<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarter Ended April 3, 1999
-----------------------
Commission File No. 0-11577
LADD FURNITURE, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1311320
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
POST OFFICE BOX 26777
4620 GRANDOVER PARKWAY
GREENSBORO, NORTH CAROLINA 27417-6777
(Address of principal executive offices) (Zip Code)
(336) 294-5233
(Registrants' telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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
------- -------
As of May 13, 1999 there were 7,825,783 shares of Common Stock ($.30 par value)
of the registrant outstanding.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the thirteen weeks ended April 3, 1999 and April 4, 1998
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
----------------------------
April 3, April 4,
-------- ---------
1999 1998
-------- ---------
<S> <C> <C>
Net sales $ 157,144 147,409
Cost of sales 126,973 120,733
--------- ---------
Gross profit 30,171 26,676
Selling, general and administrative expenses 22,416 20,350
--------- ---------
Operating income 7,755 6,326
--------- ---------
Other deductions:
Interest expense 2,048 2,584
Other income, net (95) (126)
--------- ---------
1,953 2,458
--------- ---------
Earnings before income taxes 5,802 3,868
Income tax expense 2,205 1,508
--------- ---------
Net earnings $ 3,597 2,360
--------- ---------
Net earnings per common share - basic $ 0.46 0.30
========= =========
Net earnings per common share - diluted $ 0.45 0.30
========= =========
Weighted average number of
common shares outstanding - basic 7,840 7,760
========= =========
Weighted average number of
common shares outstanding - diluted 7,951 7,940
========= =========
</TABLE>
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<PAGE> 3
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 3, 1999 and January 2, 1999
(Amounts in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
April 3,
1999 January 2,
(Unaudited) 1999 (*)
------------ -------------
<S> <C> <C>
Current assets:
Cash $ 147 110
Trade accounts receivable, less allowances for
doubtful receivables, discounts, returns and
allowances of $3,222 and $2,482, respectively 99,008 90,286
Inventories 103,699 98,798
Prepaid expenses and other current assets 8,168 8,771
--------- --------
Total current assets 211,022 197,965
--------- --------
Property, plant and equipment, net 65,408 66,297
Intangible and other assets, net 70,907 72,703
--------- --------
$ 347,337 336,965
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 6,590 6,590
Trade accounts payable 36,339 31,296
Accrued expenses and other current liabilities 41,710 37,384
--------- --------
Total current liabilities 84,639 75,270
--------- --------
Long-term debt, excluding current installments 102,420 104,585
Deferred and other liabilities 12,107 12,589
--------- --------
Total liabilities 199,166 192,444
--------- --------
Shareholders' equity:
Preferred stock of $100 par value. Authorized
500,000 shares; no shares issued -- --
Common stock of $.30 par value. Authorized
50,000,000 shares; issued 7,833,746 shares
and 7,831,080 shares, respectively 2,350 2,349
Additional paid-in capital 51,470 51,418
Retained earnings 94,351 90,754
--------- --------
148,171 144,521
--------- --------
$ 347,337 336,965
========= ========
</TABLE>
(*) Derived from the Company's 1998 audited Consolidated Financial Statements.
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<PAGE> 4
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the thirteen weeks ended April 3, 1999 and April 4, 1998
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------
April 3, April 4,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,597 2,360
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation of property, plant and equipment 2,674 2,544
Amortization 919 1,008
Provision for losses on trade accounts receivable 303 259
Gain on sales of assets (227) (45)
Provision for deferred income taxes (1,187) 1,057
Forgiveness of debt -- (217)
Increase in deferred and other liabilities 159 85
Change in assets and liabilities:
Increase in trade accounts receivable (9,025) (8,671)
Increase in inventories (4,901) (1,912)
(Increase) decrease in prepaid expenses and
other current assets 603 (630)
Increase in trade accounts payable 5,043 7,729
Increase in accrued expenses and other
current liabilities 5,169 2,269
-------- --------
Total adjustments (470) 3,476
-------- --------
Net cash provided by operating activities 3,127 5,836
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,810) (1,269)
Proceeds from sales of assets 1,660 1
Additions to intangible and other assets (555) (227)
-------- --------
Net cash used in investing activities (705) (1,495)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings 590 --
Principal payments on borrowings (2,755) (4,310)
Other (220) 8
-------- --------
Net cash used in financing activities (2,385) (4,302)
-------- --------
Net increase in cash 37 39
Cash at beginning of period 110 75
-------- --------
Cash at end of period $ 147 114
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,894 2,554
Cash paid (net of refunds received) during the period for income taxes (1,658) 40
======== ========
</TABLE>
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<PAGE> 5
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Number Additional Total
of shares Common paid-in Retained shareholders'
issued stock capital earnings equity
----------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 3, 1998 7,759,683 $ 2,328 50,102 78,495 130,925
Shares issued in connection
with incentive stock
option plan 75,747 22 985 -- 1,007
Retirement of stock and purchase
of restricted stock (4,350) (1) (86) -- (87)
Amortization of employee
restricted stock awards -- -- 87 -- 87
Tax benefit from exercise of stock options -- -- 330 -- 330
Net earnings -- -- -- 12,259 12,259
----------- ------- ------- ------- --------
BALANCE AT JANUARY 2, 1999 7,831,080 2,349 51,418 90,754 144,521
Shares issued in connection
with incentive stock
option plan 4,000 1 48 -- 49
Shares issued in connection
with long-term incentive plan 15,666 5 250 -- 255
Purchase and retirement of stock (17,000) (5) (266) -- (271)
Amortization of employee
restricted stock awards -- -- 20 -- 20
Net earnings -- -- -- 3,597 3,597
----------- ------- ------- ------- --------
BALANCE AT APRIL 3, 1999
(UNAUDITED) 7,833,746 $ 2,350 51,470 94,351 148,171
=========== ======= ======= ======= ========
</TABLE>
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<PAGE> 6
Notes:
(1) Quarterly Financial Statements
The quarterly consolidated financial statements of LADD Furniture, Inc.
and its subsidiaries (referred to as "LADD" or the "Company") are
unaudited and have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission ("SEC"). In the
opinion of management, these statements include all adjustments
necessary for a fair statement of the operating results for the interim
periods indicated. All such adjustments are of a normal recurring
nature. Certain information and footnote disclosures prepared in
accordance with generally accepted accounting principles have been
either condensed or omitted pursuant to SEC rules and regulations.
However, management believes that the disclosures made are adequate for
a fair presentation of results of operations and financial position. It
is suggested that these financial statements be read in conjunction
with the financial statements and accompanying notes included in the
Company's latest Annual Report.
(2) Inventories
A summary of inventories follows (amounts in thousands):
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
---------------- --------------
<S> <C> <C>
Inventories on the FIFO cost method:
Finished goods $ 55,006 51,414
Work in process 15,847 15,708
Raw materials and supplies 43,372 42,374
-------------- ------------
Total inventories on the FIFO cost method 114,225 109,496
Less adjustments of certain inventories to the
LIFO cost method (10,526) (10,698)
-------------- ------------
$ 103,699 98,798
============== ============
</TABLE>
(3) Repurchase Common Stock
On December 10, 1998, the Company's Board of Directors authorized the
repurchase of up to 600,000 shares of the Company's common stock over the
next 24 months, not to exceed $10,000,000. During the first quarter of
1999, the Company purchased 17,000 shares for approximately $271,000 and
immediately retired the stock.
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<PAGE> 7
(4) Interest Rate Swap Agreement
On March 30, 1999, the Company entered into a five-year interest rate swap
agreement having a notional amount of $25,000,000 in order to reduce the
impact of changes in interest rates on its floating rate long-term debt.
The swap agreement commenced on April 19, 1999 and expires on April 19,
2004 with a fixed LIBOR rate of 5.635% per annum. The three-month floating
LIBOR rate at April 3, 1999 was 5.00%. On a quarterly basis, the Company
will pay to or receive from the counterparty to the agreement the
difference between the fixed interest rate and the floating interest rate.
The Company is exposed to credit loss in the event of nonperformance by
the other party to the interest rate swap agreements. However, the Company
does not anticipate nonperformance by the counterparty. The effect of the
swap agreement will be to increase interest expense annually by
approximately $160,000 based upon existing floating interest rates.
See Exhibit 10-1 of Item 6 to this Quarterly Report on Form 10-Q.
(5) Segment Information
The Company manufactures and markets casegoods and upholstered furniture
for two business segments - the residential furniture market and the
contract furniture market. The residential furniture segment principally
manufactures and sells to various retailers at wholesale prices. The
contract furniture segment principally manufactures and sells to
hospitality, government and assisted-living facilities at retail prices.
The products in both segments consist of casegoods, upholstery, and
accessories. The Company has no operations located outside the United
States and has no sales to foreign countries that are individually
material.
Profit by business segment represents nets sales, less operating expenses,
less interest expense. A portion of corporate expenses is included in each
segment. Unallocated corporate expenses are included in the "Corporate"
column. The following table shows net sales and profits by business
segment for the quarters ended April 3, 1999 and April 4, 1998 and assets
at April 3, 1999 and January 2, 1999 (amounts in thousands):
<TABLE>
<CAPTION>
April 3, 1999 Residential Contract Corporate Consolidated
------------- ----------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net Sales $119,203 37,941 -- 157,144
Profit 4,484 2,683 (1,365) 5,802
Assets 266,292 68,959 12,086 347,337
</TABLE>
<TABLE>
<CAPTION>
April 4, 1998 Residential Contract Corporate Consolidated
------------- ----------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net Sales $114,705 32,704 -- 147,409
Profit 3,382 2,061 (1,575) 3,868
Assets (Jan. 2, 1999) 256,623 65,703 14,639 336,965
</TABLE>
-7-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of net sales
to certain items included in the Consolidated Statements of Earnings:
<TABLE>
<CAPTION>
13 Weeks Ended
-------------------------
April 3, April 4,
1999 1998
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 80.8 81.9
------ ------
Gross profit 19.2 18.1
Selling, general and administrative expenses 14.3 13.8
------ ------
Operating income 4.9 4.3
------ ------
Other deductions
Interest expense 1.3 1.8
Other expense, net (0.1) (0.1)
------- ------
1.2 1.7
------ ------
Earnings before income taxes 3.7 2.6
Income tax expense 1.4 1.0
------ ------
Net earnings 2.3% 1.6%
====== ======
</TABLE>
Total net sales for the first quarter of 1999 increased 6.6%, to $157.1
million, as compared to $147.4 million in the first quarter of 1998. The
following table compares net sales by segment:
<TABLE>
<CAPTION>
April 3, April 4, Percent
1999 1998 Increase Change
------------ ------------ --------- --------
<S> <C> <C> <C> <C>
Residential $ 119,203 114,705 4,498 3.9%
Contract 37,941 32,704 5,237 16.0%
------------ ------------ --------- ------
$ 157,144 147,409 9,735 6.6 %
============ ============ ========= ======
</TABLE>
The Company's order backlog increased 3% during the first quarter of
1999. The increased net sales of the residential segment for the first quarter
of 1999 were due largely to the success of the recent residential product
introductions, as well as improved retail furniture sales for the industry
overall. The contract segment
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<PAGE> 9
sales growth in the 1999 period was due primarily to continued hotel expansion
and refurbishment and increased sales to the assisted-living facilities, trends
that the Company anticipates will continue for the balance of 1999. The Company
believes that (i) through existing production capacity; (ii) the planned
addition of a new contract manufacturing facility, which will commence
operations in the second half of 1999; and (iii) through production either from
other LADD manufacturing plants or outside contractors, capacity will be
sufficient to accommodate the contract sales growth anticipated for the
remainder of 1999.
Cost of sales as a percentage of net sales decreased to 80.8% for the
first quarter of 1999, from 81.9% in 1998. This decrease resulted in an increase
in gross profit margins to 19.2% for the 1999 first quarter, from 18.1% in 1998.
The 1.1% increase in the first quarter gross profit percent was a result of
improved manufacturing efficiencies, along with the production and shipment of
recent product introductions carrying higher margins. In addition, improved
margins were due to aggressive price discounting in the 1998 first quarter,
principally for the sales of discontinued product, which was not as prevalent in
the 1999 first quarter.
Selling, general and administrative (SG&A) expenses increased to 14.3%
of net sales for the first quarter of 1999, from 13.8% for the same period in
1998. The increase over the prior year was primarily attributable to marketing
costs associated with recently introduced licensed furniture collections. The
Company believes that its SG&A expense as a percent of net sales will be in the
range of 14.0% to 14.5% for 1999.
Other deductions (principally interest expense) represented 1.2% of net
sales for the 1999 first quarter, down from 1.7% in 1998. Average outstanding
borrowings were $10.9 million less for the first quarter of 1999 compared to the
year-earlier period and the overall effective interest rate was approximately
1.1% lower for the 1999 quarter. As a result, interest expense in the first
quarter declined by $536,000, or 20.7%. The decline in the effective interest
rate was primarily due to: (i) reductions in the Company's interest rate margin,
as provided for in the Company's bank credit facility, based on improved
operating performance; and (ii) reductions in the base lending rates. Further,
as a result of the improved 1999 first quarter operating results, the Company's
interest rate margin was further reduced by 0.125% effective April 15, 1999.
Based upon borrowing levels at April 3, 1999, the effect of this reduction,
along with a February 1, 1999 amendment to the bank credit facility, which
reduced the interest margin an additional 0.25%, will be to reduce interest
expense by approximately $400,000 on an annual basis.
The Company's estimated annual effective income tax rate was 38% for the
first quarter of 1999, compared to 39% for the comparable 1998 quarter. The
decrease in the effective tax rate resulted from the implementation of state tax
planning strategies. The Company anticipates that its combined effective Federal
and state tax rate will continue to approximate 38% over the remainder of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 2.5 to 1 at April 3, 1999, compared to
2.6 to 1 at January 2, 1999. Net working capital totaled $126.4 million at April
3, 1999 and $122.7 million at January 2, 1999. As a result of the Company's
sales growth and increased backlog, trade accounts receivable and inventories
have increased from January 2, 1999 levels. The increase in inventories was
largely due to production in the first quarter of 1999 to satisfy current sales
demands. In addition, the Company's trade accounts payable and accrued expenses
also increased during the 1999 first quarter, largely due to the increased
production levels.
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<PAGE> 10
During the first quarter of 1999, the Company generated $3.1 million in
cash from operating activities, compared to $5.8 million in the 1998 period. The
decrease in cash provided by operations was attributable to increased working
capital requirements.
During the 1999 first quarter, capital spending totaled $1.8 million,
compared to $1.3 million during the year-earlier period. Total capital
expenditures for all of 1999 are expected to approximate $12.0 million, as
compared to $9.1 million for all of 1998. The increase in the Company's
anticipated capital expenditures is due in part to capacity expansions planned
at contract facilities.
The Company's total debt ratio (total debt as a percentage of total debt
plus shareholders' equity) was 42.4% at April 3, 1999, compared to 43.5% at
January 2, 1999. The decrease resulted from improved operating performance,
which allowed the Company to continue repaying debt while simultaneously
increasing its equity base.
On March 26, 1999, the Company purchased and retired 17,000 shares of
its common stock for approximately $271,000. The stock repurchase was authorized
by the Company's Board of Directors and financed through the Company's revolving
credit line.
At April 3, 1999, $36.8 million was available for future borrowings
under the Company's revolving credit loan. Management believes that unused
credit lines available under the Company's revolving credit loan, in addition to
cash generated from operations, will be adequate to fund the Company's future
operations, planned capital expenditures and lease commitments, and any future
repurchases of the Company's common stock.
On March 30, 1999, the Company entered into a five-year interest rate
swap agreement having a notional amount of $25.0 million in order to reduce the
impact of changes in interest rates on its floating rate long-term debt. The
swap agreement effectively converts a portion of the floating rate to a fixed
rate on the Company's long-term debt and commenced on April 19, 1999. The
Company pays to or receives from the bank the difference between the floating
three-month LIBOR rate and the fixed rate of 5.635% per annum on a quarterly
basis.
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<PAGE> 11
YEAR 2000 COMPLIANCE
The Company continues to actively address the business issues associated
with the expected impact of the Year 2000 ("Y2K") on information technology
systems and non-information technology systems (i.e., embedded technology) both
internally and in relation to the Company's external customers and suppliers.
Factors involved in assessing such business issues include the evaluation and
testing of the Company's systems; evaluation, upgrading and certifying of
automated plant machinery and equipment; and assessing the compliance strategies
of significant customers and vendors and monitoring the status of those
strategies (including electronic commerce with those companies).
The Company has created a corporate-wide Y2K Steering Committee with
subcommittees located at each of the Company's business units for the purpose of
directing the Company's compliance efforts and identifying and addressing the
impact of non-compliance on information technology systems and non-information
technology systems. An inventory of all the Company's equipment containing date
sensitive embedded technology has been completed, and at the present time, a
majority of this equipment has been either tested and/or deemed to be Y2K
compliant. Since the fourth quarter of 1994, the Company has been upgrading its
information systems technology with Y2K compliant software to support its
manufacturing, sales and order entry, and financial reporting systems. As a
result, a significant portion of the Company's information technology systems
were Y2K compliant prior to 1998. At the present time, the Company believes it
has completed almost all of the necessary internal software and hardware
implementation required for Y2K compliance. The Company does not believe any
material exposures or contingencies exist with respect to its internal
information systems.
The Company is currently requesting assurances from its major suppliers
and business partners that they will be Y2K compliant so that there will be no
disruption of their products or services as the new century begins. The Company
is assessing the risk of each of its significant suppliers and business partners
to determine the possible impact of their non-compliance, if that should occur.
Where appropriate, contingency plans and alternative suppliers are being
developed or investigated. Although the Company is presently not aware of any
material exposures or contingencies related to the Y2K compliance efforts of its
significant vendors and business partners, if a significant vendor or business
partner should be non-compliant there can be no assurance such an event will not
have a material adverse effect on the Company's consolidated financial position,
results of operations and cash flows. The Company believes the actions it is
taking (including the continued monitoring of third-party compliance and the
development of appropriate contingency plans) will minimize these risks and
believes it is taking responsible steps to prevent any major disruptions of its
business units.
The Company believes the actions it has taken since late 1994 with
regard to Y2K issues have minimized Y2K related capital costs and expenses
incurred to date and estimates that it has already incurred a majority of the
required Y2K compliance expenditures. These amounts exclude funds invested in
the purchase and lease of personal computers and the implementation of other
computer system upgrades. While such investments were made primarily to resolve
technological obsolescence and capacity constraints, they also resulted in the
new equipment and upgraded systems being Y2K compliant. Anticipated expenditures
and lease commitments relating the Y2K compliance are expected to be less than
$400,000 for the remainder of 1999. However, new developments may subsequently
occur that could affect the Company's estimates of the costs for Y2K compliance.
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<PAGE> 12
FORWARD-LOOKING STATEMENTS
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. These statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "forecasts,"
"should," or "anticipates." The Company cautions readers that these
forward-looking statements, including without limitation, those relating to
sales, operating costs, working capital, liquidity, capital needs, interest
costs and Y2K compliance, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward-looking statements. This is due to several important factors herein
identified, including without limitation: anticipated growth in sales; success
of new product introductions; increased cash flow from operations; anticipated
selling, general and administrative expenses; projected capital spending;
decreased interest expense; the effect of the interest rate swap agreement, Y2K
readiness (particularly with respect to third-party vendor compliance); and
other risks and factors identified from time to time in the Company's reports
filed with the Securities and Exchange Commission.
-12-
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10-1 Interest rate swap agreement dated March 30, 1999
between the Company and Fleet National Bank.
10-2 Amendment to the 1994 Incentive Stock Option Plan dated
March 10, 1999.
27-1 (edgar version only)
(b) Reports on Form 8-K
On February 5, 1999, the Company filed with the Commission a
Form 8-K dated February 4, 1999 which reported under Item 5 the
Press Release dated February 4, 1999 reporting the Company's
fourth quarter 1998 and 1998 full year operating results.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LADD Furniture, Inc.
Date: May 14, 1999 By: /s/ William S. Creekmuir
--------------------------
William S. Creekmuir
Executive Vice President
and Chief Financial Officer
-14-
<PAGE> 1
EXHIBIT 10.1
(Multicurrency-Cross Border)
ISDA
International Swap Dealers Association Inc.
MASTER AGREEMENT
dated as of
---------------------------------------
and
- -------------------------------------- --------------------------------------
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:
1. Interpretation
(a) Definitions. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions we entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each Confirmation
to be made by it, subject to the other provisions of this Agreement.
(ii) Payments under this Agreement will be made on the due date for value on
that date in the place of the account specified in the relevant Confirmation or
otherwise pursuant to this Agreement, in freely transferable funds and in the
manner customary for payments in the required currency. Where settlement is by
delivery (that is, other than by payment), such delivery will be made for
receipt on the due date in the manner customary for the relevant obligation
unless otherwise specified in the relevant Confirmation or elsewhere in this
Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the
condition precedent that no Event of Default or Potential Event of Default with
respect to the other party has occurred and is continuing, (2) the condition
precedent that no Early Termination Date in respect of the relevant Transaction
<PAGE> 2
has occurred or been effectively designated and (3) each other applicable
condition precedent specified in this Agreement.
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction or
withholding is required by any applicable law, as modified by the practice of
any relevant governmental revenue- authority, then in effect. If a party is so
required to deduct or withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be deducted or
withheld (including the full amount required to be deducted or withheld from any
additional amount paid by X to Y under this Section 2(d)) promptly upon the
earlier of determining that such deduction or withholding is required or
receiving notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy), or other
documentation reasonably acceptable to Y, evidencing such payment to such
authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to
which Y is otherwise entitled under this Agreement, such additional amount as is
<PAGE> 3
necessary to ensure that the net amount actually received by Y (free and clear
of Indemnifiable Taxes, whether assessed against X or Y) will equal the full
amount Y would have received had no such deduction or withholding been required,
However, X will not be required to pay any additional amount to Y to the extent
that it would not be required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement contained in
Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to Section 3(f) to be
accurate and true unless such failure would not have occurred but for (I) any
action taken by a taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction is entered into
(regardless of whether such action is taken or brought with respect to a party
to this Agreement) or (II) a Change in Tax Law.
(ii) Liability. If:--
(1) X is required by any applicable law, as modified by the practice of any
relevant governmental revenue authority, to make any deduction or withholding in
respect of which X would not be required to pay an additional amount to Y under
Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against X, then,
except to the extent Y has satisfied or then satisfies the liability resulting
from such Tax, Y will promptly pay to X the amount of such liability (including
any related liability for interest but including any related liability for
penalties only if Y has failed to comply with or perform any agreement contained
in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all tines until the
termination of this Agreement) that:--
(a) Basic Representations.
<PAGE> 4
(i) Status. It is duly organised and validly existing under the laws of
jurisdiction of its organisation or incorporation and, if relevant under such
laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver this
Agreement and any other documentation relating to this Agreement that it is
required by this. Agreement to deliver and to perform its obligations under this
Agreement any obligations it has under any Credit Support Document to which it
is a party and has taken all necessary action to authorise such execution,
delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and performance do not
violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other agency of
government applicable to it or any of its assets or any contractual restriction
binding on or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are required to have
been obtained by it with respect to this Agreement or any Credit Support
Document to which it is a party have been obtained and are in full force and
effect and all conditions of any such consents have been complied with; and
(v) Obligations Binding. It obligations under this Agreement and any Credit
Support Document to which it is a party constitute its legal, valid and binding
obligations, enforceable in accordance with their respective terms (subject to
applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general application (regardless of whether enforcement
is sought in a proceeding in equity or at law)).
(b) Absence of Certain Events. No Event of Default or Potential Event of Default
or, to its knowledge, Termination Event with respect to it has occurred and is
continuing and no such event or circumstance would occur as a result of its
entering into or performing its obligations under this Agreement or any Credit
Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge, threatened
against it or any of its Affiliates any action, suit or proceeding at law or in
equity or before any court, tribunal, governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or any Credit Support Document to which it is a
party or its ability to perform its obligations under this Agreement or such
Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) Payer Tax Representation. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) Payee Tax Representation. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
4. Agreements
<PAGE> 5
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party;--
(a) Furnish Specified Information. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation specified in the
Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation; and
(iii) upon reasonable demand by such other party, any form or document that may
be required or reasonably requested in writing in order to allow such other
party or its Credit Support Document without any deduction or withholding for or
on account of any Tax or with such deduction or withholding at a reduced rate
(so long as the completion, execution or submission of such form or document
would not materially prejudice the legal or commercial position of the party in
receipt of such demand), with any such form or document to be accurate and
completed in a manner reasonably satisfactory to such other party and to be
executed and to be delivered with any reasonably required certification, in each
case by the date specified in the Schedule or such Confirmation or, if none is
specified, as soon as reasonably practicable.
(b) Maintain Authorisations It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
am required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure to so comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated, organised, managed and
controlled or considered to have its seat or in which a branch or office through
which it is acting for the purpose of this Agreement is located ("Stamp Tax
Jurisdiction") and will indemnify the other party against any Stamp Tax levied
or imposed upon the other party or in respect of the other party's execution or
performance of this Agreement by any such Stamp Tax Jurisdiction which is not
also a Stamp Tax Jurisdiction with respect to the other party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
<PAGE> 6
such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:--
(i) Failure to Pay or Deliver. Failure by the party to make, when due, any
payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required
to be made by it if such failure is not remedied on or before the third Local
Business Day after notice of such failure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform any
agreement or obligation (other than an obligation to make any payment under this
Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a
Termination Event or any agreement or obligation under Section 4(a)(i),
4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance
with this Agreement if such failure is not remedied on or before the thirtieth
day after notice of such failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party to comply
with or perform any agreement or obligation to be complied with or performed by
it in accordance with any Credit Support Document if such failure is continuing
after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document or the failing
or ceasing of such Credit Support Document to be in full force and effect for
the purpose of their Agreement (in either case other than in accordance with its
terms) prior to the satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without the written
consent of the other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims, repudiates
or rejects, in whole or in part, or challenges the validity of, such Credit
Support Document;
(iv) Misrepresentation. A representation (other than a representation under
Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by
the party or any Credit Support Provider of such party in this Agreement or any
Credit Support Document proves to have been incorrect or misleading in any
material respect when made or repeated or deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support Provider
of such party or any applicable Specified Entity of such party (1) defaults
under a Specified Transaction and, after giving effect to any applicable notice
requirement or grace period, there occurs a liquidation of, an acceleration of
obligations under, or an early termination of, that Specified Transaction, (2)
defaults, after giving effect to any applicable notice requirement or grace
period, in making any payment or delivery due on the last payment, delivery or
exchange date of, or any payment on early termination of, a Specified
Transaction (or such default continues for at least three Local Business Days if
there is no applicable notice requirement or grace period) or (3) disaffirms,
disclaims, repudiates or rejects, in whole or in part, a Specified Transaction
(or such action is taken by any person or entity appointed or empowered to
operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as applying
to the party, the occurrence or existence of (1) a default, event of default or
other similar condition or event (however described) in respect of such party,
<PAGE> 7
any Credit Support Provider of such party or any applicable Specified Entity of
such party under one or more agreements or instruments relating to Specified
Indebtedness of any of them (individually or collectively) in an aggregate
amount of not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming, or
becoming capable at such time of being declared, due and payable under such
agreements or instruments, before it would otherwise have been due and payable
or (2) a default by such party, such Credit Support Provider or such Specified
Entity (individually or collectively) in making one or more payments on the due
date thereof in aggregate amount of not less than the applicable Threshold
Amount under such agreements or instruments (after giving effect to any
applicable notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider or such party or any
applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation, amalgamation or
merger); (2) becomes insolvent or is unable to pay its debts or fails or admits
in writing its inability generally to pay its debts as they become due; (3)
makes a general assignment, arrangement or composition with or for the benefit
of its creditors; (4) institutes or has instituted against it a proceeding
seeking a judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors' rights,
or a petition is presented for its winding-up or liquidation, and, in the case
of any such proceeding or petition instituted or presented against it, such
proceeding or petition (A) results in a judgment of insolvency or bankruptcy or
the entry of an order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed discharged, stayed or restrained in each
case within 30 days of the institution or presentation thereof; (5) has a
resolution passed for its winding-up, official management or liquidation (other
than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes
subject-to the appointment of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official for it or
for all or substantially all its assets; (7) has a secured party take possession
of all or substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied enforced or sued on or against all
or substantially all its assets and such secured party maintains possession, or
any such process is not dismissed, discharges, stayed or restrained, in each
case within 30 days thereafter, (8) causes or is subject to any event with
respect to it which, under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses (1) to (7)
(inclusive); or (9) takes any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support Provider of
such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and, at the
time of such consolidation, amalgamation, merger or transfer:--
(1) the resulting, surviving or transferee entity fails to assume all the
obligations of such party or such Credit Support Provider under this Agreement
or any Credit Support Document to which it or its predecessor was a party by
operation of law or pursuant to an agreement reasonably satisfactory to the
other party to this Agreement, or
<PAGE> 8
(2) the benefits of any Credit Support Document fail to extend (without the
consent of the other party) to the performance by such resulting, surviving or
transferee entity of its obligations under this Agreement
(b) Termination Events. The occurrence at any time with respect to a Party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event Upon merger if the event is
specified pursuant to (iv) below or an Additional Termination Event if the event
is specified pursuant to (v) below:--
(i) Illegality. Due to the adoption of or any change in, any applicable law
after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court, tribunal or
regulatory authority with competent jurisdiction of any applicable law after
such date, it becomes unlawful (other than as a result of a breach by the party
of Section 4(b)) for such party (which will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a payment or
delivery or to receive a payment or delivery in respect of such Transaction or
to comply with any other material provision of this Agreement relating to such
Transaction; or
(2) to perform, or for any Credit Support Provider of such party to perform, any
contingent or other obligation which the party (or such Credit Support Provider)
has under any Credit Support Document relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing authority, or brought in
a court of competent jurisdiction, on or after the date on which a Transaction
is entered into (regardless of whether such action is taken or brought with
respect to a party to this Agreement or (y) a Change in Tax Law, the party
(which will be the Affected Party) will, or there is a substantial likelihood
that it will, on the next succeeding Scheduled Payment Date (1) be required to
pay to the other party an additional amount in respect of an Indemnifiable Tax
under Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to
be deducted or withheld for or on account of a Tax (except in respect of
interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is
required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than
by reason of Section 2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4)
(except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2)
receive a payment from which an amount has been deducted or withheld for or on
account of any Indemnifiable Tax in respect of which the other party is not
required to pay an additional amount (other than by reason of Section
2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or
amalgamating with, or merging with or into, or transferring all or substantially
all its assets to, another entity (which will be the Affected Party) where such
action does not constitute an event described in Section 5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the
Schedule as applying to the party, such party ("X"), any Credit Support Provider
<PAGE> 9
of X or any applicable Specified Entity of X consolidates or amalgamates with,
or merges with or into, or transfers all or substantially all its assets to,
another entity and such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or transferee
entity is materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action (and, in
such event, X or its successor or transferee, as appropriate, will be the
Affected Party); or
(v) Additional Termination Event. If any "Additional Termination Event" is
specified in the Schedule or any Confirmation as applying, the occurrence of
such event (and, in such event, the Affected Party or Affected Parties shall be
as specified for such Additional Termination Event in the Schedule or such
Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Patty specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon
becoming aware of it, notify the other party, specifying the nature of that
Termination Event and each Affected Transaction and will also give such other
information about that Termination Event as the other party may reasonably
require.
(ii) Transfer to Avoid Termination Event. If either an Illegality under Section
5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a
Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the
Affected Party will, as a condition to its right to designate an Early
Termination Date under Section 6(b)(iv), use all reasonable efforts (which will
not require such party to incur a loss, excluding immaterial, incidental
expenses) to transfer within 20 days after it gives notice under Section 6(b)(i)
all its rights and obligations under this Agreement in respect of the Affected
Transactions to another of its Offices or Affiliates so that such Termination
Event ceases to exist.
<PAGE> 10
If the Affected Party is not able to make such a transfer it will give notice to
the other party to that effect within such 20 day period, whereupon the other
party may effect such a transfer within 30 days after the notice is given under
Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and
conditional upon the prior written consent of the other party, which consent
will not be withheld if such other party's policies in effect at such time would
permit it to enter into transactions with the transferee on the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a Tax
Event occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice thereof is
given under Section 6(b)(i) on action to avoid that Termination Event.
(iv) Right to Terminate. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii),
as the case may be, has not been effected with respect to all Affected
Transactions within 30 days after an Affected Party gives notice under Section
6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an
Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the
Burdened Party is not the Affected Party, either party in the case of an
Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any
Affected Party in the case of a Tax Event or an Additional Termination Event if
there is more than one Affected Party, or the party which is not the Affected
Party in the case of a Credit Event Upon Merger or an Additional Termination
Event if there is only one Affected Party may, by not more than 20 days notice
to the other party and provided that the relevant Termination Event is then
continuing, designate a day not earlier than the day such notice is effective as
an Early Termination Date in respect of all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under Section 6(a)
or (b), the Early Termination Date will occur on the date so designated whether
or not the relevant Event of Default or Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination Date,
no Further payments or deliveries under Section 2(a)(i) or 2(e) in respect of
the Terminated Transactions will be required to be made, but without prejudice
to the other provisions of this Agreement. The amount, if any, payable in
respect of an Early Termination Date shall be determined pursuant to Section
6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonable practicable following the occurrence
of an Early Termination Date, each party will make the calculations on its part,
if any, contemplated by Section 6(e) and will provide to the other party a
statement (1) showing, in reasonable detail, such calculations (including all
relevant quotations and specifying any amount payable under Section 6(e)) and
(2) giving details of the relevant account to which any amount payable to it is
<PAGE> 11
to be paid. In the absence of written confirmation from the source of a
quotation obtained in determining a Market Quotation, the records of the party
obtaining such quotation will be conclusive evidence of the existence and
accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any Early
Termination Date under Section 6(e) will be payable on the day that notice of
the amount payable is effective (in the case of an Early Termination Date which
is designated or occurs as a result of an Event of Default) and on the day which
is two Local Business Days after the day on which notice. of the amount payable
is effective (in the case of an Early Termination Date which is designated as a
result of a Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well as after
judgment) in the Termination Currency, from (and including) the relevant Early
Termination Date to (but excluding) the date such amount is paid, at the
Applicable Rate. Such interest will be calculated on the basis of daily
compounding and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an Event of
Default:--
(1) First Method and Market Quotation. If the First Method and Market Quotation
apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if
a positive number, of (A) the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid
Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the Defaulting
Party will pay to the Non-defaulting Party, if a positive number, the
Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and Market
Quotation apply, an amount will be payable equal to (A) the sum of the
Settlement Amount (determined by the Non-defaulting Party) in respect of the
Terminated Transactions and the Termination Currency Equivalent of the Unpaid
Amount owing to the Non-defaulting Party less (B) the Termination Currency
Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount
is a positive number, the Defaulting Party will pay it to the Non-defaulting
Party; if it is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an amount will
be payable equal to the Non-defaulting Party's Loss in respect of this
Agreement. If that amount is a positive number, the Defaulting Party will pay it
to the Non-defaulting Party; if it is a negative number, the Non-defaulting
Party will pay the absolute value of that amount to the Defaulting Party.
<PAGE> 12
(ii) Termination Events. If there are two Affected Parties:--
(1) One Affected Party. If there is one Affected Party, the amount payable will
be determined in accordance with Section 6(e)(i)(3), if the Market Quotation
applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case,
references to the Defaulting Party and to the Non-defaulting Party will be
deemed to be references to the Affected Party and the party which is not the
Affected Party, respectively, and, if Loss applies and fewer than all the
Transactions are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a Settlement Amount
in respect of the Terminated Transactions, and an amount will be payable equal
to (1) the sum of (a) one-half of the difference between the Settlement Amount
of the party with the higher Settlement Amount ("X") and the Settlement Amount
of the party with the lower Settlement Amount ("Y") and (b) the Termination
Currency Equivalent of the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in respect of this
Agreement (or, if fewer than all the Transactions are being terminated, in
respect of all Terminated Transactions) and an amount will be payable equal to
one-half of the difference between the Loss of the party with the higher Loss
("X") and the Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it is a
negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early Termination
Date occurs because "Automatic Early Termination" applies in respect of a party,
the amount determined under this Section 6(e) will be subject to such
adjustments as are appropriate and permitted by law to reflect any payments or
deliveries made by one party to the other under this Agreement (and retained by
such other party) during the period from the relevant Early Termination Date to
the date for payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an amount
recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not
a penalty. Such amount is payable for the loss of bargain and the loss of
protection against future risks and except as otherwise provided in this
Agreement neither party will be entitled to recover any additional damages as a
consequence of such losses.
7. Transfer
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
<PAGE> 13
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. Contractual Currency
(a) Payment in the Contractual Currency. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other then the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) Judgments. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the, Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and
costs of exchange payable in connection with the purchase of or conversion into
the Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
<PAGE> 14
(d) Evidence of Loss. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
9. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No Amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will, survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in respect of
it) may be executed and delivered in counterparts (including by facsimile
transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and may
be executed and delivered in counterparts (including by facsimile transmission)
or be created by an exchange of telexes or by an exchange of electronic messages
on an electronic messaging system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The parties will
specify therein or through another effective means that any such counterpart,
telex or electronic message constitutes a Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. Offices; Multibranch Parties
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organization of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
<PAGE> 15
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without prior written
consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. Expenses
A Defaulting Party will, an demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document to
which the Defaulting Party is a party or by reason of the early termination of
any Transaction, including, but not limited to, costs of collection.
12. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it is
delivered;
(ii) if sent by telex, on the date the recipients answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form (it being
agreed that the burden of proving receipt will be on the sender and will not be
met by a transmission report generated by the senders facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered or its
delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted deliver) or that receipt as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic message system details at which
notices or other communications are to be given to it.
<PAGE> 16
13. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this Agreement is
expressed to be governed by English law, or to the non-exclusive jurisdiction of
the courts of the State of New York and the United States District Court located
in the Borough of Manhattan in New York City, if this Agreement is expressed to
be governed by the laws of the State of New York, and
(ii) waives any objection which it may have at any time to the laying of venue
of any Proceedings brought in any such court, waives any claim that such
proceedings have been brought in an inconvenient forum and further waives the
right to object, with respect to such Proceedings, that such court does not have
any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
reenactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any reason any party's
Process Agent is unable to act as such, such party will promptly notify the
other party and within 30 days appoint a substitute process agent acceptable to
the other party. The parties irrevocably consent to service of process given in
the manner provided for notices in Section 12. Nothing in this Agreement will
affect the right of either party to serve process in any other manner permitted
by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. Definitions
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
<PAGE> 17
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
<PAGE> 18
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any tax other than a Tax that would not be imposed in
respect of payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or having or having had a permanent establishment or fixed place of business in
such jurisdiction, but excluding a connection arising solely from such recipient
or related person having executed, delivered, performed its obligations or
received a payment under, or enforced, this Agreement or a Credit Support
Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practices of any relevant governmental revenue authority)
and "lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement on one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount if
<PAGE> 19
any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have been required after that date. For this
purpose, Unpaid Amounts in respect of the Terminated Transaction or group of
Terminated Transactions are to be excluded but, without limitation, any payment
or delivery that would, but for the relevant Early Termination Date, have been
required (assuming satisfaction of each applicable condition precedent) after
that Early Termination Date is to be included. The Replacement Transaction would
be subject to such documentation as such party and the Reference Market-maker
may, in good faith, agree. The party making the determination (or its agent)
will request each Reference Market-maker to provide its quotation to the extent
reasonably practicable as of the same day and time (without regard to different
time zones) on or as soon as reasonably practicable after the relevant Early
Termination Date. The day and time as of which those quotations are to be
obtained will be selected in good faith by the party obliged to make a
determination under Section 6(e), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the
Market Quotation will be the arithmetic mean of the quotations, without regard
to the quotations having the highest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation remaining
after disregarding the highest and lowest quotations. For this purpose, if more
than one quotation has the same highest value or lowest value, then one of such
quotations shall be disregarded. If fewer than three quotations are provided, it
will be deemed that the Market Quotation in respect of such Terminated
Transaction or group of Terminated Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch of office of a party, which may be the party's head or
home office.
"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute, an Event of Default.
"Reference Market-markers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organized, managed and controlled or considered
to have its seat (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executed this
<PAGE> 20
Agreement and (d) in relation to any payment from or through which such payment
is made.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to the Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined and
(b) such party's Loss (whether positive or negative and without reference to any
Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entry" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such party or any applicable
Specified Entity of such party) which is a rate swap transaction, basis swap,
forward rate transaction, commodity swap, commodity option, equity or equity
index swap, equity or equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor transaction, collar
transaction, currency swap transaction, cross-currency rate swap transaction,
currency option or any other similar transaction (including any option with
respect to any of these transactions), (b) any combination of these transactions
and (c) any other transaction identified as a Specified Transaction in this
Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
<PAGE> 21
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in each case
together with (to the extent permitted under applicable law) interest in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or performed to
(but excluding) such Early Termination Date, at the Applicable Rate. Such
amounts of interest will be calculated on the basis of daily compounding and the
actual number of days elapsed. The fair market value of any obligation referred
to in clause (b) above shall be reasonably determined by the party obliged to
make the determination under Section 6(e) or, if each party is so obliged, it
shall be the average of the Termination Currency Equivalents of the fair market
values reasonably determined by both parties.
<PAGE> 22
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
- -------------------------- ----------------------------
(Name of Party) (Name of Party)
By: By:
----------------------- --------------------------
Name: Name:
--------------------- ------------------------
Title: Title:
Date: Date:
<PAGE> 23
(Multicurrency-Cross Border)
ISDA(R)
International Swap and Derivatives Association, Inc.
SCHEDULE
TO THE
MASTER AGREEMENT
dated as of March 26, 1999
between
Fleet National Bank and LADD Furniture, Inc.
------------------- --------------------
("Party A") ("Party B")
PART 1. TERMINATION PROVISIONS.
In the Agreement:
(a) "CREDIT AGREEMENT" means the Loan and Security Agreement dated as of
July 12, 1996, by and among LADD Furniture, Inc., American Furniture
Company, Incorporated, Barclay Furniture Co., Clayton-Marcus Company,
Inc., LADD Contract Sales Corporation, LADD International Sales Corp.,
LADD Transportation, Inc., Lea Industries, Inc., Pennsylvania House,
Inc., Pilliod Furniture, Inc. (the Borrowers), the Financial
Institutions party thereto from time to time as "Lenders",
Nationsbank, N.A. (South) and Fleet Capital Corporation, as agents for
the Lenders, and Nationsbank, N.A. (South), as Administrative Agent
for the Lenders, as amended, modified, restated or replaced from time
to time.
(b) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:
Section 5(a)(v) None;
Section 5(a)(vi) None;
Section 5(a)(vii) None; and
Section 5(b)(iv) None.
means in relation to Party B for the purpose of:
Section 5(a)(v) Each of the Borrowers as defined in the Credit
Agreement;
Section 5(a)(vi) Each of the Borrowers as defined in the Credit
Agreement;
Section 5(a)(vii) Each of the Borrowers as defined in the Credit
Agreement; and
Section 5(b)(iv) Each of the Borrowers as defined in the Credit
Agreement.
(c) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14
of this Agreement.
(d) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to
Party A and Party B.
The following provisions apply:
<PAGE> 24
(i) "SPECIFIED INDEBTEDNESS": with respect to any person, means
all obligations of that person identified as Specified
Indebtedness in Section 14; provided, however, that
indebtedness or obligations in respect of deposits received in
the ordinary course of the banking business of such person
shall not constitute Specified Indebtedness.
(ii) "THRESHOLD AMOUNT" means: (i) with respect to Party A, an
amount equal to 3% of Party A's stockholders' equity
determined in accordance with generally accepted accounting
principles in such party's jurisdiction of incorporation or
organization, consistently applied, as at the end of such
party's most recently completed fiscal year, and (ii) with
respect to Party B, USD 2,000,000.
With respect to Party B, an Event of Default (with Party B being the
Defaulting Party) shall also occur under this Agreement upon the
occurrence and during the continuation of any Event of Default
specified in the Credit Agreement.
(e) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) will
apply to Party A and Party B.
(f) The "AUTOMATIC EARLY TERMINATION" provisions of Section 6(a) will not
apply to Party A or Party B.
(g) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of this
Agreement:
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(h) "TERMINATION CURRENCY" means United States Dollars.
(i) ADDITIONAL TERMINATION EVENT will apply. If Fleet Capital Corporation
ceases to be a party to to the Credit Agreement, Party A shall
have the right to terminate any and all Transactions entered into
under this Agreement. Party A shall be the party entitled to
designate an Early Termination Date and determine the amounts
payable under Section 6(e) of this Agreement, and the Affected
Party shall be Party B.
PART 2. TAX REPRESENTATIONS. Not Applicable.
PART 3. AGREEMENT TO DELIVER DOCUMENTS.
For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party
agrees to deliver the following documents, as applicable:
(a) Tax forms, documents or certificates to be delivered are: None.
(b) Other documents to be delivered are:
<PAGE> 25
<TABLE>
<CAPTION>
COVERED BY
PARTY REQUIRED TO DATE BY WHICH TO SECTION 3(D)
DELIVER DOCUMENT FORM/DOCUMENT CERTIFICATE BE DELIVERED REPRESENTATION
----------------- ------------------------- ----------------- --------------
<S> <C> <C> <C>
Party A and Certified copies of all corporate authorizations Upon execution and delivery Yes
Party B and any other documents with respect to the of this Agreement.
execution, delivery and performance of this
Agreement and each Confirmation.
Party A and Certificate of Authority and specimen signatures Upon execution and delivery Yes
Party B of individuals executing this Agreement and of this Agreement and
Confirmations thereafter, upon request of
the other party.
</TABLE>
PART 4. MISCELLANEOUS.
(a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of
this Agreement:
<TABLE>
<S> <C> <C> <C> <C>
Address for notices or Fleet National Bank
communications to 75 State Street - MA BO F03E
Party A: Treasury Division
Boston, Massachusetts 02109
Attention: Mr. Brian C. Snell, Vice President
Telex: 144203 Answerback: FLEETB1
Telephone No: (617) 346-1169 Facsimile No: (617) 346-1180
Address for notices or LADD Furniture, Inc.
communications to 4620 Grandover Parkway
Party B: Greensboro, NC 27407
Attention: Mr. William S. Creekmuir, EVP and CFO
Telephone No.: (336) 315-4001 Facsimile No.: (336) 315-4399
</TABLE>
(b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement,
Not Applicable.
(c) OFFICES. The provisions of Section 10(a) will apply to this
Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this
Agreement, Not Applicable.
(e) CALCULATION AGENT. The Calculation Agent is Party A, unless
otherwise specified in a Confirmation in relation
to a relevant Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document:
(i) With respect to Party A, none.
(ii) With respect to Party B, each of the Security Documents as
defined in the Credit Agreement.
(g) CREDIT SUPPORT PROVIDER means:
(i) In relation to Party A, none.
<PAGE> 26
(ii) In relation to Party B, none.
(h) GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of New
York (without reference to choice of law doctrine), except
that 13(b)(i) shall not apply.
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this
Agreement will apply to all Transactions.
(j) "AFFILIATE" will have the meaning specified in Section 14 of this
Agreement.
(k) INTEREST RATE PROTECTION AGREEMENT. This Agreement is an Interest
Rate Protection Agreement as defined in the Credit Agreement.
PART 5. OTHER PROVISIONS.
(a) SET-OFF. Nothing in this Agreement shall be treated as restricting, or
negating any right of set-off, lien, counterclaim or other
right or remedy which might otherwise be available to either
party.
(b) CONFIRMATIONS. For each Swap Transaction Party A and Party B agree to
enter into hereunder, Party A shall promptly send to Party B
a Confirmation via telex or facsimile transmission setting
forth the terms of such Swap Transaction. Party B shall
execute and return the Confirmation to Party A or request
correction of any error within ten (10) Local Business Days
of trade date. Failure of Party B to respond within such
period shall not affect the validity or enforceability of
such Swap Transaction and shall be deemed to be an
affirmation of such terms, absent manifest error. The
parties agree that any such exchange of telexes or facsimile
transmission shall constitute a Confirmation for all
purposes hereunder.
(c) NOTICE BY FACSIMILE TRANSMISSION. Section 12(a) is hereby
amended by inserting the words "or 13(c)" between the number
"6" and the word "may" in the second line thereof.
(d) CONSENT TO RECORDING. Each party acknowledges and agrees to
the taping or electronic recording of conversations between
the parties to this Agreement whether by one or the other, and
that any such recordings may be submitted into evidence in any
action or proceeding relating to this Agreement or any
Transaction.
(e) WAIVER OF JURY TRIAL. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDINGS ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
(f) ADDITIONAL REPRESENTATIONS. For purposes of Section 3 of this
Agreement, the following shall be added, immediately following
paragraph (f) thereof:
"(g) It is an "eligible swap participant" within the
meaning of CFTC Regulations Section 35.1(b)(2).
(h) RELATIONSHIP BETWEEN PARTIES. In connection with
this Agreement, any Credit Support Document to which it is a
party and each Transaction hereunder:
<PAGE> 27
(i) NON RELIANCE. It is acting for its own account,
and it has made its own independent decisions to enter into
that Transaction and as to whether that Transaction is
appropriate or proper for it based upon its own judgment and
upon advice from such advisors as it has deemed necessary. It
is not relying on any communication (written or oral) of the
other party as investment advice or as a recommendation to
enter into that Transaction; it being understood that
information and explanations related to the terms and
conditions of a Transaction shall not be considered
investment advice or a recommendation to enter into that
Transaction. No communication (written or oral) received from
the other party shall be deemed to be an assurance or
guarantee as to the expected results of that Transaction.
(ii) ASSESSMENT AND UNDERSTANDING. It is capable of
assessing and understanding (on its own behalf or through
independent professional advice), and understands and accepts
the terms, conditions and risks of that Transaction. It is
also capable of assuming, and assumes, the risks of that
Transaction.
(iii) STATUS OF PARTIES. The other party is not
acting as a fiduciary for or an advisor to it in respect of
that Transaction."
(g) INCORPORATION BY REFERENCE OF TERMS OF CREDIT AGREEMENT. The
covenants, terms and provisions of the Credit Agreement,
including all representations and warranties of Party B
contained therein, and as may be amended from time to time
after the date of this Agreement, are hereby incorporated by
reference in and made part of this Agreement to the same
extent as if such covenants, terms, and provisions were set
forth in full herein. Party B hereby agrees that during the
period commencing with the date through and including such
date on which all of Party B's obligations under this
Agreement are fully performed, Party B will (a) observe,
perform, and fulfill each and every such covenant, term, and
provision applicable to Party B, as such covenants, terms,
and provisions may be amended from time to time after the
date of this Agreement and (b) deliver to Party A at the
address for notices to Party A provided for in Part 4 each
notice, document, certificate, or other writing as Party B
is obligated to furnish to any other party to the Credit
Agreement. In the event that the Credit Agreement
terminates, becomes no longer binding on Party B, or is
replaced by an agreement to which Fleet Capital Corporation
is no longer a party prior to the termination of this
Agreement, such covenants, terms, and provisions (other than
those requiring payments in respect of amounts owed under
the Credit Agreement) will remain in full force and effect
for purposes of this Agreement as though set forth in full
herein until the date on which all of Party B's obligations
under this Agreement are fully performed, and this Agreement
is terminated.
FLEET NATIONAL BANK LADD FURNITURE, INC.
By: By:
------------------------ ------------------------
Name: Brian C. Snell Name:
Title: Vice President Title:
Date: Date:
<PAGE> 1
EXHIBIT 10.2
LADD FURNITURE, INC.
1994 INCENTIVE STOCK OPTION PLAN
As Amended Effective March 10, 1999
<PAGE> 2
LADD FURNITURE, INC.
1994 INCENTIVE STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Purpose.................................................................1
2. Administration..........................................................1
3. Stock Available for Options.............................................2
4. Eligibility.............................................................2
5. Option Price............................................................3
6. Director Options........................................................4
7. Expiration of Options...................................................4
8. Terms and Conditions of Options.........................................4
9. Exercise of Options.....................................................5
10. Termination of Employment - Except by Death or Retirement...............5
11. Termination of Employment - Retirement..................................6
12. Termination of Employment - Death.......................................6
13. Restrictions on Transfer................................................6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
14. Capital Adjustments Affecting Common Stock..............................6
15. Application of Funds....................................................8
16. No Obligation to Exercise Option........................................8
17. Term of Plan............................................................8
18. Effective Date of Plan..................................................8
19. Time of Granting of Options.............................................8
20. Termination and Amendment...............................................8
21. Other Provisions........................................................9
</TABLE>
<PAGE> 4
LADD FURNITURE, INC.
1994 INCENTIVE STOCK OPTION PLAN
THIS IS THE 1994 INCENTIVE STOCK OPTION PLAN ("Plan") of LADD
Furniture, Inc. ("LADD"), a North Carolina corporation, with its principal
office in Greensboro, Guilford County, North Carolina, effective on February 24,
1994, with four subsequent amendments effective on March 5, 1996, March 6, 1997,
October 23, 1997, March 5, 1998, and March 10, 1999, respectively, under which
options may be granted from time to time to eligible employees and directors of
LADD and LADD's divisions and subsidiaries to purchase shares of common stock of
LADD, subject to the provisions set forth as follows:
SECTION 1. PURPOSE
The purpose of this Plan is to aid LADD in attracting capable
executives and directors and to provide a long range inducement for key
employees and directors to remain in the management of LADD, to perform at
increasing levels of effectiveness and to acquire a permanent stake in LADD with
the interest and outlook of an owner. These objectives will be promoted through
the granting to key employees and directors of options to acquire shares of
common stock of LADD pursuant to the terms of this Plan.
SECTION 2. ADMINISTRATION
The Plan shall be administered by a committee to be appointed from time
to time by the Board of Directors of LADD and shall serve at the pleasure of the
directors (the "Committee"). Any or all of the members of the Committee may be
members of the Board of Directors. The Committee shall consist of not less than
three (3) persons, all of whom shall be "disinterested persons" within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended from
time to time. The Committee, from time to time, may adopt rules and regulations
for carrying out the Plan.
Subject to the provisions of the Plan, the determinations or the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby. By way of
illustration and not of limitation, the Committee shall have the discretion (a)
to construe and interpret the Plan and all options granted hereunder and to
determine the terms and provisions (and amendments thereof) of the options
granted under the Plan (which need not be identical); (b) to define the terms
used in the Plan and in the options granted hereunder; (c) to prescribe, amend
and rescind rules and regulations relating to the Plan; (d) to determine the
individuals to whom and the time or times at which such options shall be
granted, the number of shares to be subject to each option, the option price,
the manner of exercise of the options, and the determination of leaves of
absence which may be granted to participants without constituting a termination
of their employment for the purposes of the Plan; (e) to correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any option
granted under the Plan; and (f) to make all other determinations necessary or
advisable for the administration of the Plan.
<PAGE> 5
It shall be in the discretion of the Committee to grant options which
qualify as "incentive stock options" (as that term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended) or which will be given tax
treatment as "nonqualified stock options" (herein referred to collectively as
"options"; however, whenever reference is specifically made only to "incentive
stock options" or "nonqualified stock options," such reference shall be deemed
to be made to the exclusion of the other). Nonqualified stock options granted to
nonemployee directors pursuant to the terms of the Plan shall be referred to as
"Director Options."
Any action of the Committee with respect to the Plan shall be taken by
a majority vote at a meeting of the Committee or by written consent of all of
the members of the Committee without a meeting.
SECTION 3. STOCK AVAILABLE FOR OPTIONS
The stock to be subject to options under the Plan shall be authorized
but unissued shares of common stock of LADD or, in the discretion of the
Committee, issued shares which have been reacquired by LADD. The total amount of
stock for which options may be granted under the Plan shall not exceed One
Million Four Hundred Thousand (1,400,000) shares (as adjusted for the
one-for-three reverse stock split effective May 16, 1995). Such number of shares
is subject to any capital adjustments as provided in Section 14. In the event
that an option granted under the Plan expires or is terminated unexercised as to
any shares covered thereby, such shares thereafter shall be available for the
granting of options under the Plan; however, if the expiration or termination
date of an option is beyond the term of existence of the Plan as described in
Section 17, then any shares covered by unexercised or terminated options shall
not reactivate the existence of this Plan and therefore may not be available for
additional grants under the Plan.
SECTION 4. ELIGIBILITY
Options shall be granted only to individuals who meet the following
eligibility requirements:
(a) Such individual must be an employee of LADD or a division or
subsidiary of LADD or a director of LADD. An individual shall be considered to
be an "employee" only if there exists between LADD or a division or subsidiary
of LADD and the individual the legal and bona fide relationship of employer and
employee. In determining whether such relationship exists, the regulations of
the United States Treasury Department relating to the determination of such
relationship for the purpose of collection of income tax at the source on wages
shall be applied.
(b) Such employees must be "key employees" of LADD or a division or
subsidiary of LADD. For this purpose, "key employees" shall be considered to be
those employees who, in the judgment of the Committee, are in a position
materially to affect the operations and profitability of LADD or a division or
subsidiary of LADD by reason of the nature and extent of their duties and
responsibilities.
2
<PAGE> 6
(c) A director of LADD who is not also an employee of LADD is eligible
for an automatic grant of options pursuant to Section 6 hereof. A director of
LADD who is not also an employee of LADD will not be eligible to receive
incentive stock options and will only be eligible to receive Director Options.
(d) Such individual, being otherwise eligible under this Section 4,
shall have been selected by the Committee as a person to whom an option shall be
granted under the Plan.
(e) In determining the individuals to whom options shall be granted and
the number of shares to be covered by each option, the Committee shall take into
account the nature of the services rendered by the respective individuals, their
present and potential contributions to the success of LADD and such other
factors as the Committee shall deem relevant. An employee who has been granted
an option under the Plan may be granted an additional option or options under
the Plan if the Committee shall so determine.
SECTION 5. OPTION PRICE
(a) (i) Except in the case where incentive stock options are granted to
an individual who owns stock possessing more than 10 percent (10%) of the total
combined voting power of all classes of stock of LADD or its subsidiary
corporations ("ten percent shareholder"), the option price of each incentive
stock option granted under the Plan shall be not less than one hundred percent
(100%) of the market value of the stock on the date of grant of the incentive
stock option. In the case of incentive stock options granted to a ten percent
shareholder, the option price of each incentive stock option granted under the
Plan shall not be less than one hundred ten percent (110%) of the market value
of the stock on the date of grant of the incentive stock option. "Market value"
shall be determined by taking the closing price of the stock on the
over-the-counter market on that date. The option price is subject to any capital
adjustment as provided in Section 14.
(ii) The option price for nonqualified stock options granted to
employees shall be established by the Committee in its discretion and may be
less than market value of the stock on date of grant.
(iii) The option price for Director Options shall be not less than
the market value of the stock on date of grant. Market value shall be determined
as set forth in Section 5(a)(i) above.
(b) The option price shall be payable to LADD either (i) in cash or by
check, bank draft or money order payable to the order of LADD, or (ii) at the
discretion of the Committee, through the delivery of shares of the common stock
of LADD owned by the optionee with a value equal to the option price, or (iii)
at the discretion of the Committee by a combination of (i) and (ii) above. An
option agreement may, in the discretion of the Committee, provide for a
"cashless exercise" of an incentive stock option or a nonqualified stock option
by establishing procedures whereby the optionee, by a properly executed written
notice, directs (1) an immediate market sale or margin loan respecting all or a
part of the shares of common stock to which he is entitled upon exercise
pursuant to an extension of credit by LADD to the optionee of the option price,
(2) delivery of the shares of common stock from LADD directly to a brokerage
firm and (3) the delivery of the option price
3
<PAGE> 7
from sale or margin loan proceeds from the brokerage firm directly to LADD.
Except as provided in the preceding sentence, no shares shall be delivered until
full payment has been made. The Committee may not approve a reduction of such
purchase price in any such option, or the cancellation of any such option and
the regranting thereof to the same optionee at a lower purchase price, at a time
when the market value of the shares is lower than it was when such option was
granted.
SECTION 6. DIRECTOR OPTIONS
All eligible nonemployee directors of LADD will automatically receive
without any action required on the part of the Committee the following grants of
options ("Director Options"): 1) upon initial election to office, nonqualified
stock options to purchase four thousand (4,000) shares of LADD common stock and
2) upon subsequent elections to office each year, beginning with the election of
directors at the 1999 Annual Meeting of Shareholders, nonqualified stock options
to purchase four thousand (4,000) shares of LADD common stock. All
characteristics of the Director Options, including option price, shall be
established as provided in the Plan. The Committee shall exercise no discretion
with respect to the granting of Director Options.
SECTION 7. EXPIRATION OF OPTIONS
The Committee shall determine the expiration date or dates of each
option, but such expiration date shall be not later than ten (10) years after
the date such option is granted; provided, however, that in the case where
incentive stock options are granted to a ten percent shareholder, as defined in
Section 5(a)(i) hereof, such expiration date shall be not later than five (5)
years after the date such option is granted. The Committee, in its discretion,
may extend the expiration date or dates of an option after such date was
originally set; however, such expiration date may not exceed the maximum
expiration date described above. Notwithstanding the foregoing, all Director
Options shall be for a term of ten (10) years, and such term may not be extended
or modified by the Committee.
SECTION 8. TERMS AND CONDITIONS OF OPTIONS
(a) All options must be granted within ten (10) years of the Effective
Date of this Plan as provided in Section 18.
(b) The grant of options shall be evidenced by a written instrument
containing terms and conditions established by the Committee consistent with the
provisions of this Plan.
(c) Not less than one hundred (100) shares may be purchased at any one
time unless the number purchased is the total number at that time purchasable
under the Plan.
(d) The Committee may grant an option or options and stipulate that a
portion of such option expires or becomes exercisable at a stated interval or
that portions of such option expire or become exercisable at several stated
intervals. Director Options shall be one hundred percent (100%) exercisable
beginning one year after the date of grant.
4
<PAGE> 8
(e) An optionee shall have no rights as a stockholder with respect to
any shares covered by his option until payment in full by him for the shares
being purchased. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock is
fully paid for, except as provided in Section 14 hereof.
(f) Notwithstanding any other provision of the Plan, the aggregate fair
market value (determined at the time the option is granted) of the stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (including incentive stock options granted
under all option plans of LADD or any of its subsidiary corporations) shall not
exceed $100,000.
(g) Notwithstanding any other provision of the Plan, the total number
of shares of common stock of LADD with respect to which incentive stock options,
nonqualifying options and Director Options are granted to an optionee during any
calendar year shall not exceed ten percent (10%) of the total number of shares
reserved for grant under the Plan as provided in Section 3.
SECTION 9. EXERCISE OF OPTIONS
(a) An optionee must have been continuously employed by LADD or a
division or subsidiary of LADD or be a director of LADD for 12 months before the
right to exercise any part of the option granted to such optionee shall accrue.
Each option granted under the Plan shall be exercisable in such annual
installments as may be determined by the Committee at the time of the grant, or
with respect to Director Options as provided in the Plan. The right to exercise
options in annual installments may be cumulative. Except as provided in Sections
11 and 12, no option may be exercised at any time unless the holder thereof is
then an employee of LADD or a division or subsidiary of LADD or a director of
LADD. The exercise of any stock option must be evidenced by written notice to
LADD that the optionee intends to exercise his option. In no event shall an
option granted pursuant to the terms of the Plan as amended be exercised until
the Plan, as amended, has been approved by the shareholders of LADD.
(b) No option may be exercised and no shares may be acquired under the
Plan prior to the timely filing by both the optionee and LADD of all appropriate
documents that may be required by applicable federal and state securities laws
and state corporate laws.
SECTION 10. TERMINATION OF EMPLOYMENT - EXCEPT BY DEATH OR RETIREMENT
If any optionee ceases to be employed by LADD or a division or
subsidiary of LADD or ceases to be a director of LADD for any reason other than
his death (Section 12), disability retirement (Section 11), or normal retirement
(Section 11), his option shall immediately terminate. Whether a leave of absence
shall constitute a termination of employment or termination of the directorship
shall be determined by the Committee, whose decision shall be final and
conclusive.
5
<PAGE> 9
SECTION 11. TERMINATION OF EMPLOYMENT - RETIREMENT
If any optionee ceases to be employed by LADD or a division or
subsidiary of LADD or ceases to be a director of LADD due to his retirement upon
attaining normal retirement age (age 65) or he ceases to be employed prior to
age 65 due to early retirement and such early retirement is acceptable to the
Committee for the purposes of this Section 11, he may, at any time within three
(3) months after his date of retirement, but not later than the date of
expiration of the option, exercise the option to the extent he was entitled to
do so on his date of retirement. If any optionee ceases to be employed by LADD
or a division or subsidiary of LADD or ceases to be a director of LADD due to
his becoming disabled for purposes of LADD's Disability Plan, he may, at any
time within twelve (12) months after his date of disability retirement, but not
later than the date of expiration of the option, exercise the option to the same
extent he was entitled to do so on his date of disability retirement. Any
options or portions of options of retired optionees not so exercised shall
terminate.
SECTION 12. TERMINATION OF EMPLOYMENT - DEATH
If an optionee dies while in the employment of LADD or a division or
subsidiary of LADD or while serving as a director of LADD, the person or persons
to whom the option is transferred by will or by the laws of descent and
distribution may exercise the same option to the same extent and upon the same
terms and conditions the optionee would have been entitled to do so had he lived
until the term of the option had expired. Any options or portions of options of
deceased optionees not so exercised shall terminate.
SECTION 13. RESTRICTIONS ON TRANSFER
Except as otherwise provided herein, an option granted under this Plan
may not be transferred except by will or the laws of descent and distribution
and, during the lifetime of the optionee to whom it was granted, may be
exercised only by such optionee. Notwithstanding the above, nonqualified options
and Director Options granted under this Plan may be transferred without payment
of consideration to immediate family members (as defined herein), trusts for the
benefit of immediate family members and partnerships consisting only of
immediate family members. For purposes of this Section 13, "immediate family
members" shall consist of the optionee's spouse, issue, whether natural,
adopted, or in the process of adoption, spouse of issue or ancestor.
SECTION 14. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK
(a) If the outstanding shares of the common stock of LADD are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of LADD or shares of a different par value or without
par value through recapitalization, reclassification, stock dividend, stock
split, amendment to LADD's Articles of Incorporation or reverse stock split, an
appropriate adjustment shall be made in the number and/or kind of securities
allocated to the options previously and subsequently granted under the Plan,
without change in the aggregate purchase price applicable to the unexercised
portion of the outstanding options but with a
6
<PAGE> 10
corresponding adjustment in the price for each share or other unit of any
security covered by the options.
(b) Upon the effective date of the dissolution or liquidation of LADD,
or a "Change in Control" (as hereinafter defined), the Plan and any option
previously granted hereunder shall terminate unless provision is made in writing
in connection with such transaction for the continuance of the Plan and for the
assumption of options previously granted, or the substitution for such options
of new options covering the shares of a successor employer corporation, or of a
parent or subsidiary thereof, with appropriate adjustments as to number and kind
of shares and prices in which event the Plan and the options previously granted
or the new options substituted therefor, shall continue in the manner and under
the terms so provided. Nevertheless, in the event of such dissolution,
liquidation, or Change in Control, and if provision is not made in such
transaction for the continuance of the Plan and for the assumption of options
previously granted or for the substitution of such options or new options
covering the shares of a successor employer corporation or a parent or
subsidiary thereof, then such optionee under the Plan shall be entitled, prior
to the effective date of any such transaction, to purchase the full number of
shares under his option which he would otherwise have been entitled to purchase
during the remaining term of such option.
(c) To the extent that the foregoing adjustments relate to particular
stock or securities of LADD subject to option under this Plan, such adjustments
shall be made by the Committee, whose determination in that respect shall be
final and conclusive.
(d) The grant of an option pursuant to this Plan shall not affect in
any way the right or power of LADD to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
(e) No fractional shares of stock shall be issued under the Plan for
any such adjustment.
(f) "Change in Control" means the date on which the earlier of the
following events occur:
(i) The acquisition by any entity, person or group of beneficial
ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, of more than 30% of the
outstanding capital stock of LADD entitled to vote for the
election of directors ("Voting Stock");
(ii) The merger or consolidation of LADD with one or more
corporations as a result of which the holders of the
outstanding Voting Stock of LADD immediately prior to such a
merger or consolidation hold less than 60% of the Voting
Stock of the surviving or resulting corporation;
(iii) The transfer of substantially all of the property of LADD
other than to an entity of which LADD owns at least 80% of
the Voting Stock; or
7
<PAGE> 11
(iv) The election to the Board of Directors of LADD of
three directors without the recommendation or
approval of the incumbent Board of Directors of LADD.
SECTION 15. APPLICATION OF FUNDS
The proceeds received by LADD from the sale of common stock pursuant to
options will be used for general corporate purposes.
SECTION 16. NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the optionee
to exercise such option.
SECTION 17. TERM OF PLAN
Options may be granted pursuant to this Plan from time to time within a
period of ten (10) years from February 24, 1994.
SECTION 18. EFFECTIVE DATE OF PLAN
This Plan was originally effective February 24, 1994, following
approval thereof by the Board of Directors and shareholders, with four
subsequent amendments effective on March 5, 1996, March 6, 1997, October 23,
1997, March 5, 1998, and March 10, 1999, respectively.
SECTION 19. TIME OF GRANTING OF OPTIONS
Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Committee or the shareholders of LADD and no action taken by the
Committee shall constitute the granting of any option hereunder. The granting of
an option pursuant to the Plan shall take place only when a written option
agreement shall have been duly executed and delivered by and on behalf of LADD.
SECTION 20. TERMINATION AND AMENDMENT
The Committee may at any time alter, suspend, terminate or discontinue
the Plan, but may not, without the consent of the holder of an option previously
granted, make any alteration which would deprive him of his rights with respect
thereto or, without the approval of the stockholders, make any alteration which
would (a) increase the number of aggregate shares subject to the option under
this Plan or decrease the minimum option price except as provided in Section 14;
or (b) extend the term of this Plan as provided in Section 17 or the maximum
period during which any option may be exercised as provided in Section 7.
8
<PAGE> 12
SECTION 21. OTHER PROVISIONS
The option agreements authorized under this Plan shall contain such
other provisions not inconsistent with the foregoing, including, without
limitation, increased restrictions upon the exercise of the option, as the
Committee may deem advisable.
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LADD FURNITURE FOR THE THREE MONTHS ENDED APRIL 3, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 147
<SECURITIES> 0
<RECEIVABLES> 99,008
<ALLOWANCES> 3,222
<INVENTORY> 103,699
<CURRENT-ASSETS> 211,022
<PP&E> 65,408
<DEPRECIATION> 0
<TOTAL-ASSETS> 347,337
<CURRENT-LIABILITIES> 84,639
<BONDS> 102,420
0
0
<COMMON> 2,350
<OTHER-SE> 145,821
<TOTAL-LIABILITY-AND-EQUITY> 347,337
<SALES> 157,144
<TOTAL-REVENUES> 157,144
<CGS> 126,973
<TOTAL-COSTS> 126,973
<OTHER-EXPENSES> 22,321
<LOSS-PROVISION> 303
<INTEREST-EXPENSE> 2,048
<INCOME-PRETAX> 5,802
<INCOME-TAX> 2,205
<INCOME-CONTINUING> 3,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,597
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.45
</TABLE>
