16.3 (7.1)
Investment and other
income-net .1 .4 .7 (79.6) (43.2)
INCOME BEFORE PROVISION 10.7 10.5 12.2 13.1 (9.0)
FOR INCOME TAXES
Provision for income 3.9 3.8 4.5 12.2 (10.3)
taxes
NET INCOME 6.9 6.7 7.7 13.6 (8.3)
NET INCOME (BEFORE
RESTRUCTURING CHARGE) 6.9% 7.4% 7.7% 3.2% 1.0%
</TABLE>
We have the following business segments: Wholesale Apparel, Wholesale
Non-Apparel and Retail. Our Wholesale Apparel segment consists of businesses
that design, manufacture and market to our wholesale customers women's and men's
apparel under various trademarks (capitalized herein) owned or licensed by the
Company; this segment includes our career (COLLECTION), casual (LIZSPORT,
LIZWEAR and LIZ & CO.), bridge (DANA BUCHMAN), dress, large size (ELISABETH),
men's (CLAIBORNE), moderate priced special markets (CRAZY HORSE, EMMA JAMES,
FIRST ISSUE, RUSS and VILLAGER), specialty apparel (SIGRID OLSEN), premium denim
(LUCKY BRAND DUNGAREES) and contemporary sportswear and dress (LAUNDRY)
businesses, as well as our licensed DKNY(R) JEANS and DKNY(R) ACTIVE
businesses and our licensed KENNETH COLE NEW YORK, REACTION KENNETH COLE and
UNLISTED.com businesses. Our Wholesale Non-Apparel segment consists of
businesses that design, manufacture and market to our wholesale customers
women's handbags, small leather goods, fashion accessories, jewelry, and women's
and men's cosmetics under various of the above and other trademarks owned or
licensed by us. Our Retail segment consists of businesses that sell merchandise
designed and manufactured by our Wholesale Apparel and Wholesale Non-Apparel
segments to the public through our 99 specialty retail and 144 outlet stores as
well as leased departments. All data with
13
<PAGE> 14
respect to our individual segments included within "Management's Discussion and
Analysis" are presented before applicable intercompany eliminations. See Note 16
of Notes to Consolidated Financial Statements.
1999 VS. 1998
Our net sales for 1999 were $2.81 billion, an increase of 10.7% compared to
$2.54 billion in 1998 (both periods include 52 weeks). This increase reflected a
10.6% increase in Wholesale Apparel to $2.20 billion, a 6.6% increase in
Wholesale Non-Apparel to $341 million and a 3.2% increase in Retail to $445
million.
The increase in net sales of our Wholesale Apparel segment was
broad-based, reflecting our acquisition and brand development activities as well
as growth in our overall core apparel businesses. This increase primarily
reflected the inclusion of the partial year sales of our SIGRID OLSEN, LUCKY
BRAND DUNGAREES and LAUNDRY businesses, all acquired in 1999 (hereinafter
referred to as our "recently acquired businesses"), which accounted for $113
million, or 42%, of our 1999 total net sales increase, as well as sales
increases in our special markets business due to higher unit volume and higher
average unit selling prices, and in our DKNY(R) JEANS and DKNY(R) ACTIVE
businesses due to higher unit volume. This increase also reflected higher sales
in our core casual, men's and ELISABETH businesses, due in each case principally
to higher unit volume. These increases were partially offset by decreases in our
career, DANA BUCHMAN and dress businesses, due to lower unit volume, and lower
average unit selling prices reflecting weakness in demand. In February 2000, the
Company signed an agreement with Leslie Fay Company, Inc. to license its dress
business. See Note 19 of Notes to Consolidated Financial Statements.
The increase in our Wholesale Non-Apparel net sales reflected
increased sales in our cosmetics business, which launched the licensed CANDIE'S
fragrance during August 1999, and in our jewelry business, due principally to
higher unit volume. These sales increases were partially offset by decreased
sales in our handbags business due primarily to lower average unit selling
prices.
The increase in net sales of our Retail segment reflected increased
outlet store sales primarily due to 28 new stores, and the inclusion of the
partial year sales of one LUCKY BRAND DUNGAREES store and four LAUNDRY stores.
This increase was partially offset by a decline in sales of our specialty retail
stores resulting primarily from the closure of 30 underperforming stores during
1999, partially offset by the inclusion of the partial year sales of 11 LUCKY
BRAND DUNGAREES stores and one LAUNDRY store.
Gross profit dollars increased $100 million, or 10.1%, in 1999 over
1998, while gross profit as a percent of sales declined to 39.1% in 1999, from
39.3% in 1998. These results principally reflect a decline in the gross profit
rate in our Wholesale Non-Apparel segment resulting primarily from higher
markdown allowances in our handbag and fashion accessories businesses. In our
Wholesale Apparel segment, we experienced a higher gross profit rate, as lower
margins within our DANA BUCHMAN business, continued depressed margins within our
career and dress businesses and the larger proportion of sales represented by
our special markets business (which operates at a lower gross profit rate than
the Company average) were offset by the inclusion of our recently acquired
businesses (which operate at a higher gross profit rate than the Company
average) and lower cost global sourcing of our merchandise. We also experienced
a higher gross profit rate in our Retail segment, due principally to the closure
of 30 underperforming stores mentioned above.
Selling, general and administrative expenses ("SG&A"), before our
1998 restructuring charge (see Note 10 of Notes to Consolidated Financial
Statements), increased $85 million, or 12.0%, in 1999 over 1998. These expenses,
before the 1998 restructuring charge, increased to 28.4% of net sales in 1999
from 28.1% in 1998, principally reflecting our recently acquired businesses
(which operate at higher SG&A rates than the Company average), marketing costs
associated with the launch of the CANDIE'S fragrance, higher incentive
compensation expense relative to 1998's depressed level, and an increase in
depreciation and amortization expense related to our significant investments
over the past three years in the technological upgrading of our distribution
centers and information systems and the expansion of our in-store merchandise
shop programs. These increases were partially offset by lower salary and related
expenses reflecting headcount reductions, as well as increased penetration of
our special markets business, which is supported by lower SG&A levels.
As a result of the factors described above, operating income, before
the impact of the 1998 restructuring charge, increased $15 million, or 5.3%, in
1999 compared to 1998, and decreased to 10.7% of net sales in 1999 from 11.2% in
1998. Segment operating profit in our Wholesale Apparel segment increased to
$267 million (12.2% of net sales) in 1999 from $244 million (12.3% of net sales)
in 1998, primarily due to increased sales and gross profit rates in our core
casual, men's, and ELISABETH businesses and the inclusion of the profits from
our recently acquired businesses. Segment operating profit in Wholesale
Non-Apparel decreased to $33 million (9.6% of net sales) in 1999 from $47
million (14.5% of net sales) in 1998, primarily due to decreased sales and
higher markdown allowances in our handbags business. Segment operating profit in
Retail increased to $58 million (13.1% of net sales) in 1999 from $45 million
(10.5% of net sales) in 1998, primarily due to the opening of new stores, the
closure of 30 underperforming stores and the inclusion of the stores of our
recently acquired
<PAGE> 15
businesses. Including the impact of the 1998 restructuring charge, operating
income increased $42 million, or 16.3%, in 1999 compared to 1998, and increased
to 10.7% of sales in 1999 from 10.2% in 1998.
Investments and other income-net decreased by $7 million in 1999
compared to 1998 due to a decrease in our cash and marketable securities
portfolio and the incurrence of debt primarily to fund our ongoing stock
repurchase program and growth initiatives.
The provision for income taxes increased $11.8 million in 1999 and
increased as a percent of sales to 3.9% in 1999 from 3.8% in 1998, primarily
reflecting higher pretax income as a percent of sales in 1999, partially offset
by a reduction in our effective tax rate to 36.0% during the third and fourth
quarters of 1999 from 36.5% in the comparable 1998 periods.
Due to the factors described above, 1999 net income, before the
impact of the 1998 restructuring charge, increased $6 million over 1998 and
decreased as a percentage of sales to 6.9% from 7.4% in 1998. Including the
impact of the 1998 restructuring charge, 1999 net income was $23 million higher
than in 1998, and increased as a percentage of net sales from 6.7% in 1998.
Before the impact of the 1998 restructuring charge, 1999 diluted
earnings per common share increased 10.2% to $3.12 compared to $2.83 in 1998.
Including the impact of the 1998 restructuring charge, diluted earnings per
common share increased 21.4% to $3.12 in 1999 from $2.57 in 1998. Diluted
earnings per common share reflected a lower number of average outstanding common
shares and share equivalents in 1999 as a result of our repurchase of 7.4
million shares in 1999.
1998 VS. 1997
Our net sales for 1998 (which included 52 weeks) were $2.54 billion, an increase
of 5.1% compared to $2.41 billion in 1997 (which included 53 weeks). This
increase reflected a 6.8% increase in our Wholesale Apparel segment to $1.99
billion, a 3.9% increase in Wholesale Non-Apparel to $320 million and a 4.7%
increase in our Retail segment to $431 million.
The increase in net sales of our Wholesale Apparel segment reflected
new product offerings in our DKNY(R) JEANS and special markets businesses, which
accounted for $112 million, or 91%, of our 1998 total net sales increase. The
increase also reflected higher sales in our existing special markets businesses,
as well as increases in our casual, men's and ELISABETH businesses, due in each
case principally to higher unit volume. These increases were partially offset by
decreases in our DANA BUCHMAN, dress and career businesses due primarily to
lower unit volume and, in the case of dresses, slightly lower average unit
selling prices.
The increase in our Wholesale Non-Apparel segment net sales
reflected increased sales of jewelry and fragrances due principally to higher
unit volume, partially offset by decreased sales of fashion accessories due
primarily to lower average unit selling prices.
The increase in net sales of our Retail segment reflected increased
outlet store sales primarily due to the opening of 23 new stores, partially
offset by a decline in sales of our specialty retail stores.
Gross profit dollars increased $27 million, or 2.8%, in 1998 over
1997. Gross profit margins declined to 39.3%, in 1998, compared to 40.2% in
1997, reflecting lower gross profit margins across all of our segments. This
result reflected a higher level of close-out sales and lower prices realized on
those close-out sales, as well as higher markdown allowances, partially offset
by lower merchandise costs due in part to a larger proportion of product shipped
by ocean vessel transport as compared to more costly air transport.
SG&A increased $20 million, or 2.9%, in 1998 over 1997. These
expenses declined to 28.1% of net sales in 1998 from 28.7% in 1997 reflecting
lower SG&A as a percent of net sales across all segments. The 1998 dollar
increase was due primarily to additional operating expenses related to the
launches of DKNY(R) JEANS and DKNY(R) ACTIVE and the technological upgrading of
our distribution centers and information systems. These dollar increases were
partially offset by lower salary and related expenses and lower occupancy and
cosmetics marketing costs, which also contributed to the decline in SG&A as a
percentage of sales.
We recorded a $27 million pretax restructuring charge ($17 million
after tax) to cover the estimated costs of closing approximately 30
underperforming specialty retail stores, as well as streamlining operating and
administrative functions. This charge included the write-off of certain assets,
severance and contract termination costs. See Note 10 of Notes to Consolidated
Financial Statements.
<PAGE> 16
As a result of the restructuring charge as well as the other factors
described above, operating income decreased $20 million, or 7.1%, in 1998
compared to 1997, and decreased to 10.2% of net sales in 1998 compared to 11.5%
in 1997. Before the restructuring charge, operating income increased $7 million,
and was 11.2% of sales. Operating income in our Wholesale Apparel segment
declined to $244 million (12.3% of net sales) in 1998 from $250 million (13.5%
of net sales) in 1997 primarily due to lower gross profit margins reflecting
higher close-out sales and lower margins on those sales, as well as higher
intercompany sales to Retail which are lower margin sales. Segment operating
income in Wholesale Non-Apparel increased to $47 million (14.5% of net sales) in
1998 from $38 million (12.4% of net sales) in 1997, reflecting increased
earnings from our fragrance and jewelry businesses due primarily to sales
increases and lower SG&A as a percent of net sales, partially offset by lower
gross profit margins. Segment operating income in Retail increased to $45
million (10.5% of net sales) in 1998 from $40 million (9.8% of net sales) in
1997, due primarily to sales increases from new stores.
Investments and other income-net decreased by $6.9 million in 1998
compared to 1997 due to a decrease in our cash and marketable securities
portfolio due primarily to our ongoing stock repurchase program and investments
in working capital and fixed assets.
The provision for income taxes were $11 million lower and decreased
as a percentage of net sales to 3.8% in 1998 from 4.5% in 1997, primarily
reflecting lower pretax income and a lower effective tax rate of 36.5% in 1998
compared to 37.0% in 1997.
Net income in 1998 decreased $15 million compared to 1997 and
declined as a percentage of net sales to 6.7% in 1998 from 7.7% in 1997, due
primarily to the restructuring charge as well as the other factors described
above.
Diluted earnings per common share decreased 2.3% to $2.57 in 1998
from $2.63 in 1997. Before the $0.26 per share impact of the restructuring
charge, diluted earnings per common share increased 7.6% to $2.83 in 1998.
Diluted earnings per common share reflected a lower number of average
outstanding common shares and share equivalents in 1998 as a result of our
ongoing stock repurchase program where we repurchased 2.9 million shares for a
total cost of $106 million during 1998.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Our primary ongoing cash requirements are to fund growth in working
capital (primarily accounts receivable and inventory) to support increased
sales, investment in the technological upgrading of our distribution centers and
information systems and other expenditures related to retail store expansion,
in-store concept shops and normal maintenance activities. In 1999, we also
required cash to fund our acquisition program and our ongoing stock repurchase
program. Sources of liquidity to fund these cash requirements include cash flow
from operations, cash and marketable securities on hand and bank lines of
credit.
1999 VS. 1998
In 1999, we ended the year with cash and cash equivalents of $38
million compared to $230 million of cash, cash equivalents and marketable
securities at year end 1998, and $116 million of debt at year end 1999 compared
to no debt outstanding at year end 1998. This $308 million change in our cash
and debt position was due primarily to the significant investments we made in
1999, including our expenditure of $281 million to repurchase common stock, an
aggregate of $178 million for purchase price payments in connection with our
newly acquired businesses, net of cash acquired, $98 million for capital
expenditures primarily related to our warehouse automation and information
system initiatives and in-store merchandise shops, as well as $29 million for an
equity investment in Kenneth Cole Productions, Inc., partially offset by cash
provided from operating activities.
Net cash provided by operating activities was $294 million in 1999,
compared to $132 million in 1998. This $162 million increase was due primarily
to cash generated from a $26 million decrease in net working capital investment
in 1999, compared to a $107 million use of cash for working capital in 1998, $12
million higher depreciation and amortization expense in 1999 and the $27 million
restructuring charge in 1998.
Accounts receivable increased $47 million, or 19%, at year-end 1999
over year-end 1998. Approximately 50% of this increase reflected the assumption
of accounts receivable of our recently acquired businesses. The balance of the
increase reflects higher net sales in 1999.
Inventory decreased $57 million, or 12%, in 1999 compared to 1998
notwithstanding the increase in net sales. Excluding the inventories of the
recently acquired businesses, inventory declined by $80 million or 17% compared
to year-end 1998. This decrease reflects the inventory management initiatives
implemented at the end of 1998, which focused on improving inventory
productivity in our replenishment and essential programs and increasing the
ratio of our sales to our
16
<PAGE> 17
inventory ownership levels. As a result of these efforts, we reduced our
inventory levels and improved our average inventory turnover rate by 10% in
1999, to 4.2 times from 3.8 times in 1998.
Net cash used in investing activities was $232 million in 1999,
compared to net cash provided by investing activities of $26 million in 1998.
This $258 million decrease reflected net disposals of investments of $65 million
in 1999, compared to a net disposal of investments of $155 million in 1998. The
decrease from 1998 also reflected the 1999 acquisition costs of our newly
acquired businesses, our investment in Kenneth Cole Productions, Inc., and our
acquisition of an additional license from Donna Karan International.
Net cash used in financing activities was $188 million in 1999,
compared to $131 million in 1998. This $57 million increase primarily reflected
an increase of $165 million in stock repurchase expenditures in 1999 over 1998,
partially offset by net borrowings during 1999 of $116 million compared to none
in 1998. As of March 6, 2000, we have expended approximately $1.272 billion of
the $1.525 billion authorized to date under our stock repurchase program. Our
borrowings peaked at $141 million during 1999.
Our anticipated capital expenditures for 2000 approximate $75
million. These expenditures consist primarily of the continued technological
upgrading and expansion of our management information systems and distribution
facilities (including certain building and equipment expenditures), leasehold
improvements at our New York offices and the planned opening of an additional 27
specialty retail and 22 outlet stores. In addition, we anticipate spending
approximately $25 million on in-store merchandise shops in 2000. Capital
expenditures, in-store shops and working capital cash needs will be financed
with net cash provided by operating activities and our revolving credit and
trade letter of credit facilities.
In December 1999, the Company received $600 million of financing
commitments under a bank revolving credit facility to finance our liquidity
needs. This bank facility, which has received credit ratings of BBB from
Standard & Poors and Baa2 from Moody's Investor Services, may be either drawn
upon or used as a liquidity facility to support the issuance of A2/P2 rated
commercial paper under our $600 million commercial paper program. At year end
1999, we had $116 million outstanding under our commercial paper program. In
addition, we have in place $433 million of trade letter of credit facilities to
support our merchandise purchasing requirements. At year end 1999, we had $265
million outstanding under these letter of credit facilities. We anticipate that
the commercial paper program and bank and letter of credit facilities will be
sufficient to fund our future liquidity requirements and that we will be able to
adjust the amounts available under these facilities if necessary.
1998 VS. 1997
In 1998, we used our net cash provided by operating activities and a
portion of our cash and marketable securities balances to fund our cash
requirements. Our cash and marketable securities declined to $230 million at
year end 1998 from $360 million at year end 1997, and we ended the year with no
debt outstanding. This decrease in cash of $130 million was used primarily to
fund our investments in working capital and fixed assets and the repurchase of
$116 million of common stock.
Net cash provided by operating activities was $132 million in 1998,
compared to $145 million in 1997. This $13 million decrease in cash flow
reflected increased cash used to fund our $107 million investment in net working
capital offset by a $10 million increase in cash generated from higher
depreciation and amortization expense.
Accounts receivable increased 39% in 1998 over 1997 reflecting
higher net sales and a change in the timing of customer deductions for
allowances in the fourth quarter 1998 compared to 1997.
Inventory increased 19.9% in 1998 over 1997 reflecting higher than
required essential and replenishment inventory levels in Wholesale Apparel. In
late 1998, we began implementing inventory management initiatives designed to
improve our inventory turnover rate for essential and replenishment inventory.
The increase also reflected the start-up of the DKNY(R) JEANS business,
increased outlet inventory levels and higher levels of prior season merchandise.
The increase in our average inventory levels in 1998 relative to our sales
increase had a negative impact on our 1998 inventory turnover rate compared to
1997.
Net cash provided by investing activities was $26 million in 1998,
compared to net cash used in investing activities of $57 million in 1997. This
$83 million increase in cash flow reflected net disposals of investments of $155
million in 1998, compared to net purchases of investments of $13 million in
1997, partially offset by an additional $81 million of cash used to fund
increased capital expenditures due primarily to our transformation initiatives
and the purchases of trademarks and licenses, which included the payment for our
DKNY(R) JEANS license, in 1998 over 1997.
17
<PAGE> 18
Net cash used in financing activities was $131 million in 1998,
compared to $274 million in 1997. This $143 million increase in cash flow
reflected a decrease of $142 million in the amount of stock repurchased in 1998
compared to 1997. In 1998, we expended or committed to expend, through the sale
of put warrants, $136 million under our stock repurchase program.
At year end 1998, we had $220 million outstanding under our trade
letter of credit facilities.
YEAR 2000 ISSUE/INFORMATION SYSTEMS UPGRADE
Many existing computer systems, software products, and other systems
using embedded chips, including many used by us, accepted only two digit entries
in the date code field. Beginning in the year 2000, and in certain instances
prior to the year 2000, these date code fields needed to accept four digit
entries to distinguish 21st century dates from 20th century dates. As a result,
our date critical functions were at risk of being materially adversely affected
unless these computer systems, software products and other systems became able
to accept four digit entries ("year 2000 compliant").
In 1999, we completed a comprehensive upgrade of our management
information systems, which involved substantial changes to our legacy computer
systems and software, and was designed to provide certain competitive benefits
and result in our information systems being year 2000 compliant. The full
implementation of these changes was completed in 1999 and involved a commitment
of approximately $74 million over a four year period. Approximately $58 million
of such amount was in the form of capital expenditures, with the remaining $16
million expensed as incurred. We have not experienced any material Y2K problems
since the date change on January 1, 2000. However, there can be no assurance
that problems will not arise for us, our suppliers, our customers or others with
whom we do business later in 2000. We intend to continue to monitor our
compliance, as well as the compliance of others whose operations are material to
our business.
CERTAIN INTEREST RATE AND FOREIGN CURRENCY RISKS
We finance our capital needs through available cash and marketable
securities, operating cash flow, letter of credit and bank revolving credit
facilities and commercial paper issuances. Our floating rate bank revolving
credit facility and commercial paper program expose us to market risk for
changes in interest rates.
We mitigate the risks associated with changes in foreign currency
rates through foreign exchange forward contracts to hedge transactions
denominated in foreign currencies for periods of less than one year and to hedge
expected payment of intercompany transactions with our non-U.S. subsidiaries.
Gains and losses on contracts, which hedge specific foreign currency denominated
commitments are recognized in the period in which the transaction is completed.
The table below presents the amount of contracts outstanding, the contract rate
and unrealized gain or (loss), as of January 1, 2000:
<TABLE>
<CAPTION>
U.S. DOLLAR CONTRACT UNREALIZED
$ IN THOUSANDS AMOUNT RATE GAIN (LOSS)
- -------------- ------- ---- -----------
<S> <C> <C> <C>
Canadian dollars $17,183 .6851 ($167)
British pound sterling $ 4,882 1.6100 $ 15
</TABLE>
In June 1998, the Financial Accounting Standards Board issued
statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 will be effective
prospectively for the Company's financial statements in the year 2001. The
Company is currently analyzing the impact of this new pronouncement on its
financial position and results of operations. See Note 1 of Notes to
Consolidated Financial Statements.
<PAGE> 19
INFLATION
The rate of inflation over the past few years has not had a
significant impact on our sales or profitability.
FORWARD LOOKING STATEMENTS
Statements contained herein and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases,
and in oral statements made by or with the approval of authorized personnel that
relate to the Company's future performance, including, without limitation,
statements with respect to the Company's anticipated results of operations or
level of business for 2000 or any other future period, are forward-looking
statements within the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, as a number of factors affecting the Company's
business and operations could cause actual results to differ materially from
those contemplated by the forward-looking statements. Such statements are based
on current expectations only, and are subject to certain risks, uncertainties
and assumptions, referred to below, including but not limited to economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices, and are indicated by words
or phrases such as "plan", "anticipate", "estimate", "project", "management
expects", "the Company believes", "is or remains optimistic" or "currently
envisions" and similar words or phrases. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.
These factors include, among others, changes in regional, national,
and global economic conditions; risks associated with changes in the competitive
marketplace, including the levels of consumer confidence and spending, and the
financial condition of the apparel industry and the retail industry, retailer or
consumer acceptance of the Company's products as a result of fashion trends or
otherwise and the introduction of new products or pricing changes by the
Company's competitors; risks associated with the Company's dependence on sales
to a limited number of large department store customers including risks related
to customer requirements for vendor margin support, and those related to
extending credit to customers; risks associated with year 2000 related issues
that may arise with the Company, third party customers or suppliers in
connection with systems that have not been fully tested; uncertainties relating
to the Company's ability to successfully implement its growth strategies or
integrate acquisitions; risks associated with the possible inability of the
Company's unaffiliated manufacturers to manufacture and deliver products in a
timely manner, to meet quality standards or to comply with the Company's
policies regarding labor practices; and risks associated with changes in social,
political, economic and other conditions affecting foreign operations and
sourcing.
With respect to foreign sourcing, the Company notes that legislation
which would further restrict the importation and/or increase the cost of
textiles and apparel produced abroad has periodically been introduced in
Congress. Although it is unclear whether any new legislation will be enacted
into law, it appears likely that various new legislative or executive
initiatives will be proposed. These initiatives may include a reevaluation of
the trading status of certain countries, including Normal Trade Relations
("NTR") treatment for the People's Republic of China ("PRC") and/or retaliatory
duties, quotas or other trade sanctions, which, if enacted, would increase the
cost of products purchased from suppliers in such countries. The PRC's NTR
treatment was renewed in July 1999 for an additional year. In light of the very
substantial portion of the Company's products, which are manufactured by foreign
suppliers, the enactment of new legislation or the administration of current
international trade regulations, or executive action affecting international
textile agreements could adversely affect the Company's operations. Reference is
also made to the other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices as are set forth in this Annual Report on Form 10-K, including, without
limitation, those set forth in "Item 1-Business-Competition; Certain Risks". The
Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the "Index to Consolidated Financial Statements and Schedules"
appearing at the end of this Annual Report on Form 10-K.
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.
With respect to Executive Officers of the Company, see Part I of this
Annual Report on Form 10-K.
Information with respect to Directors of the Company which is called for
by this Item 10 is incorporated by reference to the information set forth under
the heading "Election of Directors" in the Company's Proxy Statement relating to
its 2000 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
(the "Company's 2000 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
Information called for by this Item 11 is incorporated by reference to the
information set forth under the heading "Executive Compensation" in the
Company's 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information called for by this Item 12 is incorporated by reference to the
information set forth under the headings "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the Company's 2000
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by this Item 13 is incorporated by reference to the
information set forth under the headings "Proposal 1-Election of Directors" and
"Executive Compensation-Employment Arrangements" in the Company's 2000 Proxy
Statement.
20
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. PAGE REFERENCE
--------------
1999 FORM 10-K
--------------
MANAGEMENT'S REPORT AND
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of January 1, 2000
and January 2, 1999 F-4
Consolidated Statements of Income for the
Three Fiscal Years Ended January 1, 2000 F-5
Consolidated Statements of Retained Earnings,
Comprehensive Income and Changes in Capital
Accounts for the Three Fiscal Years
Ended January 1, 2000 F-6 to F-7
Consolidated Statements of Cash Flows for the
Three Fiscal Years Ended January 1, 2000 F-8
Notes to Consolidated Financial Statements F-9 to F-27
UNAUDITED QUARTERLY RESULTS F-28
2. Schedules.
SCHEDULE II - Valuation and Qualifying Accounts F-29
NOTE: Schedules other than those referred to above and parent company
condensed financial statements have been omitted as inapplicable
or not required under the instructions contained in Regulation S-X
or the information is included elsewhere in the financial
statements or the notes thereto.
21
<PAGE> 22
3. Exhibits.
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3(a) - Restated Certificate of Incorporation of Registrant
(incorporated herein by reference from Exhibit 3(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated herein by
reference from Exhibit 3(b) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 26,
1992 [the "1992 Annual Report"]).
4(a) - Specimen certificate for Registrant's Common Stock, par
value $1.00 per share (incorporated herein by reference from
Exhibit 4(a) to the 1992 Annual Report).
4(b) - Rights Agreement, dated as of December 4, 1998, between
Registrant and First Chicago Trust Company of New York, as
Rights Agent (incorporated herein by reference from Exhibit
1 to Registrant's Form 8-A dated as of December 4, 1998).
10(a) - Reference is made to Exhibit 4(b) filed hereunder, which is
incorporated herein by this reference.
10(b)+ - Liz Claiborne, Inc. 1984 Stock Option Plan (incorporated
herein by reference from Exhibit 10(hh) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1983 [the "1983 Annual Report"]).
10(b)(i)+ - Amendment to the 1984 Stock Option Plan (incorporated herein
by reference from Exhibit 10(d)(i) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1988).
10(c)+ - Form of Option Agreement under Liz Claiborne, Inc. 1984
Stock Option Plan (the "1984 Option Plan") (incorporated
herein by reference from Exhibit 10(nn) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 29, 1984).
10(c)(i)+ - Amended Form of Option Agreement under the 1984 Option Plan
(incorporated herein by reference from Exhibit 10(e)(i) to
the 1992 Annual Report).
10(d)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as amended
and restated (incorporated herein by reference from Exhibit
10(f) to Registrant's Annual report on Form 10-K for the
fiscal year ended December 30, 1989 [the "1989 Annual
Report"]).
10(d)(i)+ - Trust Agreement dated as of July 1, 1994, between Liz
Claiborne, Inc. and IDS Trust Company (incorporated herein
by reference from Exhibit 10(b) to Registrant's Quarterly
Report on Form 10-Q for the period ended July 2, 1994).
10(e)+ - Amendment Nos. 1 and 2 to the Savings Plan (incorporated
herein by reference from Exhibit 10(g) to the 1992 Annual
Report).
10(e)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan (incorporated
herein by reference from Exhibit 10(g)(i) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 26, 1993 [the "1993 Annual Report"]).
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
22
<PAGE> 23
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10(e)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated herein by
reference from Exhibit 10(a) to Registrant's Quarterly Report
on Form 10-Q for the period ended July 2, 1994).
10(e)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e) (iii) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28,
1996 [the "1996 Annual Report"]).
10(e)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(iv) to the 1996 Annual Report).
10(e)(v)+ - Amendment No. 8 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(v) to Registrant's Annual Report
on Form 10-K for the fiscal year ended January 3, 1998 [the
"1997 Annual Report"].
10(e)(vi)+ - Amendment No. 9 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(vi) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 2, 1999
[the "1998 annual report"])
10(f)+ - Amended and Restated Liz Claiborne Profit-Sharing Retirement
Plan (the "Profit-Sharing Plan") (incorporated herein by
reference from Exhibit 10(h) to the 1992 Annual Report).
10(g)+ - Trust Agreement related to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(jj) to the
1983 Annual Report).
10(g)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(i)(i) to
the 1993 Annual Report).
10(g)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended October 1,
1994).
10(g)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended July 1,
1995).
10(g)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(g)(iv) to the 1996 Annual
Report).
10(g)(v)+ - Amendment No. 6 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(g)(v) to the 1998 Annual
Report).
10(h)+* - Merger Amendment to the Profit-Sharing Plan, the Lucky Brand
Employee Retirement Plan and Trust, the Segrets, Inc. 401(k)
Profit Sharing Plan and the Savings Plan.
10(i) - National Collective Bargaining Agreement, made and entered
into as of June 1, 1997, by and between Liz Claiborne, Inc.
and the Union of Needletrades, Industrial and Textile
Employees (UNITE) for the period June 1, 1997 through May 31,
2000 (incorporated herein by reference from Exhibit 10(h) to
the 1997 Annual Report).
10(i)(i) - Jobbers Agreement, made and entered into as of June 1, 1997,
by and between Liz Claiborne, Inc. and the Union of
Needletrades, Industrial and Textile Employees (UNITE) for
the period June 1, 1997 through May 31, 2000 (incorporated
herein by reference from Exhibit 10(h)(i) to the 1997 Annual
Report).
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
23
<PAGE> 24
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10(j)+* - Description of Liz Claiborne, Inc. 1999 Salaried Employee
Incentive Bonus Plan.
10(k) - Lease, dated as of January 1, 1990 (the "1441 Lease"), for
premises located at 1441 Broadway, New York, New York between
Registrant and Lechar Realty Corp. (incorporated herein by
reference from Exhibit 10(n) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 29, 1990).
10(k)(i)+* - First Amendment: Lease Extension and Modification Agreement,
dated as of January 1, 1998, to the 1441 Lease.
10(k)(ii)+* - Second Amendment to Lease, dated as of September 19, 1998, to
the 1441 Lease.
10(k)(iii)+* - Third Amendment to Lease, dated as of September 24, 1999, to
the 1441 Lease.
10(l)+ - Liz Claiborne, Inc. Amended and Restated Outside Directors'
1991 Stock Ownership Plan (the "Outside Directors' 1991
Plan") (incorporated herein by reference from Exhibit 10(m)
to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 30, 1995 [the "1995 Annual Report"]).
10(l)(i)+ - Form of Option Agreement under the Outside Directors' 1991
Plan (incorporated herein by reference from Exhibit 10(m)(i)
to the 1996 Annual Report).
10(m)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the "1992
Plan") (incorporated herein by reference from Exhibit 10(p)
to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 28, 1991.
10(m)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein by
reference from Exhibit 10(p)(i) to the 1993 Annual Report).
10(m)(ii)+ - Amendment No. 2 to the 1992 Plan (incorporated herein by
reference from Exhibit 10(n)(ii) to the 1997 Annual Report).
10(m)(iii)+ - Amendment No. 3 to the 1992 Plan (incorporated herein by
reference from Exhibit 10(n)(iii) to the 1998 Annual Report).
10(n)+ - Form of Option Agreement under the 1992 Plan (incorporated
herein by reference from Exhibit 10(r) to the 1992 Annual
Report).
10(o)+ - Form of Option Grant Certificate under the 1992 Plan
(incorporated herein by reference from Exhibit 10(q) to the
1996 Annual Report).
10(p)+ - Form of Restricted Career Share Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995).
10(q)+ - Form of Restricted Transformation Share Agreement under the
1992 Plan (incorporated herein by reference from Exhibit
10(s) to the 1997 Annual Report).
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
24
<PAGE> 25
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10(r)+* - Description of Supplemental Life Insurance Plans.
10(s)+ - Description of unfunded death/disability benefits for certain
executives (incorporated herein by reference from Exhibit
10(u) to the 1992 Annual Report).
10(t)+* - Amended and Restated Liz Claiborne Section 162(m) Cash Bonus
Plan.
10(u)+ - Liz Claiborne, Inc. Supplemental Executive Retirement Plan
(as amended and restated effective as of January 1, 1997)
(incorporated herein by reference from Exhibit 10(w) to the
1996 Annual Report).
10(v)+ - The Liz Claiborne, Inc. Bonus Deferral Plan (incorporated
herein by reference from Exhibit 10(x) to the 1996 Annual
Report).
10(w)+ - Employment Agreement dated as of May 9, 1994, between
Registrant and Paul R. Charron (the "Charron Agreement")
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended April 2, 1994).
10(w)(i)+ - Amendment to the Charron Agreement, dated as of November 20,
1995, (incorporated herein by reference from Exhibit 10(x)(i)
to the 1995 Annual Report).
10(w)(ii)+ - Amendment to the Charron Agreement, dated as of September 19,
1996, (including the Liz Claiborne Retirement Income
Accumulation Plan for the benefit of Mr. Charron)
(incorporated herein by reference from Exhibit 10(y)(ii) to
the 1996 Annual Report).
10(x)+ - Employment Agreement dated as of September 26, 1996 between
Registrant and Denise V. Seegal (the "Seegal Agreement")
(incorporated herein by reference from Exhibit 10(z) to the
1996 Annual Report).
10(x)(i)+* - Amendment to the Seegal Agreement, dated as of February 18,
2000.
10(y)+* - Credit Agreement, dated as of December 6, 1999, among
Registrant, various lending parties and The Chase Manhattan
Bank (as administrative agent).
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
99* - Undertakings.
(b) - Reports on Form 8-K.
Not Applicable.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on March 31, 2000.
LIZ CLAIBORNE, INC.
<TABLE>
<S> <C>
By: /s/ Richard F. Zannino By: /s/ Elaine H. Goodell
------------------------------------- ----------------------
Richard F. Zannino, Elaine H. Goodell,
Senior Vice President - Finance & Vice President-Corporate Controller
Administration, Chief Financial and Chief Accounting Officer
Officer (principal financial officer) (principal accounting officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the registrant and in the capacities indicated, on March
31, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Paul R. Charron Chairman of the Board, Chief Executive Officer and Director
- ------------------------ (principal executive officer)
Paul R. Charron
/s/ Bernard W. Aronson Director
- ------------------------
Bernard W. Aronson
/s/ Roger N. Farah Director
- ------------------------
Roger N. Farah
/s/ Raul J. Fernandez Director
- ------------------------
Raul J. Fernandez
/s/ Ann M. Fudge Director
- ------------------------
Ann M. Fudge
/s/ J. James Gordon Director
- ------------------------
J. James Gordon
/s/ George L. Jones Director
- ------------------------
George L. Jones
/s/ Nancy J. Karch Director
- ------------------------
Nancy J. Karch
/s/ Kenneth P. Kopelman Director
- ------------------------
Kenneth P. Kopelman
/s/ Kay Koplovitz Director
- ------------------------
Kay Koplovitz
/s/ Christine A. Poon Director
- ------------------------
Christine A. Poon
/s/ Paul E. Tierney, Jr. Director
- ------------------------
Paul E. Tierney, Jr.
</TABLE>
26
<PAGE> 27
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Number
MANAGEMENT'S REPORT AND
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
January 1, 2000 and January 2, 1999 F-4
Consolidated Statements of Income for the
Three Fiscal Years Ended January 1, 2000 F-5
Consolidated Statements of Retained Earnings,
Comprehensive Income and Changes in Capital Accounts
for the Three Fiscal Years Ended January 1, 2000 F-6 to F-7
Consolidated Statements of Cash Flows
for the Three Fiscal Years Ended January 1, 2000 F-8
Notes to Consolidated Financial Statements F-9 to F-27
UNAUDITED QUARTERLY RESULTS F-28
SCHEDULE II - Valuation and Qualifying Accounts F-29
NOTE: Schedules other than those referred to above and parent company
condensed financial statements have been omitted as inapplicable
or not required under the instructions contained in Regulation S-X
or the information is included elsewhere in the financial
statements or the notes thereto.
F-1
<PAGE> 28
MANAGEMENT'S REPORT
The management of Liz Claiborne, Inc. is responsible for the preparation,
objectivity and integrity of the consolidated financial statements and other
information contained in this Annual Report. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and include some amounts that are based on management's informed
judgments and best estimates.
To help assure that financial information is reliable and assets are
safeguarded, management maintains a system of internal controls and procedures
which we believe is effective in accomplishing these objectives. These controls
and procedures are designed to provide reasonable assurance, at appropriate
costs, that transactions are executed and recorded in accordance with
management's authorization.
The independent public accountants have audited our consolidated financial
statements as described in their report. In the course of their audits, the
independent public accountants have developed an overall understanding of the
Company's accounting and financial controls and have conducted other tests as
they considered necessary to support their opinion on the financial statements.
The independent public accountants report their findings and recommendations to
management and the Audit Committee of the Board of Directors. Control procedures
are implemented or revised as appropriate to respond to these recommendations.
There have not been any material control weaknesses brought to the attention of
management or the Audit Committee during the periods covered by the report of
the independent public accountants. However, in as much as the independent
public accountants' audits consisted of selected tests of control policies and
procedures and did not cover the entire system of internal control, they would
not necessarily disclose all weaknesses which might exist.
The Audit Committee, which consists solely of non-management directors, meets
with the independent public accountants, internal auditors and management
periodically to review their respective activities and the discharge of their
respective responsibilities. Both the independent public accountants and the
internal auditors have unrestricted access to the Audit Committee, with or
without management, to discuss the scope and results of their audits and any
recommendations regarding the system of internal controls.
/s/Paul R. Charron /s/Richard F. Zannino
- ---------------------------- ----------------------------
Paul R. Charron Richard F. Zannino
Chairman of the Board Senior Vice President, Finance and
and Chief Executive Officer Administration, Chief Financial Officer
F-2
<PAGE> 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Liz Claiborne, Inc.:
We have audited the accompanying consolidated balance sheets of Liz Claiborne,
Inc. (a Delaware corporation) and subsidiaries as of January 1, 2000 and January
2, 1999, and the related consolidated statements of income, retained earnings,
comprehensive income and changes in capital accounts and cash flows for each of
the three fiscal years in the period ended January 1, 2000. These financial
statements and the schedule referred to below 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 financial statements referred to above present fairly, in
all material respects, the financial position of Liz Claiborne, Inc. and
subsidiaries as of January 1, 2000 and January 2, 1999, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended January 1, 2000 in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to consolidated
financial statements and schedules is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/Arthur Andersen LLP
New York, New York
February 21, 2000
F-3
<PAGE> 30
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
All amounts in thousands except share data JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 37,940 $ 164,659
Marketable securities -- 65,625
Accounts receivable - trade 298,924 252,045
Inventories 418,348 475,077
Deferred income tax benefits 27,764 35,695
Other current assets 75,633 82,192
----------- -----------
Total current assets 858,609 1,075,293
Property and Equipment - Net 284,171 257,362
Goodwill and intangibles - Net 227,663 47,017
Other Assets 41,358 13,119
----------- -----------
$ 1,411,801 $ 1,392,791
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 184,556 $ 223,400
Accrued Expenses 160,220 128,917
Income taxes payable 7,535 11,034
----------- -----------
Total current liabilities 352,311 363,351
Long Term Debt 116,085 --
Other Non Current Liabilities 15,000 --
Deferred Income Taxes 23,111 17,536
Commitments and Contingencies
Minority Interest 3,125 --
Put Warrants -- 30,794
Stockholders' Equity:
Preferred stock, $.01 par value, authorized shares -
50,000,000, issued shares - none -- --
Common stock, $1 par value, authorized shares -
250,000,000, issued shares - 88,218,617 88,219 88,219
Capital in excess of par value 80,257 50,428
Retained earnings 1,827,720 1,662,235
Accumulated other comprehensive loss (3,263) (2,721)
----------- -----------
1,992,933 1,798,161
Common stock in treasury, at cost - 31,498,577 shares
in 1999 and 24,267,957 shares in 1998 (1,090,764) (817,051)
----------- -----------
Total stockholders' equity 902,169 981,110
----------- -----------
$ 1,411,801 $ 1,392,791
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 31
CONSOLIDATED STATEMENTS OF INCOME
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------
(52 WEEKS) (52 WEEKS) (53 WEEKS)
All dollar amounts in thousands except per common share data JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
---------------- --------------- ---------------
<S> <C> <C> <C>
Net Sales $2,806,548 $2,535,268 $2,412,601
Cost of goods sold 1,708,966 1,538,166 1,442,943
---------- ---------- ----------
Gross Profit 1,097,582 997,102 969,658
Selling, general and administrative expenses 797,829 712,424 692,363
Restructuring charge -- 27,000 --
---------- ---------- ----------
Operating Income 299,753 257,678 277,295
Investment and other income - net 1,833 8,999 15,849
---------- ---------- ----------
Income Before Provision for Income Taxes 301,586 266,677 293,144
Provision for income taxes 109,144 97,300 108,500
---------- ---------- ----------
Net Income $ 192,442 $ 169,377 $ 184,644
========== ========== ==========
Net Income per Common Share:
Basic $ 3.13 $ 2.59 $ 2.65
======= ======= =======
Diluted $ 3.12 $ 2.57 $ 2.63
======= ======= =======
Dividends Paid per Common Share $ .45 $ .45 $ .45
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 32
Consolidated Statements of Retained Earnings, Comprehensive Income and Changes
in Capital Accounts
Liz Claiborne, Inc. and Subsidiaries
<TABLE>
<CAPTION>
COMMON STOCK Accumulated
------------------------ Capital in Other
Number of Excess of Retained Comprehensive
All dollar amounts in thousands Shares Amount Par Value Earnings Income (Loss)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 28, 1996 88,218,617 $88,219 $38,577 $1,382,628 ($4,692)
Net income -- -- -- 184,644 --
Other comprehensive
income (loss), net of tax:
Translation adjustment -- -- -- -- 1,638
Adjustment to unrealized
gains (losses) on available
for sale securities -- -- -- -- 1,347
------
Total comprehensive income -- -- -- -- --
Exercise of stock options and
related tax benefits -- -- 3,670 638 --
Cash dividends declared -- -- -- (31,162) --
Proceeds from sale of put warran -- -- 6,607 -- --
Reclassification of put warrant
obligations, net -- -- (18,123) -- --
Purchase of 5,382,600 shares of
common stock -- -- -- -- --
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- 4,180 --
BALANCE, JANUARY 3, 1998 88,218,617 88,219 30,731 1,540,928 (1,707)
Net income -- -- -- 169,377 --
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- -- -- (348)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- -- -- (666)
Total comprehensive income -- -- -- -- --
Exercise of stock options and
related tax benefits -- -- 4,801 (8,006) --
Cash dividends declared -- -- -- (29,327) --
Proceeds from sale of put warran -- -- 231 -- --
Reclassification of put warrant
obligations, net -- -- 14,665 -- --
Purchase of 3,092,513 shares of
common stock -- -- -- -- --
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- (10,737) --
BALANCE, JANUARY 2, 1999 88,218,617 88,219 50,428 1,662,235 (2,721)
<CAPTION>
TREASURY SHARES
---------------------------
Number of
All dollar amounts in thousands Shares Amount Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 28, 1996 17,212,585 ($484,240) $1,020,492
Net income -- -- 184,644
Other comprehensive
income (loss), net of tax:
Translation adjustment -- -- 1,638
Adjustment to unrealized
gains (losses) on available
for sale securities -- -- 1,347
Total comprehensive income -- -- 187,629
Exercise of stock options and
related tax benefits (557,842) 14,564 18,872
Cash dividends declared -- -- (31,162)
Proceeds from sale of put warran -- -- 6,607
Reclassification of put warrant
obligations, net -- -- (18,123)
Purchase of 5,382,600 shares of
common stock 5,382,600 (264,852) (264,852)
Issuance of common stock under
restricted stock and employment
agreements, net 82,962 (2,016) 2,164
BALANCE, JANUARY 3, 1998 22,120,305 (736,544) 921,627
Net income -- -- 169,377
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- (348)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- (666)
-------
Total comprehensive income -- -- 168,363
Exercise of stock options and
related tax benefits (562,929) 22,330 19,125
Cash dividends declared -- -- (29,327)
Proceeds from sale of put warran -- -- 231
Reclassification of put warrant
obligations, net -- -- 14,665
Purchase of 3,092,513 shares of
common stock 3,092,513 (116,618) (116,618)
Issuance of common stock under
restricted stock and employment
agreements, net (381,932) 13,781 3,044
BALANCE, JANUARY 2, 1999 24,267,957 (817,051) 981,110
</TABLE>
F-6
<PAGE> 33
Consolidated Statements of Retained Earnings, Comprehensive Income and Changes
in Capital Accounts (continued)
Liz Claiborne, Inc. and Subsidiaries
<TABLE>
<CAPTION>
COMMON STOCK Accumulated
------------------------ Capital in Other
Number of Excess of Retained Comprehensive
All dollar amounts in thousands Shares Amount Par Value Earnings Income (Loss)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 2, 1999 88,218,617 88,219 50,428 1,662,235 (2,721)
Net income -- -- -- 192,442 --
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- -- -- (431)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- -- -- (111)
Total comprehensive income -- -- -- -- 191,900
Exercise of stock options and
related tax benefits -- -- 1,031 (2,799) --
Cash dividends declared -- -- -- (27,821) --
Exercise of put warrants -- -- (1,996) -- --
Reclassification of put warrant
obligations, net -- -- 30,794 -- --
Purchase of 7,388,300 shares of
common stock -- -- -- -- --
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- 3,663 --
BALANCE, JANUARY 1, 2000 88,218,617 $88,219 $80,257 $1,827,720 ($3,263)
<CAPTION>
TREASURY SHARES
---------------------------
Number of
All dollar amounts in thousands Shares Amount Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 2, 1999 24,267,957 (817,051) 981,110
Net income -- -- 192,442
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- (431)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- (111)
-------
Total comprehensive income -- -- 191,900
Exercise of stock options and
related tax benefits (219,306) 7,976 6,208
Cash dividends declared -- -- (27,821)
Exercise of put warrants -- 1,996 0
Reclassification of put warrant
obligations, net -- -- 30,794
Purchase of 7,388,300 shares of
common stock 7,388,300 (281,167) (281,167)
Issuance of common stock under
restricted stock and employment
agreements, net 61,626 (2,518) 1,145
BALANCE, JANUARY 1, 2000 31,498,577 ($1,090,764) $902,169
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOW
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
(52 WEEKS) (52 WEEKS) (53 WEEKS)
All dollar amounts in thousands JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 192,442 $ 169,377 $ 184,644
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 67,836 55,785 46,024
Other-net 7,797 14,285 8,103
Change in current assets and liabilities:
(Increase) in accounts receivable - trade (39,996) (70,742) (23,135)
Decrease (increase) in inventories 80,438 (78,828) (46,822)
Decrease (increase) in deferred income tax benefits 9,839 (3,654) (888)
Decrease (increase) in other current assets 10,513 6,501 (14,481)
(Decrease) increase in accounts payable (43,489) 49,588 10,146
Increase (decrease) in accrued expenses 11,822 (6,356) (22,809)
(Decrease) increase in income taxes payable (3,499) (3,995) 4,267
--------- --------- ---------
Net cash provided by operating activities 293,703 131,961 145,049
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments -- (217,083) (370,546)
Disposals of investment instruments 65,459 371,741 357,162
Purchases of property and equipment (75,130) (88,496) (34,037)
Purchases of trademarks and licenses (6,400) (30,000) (3,750)
Purchase of restricted equity investment (29,000) -- --
Payments for acquisitions, net of cash acquired (177,825) -- --
Other-net (9,369) (9,911) (6,027)
--------- --------- ---------
Net cash (used in) provided by investing activities (232,265) 26,251 (57,198)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper - net 116,085 -- --
Proceeds from exercise of common stock options 5,177 14,324 15,222
Dividends paid (27,821) (29,327) (31,162)
Purchase of common stock, net of put warrant premiums (281,167) (116,387) (258,245)
--------- --------- ---------
Net cash used in financing activities (187,726) (131,390) (274,185)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (431) (348) 1,638
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (126,719) 26,474 (184,696)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 164,659 138,185 322,881
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 37,940 $ 164,659 $ 138,185
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-8
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 1: SIGNIFICANT ACCOUNTING
POLICIES
PRINCIPLES OF CONSOLIDATION
Liz Claiborne, Inc. is engaged primarily in the design and marketing of a broad
range of apparel, accessories and fragrances. The Company's products are sold
principally in the United States. The consolidated financial statements include
the accounts of Liz Claiborne, Inc. and its wholly-owned and majority owned
subsidiaries (the "Company"). All intercompany balances and transactions have
been eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent gains and losses at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three months or less
at the date of purchase are classified as cash equivalents.
MARKETABLE SECURITIES
Investments are stated at market. The estimated fair value of the marketable
securities is based on quoted prices in an active market. Gains and losses on
investment transactions are determined using the specific identification method
and are recognized in income based on settlement dates. Unrealized gains and
losses are included in accumulated other comprehensive income (loss) until
realized. Dividends on equity securities are recorded in income based on payment
dates. Interest is recognized when earned.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Buildings and building improvements are depreciated using the
straight-line method over their estimated useful lives of 20 to 39 years.
Machinery and equipment and furniture and fixtures are depreciated using the
straight-line method over their estimated useful lives of five to seven years.
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful lives of the assets. The Company adopted Statement
of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," effective January 4, 1998. This SOP
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. This SOP requires that entities capitalize certain
internal-use software costs once certain criteria are met. Prior to 1998, the
Company expensed the costs of developing or obtaining internal-use software as
incurred. The amount of internal-use software costs capitalized were $7.8 in
1999 and $7.9 in 1998.
F-9
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
GOODWILL AND INTANGIBLES
Goodwill and intangibles on the Consolidated Balance Sheets consist principally
of goodwill, which is amortized on the straight-line method over a period of 20
to 25 years. Goodwill was $174.3 million, net of accumulated amortization of
$3.6 million as of January 1, 2000. There was no goodwill recorded as of January
2, 1999. Also included are trademarks owned or licensed, which are amortized on
a basis consistent with the projected revenue stream of 15 to 25 years and
amounted to $53.4 million in 1999 and $45.1 million in 1998, net of accumulated
amortization of $5.1 million as of January 1, 2000 and $3.9 million as of
January 2, 1999.
The recoverability of the carrying values of intangible assets is evaluated
periodically based on a review of forecasted operating cash flows and the
profitability of the related business. For the three-year period ended January
1, 2000, there were no material adjustments to the carrying values of intangible
assets resulting from these evaluations.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of non-U.S. subsidiaries have been translated at year-end
exchange rates. Revenues and expenses have been translated at average rates of
exchange in effect during the year. Resulting translation adjustments have been
included in accumulated other comprehensive loss on the Consolidated Balance
Sheets. Gains and losses on translation of intercompany loans with foreign
subsidiaries of a long-term investment nature are also included in this
component of stockholders' equity.
ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS No. 133 will be effective, prospectively for the Company's financial
statements in the year 2001. The Company is currently analyzing the impact of
this new pronouncement on its financial position and results of operations.
FOREIGN EXCHANGE FORWARD CONTRACTS
The Company enters into foreign exchange forward contracts to hedge transactions
denominated in foreign currencies for periods of less than one year and to hedge
expected payment of intercompany transactions with its non-U.S. subsidiaries.
Gains and losses on contracts which hedge specific foreign currency denominated
commitments are recognized in the period in which the transaction is completed
and are accounted for as part of the underlying transaction. Transaction gains
and losses included in income were not significant in fiscal 1999, 1998 and
1997. As of January 1, 2000, the Company had forward contracts maturing through
July 2000 to sell 25.0 million Canadian dollars and 3.0 million British pounds
sterling. The aggregate U.S. dollar value of the foreign exchange contracts was
approximately $22.1 million at year end 1999, as compared with approximately
$8.8 million at year end 1998. Unrealized gains and losses for outstanding
foreign exchange forward contracts were not material at January 1, 2000 and
January 2, 1999.
F-10
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
REVENUE RECOGNITION
Revenue within wholesale operations is recognized at the time merchandise is
shipped from the Company's distribution centers. Retail store revenues are
recognized at the time of sale. All revenue is net of returns.
ADVERTISING AND PROMOTION
All costs associated with advertising and promoting products are expensed when
the advertising takes place. Costs associated with cooperative advertising
programs, under which the Company generally shares the costs of each customer's
advertising and promotional expenditures up to a stated percentage of the
customer's purchases, are expensed when the related revenues are recognized.
Advertising and promotion expenses were $104 million in 1999, and $89 million in
1998 and 1997.
EARNINGS PER COMMON SHARE
Earnings per common share have been computed in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which was
adopted by the Company at the end of the 1997 fiscal year, using the weighted
average number of shares outstanding during each period. Shares subject to
unexercised stock options and put warrants were included in the diluted earnings
per share calculation using the treasury stock method (see Note 14 of Notes to
Consolidated Financial Statements).
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31. The 1999
and 1998 fiscal years reflected a 52-week period, while the 1997 fiscal year
reflected a 53-week period.
PRIOR YEARS' RECLASSIFICATION
Certain items previously reported in specific captions in the accompanying
financial statements have been reclassified to conform with the current year's
classifications.
NOTE 2: ACQUISITIONS
On November 2, 1999, the Company completed the purchase of the entire equity
interest of Podell Industries, Inc., whose core business consists of the Laundry
by Shelli Segal apparel line. Laundry is marketed primarily to select department
and specialty stores. The acquisition was accounted for using the purchase
method of accounting. The total purchase price of Laundry, including the
repayment of indebtedness, was approximately $41.2 million, which may be
increased to a maximum of approximately $44.7 million based on the achievement
of certain earnings targets and other factors. The excess purchase price over
the fair market value of the underlying net assets was allocated to goodwill and
property based on preliminary estimates of fair values and is subject to
adjustment. The
F-11
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
estimated fair value of assets acquired was $6.5 million, and estimated
liabilities assumed was $5.3 million. Goodwill is being amortized on a
straight-line basis over 20 years. Annual net sales of Laundry in 1998 were
approximately $76 million. Unaudited pro forma information related to this
acquisition is not included, as the impact of this transaction is not material
to the consolidated results of the Company.
On June 8, 1999, the Company completed the purchase of 85.0 percent of the
equity interest of Lucky Brand Dungarees, Inc., whose core business consists of
the Lucky Brand line of women's and men's denim-based sportswear. The
acquisition was accounted for using the purchase method of accounting. The total
purchase price consists of a cash payment made at the closing date of
approximately $85 million, and an additional payment to be made on March 31,
2003 of at least $15 million, which may be increased to a maximum of $45 million
based on the achievement of certain earnings targets. The excess purchase price
over the fair market value of the underlying net assets of $8.1 million was
allocated to goodwill and property based on preliminary estimates of fair values
and is subject to adjustment. Goodwill is being amortized on a straight-line
basis over 25 years. The estimated fair value of assets acquired was $16.1
million and estimated liabilities assumed was $8.0 million. After a 5-year
period, the Company may be required to purchase the remaining equity interest at
an amount equal to its then fair market value, or elect to purchase the
remaining equity interest at its then fair market value, or under certain
circumstances at a 20% premium on such value. Annual net sales of Lucky Brand
Dungarees, Inc. in 1998 were approximately $60 million. Unaudited pro forma
information related to this acquisition is not included, as the impact of this
transaction is not material to the consolidated results of the Company.
On February 12, 1999, the Company completed the purchase of 84.5 percent of the
equity interest of Segrets, Inc., whose core business consists of the Sigrid
Olsen women's apparel lines. In the fourth quarter, the Company purchased
approximately 3.0 percent additional equity interest. The acquisition was
accounted for using the purchase method of accounting. The excess purchase price
over the fair market value of the underlying net assets of $13.1 million was
allocated to goodwill and property based on estimates of fair values. Goodwill
is being amortized on a straight-line basis over 25 years. The total amount of
funds required to acquire the interest and refinance certain indebtedness was
approximately $55.0 million. The fair value of assets acquired was $23.3 million
and liabilities assumed was $10.2 million. After a 5-year period, the Company
may elect to, or be required to, purchase the remaining equity interest at an
amount equal to its then fair market value. Annual net sales of Segrets, Inc. in
1998 were approximately $60 million. Unaudited pro forma information related to
this acquisition is not included, as the impact of this transaction is not
material to the consolidated results of the Company.
NOTE 3: LICENSING COMMITMENTS
In August 1999, the Company consummated an exclusive license agreement with
Kenneth Cole Productions, Inc. to manufacture, design, market and distribute
women's apparel products under the trademarks "Kenneth Cole New York," "Reaction
Kenneth Cole" and "Unlisted.com." Under the agreement, the Company is obligated
to pay a royalty equal to a percentage of net sales of the "Kenneth Cole New
York," "Reaction Kenneth Cole," and "Unlisted.com" products. The initial term of
the license agreement runs through December 31, 2004 with an option to renew for
3 additional 5-year periods if certain sales thresholds are met. In addition,
the Company consummated the purchase of one million shares of Kenneth Cole
Productions Class A stock at a price of $29 per share. This amount, $29 million,
is recorded as a component of other assets on the Consolidated Balance Sheets as
of January 1, 2000. Certain restrictions apply to the Company's stock ownership,
including our agreement not to dispose of our position until August 24, 2001.
In January 1998, the Company consummated a license agreement with an affiliate
of Donna Karan International, Inc. to design, produce, market and sell men's and
women's sportswear, jeanswear and activewear products under the "DKNY(R) Jeans"
and "DKNY(R) Active" marks and logos. Under the agreement, the Company is
obligated to pay a royalty equal to a percentage of net sales of the "DKNY(R)
Jeans" and "DKNY(R) Active" products. The initial term of the license agreement
runs through December 31, 2012, with an option to renew for an additional
15-year period, if certain sales thresholds are met. Subject to the terms of
F-12
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
the license agreement, aggregate minimum royalties for the initial 15 year term
total $152 million. In December 1999, the Company consummated an additional
exclusive license agreement with an affiliate of Donna Karan International, Inc.
to design, produce, market and sell a new line of career and casual sportswear
for the "better" market, under a trademark, to be determined, which is expected
to be a derivative of the DKNY brand name. Under the agreement, the Company is
obligated to pay a royalty equal to a percentage of net sales of the licensed
product. The initial term of the license agreement runs through December 31,
2005, with an option to renew for 2 additional 5-year periods, if certain sales
thresholds are met.
In July 1998, the Company consummated a license agreement with Candie's, Inc. to
manufacture, market, distribute and sell a line of fragrances for men and women
using the "Candie's" marks and logos. Under the agreement, the Company is
obligated to pay a royalty equal to a percentage of net sales of the "Candie's"
products. The initial term of the license agreement runs through December 31,
2013, with an option to renew for an additional 10-year period, if certain sales
thresholds are met.
NOTE 4: MARKETABLE SECURITIES
There were no available-for-sale marketable securities at January 1, 2000. The
following are summaries of available-for-sale marketable securities and
maturities at January 2, 1999:
<TABLE>
<CAPTION>
JANUARY 2, 1999
GROSS UNREALIZED
---------------- ESTIMATED
In thousands COST GAINS LOSSES FAIR VALUE
-------------------------- ---- ----- ------ ----------
<S> <C> <C> <C> <C>
Tax exempt notes and bonds $152,104 $ 238 $ -- $152,342
Money market preferred 40,000 -- -- 40,000
Commercial paper 4,001 1 -- 4,002
Equity securities 6,567 234 -- 6,801
-------- -------- -------- --------
$202,672 $ 473 $ -- $203,145
======== ======== ======== ========
</TABLE>
These investments include $137,520,000 of tax exempt notes and bonds, money
market preferreds and commercial paper which are classified as cash and cash
equivalents. For the fiscal years 1999, 1998, and 1997 gross realized gains on
available-for-sale securities totaled $1,793,000, $2,871,000 and $891,000,
respectively. In 1999 and 1998 there were no gross realized losses. Gross
realized losses totaled $1,185,000 in 1997. The adjustment to unrealized gains
and losses on available-for-sale securities which was included in accumulated
other comprehensive income (loss) was a credit of $111,000 (net of $55,000 in
deferred income taxes) and a credit of $666,000 (net of $394,000 in deferred
income taxes) in fiscal 1999 and 1998, respectively.
F-13
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 5: INVENTORIES, NET
Inventories are summarized as follows:
<TABLE>
<CAPTION>
In Thousands January 1, 2000 January 2, 1999
- ------------ --------------- ---------------
<S> <C> <C>
Raw materials $ 24,028 $ 18,909
Work in process 7,516 8,841
Finished goods 386,804 447,327
-------- --------
$418,348 $475,077
======== ========
</TABLE>
NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
In thousands January 1, 2000 January 2, 1999
- ------------ --------------- ---------------
<S> <C> <C>
Land and buildings $131,681 $131,297
Machinery and equipment 243,262 199,769
Furniture and fixtures 67,928 67,862
Leasehold improvements 145,100 141,491
-------- --------
587,971 540,419
Less: Accumulated depreciation
and amortization 303,800 283,057
-------- --------
$284,171 $257,362
======== ========
</TABLE>
F-14
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 7: INCOME TAXES
The provisions for income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
(52 WEEKS) (52 WEEKS) (53 WEEKS)
In thousands JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal $ 83,023 $ 77,265 $ 86,210
Foreign 2,717 2,914 2,450
State & local 10,400 9,700 14,400
-------- -------- --------
96,140 89,879 103,060
Deferred - net 13,004 7,421 5,440
-------- -------- --------
$109,144 $ 97,300 $108,500
======== ======== ========
</TABLE>
Liz Claiborne, Inc. and its U.S. subsidiaries file a consolidated federal income
tax return. Deferred income tax benefits and deferred income taxes represent the
tax effects of revenues, costs and expenses which are recognized for tax
purposes in different periods from those used for financial statement purposes.
The current income tax provisions exclude $1,031,000 in 1999, $4,801,000 in
1998, $3,670,000 in 1997, arising from the exercise of nonqualified stock
options.
These amounts have been credited to capital in excess of par value. In addition,
the current income tax provision does not reflect the deferred tax benefit from
our acquisition of Segrets, Inc. of approximately $1.8 million.
The effective income tax rate differs from the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
(52 WEEKS) (52 WEEKS) (53 WEEKS)
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Federal tax provision
at statutory rate 35.0% 35.0% 35.0%
State and local
Income taxes, net
of federal benefit 2.2 2.4 3.2
Tax-exempt interest
income -- (.7) (2.2)
Other-net (1.0) (.2) 1.0
----- ----- -----
36.2% 36.5% 37.0%
===== ===== =====
</TABLE>
F-15
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
The components of net deferred taxes arising from temporary differences as of
January 1, 2000 and January 2, 1999 are as follows:
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
IN THOUSANDS ASSET LIABILITY ASSET LIABILITY
------------ -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Inventory valuation 16,133 -- $18,432 $ -
Unremitted earnings from
foreign subsidiaries 16,419 - 17,052
Restructuring charge 1,770 -- 9,205 -
Accounts receivable
Valuation 1,711 -- 2,019 -
Unrealized investment
(gains)/losses (118) -- (173) -
Depreciation (462) - (2,056)
Other-net 8,268 7,154 6,212 2,540
------- ------- ------- -------
$27,764 $23,111 $35,695 $17,536
======= ======= ======= =======
</TABLE>
Management believes that the deferred tax benefits will be fully realized
through future taxable income and reversals of deferred tax liabilities.
NOTE 8: COMMITMENTS, CONTINGENCIES
AND OTHER MATTERS
The Company leases office, showroom, warehouse/distribution and retail space and
computers and other equipment under various noncancelable operating lease
agreements which expire through December 2013. Rental expense for 1999, 1998 and
1997 was approximately $67,113,000, $62,966,000, and $59,388,000, respectively.
The above rental expense amounts exclude associated costs such as real estate
taxes and common area maintenance.
At January 1, 2000, the minimum aggregate rental commitments are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) (IN THOUSANDS)
FISCAL YEAR OPERATING LEASES FISCAL YEAR OPERATING LEASES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $54,120 2003 $ 40,902
2001 49,558 2004 36,955
2002 44,883 Thereafter 177,925
</TABLE>
F-16
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
Certain rental commitments have renewal options extending through the year 2030.
Some of these renewals are subject to adjustments in future periods. Many of the
leases call for additional charges, some of which are based upon various
escalations, and, in the case of retail leases, the gross sales of the
individual stores above base levels.
At January 1, 2000, the Company had entered into commitments for the purchase of
raw materials and for the production of finished goods totaling approximately,
$539,065,000.
In 1999, in connection with the Company's ongoing stock repurchase program, put
warrants on 500,000 shares of common stock were exercised and put warrants on
400,000 shares of common stock expired unexercised. There are no put warrants
outstanding at January 1, 2000. In 1998, the Company sold put warrants on 1.25
million shares of common stock in privately negotiated transactions based on the
then current market price of the common stock. The warrants gave the holders the
right at maturity to require the Company to repurchase shares of its common
stock at specified prices. The Company had the option to settle in cash or
shares of common stock. In 1998, warrants on 420,000 shares of common stock
expired unexercised, and warrants on 830,000 shares of common stock were
exercised. Warrants on an additional 900,000 shares remained outstanding at
January 2, 1999. The proceeds from the sale of put warrants of $4.7 million in
1998 have been recorded in capital in excess of par value. The Company's
potential obligation of $30.8 million in 1998 to buy back 900,000 shares of
common stock was charged to capital in excess of par value and reflected as put
warrants on the Consolidated Balance Sheets.
In the normal course of business, the Company extends credit, on open account,
to its department store customers, after a credit analysis is performed based on
a number of financial and other criteria. In the past, a number of corporate
groups which include certain of the Company's largest department store customers
have been involved in highly leveraged financial transactions and certain of
these customers have filed for protection under Chapter 11 of the Federal
Bankruptcy Code. Subsequently, certain customers have emerged from protection
under Chapter 11. In 1999, three corporate groups of department store customers
accounted for 16%, 17%, and 15%, respectively, of net sales. In 1998, three
corporate groups of department store customers accounted for 18%, 17% and 15%,
respectively, of net sales. In 1997, three corporate groups of department store
customers accounted for 19%, 17% and 12%, respectively, of net sales. The
Company does not believe that this concentration of sales and credit risk
represents a material risk of loss with respect to its financial position as of
January 1, 2000.
At January 1, 2000, approximately 24% of the Company's work force was covered by
collective bargaining agreements. The agreements currently in effect will expire
in May 2000. The Company considers its relations with its employees to be
satisfactory and to date has not experienced any interruption of operations due
to labor disputes.
The Company is a party to several pending legal proceedings and claims. Although
the outcome of such actions cannot be determined with certainty, management is
of the opinion that the final outcome should not have a material adverse effect
on the Company's results of operations or financial position.
NOTE 9: DEBT AND LINES OF CREDIT
On December 6, 1999, the Company established a $600,000,000, 364-day unsecured
credit agreement (the "Agreement"). Borrowings outstanding under the agreement
are due December 4, 2000. Repayment of the outstanding loan can be extended for
one year after the maturity date. The agreement has two borrowing options, an
"Alternative Base Rate" option, as defined in the Agreement, or a Eurodollar
rate option with a spread based on the Company's long-term credit rating.
F-17
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
The Agreement contains certain financial covenants relating to the Company's
debt leverage and fixed charge coverage. The Company believes it is in
compliance with such covenants.
The Agreement may be directly drawn upon, or used to support the Company's
$600,000,000 commercial paper program, which is used from time to time to fund
working capital and other general corporate requirements. At January 1, 2000,
approximately $116 million was outstanding under the commercial paper program,
with a weighted average interest rate of 6.7%. The carrying amount of the
Company's borrowings under the commercial paper program approximate fair value
because the interest rates are based on floating rates, which are determined by
prevailing market rates. The commercial paper is classified as long-term debt on
the Consolidated Balance Sheet as of January 1, 2000 as it is the Company's
intent and ability to refinance such obligations on a long-term basis.
As of January 1, 2000, the Company had lines of credit aggregating $433,000,000
which were available to cover trade letters of credit. These lines of credit
expire at various dates in 2000. At January 1, 2000 and January 2, 1999, the
Company had letters of credit of $265,352,000 and $220,482,000, respectively.
These letters of credit, which have terms ranging from one to ten months,
collateralize the Company's obligations to third parties for the purchase of
inventory. The fair value of these letters of credit approximates contract
values.
NOTE 10: RESTRUCTURING CHARGE
In December 1998, the Company recorded a $27.0 million (pre-tax) restructuring
charge. The amount included $14.4 million related to the closure of 30
underperforming specialty retail stores and $12.6 million for the streamlining
of operating and administrative functions. Principal items included in the
charge are estimated contract termination costs, severance and related benefits
for staff reductions and the write-off of certain assets. This charge reduced
net income by $17.1 million, or $.26 per common share. The remaining balance of
the restructuring liability as of January 1, 2000 was $5.1 million. Of the $21.9
million expended for restructuring costs, $10.7 was related to severance costs
and $11.2 to losses on contracts and write- off of certain assets related to the
aforementioned closure of certain specialty retail stores. Approximately $2.3
million of the remaining liabilities should be paid or settled during the 2000
fiscal year, with the remaining $2.7 million of the liability deemed to no
longer be necessary. This amount was taken as a reduction to the restructuring
charge through current year earnings and was offset with a restructuring reserve
of an equal amount to recognize the anticipated exit cost associated with the
closure of seven additional underperforming retail stores.
A summary of the charges in the restructuring reserves is as follows:
<TABLE>
<CAPTION>
OPERATING AND
STORE CLOSURE ADMINISTRATIVE
IN MILLIONS COSTS EXIT COSTS TOTAL
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Original Reserve $ 14.4 $ 12.6 $ 27.0
1999 spending (11.2) (10.7) (21.9)
1999 excess reduction (0.8) (1.9) (2.7)
1999 store closing
charge 2.7 -- 2.7
------- ------- -------
Balance at January 1, 2000 $ 5.1 $ -- $ 5.1
======= ======= =======
</TABLE>
F-18
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 11: STOCK PLANS
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock-based
compensation plans, which are described below. Accordingly, no compensation cost
has been recognized for its fixed stock option grants. Had compensation costs
for the Company's stock option grants been determined based on the fair value at
the grant dates for awards under these plans in accordance with SFAS No. 123
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
IN THOUSANDS EXCEPT FOR (52 WEEKS) (52 WEEKS) (53 WEEKS)
PER COMMON SHARE DATA JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3,1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $192,442 $169,377 $184,644
Pro forma $188,200 $164,738 $180,698
Basic earnings
Per share:
As reported $3.13 $2.59 $2.65
Pro forma $3.06 $2.51 $2.60
Diluted earnings
Per share:
As reported $3.12 $2.57 $2.63
Pro forma $3.05 $2.50 $2.57
</TABLE>
For this purpose, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1999, 1998, and 1997,
respectively: dividend yield of 1.3% for 1999 and 1.0% for 1998 and 1997,
expected volatility of 37%, 31% and 34%, risk free interest rates of 5.3%, 5.4%,
and 6.2% and expected lives of five years for 1999 and four years for 1998 and
1997.
In February 1984 and March 1992, the Company adopted the "1984 Plan" and "1992
Plan," respectively under which nonqualified options to acquire shares of common
stock may be granted to officers, other key employees and directors selected by
the plans' administrative committee ("the committee"). Payment by option holders
upon exercise of an option may be made in cash or, with the consent of the
committee, by delivering previously acquired shares of Company common stock.
Stock appreciation rights may be granted in connection with all or any part of
any option granted under the plans, and may also be granted without a grant of a
stock option. The grantee of a stock appreciation right has the right, with the
consent of the committee, to receive either in cash or in shares of common
stock, an amount equal to the appreciation in the fair market value of the
covered shares from the date of grant to the date of exercise. Options and
rights are exercisable over a period of time designated by the committee (but
not prior to one year from the date of grant) and are subject to such other
terms and conditions as the committee determines. Vesting schedules will be
accelerated upon merger of the Company or the happening of certain other events.
Options and rights may not be transferred during the lifetime of a holder.
F-19
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
Awards under the 1992 plan may also be made in the form of incentive stock
options, dividend equivalent rights, restricted stock, unrestricted stock and
performance shares. To date, no stock appreciation rights, incentive stock
options, dividend equivalent rights or performance shares have been granted
under the plan. Exercise prices for awards under the plan are determined by the
committee; to date, all stock options have been granted at an exercise price not
less than the quoted market value of the underlying shares on the date of grant.
The 1992 plan provides initially for the issuance of up to 2,500,000 shares of
common stock with respect to options, stock appreciation rights and other awards
granted under the plan, and provides that the Board of Directors may increase
such number by an amount equal to 1% of the common stock outstanding as of
January 1, 1994 and each January 1st thereafter. At January 1, 2000, there were
available for future grant 2,271,651 shares under the 1992 plan. The 1992 plan
expires in 2002. The 1984 plan has expired; awards made thereunder prior to its
termination remain in effect in accordance with their terms.
Since January 1990, the Company has delivered treasury shares upon the exercise
of stock options. The difference between the cost of the treasury shares, on a
first-in, first-out basis, and the exercise price of the options has been
reflected in retained earnings.
Changes in common shares under option for the three fiscal years in the period
ended January 1, 2000 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- -------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 2,340,594 $ 35.50 2,208,310 $ 30.73 2,175,923 $ 26.34
Granted 1,292,200 32.82 979,738 40.66 840,960 39.38
Exercised (219,306) 23.61 (562,929) 25.43 (557,842) 27.12
Cancelled (579,017) 37.62 (284,525) 36.29 (250,731) 29.66
--------- --------- --------- --------- --------- ---------
End of year 2,834,471 $ 34.76 2,340,594 $ 35.48 2,208,310 $ 30.73
========= ========= ========= ========= ========= =========
Exercisable at end of year 921,345 $ 32.65 652,258 $ 30.24 723,927 $ 23.28
========= ========= ========= ========= ========= =========
Weighted average fair value
of options granted during
the year $ 12.22 $ 11.98 $ 13.08
</TABLE>
F-20
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
The following table summarizes information about options outstanding at January
1, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Average
Range of Outstanding Remaining Weighted Average Exercisable at Weighted Average
Exercise Prices At Jan. 1, 2000 Contractual Life Exercise Price Jan. 1, 2000 Exercise Price
- --------------- --------------- ---------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$15.00 - $25.00 254,506 1.5 years $19.80 244,329 $19.69
25.01 - 35.00 1,302,111 8.5 years 31.57 221,211 27.15
35.01 - 60.00 1,277,854 7.4 years 40.00 455,805 42.25
$15.00 - $60.00 2,834,471 7.4 years $34.76 921,345 $32.65
</TABLE>
On January 25, 2000, nonqualified options to acquire 1,653,650 shares of common
stock were granted to officers and other key employees with an exercise price of
$35 13/16.
In 1998, the committee granted 366,650 shares of common stock to a group of key
executives. As of January 1, 2000, 281,967 of these shares remained outstanding.
These shares are subject to restrictions on transfer and subject to risk of
forfeiture until earned by continued employment. The restrictions expire on July
6, 2007. The expiration of restrictions may be accelerated if the total return
on the Company's common stock exceeds that of a predetermined group of
competitors or upon the occurrence of certain other events. The unearned
compensation is being amortized over a period equal to the anticipated vesting
period.
In May 1994, the committee granted 85,000 shares of common stock in connection
with the hiring of a key executive. These shares are subject to restrictions on
transfer and subject to risk of forfeiture until earned by continued employment.
The restrictions expire on the last day of each of the Company's fiscal years
1994 through 2001. The expiration of the restrictions may be accelerated if the
market value of the common stock attains certain predetermined levels or upon
the occurrence of certain other events. In 1996, one-third of the then 65,000
unvested restricted shares (or 21,665 shares) vested in accordance with the
accelerated vesting provisions of the employment agreement. The remaining shares
where scheduled to vest at the rate of 6,667 shares of common stock per year
through the year 2000 and 10,000 shares in the year 2001. During 1997, the
common stock attained the predetermined level which allowed the remaining shares
to vest on January 2, 1999. The unearned compensation related to all restricted
stock grants as of January 1, 2000, January 2, 1999, and January 3, 1998 is
$9,097,000, $12,781,000, and $939,000, respectively, and is included in retained
earnings on the Consolidated Balance Sheets.
In 1992, options were granted to certain of the Company's senior officers at a
price of $58.50 per share, representing 150% of the market price at the date of
grant. At January 1, 2000, 50,000 of these options remained outstanding; they
became exercisable on October 21, 1998 and expire on October 21, 2000, subject
to certain exceptions.
The Company's outside directors' stock ownership plan provides non-employee
directors, as part of their annual retainer, shares of common stock with a value
of $15,000 on the first business day of each fiscal year. The shares so issued
are nontransferable for a period of three years following the grant date,
subject to certain exceptions. In 1999, 1,404 shares of common stock were issued
under this plan. This plan also provides each non-employee director a grant of
options to purchase 1,000 shares of common stock on the first business day of
each fiscal year. Not more than one half of one percent (0.50%) of the shares of
common stock outstanding from time to time may be issued under the plan, which
will expire in 2006.
F-21
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 12: PROFIT-SHARING RETIREMENT,
SAVINGS AND DEFERRED
COMPENSATION PLANS
The Company's noncontributory, defined contribution profit-sharing retirement
plan covers all eligible U.S. employees who are 21 years of age with one or more
years of service and who are not covered by collective bargaining agreements.
The plan pays benefits based on an employee's vested account balance in
accordance with qualification rules set out in the plan. Vesting begins at 20%
after two years of service, and from the 3rd through 6th years, vesting
increases by 20% each year until full vesting occurs, except that for employees
commencing employment after December 31, 1996, vesting will be on a "cliff"
(100%) basis after a period of five years of service. Each year, profit-sharing
contributions, if any, are determined by the Board of Directors. The Company's
1999, 1998 and 1997 plan contribution expense, which is included in selling,
general and administrative expenses, was $4,520,000, $4,372,000 and $5,888,000,
respectively.
The Company's 401(k) Savings Plan covers all eligible U.S. employees who are 21
years of age with one or more years of service and who are not covered by
collective bargaining agreements. The plan pays benefits based on an employee's
vested account balance. Subject to Internal Revenue Code limitations,
participants may contribute from 1% to 15% of their salary on a before-tax
basis. Such contributions are fully and immediately vested. Vesting of the
Company's matching contribution (equal to 50% of the first 5% contributed by the
participant) begins at 20% after two years of service, and from the 3rd through
6th years, vesting increases by 20% each year until fully vested. The Company's
1999, 1998 and 1997 plan contribution expense, which is included in selling,
general and administrative expenses, was $1,995,000, $2,052,000 and $2,181,000,
respectively.
Effective December 31, 1999, the Profit Sharing Plan was merged into the 401(k)
Plan. Future profit sharing contributions will be made to all associates who are
eligible to participate in the profit sharing portion of the combined plan and
who are employed on the last day of the plan year and are credited with at least
1,000 hours of service during the plan year, or who leave the Company during the
plan year because of death, disability or retirement, as defined in the plan,
whether or not associates participate in the 401(k) portion of the combined
plan. Effective April 1, 2000, the Company match on associate 401(k)
contributions will be increased to 50% of the first 6% of eligible compensation
contributed by the participant, and eligibility for participation in the 401(k)
portion of the plan for full time associates will be reduced to 6 months of
employment. However, the Company match will not apply until an associate has a
12 month period of employment with at least 1,000 hours of service.
The Company has a supplemental retirement plan for executives whose benefits
under the merged Profit Sharing and 401(k) Plans are expected to be constrained
by the operation of certain Internal Revenue Code limitations. The supplemental
plan provides a benefit equal to the difference between the contribution that
would be made for an executive under the tax-qualified plan absent such
limitations and the actual contribution under that plan. The supplemental plan
also allows participants to defer up to 15% of their salary. Supplemental
benefits attributable to participant deferrals are fully vested at all times and
the balance of a participant's benefits vests on the same basis as the matching
contribution under the Company's 401(k) savings plan. Under a separate bonus
deferral plan, participants may defer up to 100% of their annual bonus. These
supplemental plans are not funded. The Company's expenses related to these
plans, which are included in selling, general and administrative expenses, were
$2,223,000, $1,909,000 and $1,462,000 in 1999, 1998 and 1997, respectively.
F-22
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
In 1996, the Company established an unfunded deferred compensation arrangement
for a senior executive which accrues over a six year period as of the first day
of each fiscal year beginning in 1996, based on an amount equal to 15% of the
sum of the senior executive's base salary and bonus. The accrued amount plus
earnings will become fully vested on December 28, 2002, provided the senior
executive is the Chairman of the Board and Chief Executive Officer of the
Company on such date. This arrangement also provides for the deferral of an
amount equal to the portion of the executive's base salary that exceeds $1
million. The deferred amount plus earnings will be fully vested at all times.
NOTE 13: STOCKHOLDER RIGHTS PLAN
In December 1998, the Company adopted a new Stockholder Rights Plan to replace
the then expiring plan originally adopted in December 1988. Under the new Plan,
one preferred stock purchase right is attached to each share of common stock
outstanding. The rights are nominally exercisable under certain circumstances,
to buy 1/100 share of a newly created Series A Junior Participating Preferred
Stock for $150. If any person or group (referred to as an "Acquiring Person")
becomes the beneficial owner of 15% or more of the Company's common stock (20%
or more in the case of certain acquisitions by institutional investors), each
right, other than rights held by the Acquiring Person which become void, will
become exercisable for common stock having a market value of twice the exercise
price of the right. If anyone becomes an Acquiring Person and afterwards the
Company or 50% or more of its assets is acquired in a merger, sale or other
business combination, each right (other than voided rights) will become
exercisable for common stock of the acquirer having a market value of twice the
exercise price of the right. The rights, which expire on December 21, 2008 and
do not have voting rights, may be amended by the Company's Board of Directors
and redeemed by the Company at $.01 per right at any time before any person or
group becomes an Acquiring Person.
NOTE 14: EARNINGS PER COMMON SHARE
The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with SFAS No.128 "Earnings per Share."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
IN THOUSANDS (52 WEEKS) (52 WEEKS) (53 WEEKS)
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income: $192,442 $169,377 $184,644
Weighted average common -------- -------- --------
shares outstanding 61,523 65,503 69,619
Effect of dilutive securities:
Stock options and restricted stock grants 190 272 483
Put warrants 7 72 89
Weighted average common
shares and common
Share equivalents 61,720 65,847 70,191
====== ====== ======
</TABLE>
F-23
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 15: CONSOLIDATED STATEMENTS
OF CASH FLOWS SUPPLEMENTARY
DISCLOSURES
During fiscal 1999, 1998, and 1997, the Company made income tax payments of
$89,374,000, $91,342,000, and $98,425,000, respectively. The Company made
interest payments of $2,186,000, $0 and $0 in 1999, 1998 and 1997, respectively.
Other non-cash investing activities in 1999 include a future payment of $15.0
million associated with the Lucky Brand Dungarees, Inc. acquisition and $3.5
million contingent payment for the Laundry acquisition (see Note 2 of Notes to
Consolidated Financial Statements).
NOTE 16: SEGMENT REPORTING
The Company has three segments: Wholesale Apparel, Wholesale Non-Apparel and
Retail. The Wholesale Apparel Segment consists of women's and men's apparel
designed and marketed under various trademarks owned or licensed by the Company.
The Wholesale Non-Apparel segment consists of accessories, jewelry and cosmetics
designed and marketed under certain of those and other trademarks. The Retail
segment operates specialty retail and outlet stores that sell these apparel and
non-apparel products to the public.
The Company evaluates performance and allocates resources based on operating
profits or losses. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
Intersegment sales are recorded at cost. There is no intercompany profit or loss
on intersegment sales, however, the wholesale segments are credited with their
proportionate share of the operating profit generated by the Retail segment. The
profit credited to the wholesale segments from the Retail segment is eliminated
in consolidation.
The Company's segments are business units that offer either different products
or distribute similar products through different distribution channels. The
segments are each managed separately because they either manufacture and
distribute distinct products with different production processes or distribute
similar products through different distribution channels.
<TABLE>
<CAPTION>
JANUARY 1, 2000
WHOLESALE WHOLESALE CORPORATE/
IN THOUSANDS APPAREL NON-APPAREL RETAIL ELIMINATIONS TOTALS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $2,032,542 $320,491 $444,722 $ 8,793 $2,806,548
Intercompany sales 163,973 20,911 -- (184,884) --
Depreciation and amortization expense 47,024 4,130 10,608 6,074 67,836
Segment operating profit (loss) 267,146 32,645 58,105 (58,143) 299,753
Segment assets 1,311,090 86,549 121,613 200,121 1,719,373
Expenditures for long-lived assets 243,786 1,615 31,851 -- 277,252
</TABLE>
F-24
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
JANUARY 2, 1999
WHOLESALE WHOLESALE CORPORATE/
IN THOUSANDS APPAREL NON-APPAREL RETAIL ELIMINATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $1,802,832 $296,713 $430,839 $ 4,884 $2,535,268
Intercompany sales 183,218 23,602 -- (206,820) --
Depreciation and amortization expense 34,985 4,143 12,527 4,130 55,785
Segment operating profit (loss) 243,708 46,590 45,341 (77,961) 257,678
Segment assets 1,119,680 98,701 142,156 367,344 1,727,881
Expenditures for long-lived assets 102,870 12,282 14,420 -- 129,572
</TABLE>
<TABLE>
<CAPTION>
JANUARY 3, 1998
WHOLESALE WHOLESALE CORPORATE/
IN THOUSANDS APPAREL NON-APPAREL RETAIL ELIMINATIONS TOTALS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $1,705,760 $289,574 $411,436 $ 5,831 $2,412,601
Intercompany sales 153,836 18,667 -- (172,503) --
Depreciation and amortization expense 26,251 3,819 10,875 5,079 46,024
Segment operating profit (loss) 250,232 38,152 40,325 (51,414) 277,295
Segment assets 1,075,319 77,464 114,422 500,433 1,767,638
Expenditures for long-lived assets 37,218 2,485 7,840 3,750 51,293
</TABLE>
In the 1999 "Corporate Eliminations" column, the segment assets consists
primarily of corporate buildings, machinery and equipment and licenses and
trademarks purchased by the Company. In the 1998 and 1997
"Corporate/Eliminations" column, the segment assets consist primarily of the
Company's investment portfolio. The segment operating loss consists primarily of
the elimination of the profit transfer from the retail segment to the wholesale
segments, and in the 1998 fiscal year a $27,000,000 restructuring charge.
The reconciling item to adjust segment operating profit to consolidated pre-tax
income consists primarily of net income generated by the Company's investment
portfolio in the amount of $1,833,000 in 1999, $8,999,000 in 1998, and
$15,849,000 in 1997.
A reconciliation to adjust segment assets to consolidated assets follows:
<TABLE>
<CAPTION>
IN THOUSANDS JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Total segment assets $ 1,719,373 $ 1,727,881 $ 1,767,638
Intercompany receivables (24,640) (22,415) (23,681)
Investments in wholly owned subsidiaries (292,249) (338,267) (449,773)
Other 9,317 25,592 11,101
----------- ----------- -----------
Total consolidated assets $ 1,411,801 $ 1,392,791 $ 1,305,285
=========== =========== ===========
</TABLE>
F-25
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 17: OTHER COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income"
which requires reporting of comprehensive income and its components in a
financial statement. The following table contains the components of the
adjustment to unrealized gains (losses) on available for sale securities
included in the Consolidated Statements of Retained Earnings, Comprehensive
Income and Changes in Capital Accounts.
<TABLE>
<CAPTION>
IN THOUSANDS JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gain (loss) on available for sale
Securities, net of tax:
Unrealized holding gain (loss) $(166) $1,627 $951
Reclassification adjustment 55 (961) 396
----- ----- ---
Net unrealized gain (loss) $(111) $(666) $1,347
====== ====== ======
</TABLE>
NOTE 18: LEGAL PROCEEDINGS
In January 1999, two actions were filed in California naming as defendants more
than a dozen United States-based apparel companies that source garments from
Saipan (Commonwealth of the Northern Mariana Islands) and a large number of
Saipan-based garment factories. The actions assert that the Saipan factories
engage in unlawful practices relating to the recruitment and employment of
foreign workers and that the apparel companies, by virtue of their alleged
relationships with the factories, have violated various federal and state laws.
One action, filed in California Superior Court in San Francisco by a union and
three public interest groups, alleges unfair competition and false advertising
(the "State Court Action"). The State Court Action seeks equitable relief,
unspecified amounts for restitution and disgorgement of profits, interest and an
award of attorney's fees. The second, filed in Federal Court for the Central
District of California, is brought on behalf of a purported class consisting of
the Saipan factory workers (the "Federal Court Action"). The Federal Court
Action alleges claims under the civil RICO statute and the Alien Tort Claims
Act, premised on supposed violations of the federal anti-peonage and indentured
servitude statutes, as well as other violations of Saipan and international law,
and seeks equitable relief and unspecified damages, including treble and
punitive damages, interest and an award of attorney's fees page. A third action,
brought in Federal Court in Saipan solely against the garment factory defendants
on behalf of a putative class of their workers, alleges violations of federal
and Saipanese wage and employment laws. The Company sources products in Saipan
but was not named as a defendant in the actions. The Company, and certain other
apparel companies not named as defendants, were advised in writing, however,
that they would be added as parties if a consensual resolution of the complaint.
The Company has since reached an agreement in principle to settle all claims
that were or could have been asserted in the Federal or State Court actions. To
date, more than a dozen other apparel companies have also settled or agreed in
principle to settle these claims. The agreement in principle concluded by the
Company is subject to final documentation, execution of a binding agreement, and
federal court approval. Under the terms of the agreement in principle, if the
settlement does not receive final federal court approval, the Company will be
entitled to a refund of the entire settlement amount except for funds of up to
$10,000 spent on costs of notice. Because the litigation is at a preliminary
stage, with no merits discovery having taken place, if the settlement is not
executed or is not finally approved by the federal court, we cannot at this
junction determine the likelihood of a favorable or unfavorable outcome or the
magnitude of the latter if it were to occur. Although the outcome of any such
litigation cannot be determined with certainty, management is of the opinion
that the final outcome should not have a material adverse effect on the
Company's financial position or results of operations.
NOTE 19: SUBSEQUENT EVENT
In February 2000, the Company signed an agreement with Leslie Fay Company, Inc.
to license the Company's Liz Claiborne Dresses and Elisabeth Dresses labels. The
licensing agreement was effective as of the date of the agreement and will not
interrupt the flow of merchandise. Not included in the agreement are dresses
sold as part of the Liz Claiborne Collection, Lizsport, Lizwear, Liz & Co. and
Elisabeth sportswear lines. The initial term of the license agreement runs
through February 28, 2005, with an option to renew for 2 additional 5-year
terms, if certain sales thresholds are met.
F-26
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 20: ACCRUED EXPENSES
Accrued expenses at January 1, 2000 and January 2, 1999 consisted of the
following:
<TABLE>
<CAPTION>
In thousands January 1, 2000 January 2, 1999
- --------------------------------------------------------------------------
<S> <C> <C>
Payroll and bonuses $ 31,452 $ 23,660
Taxes, other than taxes on income 20,864 11,263
Employee benefits 20,309 14,266
Advertising 19,776 12,006
Restructuring reserve 5,056 26,283
Other 62,763 41,439
-------- --------
$160,220 $128,917
======== ========
</TABLE>
F-27
<PAGE> 54
UNAUDITED QUARTERLY RESULTS
Unaudited quarterly financial information for 1999 and 1998 is set forth in the
table below:
<TABLE>
<CAPTION>
MARCH JUNE SEPTEMBER DECEMBER
----- ---- --------- --------
ALL AMOUNTS IN THOUSANDS
EXCEPT PER COMMON SHARE DATA 1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $700,789 $656,005 $607,675 $565,219 $821,024 $703,904 $677,060 $610,140
Gross profit 262,632 255,538 237,011 224,916 321,081 276,974 276,858 239,674
Net income 44,713 45,886 31,561 30,963 66,370 62,697 49,798 29,831*
Basic earnings per share $ .70 $ .69 $ .50 $ .47 1.08 $ .96 $ .85 $ .46*
Diluted earnings per share $ .70 $ .69 $ .50 $ .47 1.08 $ .96 $ .85 $ .46*
Dividends paid
per common share $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11
</TABLE>
* Includes the after tax effect of a restructuring charge of $17,100 ($27,000
pretax) or $.27 per common share in the fourth quarter of 1998.
F-28
<PAGE> 55
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
ADDITIONS
----------------------------------
(In thousands) Charged to
Balance at Costs and Deductions Balance at
Description Beginning Expenses Other -Describe End of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 1, 2000
Accounts Receivable - allowance for
doubtful accounts $2,165 $1,025 $ -- $935 (A) $2,255
Restructuring Reserve $26,300 $2,700 $ (2,700)(C) $21,200 (B) $5,100
YEAR ENDED JANUARY 2, 1999
Accounts Receivable - allowance for
doubtful accounts $2,591 $231 $ -- $657 (A) $2,165
Restructuring Reserve $0 $27,000 $ -- $700 (B) $26,300
YEAR ENDED JANUARY 3, 1998
Accounts Receivable - allowance for
doubtful accounts $2,430 $551 $ -- $390 (A) $2,591
</TABLE>
Notes:
(A) Uncollectible accounts written off, less recoveries.
(B) Charges to the restructuring reserve are for the purposes for which the
reserve was created. $2.7 million of the reserve in fiscal 1999 was deemed
to no longer be necessary, and was reversed.
(C) This amount of the restructuring reserve was deemed to no longer be
necessary. As a result, this amount was taken as a reduction to the
restructuring charge through fiscal 1999 earnings.
F-29
<PAGE> 56
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
3(a) - Restated Certificate of Incorporation of Registrant
(incorporated herein by reference from Exhibit 3(a)
to Registrant's Quarterly Report on Form 10-Q for the
period ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated
herein by reference from Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 26, 1992 [the "1992 Annual
Report"]).
4(a) - Specimen certificate for Registrant's Common Stock,
par value $1.00 per share (incorporated herein by
reference from Exhibit 4(a) to the 1992 Annual
Report).
4(b) - Rights Agreement, dated as of December 4, 1998,
between Registrant and First Chicago Trust Company of
New York, as Rights Agent (incorporated herein by
reference from Exhibit 1 to Registrant's Form 8-A
dated as of December 4, 1998).
10(a) - Reference is made to Exhibit 4(b) filed hereunder,
which is incorporated herein by this reference.
10(b)+ - Liz Claiborne, Inc. 1984 Stock Option Plan
(incorporated herein by reference from Exhibit 10(hh)
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1983 [the "1983 Annual
Report"]).
10(b)(i)+ - Amendment to the 1984 Stock Option Plan (incorporated
herein by reference from Exhibit 10(d)(i) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
10(c)+ - Form of Option Agreement under Liz Claiborne, Inc.
1984 Stock Option Plan (the "1984 Option Plan")
(incorporated herein by reference from Exhibit 10(nn)
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 1984).
10(c)(i)+ - Amended Form of Option Agreement under the 1984
Option Plan (incorporated herein by reference from
Exhibit 10(e)(i) to the 1992 Annual Report).
10(d)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as
amended and restated (incorporated herein by
reference from Exhibit 10(f) to Registrant's Annual
report on Form 10-K for the fiscal year ended
December 30, 1989 [the "1989 Annual Report"]).
10(d)(i)+ - Trust Agreement dated as of July 1, 1994, between Liz
Claiborne, Inc. and IDS Trust Company (incorporated
herein by reference from Exhibit 10(b) to
Registrant's Quarterly Report on Form 10-Q for the
period ended July 2, 1994).
10(e)+ - Amendment Nos. 1 and 2 to the Savings Plan
(incorporated herein by reference from Exhibit 10(g)
to the 1992 Annual Report).
10(e)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan
(incorporated herein by reference from Exhibit
10(g)(i) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 26, 1993 [the
"1993 Annual Report"]).
+ Compensation plan or arrangement required to be noted as provided in
Item 14(a)(3).
<PAGE> 57
EXHIBIT
NO. DESCRIPTION
10(e)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated
herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the
period ended July 2, 1994).
10(e)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated
herein by reference from Exhibit 10(e) (iii) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1996 [the "1996 Annual
Report"]).
10(e)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated
herein by reference from Exhibit 10(e)(iv) to the
1996 Annual Report).
10(e)(v)+ - Amendment No. 8 to the Savings Plan (incorporated
herein by reference from Exhibit 10(e)(v) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 [the "1997 Annual
Report"].
10(e)(vi)+ - Amendment No. 9 to the Savings Plan (incorporated
herein by reference from Exhibit 10(e)(vi) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999 [the "1998 annual
report"])
10(f)+ - Amended and Restated Liz Claiborne Profit-Sharing
Retirement Plan (the "Profit-Sharing Plan")
(incorporated herein by reference from Exhibit 10(h)
to the 1992 Annual Report).
10(g)+ - Trust Agreement related to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(jj)
to the 1983 Annual Report).
10(g)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit
10(i)(i) to the 1993 Annual Report).
10(g)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(a)
to Registrant's Quarterly Report on Form 10-Q for the
period ended October 1, 1994).
10(g)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(a)
to Registrant's Quarterly Report on Form 10-Q for the
period ended July 1, 1995).
10(g)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit
10(g)(iv) to the 1996 Annual Report).
10(g)(v)+ - Amendment No. 6 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit
10(g)(v) to the 1998 Annual Report).
10(h)+* - Merger Amendment to the Profit-Sharing Plan, the
Lucky Brand Employee Retirement Plan and Trust, the
Segrets, Inc. 401(k) Profit Sharing Plan and the
Savings Plan.
10(i) - National Collective Bargaining Agreement, made and
entered into as of June 1, 1997, by and between Liz
Claiborne, Inc. and the Union of Needletrades,
Industrial and Textile Employees (UNITE) for the
period June 1, 1997 through May 31, 2000
(incorporated herein by reference from Exhibit 10(h)
to the 1997 Annual Report).
10(i)(i) - Jobbers Agreement, made and entered into as of June
1, 1997, by and between Liz Claiborne, Inc. and the
Union of Needletrades, Industrial and Textile
Employees (UNITE) for the period June 1, 1997 through
May 31, 2000 (incorporated herein by reference from
Exhibit 10(h)(i) to the 1997 Annual Report).
+ Compensation plan or arrangement required to be noted as provided in
Item 14(a)(3).
* Filed herewith.
<PAGE> 58
EXHIBIT
NO. DESCRIPTION
10(j)+* - Description of Liz Claiborne, Inc. 1999 Salaried
Employee Incentive Bonus Plan.
10(k) - Lease, dated as of January 1, 1990 (the "1441
Lease"), for premises located at 1441 Broadway, New
York, New York between Registrant and Lechar Realty
Corp. (incorporated herein by reference from Exhibit
10(n) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 29, 1990).
10(k)(i)+* - First Amendment: Lease Extension and Modification
Agreement, dated as of January 1, 1998, to the 1441
Lease.
10(k)(ii)+* - Second Amendment to Lease, dated as of September 19,
1998, to the 1441 Lease.
10(k)(iii)+* - Third Amendment to Lease, dated as of September 24,
1999, to the 1441 Lease.
10(l)+ - Liz Claiborne, Inc. Amended and Restated Outside
Directors' 1991 Stock Ownership Plan (the "Outside
Directors' 1991 Plan") (incorporated herein by
reference from Exhibit 10(m) to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 30, 1995 [the "1995 Annual Report"]).
10(l)(i)+ - Form of Option Agreement under the Outside Directors'
1991 Plan (incorporated herein by reference from
Exhibit 10(m)(i) to the 1996 Annual Report).
10(m)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the
"1992 Plan") (incorporated herein by reference from
Exhibit 10(p) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 28, 1991.
10(m)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein
by reference from Exhibit 10(p)(i) to the 1993 Annual
Report).
10(m)(ii)+ - Amendment No. 2 to the 1992 Plan (incorporated herein
by reference from Exhibit 10(n)(ii) to the 1997
Annual Report).
10(m)(iii)+ - Amendment No. 3 to the 1992 Plan (incorporated herein
by reference from Exhibit 10(n)(iii) to the 1998
Annual Report).
10(n)+ - Form of Option Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(r)
to the 1992 Annual Report).
10(o)+ - Form of Option Grant Certificate under the 1992 Plan
(incorporated herein by reference from Exhibit 10(q)
to the 1996 Annual Report).
10(p)+ - Form of Restricted Career Share Agreement under the
1992 Plan (incorporated herein by reference from
Exhibit 10(a) to Registrant's Quarterly Report on
Form 10-Q for the period ended September 30, 1995).
10(q)+ - Form of Restricted Transformation Share Agreement
under the 1992 Plan (incorporated herein by reference
from Exhibit 10(s) to the 1997 Annual Report).
+ Compensation plan or arrangement required to be noted as provided in
Item 14(a)(3).
* Filed herewith.
<PAGE> 59
EXHIBIT
NO. DESCRIPTION
10(r)+* - Description of Supplemental Life Insurance Plans.
10(s)+ - Description of unfunded death/disability benefits for
certain executives (incorporated herein by reference
from Exhibit 10(u) to the 1992 Annual Report).
10(t)+* - Amended and Restated Liz Claiborne Section 162(m)
Cash Bonus Plan.
10(u)+ - Liz Claiborne, Inc. Supplemental Executive Retirement
Plan (as amended and restated effective as of January
1, 1997) (incorporated herein by reference from
Exhibit 10(w) to the 1996 Annual Report).
10(v)+ - The Liz Claiborne, Inc. Bonus Deferral Plan
(incorporated herein by reference from Exhibit 10(x)
to the 1996 Annual Report).
10(w)+ - Employment Agreement dated as of May 9, 1994, between
Registrant and Paul R. Charron (the "Charron
Agreement") (incorporated herein by reference from
Exhibit 10(a) to Registrant's Quarterly Report on
Form 10-Q for the period ended April 2, 1994).
10(w)(i)+ - Amendment to the Charron Agreement, dated as of
November 20, 1995 (incorporated herein by reference
from Exhibit 10(x)(i) to the 1995 Annual Report).
10(w)(ii)+ - Amendment to the Charron Agreement, dated as of
September 19, 1996, (including the Liz Claiborne
Retirement Income Accumulation Plan for the benefit
of Mr. Charron) (incorporated herein by reference
from Exhibit 10(y)(ii) to the 1996 Annual Report).
10(x)+ - Employment Agreement dated as of September 26, 1996
between Registrant and Denise V. Seegal (the "Seegal
Agreement") (incorporated herein by reference from
Exhibit 10(z) to the 1996 Annual Report).
10(x)(i)+* - Amendment to the Seegal Agreement, dated as of
February 18, 2000.
10(y)+* - Credit Agreement dated as of December 6, 1999, among
Registrant, various lending parties and The Chase
Manhattan Bank (as administrative agent).
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
99* - Undertakings.
(b) - Reports on Form 8-K.
Not Applicable.
+ Compensation plan or arrangement required to be noted as provided in
Item 14(a)(3).
* Filed herewith.
<PAGE> 1
EXHIBIT 10(h)
MERGER AMENDMENT
This Merger Amendment is an amendment to:
(a) the Liz Claiborne Profit-Sharing Retirement Plan (the
"Profit-Sharing Plan");
(b) the Lucky Brand Employee Retirement Plan and Trust (the "Lucky
Plan");
(c) the Segrets, Inc. 401(k) Profit Sharing Plan (the "Segrets
Plan"); and
(d) the Liz Claiborne Savings Plan (the "Plan").
1. As of December 31, 1999, the Profit-Sharing Plan, the Lucky Plan and the
Segrets Plan (the "Merged Plans") will be merged into the Plan , and all assets
of the Merged Plans will be transferred to the Plan, which will thereupon assume
all liabilities of the Merged Plans with respect to the assets transferred.
2. Employer contributions for the 1999 plan year, if any, for any of the
Merged Plans shall be made by the appropriate employer to the Plan as successor
to the Merged Plan or Plans. All contributions for periods on and after January
1, 2000 shall be determined solely under the terms of the Plan.
3. Effective as of January 1, 2000:
<PAGE> 2
(a) individuals who participated in the Plan on December 31, 1999
shall continue to participate in the Plan and individuals who would have
become participants on January 1, 2000 shall still become participants on
January 1, 2000, in each case for purposes of Tax Saver and Matching
Contributions;
(b) individuals who participated in the Profit-Sharing Plan on
December 31, 1999 will participate in the profit-sharing feature of the
Plan and individuals who would have become participants in the
Profit-Sharing Plan on January 1, 2000 shall become participants in the
profit-sharing feature of the Plan and, to the extent they satisfy the
Plan's requirements therefore, shall receive allocations of profit-sharing
contributions;
(c) individuals who participated in the Lucky Plan on December 31,
1999 or who would have become participants in the Lucky Plan on January 1,
2000 shall participate in the Plan on January 1, 2000, in either case for
purposes of Tax Saver and Matching Contributions; and provided that such
individuals shall not participate in, or share in allocations under, the
profit-sharing feature of the Plan until they otherwise meet the Plan's
rules relating thereto; and
(d) individuals who participated in the Segrets Plan on December
31,1999 or who would have become participants in the Segrets Plan on
January 1, 2000 shall participate in the Plan on January 1, 2000, in either
case for purposes of Tax Saver and Matching Contributions; and provided
that such individuals shall not
<PAGE> 3
participate in, or share in allocations under, the profit-sharing feature
of the Plan until they otherwise meet the Plan's rules relating thereto.
4. After January 1, 2000 Plan rules shall govern in determining which
individuals are eligible to participate in the Plan; provided, however, that:
(a) with respect to any individual who was on the Lucky payroll on
December 31, 1999, such individual shall become a participant in the Plan
for purposes of Tax-Saver and Matching Contributions on the earlier of (i)
the date provided under Plan rules, or (ii) the date provided in the Lucky
Plan for elective deferrals and matching contributions; and provided
further that such an individual shall not be eligible to participate in, or
share in allocations under, the profit-sharing feature of the Plan until he
or she otherwise meets the Plan's rules relating thereto; and
(b) with respect to any individual who was on the Segrets payroll on
December 31, 1999, such individual shall become a participant in the Plan
for purposes of Tax Saver and Matching Contributions on the earlier of (i)
the date provided under Plan rules, or (ii) the date provided in the
Segrets Plan for elective deferrals and matching contributions; and
provided further that such an individual shall not participate in, or share
in allocations under, the profit-sharing feature of the Plan until he or
she otherwise meets the Plan's rules relating thereto.
<PAGE> 4
5. Except as otherwise expressly provided in the Plan as amended, in no
event shall any former participant in a Merged Plan be denied any benefit, form
of payment or other entitlement protected under the provisions of section
411(d)(6) of the Internal Revenue Code of 1986, as amended, and regulations
thereunder.
6. Under the profit-sharing feature of the amended Plan, participants
shall, effective as soon as administratively practicable following January 1,
2000, be entitled to direct the trustee in the investment of all amounts
credited to their Profit-Sharing Contributions Accounts under the Plan,
including both amounts credited to such Accounts before January 1, 2000 and
amounts allocated to such Accounts after said date, such direction of
investments to be to the same extent that participants direct the investment of
their Tax-Saver Contributions under the Plan.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its
duly authorized officer as of this 30th day of December, 1999.
LIZ CLAIBORNE, INC.
By:/s/Nicholas J. Rubino
---------------------
Vice President- Deputy
General Counsel and
Assistant Secretary
<PAGE> 1
EXHIBIT 10(j)
DESCRIPTION OF LIZ CLAIBORNE, INC. 1999 SALARIED
EMPLOYEE INCENTIVE BONUS PLAN
For the 1999 fiscal year, Liz Claiborne, Inc. maintained a bonus plan for full
time salaried employees under which bonuses were earned based upon a combination
of return on invested operating capital and earnings per share, as measured
against pre-established targets, and, as applicable, achievement of targeted
levels of divisional direct operating profit and/or departmental performance
considerations and the achievement of individual goals, subject to certain terms
and conditions. A similar bonus plan is anticipated for 2000.
<PAGE> 1
EXHIBIT 10(k)(i)
FIRST AMENDMENT:
LEASE EXTENSION AND MODIFICATION AGREEMENT
AGREEMENT, made as of the first day of January 1998, by and between
LECHAR REALTY CORP., a New York corporation, with its principal office address
at 1441 Broadway, New York, New York 10018, hereinafter referred to as "Owner";
and LIZ CLAIBORNE INC., a Delaware corporation, qualified to do business in the
State of New York, with its principal office and showroom address at 1441
Broadway, New York, New York 10018, hereinafter referred to as "Tenant".
W I T N E S S E T H
WHEREAS, Owner and Tenant are parties to a written Agreement of Lease,
dated as of the 1st day of January 1990, hereinafter referred to as the
"Original Lease", as amended by letter agreement dated August 4, 1994, such
letter and the Original Lease are hereinafter collectively referred to as the
"Lease", for a portion(s) of the building at 1441 Broadway, a/k/a 575 Seventh
Avenue, New York City, New York, hereinafter referred to as the "Building"
(except as may be otherwise expressly specified in this document, all
definitions in the Lease remain in effect in this Agreement); and
WHEREAS, Tenant and Owner have agreed to modify the Lease upon the
terms and conditions hereinafter set forth (hereinafter referred to as this
"First Amendment"):
NOW, THEREFORE, in consideration of TEN ($10.00) DOLLARS in hand paid
to the other, and for other and further valuable consideration, including the
mutual covenants hereinafter set forth, Owner and Tenant agree as follows:
<PAGE> 2
1. The Lease is amended and modified as follows:
A. ARTICLE 1 OF THE ORIGINAL LEASE, DEMISE AND RENT:
Exhibit A-1 attached hereto sets forth the Demised Premises
as of January 1, 1998.
9TH-13TH LINES: "for a term (the "Term") of twelve (12) years
... to commence on the 1st day of January nineteen hundred
and ninety, and to end on the 31st day of December two
thousand and one, both dates inclusive," is changed to:
"for a term (the "Term") of twenty-three (23) years,
commencing January 1, 1990, and expiring December 31, 2012,
both dates inclusive,".
13TH LINE: Exhibit B to the Original Lease, setting forth the
Fixed Annual Rent, is amended by modifying and changing the
1/1/99-12/31/01 rental amounts to now read:
<TABLE>
<CAPTION>
"Period Fixed Annual Rent
- ------- ------------------
<S> <C>
1/1/99-10/31/99 At a rate of $44.95 per rentable square foot per 12-month
period
11/1/99-12/31/12 At a rate of $35.00 per rentable square foot per 12-month
period"
</TABLE>
Paragraph 2 of the letter agreement dated August 4, 1994,
between the parties hereto is modified so that from and after
November 1, 1999, the 9,006 rentable square feet of mezzanine
area in the Building referred to therein is leased to Tenant
at the same base rent as Tenant's other leased space in the
Building.
2
<PAGE> 3
B. ARTICLE 36 OF THE ORIGINAL LEASE, TAXES:
PAGE 43 (TOP), ARTICLE 36(A)(ii): The following is added after the
words "...if any.": ", through December 31, 1998. Effective January
1, 1999, 'Base Taxes' shall mean the sum of fifty (50%) percent of
the Taxes payable during the Tax Year commencing on July 1, 1997 and
fifty (50%) percent of the Taxes payable during the Tax Year
commencing on July 1, 1998, in each instance including the
(Protected Amount, if any."
PAGE 44, ARTICLE 36(A)(x), 2ND LINE: "sewer rents and governmental
charges of any nature (to the extent not charged to Tenant pursuant
to another Article hereof)" is deleted, and the following is added to
Article 36 (A) (x), second line: "and business improvement district
taxes."
THE FOLLOWING IS ADDED TO ARTICLE 36 OF THE ORIGINAL LEASE: "(E)
Tenant shall continue to pay to Owner, through December 31, 1998, as
additional rent, within ten (10) days after Tenant's receipt of an
invoice therefor, Tenant's Proportionate Tax Share of business
improvement district taxes assessed against the Building Project."
C. ARTICLE 37 OF THE ORIGINAL LEASE, PORTERS WAGE AND CPI:
The title of this Article is amended to: "PORTERS WAGE AND CPI;
OPERATING EXPENSE ESCALATION"
ARTICLE 37(D)(i), PAGE 49, 2ND LINE: after "... during the Term,":
the following is added, "through October 31, 1999,".
ARTICLE 37(D)(i), PAGE 50: The following is added: "The Prior Wage
Rate Increase Per Square Foot shall be equal to that applicable for
1998 in determining the Current Wage Rate Increase effective January
1, 1999, with
3
<PAGE> 4
Tenant being liable to pay the same amount it owed for and in
respect of 1998 under this Article, without application of Article
37 (D) (ii) below. No additional rent shall be payable in respect of
the period after October 1, 1999, based on changes in the Wage
Rate."
THE FOLLOWING IS ADDED TO ARTICLE 37: "(H) OPERATING EXPENSE
ESCALATION Effective January 1, 2000, subparagraph (A)-(D) and (F),
above, are hereby replaced with this provision and Tenant shall
thereupon and thereafter pay to Owner as additional rent, an
operating expense escalation in lieu of the escalations heretofore
provided under this Article 37, in accordance with the following:
a. Definitions: For the purpose of this Article, the following
definitions shall apply:
(i) The term "Base Year" as hereinafter set forth for the
determination of operating expense escalation, shall mean the
calendar year 1998.
(ii) The term the "Percentage" for purposes of computing
operating expense escalation, shall mean Tenant's
Proportionate Share as defined in Article 36, above.
(iii) The term "the Building Project" shall mean the
aggregate combined parcel of the Land and the Building, with
all the improvements thereof and thereon.
(iv) The term "Comparative Year" shall mean the twelve (12)
months of the Year 2000, and each subsequent period of twelve
(12) months.
(v) Except as may hereinafter otherwise be expressly
specified, the term "Expenses" shall mean the total of all
the costs and expenses incurred or borne by Owner with
respect to the operation and maintenance of the Building
Project and the services provided tenants therein, including,
but not limited to, the costs and expenses incurred for and
with respect to: steam and any other fuel; water rates
4
<PAGE> 5
and sewer rents (to the extent not included in Taxes);
mechanical ventilation and air-conditioning (only to the
extent Owner is providing same to the Demised Premises per
Article 27(C)(ii), only, and to public or common areas of the
Building); heating; cleaning, by contract or otherwise, for
non-tenant areas only; elevators; escalators; porters and
matron service; Building electric current (i.e., Building
electric current shall be deemed to mean all electricity
purchased for the common areas and common elements of the
Building as determined by survey, and shall exclude that
which is redistributed to tenants in the Building);
protection and security; lobby decoration; repairs and/or
replacements of non-capital items which are appropriate for
the continued operation of the Building as a first-class
building; maintenance; painting and repair of non-tenant
areas (including any public or common areas); fire, extended
coverage, boiler and machinery, sprinkler, apparatus, public
liability and property damage, rental and plate glass
insurance and any other insurance as may be reasonably (i.e.
as would be required by an institutional lender) required by
a mortgagee, with customary deductibles; management fees;
supplies; wages, salaries, disability benefits, pensions,
hospitalization, retirement plans and group insurance
respecting employees of the Building up to and including the
building manager; uniforms and working clothes for such
employees and the cleaning thereof, and expenses imposed
pursuant to law or to any collective bargaining agreement
with respect to such employees; worker's compensation
insurance, payroll, social security, unemployment and other
similar taxes with respect to such employees; and reasonable
association fees or dues (pertaining to maintenance, upkeep
and repairs and operation of the non-tenant areas of the
Building Project only); costs and fees for accounting,
5
<PAGE> 6
bookkeeping, auditing, consulting, legal and other
professional services; and sales and use taxes levied upon
any Expenses.
Provided, however, that the foregoing costs and expenses
shall exclude or have deducted from them as the case may be
and as shall be appropriate:
(a) Leasing commissions;
(b) Managing agents' fees or commissions in excess of the
rates then customarily charged for building management for
buildings of like class and character;
(c) Executives' salaries above the grade of building manager;
(d) Expenditures for capital improvements except those which
under generally accepted accounting principles ("GAAP") are
expensed and except for capital expenditures required by law,
in either of which cases portions of the cost thereof shall
only be included in Expenses only to the extent that such
costs are amortized on a straight line basis over the useful
life of the capital improvement, as set by GAAP;
(e) Expenses reimbursed by insurance or other third-party
payors, to the extent the proceeds actually cover, pay for or
reimburse expenses which were previously or would be included
in Expenses hereunder;
(f) Cost of repairs or replacements incurred by reason of
fire or other casualty or caused by the exercise of the
rights of eminent domain;
(g) Advertising and promotional expenditures, pertaining to
leasing or the Building Project in general or otherwise;
(h) Legal fees for disputes with tenants and/or mortgagees,
and all other legal and auditing fees except legal and
auditing fees reasonably incurred in connection with the
maintenance and operation of the Building Project or in
connection with
6
<PAGE> 7
the preparation of statements required pursuant to additional
rent or lease escalation provisions;
(i) The incremental cost of furnishing services such as
overtime HVAC to any tenant at such tenant's expense; costs
incurred in performing work or furnishing services for
individual tenants (including this Tenant) at such tenant's
expense.
(j) The cost of electricity and other utilities furnished to
space leased or held available for lease to any tenant;
(k) Water charges and sewer rents that are separately metered
or otherwise paid for by specific tenants or that are
included within the definition of Taxes;
(l) Work performed to prepare space for leasing or to improve
leased space;
(m) Principal, interest and other payments or expenditures
made under, pursuant to or in connection with any loan,
including, without limitation, any mortgage encumbering the
Building Project or any interest therein;
(n) The cost of correcting defects (latent or otherwise) in
the construction of the Building;
(o) That portion of charges for cleaning, security and
elevator, air conditioning or other maintenance provided to
the Building Project, which are in excess of reasonably
competitive rates or which relate to any space leased or
available for lease, it being understood that such charges
shall only be included to the extent that they relate to
common areas and common elements of the Building Project;
(p) Payments for rented equipment, the cost of which
equipment would constitute an excluded capital expenditure if
the equipment were purchased (if not
7
<PAGE> 8
excluded by reason of clause (d) above, such payments shall
be treated as a purchase under clause (d), above;
(q) Depreciation and other non-cash expenses.
(r) Penalty interest, late charges, penalties and penalty
surcharges imposed with respect to any costs otherwise
included in Expenses;
(s) Judgments, settlements and/or court costs and litigation
costs for any actions, claims, proceedings or violations of
law, or with respect to the enforcement of any leases or
licenses in the Building;
(t) Rent and other payments or expenditures made under,
pursuant to or in connection with any ground or underlying
lease or leases or any interest therein;
(u) Owner's and lender's title insurance;
(v) Taxes;
(w) Any expenditure, for which Owner is being or is to be
paid, compensated or reimbursed by any particular tenant(s)
or other party. There shall not be included in Expenses and
Tenant shall not be subject to expenses incurred outside
common areas by Owner for another tenant;
(x) The portion of wages, salaries or other compensation paid
to any employees who do not perform services exclusively for
the Building that is allocable to their other activities;
(y) Owner's general and administrative expenses not relating
to operation of the Building Project;
(z) Consulting fees relating to any capital expenditures,
except as to cost savings permitted below;
(aa) Any connection charges imposed by any utility service
providers to the Building, except if viewed by GAAP as an
Expense item;
8
<PAGE> 9
(bb) Any costs representing an amount paid to a party
affiliated with or related to Owner which is in excess of the
amount which would have been paid in the absence of such
relationship (i.e., it shall not exceed then existing
reasonable competitive rates or prices);
(cc) The cost of installing, operating and maintaining any
specialty service or facility such as an observatory,
broadcasting facility, luncheon club, retail store, sundry
shop, newsstand, rooftop or other sign, concession or
athletic or recreational club. However, the cost of operating
and maintaining any of the foregoing shall be an includable
Expense, only if they are common areas of the Building and
are available without charge(s) to all tenants.
(dd) Costs resulting from the negligence, willful misconduct
or wrongful acts of Owner or its, agents, employees,
contractors or other tenants.
(ee) The cost of window cleaning, except for windows in
common and public areas.
If Owner shall purchase any item of capital equipment or make
any capital expenditure designed to result in savings or
reductions in Expenses, then the cost(s) of same shall be
included in expenses only to the extent of the savings or
reductions in Expenses resulting therefrom. Such costs of
capital equipment or capital expenditures are so to be
included in Expenses for the Comparative Years, on a straight
line basis, only to the extent that such items are amortized
over such period of time as are prescribed by GAAP. If Owner
shall lease any such item of capital equipment designed to
result in savings or reductions in Expenses, then the rental
and other costs paid pursuant to such leasing shall be
included in Expenses
9
<PAGE> 10
for the Comparative Year in which they were incurred to the
extent of the savings realized thereby.
If during all or part of the Base Year or any Comparative
Year, Owner shall not furnish any particular item(s) of work
or service (which would constitute an Expense hereunder) to
portions of the Building Project due to the fact that such
portions are not occupied or leased, or because such item of
work or service is not required or desired by the tenant of
such portion, or such tenant is itself obtaining and
providing such item of work or service, or for other reasons,
then, for the purposes of computing the additional rent
payable hereunder, the amount of the expenses for such item
for such period shall be increased by an amount equal to the
additional operating and maintenance expenses which would
reasonably have been incurred during such period by Owner if
it had at its own expense furnished such item of work or
services to such portion of the Building Project.
b. 1. Commencing January 1, 2000, and continuously thereafter
during the Term, if the Expenses for any Comparative Year
shall be greater than the Expenses for the Base Year, Tenant
shall pay to Landlord as additional rent for such Comparative
Year, in the manner hereinafter provided, an amount equal to
the Percentage of the excess of the Expenses for such
Comparative Year, over the Expenses for the Base Year (such
amount being hereinafter called the "Expense Payment").
Following the expiration of each Comparative Year, but not
later than six (6) months thereafter, and after receipt of
necessary information and computations from Owner's certified
public accountant, Owner shall submit to Tenant a
10
<PAGE> 11
statement, as hereinafter described, setting forth the
Expenses for the preceding Comparative Year, the Expenses for
the Base Year, and the Expense Payment, if any, due to Owner
from Tenant for such Comparative Year. If such statement
shows an Expense Payment due from Tenant to Owner with
respect to the preceding Comparative Year then (i) Tenant
shall make payment of any unpaid portion thereof within ten
(10) days after receipt of such statement (if Tenant may have
overpaid, then Owner shall either refund the amount overpaid
within ten (10) days of such statement being delivered to
Tenant, or at Owner's option give Tenant a base rent credit
in such amount to be applied by Tenant in the next ensuing
month); and (ii) Tenant shall also pay to Owner, as
additional rent, within ten (10) days after receipt of such
statement, an amount equal to the product obtained by
multiplying the total Expense Payment for the preceding
Comparative Year by a fraction, the denominator of which
shall be 12 and the numerator of which shall be the number of
months of the current Comparative Year which shall have
elapsed prior to the first day of the month immediately
following the rendition of such statement; and (iii) Tenant
shall also pay to Owner, as additional rent, commencing as of
the first day of the month immediately following the
rendition of such statement and on the first day of each
month thereafter until a new statement is rendered, 1/12th of
one hundred and five (105%) percent of the total Expense
Payment for the preceding Comparative Year. The payments
required to be made under (ii) and (iii), above, shall be
credited toward the Expense Payment due from Tenant for the
then current Comparative Year, subject to adjustment as and
when the statement for such current Comparative Year is
rendered by Owner. With respect to the Year 2000, the month
after Owner shall have submitted to Tenant an Expense
Statement for 1998 and an Expense
11
<PAGE> 12
Statement for 1999 and continuing the first day of each
consecutive month through December 2000, Tenant shall pay its
Proportionate Share of the increase in 1999 Expenses over the
1998 Expenses multiplied by 105% in equal monthly
installments (i.e., determined by dividing Tenant's
Proportionate Expense Share by twelve with Tenant paying for
the months through the statement delivery date within ten
(10) days, and then monthly thereafter); such payment shall
be .on account of the Expense Payment due for the Year 2000
with any adjustment determined in 2001 as aforestated; it
being agreed that there is no Expense Payment in respect of
the Year 1999.
2. The statements of the Expenses to be furnished by Owner as
provided above shall be certified by Owner or its managing
agent, and shall be prepared in reasonable detail in
accordance with GAAP. The statements thus furnished to Tenant
shall constitute a final determination as between Owner and
Tenant of the Expenses for the period represented thereby,
unless Tenant within two (2) years after they are furnished
shall give a notice to Owner that it disputes their accuracy
or their appropriateness, which notice shall specify the
particular respects in which the statement is claimed to be
inaccurate or inappropriate. Pending the resolution of any
dispute respecting such statements, in accordance with
Article 45, below, Tenant shall pay the additional rent due
under this Article to Owner in accordance with the statements
furnished by Owner. Upon resolution of any such dispute,
monetary adjustment(s) determined by the arbitrator(s) to be
appropriate shall be made by the parties hereto.
3. In no event shall the fixed annual rent under this Lease
be reduced by virtue of this Article.
12
<PAGE> 13
4. Upon the date of any expiration or termination of this
Lease whether the same be the date hereinabove set forth for
the expiration of the Term or any prior or subsequent date, a
proportionate share of said additional rent for the
Comparative Year during which such expiration or earlier
termination occurs shall immediately become due and payable
by Tenant to Owner, if it was not theretofore already billed
and paid. The said proportionate share shall be based upon
the length of time that this Lease shall have been in
existence during such Comparative Year. Owner shall, as soon
as reasonably practicable, compute the additional rent due
under this Article from Tenant, as aforesaid, which
computations shall either be based on that Comparative Year's
actual figures or be an estimate based upon the most recent
statements theretofore prepared by Owner and furnished to
Tenant under subdivisions 1 and 2, above. If an estimate is
used, then Owner shall cause statements to be prepared on the
basis of the Comparative Year's actual figures promptly after
they are available, and thereupon, Owner and Tenant shall
make appropriate adjustments of any estimated payments
theretofore made.
5. Owner's and Tenant's obligations to make the adjustments
referred to in subdivision 4, above, shall survive any
expiration or termination of this Lease.
6. Any delay or failure of Owner in billing any escalation
hereinabove provided shall not constitute a waiver of or in
any way impair the continuing obligation of Tenant to pay any
escalation hereunder, provided a bill therefor is furnished
to Tenant within two (2) years after the expiration of the
period to which such bill or invoice applies."
13
<PAGE> 14
D. ARTICLE 43 OF THE ORIGINAL LEASE, RENT ABATEMENT & CONSTRUCTION
ALLOWANCE: The title to this Article is changed to: TENANT
REIMBURSEMENTS.
SUBPARAGRAPHS (A) AND (B) ARE DELETED, AND REPLACED WITH:
"(A) Subject to Owner's set-off(s) of any and all rent and additional
rent Tenant may owe Owner through November 1, 1999, on November 1,
1999, Tenant shall be entitled to payment from Owner of (and Owner
hereby agrees to pay Tenant ) $4,142,910.00 and Tenant shall be
entitled to an abatement of all base rent and Article 37 escalation
payments due in respect of the period from November 1, 1999 to and
including December 31, 1999, only.
(B) On December 1, 2012, Owner shall pay to Tenant the sum of
$632,944.00, together with interest on said principal sum calculated
from January 1, 2000, to the date of payment at four (4%) percent per
annum based upon a 360-360 day year, hereinafter referred to as the
'Payment'. The Payment shall be secured by Owner's delivery to Tenant
by January 5, 2000 of a zero-coupon bond with a rating of A or if
available, AA, as set by Standard & Poor's, earning interest at 4% per
annum. Owner shall receive the return of the bond given as security
from Tenant in exchange for the Payment, unless said security has been
negotiated prior thereto or otherwise disposed of by Tenant, in which
event the Payment shall be deemed to have been made in full. Owner
shall pay to Tenant, subject to set-off(s) for any rent and additional
rent then owing to Owner, yearly on the third business day after each
New Year Day, commencing January 2001 until the Payment is made, four
(4%) percent per annum, based upon a 360-360 day year, on the
14
<PAGE> 15
actual amount of the cost to Owner of the aforestated zero-coupon bond
(this is hereinafter referred to as the "Interest Payment")."
(C) With respect to any sum which may be due to Tenant as set forth in
subparagraph (A) or (B), above, in the event that Owner does not remit
a sum due to Tenant thereunder within ten (10) days of receipt of
written notice from Tenant that same is due, but has not been
received, and Owner failing to thereupon pay the sum so noticed and
due, then Tenant shall be entitled to set-off such sum(s) due, with an
interest factor at the Interest Rate (calculated from the due date of
the payment) against Tenant's ensuing rental obligations to Owner."
E. ARTICLE 41 OF THE ORIGINAL LEASE, ADDITIONAL SPACE: Exhibits C-1 and
C-2 are replaced with Exhibits "New C-1" and "New C-2" annexed hereto,
which shall be Automatic Option Space and Contingent Option Space as
of January 1, 1998.
ARTICLE 41 (A), PAGE 62 (TOP), 7TH-10TH LINES: " , at the per square
foot fixed rental rate then applicable as provided in Exhibit B,
appropriately prorated for any partial calendar year and subject to
the provisions of
ARTICLE 43 BELOW IS DELETED AND CHANGED TO READ: " , at a per square
foot fixed base rental rate of ninety-five (95%) percent of the then
fair market rental value for the particular Automatic Option Space (It
being understood that the rents set forth on Exhibit B hereto shall be
inapplicable and disregarded.)"
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ARTICLE 41(B), PAGE 63, 19TH-22ND LINES: " , at the per square foot
fixed rental rate then applicable as herein specified appropriately
prorated for any partial calendar year and subject to the provisions
of
ARTICLE 43 BELOW IS CHANGED TO: " , at a per square foot fixed base
rental rate of ninety-five (95%) percent of the then fair market
rental value for the particular Contingent Option Space (It being
understood that the rents set forth on Exhibit B hereto shall be
inapplicable and disregarded.)"
ARTICLE 41(E), PAGE 65: is deleted.
ARTICLE 41(F) (LAST SENTENCE) IS CHANGED TO READ: "However, upon
expiration or earlier termination of the lease for such space
(following renewal periods, if any, if expressly set forth in such
lease), Tenant shall have the right again to lease such space as
though it were Automatic Option Space, unless such space is leased by
Segrets, Ellen Tracy, Donna Ricco, Karen Kane or Leon Charney or
successors to the business thereof, in which event Tenant shall have
the right to lease such space as though it were Contingent Option
Space."
F. ALL REFERENCES TO FREIGHT ELEVATOR #9 IN THE LEASE ARE CHANGED TO
"#11".
G. ARTICLE 55 OF THE ORIGINAL LEASE, OWNER REPRESENTATION:
3RD LINE: "Lechar Realty Associates, a New York partnership", is
changed (has been converted) to: "Lechar Realty, L.L.C., a New York
limited liability company,".
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H. ARTICLE 3 OF THE ORIGINAL LEASE, ALTERATIONS:
ARTICLE 3(F), PAGE 5, THE 3RD SENTENCE: requiring Tenant at Owner's
request to remove internal bathrooms, is deleted.
IN THE 2ND SENTENCE OF SAID SUBPARAGRAPH: shall not be construed so
as to require Tenant to remove any internal bathrooms.
IN THE EXISTING 4TH SENTENCE: "two (2)" is deleted.
IN THE EXISTING 5TH SENTENCE: "three (3)" is changed to: "two (2)".
I. ARTICLE 4 OF THE ORIGINAL LEASE. REPAIRS AND MAINTENANCE:
ARTICLE 4(D), MIDDLE OF PAGE 7: "Elevator #9" is changed to "Elevator
#11."
THE NEXT TO LAST SENTENCE IS CHANGED TO READ: "Tenant, at its sole
cost and expense, may install wiring, panels and signal buttons in the
#11 elevator to enable it to stop at floors it occupies and uses
between floor 1 through 34. Such changes shall be subject to Owner's
prior written consent, not to be unreasonably withheld or delayed."
J. ARTICLE 9 OF THE ORIGINAL LEASE. DESTRUCTION, FIRE AND OTHER
CASUALTY:
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ARTICLE 9(F), PAGE 14: is deleted and replaced with: "Waiver of
Subrogation. Not-withstanding anything else to the contrary in this
Lease, each party shall look first to any insurance in its favor
before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent
that such insurance is in force and collectible and to the extent
permitted by law, Owner and Tenant each hereby releases and waives all
right of recovery against the other or any one claiming through or
under each of them by way of subrogation or otherwise. Each party
shall provide for this waiver of subrogation in its insurance
policy(ies) it maintains pursuant to Article 40 (B), below. If either
party fails to carry the insurance required in Article 40 (B), below,
such party shall be deemed to release and waive all rights of recovery
against the other party against the other party or anyone claiming
through or under each of them to the extent of the deficiency in
insurance coverage."
ARTICLE 9(K), 2ND SENTENCE, PAGE 15: "under Article 3 hereof, ..."
is changed to: "under Article 4, above,...".
K. ARTICLE 12 OF THE ORIGINAL LEASE. ASSIGNMENT, SUBLETTING AND
MORTGAGE:
ARTICLE 12 (C), LAST 3 LINES, PAGE 19 (TOP): "...of managing partner
and sole decision-maker of Lechar Realty Associates, the beneficial
owner of the Real Property." Is changed to: "...of manager and sole
decision-maker of Lechar Realty, L.L.C., the beneficial owner of the
Real Property."
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PARAGRAPH (H) IS HEREBY DELETED IN ITS ENTIRETY AND REPLACED WITH: "(H)
If seventy (70%) percent or more of the rentable square feet in the
Building above the ground floor not leased to Tenant is occupied by
tenants in the apparel industry for showrooms and design, Tenant will
not permit any subtenant of the Demised Premises or any assignee of
this Lease to occupy more than fifty (50%) percent of the Demised
Premises for purposes other than showrooms and design facilities.
Illustrative of the foregoing, if Tenant presently was subleasing all
of the Demised Premises or had assigned this Lease, if more than
106,975 rentable square feet in the Building were occupied by tenants
in the apparel industry for showrooms and design, then Tenant could
not permit its sublessee or assignee to occupy more than 138,097
rentable square feet of the Demised Premises for purposes other than
apparel-related showrooms and design facilities."
L. ARTICLE 18 OF THE ORIGINAL LEASE. FEES AND EXPENSES:
ARTICLE 18(B), AT THE END OF THE NEXT TO LAST SENTENCE, ON PAGE 28:
The following is added: ", at the Interest Rate."
M. ARTICLE 27 OF THE ORIGINAL LEASE. SERVICES PROVIDED BY OWNER:
ARTICLE 27(A), PAGES 31-33: All references to "No. 9" or "#9" are
changed to "No.11" or "#11" with the reference being the "#11
elevator."
ARTICLE 27(A), 8TH LINE, PAGE 32 (TOP): "...servicing floors 1 through
19." is changed to:
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"...servicing floors 1 through 34."
ARTICLE 27(A): The following is added: "In the event that any of the
freight elevators are not in working order, other than due to a
party's negligence or willful act, then each party agrees to cooperate
during such time period until Tenant or Owner, as the case may be, can
reasonably meet its needs and demands concerning its freight elevator
service."
N. ARTICLE 46 OF THE ORIGINAL LEASE. RIGHT TO EXTEND:
THE 3RD SENTENCE FROM THE END, PAGE 71: "There shall be no further
right of extension beyond December 31, 2021." is changed to read:
"There shall be no further right of extension beyond December 31,
2032."
O. ARTICLE 42 OF THE ORIGINAL LEASE. REMEASUREMENT:
8TH SENTENCE: "448,701" is changed to: "454, 987." [This also applies
to any other Article wherein "448,701" may appear.]
P. ARTICLE 38 OF THE ORIGINAL LEASE, ELECTRICITY: From and after the
date hereof, Article 38 of the original lease shall be deemed to be
replaced with the following:
"38. ELECTRICITY.
(A) Effective from and after the date hereof, Tenant
shall obtain and Owner shall supply electricity for all of Tenant's
reasonable electrical needs (as referred
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to in subparagraph E, below) in the Demised Premises on a surveyed
basis but Tenant shall have the right at its sole cost and expense at
anytime during the Term to: (i) obtain all or any part of its
electricity from Owner on a submetered basis on the terms and
conditions set forth in Article 38(C) below; and/or (ii) obtain all or
any part of its electricity in accordance with the terms and
conditions set forth in Article 38(D) below directly from any utility
company serving the Building (a "Utility Company"), in each instance
by means of the existing building systems, feeders, risers and wiring
and/or any additional equipment required therefor, it being understood
that the cost of installing any such additional equipment as well as
the cost of splitting or segregating power lines shall be borne by
Tenant.
(B) (i) The charge to Tenant for Owner's furnishing
of electricity to Tenant on a survey basis (the "Electric Factor")
shall equal 103% of Owner's actual out-of-pocket cost to purchase such
electricity from the Utility Company supplying same to Owner. At any
time during the Term (but not more often than once annually) Owner or
Tenant may cause a survey to be prepared by a reputable, independent
electrical consultant (to be selected by Owner and reasonably
acceptable to Tenant if Owner is causing the survey to be prepared or
selected by Tenant and reasonably acceptable to Owner if Tenant is
causing the survey to be prepared), the cost of which survey shall be
borne by whomever of Owner or Tenant causes same to be prepared. The
purpose of said survey shall be to determine the cost to Owner (and
charge to Tenant) for the electricity being supplied to Tenant on a
survey basis. The Electric Factor shall, from time to time, be
determined on the basis of the service classification, charges, taxes
and rates at which Owner from time to time purchases electricity for
the Building ("Owner's Electric Rate").
Owner's Electric Rate shall reflect all discounts
received by Owner whether attributable to the Demised Premises, the
Building Project or otherwise. Any and all exemptions, abatements
and/or savings in Owner's Electric Rate and/or the cost of electricity
directly or indirectly (by submeter or survey) payable by Tenant,
arising under, or by virtue of, any incentive or similar programs
actually granted to or acquired by Tenant shall be, and be deemed to
belong to Tenant. Specifically and in furtherance
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<PAGE> 22
of the foregoing, Owner specifically acknowledges and agrees that: (i)
if Tenant is paying Owner for electricity pursuant to Article 38 (B)
or (C) hereof any such exemptions, abatements and/or savings during
the Utility Company's billing period shall be offset against and
deducted (whichever is appropriate) from the additional rent otherwise
due from Tenant to Owner for such billing period; and (ii) in any
other event (including, without limitation, if electricity is obtained
by Tenant pursuant to Article 38 (D) hereof), such exemptions,
abatements and/or savings shall belong to Tenant. Owner agrees (at no
cost to Owner) to cooperate with Tenant (by, for example executing any
necessary documents, forms, applications reasonably acceptable to
Owner) to facilitate Tenant's obtaining the exemptions, abatements
and/or savings herein described. Owner's actual out-of-pocket cost to
purchase electricity shall be determined by dividing Owner's cost of
electricity consumed in the Building Project for a specific billing
period by the number of kilowatt hours of electricity consumed in the
Building Project during such billing period.
(ii) If Owner's Electric Rate shall change
after the date hereof, the Electric Factor shall be adjusted to
reflect such change in Owner's cost of providing electricity to the
Demised Premises.
(iii) So long as any portion of Tenant's
electric usage is on a surveyed basis, Owner, at its cost and expense
may monitor by placement upon Tenant's major equipment (including air
conditioning) measuring devices or apparatus to ascertain that
Tenant's electric usage conforms to the survey hours upon which the
Electric Factor is based.
(C) (i) If Tenant elects to obtain electricity
for any of Tenant's electrical needs in all or any part of the Demised
Premises on a submetered basis, Tenant shall have the right, at
Tenant's expense and option, to install submeters (each, a "Submeter",
and collectively, the "Submeters") in the Building at such locations
and in such manner and of such type as Tenant shall deem reasonably
appropriate to facilitate the efficient measurement of the electricity
used by Tenant. From and after the
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installation of the Submeters and continuing throughout the period of
time during the Term that such Submeters measure Tenant's electric
use, Tenant, at Tenant's sole cost and expense, shall maintain, repair
and replace the Submeters so that the same accurately measure Tenant's
consumption of electricity in the portion(s) of the Building served by
such Submeter(s) If Tenant shall fail to so maintain, repair or
replace any of the Submeters for ten (10) days after receipt of
written notice from Owner of the need for such maintenance, repair or
replacement Owner may at Owner's option (but Owner shall not be
obligated to) perform such maintenance, repair or replacement as Owner
deems necessary to ensure the accurate and efficient operation of such
Submeters and bill Tenant the reasonable costs and expenses incurred
in connection therewith, with the next payment then due from Tenant as
additional rent.
(ii) From and after the installation and
commencement of operation of any Submeter, Tenant shall pay to Owner
on account of the electricity thereafter consumed by Tenant, as
measured by such Submeter, an amount (the "Submetered Electricity
Charge") equal to 103% of Owner's actual out-of-pocket cost to
purchase the electricity consumed by Tenant as measured by such
Submeter(s) from the Utility Company supplying same. Tenant's monthly
electricity usage through Submeter(s) shall be determined by monthly
submeter readings (which shall be performed at Tenant's sole cost and
expense by an independent company (the "Submeter Reader") that is
reasonably acceptable to Owner). The method of calculating Owner's
actual out-of-pocket cost to purchase the electricity consumed by
Tenant shall be as set forth in Article 38 (B)(i) above. Accordingly,
the Submetered Electricity Charge shall equal 103% of the product
obtained by multiplying the number of kilowatt hours of electricity
measured by the Submeters in a given billing period by a fraction, the
numerator of which is Owner's actual out-of-pocket cost for all
electricity consumed in the Building Project during such billing
period and the denominator of which is the number of kilowatt hours of
electricity consumed in the Building Project during such billing
period.
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(iii) Tenant shall pay the Submetered
Electricity Charge set forth on the Submeter Bill (as hereinafter
defined) within ten (10) days following its receipt of such bill. The
parties hereto agree to use their best reasonable efforts to arrange
to have all of the Submeters read within twenty-four (24) hours of
each other on a monthly basis and to have the Submeters read
concurrently with the Utility Company meter reading date for the
Building Project.
(iv) If at any time following the
installation and commencement of operation of the Submeters, any
Submeter(s) are not functioning properly, the Submetered Electricity
Charge for such period shall be deemed to be the amount obtained by
multiplying: (a) a fraction, the numerator of which is the Submetered
Electricity Charge for the affected space during the last full month
that the Submeter(s) were properly functioning and the denominator of
which is the actual number of days in such month; by (b) the number of
days such Submeter(s) were not properly functioning. Notwithstanding
the preceding sentence, such amount shall be appropriately adjusted if
as a result of material seasonal changes or Tenant obtaining
electricity in respect of different portions of the Demised Premises
directly from a Utility Company, electricity use during the comparison
period is substantially different.
(v) The Submeter Reader shall, during
the Term, deliver to Tenant all of the bills (the "Submeter Bills")
with respect to the Submetered Electricity Charge on a monthly basis.
Owner shall arrange to have a duplicate copy of all of the Building's
electric bills promptly sent to Tenant. Each Submeter Bill shall set
forth each of the component charges comprising the Submetered
Electricity Charge (and the calculations made to determine such
charges) as measured by each individual Submeter. In the event that
Tenant installs a totalizing meter for the purpose of demand
measurement, all of the Submeters will be read and one bill submitted
for each billing period. This bill shall set forth each of the
components used to calculate the Submetered Electricity Charge, and
the calculation based on Owner's Electric Rate made to
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determine such charge. Owner shall maintain complete and accurate
records at its place of business set forth hereinabove of Owner's
Electric Rate each of the components thereof, all of the Building's
electric bills, submeter readings, engineer's reports and all related
matters in connection with electricity supplied to the Building and to
Tenant, which records, shall at all times, cover a period of not less
than the immediately preceding two (2) years. Such records shall be
made available to Tenant or Tenant's designee during normal business
hours upon Tenant's request. Owner, Tenant or either of their
designees may inspect any electric meters or Submeters in the Demised
Premises during normal business hours. Owner agrees that it shall
promptly send a copy of any Building electric bill it receives and any
other information reasonably required, to the Submeter Reader to
enable such company to prepare the Submeter Bills in accordance with
the terms of this Article.
(vi) If a central processing unit or any
other information collection or processing device is used in the
collection of and/or transmission of information from the Submeters
("CPU"), such CPU shall be accessible to Owner so that Owner can
monitor the Submeters and place service calls for the repair thereof
when it is deemed that any Submeter is not recording information
correctly. The decision to install a CPU shall belong solely to Tenant
and the cost of the initial installation thereof shall be borne solely
by Tenant. Under no circumstances shall Owner permit other tenants to
have access to or permit other tenants to have use of (or in any way
benefit from the installation by Tenant of) a CPU and Owner shall not
use same.
(vii) If Tenant elects to obtain
electricity on a submetered basis and thereafter, for any reason Owner
is not legally permitted to charge Tenant for submetered electricity
as provided herein, then Owner, at Tenant's election, if permitted
under applicable law shall either: (a) furnish electricity to Tenant
pursuant to the provisions of Article 38(B) above; or (b) furnish
electricity to Tenant pursuant to the provisions of Article 38(D)
below. In the event that Tenant is required by law to obtain
electricity pursuant to any method other than the one then being
utilized, such electricity shall be furnished to Tenant by means of
the then existing building system, feeders, risers
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and wiring to the extent the same are suitable and safe for such
purposes. Any additional equipment which may be required for Tenant to
obtain electricity as may from time to time be required by law shall
be installed by Owner with the reasonable cost (including without
limitation the cost of labor, installation and costs incurred for
splitting power) to be shared equally between Owner and Tenant.
(D) If Tenant elects to obtain electricity for any
of Tenant's electrical needs in all or any part of the Demised
Premises directly from a Utility Company, the cost of such electricity
shall be paid by Tenant directly to such Utility Company, and Tenant
shall be responsible for the cost of installing equipment to
effectuate such method ( not to be included as a reimbursible item in
subparagraph E, below).
(E) If at anytime during the Term, there is
insufficient power in the Building to service Tenant's reasonable
needs, Owner, at its sole cost and expense shall take all actions
reasonably necessary (including without limitation applying for
additional power to a Utility Company serving the Building) to provide
Tenant with the electrical power it requires to conduct its business
at the Demised Premises unless Tenant has caused such insufficiency of
power through its negligent acts or willful misconduct in which event
such Owner's action shall be taken at the sole cost and expense of
Tenant. Notwithstanding anything to the contrary contained herein, in
order to insure that the existing capacity of the electrical equipment
in or otherwise serving the Demised Premises or the Building is not
exceeded and to avert any possible adverse effect upon the Building's
electrical service, Tenant shall not make any material alterations or
additions or connections to the electric system of the Demised
Premises or the Building existing as of the date hereof (unless same
are depicted on plans approved in writing by Owner), without obtaining
Owner's written direction as to which risers such additions,
alterations or connections should be connected to, which direction
shall not be unreasonably withheld or delayed. If Owner fails to give
Tenant such direction within fifteen (15) business days following a
request therefor, Owner shall be deemed to have given its direction to
Tenant to connect such addition or alteration to risers which Tenant
chooses in Tenant's reasonable business judgement, three (3) business
days after Tenant has delivered to Owner at anytime following twelve
(12) business days after the
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initial request is made, a second request for direction notifying
Owner that Owner's direction will be deemed given if no response is
delivered to Tenant within said three (3) business day period. If
Tenant complies with Owner's directions regarding the location of the
connection to certain risers and such directions prove to be faulty,
inaccurate or insufficient, Owner shall reimburse Tenant for any and
all costs and expenses incurred by Tenant to: (i) transfer and
rearrange the connection of its installations or equipment to adequate
power lines; and (ii) repair any and all damage to Tenant's
improvements, installations or property caused by Tenant's reliance on
Owner's initial directions. If at any time during the Term as a result
of Tenant's excessive use of electricity in the Demised Premises,
Owner is required to install additional risers and related equipment
or transfer power from existing power lines to other existing power
lines (hereinafter collectively referred to as "Additional Electrical
Equipment") to supply Tenant with the electricity Tenant reasonably
requires, Tenant shall (subject to the terms of the next sentence)
reimburse Owner for the reasonable actual cost of such Additional
Electrical Equipment and the installation thereof within ten (10) days
of the presentation to Tenant of bills therefor. At the expiration or
earlier termination of this lease (unless such earlier termination
results from Tenant's breach of its obligations in this lease), Owner
shall promptly return to Tenant that percentage of the cost of such
Additional Electrical Equipment and the installation thereof paid by
Tenant ("Tenant's Electrical Equipment Cost") in the last six (6)
calendar years of the Term (as the same may have been extended),
together with interest at the Interest Rate plus three (3%) percent
accruing only from the expiration or earlier termination date of the
Term, as follows: (1) Twenty (20%) percent of the Tenant's Electrical
Equipment Cost actually paid by Tenant in the sixth (6th) to last
year; (2) Forty (40%) percent of Tenant's Electrical Equipment Cost
actually paid by Tenant in the fifth (5th) to last year; (3) Sixty
(60%) percent of Tenant's Electrical Equipment Cost actually paid by
Tenant in the fourth (4th) to last year; (4) Eighty (80%) percent of
Tenant's Electrical Equipment Cost actually paid by Tenant in the
third (3rd) to last year; and (5) One Hundred (100%) percent of
Tenant's Electrical Equipment Cost actually paid by Tenant in the
second (2nd) to last and last year. Owner shall not install any
Additional Electrical Equipment for which it intends to seek
reimbursement from Tenant without the consent of Tenant (which consent
shall not be
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unreasonably withheld or delayed). Any request by Owner for Tenant's
consent to the installation of Additional Electrical Equipment shall
be accompanied by a statement setting forth at least the following:
(a) Owner's calculation of Tenant's excessive use of Electricity as
indicated by a survey (to be paid for by Owner), which shall be made
as close as possible to Owner's request for Tenant's consent,
measuring Tenant's total connected load for all equipment in the
Demised Premises at the time the survey is made; (b) the cost of such
Additional Electrical Equipment (accompanied by a proposal for the
supply and installation of such equipment competitive in price from a
reputable supplier and installer); and (c) proof that Tenant's
excessive use is causing the need for the Additional Electrical
Equipment. If Tenant and Owner cannot agree as to whether such
additional electrical equipment is required or as to the cost
therefor, they shall proceed to arbitration pursuant to Article 45
herein to resolve any dispute. The burden of proof shall be on Owner
to show that Tenant's use is excessive and to prove that Tenant's
excessive use of electricity is causing the need for Additional
Electrical Equipment. If Owner shall install such Additional
Electrical Equipment if same is required to supply Tenant with the
amount of electricity Tenant reasonably requires then Owner shall be
entitled to timely reimbursement from Tenant for the cost of the
Additional Electrical Equipment, subject to subparagraph (F) below.
For purposes of this Article, "excessive use" shall
mean that Tenant's total connected load in the Demised Premises on
average calculated separately for each area serviced by the same
risers and calculated on a per square foot basis, is significantly
more than Tenant's total connected load in the Demised Premises
calculated separately for each area serviced by the same risers and on
average and calculated on a per square foot basis, as of the date
hereof.
(F) If Tenant shall dispute any determination made
by Owner or Owner's electrical engineer or consultant ("Owner's
Engineer") with respect to electricity which is to be provided to
Tenant pursuant to this lease or the charges therefor, such dispute
shall be resolved by agreement between
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Owner's Engineer and Tenant's electrical engineer or consultant
("Tenant's Engineer"). If Owner's Engineer and Tenant's Engineer
cannot resolve a dispute hereunder, they shall jointly select an
independent third consultant. If Owner's Engineer and Tenant's
Engineer are unable to agree on the selection of a third consultant
within thirty (30) days , then the third consultant shall be appointed
by the Real Estate Board of New York. Such consultant must have at
least ten (10) year's experience as an electrical consultant in New
York City. The third consultant shall collect whatever information and
data pursuant to whatever method, he/she deems reasonably necessary to
make his/her determination and shall conduct his/her own survey. In
making his/her determination, such third consultant shall not review
the determination of Owner's Engineer or Tenant's Engineer. The
finding of the third consultant shall be binding and conclusive upon
Owner and Tenant if the finding of the third consultant is within ten
(10%) percent of the findings of both Owner's Engineer and Tenant's
Engineer. If the finding of the third consultant varies from either
Tenant's or Owner's finding by more than ten (10%) percent, then the
determination of the third consultant shall not be binding upon either
Owner or Tenant. In such event and if the parties hereto cannot
resolve their dispute, then the dispute shall be submitted to
arbitration pursuant to Article 45 hereof. The fees of the third
consultant shall be split equally between Owner and Tenant. Until such
time as the dispute is resolved as hereinabove provided, Tenant shall
be obligated to pay the disputed charge without prejudice to Tenant's
position. Except as stated in the next sentence, if it is determined
that Tenant has overpaid, Tenant shall be entitled to a credit in the
amount of such excess plus interest at the Interest Rate against the
next succeeding payments due from Tenant for Fixed Rent and additional
rent and such credit shall be indicated on Tenant's rent bill. If such
dispute is resolved at the end of the Term or thereafter, any
overpayment by Tenant shall be paid by Owner to Tenant within ten (10)
days of the resolution of such dispute. The provisions of this Article
38(F) shall survive the expiration or earlier termination of the
Lease.
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(G) If at anytime Tenant elects to change the method
by which it obtains or is billed for electricity pursuant to the
provisions of this Article 38, Owner shall not reduce or discontinue
the supply of electricity to Tenant until Tenant obtains such service
pursuant to such other method.
(H) Except as otherwise specified herein, Owner
shall not be liable in any way to Tenant for any failure or defect in
the supply, quantity or character of electric current furnished to the
Demised Premises other than as may result from Owner's negligent acts
or omissions or willful misconduct. Owner shall not take any
affirmative action to diminish the supply of electricity.
(I) Tenant, at Tenant's expense, shall purchase and
install all lamps, bulbs, tubes, ballasts and starters used in the
Demised Premises.
(J) Amounts due to Owner under this Article 38 shall
be deemed additional rent."
Q. ARTICLE 27 OF THE ORIGINAL LEASE, SERVICES PROVIDED BY OWNER:
SUBPARAGRAPH (C)(iii): is deleted in its entirety, and replaced with:
" (C)(iii) Any air conditioning equipment including AC Equipment (as
hereinafter defined) shall be the property of Owner upon the
expiration or earlier termination of this Lease. Subject to the
provisions of this subparagraph, Tenant may install such air
conditioning equipment as it may reasonably require to provide air
conditioning to the Demised Premises. Such equipment (including
Tenant's air conditioning equipment installed in the Demised Premises
prior to November 1, 1998), hereinafter referred to as "AC Equipment",
may include, without limitation, duct work, piping, electric lines,
defusers, controls and related
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equipment, package units and cooling tower. Tenant shall be solely
responsible for promptly repairing and maintaining the AC Equipment at
Tenant's expense throughout the Term. Prior to installing any AC
Equipment, Tenant shall obtain Owner's written consent, if required
under Article 3 above, which consent shall not be unreasonably
withheld or delayed. Tenant shall keep Owner apprised in writing of
changes in AC Equipment. Owner hereby acknowledges that Tenant
currently intends to install a cooling tower on a portion of the roof
of the Building in a location reasonably acceptable to both parties
and Owner hereby consents to such installation at Tenant's sole cost
and expense (but at no charge from Owner), subject to Tenant providing
Owner with an engineer's report (such engineer to be selected (and
paid for) by Tenant and reasonably satisfactory to Owner) stating that
such installation will be structurally sound and will not otherwise
damage the Building. Owner hereby agrees to make available to Tenant,
without charge, a shaft area for installation of Tenant's water riser,
electrical riser, fresh air ducts and related equipment from the roof
of the Building to the basement of the Building in a mutually
acceptable location and size (both parties acting reasonably with
regard thereto, it being understood, however that Tenant shall have
priority with respect to the use of such shaft). Tenant shall
cooperate (at no additional cost to Tenant) in good faith with
Landlord to accommodate Landlord's use of such shaft. If Tenant needs
to install a new shaft for it's AC Equipment or Tenant's electrical
equipment, Tenant shall notify Landlord thereof in writing and Tenant
shall cooperate (at no additional cost to Tenant) in good faith with
Landlord to accommodate Landlord's possible use of such shaft. Tenant
agrees to timely pay for all water consumed by the AC Equipment as
measured by meters or submeters to be installed, repaired and
maintained therefor at Tenant's expense. Owner agrees, upon written
request of Tenant, to promptly register any water meter or submeter
installed by Tenant, at Tenant's expense, with the New York
31
<PAGE> 32
City Agency having jurisdiction, and agrees that Tenant shall be
entitled to any credit, rebate, benefit allowed, given or paid with
respect to such meter, submeter or the water consumed by Tenant as
long as same does not adversely affect Owner. Tenant shall timely pay
all charges (sewer, water or other) in regard to any such meter(s) or
submeter(s). Owner agrees to make available up to 450 square feet of
mechanical space on a service floor of the building as and for
Tenant's AC Equipment and/or Tenant's electrical equipment, and up to
300 square feet of space in a basement switch gear room of the
Building as and for Tenant's electric equipment and/or if Tenant goes
to direct electric metering per Article 38 below, in a location
reasonably acceptable to both parties, for which Tenant shall
thereupon pay $12.50 per square foot per annum, as additional rent, in
equal monthly installments the first day in advance of each month
during the Term hereof, commencing the month that Tenant is given
possession of such space until the expiration or earlier termination
of this Lease, or such sooner time as Tenant ceases to use said space
for its AC Equipment or Tenant's electrical equipment.
Owner agrees to contribute $552,388.00 (the "AC Contribution") to
Tenant's cost of the AC Equipment installed by Tenant after November
1, 1998, such Contribution to be made ten (10) days after presentation
to Owner by Tenant of invoices indicating that at least such amount
has been paid by Tenant for AC Equipment. If Owner fails to pay the AC
contribution to Tenant for ten (10) days after notice that it is due,
Tenant shall be entitled to setoff the amount thereof with interest at
the Interest Rate (calculated from the due date of the payment)
against Tenant's ensuing rental obligations to Owner. Upon any
expiration or earlier termination of this Lease Tenant shall surrender
all AC Equipment in its existing condition."
32
<PAGE> 33
2. Except as set forth in Paragraph 1, above, the Lease is in all
other respects ratified and confirmed. Each party confirms herewith
that the other party is not in default under any provision of the
Lease as of the date this Amendment is executed and delivered.
3. Owner and Tenant each represent that it has full authority to
execute and deliver this Agreement, subject to Paragraph 4, below.
4. This First Amendment shall have no legal force and effect unless
and until it is executed and delivered by both parties hereto, and any
required mortgagee consent is obtained in writing.
5. Owner acknowledges that Tenant is currently seeking financial
assistance from the New York City Industrial Development Agency and
the Empire State Development Corp. In the event either of the agencies
fails to induce and/or approve the final assistance packages being
sought by Tenant by May 31, 1999, Tenant shall have a right to
terminate and void this First Amendment by written notice delivered to
Owner by June 30, 1999. If Tenant becomes aware of a manner in which
Owner may benefit from any incentive program Tenant is negotiating or
has applied for, then Tenant shall promptly advise Owner of same in
writing.
IN WITNESS WHEREOF, The parties hereto have executed this First
Amendment, as of the day and year first above written.
LECHAR REALTY CORP. LIZ CLAIBORNE INC.
33
<PAGE> 34
BY: /S/LEON H. CHARNEY BY: /S/SAMUEL MILLER
------------------ ----------------
LEON H. CHARNEY, PRESIDENT SAMUEL MILLER,
SENIOR VICE PRESIDENT-FINANCE
CHIEF FINANCIAL OFFICER
34
<PAGE> 35
EXHIBIT A-1
-----------
<TABLE>
<CAPTION>
UNIT NO. SQUARE FEET
-------- -----------
<S> <C>
ROOM 201 15,730
ROOM 202 2,500
ROOM 203/203A 9,006
ROOM 300 17,401
ROOM 338 327
ROOM 400 7,870
ROOM 401 7,985
ROOM 402 2,355
ROOM 500 18,108
ROOM 601 6,155
ROOM 611 11,953
ROOM 700 18,000
ROOM 805 1,500
ROOM 815 2,368
ROOM 820 4,300
ROOM 840 1,036
ROOM 843 330
ROOM 870 3,914
ROOM 895 2,591
ROOM 897 2,070
ROOM 1201 1,742
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
UNIT NO. SQUARE FEET
-------- -----------
<S> <C>
ROOM 1211 5,600
ROOM 1250 1,080
ROOM 1261 8,777
ROOM 1410 774
ROOM 1415 1,036
ROOM 1420 916
ROOM 1425 878
ROOM 1430 916
ROOM 1435 973
ROOM 1438 321
ROOM 1440 1,527
ROOM 1450 1,489
ROOM 1455 1,054
ROOM 1457 880
ROOM 1461 904
ROOM 1463 420
ROOM 1464/65 794
ROOM 1466 1,227
ROOM 1469 422
ROOM 1475 321
ROOM 1480 367
ROOM 1482 535
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C>
ROOM 1485 1,070
</TABLE>
<TABLE>
<CAPTION>
UNIT NO. SQUARE FEET
-------- -----------
<S> <C>
ROOM 1490 1,605
ROOM 1500 17,939
ROOM 1600 8,417
ROOM 1601 6,996
ROOM 1603 2,862
ROOM 1701 9,441
ROOM 1711 7,559
ROOM 1801 6,203
ROOM 1811 3,236
ROOM 1820 1,690
ROOM 1830 1,565
ROOM 1835 1,300
ROOM 1901 2,775
ROOM 1911 3,799
ROOM 1921 3,763
ROOM 1931 2,831
ROOM 2001A 1,700
ROOM 2002 1,500
ROOM 2009 2,170
ROOM 2010 1,325
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C>
ROOM 2020 1,952
ROOM 2030 3,168
ROOM 2040 2,250
</TABLE>
<TABLE>
<CAPTION>
UNIT NO. SQUARE FEET
-------- -----------
<S> <C>
ROOM 2202 2,816
ROOM 2210 2,509
ROOM 2217/50 3,882
ROOM 2251 1,746
---------
TOTALS: 276,521
</TABLE>
38
<PAGE> 39
EXHIBIT C-1
AUTOMATIC OPTION SPACE
<TABLE>
<CAPTION>
RENTABLE INITIAL
SPACE SQUARE FOOTAGE EXPIRATION DATE TENANT
----- -------------- --------------- ------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
2301 791 12/31/98 City Girl Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2303 2,100 10/31/99 Vacant
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2305 520 3/31/2001 Dennelle Sales &
Marketing Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2701 1,345 6/30/99 Pretty Talk Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2702 2,258 2/29/2008 St. Kitti Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2703 2,439 7/31/99 Casa Maglia Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2790 2,025 6/30/99 Pretty Talk Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
39
<PAGE> 40
EXHIBIT C-2
CONTINGENT OPTION SPACE
<TABLE>
<CAPTION>
RENTABLE INITIAL
SPACE SQUARE FOOTAGE EXPIRATION DATE TENANT
----- -------------- --------------- ------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
0900, 1000 & 1100 54,378 1/31/2007 Ellen Tracy Inc.
(entire 9th, 10th & 11th 9th Floor: 18,170
floors) 10th Floor: 18,100
11th Floor: 18,108
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2100 & 2900 17,039 11/14/2003 Marisa Christina Inc.,
(entire 21st & 29th floors) as successor to
Adrienne Vittadini Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2300 1,250 3/31/2000 Belford Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2304 & 2306 2,412 8/31/2000 St. Germain Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2308 3,399 12/31/2002 GMR Fashions Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2401 6,619 3/31/2006 Belford Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2402 & 2410 5,013 1/31/2007 Ellen Tracy Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2501 & 2502 3,213 7/31/2003 Francine Browner Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2504, 2507 & 2508 6,541 1/31/2007 Gloria Vanderbilt Apparel
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2601 & 2602 6,925 6/30/2006 Segrets Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2604 2,829 6/30/2003 Segrets Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
2800 6,000 10/31/2006 Bimoteur Inc.
(entire 28th & 29th floors)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
3000 5,996 5/31/2004 Donna Ricco Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
3102 2,333 L. Charney
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
3101 3,588 To be let,
presently vacant
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
3200 4,335 To be let,
presently vacant
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
3300 3,750 11/30/2001 Karen Kane Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
3400 3,628 4/30/2002 Serrance Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
40
<PAGE> 1
EXHIBIT 10(k)(ii)
SECOND AMENDMENT TO LEASE
AGREEMENT (this "Amendment"), made as of the 19th day of June 1998, by
and between LECHAR REALTY CORP., a New York corporation, with its principal
office address at 1441 Broadway, New York, NY 10018, hereinafter referred to as
"Owner"; and LIZ CLAIBORNE, INC., a Delaware corporation, qualified to do
business in the State of New York, with its principal office and showroom
address at 1441 Broadway, New York, NY 10018, hereinafter referred to as
"Tenant".
W I T N E S S E T H
WHEREAS, Owner and Tenant are parties to a written Agreement of Lease,
dated as of the 1st day of January 1990, as amended by letter agreement dated
August 4, 1994 and First Amendment: Lease Extension and Modification Agreement
dated as of the 1st day of January 1998 (collectively, the "Lease") for a
portion(s) of the building at 1441 Broadway, a/k/a 575 Seventh Avenue, New York
City, New York (the "Building"; except as otherwise expressly specified in this
document, all defined terms used in the Lease shall have the meanings herein
that are ascribed to them in the Lease); and
WHEREAS, Tenant and Owner have agreed to amend and modify the Lease
upon the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of TEN ($10.00) DOLLARS in hand paid
to the other, and for other and further valuable consideration, including the
mutual covenants hereinafter set forth, Owner and Tenant agree that the Lease is
hereby amended and modified as follows:
<PAGE> 2
1. Owner hereby leases to Tenant and Tenant hereby hires from Owner Unit
338 in the Building containing 327 square feet ("Unit 338"). From and
after the date hereof, Unit 338 shall be and be deemed to be included
in and part of the Demised Premises. Exhibit A-1 attached hereto sets
forth the Demised Premises as of June 19, 1998.
2. Except as set forth above, the Lease is in all other respects ratified
and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
LECHAR REALTY CORP. LIZ CLAIBORNE INC.
BY: /s/ LEON H. CHARNEY BY: /s/ ROBERTA S. KARP
--------------------------------- ---------------------------------
LEON H. CHARNEY, PRESIDENT ROBERTA S. KARP
VICE PRESIDENT - CORPORATE
AFFAIRS AND GENERAL COUNSEL &
SECRETARY
Consented to by:
GENERAL ELECTRIC CAPITAL CORPORATION,
INDIVIDUALLY AND AS AGENT
BY: /s/ RICHARD ENGEL
---------------------------------
2
<PAGE> 3
EXHIBIT A-1
<TABLE>
<CAPTION>
UNIT NO. SQUARE FEET
-------- -----------
<S> <C>
ROOM 201 15,730
ROOM 202 2,500
ROOM 203/203A 9,006
ROOM 300 17,401
ROOM 338 327
ROOM 400 7,870
ROOM 401 7,985
ROOM 402 2,355
ROOM 500 18,108
ROOM 601 6,155
ROOM 611 11,953
ROOM 700 18,000
ROOM 805 1,500
ROOM 815 2,368
ROOM 820 4,300
ROOM 840 1,036
ROOM 843 330
ROOM 870 3,914
ROOM 895 2,591
ROOM 897 2,070
ROOM 1201 1,742
ROOM 1211 5,600
ROOM 1250 1,080
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
UNIT NO. SQUARE FEET
-------- -----------
<S> <C>
ROOM 1261 8,777
ROOM 1410 774
ROOM 1415 1,036
ROOM 1420 916
ROOM 1425 878
ROOM 1430 916
ROOM 1435 973
ROOM 1438 321
ROOM 1440 1,527
ROOM 1450 1,489
ROOM 1455 1,054
ROOM 1457 880
ROOM 1461 904
ROOM 1463 420
ROOM 1464/65 794
ROOM 1466 1,227
ROOM 1469 422
ROOM 1475 321
ROOM 1480 367
ROOM 1482 535
ROOM 1485 1,070
ROOM 1490 1,605
ROOM 1500 17,939
ROOM 1600 8,417
ROOM 1601 6,996
ROOM 1603 2,862
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
UNIT NO. SQUARE FEET
-------- -----------
<S> <C>
ROOM 1701 9,441
ROOM 1711 7,559
ROOM 1801 6,203
ROOM 1811 3,236
ROOM 1820 1,690
ROOM 1830 1,565
ROOM 1835 1,300
ROOM 1901 2,775
ROOM 1911 3,799
ROOM 1921 3,763
ROOM 1931 2,831
ROOM 2001A 1,700
ROOM 2002 1,500
ROOM 2009 2,170
ROOM 2010 1,325
ROOM 2020 1,952
ROOM 2030 3,168
ROOM 2040 2,250
ROOM 2202 2,816
ROOM 2210 2,509
ROOM 2217/50 3,882
ROOM 2251 1,746
-------
TOTALS: 276,521
</TABLE>
5
<PAGE> 1
EXHIBIT 10(k)(iii)
THIRD AMENDMENT TO LEASE
AGREEMENT (this "Amendment") made as of 29th day of September
1999, by and between LECHAR REALTY CORP., a New York corporation, with its
principal office address at 1441 Broadway, New York, NY 10018 ("Owner") and LIZ
CLAIBORNE INC., a Delaware corporation qualified to do business in the State of
New York, with its principal office and showroom at 1441 Broadway, New York, NY
10018 ("Tenant").
W I T N E S S E T H :
WHEREAS:
(i) Owner and Tenant are parties to a lease (the "Original
Lease") dated as of January 1, 1990, as amended by letter agreement dated August
4, 1994, a First Amendment: Lease Extension and Modification Agreement dated as
of January 1, 1998 (the "First Amendment"), and a Second Amendment to Lease
dated as of June 19, 1998 (collectively, the "Lease") for portions of the
building at 1441 Broadway, a/k/a 575 Seventh Avenue, New York, NY (the
"Building", except as otherwise expressly specified in this Amendment, all
defined terms used in the Lease shall have the meanings herein that are ascribed
to them in the Lease); and
(ii) Tenant and Owner have agreed to amend and modify the
Lease upon the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of Ten Dollars and 00/100
($10.00) and other and further good and valuable consideration, including the
mutual covenants hereinafter set forth, Owner and Tenant agree that the Lease is
hereby amended and modified as follows:
1. Owner hereby leases to Tenant and Tenant hereby hires
from Owner the entire 21st Floor of the Building
(including the terrace (the "Terrace") adjacent
thereto) containing 11,039 square feet ("Unit 2100")
for a term
-1-
<PAGE> 2
commencing on the date (the "Possession Date") Owner
delivers vacant possession of Unit 2100 to Tenant and
ending on December 31, 2012 (as such date may be
extended in accordance with the terms of the Lease).
From and after the Possession Date, Unit 2100 shall
be and be deemed to be included in and part of the
Demised Premises.
2. Owner hereby agrees to deliver possession of Unit
2100 to Tenant on or before October 1, 1999 (the "Due
Date"), in the condition it is in on the date hereof,
subject only to normal wear and tear hereafter
occurring (but the foregoing shall not abrogate the
provisions of Article 44 of the Original Lease which
Owner hereby expressly acknowledges and agrees are
applicable to Unit 2100). If for any reason
whatsoever Owner fails to deliver possession of Unit
2100 to Tenant on the Due Date, Owner shall abate two
(2) days of the rent that would otherwise first
become payable hereunder in respect of Unit 2100 for
each day that elapses after the Due Date and before
the Possession Date.
3. From and after the ninetieth (90th) day following the
Possession Date, through and including November 14,
2003, Tenant shall pay Owner $397,404.00 per year in
Fixed Annual Rent (inclusive of $33,117.00 in
electric charges) in respect of Unit 2100 in lieu of
all other amounts specified in the Lease or
otherwise, it being expressly acknowledged and agreed
that no amounts shall be due in respect of Unit 2100
for the period between the Possession Date and
November 15, 2003, pursuant to the First Amendment or
the other portions of the Lease. From November 15,
2003, through and including December 31, 2012, the
Fixed Annual Rent payable in respect of Unit 2100
shall equal 95% of the fair market rental value of
such space on November 15, 2003, determined pursuant
to Article 41 of the Original Lease as though Unit
2100 were vacant and unimproved and then being leased
for a term equal to the remainder of the Term, taking
into account: (i) the amounts payable in respect of
Unit 2100 pursuant to Articles 36 and 37 of the
Original Lease (as modified in the First
-2-
<PAGE> 3
Amendment); (ii) the "Base Tax Year" and "Base Year"
in the First Amendment, respectively specified; and
(iii) the agreement of Owner and Tenant, hereby
confirmed, that even though Tenant has exclusive use
of the Terrace, no rent shall be attributable
thereto. Owner and Tenant hereby agree to seek prior
to October 1, 2003 to determine the Fixed Annual Rent
applicable to the period after November 15, 2003, but
if Owner and Tenant are unable to reach agreement
with respect thereto, such Fixed Annual Rent shall be
determined by arbitration conducted pursuant to
Article 45 of the Original Lease. The cost of
electricity in respect of Unit 2100 shall not, after
November 14, 2003, be included in the Fixed Annual
Rent but rather shall be borne and determined in the
same manner as is applicable to the balance of the
Demised Premises.
4. During the period from the Possession Date, through
and including November 14, 2003, Article 37(A), (B),
(D), (F) and (G) of the Original Lease as set forth
therein shall be applicable to Unit 2100
(notwithstanding the modifications set forth in the
First Amendment), except that: (i) the words
"together with welfare, pension and FICA payments
imposed on such wage rate" shall be deemed deleted
from the 24th and 25th lines of Article 37(A); (ii)
the last sentence of Article 37(A) shall be deemed
deleted therefrom; (iii) the date "January 1, 1991"
and the years "1991" and "1992" appearing in Articles
37(D) and 37(E) shall be deemed changed to "January
1, 2000" and "2000" and "2001," respectively; (iv)
all references to the "Price Index" shall be deemed
deleted; and (v) the reference in Article 37(G) to
the expiration of the Term shall be deemed to be a
reference to November 14, 2003. Owner and Tenant
expressly agree that Article 37 of the Original Lease
(by reason of Paragraph 1C of the First Amendment)
shall be entirely inapplicable after December 31,
1999, except as herein expressly specified in respect
of Unit 2100, and only with respect thereto during
the period from the Possession Date through and
including November 14, 2003.
-3-
<PAGE> 4
5. Article 36 of the Original Lease, as modified by
Paragraph 1(B) of the First Amendment, shall apply to
Unit 2100 during the period from the Possession Date,
through and including November 14, 2003, except that:
(i) the term "Base Taxes" shall mean the Taxes
payable during the 1999/2000 Tax Year; and (ii)
Tenant's Proportionate Tax Share" shall mean
.024262%. Owner and Tenant expressly agree that
Article 36 of the Original Lease, as modified herein
and in the First Amendment, shall apply only to Unit
2100 and only during the period from the Possession
Date, through and including November 14, 2003.
6. The 29th Floor of the Building (6,000 square feet)
shall be deemed to be Automatic Option Space rather
than Contingent Option Space, and Unit 2100 shall no
longer be deemed to be Contingent Option Space.
7. Owner and Tenant hereby represent and warrant to each
other that: (i) no broker has been involved in the
negotiation of this Amendment other than Colliers ABR
Inc. ("Colliers"), Newmark & Company Real Estate,
Inc. ("Newmark") and Winoker Realty Co., Inc.
("Winoker"); and (ii) Colliers and Winoker have
agreed not to seek a commission from Owner or Tenant
in connection with this Amendment. Tenant hereby
agrees to pay Newmark any commission to which it may
be entitled pursuant to a written agreement between
Tenant and Newmark. Owner and Tenant hereby each
indemnify the other from any breach by the indemnitor
of the aforesaid representations and warranties.
8. Except as set forth above, the Lease is in all other
respects hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first set forth above.
-4-
<PAGE> 5
OWNER:
LECHAR REALTY CORP.
BY: /s/ LEON H. CHARNEY
---------------------------------------
LEON H. CHARNEY, PRESIDENT
TENANT:
LIZ CLAIBORNE, INC.
BY: /s/ JOHN DEFALCO
---------------------------------------
JOHN DEFALCO
VICE PRESIDENT - PROFIT IMPROVEMENT
AND FACILITIES MANAGEMENT
CONSENTED TO BY:
GENERAL ELECTRIC CAPITAL CORPORATION,
INDIVIDUALLY AND AS AGENT
BY: /s/ RICHARD ENGEL
---------------------------------------
AUTHORIZED REPRESENTATIVE
-5-
<PAGE> 1
EXHIBIT 10(n)
DESCRIPTION OF SUPPLEMENTAL LIFE INSURANCE PLANS
Vice Presidents of Liz Claiborne, Inc. (the "Company") receive universal life
insurance policies which provide coverage equal to two times annual base salary.
The Company pays the premiums on each policy during the employment period,
enabling the employee to have a portable life insurance policy with a minimal
cash surrender value.
<PAGE> 1
EXHIBIT 10(t)
AMENDED AND RESTATED LIZ CLAIBORNE SEC.162(m) CASH BONUS PLAN
1. Definitions.
--------------
The following terms have the meanings indicated unless a different meaning
is clearly required by the context:
1.1 "Board of Directors" means the Board of Directors of the Company.
1.2 "Code" means the Internal Revenue Code of 1986, as amended.
1.3 "Committee" means the Compensation Committee of the Board of Directors
or a subcommittee thereof. The Committee at all times shall be composed of at
least two directors of Liz Claiborne, Inc., each of whom shall be "outside
directors" within the meaning of sec.162(m) of the Code.
1.4 "Company" means Liz Claiborne, Inc. and its consolidated subsidiaries
and affiliates.
1.5 "Executive Officer" has the meaning set forth in Rule 3b-7 promulgated
under the Securities Exchange Act of 1934, as amended.
1.6 "Participant" means an individual who participates in the Plan pursuant
to Section 3.1.
2. Purpose.
-----------
The purpose of the Plan is to provide annual incentives to certain senior
executive officers in a manner designed to reinforce the Company's performance
goals; to strengthen the Company's "pay for performance" ethic by linking a
significant portion of participants' compensation to the achievement of such
goals; and to continue to attract, motivate and retain high performing
executives on a competitive basis, while seeking to preserve for the benefit, to
the extent practicable, a tax deduction by the Company for payments of incentive
compensation to such executives through payment of qualified "performance-based"
compensation within the meaning of sec.162(m)(4)(C) of the Code.
3. Participation.
----------------
3.1 An individual shall be a Participant in the Plan for a fiscal year of
the Company if he or she (a) is an Executive Officer of Liz Claiborne, Inc. on
the first day of such year or becomes an Executive Officer of Liz Claiborne,
Inc. during such year by virtue of being hired or promoted and (b) has a base
salary in excess of $500,000 per year or is reasonably expected by the Committee
to have compensation for such year in excess of $1.0 million; provided, however,
that if the Committee determines, in its discretion, prior to the ninety-first
day (91st) day of such fiscal year, that it would be in the best interests of
the Company and its stockholders for one or more otherwise eligible Executive
Officers not to be a participant for such year, such person shall not be a
Participant for such year and the Committee may in its discretion establish
alternative incentive compensation arrangements for such person; provided,
however, no individual who is so excluded as a Participant for a fiscal year
shall have any entitlement to participate in any such alternative incentive
compensation arrangement.
3.2 An individual who is a Participant in the Plan for a fiscal year shall
not participate for such fiscal year in the Company's regular annual bonus
program.
4. Performance Goals.
-----------------------
4.1 Prior to the ninety-first (91st) day of each fiscal year of the
Company, the Committee shall set one or more objective performance goals for
each Participant for such year. Such goals shall be expressed in terms of (a)
one or more corporate or divisional earnings-based measures (which may be based
on the following: net income, operating income, cash flow, residual income, or
any combination thereof) and/or (b) one or more
<PAGE> 2
corporate or divisional sales-based measures. Each such goal may be expressed on
an absolute and/or relative basis, may employ comparisons with past performance
of the Company (including one or more divisions) and/or the current or past
performance of other companies, and in the case of earnings-based measures, may
employ comparisons to capital, stockholders' equity and shares outstanding.
4.2 Except as otherwise provided herein, the measures used in performance
goals set under the Plan shall be determined in accordance with generally
accepted accounting principles ("GAAP") and in a manner consistent with the
methods used in the Company's regular reports on Forms 10-K and 10-Q, without
regard to any of the following unless otherwise determined by the Committee
consistent with the requirements of sec.162(m)(4)(C) and the regulations
thereunder:
(a) all items of gain, loss or expense for the fiscal year that are
related to special, unusual or non-recurring items, events or circumstances
affecting the Company or the financial statements of the Company;
(b) all items of gain, loss or expense for the fiscal year that are
related to (i) the disposal of a business or discontinued operations or
(ii) the operations of any business acquired by Company during the fiscal
year; and
(c) all items of gain, loss or expense for the fiscal year that are
related to changes in accounting principles or to changes in applicable law
or regulations.
4.3 To the extent any objective performance goals are expressed using any
earnings or sales-based measures that require deviations from GAAP, such
deviations shall be at the discretion of the Committee.
5. Bonus Awards.
------------------
5.1 At the time that annual performance goals are set for Participants, the
Committee shall establish a maximum award opportunity for each Participant for
the year that is related to the Participant's base salary at the start of the
year by a formula that takes account of the degree of achievement of the goals
set for the Participant; provided, however, that the Committee shall have
absolute discretion to reduce the actual bonus payment that would otherwise be
payable to any Participant on the basis of achievement of performance goals.
5.2 The maximum award paid to a Participant in respect of a particular
fiscal year shall in no event exceed $2.0 million.
5.3 Bonuses determined under the Plan shall be paid to Participants in cash
at such time as bonuses are generally paid to other Executive Officers;
provided, however, that no such payment shall be made until the Committee has
certified (in the manner prescribed under applicable regulations under
sec.162(m) of the Code) that the performance goals and any other material terms
related to the award were in fact satisfied; and provided further that the
timing of any such payment may be deferred pursuant to an agreement between the
Company and a Participant or under Section 7.6 hereof.
5.4 In the event of the death of a Participant prior to any payment
otherwise required pursuant to Section 5.3, such payment shall be made to the
representative of the Participant's estate.
5.5 In the event of the death, disability, retirement or other termination
of employment of a Participant during a fiscal year, the Committee shall, in its
discretion, have the power to award to such Participant (or the representative
of the Participant's estate) an equitably prorated portion of the bonus which
otherwise would have been earned by such Participant.
5.6 The right of a Participant or of any other person to any payment under
the Plan shall not be assigned, transferred, pledged or encumbered in any manner
and any attempted assignment, transfer, pledge or encumbrance shall be null and
void and of no force or effect.
<PAGE> 3
6. Administrative Provisions.
- ---------------------------
6.1 The Plan shall be administered by the Committee. The Committee shall
have full, exclusive and final authority in all determinations and decisions
affecting the Plan and Participants, including sole authority to interpret and
construe any provision of the Plan, to adopt such rules and regulations for
administering the Plan as it may deem necessary or appropriate in the
circumstances, and to make any other determination it deems necessary or
appropriate for the administration of the Plan. Decisions of the Committee shall
be final and binding on all parties. All expenses of the Plan shall be borne by
the Company.
6.2 No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company or its affiliates to whom any duty or power relating to the
administration or interpretation of the Plan has been delegated against any cost
or expense (including counsel fees, which fees shall be paid as incurred) or
liability (including any sum paid in settlement of a claim with the approval of
the Committee) arising out of or in connection with any action, omission or
determination relating to the Plan, unless, in each case, such action, omission
or determination was taken or made by such member, director or employee in bad
faith and without reasonable belief that it was in the best interests of the
Company.
7. Miscellaneous.
------------------
7.1 The Plan was initially adopted by the Board of Directors on March 9,
1994, subject to stockholder approval (which was obtained on May 12, 1994), and
took effect beginning with the fiscal year of the Company starting January 1,
1995. The Plan was amended and restated as of March 3, 1999, and, pursuant to
the requirements necessary for awards under the Plan to constitute qualified
performance-based compensation under sec.162(m) of the Code, the Plan, as so
amended and restated, is being resubmitted for stockholder approval in 1999,
with effect for payments otherwise payable in respect of fiscal years of the
Company after the Company's 1999 fiscal year. No amount will be awarded
hereunder in respect of any fiscal year after the 1999 fiscal year unless the
Plan, as amended and restated, is approved by the Company's stockholders at
their 1999 annual meeting. No bonus will be payable hereunder in respect of any
fiscal year beginning after December 30, 2004.
7.2 The Board of Directors may at any time amend the Plan in any fashion or
terminate or suspend the Plan; provided that no amendment shall be made which
would cause bonuses payable under the Plan to fail to qualify for the exemption
from the limitations of sec.162(m) of the Code provided in sec.162(m)(4)(C) of
the Code. Upon any such termination, all rights of a Participant with respect to
any fiscal year that has not ended on or prior to the effective date of such
termination shall become null and void.
7.3 The Plan shall be governed by and construed in accordance with the
internal laws of the State of New York applicable to contracts made, and to be
wholly performed, within such State, without regard to principles of choice of
laws.
7.4 All amounts required to be paid under the Plan shall be subject to any
required Federal, state, local and other applicable withholdings or deductions.
7.5 Nothing contained in the Plan shall confer upon any Participant or any
other person any right with respect to the continuation of employment by the
Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation payable to
the Participant from the rate in effect at the commencement of a fiscal year or
to otherwise modify the terms of such Participant's employment. No person shall
have any claim or right to participate in or receive any award under the Plan
for any particular fiscal year.
7.6 Notwithstanding any other provision hereunder, if and to the extent
that the Committee determines the Company's Federal tax deduction in respect of
an award hereunder may be limited as a result of sec.162(m) of the Code, the
Committee may delay such payment as provided below. In the event the Committee
<PAGE> 4
determines to delay the payment of a bonus or any portion thereof hereunder, the
Committee shall credit the amount of the award so delayed to a book account. The
amount so credited to the book account shall be adjusted to reflect gains and
losses that would have resulted from the investment of such amount in any
investment vehicle or vehicles selected by the Committee. Part or all of the
amount credited to the Participant's account hereunder shall be paid to the
Participant at such time or times as shall be determined by the Committee, if
and to the extent the Committee determines that the Company's deduction for any
such payment will not be reduced by sec.162(m) of the Code. Notwithstanding the
foregoing, the entire balance credited to the Participant's book account shall
be paid to the Participant within 90 days after the Participant ceases to be a
"covered employee" within the meaning of sec.162(m) of the Code. The Participant
shall have no rights in respect of such book account and the amount credited
thereto shall not be transferrable by the Participant other than by will or laws
of descent and distribution; any book account created hereunder shall represent
only an unfunded unsecured promise by the Company to pay the amount credited
thereto to the Participant in the future.
<PAGE> 1
EXHIBIT 10(x)(i)
Dated: February 18, 2000
Denise V. Seegal
36 Pheasant Lane
Greenwich, CT 06830
Dear Denise,
As we have discussed, Liz Claiborne, Inc. ("Company") and you desire to
amend certain aspects of your employment agreement with the Company dated
September 25, 1996 ("Employment Agreement"), as extended by my letters to you
dated September 22, 1999 and October 25, 1999. Unless otherwise noted,
capitalized terms used but not defined in this letter shall have the meanings
given such terms in the Employment Agreement. We hereby agree as follows:
1. Section 1 of the Employment Agreement is hereby amended and
restated to read in its entirety as follows:
"The Company hereby employs you, and you hereby accept such
employment and agree to serve the Claiborne Group, upon the terms and conditions
hereinafter set forth, for a term commencing on October 24, 1996 and (unless
sooner terminated as hereinafter provided) expiring on February 28, 2001 ("your
term of employment"). Thereafter, your term of employment shall be extended on
each February 28 thereafter for an additional twelve month period, unless either
you or the Company shall otherwise notify the other of an election not to so
renew by the preceding November 30."
2. Section 2 (a) of the Employment Agreement is hereby amended
and restated to read in its entirety as follows:
"During your term of employment, you will hold the title and
office of, and serve in the position of, President and shall perform such
specific duties and services of a senior executive nature (including service as
an officer, director or equivalent position of any subsidiary, affiliated
company or venture of the Claiborne Group, without additional compensation) as
the Chairman or the Board of Directors shall reasonably request consistent with
your position, and consistent with the level of responsibility you have
exercised with the Claiborne Group prior to the date hereof. Your performance
shall be reviewed periodically in accordance with the Company's policies
applicable to its senior most executives."
3. The first (1st) sentence of Section 3(a) of the Employment
Agreement is hereby amended and restated to read in its entirety as follows:
1
<PAGE> 2
The Company will pay you, commencing 1999 and thereafter
during the term hereof, a base salary at an annual rate of not less than Seven
Hundred and Thirty Thousand Dollars and 00/100 ($730,000.00) subject to annual
review by the Compensation Committee of the Board of Directors (the
"Compensation Committee") and, in the discretion of such Committee, increase
from time to time; provided that your Annual Base Salary shall be increased (but
in no event shall it be decreased) on the date of the annual salary increase,
during the term hereof (each, an "Increase Date") by an amount equal to the
applicable Increase Rate times your Annual Base Salary in effect immediately
prior to such increase; as used herein, the term "Increase Rate" shall mean (x)
the percentage increase in the Consumer Price Index during the twelve-month
period immediately preceding the Increase Date, but not to exceed (y) the annual
salary increase guideline approved by the Compensation Committee (typically in
March) and generally applicable to all executive officers of the Company. As
used herein, the term "Consumer Price Index" means the Consumer Price Index for
All Urban Consumers - New York, prepared by the Bureau of Labor Statistics of
the United States Department of Labor, or if that Consumer Price Index is not
then being published, the most nearly comparable successor index which you and
the Company may agree upon or, if we fail to agree, an index to be designated by
the Company's independent certified public accountants, with such adjustments
necessary to permit us to carry out the provisions of this paragraph, and the
determination of such accountants shall be final and binding for purposes
hereof."
4. Sections 5 (b) and 5 (c) of the Employment Agreement are
hereby amended and restated to read in its entirety as follows:
"(b) In the event that your term of employment is terminated
(other than upon your death or Disability) during your term of employment (i) by
the Company other than for Cause, or (ii) by you for Good Reason, then the
Company shall pay to you an amount equal to your accrued but unpaid base salary
through the date of such termination. In addition, so long as you shall not have
breached your obligations to the Claiborne Group under Section 6 and 7 hereof,
or your representation under Section 11 hereof (without limitation to any other
remedy available to the Company), the Company shall pay to you, as and for a
severance payment (1) on the eighth (8th) day after the receipt from you of your
duly executed and delivered general release of the Company and the other
entities then comprising the Claiborne Group, and their respective officers,
directors, agents and representatives, in form and substance reasonably
satisfactory to the Company, within twenty-one (21) days after being provided
with a form thereof (your "General Release") (A) in substantially equal monthly
installments over the period from the date of such termination for twelve (12)
months, an aggregate amount equal to the greater of (i) what your base salary
would have been for said period (using for such purpose the base salary rate in
effect on the date of termination), or (ii) $1 million, and (B) the amount of
your out-of-pocket costs for continued medical coverage through such 12 month
period pursuant to Section 4980B of the Internal Revenue Code of 1986, as
amended, and (C) a portion of the annual bonus which you would have earned under
the provisions of Paragraph 3 (b) of the Employment Agreement (as determined by
the Company in good faith) prorated through the date of such termination; or (2)
in the event that you do not deliver
you General Release as aforesaid, a lump sum payment of $170,000. For the
purpose of this Agreement, termination of employment hereunder by you for "Good
Reason" shall mean your termination of your employment upon notice to the
Company following assignment to you of duties inconsistent with your position as
described in Section 2(a) or your being removed from such position, in either
case without your consent, which termination shall be effective thirty (30) days
after prompt notice of such circumstances by you to the Company, if such
circumstances have not been cured prior to such date."
"(c) In the event that your term of employment is terminated
(i) on account of your death of Disability, or (ii) upon the expiration of this
Agreement in accordance with its terms
2
<PAGE> 3
without renewal by the Company, and you then immediately leave the employ of the
Company, the Company will pay to you (or if such termination is on account of
Death, your estate) an amount equal to your accrued but unpaid base salary
through the date of such termination, plus a portion of the annual bonus which
you would have earned under the provisions of Paragraph 3(b) of the Employment
Agreement, prorated through the date of such termination."
5. Section 7 (b) of the Employment Agreement is hereby amended
and restated to read in its entirety as follows:
"(b) You agree that, during your term of employment and for a
period of six (6) months thereafter, you shall not, directly or indirectly, own,
manage, operate, join, control, participate in, invest in or otherwise be
connected or associated with, in any manner, including as an officer, director,
employee, partner, consultant, advisor, proprietor, trustee or investor, any
Competing Business in the United States; provided however that nothing contained
in this Section 9(b) shall prevent you from owning less than 2% of the voting
stock of a publicly held corporation for investment purposes. For purposes of
this Section 9(b), the term "Competing Business" shall mean Tommy Hilfiger
Corporation, Jones Apparel Group Inc., Polo Ralph Lauren Corporation, Nautica
Enterprises Inc., Donna Karan International Inc. or Calvin Klein Inc. provided
that this clause (b) shall not apply in the event the Company elects not to
renew this Agreement as set forth in Section 1 hereof and your employment
terminates at the end of the term hereof unless the Company makes the payment
provided in Section 5 (b).
6. Except to the extent specifically amended hereby, the
provisions of the Employment Agreement shall remain unmodified, and as amended
herein the Employment Agreement remain in full force and effect.
If the foregoing correctly sets forth your understanding, please
indicate your acceptance by executing the enclosed copy of this letter in the
space provided below, following which this will be a legally binding amendment
to the Employment Agreement and RS Agreement as of the date first written above.
Very truly yours,
LIZ CLAIBORNE, INC.
BY: /s/Paul R. Charron
------------------
AUTHORIZED SIGNATURE
ACCEPTED AND AGREED:
/s/Denise V. Seegal
- -------------------
DENISE V. SEEGAL
3
<PAGE> 1
EXHIBIT 10(y)
[CHASE LOGO]
CREDIT AGREEMENT
dated as of
December 6, 1999
among
LIZ CLAIBORNE, INC.
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
$600,000,000 364-DAY REVOLVING CREDIT FACILITY
<PAGE> 2
<TABLE>
<CAPTION>
Page
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE IDefinitions....................................1
SECTION 1.01. Defined Terms.........................................................1
SECTION 1.02. Terms Generally......................................................14
SECTION 1.03. Accounting Terms; GAAP...............................................14
ARTICLE IIThe Credits..................................14
SECTION 2.01. Commitments..........................................................14
SECTION 2.02. Loans and Borrowings.................................................15
SECTION 2.03. Requests for Revolving Borrowings....................................15
SECTION 2.04. Funding of Borrowings................................................16
SECTION 2.05. Interest Elections...................................................16
SECTION 2.06. Termination and Reduction of Commitments.............................17
SECTION 2.07. Repayment of Loans; Evidence of Debt.................................18
SECTION 2.08. Prepayment of Loans..................................................19
SECTION 2.09. Fees.................................................................19
SECTION 2.10. Interest.............................................................20
SECTION 2.11. Alternate Rate of Interest...........................................20
SECTION 2.12. Increased Costs......................................................21
SECTION 2.13. Break Funding Payments...............................................21
SECTION 2.14. Taxes................................................................22
SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs..........23
SECTION 2.16. Mitigation Obligations; Replacement of Lenders.......................24
SECTION 2.17. Source of Funds......................................................25
ARTICLE IIIRepresentations and Warranties........................25
SECTION 3.01. Organization; Powers.................................................25
SECTION 3.02. Authorization; Enforceability........................................25
SECTION 3.03. Governmental Approvals; No Conflicts.................................25
SECTION 3.04. Financial Condition; No Material Adverse Change......................25
SECTION 3.05. Properties; Liens....................................................26
SECTION 3.06. Litigation and Environmental Matters.................................26
SECTION 3.07. Compliance with Laws and Agreements..................................26
SECTION 3.08. No Default...........................................................26
SECTION 3.09. Investment and Holding Company Status................................27
SECTION 3.10. No Burdensome Restrictions...........................................27
SECTION 3.11. Taxes................................................................27
SECTION 3.12. Federal Regulations..................................................27
SECTION 3.13. Subsidiaries.........................................................27
SECTION 3.14. ERISA................................................................27
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 3.15. Disclosure...........................................................27
SECTION 3.16. Year 2000 Matters....................................................28
ARTICLE IVConditions...................................28
SECTION 4.01. Effective Date.......................................................28
SECTION 4.02. Each Credit Event....................................................29
ARTICLE VAffirmative Covenants..............................30
SECTION 5.01. Financial Statements.................................................30
SECTION 5.02. Certificates; Other Information......................................30
SECTION 5.03. Notices of Material Events...........................................31
SECTION 5.04. Existence; Conduct of Business.......................................31
SECTION 5.05. Payment of Obligations...............................................31
SECTION 5.06. Maintenance of Properties and Trademarks; Insurance..................32
SECTION 5.07. Books and Records; Inspection Rights.................................32
SECTION 5.08. Environmental Laws...................................................32
SECTION 5.09. Compliance...........................................................32
SECTION 5.10. Additional Subsidiaries..............................................32
SECTION 5.11. Use of Proceeds......................................................33
ARTICLE VINegative Covenants...............................33
SECTION 6.01. Financial Covenants..................................................33
SECTION 6.02. Indebtedness.........................................................33
SECTION 6.03. Liens................................................................34
SECTION 6.04. Fundamental Changes..................................................35
SECTION 6.05. Investments, Loans, Advances, Guarantees and Acquisitions; Hedging
Agreements...................................................................36
SECTION 6.06. Limitation on Sale of Assets.........................................37
SECTION 6.07. Restricted Payments..................................................37
SECTION 6.08. Transactions with Affiliates.........................................37
SECTION 6.09. Changes in Fiscal Periods............................................38
SECTION 6.10. Lines of Business....................................................38
ARTICLE VIIEvents of Default...............................38
ARTICLE VIIIThe Administrative Agent...........................40
ARTICLE IXMiscellaneous.................................42
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 9.01. Notices..............................................................42
SECTION 9.02. Waivers; Amendments..................................................42
SECTION 9.03. Expenses; Indemnity; Damage Waiver...................................43
SECTION 9.04. Successors and Assigns...............................................44
SECTION 9.05. Survival.............................................................46
SECTION 9.06. Counterparts; Integration; Effectiveness.............................46
SECTION 9.07. Severability.........................................................46
SECTION 9.08. Right of Setoff......................................................46
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process...........47
SECTION 9.10. WAIVER OF JURY TRIAL.................................................47
SECTION 9.11. Headings.............................................................47
SECTION 9.12. Confidentiality......................................................48
</TABLE>
-iii-
<PAGE> 5
Page
-iv-
<PAGE> 6
Page
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
Schedule 3.13 -- Subsidiaries
Schedule 6.02 -- Existing Indebtedness
Schedule 6.03 -- Existing Liens
Schedule 6.05(i) -- Existing Investments
Schedule 6.05(ii) -- Borrower's Investment Policy
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Borrower's Counsel
Exhibit C -- Form of Subsidiary Guarantee
-v-
<PAGE> 7
CREDIT AGREEMENT dated as of December 6, 1999, among LIZ
CLAIBORNE, INC., the LENDERS party hereto, and THE CHASE
MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
SECTION I.1. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its
capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal
to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD
Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to
a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
<PAGE> 8
2
"Applicable Rate" means, for any day, with respect to any
Eurodollar Revolving Loan or ABR Revolving Loan, as the case may be, or with
respect to the facility fees payable hereunder, the applicable rate per annum
set forth below under the caption "Eurodollar Spread," "ABR Spread" or "Facility
Fee Rate," based upon the ratings by Moody's and S&P, respectively, applicable
on such date to the Index Debt:
<TABLE>
<CAPTION>
=====================================================================================
Eurodollar Facility Fee Utilization
Level Index Debt Rating Spread ABR Spread Rate Fee Rate
----- ----------------- ------ ---------- ---- --------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
I => A-/A3 0.35% 0.00% 0.10% 0.125%
- -------------------------------------------------------------------------------------
=> BBB+/Baa1
but 0.50% 0.00% 0.125% 0.125%
II
< A-/A3
- -------------------------------------------------------------------------------------
=> BBB/Baa2
III but 0.60% 0.00% 0.15% 0.25%
< BBB+Baa1
- -------------------------------------------------------------------------------------
=> BBB-/Baa3
but
IV < BBB/Baa2 0.80% 0.00% 0.20% 0.25%
V <= BB+/Ba1 1.025% 0.00% 0.30% 0.25%
=====================================================================================
</TABLE>
For purposes of the foregoing, (i) if either Moody's or S&P shall
not have in effect a rating for the Index Debt (other than by reason of the
circumstances referred to in the penultimate sentence of this definition), then
such rating agency shall be deemed to have established a rating in Level III;
(ii) if the ratings established or deemed to have been established by Moody's
and S&P for the Index Debt shall fall within different Levels, the Applicable
Rate shall be based on the higher of the two ratings (i.e., the lower Level
number) unless one of the two ratings is two or more Levels lower than the
other, in which case the Applicable Rate shall be determined by reference to the
Level next below that of the higher of the two Levels; and (iii) if the ratings
established or deemed to have been established by Moody's and S&P for the Index
Debt shall be changed (other than as a result of a change in the rating system
of Moody's or S&P), such change shall be effective as of the date on which it is
first announced by the applicable rating agency. Each change in the Applicable
Rate shall apply during the period commencing on the effective date of such
change and ending on the date immediately preceding the effective date of the
next such change. If the rating system of Moody's or S&P shall change, or if
either such rating agency shall cease to be in the business of rating corporate
debt obligations, the Borrower and the Lenders shall negotiate in good faith to
amend this definition to reflect such changed rating system or the
unavailability of ratings from such rating agency and, pending the effectiveness
of any such amendment, the Applicable Rate shall be determined by reference to
the rating most recently in effect prior to such change or cessation. If, on any
date, the outstanding principal amount of the Loans exceeds 33% of the aggregate
amount of the Commitments then in effect (or, during the period after the
Commitments have terminated, 33% of the aggregate amount of the Commitments
immediately prior to such termination), the Eurodollar Spread or ABR Spread, as
the case may be, for such date shall increase by the amount set forth in the
above grid under the caption "Utilization Fee Rate," based upon the ratings by
Moody's and S&P, respectively, applicable on such date to the Index Debt.
"Assessment Rate" means, for any day, the annual assessment rate
in effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the
<PAGE> 9
3
meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal
Deposit Insurance Corporation for insurance by such Corporation of time deposits
made in dollars at the offices of such member in the United States; provided
that if, as a result of any change in any law, rule or regulation, it is no
longer possible to determine the Assessment Rate as aforesaid, then the
Assessment Rate shall be such annual rate as shall be reasonably determined by
the Administrative Agent to be representative of the cost of such insurance to
the Lenders.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD
Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" means Liz Claiborne, Inc., a Delaware corporation.
"Borrowing" means Revolving Loans of the same Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a
Revolving Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Lease Obligations" means the obligations of the Borrower
and its Subsidiaries to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a consolidated balance sheet of the Borrower
under GAAP, and the amount of such obligations shall be the capitalized amount
thereof determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and
the rules of the Securities and Exchange Commission thereunder as in effect on
the date hereof) of shares representing more than 33 1/3% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the Borrower; or (b) occupation of a majority of the seats (other than vacant
seats) on the board
<PAGE> 10
4
of directors of the Borrower by Persons who were neither (i) nominated by the
board of directors of the Borrower nor (ii) appointed by directors so nominated.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender (or,
for purposes of Section 2.12(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" means, with respect to each Lender, the commitment
of such Lender to make Revolving Loans, expressed as an amount representing the
maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder,
as such commitment may be (a) reduced from time to time pursuant to Section 2.06
and (b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 9.04. The initial amount of each Lender's
Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Commitment, as applicable.
"Consolidated EBITDA" means, for any period, Consolidated Net
Income for such period plus, without duplication and to the extent reflected as
a charge in the statement of such Consolidated Net Income for such period, the
sum of (a) income or franchise tax expense, (b) interest expense, both expensed
and capitalized, amortization or writeoff of debt discount and debt issuance
costs and commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans), (c) depreciation and amortization expense,
(d) amortization of intangibles (including, but not limited to, goodwill) and
organization costs, (e) any extraordinary, unusual or non-recurring non-cash
expenses or losses (including, whether or not otherwise includable as a separate
item in the statement of such Consolidated Net Income for such period, non-cash
losses on sales of assets outside of the ordinary course of business), and (f)
any other non-cash charges, and minus, to the extent included in the statement
of such Consolidated Net Income for such period, the sum of (a) interest income,
(b) any extraordinary, unusual or non-recurring income or gains (including,
whether or not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets outside of
the ordinary course of business) and (c) any other non-cash income, all as
determined on a consolidated basis.
"Consolidated EBITDAR" means, with respect to any period,
Consolidated EBITDA for such period plus, the Consolidated Rental Expense of the
Borrower for such period.
"Consolidated Interest Expense" means, for any period, (a) the
total amount of interest expense, both expensed and capitalized, of the Borrower
and its Subsidiaries determined on a consolidated basis, without duplication, in
accordance with GAAP for such period minus (b) the amount of interest income of
the Borrower and its Subsidiaries determined on a consolidated basis in
accordance with GAAP for such period
"Consolidated Net Income" means, for any period, the consolidated
net income (or loss) of a Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or deficit) of any Person
<PAGE> 11
5
accrued prior to the date it becomes a Subsidiary of such Borrower or is merged
into or consolidated with such Borrower or any of its Subsidiaries, (b) the
income (or deficit) of any Person (other than a Subsidiary of such Borrower) in
which such Borrower or any of its Subsidiaries has an ownership interest, except
to the extent that any such income is actually received by such Borrower or such
Subsidiary in the form of dividends or similar distributions and (c) the
undistributed earnings of any Subsidiary of such Borrower to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
is not at the time permitted by the terms of any Contractual Obligation (other
than under the Agreement) or Requirement of Law applicable to such Subsidiary.
"Consolidated Rental Expense" means, for any period, the
aggregate amount of fixed and contingent rentals payable by the Borrower and its
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP with respect to leases of real property minus the aggregate amount of
rental income (including licensee related income from licensees operating on the
store premises of the Borrower and its Subsidiaries) payable to the Borrower and
its Subsidiaries for such period in accordance with GAAP with respect to leases
of real and personal property.
"Consolidated Total Debt" means, at any date, the aggregate
principal amount of the Indebtedness of the Borrower and its Subsidiaries at
such date set forth on the Borrower's consolidated balance sheet opposite the
captions "Current Portion of Long Term Borrowings," "Long Term Borrowings" and
"Short Term Borrowings," determined on a consolidated basis in accordance with
GAAP.
"Contractual Obligation" means, as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bond.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any event or condition which constitutes an Event
of Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and
the environmental matters disclosed in Schedule 3.06.
"dollars" or "$" refers to lawful money of the United States of
America unless otherwise specified.
"Effective Date" means the date on which the conditions specified
in Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Environmental Laws" means all applicable laws, rules,
regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices
or binding agreements issued, promulgated or entered into by any Governmental
Authority, which relate in any way to the
<PAGE> 12
6
environment, preservation or reclamation of natural resources, the management,
release or threatened release of any Hazardous Material or to human health and
safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract or agreement pursuant to which liability is
incurred by the Borrower or any Subsidiary with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the LIBO Rate.
"Event of Default" has the meaning assigned to such term in
Article VII.
"Excluded Taxes" means, with respect to the Administrative Agent,
any Lender or any other recipient of any payment to be made by or on account of
any obligation of the Borrower hereunder, (a) income or franchise taxes imposed
on (or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located
<PAGE> 13
7
and (c) in the case of a Foreign Lender (other than an assignee pursuant to a
request by the Borrower under Section 2.16(b)), any United States withholding
tax that is imposed on amounts payable to such Foreign Lender at the time such
Foreign Lender becomes a party to this Agreement or at the time such Lender
changes its applicable lending office or is attributable to such Foreign
Lender's failure or inability to comply with Section 2.14(e), except to the
extent that such Foreign Lender's assignor (if any) or such Foreign Lender, in
the case of a Lender that changes its applicable lending office, was entitled,
at the time of assignment or at the time of the change in applicable lending
office, to receive additional amounts from the Borrower with respect to such
withholding tax pursuant to Section 2.14(a).
"Extended Maturity Date" has the meaning set forth in Section
2.07.
"Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Borrower.
"Fixed Charge Coverage Ratio" means, as at the last day of any
period, Consolidated EBITDAR divided by the sum of Consolidated Interest Expense
plus Consolidated Rental Expense.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the
<PAGE> 14
8
payment thereof, (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness or other obligation or (d)
as an account party in respect of any letter of credit or letter of guaranty
issued to support such Indebtedness or obligation; provided, that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.
"Hazardous Materials" means all radioactive substances or wastes
and all hazardous or toxic substances, wastes or other pollutants, including
petroleum, asbestos or asbestos containing materials, polychlorinated biphenyls,
radon gas, and all other substances or wastes regulated under any Environmental
Law.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (d) all obligations of
such Person in respect of the deferred purchase price of property or services
(excluding accounts payable incurred in the ordinary course of business), (e)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person
of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (i) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include, without duplication, the Indebtedness
of any other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness provide that such Person is not liable
therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Index Debt" means senior, unsecured, long-term indebtedness for
borrowed money of the Borrower that is not guaranteed by any other Person or
subject to any other credit enhancement.
"Interest Election Request" means a request by the Borrower to
convert or continue a Revolving Borrowing in accordance with Section 2.05.
"Interest Payment Date" means (a) with respect to any ABR Loan,
the last day of each March, June, September and December, and (b) with respect
to any Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period.
<PAGE> 15
9
"Interest Period" means with respect to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months (or to the extent available to all Lenders, nine or twelve months)
thereafter, as the Borrower may elect; provided, that (i) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (ii) any Interest Period
pertaining to a Eurodollar Borrowing that commences on the last Business Day of
a calendar month (or on a day for which there is no numerically corresponding
day in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period. For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made or if initially an ABR Loan, on the date initially converted
and, in the case of a Revolving Borrowing, thereafter shall be the effective
date of the most recent conversion or continuation of such Borrowing.
"Lenders" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"Leverage Ratio" means, as at the last day of any period, the
ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for
such period.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for
any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or
on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered to the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, hypothecation, encumbrance, charge or security interest
in, on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Subsidiary Guarantee
and any Notes.
"Loan Parties" means the Borrower and each Subsidiary that is a
party to a Loan Document.
<PAGE> 16
10
"Loans" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.
"Material Adverse Effect" means a material adverse effect on (a)
the business, assets, operations or condition, financial or otherwise, of the
Borrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower
to perform any of its obligations under this Agreement or (c) the rights of or
benefits available to the Lenders under this Agreement and the Subsidiary
Guarantee.
"Material Indebtedness" means Indebtedness (other than the
Loans), or obligations in respect of one or more Hedging Agreements, of any one
or more of the Borrower and its Subsidiaries in an aggregate principal amount
exceeding $25,000,000. For purposes of determining Material Indebtedness, the
"principal amount" of the obligations of the Borrower or any Subsidiary in
respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that the Borrower or such
Subsidiary would be required to pay if such Hedging Agreement were terminated at
such time.
"Maturity Date" means December 4, 2000.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Note" has the meaning set forth in Section 2.07(e).
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA and any successor entity performing similar functions.
"Permitted Acquisition" means any acquisition by the Borrower or
any Subsidiary of any of the assets of, or capital stock in, a Person or of a
division or line of business of a Person if, immediately after giving effect
thereto, (a) no Default has occurred and is continuing or would result
therefrom, (b) the principal business of any such acquired Person, division or
line of business shall be a Permitted Line of Business, (c) all actions required
to be taken under Section 5.10 with respect to any Subsidiary acquired or newly
formed in connection with such acquisition have been taken, (d) the Borrower and
its Subsidiaries are in compliance, on a pro forma basis after giving effect to
such acquisition, with the covenants contained in Section 6.01 recomputed as at
the last day of the most recently ended fiscal quarter of the Borrower for which
financial statements are available, as if such acquisition had occurred on the
first day of each relevant period for testing such compliance and (e) the
Borrower has delivered to the Administrative Agent an officers' certificate to
the effect set forth in clauses (a), (b), (c) and (d) above, together with all
relevant financial information for the Person or assets to be acquired and
reasonably detailed calculations demonstrating satisfaction of the requirement
set forth in clause (d) above.
<PAGE> 17
11
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 5.05;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 30 days or are being contested in compliance with Section 5.05;
(c) pledges and deposits made in the ordinary course of business
in compliance with workers' compensation, unemployment insurance and
other social security laws or regulations;
(d) Liens granted and deposits made to secure the performance of
bids, trade contracts, leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature, in each
case in the ordinary course of business; and
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Borrower or any
Subsidiary;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Lines of Business" means (a) the business of the
Borrower as conducted on the Effective Date, (b) any wholesale, retail or other
distribution of products (including catalogue and internet) or services under
any Trademark or any derivative thereof, (c) any similar business and any
business which provides a service and/or supplies products in connection with
any business described in clause (a) or (b) above or (d) any reasonable
modification or extension thereof.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly announced
as being effective.
"Register" has the meaning set forth in Section 9.04.
<PAGE> 18
12
"Regulation U" means Regulation U of the Board as in effect from
time to time.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving
Credit Exposures and unused Commitments representing more than 50% of the sum of
the total Revolving Credit Exposures and unused Commitments at such time.
"Requirement of Law" means, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer" means the chief executive officer,
president, any vice president or Financial Officer of the Borrower, but in any
event, with respect to financial matters, a Financial Officer of the Borrower.
"Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of the Borrower or any Subsidiary, or any payment
(whether in cash, securities or other property), including any sinking fund or
similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such shares of capital stock of
the Borrower or any option, warrant or other right to acquire any such shares of
capital stock of the Borrower.
"Revolving Credit Exposure" means, with respect to any Lender at
any time, the sum of the outstanding principal amount of such Lender's Revolving
Loans at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw Hill Companies, Inc.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the LIBO Rate, for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of the
Board). The Statutory Reserve Rate shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
"Subordinated Indebtedness": any Indebtedness of the Borrower,
provided that with respect to any such Indebtedness (i) no part of the principal
of such Indebtedness is stated to be payable or is required to be paid (whether
by way of mandatory sinking fund, mandatory
<PAGE> 19
13
redemption, mandatory prepayment or otherwise) prior to the Maturity Date or, if
such Maturity Date is extended pursuant to Section 2.02, the Extended Maturity
Date and the payment of principal of which and (subject to clause (ii) below)
any other obligations of the Borrower in respect thereof are subordinated to the
prior payment in full of principal of and interest (including post-petition
interest) on the Loans and all other obligations and liabilities of the Borrower
to the Administrative Agent and the Lenders hereunder on terms and conditions
first approved in writing by the Required Lenders, (ii) no part of the interest
accruing on such Indebtedness (other than interest payable solely in kind which
shall be similarly subordinated) is payable, without the prior written consent
of the Required Lenders, after a Default or Event of Default has occurred and is
continuing, and (iii) such Indebtedness otherwise contains terms, covenants and
conditions in form and substance reasonably satisfactory to the Required
Lenders, as evidenced by their prior written approval thereof.
"subsidiary" means, with respect to any Person (the "parent") at
any date, any corporation, limited liability company, partnership, association
or other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any wholly-owned subsidiary of the Borrower
and any other subsidiary of the Borrower that the Borrower and the
Administrative Agent agree in writing to designate as a "Subsidiary", it being
understood that the Borrower and the Administrative Agent have agreed to
designate each of the entities set forth on Schedule 3.13 as a Subsidiary.
"Subsidiary Guarantee" means the Subsidiary Guarantee,
substantially in the form of Exhibit C, among the Subsidiary Guarantors
signatories thereto and the Administrative Agent, for the benefit of the
Lenders.
"Subsidiary Guarantor" means each Subsidiary indicated on
Schedule 3.13 as being a "Subsidiary Guarantor", together with each other
Subsidiary that becomes a party to the Subsidiary Guarantee in compliance with
Section 5.10.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next
<PAGE> 20
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preceding Business Day) by the Administrative Agent from three negotiable
certificate of deposit dealers of recognized standing selected by it.
"Trademarks": as defined in Section 5.06.
"Transactions" means the execution, delivery and performance by
the Borrower of this Agreement and by the Subsidiary Guarantors of the
Subsidiary Guarantee, the borrowing of Loans, the use of the proceeds thereof.
"Type", when used in reference to any Loan or Borrowing, refers
to whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the LIBO Rate or the Alternate Base
Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION I.2. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
The word "will" shall be construed to have the same meaning and effect as the
word "shall." Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein," "hereof" and
"hereunder," and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION I.3. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
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SECTION II.1. Commitments. Subject to the terms and conditions
set forth herein, each Lender agrees to make Revolving Loans to the Borrower
from time to time during the Availability Period in an aggregate principal
amount that will not result in (a) such Lender's Revolving Credit Exposure
exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit
Exposures exceeding the total Commitments. Within the foregoing limits and
subject to the terms and conditions set forth herein, the Borrower may borrow,
prepay and reborrow Revolving Loans.
SECTION II.2. Loans and Borrowings. (1) Each Revolving Loan shall
be made as part of a Borrowing consisting of Revolving Loans made by the Lenders
ratably in accordance with their respective Commitments. The failure of any
Lender to make any Loan required to be made by it shall not relieve any other
Lender of its obligations hereunder; provided that the Commitments of the
Lenders are several and no Lender shall be responsible for any other Lender's
failure to make Loans as required.
(20 Subject to Section 2.11, each Revolving Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith. Each Lender at its option may make any Eurodollar Loan
by causing any domestic or foreign branch or Affiliate of such Lender to make
such Loan; provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement.
(30 At the commencement of each Interest Period for any
Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount
that is an integral multiple of $1,000,000 and not less than $5,000,000. At the
time that each ABR Revolving Borrowing is made, such Borrowing shall be in an
aggregate amount that is an integral multiple of $500,000 and not less than
$1,000,000; provided that an ABR Revolving Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the total Commitments.
Borrowings of more than one Type may be outstanding at the same time; provided
that there shall not at any time be more than a total of 15 Eurodollar Revolving
Borrowings outstanding.
(40 Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date unless such Maturity Date is extended pursuant to
Section 2.07, in which case such Interest Period shall not be permitted to end
after the Extended Maturity Date.
SECTION II.3. Requests for Revolving Borrowings. To request a
Revolving Borrowing, the Borrower shall notify the Administrative Agent of such
request by telephone (a) in the case of a Eurodollar Borrowing, not later than
11:00 a.m., New York City time, three Business Days before the date of the
proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00
a.m., New York City time, on the date of the proposed Borrowing. Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:
(10 the aggregate amount of the requested Borrowing;
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(20 the date of such Borrowing, which shall be a Business Day;
(30 whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(40 in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(50 the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.04.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Borrowing Request in accordance with
this Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION II.4. Funding of Borrowings. (1) Each Lender shall make
each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, New York City time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with the Administrative Agent in
New York City and designated by the Borrower in the applicable Borrowing
Request.
(20 Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the
case of the Borrower, the interest rate otherwise applicable to such Borrowing.
If such Lender pays such amount to the Administrative Agent, then such amount
shall constitute such Lender's Loan included in such Borrowing.
SECTION II.5. Interest Elections. (1) Each Revolving Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Revolving Borrowing, shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
may elect to convert such Borrowing to a different Type or to continue such
Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect
Interest Periods therefor, all as provided in this Section. The Borrower may
elect different options with respect to different portions of the affected
Borrowing, in which case each such
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portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing.
(20 To make an election pursuant to this Section, the Borrower
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03 if the Borrower
were requesting a Revolving Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(30 Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(10 the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(20 the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(30 whether the resulting Borrowing is to be an ABR Borrowing or
a Eurodollar Borrowing; and
(40 if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(40 Promptly following receipt of an Interest Election Request,
the Administrative Agent shall advise each Lender of the details thereof and of
such Lender's portion of each resulting Borrowing.
(50 If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Revolving Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if
an Event of Default has occurred and is continuing and the Administrative Agent,
at the request of the Required Lenders, so notifies the Borrower, then, so long
as an Event of Default is continuing (i) no outstanding Revolving Borrowing may
be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid,
each Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at
the end of the Interest Period applicable thereto.
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SECTION II.6. Termination and Reduction of Commitments. Unless
previously terminated, the Commitments shall terminate on the Maturity Date.
(10 The Borrower may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $1,000,000 and not less
than $10,000,000 and (ii) the Borrower shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans in
accordance with Section 2.08, the sum of the Revolving Credit Exposures would
exceed the total Commitments.
(20 The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.
SECTION II.7. Repayment of Loans; Evidence of Debt. (1) The
Borrower hereby unconditionally promises to pay to the Administrative Agent for
the account of each Lender the then unpaid principal amount of each Revolving
Loan on the Maturity Date. Notwithstanding the foregoing, the Borrower may
request, in a notice provided to the Administrative Agent not less than 30 nor
more than 60 days prior to the Maturity Date, that the Revolving Loans
comprising any Borrowing outstanding on the Maturity Date mature on the date one
year after the Maturity Date (such later date, the "Extended Maturity Date"),
and the unpaid principal amount of such Revolving Loans shall then be due and
payable on such date. The Administrative Agent shall promptly notify each Lender
of such request.
(20 Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(30 The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Type thereof and
the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(40 The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
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(50 Any Lender may request that Loans made by it be evidenced by
a promissory note (a "Note"). In such event, the Borrower shall prepare, execute
and deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a form approved by the Administrative Agent. Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION II.8. Prepayment of Loans. (1) The Borrower shall have
the right at any time and from time to time to prepay any Borrowing in whole or
in part, subject to prior notice in accordance with paragraph (b) of this
Section.
(20 The Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of prepayment, or (ii) in
the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m.,
New York City time, on the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid; provided that, if a notice of
prepayment is given in connection with a conditional notice of termination of
the Commitments as contemplated by Section 2.06, then such notice of prepayment
may be revoked if such notice of termination is revoked in accordance with
Section 2.06. Promptly following receipt of any such notice relating to a
Revolving Borrowing, the Administrative Agent shall advise the Lenders of the
contents thereof. Each partial prepayment of any Revolving Borrowing shall be in
an amount that would be permitted in the case of an advance of a Revolving
Borrowing of the same Type as provided in Section 2.02. Each prepayment of a
Revolving Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.10.
SECTION II.9. Fees. (10 The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a facility fee, which shall
accrue at the Applicable Rate on the daily amount of the Commitment of such
Lender (whether used or unused) during the period from and including the
Effective Date to but excluding the date on which such Commitment terminates;
provided that, if such Lender continues to have any Revolving Credit Exposure
after its Commitment terminates, then such facility fee shall continue to accrue
on the daily amount of such Lender's Revolving Credit Exposure from and
including the date on which its Commitment terminates to but excluding the date
on which such Lender ceases to have any Revolving Credit Exposure. Accrued
facility fees shall be payable in arrears on the last day of March, June,
September and December of each year and on the date on which the Commitments
terminate, commencing on the first such date to occur after the date hereof;
provided that any facility fees accruing after the date on which the Commitments
terminate shall be payable on demand. All facility fees shall be computed on the
basis of a year of 360 days and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).
(20 The Borrower agrees to pay to the Administrative Agent, for
its own account, fees payable in the amounts and at the times separately agreed
upon between the Borrower and the Administrative Agent.
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(30 All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees and utilization fees, to the Lenders. Fees paid shall
not be refundable under any circumstances.
SECTION II.10. Interest. The Loans comprising each ABR
Borrowing shall bear interest at a rate per annum equal to the Alternate Base
Rate plus the Applicable Rate.
(10 The Loans comprising each Eurodollar Borrowing shall bear
interest at a rate per annum equal to the LIBO Rate for the Interest Period in
effect for such Borrowing plus the Applicable Rate.
(20 Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided above
or (ii) in the case of any other amount, 2% plus the rate applicable to ABR
Loans as provided above.
(30 Accrued interest on each Loan shall be payable in arrears on
each Interest Payment Date for such Loan; provided that (i) interest accrued
pursuant to paragraph (b) of this Section shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment of
an ABR Revolving Loan prior to the end of the Availability Period), accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment, (iii) in the event of any conversion of any
Eurodollar Revolving Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion and (iv) all accrued interest shall be payable upon
termination of the Commitments unless the Maturity Date has been extended
pursuant to Section 2.07, in which case interest shall continue to be payable in
arrears on each applicable Interest Payment Date.
(40 All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate or
LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION II.11. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(10 the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the LIBO Rate for such Interest
Period; or
(20 the Administrative Agent is advised by the Required Lenders
that the LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders (or Lender) of making or
maintaining their Loans (or its Loan) included in such Borrowing for
such Interest Period;
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then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be
ineffective, and (ii) if any Borrowing Request requests a Eurodollar Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if
the circumstances giving rise to such notice affect only one Type of Borrowing,
then the other Type of Borrowing shall be permitted.
SECTION II.12. Increased Costs. (1) If any Change in Law
shall:
(10 impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender (except any such reserve
requirement reflected in the LIBO Rate); or
(20 impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans made by such
Lender therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender such additional amount or
amounts as will compensate such Lender for such additional costs incurred or
reduction suffered.
(20 If any Lender determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such Lender's capital or on the capital of such Lender's holding company, if
any, as a consequence of this Agreement or the Loans made by such Lender to a
level below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(30 A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
(40 Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender's right to demand such compensation; provided that the Borrower shall not
be required to compensate a Lender pursuant to this Section for any increased
costs or reductions incurred more than three months prior to the date that such
Lender notifies the Borrower of the Change in Law giving rise to such increased
costs or reductions and of such Lender's intention to claim compensation
therefor; provided further that, if the Change in Law giving rise to such
increased costs or reductions is retroactive, then the three-month period
referred to above shall be extended to include the period of retroactive effect
thereof.
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SECTION II.13. Break Funding Payments. The Borrower agrees to
indemnify each Lender and to hold each Lender harmless from any loss or expense
that such Lender may sustain or incur as a consequence of (a) default by the
Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after the Borrower has given a notice requesting the same in accordance
with the provisions of this Agreement, (b) default by the Borrower in making any
prepayment of or conversion from Eurodollar Loans after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement, (c) the
making of a prepayment of Eurodollar Loans on a day that is not the last day of
an Interest Period with respect thereto, (d) the assignment of any Eurodollar
Loan other than on the last day of the Interest Period applicable thereto as a
result of a request by the Borrower pursuant to Section 2.16. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest that would have accrued on the amount so prepaid, or not so
borrowed, converted or continued or assigned for the period from the date of
such prepayment or of such failure to borrow, convert or continue or assign to
the last day of such Interest Period (or, in the case of a failure to borrow,
convert or continue, or assign the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Rate included
therein, if any) over (ii) the amount of interest (as reasonably determined by
such Lender) that would have accrued to such Lender on such amount by placing
such amount on deposit for a comparable period with leading banks in the
interbank eurodollar market. A certificate as to any amounts payable pursuant to
this Section submitted to the Borrower by any Lender shall be conclusive in the
absence of manifest error. This covenant shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
SECTION II.14. Taxes. (a) Any and all payments by or an account
of any obligation of the Borrower hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided that if the
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent or Lender
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower shall make such deductions
and (iii) the Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and
each Lender within 30 days after written demand therefor, for the full amount of
any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this Section)
paid by the Administrative Agent or such Lender, as the case may be, and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender or by the Administrative Agent on its own behalf or on
behalf of a Lender, shall be conclusive absent manifest error.
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(d) As soon as practicable after any payment of Indemnified Taxes
or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law or reasonably requested by the Borrower, such properly completed and
executed documentation prescribed by applicable law as will permit such payments
to be made without withholding or at a reduced rate.
SECTION II.15. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs. (10 The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest or fees, or under Section 2.12, 2.13
or 2.14, or otherwise) prior to 3:00 p.m. New York City time, on the date when
due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except that payments pursuant to Sections 2.12, 2.13, 2.14 and
9.03 shall be made directly to the Persons entitled thereto. The Administrative
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt thereof. If
any payment hereunder shall be due on a day that is not a Business Day, the date
for payment shall be extended to the next succeeding Business Day, and, in the
case of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments hereunder shall be made in dollars.
(20 If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
interest and fees then due hereunder, such funds shall be applied (i) first, to
pay interest and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of interest and fees then due to such
parties, and (ii) second, to pay principal then due hereunder, ratably among the
parties entitled thereto in accordance with the amounts of principal then due to
such parties.
(30 If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Revolving Loans
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Revolving Loans of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Revolving Loans; provided that (i) if any
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the
<PAGE> 30
24
assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(40 Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders hereunder that the Borrower
will not make such payment, the Administrative Agent may assume that the
Borrower has made such payment on such date in accordance herewith and may, in
reliance upon such assumption, distribute to the Lenders the amount due. In such
event, if the Borrower has not in fact made such payment, then each of the
Lenders severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender with interest thereon, for each
day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the Federal Funds
Effective Rate.
(50 If any Lender shall fail to make any payment required to be
made by it pursuant to 2.04(b) or 2.15(d), then the Administrative Agent may, in
its discretion (notwithstanding any contrary provision hereof), apply any
amounts thereafter received by the Administrative Agent for the account of such
Lender to satisfy such Lender's obligations under such Sections until all such
unsatisfied obligations are fully paid.
SECTION II.16. Mitigation Obligations; Replacement of Lenders.
(10 If any Lender requests compensation under Section 2.12, or if the Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.14, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.12 or 2.14, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(20 If any Lender requests compensation under Section 2.12, or if
the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.14,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) if such assignee
is not a Lender, the Borrower shall have received the prior written consent of
the Administrative Agent which consent shall not be unreasonably withheld, (ii)
such Lender shall have received payment of an amount equal to the outstanding
principal of its Loans, accrued interest thereon, accrued fees and all other
amounts payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or
<PAGE> 31
25
the Borrower (in the case of all other amounts) and (iii) in the case of any
such assignment resulting from a claim for compensation under Section 2.12 or
payments required to be made pursuant to Section 2.14, such assignment will
result in a reduction in such compensation or payments. A Lender shall not be
required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such assignment and delegation cease to apply.
SECTION II.17. Source of Funds. None of the funds to be lent
pursuant to this Agreement are assets of an employee benefit plan or constitute
"plan assets" within the meaning of Department of Labor Regulation Section
2510.3-101.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
SECTION III.1. Organization; Powers. Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION III.2. Authorization; Enforceability. The Transactions
are within the Borrower's corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action. This Agreement has
been duly executed and delivered by the Borrower and constitutes a legal, valid
and binding obligation of the Borrower, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION III.3. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of the Borrower or any of its Subsidiaries or any order
of any Governmental Authority, (c) will not violate or result in a default under
any indenture, agreement or other instrument binding upon the Borrower or any of
its Subsidiaries or its assets, or give rise to a right thereunder to require
any payment to be made by the Borrower or any of its Subsidiaries in a manner
which could reasonably be expected to have a Material Adverse Effect, and (d)
will not result in the creation or imposition of any material Lien on any asset
of the Borrower or any of its Subsidiaries.
SECTION III.4. Financial Condition; No Material Adverse Change.
(10 The Borrower has heretofore furnished to the Lenders its consolidated
balance sheet and statements of income, stockholders equity and cash flows (i)
as of and for the fiscal year ended January 2, 1999, reported on by Arthur
Andersen LLP, independent public accountants, and (ii) as of and for the fiscal
quarter and the portion of the fiscal year ended July 3, 1999, certified by its
chief financial officer. Such financial statements present fairly, in all
material respects, the financial
<PAGE> 32
26
position and results of operations and cash flows of the Borrower and its
consolidated Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes in
the case of the statements referred to in clause (ii) above. The Borrower and
its Subsidiaries do not have any material Guarantees, contingent liabilities and
liabilities for taxes, or any long-term leases or unusual forward or long-term
commitments, including any interest rate or foreign currency swap or exchange
transaction or other obligation in respect of derivatives, that are not
reflected in the financial statements referred to in this paragraph or in the
notes thereto (and, in the case of such lease or commitment, which is required
in accordance with GAAP to be reflected in such statements or notes) or which
has not otherwise been disclosed to the Lenders in writing.
(20 Since July 3, 1999, there has been no development, event or
circumstance that has had or could reasonably be expected to have a Material
Adverse Effect.
SECTION III.5. Properties; Liens. (10 Each of the Borrower and
its Subsidiaries has good title to, or valid leasehold interests in, all its
real and personal property material to its business, except for minor defects in
title that do not interfere with its ability to conduct its business as
currently conducted or to utilize such properties for their intended purposes,
and none of such property is subject to any Lien, except as permitted by Section
6.03.
(20 Each of the Borrower and its Subsidiaries own, or is licensed
to use, all trademarks, tradenames, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION III.6. Litigation and Environmental Matters. (1) There
are no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve this Agreement or the Transactions.
(2) Except for the Disclosed Matters and except with respect to
any other matters that, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect, neither the Borrower nor any
of its Subsidiaries (i) has failed to comply with any Environmental Law, (ii) is
subject to any Environmental Liability, (iii) has received any written notice of
any claim with respect to any Environmental Liability or (iv) has knowledge of
any reason to reasonably conclude that Environmental Liability will be incurred.
(3) Since the date of this Agreement, there has been no change in
the status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION III.7. Compliance with Laws and Agreements. Each of the
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
<PAGE> 33
27
SECTION III.8. No Default. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any Contractual Obligation
or any order, award or decree of any Governmental Authority or arbitrator
binding upon it or its properties in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
SECTION III.9. Investment and Holding Company Status. Neither the
Borrower nor any of its Subsidiaries is (a) an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION III.10. No Burdensome Restrictions. Neither the
Borrower nor any Subsidiary is a party to any indenture, agreement, lease or
other instrument which is so unusual or burdensome such that it could be
reasonably expected to have a Material Adverse Effect.
SECTION III.11. Taxes. Each of the Borrower and its Subsidiaries
has timely filed or caused to be filed all Tax returns and reports required to
have been filed and have paid or caused to be paid all Taxes required to have
been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION III.12. Federal Regulations. No part of the proceeds of
any Loans hereunder will be used, directly or indirectly, for "buying" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U of the Board as now and from time to time
hereafter in effect or for any purpose which violates, or which would be
inconsistent with, the provisions of the Regulations of such Board. If requested
by the Agent or any Lender, the Borrower will furnish to the Agent and each
Lender a statement to the foregoing effect in conformity with the requirements
of FR Form U-1 referred to in said Regulation U.
SECTION III.13. Subsidiaries. Schedule 3.13 sets forth as of
the date hereof the name, and, where applicable, the jurisdiction of
organization, number of authorized and issued shares and ownership of each
Subsidiary of the Borrower.
SECTION III.14. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed the fair market value of the assets of such Plan, except to the extent
any such excess (individually or in the aggregate) could not reasonably be
expected to have a Material Adverse Effect, and the present value of all
accumulated benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of Statement of Financial Accounting Standards No.
87) did not, as of the date of the most recent financial statements reflecting
such amounts, exceed the fair market value of the assets of all such underfunded
Plans except to the extent any such excess (individually or in the aggregate)
could not reasonably be expected to have a Material Adverse Effect.
<PAGE> 34
28
SECTION III.15. Disclosure. None of the reports, financial
statements, certificates or other information furnished by or on behalf of the
Borrower to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contain any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION III.16. Year 2000 Matters. Except as otherwise disclosed
in the Borrower's most recent Form 10Q filed with Securities and Exchange
Commission, any reprogramming required to permit the proper functioning (but
only to the extent that such proper functioning would otherwise be impaired by
the occurrence of the year 2000) in and following the year 2000 of computer
systems and other equipment containing embedded microchips, in either case owned
or operated by each Borrower or any of its Subsidiaries or used or relied upon
in the conduct of their business (including any such systems and other equipment
supplied by others or with which the computer systems of each Borrower or any of
its Subsidiaries interface), and the testing of all such systems and other
equipment as so reprogrammed, will have been completed by December 1, 1999. The
costs to each Borrower and its Subsidiaries that have not been incurred as of
the date hereof for such reprogramming and testing and for the other reasonably
foreseeable consequences to them of any improper functioning of other computer
systems and equipment containing embedded microchips due to the occurrence of
the year 2000 could not reasonably be expected to result in a Default or Event
of Default or to have a Material Adverse Effect. Except for any reprogramming
referred to above, the computer systems of each Borrower and its Subsidiaries
are and, with ordinary course upgrading and maintenance, will continue for the
term of this Agreement to be, sufficient for the conduct of their business as
currently conducted.
ARTICLE IV
Conditions
SECTION IV.1. Effective Date. The obligations of the Lenders
to make Loans hereunder shall not become effective until the date on which each
of the following conditions is satisfied (or waived in accordance with Section
9.02):
(1) The Administrative Agent (or its counsel) shall have received
(i) either (A) a counterpart of this Agreement, executed and delivered
by a duly authorized officer of the Borrower or (B) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement and (ii) a counterpart
of the Subsidiary Guarantee, executed and delivered by a duly authorized
officer of each Subsidiary Guarantor.
(2) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of Kramer Levin Naftalis & Frankel LLP,
counsel for the Borrower, substantially
<PAGE> 35
29
in the form of Exhibit B, and covering such other matters relating to
the Borrower, this Agreement or the Transactions as the Required
Lenders shall reasonably request. The Borrower hereby requests such
counsel to deliver such opinion.
(3) The Administrative Agent shall have received all government
approvals necessary or, in the discretion of the Administrative Agent,
advisable in connection with the financing contemplated hereby and the
continuing operations of the Borrower and its Subsidiaries shall have
been obtained and be in full force and effect.
(4) The Administrative Agent shall have received such documents
and certificates as the Administrative Agent or its counsel may
reasonably request relating to the organization, existence and good
standing of the Borrower and its Subsidiaries, the authorization of the
Transactions and any other legal matters relating to the Borrower, this
Agreement or the Transactions, all in form and substance satisfactory to
the Administrative Agent and its counsel.
(5) The Administrative Agent shall have received (i) audited
consolidated financial statements of the Borrower for the two most
recent fiscal years ended prior to the Effective Date as to which such
financial statements are available and (ii) unaudited interim
consolidated financial statements of the Borrower for each quarterly
period ended subsequent to the date of the latest financial statements
delivered pursuant to clause (i) of this paragraph as to which such
financial statements are available.
(6) The Administrative Agent shall have received a certificate,
dated the Effective Date and signed by the president, a vice president
or a Financial Officer of the Borrower, confirming compliance with the
conditions set forth in paragraphs (a) and (b) of Section 4.02.
(7) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the Borrower
hereunder.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on
December 15, 1999 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
SECTION IV.2. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing is subject to the satisfaction
of the following conditions:
(1) The representations and warranties of the Borrower set forth
in this Agreement (except the representations set forth in Section
3.04(b), Section 3.06 and the first sentence of Section 3.08) shall be
true and correct in all material respects on and as of the date of such
Borrowing, except for representations and warranties which are made as
of a specific date which shall be true and correct as of such date.
(2) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
<PAGE> 36
30
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, the Borrower covenants and agrees with the Lenders that:
SECTION V.1. Financial Statements. The Borrower will furnish
to the Administrative Agent and each Lender:
(1) as soon as available, but in any event within 90 days after
the end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated
subsidiaries as at the end of such year and the related audited
consolidated statements of income and of cash flows for such year,
setting forth in each case in comparative form the figures for the
previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope of
the audit, by Arthur Andersen LLP or other independent certified public
accountants of nationally recognized standing; and
(2) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, the unaudited consolidated balance sheet of
the Borrower and its consolidated subsidiaries as at the end of such
quarter and the related unaudited consolidated statements of income and
of cash flows for such quarter and the portion of the fiscal year
through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, signed by a
Responsible Officer (subject to normal year-end audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
SECTION V.2. Certificates; Other Information. The Borrower will
furnish to the Administrative Agent and each Lender (or, in the case of clause
(d), to the relevant Lender):
(1) concurrently with the delivery of the financial statements
referred to in Section 5.01(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
such certificate;
(2) concurrently with the delivery of any financial statements
pursuant to Section 5.01, (i) a certificate of a Responsible Officer
stating that, to the best of each such Responsible Officer's knowledge,
each Loan Party during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition,
<PAGE> 37
31
contained in this Agreement and the other Loan Documents to which it is
a party to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and (ii) in the case of
quarterly or annual financial statements, a Certificate containing all
information and calculations necessary for determining compliance by the
Borrower and its Subsidiaries with the provisions of this Agreement
referred to therein as of the last day of the fiscal quarter or fiscal
year of the Borrower, as the case may be;
(3) within five days after the same are sent, copies of all
financial statements and reports that the Borrower sends to the holders
of any class of its debt securities or public equity securities and,
within five days after the same are filed, copies of all financial
statements and reports that the Borrower may make to, or file with, the
Securities and Exchange Commission, or any Governmental Authority; and
(4) promptly, such additional financial and other information as
any Lender may from time to time reasonably request.
SECTION V.3. Notices of Material Events. The Borrower will
promptly (an in any event within five days after the Borrower knows of the
following events) furnish to the Administrative Agent and each Lender written
notice of the following:
(1) the occurrence of any Default;
(2) the filing or commencement of any action, suit or proceeding
by or before any arbitrator or Governmental Authority against or
affecting the Borrower or any Affiliate thereof as to which there is a
reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected to result in a
Material Adverse Effect;
(3) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to have a Material Adverse Effect; and
(4) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Responsible Officer setting forth the details of the event or development
requiring such notice and any action taken or proposed to be taken with respect
thereto.
SECTION V.4. Existence; Conduct of Business. The Borrower will,
and will cause each of its Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of Permitted Lines of Business; provided that the foregoing shall
not prohibit any merger, consolidation, liquidation or dissolution permitted
under Section 6.04.
SECTION V.5. Payment of Obligations. The Borrower will, and will
cause each of its Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Effect before
the same shall become delinquent or in default, except
<PAGE> 38
32
where (a) the validity or amount thereof is being contested in good faith by
appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on
its books adequate reserves with respect thereto in accordance with GAAP and (c)
the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.
SECTION V.6. Maintenance of Properties and Trademarks; Insurance.
The Borrower will, and will cause each of its Subsidiaries to, (a) keep and
maintain all property material to the conduct of its business in good working
order and condition, ordinary wear and tear excepted, provided that the Borrower
shall, in good faith, determine when to repair any property, (b) take all action
reasonably necessary or desirable in accordance with good business practices to
(i) maintain in full force and effect such domestic and foreign patents,
trademarks, service marks, trade names, copyrights and licenses and such
material rights with respect to the foregoing, now or hereafter acquired, in
each case necessary for the conduct of its business (collectively, the
"Trademarks") and (ii) protect all domestic and foreign Trademarks against
infringement by third parties and (c) maintain, with financially sound and
reputable insurance companies, insurance in such amounts and against such risks
as a prudent Person engaged in the same or similar business of a similar size
and otherwise similarly situated would maintain.
SECTION V.7. Books and Records; Inspection Rights. The Borrower
will, and will cause each of its Subsidiaries to, keep proper books of record
and account in which full, true and correct entries in conformity with GAAP are
made of all dealings and transactions in relation to its business and
activities. The Borrower will, and will cause each of its Subsidiaries to,
permit on an annual basis (or at any time and from time to time after the
occurrence and during the continuance of a Default or Event of Default) any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
SECTION V.8. Environmental Laws. The Borrower will, and will
use reasonable best efforts to cause each of its Subsidiaries to:
(1) Comply in all material respects with, and use reasonable best
efforts to ensure compliance in all material respects by their tenants
and subtenants, if any, with, all applicable Environmental Laws, except
for such matters of noncompliance which could not reasonably be
expected, individually or in the aggregate, to result in a Material
Adverse Effect.
(2) Except to the extent being contested in good faith, conduct
and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental Laws or
by Governmental Authorities.
SECTION V.9. Compliance. The Borrower will, and will cause
each of its Subsidiaries to, comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION V.10. Additional Subsidiaries. The Borrower will, with
respect to any Person that, subsequent to the Effective Date, becomes a
Subsidiary organized in a jurisdiction within the United States, promptly cause
such new Subsidiary to become a party to
<PAGE> 39
33
the Subsidiary Guarantee pursuant to documentation which is in form and
substance satisfactory to the Administrative Agent; provided that the
Administrative Agent and the Borrower may agree in writing that any non-material
or less than wholly-owned Subsidiary need not become a Subsidiary Guarantor.
SECTION V.11. Use of Proceeds. The proceeds of the Loans will be
used only for working capital and other general corporate purposes of the
Borrower, including, without limitation, capital expenditures, stock
repurchases, Permitted Acquisitions and support of its commercial paper
facility. No part of the proceeds of any Loan will be used, whether directly or
indirectly, for any purpose that entails a violation of any of the Regulations
of the Board, including Regulations U and X.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full, the Borrower covenants and agrees with the Lenders that:
SECTION VI.1. Financial Covenants.
(a) Leverage Ratio. The Borrower will not permit the Leverage
Ratio as at the last day of any period of four consecutive fiscal
quarters of the Borrower to exceed 2.50 to 1.00.
(b) Fixed Charge Coverage Ratio. The Borrower will not permit the
Fixed Charge Coverage Ratio for any period of four consecutive fiscal
quarters of the Borrower to be less than 3.00 to 1.00.
SECTION VI.2. Indebtedness. The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or permit to exist any
Indebtedness, except:
(1) Indebtedness created hereunder;
(2) Indebtedness existing on the date hereof and set forth in
Schedule 6.02;
(3) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary;
(4) Guarantees by the Borrower of Indebtedness of any
Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any
other Subsidiary;
(5) Indebtedness of the Borrower or any Subsidiary incurred to
finance the acquisition, construction or improvement of any fixed or
capital assets, including Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or secured
by a Lien on any such assets prior to the acquisition thereof, provided
that (i) such Indebtedness is incurred prior to or within 90 days after
such acquisition or the completion of such construction or improvement
and (ii) the aggregate
<PAGE> 40
34
principal amount of Indebtedness permitted by this clause (e) shall not
exceed $75,000,000 at any time outstanding;
(6) Indebtedness of any Person that becomes a Subsidiary after
the date hereof; provided that (i) such Indebtedness exists or is
committed at the time such Person becomes a Subsidiary and is not
created in contemplation of or in connection with such Person becoming a
Subsidiary and (ii) the Borrower and its Subsidiaries are in compliance,
on a pro forma basis after giving effect to such acquisition, with the
covenants contained in Section 6.01 recomputed as at the last day of the
most recently ended fiscal quarter of the Borrower for which financial
statements are available, as if such acquisition had occurred on the
first day of each relevant period for testing such compliance;
(7) Indebtedness of the Borrower or any Subsidiary incurred
(a) as an account party in respect of trade letters of credit issued in
the ordinary course of business and (b) in connection with standby
letters of credit in an aggregate principal amount not exceeding
$25,000,000 at any time outstanding;
(8) Indebtedness of the Borrower or any Subsidiary in respect
of commercial paper; provided that the aggregate amount of such
Indebtedness, when added to the aggregate amount of outstanding Loans,
shall not exceed the aggregate amount of the Commitments;
(9) Subordinated Indebtedness;
(10) any refinancings, refundings, renewals or extensions of
Indebtedness permitted hereunder that do not increase the outstanding
principal amount of such Indebtedness;
(11) additional Indebtedness not otherwise permitted hereunder
secured by Liens permitted by Section 6.03(i) and not exceeding
$75,000,000 in aggregate principal amount at any time outstanding; and
(12) Indebtedness not otherwise permitted hereunder, not
secured by any Lien and incurred after the date hereof; provided that
the Borrower and its Subsidiaries are in compliance, on a pro forma
basis after giving effect to such Indebtedness, with the covenants
contained in Section 6.01 recomputed as at the last day of the most
recently ended fiscal quarter of the Borrower for which financial
statements are available, as if such Indebtedness had been incurred on
the first day of each relevant period for testing such compliance.
SECTION VI.3. Liens. The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or permit to exist any Lien on any
property or asset now owned or hereafter acquired by it, or assign or sell any
income or revenues (including accounts receivable) or rights in respect of any
thereof, except:
(1) Permitted Encumbrances;
(2) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 6.03;
provided that (i) such Lien shall not apply to any other property or
asset of the Borrower or any Subsidiary and (ii)
<PAGE> 41
35
such Lien shall secure only those obligations which it secures on the
date hereof and extensions, renewals and replacements thereof that do
not increase the outstanding principal amount thereof;
(3) Liens arising by the terms of letters of credit entered into
in the ordinary course of business to secure reimbursement obligations
thereunder;
(4) Liens solely constituting the right of any other Person to a
share of any licensing royalties (pursuant to a licensing agreement or
other related agreement entered into by the Borrower or any of its
Subsidiaries with such Person in the ordinary course of the Borrower's
or such Subsidiary's business) otherwise payable to the Borrower or any
of its Subsidiaries, provided that such right shall have been conveyed
to such Person for consideration received by the Borrower or such
Subsidiary on an arm's-length basis;
(5) Liens arising by reason of any judgment, decree or order of
any court or other Governmental Authority for the payment of money in
aggregate amount not to exceed $25,000,000;
(6) Liens arising in connection with factoring accounts
receivable related to any acquired Subsidiary; provided that such
factoring shall not continue for a period longer than one year from the
date such Subsidiary is acquired;
(7) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that
(i) such Lien is not created in contemplation of or in connection with
such acquisition or such Person becoming a Subsidiary, as the case may
be, (ii) such Lien shall not apply to any other property or assets of
the Borrower or any Subsidiary and (iii) such Lien shall secure only
those obligations which it secures on the date of such acquisition or
the date such Person becomes a Subsidiary, as the case may be and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;
(8) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower or any Subsidiary; provided that (i) such
security interests secure Indebtedness permitted by clause (e) of
Section 6.02, (ii) such security interests and the Indebtedness secured
thereby are incurred prior to or within 90 days after such acquisition
or the completion of such construction or improvement, (iii) the
Indebtedness secured thereby does not exceed 100% of the cost of
acquiring, constructing or improving such fixed or capital assets and
(iv) such security interests shall not apply to any other property or
assets of the Borrower or any Subsidiary; and
(9) Liens securing Indebtedness permitted under Section 6.02(k)
to the extent such original Indebtedness was originally permitted to be
secured pursuant to Section 6.02; provided that the principal amount of
such Indebtedness is not increased and that no such Lien is spread to
cover additional property.
SECTION VI.4. Fundamental Changes. Except in connection with
transactions otherwise permitted pursuant to Section 6.05 or 6.06, the Borrower
will not, and will not permit any Subsidiary to, merge into or consolidate with
any other Person, or permit any other Person to
<PAGE> 42
36
merge into or consolidate with it, or sell, transfer, lease or otherwise dispose
of (in one transaction or in a series of transactions) all or substantially all
of its assets, or all or substantially all of the stock of any of its
Subsidiaries (in each case, whether now owned or hereafter acquired), or
liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto, no Default shall have occurred and be continuing (i) any
Person may merge into the Borrower in a transaction in which the Borrower is the
surviving corporation, (ii) any Person may merge into any Subsidiary in a
transaction in which the surviving entity is a Subsidiary and, if required to be
so under Section 5.10, a Subsidiary Guarantor, (iii) any Subsidiary may sell,
transfer, lease or otherwise dispose of its assets to the Borrower or to another
Subsidiary which is a Subsidiary Guarantor and (iv) any Subsidiary may liquidate
or dissolve if the Borrower determines in good faith that such liquidation or
dissolution is in the best interests of the Borrower and is not materially
disadvantageous to the Lenders; provided that any such merger involving a Person
that is not a wholly owned Subsidiary immediately prior to such merger shall not
be permitted unless also permitted by Section 6.05.
SECTION VI.5. Investments, Loans, Advances, Guarantees and
Acquisitions; Hedging Agreements. (1) The Borrower will not, and will not permit
any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any
merger with any Person that was not a wholly owned Subsidiary prior to such
merger) any capital stock, evidences of indebtedness or other securities
(including any option, warrant or other right to acquire any of the foregoing)
of, make or permit to exist any loans or advances to, guarantee any obligations
of, or make or permit to exist any investment or any other interest in, any
other Person, or purchase or otherwise acquire (in one transaction or a series
of transactions) any assets of any other Person constituting a business unit,
except:
(1) existing investments not otherwise permitted under this
Agreement and described in Schedule 6.05(i) hereto;
(2) investments made in accordance with the investment policy
of the Borrower as set forth on Schedule 6.05(ii) hereto; as provided
that any material amendment or other material modification to such
policy is subject to the approval of the Administrative Agent in its
reasonable discretion;
(3) investments by the Borrower in the capital stock of its
Subsidiaries;
(4) Permitted Acquisitions;
(5) investments received in connection with the bona fide
settlement of any defaulted Indebtedness or other liability owed to the
Borrower or any Subsidiary;
(6) advances or loans made in the ordinary course of business
to employees of the Borrower or any of its Subsidiaries in an aggregate
outstanding amount not to exceed $10,000,000;
(7) loans or advances to third party contractors, suppliers or
customers in the ordinary course of business and consistent with past
practice;
(8) loans or advances made by the Borrower to any Subsidiary
and made by any Subsidiary to the Borrower or any other Subsidiary;
<PAGE> 43
37
(9) guarantees by the Borrower or any Subsidiary of
obligations of the Borrower or any other Subsidiary which do not
constitute Indebtedness;
(10) Guarantees constituting Indebtedness permitted by Section
6.02; and
(11) any other investments in, advances or loans to or
Guarantees of, any Person in an aggregate amount not to exceed
$150,000,000;
(2) The Borrower will not, and will not permit any of its
Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements
entered into in the ordinary course of business (including, without limitation,
Hedging Agreements in connection with the Borrower's stock repurchase program)
to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in
the conduct of its business or the management of its liabilities.
SECTION VI.6. Limitation on Sale of Assets. Except in the
ordinary course of business, the Borrower will not, and will not permit any of
its Subsidiaries to, sell, convey, lease, transfer or otherwise dispose of
(other than as otherwise permitted by Section 6.04 or 6.05) all or any
substantial part of its assets; provided that the foregoing shall not prohibit
any such sale, conveyance, lease, transfer or disposition (i) which (x) is for a
price not materially less than the fair market value of such assets of the
Borrower or such Subsidiary, (y) would not materially impair the ability of the
Borrower to perform its obligations under this Agreement and (z) together with
all other such sales, conveyances, leases, transfers and dispositions, would
have no Material Adverse Effect, (ii) of assets that individually or in the
aggregate constitute less than 15% of the total assets of the Borrower and its
Subsidiaries taken as a whole or (iii) of assets in connection with factoring
arrangements with respect to any acquired Subsidiary, provided that such
factoring arrangements do not continue longer than a year after such Subsidiary
is acquired by the Borrower.
SECTION VI.7. Restricted Payments. The Borrower will not, and
will not permit any of its Subsidiaries to, declare or make, or agree to pay or
make, directly or indirectly, any Restricted Payment, except (a) the Borrower
may declare and pay dividends with respect to its capital stock payable solely
in additional shares of its common stock, (b) so long as no Default or Event of
Default has occurred and is continuing, the Borrower may declare and pay
dividends with respect to its capital stock, (c) any Subsidiary may declare and
pay dividends to the Borrower or, in the case of any Subsidiary that is wholly
owned by another Subsidiary, to such other Subsidiary, (d) the Borrower may make
Restricted Payments pursuant to and in accordance with stock option plans or
other benefit plans for management or employees of the Borrower and its
Subsidiaries, (e) so long as no Default or Event of Default has occurred and is
continuing, the Borrower may repurchase its capital stock pursuant to its stock
repurchase program and (f) so long as no Default or Event of Default has
occurred and is continuing, the Borrower may make Restricted Payments in
connection with the repurchase of the Capital Stock of Lucky Brands, Inc. and
Segrets, Inc.
SECTION VI.8. Transactions with Affiliates. The Borrower will
not, and will not permit any of its Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) in the ordinary course of business at prices and
on terms and conditions not less favorable to the Borrower or such Subsidiary
than could be obtained on an arm's-length basis from unrelated third parties,
(b) transactions between
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38
or among the Borrower and its Subsidiaries not involving any other Affiliate and
(c) any Restricted Payment permitted by Section 6.07.
SECTION VI.9. Changes in Fiscal Periods. The Borrower will not,
and will not permit any of its Subsidiaries to, permit the fiscal year of such
Borrower to end on a day other than the last Saturday closest to December 31 or
change such Borrower's method of determining fiscal quarters.
SECTION VI.10. Lines of Business. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any business, either
directly or through any Subsidiary, except for Permitted Lines of Business.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
(1) the Borrower shall fail to pay any principal of any Loan
when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or otherwise;
(2) the Borrower shall fail to pay any interest on any Loan or
any fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement, when and as the same
shall become due and payable, and such failure shall continue unremedied
for a period of five days;
(3) any representation or warranty made or deemed made by or
on behalf of the Borrower or any Subsidiary in or in connection with
this Agreement or any amendment or modification hereof, or in any
report, certificate, financial statement or other document furnished
pursuant to or in connection with this Agreement or any amendment or
modification hereof, shall prove to have been materially incorrect when
made or deemed made;
(4) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.04 (with respect
to the Borrower's existence) or 5.11 or in Article VI;
(5) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other than
those specified in clause (a), (b) or (d) of this Article), and such
failure shall continue unremedied for a period of 30 days after notice
thereof from the Administrative Agent (given at the request of any
Lender) to the Borrower;
(6) the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become
due and payable (after giving effect to any applicable period of grace);
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39
(7) any default or any event of default with respect to any
Material Indebtedness which results in such Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits
(with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent
on its or their behalf to cause any Material Indebtedness to become due,
or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity;
(8) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any
Subsidiary or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Borrower or any Subsidiary or for a substantial part of
its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(9) the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in
clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for the Borrower or any Subsidiary or for a
substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the
foregoing;
(10) the Borrower or any Subsidiary shall become unable, admit
in writing or fail generally to pay its debts as they become due;
(11) one or more judgments for the payment of money in an
aggregate amount in excess of $25,000,000 shall be rendered against the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to attach or levy upon any assets
of the Borrower or any Subsidiary to enforce any such judgment;
(12) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in a Material
Adverse Effect; or
(13) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i)
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40
terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable
in whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower; and in case of any event with respect to the Borrower described in
clause (h) or (i) of this Article, the Commitments shall automatically terminate
and the principal of the Loans then outstanding, together with accrued interest
thereon and all fees and other obligations of the Borrower accrued hereunder,
shall automatically become due and payable, without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
Each of the Lenders hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have
the same rights and powers in its capacity as a Lender as any other Lender and
may exercise the same as though it were not the Administrative Agent, and such
bank and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Borrower or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity. The Administrative Agent shall not be liable for any action taken
or not taken by it with the consent or at the request of the Required Lenders or
in the absence of its own gross negligence or wilful misconduct. The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Administrative Agent by the
Borrower or a Lender, and the Administrative Agent shall not be responsible for
or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement, (ii) the contents
of any certificate, report or other document delivered hereunder or in
connection herewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth herein, (iv) the
validity, enforceability, effectiveness or genuineness of this Agreement or any
other agreement, instrument or document, or (v) the satisfaction of any
condition set forth in Article IV or
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41
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facility provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in New York,
New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
<PAGE> 48
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ARTICLE IX
Miscellaneous
SECTION IX.1. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by facsimile, as follows:
(1) if to the Borrower, to it at Liz Claiborne, Inc., One
Claiborne Avenue, North Bergen, New Jersey 07047, Attention of Robert
Vill (Facsimile No. 201-295-7825);
(2) if to the Administrative Agent, to The Chase Manhattan Bank,
Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor,
New York, New York 10081, Attention of Jesus Sang (Facsimile No. (212)
270-0002), with a copy to The Chase Manhattan Bank, 1411 Broadway, New
York 10018, Attention of Liz Claiborne Relationship Manager (Facsimile
No. (212 391-7118); and
(3) if to any other Lender, to it at its address (or number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or facsimile number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
SECTION IX.2. Waivers; Amendments. (1) No failure or delay by the
Administrative Agent or any Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
be construed as a waiver of any Default, regardless of whether the
Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(2) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders or by the Borrower
and the Administrative Agent with the consent of the Required Lenders; provided
that no such agreement shall (i) increase the Commitment of any Lender without
the written consent of such Lender, (ii) reduce the principal amount of any Loan
or reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse
any such payment, or postpone the
<PAGE> 49
43
scheduled date of expiration of any Commitment, without the written consent of
each Lender affected thereby, (iv) change Section 2.15(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, (v) except in connection with transactions
otherwise permitted pursuant to Section 6.04, 6.05 or 6.06, release all or
substantially all of the Subsidiary Guarantors from their obligations under the
Subsidiary Guarantee, without the written consent of each Lender, or (vi) change
any of the provisions of this Section or the definition of "Required Lenders" or
any other provision hereof specifying the number or percentage of Lenders
required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender; provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent.
SECTION IX.3. Expenses; Indemnity; Damage Waiver. (1) The
Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and Chase Securities Inc., including the reasonable fees,
charges and disbursements of counsel for the Administrative Agent, in connection
with the syndication of the credit facility provided for herein, the preparation
and administration of this Agreement or any amendments, modifications or waivers
of the provisions hereof (whether or not the transactions contemplated hereby or
thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by
any Administrative Agent or any Lender, including the reasonable fees, charges
and disbursements of any counsel for the Administrative Agent or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement, including its rights under this Section, or in connection with
the Loans made hereunder, including in connection with any workout,
restructuring or negotiations in respect thereof.
(2) The Borrower shall indemnify the Administrative Agent and
each Lender, and each Related Party of any of the foregoing Persons (each such
Person being called an "Indemnitee") against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of this Agreement or any
agreement or instrument contemplated hereby, the performance by the parties
hereto of their respective obligations hereunder or the consummation of the
Transactions or any other transactions contemplated hereby, (ii) any Loan or the
use of the proceeds therefrom, (iii) any actual or alleged presence or release
of Hazardous Materials on or from any property owned or operated by the Borrower
or any of its Subsidiaries, or any Environmental Liability, or (iv) any actual
or prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(3) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent under paragraph (a) or (b)
of this Section, each Lender severally agrees to pay to the Administrative Agent
such Lender's Applicable Percentage (determined as of the time that the
applicable unreimbursed expense or indemnity payment is sought) of such unpaid
amount; provided that the unreimbursed expense or indemnified loss,
<PAGE> 50
44
claim, damage, liability or related expense, as the case may be, was incurred by
or asserted against the Administrative Agent in its capacity as such.
(4) To the extent permitted by applicable law, the Borrower
shall not assert, and hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement or any agreement or instrument contemplated
hereby, the Transactions or any Loan or the use of the proceeds thereof.
(5) All amounts due under this Section shall be payable
promptly no later than seven (7) days after written demand therefor.
SECTION IX.4. Successors and Assigns. (1) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(2) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Administrative Agent must give its prior written
consent to such assignment (which consent shall not be unreasonably withheld),
(ii) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender's
Commitment, the amount of the Commitment of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $10,000,000 unless each of the Borrower and the Administrative
Agent otherwise consent, (iii) each partial assignment shall be made as an
assignment of a proportionate part of all the assigning Lender's rights and
obligations under this Agreement, (iv) the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
together with a processing and recordation fee of $3,500, and (v) the assignee,
if it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire; provided further that any consent of the Borrower
otherwise required under this paragraph shall not be required if an Event of
Default under clause (a), (b), (h) or (i) of Article VII has occurred and is
continuing. Upon acceptance and recording pursuant to paragraph (d) of this
Section, from and after the effective date specified in each Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of the assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled, (with respect to the period
prior to such assignment ) to the benefits of Sections 2.12, 2.13, 2.14 and
9.03). Any assignment or transfer by a Lender of rights or
<PAGE> 51
45
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(3) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans owing to each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary.
(4) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(5) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and (iv) all Participants shall represent, for
the benefit of Borrower, that none of the participation interests are being
acquired with assets of an employee benefit plan or with assets that constitute
"plan assets" under Department of Labor Regulation Section 2510.3-101 . Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
9.02(b) that affects such Participant. Subject to paragraph (f) of this Section,
the Borrower agrees that each Participant shall be entitled to the benefits of
Sections 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to paragraph (b) of this Section.
(6) A Participant shall not be entitled to receive any greater
payment under Section 2.12 or 2.14 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.14 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.14(e) as though it were a Lender.
<PAGE> 52
46
(7) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any such pledge or assignment to a Federal
Reserve Bank, and this Section shall not apply to any such pledge or assignment
of a security interest; provided that no such pledge or assignment of a security
interest shall release a Lender from any of its obligations hereunder or
substitute any such assignee for such Lender as a party hereto.
SECTION IX.5. Survival. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.12, 2.13, 2.14 and 9.03 and
Article VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Commitments or the termination of
this Agreement or any provision hereof.
SECTION IX.6. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION IX.7. Severability. Any provision of this Agreement held
to be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION IX.8. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured
provided that such Lender shall promptly notify the
<PAGE> 53
47
Borrower of such setoff. The rights of each Lender under this Section are in
addition to other rights and remedies (including other rights of setoff) which
such Lender may have.
SECTION IX.9. Governing Law; Jurisdiction; Consent to Service of
Process. (1) This Agreement shall be construed in accordance with and governed
by the law of the State of New York.
(2) The Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Administrative Agent
or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement against the Borrower or its properties in the courts of any
jurisdiction.
(3) The Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(4) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION IX.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION IX.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
<PAGE> 54
48
SECTION IX.12. Confidentiality. Each of the Administrative Agent
and the Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent required by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section, to any assignee of
or Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement, (g) with the consent of the Borrower
or (h) to the extent such Information (i) becomes publicly available other than
as a result of a breach of this Section or (ii) becomes available to the
Administrative Agent or any Lender on a nonconfidential basis from a source
other than the Borrower. For the purposes of this Section, "Information" means
all information received from the Borrower relating to the Borrower or its
business, other than any such information that is available to the
Administrative Agent or any Lender on a nonconfidential basis prior to
disclosure by the Borrower; provided that, in the case of information received
from the Borrower after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
LIZ CLAIBORNE, INC.
by
/s/ Robert Vill
-----------------------------
Name: Robert Vill
Title: VP -- Treasury,
Investor
Relations & Treasurer
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent
by
/s/ Daniel Greene
-----------------------------
Name: Daniel Greene
Title: Vice President
BANKBOSTON, N.A.
by
/s/ Stephen J. Garvin
-----------------------------
Name: Stephen J. Garvin
Title: Director
BANK ONE, NA (MAIN OFFICE CHICAGO)
by
/s/ John Runger
-----------------------------
Name: John Runger
Title: Senior Vice
President ABN
ABN AMRO BANK NV
by
/s/ Cameron D. Gateman
-----------------------------
Name: Cameron D. Gateman
Title: Group Vice President
by
/s/ Donald Sutton
-----------------------------
Name: Donald Sutton
Title: Vice President
<PAGE> 56
BANK OF AMERICA, N.A.
by
/s/ Deidre B. Doyle
-----------------------------
Name: Deidre B. Doyle
Title: Principal
SUNTRUST BANK
by
/s/ Laura Kahn
-----------------------------
Name: Laura Kahn
Title: Director
THE BANK OF NOVA SCOTIA
by
/s/ Brian S. Allen
-----------------------------
Name: Brian S. Allen
Title: Managing Director
THE HUNTINGTON NATIONAL BANK
by
/s/ Carol Degnen
-----------------------------
Name: Carol Degnen
Title: Senior Vice President
UNION BANK OF CALIFORNIA, N.A.
by
/s/ J. William Bloore
-----------------------------
Name: J. William Bloore
Title: Vice President
BANCA DI ROMA
by
/s/ Steven Paley
-----------------------------
Name: Steven Paley
Title: Vice President
by
/s/ Alessandro Paoli
-----------------------------
Name: Alessandro Paoli
<PAGE> 57
Title: Assistant Treasurer
BANK LEUMI USA
by
/s/ Richard Silverstein
-----------------------------
Name: Richard Silverstein
Title: Senior Vice President
by
/s/ Phyllis Rosenfeld
-----------------------------
Name: Phyllis Rosenfeld
Title: Vice President
COMERICA BANK
by
/s/ James R. Grossett
-----------------------------
Name: James R. Grossett
Title: First Vice President
DAI ICHI KANGYO BANK LTD.
by
/s/ Nicholas A. Fiore
-----------------------------
Name: Nicholas A. Fiore
Title: Assistant Vice
President
FIFTH THIRD BANK
by
/s/ Anthony M. Buehler
-----------------------------
Name: Anthony M. Buehler
Title: Assistant Vice
President
HSBC BANK USA
by
/s/ Adriana D. Collins
-----------------------------
Name: Adriana D. Collins
Title: Vice President
<PAGE> 58
ISRAEL DISCOUNT BANK OF NEW YORK
by
/s/ Scott Fishbein
-----------------------------
Name: Scott Fishbein
Title: Vice President
by
/s/ Ron Bongiovanni
-----------------------------
Name: Ron Bongiovanni
Title: First Vice President
MERCANTILE BANK NATIONAL
ASSOCIATION
by
/s/ Stephen M. Reese
-----------------------------
Name: Stephen M. Reese
Title: Vice President
THE BANK OF NEW YORK
by
/s/ Howard F. Bascom, Jr.
-----------------------------
Name: Howard F. Bascom, Jr.
Title: Vice President
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF
LIZ CLAIBORNE, INC.
Claiborne Limited Hong Kong
Liz Claiborne Cosmetics, Inc. Delaware
Liz Claiborne Accessories, Inc. Delaware
Liz Claiborne Accessories-Sales, Inc. Delaware
Liz Claiborne Export, Inc. Delaware
Liz Claiborne Foreign Holdings, Inc. Delaware
Liz Claiborne International Limited Hong Kong
Liz Claiborne (Israel) Ltd. Israel
Liz Claiborne (Italy) Ltd. Delaware
L. C. Licensing, Inc. Delaware
Liz Claiborne Sales, Inc. Delaware
Liz Claiborne-Texas, Inc. Delaware
LCI Investments, Inc. Delaware
LCI Holdings, Inc. Delaware
Liz Claiborne (Canada) Limited Canada
Liz Claiborne, S.A. Costa Rica
L.C. Caribbean Holdings, Inc. Delaware
Liz Claiborne Shoes, Inc. Delaware
L. C. Service Company, Inc. Delaware
Liz Claiborne Europe U.K.
Liz Claiborne do Brasil Industria E Comercio Ltda. Brazil
LC/QL Investments, Inc. Delaware
L.C. Dyeing, Inc. Delaware
L.C. Augusta, Inc. Delaware
Textiles Liz Claiborne Guatemala, S.A. Guatemala
Liz Claiborne (Malaysia) SDN.BHD Malaysia
Liz Claiborne B.V. Netherlands
L.C. Special Markets, Inc. Delaware
Liz Claiborne Foreign Sales Corporation US Virgin Islands
Liz Claiborne Operations (Israel) 1993 Limited Israel
Liz Claiborne GmbH Germany
Liz Claiborne De El Salvador, S.A., de C. V. El Salvador
L.C.I. Fragrances, Inc. Delaware
DB Newco, Inc. Delaware
LC Libra, LLC. Delaware
Liz Claiborne Japan, Inc. Delaware
Segrets, Inc. Delaware
Lucky Brand Dungarees, Inc. Delaware
Lucky Brand Dungarees Stores, Inc. Delaware
Podell Industries, Incorporated California
L.C.K.C., LLC Delaware
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, dated February 21, 2000, included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 2-77590, 2-95258, 2-33661,
33-51257, 033-63859, 333-09851 and 333-48423.
/s/ Arthur Andersen LLP
New York, New York
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000352363
<NAME> LIZ CLAIBORNE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 37,940
<SECURITIES> 0
<RECEIVABLES> 298,924
<ALLOWANCES> 0
<INVENTORY> 418,348
<CURRENT-ASSETS> 858,609
<PP&E> 587,971
<DEPRECIATION> 303,800
<TOTAL-ASSETS> 1,411,801
<CURRENT-LIABILITIES> 352,311
<BONDS> 0
0
0
<COMMON> 88,219
<OTHER-SE> 813,950
<TOTAL-LIABILITY-AND-EQUITY> 1,411,801
<SALES> 2,806,548
<TOTAL-REVENUES> 2,806,548
<CGS> 1,708,966
<TOTAL-COSTS> 1,708,966
<OTHER-EXPENSES> 797,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,612
<INCOME-PRETAX> 301,586
<INCOME-TAX> 109,144
<INCOME-CONTINUING> 192,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,442
<EPS-BASIC> 3.13
<EPS-DILUTED> 3.12<F1>
<FN>
<F1>THE EARNINGS PER SHARE INFORMATION HAS BEEN PREPARED IN ACCORDANCE WITH
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER SHARE", AND
THE BASIC AND DILUTED EARNINGS PER SHARE HAVE BEEN ENTERED IN PLACE OF PRIMARY
AND FULLY DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99
To Be Incorporated By Reference Into
Registration Statements on Forms S-8
(File Nos. 2-77590, 2-95258, 2-33661,
33-51257, 033-63859, 333-09851 and 333-48423)
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(iii) To include any material information
with respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
