<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For fiscal year ended January 31, 1999,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-22378
MOVADO GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 13-2595932
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 Chubb Avenue 07071
Lyndhurst, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 460-4800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Name of each exchange on which registered:
NONE
Securities registered pursuant to Section 12(b) of the Act;
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing sales price of the Common Stock as of April 23, 1999,
the aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $234,295,255. For purposes of this computation,
each share of Class A Common Stock is assumed to have the same market value as
one share of Common Stock into which it is convertible and only shares of stock
held by directors and executive officers were excluded.
The number of shares outstanding of the registrant's Common Stock and Class
A Common Stock as of April 23, 1999 were 9,438,938 and 3,527,000 respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to Registrant's 1998
annual meeting of shareholders (the "Proxy Statement") are incorporated by
reference in Part III hereof.
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PART I
Item 1. Business
CORPORATE ORGANIZATION
The registrant, Movado Group, Inc., is a designer, manufacturer and distributor
of quality watches with prominent brands sold in almost every price category
comprising the watch industry. It was incorporated in New York in 1967 to
acquire Piaget Watch Corporation and Corum Watch Corporation, which had been,
respectively, the exclusive importers and distributors of Piaget and Corum
watches in the United States since the 1950's. The registrant and its
subsidiaries are referred to herein as "Movado Group, Inc.," or the "Company"
unless the context otherwise requires.
In 1970, the Company acquired the Swiss manufacturer of Concord watches, which
had been manufacturing Concord watches since 1908, and in 1983, the Company
acquired the U.S. distributor of and substantially all the assets related to the
Movado watch brand from the Swiss manufacturer of Movado watches.
On October 7, 1993, the Company completed a public offering of 2,666,667 shares
of common stock, par value $.01 per share (the "Common Stock"). In connection
with the public offering, each share of old Class A Common Stock was
reclassified into 10.46 shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"). Each share of Common Stock is entitled to one vote
per share and each share of Class A Common Stock is entitled to 10 votes per
share on all matters submitted to a vote of the shareholders. Each holder of
shares of Class A Common Stock is entitled to convert, at any time, any and all
such shares into the same number of shares of Common Stock. Each share of Class
A Common Stock is converted automatically into Common Stock in the event that
the beneficial or record ownership of such share of Class A Common Stock is
transferred to any person, except to certain family members or affiliated
persons deemed "permitted transferees" pursuant to the Company's Amended
Restated Certificate of Incorporation. The Common Stock is quoted on the NASDAQ
National Market under the trading symbol "MOVA".
On October 21, 1997, the Company completed a secondary stock offering in which
1,500,000 shares of Common Stock were issued.
On February 22, 1999, the Company completed the sale of its Piaget business to
VLG North America, Inc. ("VLG"). The Company sold all of its right, title and
interest in substantially all the assets, properties and rights relating to the
business of selling and distributing Piaget watches and jewelry in the United
States, Canada, Central America and the Caribbean.
With executive offices in Lyndhurst, New Jersey, the Company operates
wholly-owned subsidiaries in Canada, Hong Kong, Japan, Singapore, Switzerland
and the United States.
INDUSTRY OVERVIEW
The largest markets for watches are North America, Western Europe and the Far
East. While exact worldwide wholesale sales volumes are difficult to quantify,
the Company estimates from data obtained from the Federation of the Swiss Watch
Industry that worldwide wholesale sales of finished watches were over $13
billion in 1996. Watches are produced predominantly in Switzerland, Hong Kong
and Japan. According to the
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Federation of the Swiss Watch Industry, Switzerland, Hong Kong and Japan
accounted for approximately 68%, 17% and 5%, respectively, of worldwide finished
watch exports based on value in 1996. Among all the major watch exporting
countries, Swiss watches have the highest average unit value.
The Company divides the watch market into five principal categories as set forth
in the following table:
<TABLE>
<CAPTION>
PRIMARY CATEGORY OF
SUGGESTED RETAIL MOVADO GROUP, INC.
MARKET CATEGORY PRICE RANGE BRANDS
- --------------- ----------- ------
<S> <C> <C>
Exclusive $10,000 and over Corum
Luxury $1,000 to $9,999 Concord and Vizio
Premium Branded $500 to $999 Movado and Coach
Moderate Branded $100 to $499 ESQ and Coach
Mass Market less than $100 --
</TABLE>
The Company competes in the Exclusive category as the exclusive distributor of
Corum watches in the United States, Canada and the Caribbean. The Company's
Concord watches compete primarily in the Luxury category of the market, although
certain Concord watches compete in the Exclusive and Premium Branded categories.
The Company's Vizio watches compete in the Luxury category of the market. The
Company's Movado watches compete primarily in the Premium Branded category of
the market, although certain Movado watches compete in the Exclusive, Luxury and
Moderate Branded categories. The Company's Coach brand competes in both the
Premium Branded and Moderate Branded categories. The ESQ line competes in the
Moderate Branded category of the market. The Company does not participate in the
Mass Market category.
Exclusive Watches
Exclusive watches are usually made of precious metals, including 18 karat gold
or platinum, and may be set with precious gems, including diamonds, emeralds,
rubies and sapphires. These watches are primarily mechanical or quartz-analog
watches. Mechanical watches keep time with intricate mechanical movements
consisting of an arrangement of wheels, jewels and winding and regulating
mechanisms. Quartz-analog watches have quartz movements in which time is
precisely calibrated to the regular frequency of the vibration of quartz
crystal. Exclusive watches are manufactured almost entirely in Switzerland. In
addition to the Company's Corum watches and certain Movado and Concord watches,
well-known brand names of Exclusive watches include Audemars Piguet, Patek
Philippe, Piaget and Vacheron Constantin.
Luxury Watches
Luxury watches are either quartz-analog watches or mechanical watches. These
watches typically are made with either 14 or 18 karat gold, stainless steel or a
combination of gold and stainless steel, and are occasionally set with precious
gems. Luxury watches are primarily manufactured in Switzerland. In addition to a
majority of the Company's Concord, Vizio and certain Movado watches, well-known
brand names of Luxury watches include Baume & Mercier, Breitling, Cartier, Ebel,
Omega, Rolex and TAG Heuer.
Premium Branded Watches
The majority of Premium Branded watches are quartz-analog watches. These watches
typically are made with gold finish, stainless steel or a combination of gold
finish and stainless steel. Premium Branded watches are
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manufactured primarily in Switzerland, although some are manufactured in the Far
East. In addition to a majority of the Company's Movado watches, Coach watches
and certain Concord watches, well-known brand names of Premium Branded watches
include Gucci, Rado and Raymond Weil.
Moderate Branded Watches
Most Moderate Branded watches are quartz-analog watches. Moderate Branded
watches are manufactured primarily in the Far East and Switzerland. These
watches typically are made with gold finish, stainless steel, brass or a
combination of gold finish and stainless steel. In addition to the Company's ESQ
and Coach brands, well-known brand names of watches in the Moderate Branded
category include Anne Klein, Bulova, Gucci, Guess, Seiko and Wittnauer.
Mass Market Watches
Mass Market watches typically consist of digital and quartz-analog watches that
are made with stainless steel, brass or plastic. Digital watches, unlike
quartz-analog watches, have no moving parts. Instead, time is kept by electronic
microchips and is displayed as discrete Arabic digits illuminated on the watch
face by light emitting diodes (LEDs) or liquid crystal displays (LCDs). Mass
Market watches are manufactured primarily in the Far East. Movado Group, Inc.
does not manufacture or distribute Mass Market watches. Well-known brands of
Mass Market watches include Casio, Citizen, Fossil, Pulsar, Seiko, Swatch and
Timex.
PRODUCTS
The Company currently markets five distinctive brands of watches: Movado,
Concord, ESQ, Coach and Corum, which compete in the Exclusive, Luxury, Premium
Branded and Moderate Branded categories. The Company designs and manufactures
Movado and Concord watches primarily in Switzerland, as well as in the United
States, for sale throughout the world. ESQ watches are manufactured to the
Company's specifications by independent contractors located in the Far East and
are presently sold primarily in the United States, Canada and the Caribbean.
Coach watches are assembled in Switzerland by independent suppliers. In
addition, Movado Group, Inc. is the exclusive distributor of Swiss-manufactured
Corum watches in the United States, Canada and the Caribbean. Corum watches are
manufactured in Switzerland by Corum Swiss. Until the end of fiscal 1999, the
Company distributed Piaget watches. On February 22, 1999 the Company sold its
Piaget distribution rights, together with substantially all the assets
comprising its Piaget business to VLG.
Movado
Founded in 1881 in La Chaux-de-Fonds, Switzerland, the Movado brand today
includes a line of watches based on the design of the world famous Movado Museum
watch and a number of other watch collections with more traditional dial
designs. The design for the Movado Museum watch was the first watch design
chosen by the Museum of Modern Art for its permanent collection. It has since
been honored by 10 other museums throughout the world. All Movado watches have
Swiss movements, and are made with 14 or 18 karat gold, 18 karat gold finish,
stainless steel or a combination of 18 karat gold finish and stainless steel.
The majority of Movado watches have suggested retail prices between
approximately $195 and $4,000.
Concord
Concord was founded in 1908 in Bienne, Switzerland. All Concord watches have
Swiss movements, either quartz or mechanical. Concord watches are made with 18
karat gold, stainless steel or a combination of 18 karat gold and stainless
steel, except for Concord Royal Gold watches, most of which are made with 14
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karat gold. The majority of Concord watches have suggested retail prices between
approximately $1,000 and $15,000.
Coach
During fiscal 1999, the Company introduced Coach watches under an exclusive
license with Coach, a division of Sara Lee Corp. All Coach watches contain Swiss
movements and are made with stainless steel, gold finish or a combination of
stainless steel and gold finish, with leather straps, stainless steel bracelets
or gold finish bracelets. The suggested retail pricing ranges from $195 to $795.
ESQ
ESQ was launched in the second half of fiscal 1993. All ESQ watches contain
Swiss movements and are made with stainless steel, at least 18 karat gold finish
or a combination of stainless steel and at least 18 karat gold finish, with
leather straps, stainless steel bracelets or at least 18 karat gold finish
bracelets. The ESQ brand consists of sport and fashion watches with suggested
retail prices from approximately $125 to $495 with features and styles
comparable to more expensive watches.
Corum
Corum watches are manufactured by Corum Ries, Bannwart et Cie ("Corum Swiss").
Corum Swiss is a family owned company founded in 1955 in La Chaux-de-Fonds,
Switzerland. Corum's watch designs are typically unique and distinctive. Corum's
most recognized watches are the Gold Coin and Admiral's Cup. The majority of
Corum watches have suggested retail prices between approximately $3,000 and
$30,000.
Other Products and Services
During fiscal 1999, sales of other products and services totaled approximately
$32.1 million, or approximately 11.5% of net sales. These sales include revenues
from the Company's service and watch repair operations, which historically have
represented a source of consistent revenues with profit margins comparable to
those generated from sales of the Company's watches. Other products and services
include sales derived from the Company's 24 retail stores.
WARRANTY AND REPAIR
The Company has service facilities around the world in 10 Company-owned service
facilities and approximately 135 authorized independent service centers. The
Company conducts training sessions for and distributes technical information and
updates to repair personnel in order to maintain consistency and quality at its
service facilities and authorized independent service centers. The Company's
products are covered by limited warranties against defects in materials and
workmanship for periods ranging from one to three years from the date of
purchase for movements and up to five years for Movado watch casings and
bracelets. Products that are returned under warranty to the Company are
generally serviced by the Company's employees at its service facilities.
ADVERTISING
Advertising is important to the successful marketing of the Company's watches.
Movado Group, Inc. has maintained its own in-house advertising department since
1972 and devotes significant resources to advertising. Advertising expenditures
totaled approximately 19.4%, 20.9% and 18.0% of net sales in fiscal 1999, 1998
and 1997, respectively. Advertising is developed individually for each of the
Company's watch brands and is directed primarily to the ultimate consumer rather
than to trade customers. The Company
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develops advertising for each of its brands by targeting consumers with
particular demographic characteristics appropriate to the image and price range
of the brand. Advertisements are placed predominately in magazines and other
print media, but are also created for television campaigns, catalogues and
promotional materials.
SALES AND DISTRIBUTION
Overview
The Company sells Movado and Concord watches throughout the world. ESQ watches
are presently sold in North America and the Caribbean. The Company presently
sells Coach watches in the United States, the Caribbean, Japan, Hong Kong and
the Pacific rim. The Company is the exclusive distributor for Corum watches in
the United States, Canada and the Caribbean. All five brands are sold to trade
customers by the Company's sales personnel, who typically specialize in one
particular brand. The Company also sells Movado and Concord watches outside the
United States, Canada, Central America and the Caribbean and Coach watches
outside the United States through independent international distributors. In
fiscal 1999 and 1998, one trade customer accounted for 10% and 12% of the
Company's net sales, respectively. In addition to its sales to trade customers
and independent distributors, a portion of the Company's net sales are made
directly to consumers in the United States through the Company's 23 retail
stores.
The Company conducts its business primarily in two operating segments:
"Wholesale" and "Other". Other includes the Company's retail and service center
operations. The Company divides its business into two major geographic segments:
"Domestic" which includes the results of the Company's Untied States and
Canadian operations and "International" which includes the results of all other
Company operations. The Company's international operations are principally
conducted in Europe.
Domestic
Movado Group, Inc. operates in the United States through its North American
Watch Company division and in Canada through a Canadian subsidiary. The Company
sells its products in the domestic market primarily through department stores,
such as Macy's, Neiman-Marcus and Saks Fifth Avenue, jewelry store chains, such
as Zales, Helzberg and Sterling, and independent jewelers. Movado, Concord,
Coach and ESQ watches are sold through each of these retail channels and Corum
watches are sold primarily to independent jewelers. Sales to trade customers in
the United States and Canada are made directly by the Company's sales force of
approximately 125 employees. A majority of the sales force is compensated solely
on the basis of commissions, which are determined as a percentage of sales.
International
The Company sells Movado, Concord and Coach watches internationally through its
own sales force of approximately 20 employees operating from the Company's sales
and distribution offices in Hong Kong, Singapore, and Switzerland, and also
through a network of approximately 80 independent distributors operating in
numerous countries around the world. A majority of the Company's arrangements
with its international distributors are long-term, generally require certain
minimum purchases and restrict the distributor from selling competitive
products.
Retail Distribution
In addition to its sales to trade customers and independent distributors, the
Company sells Movado watches as well as Movado jewelry, table top accessories
and other line extensions in the Company operated Movado Boutiques located in
Rockefeller Center, The Westchester Mall and Roosevelt Field Mall in New York,
The
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Mall at Short Hills in New Jersey and scheduled for opening in the summer of
1999, at the Venetian in Las Vegas, Nevada. The Company also operates 19 outlet
stores located in Cabazon, St. Helena and Solvang, California; Destin, Orlando,
Ellenton and St. Augustine, Florida; Dawsonville, Georgia; Tuscola, Illinois;
Michigan City, Indiana; Kittery, Maine; Lee, Massachusetts; Lancaster and
Tannersville, Pennsylvania; Hilton Head and Myrtle Beach, South Carolina; San
Marcos, Texas; Manchester, Vermont; and Williamsburg, Virginia. These outlet
stores sell discontinued and sample merchandise and factory seconds, providing
the Company with an organized and efficient method of reducing its inventory
without competing directly with trade customers.
BACKLOG
At March 31, 1999, the Company had unfilled customer orders of approximately
$28.7 million, compared to approximately $31.8 million at March 31, 1998 (based
on currency exchange rates in effect on March 31, 1999). The Company believes
that substantially all such orders are firm and will be filled during the
Company's current fiscal year. The Company's backlog is affected by a variety of
factors, including seasonality and the scheduling of the manufacture and
shipment of products. Accordingly, a period-to-period comparison of backlog is
not necessarily meaningful and may not be indicative of eventual shipments.
SOURCES AND AVAILABILITY OF SUPPLIES
Movado and Concord watches are generally assembled at the Company's
manufacturing facility in Bienne, Switzerland with some off-site assembly
performed principally by independent Swiss watch makers. Movado and Concord
watches are assembled using Swiss movements and other components obtained from
third-party suppliers. The Movado Gold and Concord Royal Gold collections are
assembled by the Company at its facilities in Lyndhurst, New Jersey using Swiss
movements as well as bracelets and cases obtained from third-party suppliers.
Coach watches are assembled in Switzerland by independent assemblers using Swiss
movements and other components obtained from third-party suppliers in
Switzerland and elsewhere. ESQ watches are manufactured by independent
contractors in the Far East using Swiss movements and other components purchased
from third-party suppliers principally located in the Far East.
A majority of the watch movements used in the manufacture of Movado, Concord and
ESQ watches are purchased from two suppliers. The Company obtains other watch
components for all of its manufactured brands, including movements, cases,
crystals, dials, bracelets and straps, from a number of other suppliers.
Precious stones used in the Company's watches are purchased from various
suppliers and are set in the United States, Canada and Switzerland. Movado
Group, Inc. does not have long-term supply contracts with any of its component
parts suppliers.
The Company purchases Corum watches from Corum Swiss under a long-term
distribution agreement expiring December 31, 2009. Under the terms of the
Company's distribution agreement with Corum Swiss ("Corum Distribution
Agreement"), Corum Swiss undertakes to sell watches to the Company at the lowest
prices at which the watches are then being offered for sale to others, and to
use reasonable efforts to comply with all delivery dates specified by the
Company.
COMPETITION
The markets for each of the Company's watch brands are highly competitive. With
the exception of Swatch Group Inc. (formerly known as SMH), a large Swiss-based
competitor, no single company competes with the Company across all of its
brands. Certain companies, however, compete with Movado Group, Inc. with respect
to one or more of its watch brands. Certain of these companies have, and other
companies that may
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enter the Company's markets in the future may have, substantially greater
financial, distribution, marketing and advertising resources than the Company.
The Company's future success will depend, to a significant degree, upon its
ability to compete effectively with regard to, among other things, the style,
quality, price, advertising, marketing and distribution of its watch brands.
TRADEMARKS AND LICENSING AGREEMENTS
Movado Group, Inc. owns the trademarks MOVADO(R), CONCORD(R), VIZIO(R) and
related trademarks for watches in the United States and in numerous other
countries. The Company licenses ESQUIRE(R), ESQ(R) and related trademarks on an
exclusive basis for use in connection with the manufacture, distribution,
advertising and sale of watches pursuant to an agreement with the Hearst
Corporation ("Hearst License Agreement"). The current term of the Hearst License
Agreement expires December 31, 2000, and the agreement is renewable at the
Company's option through December 31, 2018. The Company licenses the trademark
COACH(R) and related trademarks on an exclusive basis for use in connection with
the manufacture, distribution, advertising and sale of watches pursuant to an
agreement with Coach, a division of Sara Lee Corporation ("Coach License
Agreement"). Subject to meeting certain performance goals, the Coach License
Agreement expires 10 years after the Company's initial sales of Coach watches to
retail outlets not operated by Coach.
The Company owned the trademark PIAGET(R) for watches and jewelry and a number
of related trademarks for watches in the United States. In connection with the
sale of the Piaget business to VLG, the Company assigned the trademarks to S.A.
Ancienne Fabrique Georges Piaget et Cie.
The Company has the exclusive right to use the trademark CORUM(R) and a number
of related trademarks for watches in the United States in connection with its
advertising and sale of Corum watches pursuant to the Corum Distribution
Agreement.
The Company actively seeks to protect and enforce its trademarks by working with
industry associations, anti-counterfeiting organizations, private investigators
and law enforcement authorities, monitoring the enforcement of certain exclusion
orders received from Customs and, when necessary, suing infringers of its
trademarks. Consequently, the Company is involved from time to time in
litigation or other proceedings to determine the enforceability, scope and
validity of these rights. With respect to the trademarks MOVADO(R) and
CONCORD(R) and certain other related trademarks, the Company has received
exclusion orders that prohibit the importation of counterfeit goods or goods
bearing confusingly similar trademarks into the United States. In accordance
with Customs regulations, these exclusion orders, however, cannot cover the
importation of gray-market Movado or Concord watches because the Company is the
manufacturer of such watches. All of the Company's exclusion orders are
renewable.
EMPLOYEES
As of January 31, 1999, the Company has approximately 850 full-time employees in
its domestic and international operations. No employee of the Company is
represented by a labor union or is subject to a collective bargaining agreement.
The Company has never experienced a work stoppage due to labor difficulties and
believes that its employee relations are good.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS, SEASONALITY, FOREIGN AND
DOMESTIC OPERATIONS
The Company divides its business into two major geographic segments: "Domestic",
which includes the results of the Company's United States and Canadian
operations, and "International", which includes the results of all other Company
operations. The Company's international operations are principally conducted in
Europe. The Company's international assets are substantially located in Europe.
Other international operations constituted less than 10% of consolidated total
assets for all periods presented.
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The Company's sales in the United States and Canada are traditionally greater
during the Christmas and holiday season and are significantly more seasonal than
its international sales. Consequently, the Company's net sales historically have
been higher during the second half of its fiscal year. The second half of each
year accounted for approximately 60.2%, 61.2% and 62.0% of the Company's net
sales for the fiscal years ending January 31, 1999, 1998 and 1997, respectively.
The amount of net sales and operating income generated during the second half of
each fiscal year depends upon the general level of retail sales during the
Christmas and holiday season, as well as economic conditions and other factors
beyond the Company's control. The Company does not expect any significant change
in the seasonality of its domestic business in the foreseeable future.
International sales tend to be less seasonal, particularly those derived from
the Middle and Far Eastern markets.
The Company conducts its business primarily in two operating segments:
"Wholesale" and "Other". The Company's wholesale segment includes the designing,
manufacturing and distribution of quality watches. Other includes the Company's
retail and service center operations. See Note 11 to the consolidated financial
statements for financial information regarding segment data.
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Item 2. Properties
The Company leases various facilities in the United States, Canada, Switzerland
and the Far East for its corporate, manufacturing, distribution and sales
operations. The Company's leased facilities are as follows:
<TABLE>
<CAPTION>
SQUARE LEASE
LOCATION FUNCTION FOOTAGE EXPIRATION
- -------- -------- ------- ----------
<S> <C> <C> <C>
Lyndhurst, New Jersey Executive offices, watch 93,000 May 2002
assembly and distribution
Bienne, Switzerland Corporate functions, watch 52,000 January 2007
sales, distribution,
assembly and repair
Markham, Canada Office and distribution 11,200 June 2007
Hackensack, New Jersey Warehouse 6,600 July 1999
New York, New York Watch repair and Public 4,900 April 2008
Relations Office
Hong Kong Watch sales, distribution 4,100 June 2001
and repair
Los Angeles, California Watch repair 3,000 December 2002
Miami, Florida Watch repair 2,600 October 2001
Grenchen, Switzerland Watch sales 2,600 March 2000
Toronto, Canada Office 1,600 June 2000
Japan Watch sales 1,500 January 2000
Singapore Watch sales, distribution 1,100 August 2001
and repair
</TABLE>
The Company leases retail space averaging 1,300 square feet per store with
leases expiring from November 2000 to January 2006 for the operation of the
Company's 19 outlet stores. The Company also leases retail space for the
operation each of its four Boutiques averaging 1,700 square feet per store with
leases expiring from January 2005 to August 2008. The Company also leases retail
space for the operation of the newest Boutique in The Venetian in Las Vegas,
Nevada to open in the Summer of 1999. The new location has approximately 2,300
square feet and the lease will expire April 2006.
The Company is currently exploring available alternatives in connection with the
presently scheduled expiration in May 2002 of its Lyndhurst, New Jersey lease.
The Company also owns approximately 2,400 square feet of office space in Hanau,
Germany, which it previously used for sales, distribution and watch repair
functions. The Company believes that its existing facilities are adequate for
its current operations and to handle reasonably foreseeable sales growth.
Item 3. Legal Proceedings
The Company is involved in certain legal proceedings arising in the normal
course of its business. The Company believes that none of these proceedings,
either individually or in the aggregate, will have a material adverse effect on
the Company's operating results, liquidity or its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the Company in the fourth
quarter of fiscal 1999.
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PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder
Matters
As of March 18, 1999, there were 55 holders of record of the Class A Common
Stock and, the Company estimates, approximately 1,200 beneficial owners of the
Common Stock represented by 541 holders of record. The Common Stock is traded on
the Nasdaq National Market under the symbol "MOVA". The quarterly high and low
closing prices for the fiscal years ended January 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
QUARTER ENDED LOW HIGH LOW HIGH
------ ------ ------ ------
<S> <C> <C> <C> <C>
April 30 $21.00 $30.44 $11.72 $13.59
July 31 $24.00 $30.25 $13.32 $19.48
October 31 $15.13 $24.75 $19.38 $23.50
January 31 $17.63 $26.63 $17.75 $24.00
</TABLE>
The Class A Common Stock is not publicly traded and is subject to certain
restrictions on transfer as provided under the Company's Amended Restated
Certificate of Incorporation and consequently, there is currently no established
public trading market for these shares.
During each fiscal year ended January 31, 1999 and 1998, the Board of Directors
approved four $0.02 per share quarterly cash dividends to shareholders of record
of the Common Stock and Class A Common Stock. The declaration and payment of
future dividends, if any, will be at the sole discretion of the Board of
Directors and will depend upon the Company's profitability, financial condition,
capital and surplus requirements, future prospects, terms of indebtedness and
other factors deemed relevant by the Board of Directors. See Note 4 to the
Consolidated Financial Statements regarding contractual restrictions on the
Company's ability to pay dividends.
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Item 6. Selected Financial Data
The selected financial data presented below has been derived from the
Consolidated Financial Statements. This information should be read in
conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this report (in
thousands except per share amounts).
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $ 277,836 $ 237,005 $ 215,107 $ 185,867 $ 160,853
--------- --------- --------- --------- ---------
Cost of sales 111,766 97,456 95,031 83,502 75,871
Selling, general and administrative 133,395 113,593 99,657 84,315 69,243
--------- --------- --------- --------- ---------
Total expenses 245,161 211,049 194,688 167,817 145,114
--------- --------- --------- --------- ---------
Operating income 32,675 25,956 20,419 18,050 15,739
Net interest expense 5,437 5,383 4,874 4,450 4,307
--------- --------- --------- --------- ---------
Income before income taxes 27,238 20,573 15,545 13,600 11,432
Provision for (benefit from) income taxes 6,265 4,731 3,853 3,876 (2,512)
--------- --------- --------- --------- ---------
Net income $ 20,973 $ 15,842 $ 11,692 $ 9,724 $ 13,944
========= ========= ========= ========= =========
Net income per share-Basic $ 1.63 $ 1.35 $ 1.04 $ 0.86 $ 1.24
Net income per share-Diluted $ 1.58 $ 1.29 $ 1.02 $ 0.86 $ 1.24
Basic shares outstanding 12,842 11,736 11,273 11,263 11,250
Diluted shares outstanding 13,256 12,236 11,489 11,327 11,251
Cash dividends declared per share $ 0.080 $ 0.080 $ 0.064 $ 0.053 $ 0.043
BALANCE SHEET DATA (END OF PERIOD):
Working capital $ 194,852 $ 157,103 $ 126,690 $ 132,679 $ 121,357
Total assets 296,375 249,069 208,443 200,380 186,949
Long-term debt 55,000 35,000 40,000 40,000 40,000
Shareholders' equity 166,426 145,533 103,870 104,841 92,930
</TABLE>
11
<PAGE> 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Statements included under Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in this annual report on Form
10-K, as well as statements in future filings by the Company with the Securities
and Exchange Commission ("SEC"), in the Company's press releases and oral
statements made by or with the approval of an authorized executive officer of
the Company, 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. The
Company cautions readers that FORWARD LOOKING STATEMENTS, include without
limitation, those relating to the Company's future business prospects, revenues,
working capital, liquidity, capital needs, plans for future operations,
effective tax rates, margins, interest costs, and income, as well as assumptions
relating to the foregoing. FORWARD LOOKING STATEMENTS are subject to certain
risks and uncertainties, some of which cannot be predicted or quantified. Actual
results and future events could differ materially from those indicated in the
FORWARD LOOKING STATEMENTS, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Company's reports filed with the SEC including, without limitation, the
following: general economic and business conditions which may impact disposable
income of consumers, competitive products and pricing, ability to enforce
intellectual property rights, seasonality, availability of alternative sources
of supply in the case of loss of any significant supplier, the Company's
dependence on key officers, ability to enforce intellectual property rights,
continued availability to the Company of financing and credit on favorable terms
and success of hedging strategies with respect to currency exchange rate
fluctuations.
GENERAL
Net Sales. Among the more significant factors that influence annual sales are
general economic conditions in the Company's domestic and international markets,
new product introductions, the level of advertising expenditures, the
effectiveness of marketing and distribution programs and product pricing
decisions.
Reported sales are also affected by foreign exchange rates, primarily the U.S.
dollar/Swiss franc rate, because significant portions of the Company's
international sales are billed in Swiss francs and translated to U.S. dollars at
average exchange rates for financial reporting purposes.
The Company's business is very seasonal. There are two major selling seasons in
the Company's North American markets: the Spring season, which includes school
graduations and several holidays, and, most importantly, the Christmas and
holiday season. Major selling seasons in certain international markets center
around significant local holidays that occur in late Winter or early Spring,
however, because these markets are a less significant portion of the Company's
business, their impact is far less than that of the selling seasons in North
America.
The Company is continuing its efforts to expand sales in key international
markets. These efforts have included: the recruitment of a number of key
personnel with management level sales and marketing responsibilities, the
addition and replacement of selected independent distributors, an increase in
the number of sales representatives, retargeted and increased advertising and
coordinated marketing programs designed to build brand awareness and consumer
demand for the Company's watches at point-of-sale.
Gross Margins. The Company's overall gross margins are primarily affected by
four major factors: sales mix, product pricing strategy, component and labor
costs and the U.S. dollar/Swiss franc exchange rate. The Company's gross margins
on its manufactured brands are higher than those on its distributed brands and;
12
<PAGE> 14
therefore, any shift in overall sales mix toward the Company's manufactured
brands will generally have a favorable impact on margins. In addition, margins
on sales of a particular brand vary from model to model and, therefore, changes
in the model sales mix within a brand will impact margins.
All of the Company's brands compete with a number of other brands on the basis
of not only styling but also wholesale and retail price. The Company's ability
to improve margins through price increases is, therefore, to some extent
constrained by competitor actions. The overall level of liquidation sales of
discontinued models in a particular fiscal year can also impact the Company's
gross margins.
Manufacturing costs of the Company's Movado and Concord brands consist primarily
of component costs, Company and subcontractor assembly costs and unit overhead
costs.
The Company seeks to control and reduce component and subcontractor labor costs
through a combination of negotiations with existing suppliers and alternative
sourcing. Overall wage and salary costs at the Company's manufacturing
operations in Switzerland are a function of production levels and local
inflation. These costs have remained fairly stable over the three previous
fiscal years.
Since a substantial amount of the Company's product costs are incurred in Swiss
francs, fluctuations in the U.S. dollar/Swiss franc exchange rate can impact the
Company's production costs and, therefore, its gross margins. The Company,
therefore, hedges its Swiss franc purchases using a combination of forward
contracts, purchased currency options and spot purchases. The Company's hedging
program has, in the recent past, been reasonably successful in stabilizing
product costs despite exchange rate fluctuations.
Operating Expenses. The Company's operating expenses consist primarily of
advertising, selling, distribution and general and administrative expenses.
Annual advertising expenditures are based principally on overall strategic
considerations relative to maintaining or increasing market share in markets
that management considers to be crucial to the Company's continued success as
well as on general economic conditions in the various marketplaces around the
world in which the Company sells its products.
Selling expenses consist primarily of sales commissions, sales force travel
costs and operating costs incurred in connection with the Company's retail
business. Sales commissions vary proportionally with overall sales levels.
Retail operating expenses consist primarily of salaries and store rent.
Distribution expenses consist primarily of salaries of distribution staff, the
cost of part-time help to meet seasonal needs, and shipping costs and supplies.
General and administrative expenses consist primarily of salaries, employee
benefit plan costs, office rent, management information systems costs and
various other corporate expenses such as insurance, legal, internal audit and
credit and collection costs.
Operating expenses over the last three fiscal years reflect the effect of the
implementation of the Company's growth strategy. The more significant expenses
associated with this strategy included: advertising and marketing expenses
designed to increase market share for the Corum, Concord and Movado brands;
advertising and marketing costs for the continuing expansion of the Company's
ESQ line; additions to the Company's sales force; salaries and rents associated
with additional outlet stores; and the addition of staff to support
distribution, inventory management and customer service requirements coincident
with growth of the Company's business.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
13
<PAGE> 15
Net Sales. Comparative net sales by product class were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Concord, Movado, Coach and ESQ:
Domestic $180,909 $153,835 $138,810
International 50,940 40,028 30,185
Piaget and Corum 13,934 17,045 22,386
Other 32,053 26,097 23,726
-------- -------- --------
$277,836 $237,005 $215,107
======== ======== ========
</TABLE>
Net sales increased 17.2% for the year ended January 31, 1999. The increase in
net sales for fiscal 1999 was predominately due to growth in the Company's
established manufactured brands (Concord, Movado and ESQ) and expansion of the
Company's retail network, which consists of 19 outlet stores and four Movado
Boutiques and the Piaget Boutique partially offset by reductions in the
Company's distributed brands, due in part to the announced sale of the Piaget
brand in December 1998 (see Note 14 to the consolidated financial statements).
In addition, the Company introduced the Coach watch brand, its fourth
manufactured brand, during the first quarter of fiscal 1999 which contributed
significantly to sales growth. Domestic sales increases were predominantly due
to the introduction of the Coach watch line and growth in Concord, Movado and
ESQ brand sales offset somewhat by reductions in sales of the Piaget and Corum
brands. Growth in the international business was predominantly due to growth of
Movado in the Far East, Middle East and the Caribbean.
Net sales increased 10.2% in fiscal 1998. The increase resulted primarily from
growth in sales in the U.S. and unit sales gains in the Company's international
business. Sales increases in the U.S were primarily in the Movado and Concord
brands. These increases were partially offset by sales declines in the Company's
ESQ, Piaget and Corum brands. ESQ sales declined in fiscal 1998 in comparison to
fiscal 1997 principally because of the significant expansion of the brand's
retail network, which occurred during fiscal 1997. Piaget sales declines were
due primarily to planned reductions in the distribution channels for the brand.
The increase in the Company's international business was due predominantly to
sales increases of the Concord and Movado brands in the Middle East, Far East
and Caribbean offset somewhat by the negative impact of a change in translation
rates.
Gross Margins. The gross margin for fiscal 1999 was 59.8% as compared to 58.9%
for fiscal 1998. The increase in margin was predominately due to a favorable
sales mix, particularly an increase in the proportion of sales of Concord,
Movado, Coach and ESQ to our other brands. The Company's gross margin also
benefited slightly from increases in the U.S. dollar against the Swiss franc.
The Company's gross margin increased from 55.8% to 58.9% in fiscal 1998,
principally as a result of sales mix, particularly an increase in the proportion
of Concord, Movado and ESQ sales to net sales. The Company's gross margin also
benefited by increases in the U.S. dollar against the Swiss franc.
Operating Expenses. Operating expenses for fiscal 1999 were $133.4 million or
48.0% of net sales as compared to $113.6 million or 47.9% of net sales in fiscal
1998. The increase in operating expenses was largely the result of planned
increases in both advertising and selling costs in the United States which were
necessary to launch the Coach brand and to develop and introduce new product
line extensions within the Movado brand through the Movado Boutiques. In
addition, increases in general and administrative costs were due to personnel
increases which were necessary for the support of our Movado Boutiques as well
as cost increases for information systems and employee benefit programs.
14
<PAGE> 16
Operating expenses increased 14.0% in fiscal 1998 to 47.9% of net sales from
46.3% of net sales in fiscal 1997. The increase in fiscal 1998 operating
expenses occurred primarily in the advertising, selling and general and
administrative expense categories. Distribution costs declined as a percentage
of net sales.
The increase in advertising and marketing expenditures in fiscal 1998 which
occurred primarily in the U.S., was planned, and related to the Company's
ongoing efforts to build identity and image for its brands. Fiscal 1998
advertising and marketing costs were affected by higher levels of media spending
for Concord, Movado and, in particular, ESQ in the U.S and increased marketing
and promotional activities in the U.S. for all of the Company's brands. The
growth in consolidated advertising costs included increased media spending in
certain international markets, primarily the Far East and Middle East and
certain European markets. Fiscal 1998 general and administrative expenses
included increased employee benefit costs and rents due to the expansion of
office space necessitated by the Company's growth and head count increases.
Interest Expense. Net interest expense for fiscal 1999, 1998 and 1997 was $5.4
million, $5.4 million and $4.9 million, respectively, and consisted primarily of
interest on the Company's 6.56% Senior Notes, 6.90% Series A Senior Notes,
revolving lines of credit under the July 1997 Restated Credit Agreement, as
amended, and borrowings against working capital lines.
Income Taxes. The Company's income tax provision amounted to $6.3 million, $4.7
million, and $3.9 million for fiscal 1999, 1998 and 1997, respectively, or 23.0%
of pretax income for fiscal 1999 and 1998 and, 24.8% for fiscal 1997. A portion
of the Company's consolidated operations are located in non-U.S. jurisdictions,
and, therefore, the Company's effective rate differs from U.S. statutory rates.
The majority of the Company's non-U.S. operations are located in jurisdictions
with statutory rates below U.S. rates. The Company believes that the future
effective tax rate will range from 20% to 30%; however, there can be no
assurance of this as it is dependent on a number of factors, including the mix
of foreign to domestic earnings, local statutory tax rates and the Company's
ability to utilize net operating loss carryforwards in certain jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements, which have increased due
to significant growth in domestic sales over the two previous years. The
Company's business is not capital intensive and liquidity needs for capital
investments have not been significant in relation to the Company's overall
financing requirements.
The Company has met its liquidity needs primarily through funds from operations
and bank borrowings with domestic and Swiss banks. The Company's future
requirements for capital will relate not only to working capital requirements
for the expected continued growth of its existing brands, domestically and
internationally, but also to funding new product lines. In addition, the Company
made a $5 million sinking fund payment on February 1, 1999 and is required to
make another on January 31, 2000 in connection with its 6.56% Senior Notes which
were issued in the original principal amount of $40 million.
The Company's revolving credit and working capital lines with its domestic bank
group provide for a three year $90.0 million unsecured revolving line of credit,
pursuant to an Amended and Restated Credit Agreement, dated as of July 23, 1997,
among the Company, the Chase Manhattan Bank, as agent, Fleet Bank N.A., as
co-agent, and other banks signatory thereto, ("Restated Bank Credit Agreement"),
and $31.6 million of uncommitted working capital lines of credit. At January 31,
1999, the Company had $5.0 million in outstanding balances under the Restated
Bank Credit Agreement, which is included in Long-term debt.
15
<PAGE> 17
On November 30, 1998, the Company entered into a Note Purchase and Private Shelf
Agreement which allows for the issuance up to two years after the date of the
agreement of Senior promissory notes in the aggregate principal amount of up to
$50 million with maturities up to 12 years from their date of issuance. On
December 1, 1998, the Company brought down $25 million of 6.90% Series A Senior
Notes maturing on October 30, 2010 which are subject to annual prepayments of
$5.0 million commencing October 31, 2006.
In March 1998, the Company's Board of Directors authorized the repurchase of up
to 400,000 shares of the Company's Common Stock. As of January 31, 1999, the
Company had purchased 142,200 shares at an aggregate cost of $2.9 million. In
March 1999, the Board approved a revised stock repurchase program for the
repurchase of shares of the Company's Common Stock up to an aggregate repurchase
price of $10.0 million, in addition to the shares previously purchased.
The Company's debt-to-total capitalization ratio was 28.8% at January 31, 1999,
as compared to 23.6% at January 31, 1998. The increase in the debt to total
capitalization was due to the Company borrowing $25.0 million of 6.90% Series A
Senior Notes.
The Company's net working capital, consisting primarily of trade receivables and
inventories, amounted to $194.9 million and $157.1 million at January 31, 1999
and January 31, 1998, respectively. Accounts receivable at January 31, 1999 were
$109.1 million as compared to $92.4 million at January 31, 1998. The increase in
receivables was primarily the result of growth in the Company's business and the
addition of the Coach brand, which has been offset by Piaget receivables
classified as assets held for sale. Inventories at January 31, 1999 were $104.0
million as compared to $98.2 million at January 31, 1998. The increase in
inventories from January 31, 1999 to January 31, 1998 reflected the expansion of
the Company's product line, in particular the introduction of the Coach brand
and the opening of the Movado Boutiques which has been offset by Piaget
inventory classified as assets held for sale.
The Company's capital expenditures for the year ended January 31, 1999 were
approximately $11.7 million compared to $7.6 million for the year ended January
31, 1998. Expenditures in fiscal 1999 were primarily related to planned
expenditures in the Company's information systems, including retail information
systems, expansion of the Company's Movado boutiques and further expansion of
the Company's network of outlet stores. The Company's capital expenditures for
the year ended January 31, 1998 were approximately $7.6 million compared to $6.6
million for the year ended January 31, 1997. Expenditures in fiscal 1998 were
primarily related to improvements in the Company's management and sales
management information systems and costs incurred in connection with the
expansion of domestic distribution operations. The Company expects that capital
expenditures in the future will approximate the average of fiscal 1999 and 1998
levels.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) in June 1998. SFAS 133 requires all derivatives be
recorded on the balance sheet at fair value and establishes new accounting
practices for hedge instruments. SFAS 133 is required for the fiscal years
beginning after June 15, 1999. Management of the Company is currently analyzing
the effect SFAS 133 will have on the Company's statement of position and results
of operations.
MARKET RISKS
The Company's primary market risk exposure relates to foreign currency exchange
risk (see Note 5 to the consolidated financial statements). The majority of the
Company's purchases are denominated in Swiss francs. The Company reduces its
exposure to the Swiss franc exchange rate risk through a hedging program.
16
<PAGE> 18
Under the hedging program, the Company purchases various financial instruments,
predominantly forward and option contracts. Gains and losses on financial
instruments resulting from this hedging activity are offset by the effects of
the currency movements on respective underlying hedged transactions. If the
Company did not engage in a hedging program, any change in the Swiss franc to
local currency would have an equal effect on the entities' cost of sales. As of
January 31, 1999, the Company's hedging portfolio consisted of various Swiss
Franc forward contracts and Swiss franc option contracts. The forward contracts
have various maturity dates through June 17, 1999 with an average forward rate
of 1.4352 Swiss franc per dollar. The Company has $55.0 million of option
contracts with a maturity date of May 24, 2000. The option contracts have an
average strike price of 1.4239. As of January 31, 1999 the carrying value of the
options amounted to approximately $2.3 million, which represents the unamortized
premium of the option and a fair market value of approximately $2.8 million.
In addition, the Company has certain debt obligations with variable interest
rates, which are based on market interest. The Company does not hedge these
interest rate risks. The Company also has certain debt obligations with fixed
interest rates. The difference between the market based interest rates at the
balance sheet date and the fixed rates was minimal.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
established permanent, fixed conversion rates between their existing currencies
and the European Union's common currency called the "euro".
The transition period for the introduction of the euro is scheduled to phase in
over a period ending January 1, 2002, with the existing currency being
completely removed from circulation on July 1, 2002. The Company has been
preparing for the use of the euro. The timing of the Company's phasing out all
uses of the existing currencies will comply with applicable legal requirements
and also will be scheduled to facilitate optimal coordination with the plans of
our vendors.
The Company does not currently have significant transactions denominated in euro
related currencies. This is not expected to change in the foreseeable future.
Therefore, the Company believes the introduction of the euro and the phasing out
of the other currencies will not have a material impact on the Company's
consolidated financial statements.
YEAR 2000
General
Many older computer software programs and other equipment with embedded chips or
processors (collectively "systems") refer to years in terms of their last two
digits only. Such systems may incorrectly interpret the year 2000 to mean the
year 1900. If not corrected, those systems could cause date related transaction
failures.
Project
The Company initiated a project in 1997 (the "Project") to improve and
standardize data and computer technology. The Project is designed to replace all
obsolete hardware and software with systems that are Year 2000 compliant and in
addition, to replace most business software systems. The project calls for the
replacement or upgrade of all PCs, servers, network components, desktop
software, core business software which support manufacturing, distribution,
sales, accounting, after sales service, retail point of sale, and electronic
data interchange (EDI). The new global technical network infrastructure
(hardware, software, and communication technology) has been implemented in all
U.S. locations, Switzerland and Canada. The remaining technical network
infrastructure for the Far East was implemented in February 1999. A new retail
point-of-sale and merchandise system that is Year 2000 compliant was implemented
in fiscal 1999 for all store
17
<PAGE> 19
and headquarters locations. As part of the project, new client/server core
business applications software (BPCS 6.0 which is designed to be Year 2000
compliant) supporting manufacturing, distribution, sales, accounting and after
sales service was implemented in the U.S. in March 1999. The Company has been
working with System Software Associates, Inc. ("SSA") to complete such
implementation and testing as well as implementation and testing of the same
BPCS 6.0 applications software at the Company's Canadian, Far East and Swiss
facilities. Such implementation is expected to be completed in Switzerland
during the Summer of 1999 and in Canada and the Far East by the end of the
calendar year. Existing business applications software systems operating in
Canada and the Far East, however, have been made Year 2000 compliant in any
event by the implementation of upgrades, which were completed in February 1999.
Minor program and procedural changes were previously implemented to support
fiscal year 2000 processing for our existing Swiss business systems. The Company
has tested the BPCS 6.0 applications software by reviewing the database and
program definitions to confirm that the date formats are four digit year
specific. After completion of the quarter end processing related to the end of
the first quarter of fiscal 2000, the Company plans to conduct further testing
by simulating the date change to January 1, 2000. The Company has developed a
contingency plan with the goal of insuring that the Company's Swiss business
systems are Year 2000 compliant in the event implementation of the BPCS 6.0 core
business applications software is not completed before the end of calendar year
1999. This plan calls for the implementation of certain upgrades and the
remediation of applications software that is not Year 2000 compliant. As a
result of the Project and its contingency planning, the Company expects that it
will be Year 2000 compliant, on a global basis, by the end of calendar year
1999.
By the use of questionnaires, the Company is monitoring the Year 2000 system
status of customers and vendors involved with electronic interchange of data
with our systems. This monitoring will continue throughout 1999. Non-electronic
data exchange contingency approaches including reliance on communications by fax
will be used, if required, with those customers or vendors which fail to reach
Year 2000 system compliance by January 1, 2000.
Costs
Costs associated with systems replacement and modification to become Year 2000
compliant under the contingency plan (outside of the Project) are expected to be
approximately $400,000 and will be funded through the Company's working capital
lines and other credit facilities. The estimated total cost of the Project is
approximately $11.0 million. The total amount expended on the Project through
January 31, 1999 was approximately $7.1 million which has been capitalized as a
long-term asset. This estimate assumes that the Company will not incur
significant Year 2000 related costs due to the failure of customers, vendors and
other third parties to be Year 2000 compliant.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
result of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Project is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem. The Company believes that, with the implementation of new business
systems and completion of the Project as scheduled, and the Company's
contingency plan, if necessary, the possibility of significant interruptions of
normal operations should be reduced. No major information technology projects
have been deferred as a result of the Project.
18
<PAGE> 20
OTHER
On December 22, 1998, the Company entered into an agreement with VLG North
America, Inc. ("VLG") for the sale to VLG of substantially all of the assets,
properties and rights related to the Piaget business. The transaction was
completed on February 22, 1999 at a sale price of approximately $30.0 million.
The Company will report a pretax gain, representing the excess of the sale price
over the net book value of the assets sold at January 31, 1999, during the first
quarter of fiscal 2000. Accordingly, the Company recorded $22.2 million in
assets held for sale at January 31, 1999.
19
<PAGE> 21
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Schedule Page
Number Number
------ ------
<S> <C> <C>
Report of Independent Accountants F-1
Consolidated Statements of Income and Comprehensive F-2
Income for the fiscal years ended January 31, 1999,
1998 and 1997
Consolidated Balance Sheets at January 31, 1999 and 1998 F-3
Consolidated Statements of Cash Flows for the fiscal years F-4
ended January 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity F-5
for the fiscal years ended January 31, 1999, 1998 and
1997
Notes to Consolidated Financial Statements F-6 to F-21
Valuation and Qualifying Accounts and Reserves II S-1
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
20
<PAGE> 22
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is included in the Company's Proxy
Statement for the 1999 annual meeting of shareholders and is incorporated herein
by reference.
Item 11. Executive Compensation
The information required by this item is included in the Company's Proxy
Statement for the 1999 annual meeting of shareholders and is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included in the Company's Proxy
Statement for the 1999 annual meeting of shareholders and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included in the Company's Proxy
Statement for the 1999 annual meeting of shareholders and is incorporated herein
by reference.
21
<PAGE> 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report
(1) Financial Statements:
See Financial Statements Index on page 20 included in Item 8
of part II of this report.
(2) Financial Statements Schedules:
Schedule II Valuation and Qualifying
Accounts and Reserves
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the Consolidated Financial
Statements or notes thereto.
(3) Exhibits:
Incorporated herein by reference is a list of the Exhibits
contained in the Exhibit Index on pages 25 through 30 of this
report.
(b) Reports on Form 8-K
None
22
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOVADO GROUP, INC.
(Registrant)
Dated: April 30, 1999 By: /s/ Gedalio Grinberg
--------------------
Gedalio Grinberg
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
Dated: April 30, 1999 /s/ Gedalio Grinberg
--------------------
Gedalio Grinberg
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Dated: April 30, 1999 /s/ Efraim Grinberg
-------------------
Efraim Grinberg
President
Dated: April 30, 1999 /s/ Michael J. Bush
-------------------
Michael J. Bush
Executive Vice President and Chief
Operating Officer
Dated: April 30, 1999 /s/ Kenneth J. Adams
--------------------
Kenneth J. Adams
Senior Vice President and Chief
Financial Officer (Chief Financial
Officer and Principal Accounting
Officer)
Dated: April 30, 1999 /s/ Margaret Hayes Adame
------------------------
Margaret Hayes Adame
Director
Dated: April 30, 1999 /s/ Donald Oresman
------------------
Donald Oresman
Director
Dated: April 30, 1999 /s/ Leonard L. Silverstein
--------------------------
Leonard L. Silverstein
Director
23
<PAGE> 25
Dated: April 30, 1999 /s/ Alan H. Howard
------------------
Alan H. Howard
Director
24
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
<S> <C> <C>
3.1 Restated By-Laws of the Registrant. Incorporated by reference to
Exhibit 3.1 filed with the Registrant's registration statement on
Form S-1 (Registration No. 33-666000).
3.2 Restated Certificate of Incorporation of the Registrant as amended.
Incorporated herein by reference to Exhibit 3(i) to the Registrant's
Quarterly Report on Form 10-Q filed for the quarter ended October 31,
1998.
4.1 Specimen Common Stock Certificate. Incorporated herein by reference to
Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the year
ended January 31, 1998.
4.2 Note Agreement, dated as of November 9, 1993, by and between the
Registrant and The Prudential Insurance Company of America.
Incorporated herein by reference to Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 31, 1993.
10.1 Lease dated August 5, 1998 between Grand Canal Shops Mall Construction,
LLC as landlord and Movado Retail Group, Inc., as tenant, for premises
at Grand Canal Shops, Clark County, Nevada. Incorporated herein by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended July 31, 1998.
10.2 Amendment Number 1 to License Agreement dated December 9, 1996 between
Registrant as Licensee and Coach, a division of Sara Lee Corporation as
Licensor, dated as of February 1, 1998. Incorporated herein by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended October 31, 1998.
10.3 Amendment Number 6 to Franchise Agreement dated February 27, 1969
between Registrant as Distributor and Corum, Ries Bannwart and Co. as
manufacturer, as previously amended, dated as of October 22, 1997.
Incorporated herein by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
<S> <C> <C>
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C> <C>
10.4 Franchise Agreement between Corum Watch Corporation and Corum, Ries,
Bannwart & Co., dated February 27, 1969, as amended on April 16, 1979,
February 22, 1980, April 20, 1982, January 1988 and February 19, 1993.
Incorporated herein by reference to Exhibit 10.6 filed with the
Company's Registration Statement on Form S-1 (Registration No.
33-666000).
10.5 Assignment Agreement, dated February 22, 1980, between Corum, Ries,
Bannwart & Co. and Corum Watch Corporation. Incorporated herein by
reference to Exhibit Number 10.7 filed with Company's Registration
Statement on Form S-1 (Registration No. 33-666000).
10.6 Agreement, dated January 1, 1992, between The Hearst Corporation and
the Registrant, as amended on January 17, 1992. Incorporated herein by
reference to Exhibit Number 10.8 filed with Company's Registration
Statement on Form S-1 (Registration No. 33-666000).
10.7 Letter Agreement between the Registrant and The Hearst Corporation
dated October 24, 1994 executed October 25, 1995 amending License
Agreement dated as of January 1, 1992, as amended. Incorporated herein
by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended October 31, 1995.
10.8 Lease Agreement between the Registrant and Meadowlands Associates,
dated October 31, 1986, for office space in Lyndhurst, New Jersey,
together with the Non-Disturbance and Attornment Agreement, dated March
11, 1987. Incorporated herein by reference to Exhibit Number 10.10
filed with Company's Registration Statement on Form S-1 (Registration
No. 33-666000).
10.9 Registrant's 1996 Stock Incentive Plan amending and restating the 1993
Employee Stock Option Plan. Incorporated herein by reference to Exhibit
10.5 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1996.**
10.10 Line of Credit Letter Agreement dated July 18, 1997 between the
Registrant and Fleet Bank, N.A. Incorporated herein by reference to
Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year
ended January 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
<S> <C> <C>
10.11 Line of Credit Letter Agreement dated February 25, 1998 between the
Registrant and Marine Midland Bank, N.A.
</TABLE>
26
<PAGE> 28
<TABLE>
<S> <C> <C>
Incorporated herein by reference to Exhibit 10.14 to Registrant's
Annual Report on Form 10-K for the year ended January 31, 1998.
10.12 Letter Agreement dated May 19, 1993 between Concord Watch Company, S.A.
and Bern Cantonal Bank (English translation). Incorporated herein by
reference to Exhibit Number 10.15 filed with Company's Registration
Statement on Form S-1 (Registration No. 33-666000).
10.13 Letter Agreement dated November 25, 1992 between Concord Watch Company,
S.A. and Swiss Bank Corporation (English translation). Incorporated
herein by reference to Exhibit Number 10.19 filed with Company's
Registration Statement on Form S-1 (Registration No. 33-666000).
10.14 Letter Agreement dated January 25, 1991 between Concord Watch Company,
S.A. and Union Bank of Switzerland (English translation). Incorporated
herein by reference to Exhibit Number 10.20 filed with Company's
Registration Statement on Form S-1 (Registration No. 33-666000).
10.15 Lease dated August 10, 1994 between Rockefeller Center Properties, as
landlord and SwissAm Inc., as tenant for space at 630 Fifth Avenue, New
York, New York. Incorporated herein by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July
31 1994.
10.16 First Amendment of Lease dated May 31, 1994 between Meadowlands
Associates, as landlord and the Registrant, as tenant for additional
space at 125 Chubb Avenue, Lyndhurst, New Jersey. Incorporated herein
by reference to Exhibit 10.4 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1994.
10.17 Death and Disability Benefit Plan Agreement dated September 23, 1994
between the Registrant and Gedalio Grinberg Incorporated herein by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended October 31, 1994.**
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
<S> <C> <C>
10.18 Registrant's amended and restated Deferred Compensation Plan for
Executives effective January 1, 1998 .** Incorporated herein by
reference to Exhibit 10.25 to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1998.
10.19 Credit Agreement dated as of January 31, 1996 among the Registrant,
Chase Manhattan Bank (National Association) ("Chase"), NatWest Bank
N.A. ("NatWest"), Marine Midland Bank and Chase as Agent and NatWest as
Co-Agent. Incorporated herein by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the year ended January 31,
1996.
10.20 Letter Agreement dated August 25, 1995 between the Registrant and
Michael Bush together with Promissory Note dated October 25, 1995.
Incorporated herein by reference to Exhibit 10.29 to the Registrant's
Annual Report on Form 10-K for the year ended January 31, 1996.**
10.21 Policy Collateral Assignment and Split Dollar Agreement dated December
5, 1995 by and between the Registrant and The Grinberg Family Trust
together with Demand Note dated December 5, 1995. Incorporated herein
by reference to Exhibit 10.30 to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1996.**
10.22 Lease dated April 15, 1996 between the Registrant and Belle Mead
Corporation for premises at 1200 Wall Street West, Lyndhurst, New
Jersey. Incorporated herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended April
30, 1996.
10.23 License Agreement dated December 9, 1996 between the Registrant and
Sara Lee Corporation. Incorporated herein by reference to Exhibit 10.32
to the Registrant's Annual Report on Form 10-K for the year ended
January 31, 1997.
10.24 Amendment number 1 to promissory note dated October 25, 1995 between
the Registrant and Michael Bush. Incorporated herein by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1997.
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
<S> <C> <C>
10.25 Amended and Restated Credit Agreement dated as of July 23, 1997 among
the Registrant, the Chase Manhattan Bank as Agent, Swingline Bank and
Issuing Bank and Fleet Bank, N.A. as Co-Agent and the other Lenders
signatory thereto. Incorporated herein by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1997.
10.26 Amendment to Amended and Restated Credit Agreement dated as of August
5, 1997 among the Registrant, the Chase Manhattan Bank as Agent,
Swingline Bank and Issuing Bank and Fleet Bank, N.A. as Co-Agent and
the other Lenders signatory thereto. Incorporated herein by reference
to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1997.
10.27 Consent to Sublease dated as of June 18, 1997 among the Registrant,
Meadowlands Associates and Alexander and Alexander Consulting Group,
Inc. ("AACG"), and Sublease Agreement entered into as of May 7, 1997 by
and between the Registrant and AACG. Incorporated herein to Exhibit
10.3 to the Registrant's Quarterly Report in Form 10-Q for the quarter
ended July 31, 1997.
10.28 First Amendment to Lease dated April 8, 1998 between RCPI Trust,
successor in interest to Rockefeller Center Properties ("Landlord") and
Movado Retail Group, Inc., successor in interest to SwissAm Inc.
("Tenant") amending lease dated August 10, 1994 between Landlord and
Tenant for space at 630 Fifth Avenue, New York, New York. Incorporated
herein by reference to Exhibit 10.37 to the Registrant's Annual Report
on Form 10-K for the year ended January 31, 1998.
10.29 Line of Credit Letter Agreement dated November 10, 1997 between the
Registrant and Fleet Bank, N.A. Incorporated herein by reference to
Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the
year ended January 31, 1998.
10.30 Line of Credit Letter Agreement dated August 5, 1997 between the
Registrant and Fleet Bank, N.A. Incorporated herein by reference to
Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the
year ended January 31, 1998.
10.31 Note Purchase and Private Shelf Agreement dated as of November 30, 1998
between the Registrant and The Prudential Insurance Company of America.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
<S> <C> <C>
</TABLE>
29
<PAGE> 31
<TABLE>
<S> <C> <C>
10.32 February 1999 Amendment and Waiver dated as of February 19, 1999 as to
Amended and Restated Credit Agreement dated as of July 23, 1997 among
the Registrant, the Chase Manhattan Bank as Agent, Swingline Bank and
Issuing Bank and Fleet Bank, N.A. as Co-Agent and the other Lenders
signatory thereto.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
</TABLE>
** Constitutes a compensatory plan or arrangement.
30
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Movado Group, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 22 present fairly, in all material
respects, the financial position of Movado Group, Inc. and its subsidiaries at
January 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
400 Campus Drive
Florham Park, New Jersey
March 25, 1999
F-1
<PAGE> 33
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET INCOME:
Net sales $ 277,836 $ 237,005 $ 215,107
--------- --------- ---------
Costs and expenses:
Cost of sales 111,766 97,456 95,031
Selling, general and administrative 133,395 113,593 99,657
--------- --------- ---------
245,161 211,049 194,688
--------- --------- ---------
Operating income 32,675 25,956 20,419
Net interest expense 5,437 5,383 4,874
--------- --------- ---------
Income before income taxes 27,238 20,573 15,545
Provision for income taxes 6,265 4,731 3,853
--------- --------- ---------
Net income $ 20,973 $ 15,842 $ 11,692
========= ========= =========
Net income per share - Basic $ 1.63 $ 1.35 $ 1.04
========= ========= =========
Net income per share - Diluted $ 1.58 $ 1.29 $ 1.02
========= ========= =========
COMPREHENSIVE INCOME:
Net income $ 20,973 $ 15,842 $ 11,692
Other comprehensive income, net of tax:
Foreign currency translation adjustment 2,949 (3,281) (12,194)
--------- --------- ---------
Comprehensive income (loss) $ 23,922 $ 12,561 $( 502)
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 34
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,626 $ 10,874
Trade receivables, net 109,102 92,386
Inventories 104,027 98,183
Assets held for sale 22,187 --
Other 21,489 18,206
--------- ---------
Total current assets 262,431 219,649
Plant, property and equipment, net 22,998 18,909
Other assets 10,946 10,511
--------- ---------
$ 296,375 $ 249,069
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 2,200 $ --
Current portion of long-term debt 10,000 10,000
Accounts payable 25,181 25,286
Accrued liabilities 20,020 16,920
Deferred and current taxes payable 10,179 10,340
--------- ---------
Total current liabilities 67,580 62,546
--------- ---------
Long-term debt 55,000 35,000
Deferred and noncurrent foreign income taxes 5,728 3,460
Other liabilities 1,641 2,530
Shareholders' equity:
Preferred Stock, $0.01 par value,
5,000,000 shares authorized; no shares issued -- --
Common Stock, $0.01 par value;
20,000,000 shares authorized; 9,419,781 and 9,317,007
shares issued, respectively 94 93
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized; 3,530,922 and 3,556,793
shares issued and outstanding, respectively 35 36
Capital in excess of par value 65,332 64,475
Retained earnings 106,141 86,194
Accumulated other comprehensive income (2,188) (5,137)
Treasury stock, 159,019 shares and 17,251 shares at cost,
respectively (2,988) (128)
--------- ---------
Total shareholders' equity 166,426 145,533
--------- ---------
Commitments and contingencies (Note 9)
--------- ---------
$ 296,375 $ 249,069
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE> 35
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20,973 $ 15,842 $ 11,692
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 5,380 4,121 3,946
Deferred and noncurrent foreign income taxes 1,764 483 221
Provision for losses on accounts receivable 1,304 1,005 1,917
Changes in current assets and liabilities:
Trade receivables (24,693) (18,699) (4,096)
Inventories (19,925) (12,988) (3,828)
Other current assets (1,265) (2,565) (14,163)
Accounts payable 290 263 5,174
Accrued liabilities 3,352 3,841 4,301
Deferred and current taxes payable 229 3,481 (377)
Increase in other noncurrent assets (314) (592) (1,285)
(Decrease) increase in other noncurrent liabilities (29) (307) 253
-------- -------- --------
Net cash (used in) provided by operating activities (12,934) (6,115) 3,755
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (11,707) (7,638) (6,626)
Goodwill, trademarks and other intangibles (1,835) (1,421) (294)
Sale of subsidiary 2,646 -- --
-------- -------- --------
Net cash used in investing activities (10,896) (9,059) (6,920)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock, net of underwriting
discounts and offering expenses -- 29,609 --
Repayment of Senior Notes (5,000) -- --
Proceeds from issuance of Series A Senior Notes 25,000 -- --
Net proceeds from (payment of) current bank borrowings 2,200 (7,570) 5,335
Principal payments under capital leases (387) (275) (389)
Stock options exercised 627 431 212
Dividends paid (1,026) (939) (720)
Purchase of treasury stock (2,860) -- --
-------- -------- --------
Net cash provided by financing activities 18,554 21,256 4,438
-------- -------- --------
Effect of exchange rate changes on cash 28 (93) (217)
-------- -------- --------
Net (decrease) increase in cash (5,248) 5,989 1,056
Cash at beginning of year 10,874 4,885 3,829
-------- -------- --------
Cash at end of year $ 5,626 $ 10,874 $ 4,885
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE> 36
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL OTHER
CLASS A IN EXCESS COMPRE-
PREFERRED COMMON COMMON OF PAR RETAINED HENSIVE TREASURY
STOCK STOCK STOCK VALUE EARNINGS INCOME STOCK
----- ----- ----- ----- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1996 $-- $64 $ 49 $34,199 $ 60,319 $ 10,338 $ (128)
Net income 11,692
Dividends ($0.064 per share) (720)
Stock options exercised, net of
tax benefit 251
Foreign currency translation
adjustments (12,194)
Conversion of Class A Common
Stock to Common Stock 1 (1)
--- --- ---- ------- -------- -------- -------
Balance, January 31, 1997 -- 65 48 34,450 71,291 (1,856) (128)
Net income 15,842
Dividends ($0.080 per share) (939)
Stock options exercised 431
Proceeds from issuance of
Common stock, net of
Underwriting discounts
and Offering expenses 15 29,594
Foreign currency translation
adjustments (3,281)
Conversion of Class A Common
Stock to Common Stock 13 (12)
--- --- ---- ------- -------- -------- -------
Balance, January 31, 1998 -- 93 36 64,475 86,194 (5,137) (128)
Net income 20,973
Dividends ($0.080 per share) (1,026)
Stock options exercised, net of
tax Benefit 857
Common stock repurchased (2,860)
Foreign currency translation
adjustments 2,949
Conversion of Class A Common
Stock to Common Stock 1 (1)
--- --- ---- ------- -------- -------- -------
Balance, January 31, 1999 $-- $94 $ 35 $65,332 $106,141 $ (2,188) $(2,988)
=== === ==== ======= ======== ======== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 37
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Movado Group, Inc. (the "Company") is a designer, manufacturer and distributor
of quality watches with prominent brands in almost every price category
comprising the watch industry. In fiscal 1999, the Company marketed six
distinctive brands of watches: Movado, Concord, ESQ, Coach, Piaget and Corum,
which compete in most segments of the watch market. On February 22, 1999, the
Company completed the sale of substantially all its assets relating to the
Piaget brand to VLG North America, Inc. ("VLG").
The Company designs and manufactures Concord and Movado watches primarily
through its subsidiaries in Switzerland and the United States. ESQ watches are
manufactured to the Company's specifications using Swiss movements by
independent contractors located in the Far East. Coach watches are assembled in
Switzerland by independent suppliers. The Company is also the exclusive
distributor of Swiss-manufactured Corum watches in the United States, Canada,
and the Caribbean. The Company distributes its watch brands through its United
States operations as well as through sales subsidiaries in Canada, Hong Kong,
Singapore and Switzerland and through a number of independent distributors
located in various countries throughout the world.
In addition to its sales to trade customers and independent distributors, the
Company sells Movado watches, Movado jewelry, table top accessories and other
product line extensions within the Movado brand directly to consumers in its
Company-operated Movado Boutiques. The Company also operates a number of Movado
outlet stores throughout the United States, through which the Company sells
discontinued and sample merchandise.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany transactions and balances have been eliminated.
Translation of foreign currency financial statements and foreign currency
transactions
The financial statements of the Company's international subsidiaries have been
translated into United States dollars by translating balance sheet accounts at
year-end exchange rates and statement of operations accounts at average exchange
rates for the year. Foreign currency transaction gains and losses are charged or
credited to income as incurred. Foreign currency translation gains and losses
are reflected in the equity section of the Company's consolidated balance sheet
within accumulated other comprehensive income as foreign currency translation
adjustments.
F-6
<PAGE> 38
Sales and trade receivables
The Company's trade customers include department stores, jewelry store chains
and independent jewelers. Movado, Concord and Coach watches are also marketed
through a network of independent distributors. Sales are recognized upon
shipment of products to trade customers. Accounts receivable are stated net of
allowances for doubtful accounts of $2,567,000 and $2,187,000 at January 31,
1999 and 1998, respectively. One individual trade customer accounted for 10% and
12% of the Company's consolidated net sales in fiscal 1999 and 1998,
respectively. No individual trade customer accounted for 10% or more of the
Company's consolidated net sales in fiscal 1997.
The Company's concentrations of credit risk arise primarily from accounts
receivable related to trade customers during the peak selling seasons. The
Company has significant accounts receivable balances due from major department
store chains. The Company's results of operations could be materially adversely
affected in the event any of these customers or a group of these customers
defaulted on all or a significant portion of their obligations to the Company as
a result of financial difficulties.
Inventories
Inventories are valued at the lower of cost or market. The cost of domestic
finished goods inventories is determined using the first-in, first-out (FIFO)
method. The costs of finished goods inventories held by overseas subsidiaries
and all component parts inventories are determined using average cost.
Plant, property and equipment
Plant, property and equipment at January 31, at cost, consists of the following
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Furniture and equipment $ 34,586 $ 32,516
Leasehold improvements 11,096 9,558
-------- --------
45,682 42,074
Less: accumulated depreciation (22,684) (23,165)
-------- --------
$ 22,998 $ 18,909
======== ========
</TABLE>
Depreciation of furniture and equipment is provided using the straight-line
method based on the estimated useful lives of assets which range from three to
ten years. Leasehold improvements are amortized using the straight-line method
over the lesser of the term of the related lease or the estimated useful life of
the leasehold improvement.
Goodwill and other intangibles
Other intangible assets consist primarily of trademarks and are recorded at
cost. Trademarks are amortized over ten years, except in the case of costs
associated with the Piaget and Corum trademarks, which are amortized over the
remaining terms of the Piaget and Corum distribution agreements. Goodwill is
amortized over 40 years. The Company reviews the carrying value of goodwill and
other intangible assets for impairment whenever events or changes have occurred
that would suggest an impairment of carrying value of an asset may not be
recoverable. An impairment would be recognized when expected undiscounted future
operating cash flows are lower than the carrying value. At January
F-7
<PAGE> 39
31, 1999 and 1998, goodwill and other intangible assets at cost were $5,448,000
and $6,425,000, respectively, and related accumulated amortization of goodwill
and other intangibles were $2,322,000 and $2,696,000, respectively.
Advertising
The Company expenses the production costs of an advertising campaign at the
commencement date of the advertising campaign. Advertising expenses for fiscal
1999, 1998 and 1997, amounted to $53.8 million, $49.6 million and $38.7 million,
respectively.
Income taxes
The Company and its domestic subsidiaries file a consolidated federal income tax
return. Foreign income taxes have been provided based on the applicable tax
rates in each of the foreign countries in which the Company operates. Certain
Swiss income taxes are payable over several years; the portion of these taxes
not payable within one year is classified as noncurrent. Noncurrent foreign
income taxes included in the consolidated balance sheets at January 31, 1999 and
1998 were $2,098,000 and $1,139,000, respectively.
Earnings per share
In accordance with the provisions of SFAS No. 128, Earnings Per Share, the
Company is presenting net income per share on a 'basic' and 'diluted' basis.
Basic earnings per share is computed using weighted average shares outstanding
during the period. Diluted earnings per share is computed using the weighted
average number of shares outstanding adjusted for dilutive common stock
equivalents.
The weighted average number of shares outstanding for basic earnings per share
were 12,842,000, 11,736,000, and 11,273,000 for fiscal 1999, 1998 and 1997,
respectively. For diluted earning per share, these amounts were increased by
414,000, 500,000 and 216,000 in fiscal 1999, 1998 and 1997, respectively, due to
potentially dilutive common stock equivalents issuable under the Company's stock
option plan. There were no anti-dilutive common stock equivalents in the years
presented.
Stock-based compensation
Stock-based compensation is recognized using the intrinsic value method. For
disclosure purposes, pro forma net income and earnings per share are provided as
if the fair value method had been applied.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stockholders Equity
The Company's Class A Common Stock entitles the holder thereof to 10 votes per
share on all matters submitted to a vote of shareholders. Each share of Common
Stock is entitled to one vote per share.
F-8
<PAGE> 40
In March 1998, the Company's Board of Directors authorized the repurchase of
400,000 shares of the Company's Common Stock. As of January 31, 1999, the
Company has repurchased 142,200 shares at an aggregate cost of $2.9 million. In
March 1999, the Board approved a revised stock repurchase program for the
repurchase of shares of the Company's Common Stock up to an aggregate repurchase
price of $10.0 million, in addition to the shares previously purchased.
New Accounting Standards
As of February 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Under SFAS
130, foreign currency translation adjustments, which had been reported
separately in shareholders' equity prior to adoption, are included in other
comprehensive income. No provision has been made for taxes on foreign
subsidiaries' undistributed earnings, because it is management's intention to
permanently reinvest the earnings of foreign subsidiaries within the business of
those companies. Amounts in prior year financial statements have been
reclassified to conform to SFAS 130.
Additionally, in fiscal 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This pronouncement
establishes standards for the reporting of financial information about a
Company's operating segments. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 was effective January 31, 1999 and has been adopted for all
periods presented.
These statements affect only financial statement presentation and disclosure.
Adoption of the new Standards did not have an impact on the Company's
consolidated financial position or results of operations.
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) in June 1998, which
establishes accounting and reporting standards for derivative instruments. SFAS
133 which is effective for the first quarter of fiscal 2001, requires all
derivatives to be recorded on the balance sheet at fair value and establishes
new accounting practices for hedge instruments. Management of the Company is
currently analyzing the effect, if any, SFAS 133 will have on the Company's
consolidated financial position and results of operations.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1999 1998
---- ----
<S> <C> <C>
Finished goods $ 64,438 $ 61,960
Work-in-process and component parts 39,589 36,223
-------- --------
$104,027 $ 98,183
======== ========
</TABLE>
NOTE 3 - BANK CREDIT ARRANGEMENTS AND LINES OF CREDIT
In order to meet the increase in working capital requirements, the Company's
revolving credit and working capital lines with its domestic bank group were
amended in July 1997 to provide for a three-year $90.0 million unsecured
revolving line of credit, pursuant to the Restated Bank Credit Agreement, and to
provide for $28.3 million and $31.6 million of uncommitted working capital lines
of credit at January 31, 1999 and 1998, respectively. These new facilities
replaced a $20.0 million revolving line of credit and $35.0 million domestic
working capital lines of credit and certain of the Company's Swiss working
capital lines. At January 31, 1999 and January 31, 1998, the
F-9
<PAGE> 41
Company had $5 million outstanding under the Restated Bank Credit Agreement. The
Restated Bank Credit Agreement provides for various rate options including the
federal funds rate plus a fixed rate, the prime rate or a fixed rate plus the
LIBOR rate. The Company pays a facility fee on the unused portion of the credit
facility. The agreement also contains certain financial covenants based on fixed
coverage ratios, leverage ratios and restrictions which limit the Company on the
sale, transfer or distribution of corporate assets, including dividends and
limit the amount of additional debt outstanding to $20 million. The Company was
in compliance with these restrictions and covenants at January 31, 1999. The
amount of $5.0 million outstanding at January 31, 1999 and 1998 is included in
Long-term debt. The domestic unused line of credit was $111.1 million and $116.6
million at January 31, 1999 and 1998, respectively.
The Company's Swiss subsidiaries maintain secured and unsecured lines of credit
with Swiss banks, a majority of which have an unspecified duration. Available
credit under these lines totaled 8,000,000 Swiss francs and 12,870,000 Swiss
francs, with dollar equivalents of approximately $5,633,000 and $8,708,000 at
January 31, 1999 and 1998, respectively. One subsidiary's credit line contains a
covenant requiring maintenance of retained earnings above a specified minimum
level. This subsidiary was in compliance with this covenant at January 31, 1999
and 1998. There are no other restrictions on transfers in the form of dividends,
loans or advances to the Company by its foreign subsidiaries.
Outstanding borrowings against the Company's aggregate demand lines of credit
were $2,200,000 at January 31, 1999. There were no borrowings under these credit
lines at January 31, 1998. Aggregate maximum and average monthly outstanding
borrowings against the Company's lines of credit and related weighted average
interest rates during fiscal 1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Maximum borrowings $70,900 $72,560 $56,143
Average monthly borrowings $41,229 $41,564 $34,302
Weighted average interest rate 6.9% 6.4% 5.9%
</TABLE>
Weighted average interest rates were computed based on average month-end
outstanding borrowings and applicable average month-end interest rates.
NOTE 4 - LONG-TERM DEBT
The components of long term debt as of January 31, were as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Senior Notes $35,000 $40,000
Series A Senior Notes 25,000 --
Revolving Credit Line 5,000 5,000
------- -------
</TABLE>
F-10
<PAGE> 42
<TABLE>
<S> <C> <C>
$65,000 $45,000
Less current portion 10,000 10,000
------- -------
Long-term debt $55,000 $35,000
======= =======
</TABLE>
Senior Notes due January 31, 2005 (the "Senior Notes") were issued in a private
placement completed in fiscal 1994 and bear interest at 6.56% per annum, payable
semiannually on July 31 and January 31, and are subject to annual payments of
$5.0 million commencing January 31, 1998 (or next business day). Accordingly,
such amounts have been classified as a current liability in fiscal 1999 and
1998. The Company has the option to prepay amounts due to holders of the Senior
Notes at 100% of the principal plus a "make-whole" premium and accrued interest.
The Series A Senior Notes ("Series A Senior Notes") were issued on December 1,
1998 under a Note Purchase and Private Shelf Agreement and bear interest at
6.90% per annum. Interest is payable semi-annually on April 30 and October 30
and mature on October 30, 2010 and are subject to annual payments of $5.0
million commencing October 31, 2006. The Note Purchase and Private Shelf
Agreement also provides for the issuance, up to two years after the date
thereof, of senior promissory notes in the aggregate principal amount of up to
an additional $25 million with maturities up to 12 years from their date of
issuance.
The agreements governing the Senior Notes and Series A Senior Notes contain
certain restrictions and covenants which generally require the maintenance of a
minimum net worth, limit the amount of additional secured debt the Company can
incur and limit the sale, transfer or distribution of corporate assets including
dividends. The Company was in compliance with these restrictions and covenants
at January 31, 1999.
Included in Long-term debt at January 31, 1999 and 1998 was $5.0 million related
to the Company's revolving credit agreement as described in Note 3.
NOTE 5 - FOREIGN CURRENCY MANAGEMENT
A substantial portion of the Company's watches and watch components are sourced
from affiliated and nonaffiliated suppliers in Switzerland. A significant
strengthening of the Swiss franc against currencies of other countries in which
the Company conducts sales activities increases the Company's product cost. This
may adversely impact gross margins to the extent the Company is unsuccessful in
hedging against changes in the currency exchange rates or higher product costs
cannot be recovered through price increases in local markets. Significant
fluctuations in the Swiss franc - U.S. dollar exchange rate can also have a
material impact on the U.S. dollar value of the net assets of the Company's
wholly-owned Swiss subsidiaries.
The Company hedges against foreign currency exposure using forward exchange
contracts, purchased foreign currency options and open market purchases to cover
identifiable inventory purchase commitments and occasionally equity invested in
its international subsidiaries. Due to production lead times, the Company hedges
identified inventory purchase commitments generally over a period of up to
eighteen months.
The Company has established strict counterparty credit guidelines and only
enters into foreign currency transactions with financial institutions of
investment grade or better. At January 31, 1999 and 1998, the
F-11
<PAGE> 43
Company had foreign currency trading lines totaling $165,000,000 with various
banks. To minimize the concentration of credit risk, the Company enters into
hedging transactions with each of these banks. As a result, the Company
considers the risk of counterparty default to be minimal.
The following table presents the aggregate contract amounts and fair values,
based on dealer quoted prices, of the Company's financial instruments
outstanding at January 31, 1999 and 1998. Foreign currency forward contracts
included below mature within one year. Currency Option Contracts at January 31,
1999 and 1998 generally mature after one year. All financial instruments
included below were held for hedging purposes only. Contract amounts (in
thousands) consist primarily of U.S. dollar - Swiss franc contracts.
<TABLE>
<CAPTION>
AS OF JANUARY 31,
---------------------------------------
1999 1998
----------------- ------------------
CONTRACT FAIR CONTRACT FAIR
AMOUNTS VALUES AMOUNTS VALUES
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Foreign Currency Forward Contracts $11,399 $11,511 $ 9,036 $ 9,187
Currency Option Contracts $38,625 $ 2,829 $39,486 $ 576
</TABLE>
The contract amounts of these foreign currency forward amounts and purchased
options do not necessarily represent amounts exchanged by the parties and,
therefore, are not a direct measure of the exposure of the Company through its
use of these financial instruments. The amounts exchanged are calculated on the
basis of the contract amounts and the other terms of the financial instruments,
which relate to exchange rates. As of January 31, 1999 and 1998, the receivable
from banks recorded in current assets associated with closed contract positions
was $1,547,000 and $1,000, respectively.
The estimated fair values of these foreign currency forward amounts and
purchased options used to hedge the Company's risks will fluctuate over time.
These fair value amounts should not be viewed in isolation, but rather in
relation to the fair values of the underlying hedged transactions and
investments and the Company's overall exposure to fluctuations in foreign
exchange rates.
Gains and losses from and premiums paid for forward or option transactions that
hedge inventory purchase commitments are included in the carrying cost of
inventory and are recognized in cost of sales upon sale of the inventory. Net
deferred charges from hedging amounted to $807,000 and $375,000 at January 31,
1999 and 1998, respectively, and were included in other current assets on the
accompanying balance sheet.
NOTE 6 - FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The estimated fair value of the Company's Senior Notes and Series A Senior Notes
at January 31, 1999 approximated the carrying value of the notes. The difference
between market-based interest rates at the balance sheet date and the 6.56% and
6.90% fixed rates of the notes was minimal. The fair value of the Company's
other monetary assets and liabilities approximate carrying value due to the
relatively short-term nature of these items.
NOTE 7 - INCOME TAXES
The provision for income taxes for the fiscal years ended January 31, 1999, 1998
and 1997 consists of the following components (in thousands):
F-12
<PAGE> 44
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
U.S. Federal $ 1,500 $ 725 $ 1,667
U.S. State and Local 444 192 477
Non-U.S 1,888 1,542 860
------- ------- -------
3,832 2,459 3,004
------- ------- -------
Noncurrent:
U.S. Federal -- -- --
U.S. State and Local -- -- --
Non-U.S 1,924 1,680 845
------- ------- -------
1,924 1,680 845
------- ------- -------
Deferred:
U.S. Federal (750) -- --
U.S. State and Local -- -- --
Non-U.S 1,259 592 4
------- ------- -------
509 592 4
------- ------- -------
Provision for income taxes $ 6,265 $ 4,731 $ 3,853
======= ======= =======
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Deferred income taxes have been
classified as current or noncurrent on the consolidated balance sheets based on
the underlying temporary differences and the expected due dates of taxes payable
upon reversal. Significant components of the Company's deferred income tax
assets and liabilities for the fiscal year, ended January 31, 1999 and 1998
consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 DEFERRED TAX 1998 DEFERRED TAX
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Operating loss carryforwards $ 2,400 $ -- $ 2,092 $ --
Rent accrual 417 -- 542 --
Inventory reserve 1,038 6,218 813 5,516
Receivable allowance 816 1,370 643 565
Depreciation/amortization 1,191 -- 1,043 --
Other 948 22 637 271
------- ------- ------- -------
6,810 7,610 5,770 6,352
Valuation allowance (2,660) -- (2,370) --
------- ------- ------- -------
Total $ 4,150 $ 7,610 $ 3,400 $ 6,352
======= ======= ======= =======
</TABLE>
As of January 31, 1999, the Company had foreign net operating loss carryforwards
of approximately $5.5 million, which are available to offset taxable income in
future years. As of January 31, 1999, the Company continued to maintain a 100%
valuation allowance with respect to the tax benefit of foreign net operating
loss carryforwards and other foreign tax assets. Since the Company's tax assets
relate primarily to its former sales office in Germany, which is currently
operated by an independent distributor, the Company's assessment is that the tax
assets will not likely be
F-13
<PAGE> 45
utilized in the foreseeable future. Management is continuing to evaluate the
appropriate level of allowance based on future operating results and changes in
circumstances.
The provision for income taxes differs from the amount determined by applying
the U.S. federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Provision for income taxes at the U.S. statutory rate $ 9,533 $ 7,200 $ 5,441
Realization of capital and operating loss carryforwards -- (88) --
Lower effective foreign income tax rate (3,685) (2,582) (2,369)
Tax provided on repatriated earnings of foreign subsidiaries 252 262 308
State and local taxes, net of federal benefit 134 127 315
Other 31 (188) 158
------- ------- -------
$ 6,265 $ 4,731 $ 3,853
======= ======= =======
</TABLE>
No provision has been made for taxes on foreign subsidiaries' undistributed
earnings of approximately $120,000,000 at January 31, 1999, as those earnings
are considered to be reinvested for an indefinite period. As such, no additional
taxes have been provided for on these earnings.
F-14
<PAGE> 46
NOTE 8 - OTHER ASSETS
In fiscal 1996, the Company entered into an agreement with a trust which owns an
insurance policy issued on the lives of the Company's Chairman and Chief
Executive Officer and his spouse. Under that agreement the trust has assigned
the insurance policy to the Company as collateral to secure repayment by the
trust of interest-free loans to be made by the Company in amounts sufficient for
the trust to pay the premiums on said insurance policy ($740,000 per annum).
Under the agreement, the trust will repay the loans from the proceeds of the
policy. The Company had loaned approximately $2,361,000 and $1,620,000 under
this agreement at January 31, 1999 and 1998, respectively.
NOTE 9 - LEASES, COMMITMENTS AND CONTINGENCIES
Rent expense for equipment and distribution, factory and office facilities held
under operating leases was approximately $5,470,000, $4,680,000 and $4,270,000
in fiscal 1999, 1998 and 1997, respectively. Minimum annual rentals at January
31, 1999 under noncancelable operating leases which do not include escalations
that will be based on increases in real estate taxes and operating costs are as
follows:
YEAR ENDING JANUARY 31,
(IN THOUSANDS):
<TABLE>
<S> <C>
2000 $5,680
2001 5,257
2002 4,443
2003 3,027
2004 2,380
2005 and thereafter 6,339
-------
$27,126
=======
</TABLE>
The Company has entered into capital leases to finance the cost of enhancing its
management information systems in the United States and Switzerland. The gross
value of computer equipment recorded under capital leases was $3,848,000 as of
January 31, 1999 and 1998. Accumulated depreciation of computer equipment
recorded under capital leases was $3,436,000 and $2,884,000 as of January 31,
1999 and 1998, respectively.
Future minimum lease payments for equipment under capital leases at January 31,
1999 are as follows:
YEAR ENDING JANUARY 31,
(IN THOUSANDS):
<TABLE>
<S> <C>
2000 $ 71
----
Total minimum lease obligations 71
Less interest (2)
----
Present value of minimum lease obligations 69
Less current portion (69)
----
Net amount due after one year $ -
====
</TABLE>
Due to the nature of its business as a luxury consumer goods distributor, the
Company is exposed to various commercial losses. The Company believes it is
adequately insured against such losses.
F-15
<PAGE> 47
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company maintains an Employee Savings Plan under Section 401(k) of the
Internal Revenue Code. Company contributions and expenses of administering the
Employee Savings Plan amounted to $430,000, $143,000 and $127,000 in fiscal
1999, 1998 and 1997, respectively.
Effective June 1, 1995, the Company adopted a defined contribution supplemental
executive retirement plan ("SERP"). The SERP provides eligible executives with
supplemental pension benefits in addition to amounts received under the
Company's other retirement plan. The Company makes a matching contribution which
vests equally over five years. During fiscal 1999, 1998 and 1997, the Company
recorded expenses related to the SERP of approximately $338,000, $190,000 and
$138,000, respectively, which includes costs related to phantom shares.
During fiscal 1999, the Company adopted a Stock Bonus Plan for all employees not
in the SERP. Under the terms of this stock bonus plan, the Company contributes a
discretionary amount to the trust established under the plan. Each plan
participant vests after five years in 100% of their respective pro-rata portion
of such contribution. For fiscal 1999, the Company recorded an expense of
$209,000 related to this plan.
On September 23, 1994, the Company entered into a Death and Disability Benefit
Plan agreement with the Company's Chairman and Chief Executive Officer. Under
the terms of the agreement, in the event of the Chairman's death or disability,
the Company is required to make an annual benefit payment of approximately
$300,000 to his spouse for the lesser of ten years or her remaining lifetime.
Neither the agreement nor the benefits payable thereunder are assignable and no
benefits are payable to the estates or heirs of the Chairman or his spouse.
Results of operations include an actuarially determined charge related to this
plan of approximately $101,000, $92,000 and $85,000 for fiscal 1999, 1998 and
1997, respectively.
Effective concurrently with the consummation of the Company's public offering in
the fourth quarter of fiscal 1994, the Board of Directors and the shareholders
of the Company approved the adoption of the Movado Group, Inc. 1993 Employee
Stock Option Plan (the "Employee Stock Option Plan") for the benefit of certain
officers, directors and key employees of the Company. The Employee Stock Option
Plan was amended in fiscal 1997 and restated as the Movado Group, Inc. 1996
Stock Incentive Plan (the "Plan"). Under the Plan, the Compensation Committee of
the Board of Directors, which is comprised of the Company's four outside
directors, has the authority to grant incentive stock options and nonqualified
stock options to purchase, as well as stock appreciation rights and stock
awards, up to 1,500,000 shares of Common Stock. Options granted to participants
under the Plan become exercisable in equal installments on the first through
fifth anniversaries of the date of grant and remain exercisable until the tenth
anniversary of the date of grant. The option price may not be less than the fair
market value of the stock at the time the options are granted.
F-16
<PAGE> 48
Transactions in stock options under the Plan since fiscal 1996 are summarized as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTION PRICE
OPTIONS PER SHARE
<S> <C> <C>
January 31, 1996 578,063 $ 7.43
Options granted 429,375 10.98
Options exercised (36,750) 7.47
Options forfeited (14,813) 7.47
---------
January 31, 1997 955,875 9.02
Options granted 227,964 13.49
Options exercised (51,250) 8.43
Options forfeited (6,189) 9.69
---------
January 31, 1998 1,126,400 9.91
Options granted 282,749 25.53
Options exercised (63,250) 9.02
Options forfeited (62,289) 13.39
---------
January 31, 1999 1,283,610 $13.23
=========
</TABLE>
Options exercisable at January 31, 1999, 1998 and 1997 were 538,216, 373,684 and
260,850, respectively.
The weighted-average fair value of each option grant estimated on the date of
grant using the Black-Scholes option-pricing model is $13.34, $6.53 and $3.47
per share in fiscal 1999, 1998 and 1997, respectively. The following
weighted-average assumptions were used for grants in fiscal 1999, 1998 and 1997:
dividend yield of 0.3% for fiscal 1999, 0.4% for fiscal 1998 and 2.0% for fiscal
1997; expected volatility of 45% for fiscal 1999, 38% for fiscal 1998 and 26%
for fiscal 1997, risk-free interest rates of 4.7% for fiscal 1999, and 5.6% for
fiscal 1998 and 1997, and expected lives of seven years for fiscal 1999, 1998
and 1997.
The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for the Plan.
Had compensation cost for the Company's fiscal 1999, 1998 and 1997 grants for
stock-based compensation plans been determined based on the fair value at the
grant dates and recognized ratably over the vesting period, the Company's net
income and net income per share for fiscal 1999, 1998 and 1997 would approximate
the pro forma amounts below (in thousands except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net Income $20,973 $19,856 $15,842 $15,306 $11,692 $11,392
Net Income per share-Basic $ 1.63 $ 1.55 $ 1.35 $ 1.30 $ 1.04 $ 1.01
Net Income per share-Diluted $ 1.58 $ 1.50 $ 1.29 $ 1.25 $ 1.02 $ 0.99
</TABLE>
The pro forma impact takes into account options granted since February 1, 1995
and is likely to increase in future years as additional options are granted and
amortized ratably over the vesting period.
F-17
<PAGE> 49
The following table summarizes outstanding and excisable stock options as of
January 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.00 - $9.99 724,026 6.2 $ 8.41 463,024 $ 8.02
$10.00 - $14.99 265,934 8.0 $13.14 69,792 $13.16
$15.00 - $19.99 42,250 9.4 $16.06 1,650 $16.33
$20.00 - $24.99 31,250 9.1 $23.37 1,250 $22.87
$25.00 - $29.75 220,150 9.1 $27.24 2,500 $26.50
- ---------------------------------------------------------------------------------
$5.00 - $29.75 1,283,610 7.2 $13.23 538,216 $ 8.83
=================================================================================
</TABLE>
NOTE 11 - SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which requires reporting certain financial information
according to the "management approach." This approach requires reporting
information regarding operating segments on the basis used internally by
management to evaluate segment performance. SFAS 131 also requires disclosures
about products and services, geographic areas and major customers.
The Company divides its business into two major geographic segments: "Domestic",
which includes the results of the Company's United States and Canadian
operations, and "International", which includes the results of all other Company
operations. The Company's international operations are principally conducted in
Europe. The Company's international assets are substantially located in Europe.
Other international operations constituted less than 10% of consolidated total
assets for all periods presented.
The Company conducts its business primarily in two operating segments:
"Wholesale" and "Other". The Company's wholesale segment includes the designing,
manufacturing and distribution of quality watches. Other includes the Company's
retail and service center operations. The accounting policies of the segments
are the same as those described in "Significant Accounting Polices". The Company
evaluates segment performance based on operating profit.
F-18
<PAGE> 50
OPERATING SEGMENT DATA AS OF JANUARY 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
NET SALES OPERATING PROFIT
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wholesale $245,783 $210,908 $191,381 $ 34,631 $24,277 $ 20,178
Other 32,053 26,097 23,726 (1,597) 1,963 623
Elimination(1) (359) (284) (382)
------------------------------ ------------------------------
Consolidated total $277,836 $237,005 $215,107 $ 32,675 $25,956 $ 20,419
============================== ==============================
</TABLE>
<TABLE>
<CAPTION>
SEGMENT ASSETS
------------------------------
1999 1998 1997
------------------------------
<S> <C> <C> <C>
Wholesale $287,079 $237,382 $202,267
Other 3,670 813 1,291
Corporate(2) 5,626 10,874 4,885
------------------------------
Consolidated total $296,375 $249,069 $208,443
==============================
</TABLE>
GEOGRAPHIC SEGMENT DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
NET SALES LONG-LIVED ASSETS
------------------------------ ---------------------------
1999 1998 1997 1999 1998 1997
------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic $245,865 $196,064 $177,039 $17,222 $13,324 $10,280
International 199,060 152,997 123,806 5,776 5,585 4,786
Elimination(3) (167,089) (112,056) (85,738)
------------------------------ ---------------------------
Consolidated total $277,836 $237,005 $215,107 $22,998 $18,909 $15,066
============================== ===========================
</TABLE>
<TABLE>
<CAPTION>
INCOME BEFORE INCOME TAXES
------------------------------
1999 1998 1997
------------------------------
<S> <C> <C> <C>
Domestic $982 $1,796 $3,102
International 26,615 19,061 12,825
Elimination(1) (359) (284) (382)
------------------------------
Consolidated total $27,238 $20,573 $15,545
==============================
</TABLE>
(1) Elimination of inter-segment management fees.
(2) Corporate assets include cash.
(3) Elimination of intercompany sales between domestic and international units.
F-19
<PAGE> 51
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents unaudited selected interim operating results of the
Company for fiscal 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
APR 30 JUL 31 OCT 31 JAN 31
---------------------------------------------
<S> <C> <C> <C> <C>
1999
Net sales $ 41,650 $68,934 $97,455 $69,797
Gross profit $ 24,714 $39,565 $57,488 $44,303
Net income $ 148 $ 3,386 $12,007 $ 5,432
PER SHARE:
Net income:
Basic $ 0.01 $ 0.26 $ 0.94 $ 0.42
Diluted $ 0.01 $ 0.25 $ 0.91 $ 0.41
1998
Net sales $ 34,918 $56,994 $84,536 $60,557
Gross profit $ 19,901 $32,226 $49,098 $38,324
Net (loss) income $ (260) $ 2,355 $ 9,308 $ 4,439
PER SHARE:
Net (loss) income:
Basic $ (0.02) $ 0.21 $ 0.81 $ 0.35
Diluted $ (0.02) $ 0.20 $ 0.77 $ 0.34
</TABLE>
As each quarter is calculated as a discrete period, the sum of the four quarters
may not equal the calculated full year amount. This is in accordance with
prescribed reporting requirements.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1999 1998 1997
-----------------------------
<S> <C> <C> <C>
Cash paid (received) during the year for:
Interest $5,274 $ 4,580 $5,141
Income taxes $4,585 $ (26) $4,321
Non cash investing and financial activities:
Equipment acquired under capital lease $-- $-- $ 217
</TABLE>
F-20
<PAGE> 52
NOTE 14 - SUBSEQUENT EVENT
On December 22, 1998, the Company entered into an agreement with VLG North
America, Inc. ("VLG") for the sale to VLG of substantially all of the assets,
properties and rights related to the Piaget business. The transaction was
completed on February 22, 1999 at a sale price of approximately $30.0 million.
The Company will report a pretax gain, representing the excess of the sale
price over the net book value of the assets sold at January 31, 1999, during the
first quarter of fiscal 2000. Accordingly, the Company recorded $22.2 million in
assets held for sale at January 31, 1999.
F-21
<PAGE> 53
SCHEDULE II
MOVADO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT PROVISION
BEGINNING CHARGED TO CURRENCY NET BALANCE AT
DESCRIPTION OF YEAR OPERATIONS REVALUATION WRITE-OFFS END OF YEAR
----------- ------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1999:
Allowance for doubtful accounts $2,187 $1,304 $ 7 $ (931) $2,567
Year ended January 31, 1998:
Allowance for doubtful accounts $3,876 $1,005 $ (38) $(2,656) $2,187
Year ended January 31, 1997:
Allowance for doubtful accounts $3,323 $1,917 $(109) $(1,255) $3,876
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT PROVISION
BEGINNING OF (BENEFIT) BALANCE AT
YEAR CHARGED ADJUSTMENTS END OF YEAR
---- ------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended January 31, 1999:
Deferred tax assets valuation allowance $2,370 $ 290 $0 $2,660
Year ended January 31, 1998:
Deferred tax assets valuation allowance $2,580 $(210) $0 $2,370
Year ended January 31, 1997:
Deferred tax assets valuation allowance $2,439 $ 141 $0 $2,580
</TABLE>
abc
S-1
<PAGE> 1
Exhibit 10.31
MOVADO GROUP, INC.
NOTE PURCHASE AND PRIVATE SHELF AGREEMENT
$25,000,000
6.90% Series A Senior Notes Due 2010
$25,000,000
Private Shelf Facility
Dated as of November 30, 1998
<PAGE> 2
TABLE OF CONTENTS
(not part of agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. AUTHORIZATION OF ISSUE OF NOTES....................................... 1
1A. AUTHORIZATION OF ISSUE OF SERIES A NOTES..................... 1
1B. AUTHORIZATION OF ISSUE OF SHELF NOTES........................ 1
2. PURCHASE AND SALE OF NOTES............................................. 2
2A. PURCHASE AND SALE OF SERIES A NOTES........................... 2
2B. PURCHASE AND SALE OF SHELF NOTES.............................. 2
2B(1). FACILITY.......................................... 2
2B(2). ISSUANCE PERIOD................................... 2
2B(3). PERIODIC SPREAD INFORMATION....................... 3
2B(4). REQUEST FOR PURCHASE.............................. 3
2B(5). RATE QUOTES....................................... 3
2B(6). ACCEPTANCE........................................ 4
2B(7). MARKET DISRUPTION................................. 4
2B(8). FACILITY CLOSINGS................................. 4
2B(9). FEES.............................................. 5
2B(9)(i). FACILITY FEE...................................... 5
2B(9)(ii). ISSUANCE FEE...................................... 5
2B(9)(iii). DELAYED DELIVERY FEE.............................. 5
2B(9)(iv). CANCELLATION FEE.................................. 6
3. CONDITIONS OF CLOSING.................................................. 6
3A. CERTAIN DOCUMENTS............................................. 6
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.................... 7
3C. PURCHASE PERMITTED BY APPLICABLE LAWS......................... 7
3D. APPROVALS AND CONSENTS........................................ 8
3E. PAYMENT OF FEES............................................... 8
3F. INSURANCE CERTIFICATE......................................... 8
3G. SUBSIDIARY GUARANTEE.......................................... 8
4. PREPAYMENTS............................................................ 8
4A. REQUIRED PREPAYMENTS OF SERIES A NOTES........................ 8
4B. REQUIRED PREPAYMENTS OF SHELF NOTES........................... 8
4C. OPTIONAL PREPAYMENTS.......................................... 8
4D. NOTICE OF OPTIONAL PREPAYMENT................................. 9
4E. APPLICATION OF PREPAYMENTS.................................... 9
4F. RETIREMENT OF NOTES........................................... 9
4G. PURCHASES OF NOTES BY THE COMPANY............................. 9
4H. CANCELLATION OF NOTES......................................... 10
5. AFFIRMATIVE COVENANTS.................................................. 10
5A. FINANCIAL STATEMENTS.......................................... 10
5B. INFORMATION REQUIRED BY RULE 144A............................. 12
5C. INSPECTION OF PROPERTY; BOOKS AND RECORDS..................... 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5D. MAINTENANCE OF PROPERTIES.................................... 13
5E. MAINTENANCE OF INSURANCE..................................... 13
5F. COMPLIANCE WITH ENVIRONMENTAL LAWS........................... 13
5G. ERISA NOTICES................................................ 13
5H. PAYMENT OF TAXES AND CLAIMS.................................. 14
5I. CORPORATE EXISTENCE, ETC. ................................... 14
5J. COMPLIANCE WITH LAWS, ETC. .................................. 14
5K. COVENANT TO SECURE NOTES EQUALLY............................. 15
5L. COVENANT TO MAINTAIN BUSINESS................................ 15
6. NEGATIVE COVENANTS.................................................... 15
6A. MAINTENANCE OF CONSOLIDATED NET WORTH........................ 15
6B. LIMITATIONS ON LIENS......................................... 15
6C. LIMITATIONS ON DEBT.......................................... 17
6D. LIMITATIONS ON PRIORITY DEBT................................. 17
6E. MERGER, CONSOLIDATION, SALE OR TRANSFER OF ASSETS............ 17
6F. SALES OF ASSETS.............................................. 18
6G. DISPOSITION OF SUBSIDIARY STOCK.............................. 19
6H. LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS
AND OTHER DISTRIBUTIONS..................................... 19
6I. SALE AND LEASE-BACK TRANSACTIONS............................. 20
6J. TRANSACTIONS WITH AFFILIATES................................. 20
6K. SUBSIDIARIES................................................. 20
7. DEFAULTS; REMEDIES.................................................... 21
7A. EVENTS OF DEFAULT............................................ 21
7B. RESCISSION OF ACCELERATION................................... 24
7C. NOTICE OF ACCELERATION OR RESCISSION......................... 24
7D. OTHER REMEDIES............................................... 24
8. REPRESENTATIONS, COVENANTS AND WARRANTIES............................. 25
8A. ORGANIZATION; AUTHORITY; ENFORCEABILITY...................... 25
8B. BUSINESS; FINANCIAL STATEMENTS............................... 25
8C. ACTIONS PENDING.............................................. 26
8D. OUTSTANDING DEBT............................................. 26
8E. CONFLICTING AGREEMENTS AND OTHER MATTERS..................... 26
8F. TITLE TO PROPERTIES.......................................... 27
8G. PATENTS, LICENSES, FRANCHISES, ETC. ......................... 27
8H. TAXES........................................................ 27
8I. OFFERING OF NOTES............................................ 28
8J. REGULATION U, ETC. .......................................... 28
8K. ERISA........................................................ 28
8L. ENVIRONMENTAL COMPLIANCE..................................... 29
8M. PROCEEDS OF FINANCING........................................ 30
8N. GOVERNMENTAL CONSENT......................................... 30
8O. COMPLIANCE; DEFAULT.......................................... 30
8P. INVESTMENT COMPANY ACT....................................... 30
8Q. PUBLIC UTILITY HOLDING COMPANY ACT........................... 30
8R. FOREIGN ASSETS CONTROL REGULATIONS........................... 31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
8S. DISCLOSURE................................................... 31
8T. HOSTILE TENDER OFFERS........................................ 31
8U. YEAR 2000.................................................... 31
9. REPRESENTATIONS OF THE PURCHASERS..................................... 31
9A. NATURE OF PURCHASE........................................... 31
9B. SOURCE OF FUNDS.............................................. 31
10. DEFINITIONS AND ACCOUNTING MATTERS.................................... 31
10A. YIELD-MAINTENANCE TERMS...................................... 31
10B. OTHER DEFINED TERMS.......................................... 33
10C. ACCOUNTING TERMS AND DETERMINATIONS.......................... 46
11. MISCELLANEOUS......................................................... 46
11A. NOTE PAYMENTS................................................ 46
11B. EXPENSES..................................................... 47
11C. CONSENT TO AMENDMENTS........................................ 47
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES...................................................... 48
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS........................ 49
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT.................................................... 49
11G. SUCCESSORS AND ASSIGNS....................................... 49
11H. INDEPENDENCE OF COVENANTS.................................... 49
11I. NOTICES...................................................... 49
11J. PAYMENTS DUE ON NON-BUSINESS DAYS............................ 50
11K. SATISFACTION REQUIREMENT..................................... 50
11L. GOVERNING LAW................................................ 50
11M. SEVERABILITY................................................. 50
11N. DESCRIPTIVE HEADINGS......................................... 50
11O. COUNTERPARTS................................................. 50
11P. CONFIDENTIALITY.............................................. 50
</TABLE>
Exhibits and Schedules
Purchaser Schedule
Information Schedule
Disclosure Schedules:
Schedule 6H -- Restrictions on Subsidiary Dividends and Other Distributions
Schedule 6J -- Transactions with Affiliates
Schedule 8A -- List of Subsidiaries
Schedule 8C -- Pending Actions
Schedule 8D -- Outstanding Debt
Schedule 8E -- Agreements Restricting Debt
Schedule 8F -- Liens on Properties
Schedule 8K -- ERISA Matters
Schedule 8L -- Environmental Compliance
iii
<PAGE> 5
Exhibit A-1 -- Form of Series A Note
Exhibit A-2 -- Form of Shelf Note
Exhibit B -- Form of Request for Purchase
Exhibit C -- Form of Confirmation of Acceptance
Exhibit D -- Form of Guarantee
Exhibit E-1(A) -- Form of Opinion of Company Counsel, Series A Note Closing
Exhibit E-1(B) -- Form of Opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
Series A Note Closing
Exhibit E-2(A) -- Form of Opinion of Company Counsel, Shelf Note Closing
Exhibit E-2(B) -- Form of Opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
Shelf Note Closing
iv
<PAGE> 6
MOVADO GROUP, INC.
125 CHUBB AVENUE
LYNDHURST, NJ 07071
As of November 30, 1998
The Prudential Insurance Company of
America (herein called "PRUDENTIAL")
Each Prudential Affiliate (as hereinafter
defined) which becomes bound by certain
provisions of this Agreement as hereinafter
provided (together with Prudential, the "PURCHASERS")
c/o Prudential Capital Group
One Gateway Center, 11th Floor
Newark, NJ 07102-5311
Ladies and Gentlemen:
The undersigned, Movado Group, Inc., a New York corporation (herein
called the "COMPANY"), hereby agrees with you as follows:
1. AUTHORIZATION OF ISSUE OF SERIES A NOTES.
1A. AUTHORIZATION OF ISSUE OF SERIES A NOTES. The Company will
authorize the issue and sale of its senior promissory notes (the "Series A
Notes") in the aggregate principal amount of $25,000,000, to be dated the date
of issue thereof, to mature October 30, 2010, to bear interest on the unpaid
balance thereof from the date thereof until the principal thereof shall have
become due and payable at the rate of 6.90% per annum and on overdue principal,
Yield-Maintenance Amount and interest at the rate specified therein, and to be
substantially in the form of Exhibit A-1 attached hereto. The terms "SERIES A
NOTE" or "SERIES A NOTES" as used herein shall include each Series A Note
delivered pursuant to any provision of this Agreement and each Series A Note
delivered in substitution or exchange for any such Series A Note pursuant to any
such provision.
1B. AUTHORIZATION OF ISSUE OF SHELF NOTES. The Company will
authorize the issue of its additional senior promissory notes (the "SHELF
NOTES") in the aggregate principal amount of $25,000,000, to be dated the date
of issue thereof, to mature, in the case of each Shelf Note so issued, no more
than 12 years after the date of original issuance thereof, to have an average
life, in the case of each Shelf Note so issued, of no more than 10 years after
the date of original issuance thereof, to bear interest on the unpaid balance
thereof from the date thereof at the rate per annum, and to have such other
particular terms, as shall be set forth, in the case of each Shelf Note so
issued, in the Confirmation of Acceptance with respect to such Shelf Note
delivered pursuant to paragraph 2B(6), and to be substantially in the form of
Exhibit A-2 attached hereto. The terms "SHELF NOTE" and "SHELF NOTES" as used
herein shall include each Shelf Note delivered pursuant to any provision of this
Agreement and each Shelf Note delivered in substitution or exchange for any such
Shelf Note pursuant to any such provision. The terms
<PAGE> 7
"NOTE" and "NOTES" as used herein shall include each Series A Note and each
Shelf Note delivered pursuant to any provision of this Agreement and each Note
delivered in substitution or exchange for any such Note pursuant to any such
provision. Notes which have (i) the same final maturity, (ii) the same principal
prepayment dates, (iii) the same principal prepayment amounts (as a percentage
of the original principal amount of each Note), (iv) the same interest rate, (v)
the same interest payment periods and (vi) the same date of issuance (which, in
the case of a Note issued in exchange for another Note, shall be deemed for
these purposes the date on which such Note's ultimate predecessor Note was
issued), are herein called a "SERIES" of Notes.
2. PURCHASE AND SALE OF NOTES.
2A. PURCHASE AND SALE OF SERIES A NOTES. Subject to the terms and
conditions herein set forth, the Company hereby agrees to sell to Prudential,
and Prudential agrees to purchase from the Company, Series A Notes in the
aggregate principal amount of $25,000,000 at 100% of such principal amount. On
November 30, 1998 or on any date prior to December 2, 1998 upon which the
Company and Prudential may agree (herein called the "SERIES A CLOSING DAY"), the
Company will deliver to Prudential, at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison, 1285 Avenue of the Americas, New York, New York, one or more
Series A Notes registered in Prudential's name (or the name of its nominee),
evidencing the Series A Notes to be purchased by Prudential, in the denomination
or denominations specified with respect to Prudential in the Purchaser Schedule
against payment of the purchase price therefor by wire transfer of immediately
available funds for credit to the Company's account number 0381130798 at The
Chase Manhattan Bank, ABA Routing Number 021 000 021.
2B. PURCHASE AND SALE OF SHELF NOTES.
2B(1). FACILITY. Prudential is willing to consider, in its sole
discretion and within limits which may be authorized for purchase by Prudential
and Prudential Affiliates from time to time, the purchase of Shelf Notes
pursuant to this Agreement. The willingness of Prudential to consider such
purchase of Shelf Notes is herein called the "FACILITY". At any time, the
aggregate principal amount of Shelf Notes stated in paragraph 1B, minus the
aggregate principal amount of Shelf Notes purchased and sold pursuant to this
Agreement prior to such time, minus the aggregate principal amount of Accepted
Notes (as hereinafter defined) which have not yet been purchased and sold
hereunder prior to such time, is herein called the "AVAILABLE FACILITY AMOUNT"
at such time. NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER
PURCHASES OF SHELF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS
UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE
OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES,
SPREADS OR OTHER TERMS WITH RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND
THE FACILITY SHALL IN NO WAY BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY
PRUDENTIAL AFFILIATE. NOTWITHSTANDING THE WILLINGNESS OF THE COMPANY TO CONSIDER
SALES OF SHELF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS
UNDERSTANDING THAT THE COMPANY SHALL NOT BE OBLIGATED TO MAKE OFFERS TO SELL
SHELF NOTES, OR TO REQUEST RATES, SPREADS OR OTHER TERMS WITH RESPECT TO
SPECIFIC SALES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY BE CONSTRUED AS
A COMMITMENT BY THE COMPANY.
2
<PAGE> 8
2B(2). ISSUANCE PERIOD. Shelf Notes may be issued and sold pursuant
to this Agreement until the earlier of (i) the second anniversary of the date of
this Agreement (or if such anniversary is not a Business Day, the Business Day
next preceding such anniversary) and (ii) the thirtieth day after Prudential
shall have given to the Company, or the Company shall have given to Prudential,
a written notice stating that it elects to terminate the issuance and sale of
Shelf Notes pursuant to this Agreement (or if such thirtieth day is not a
Business Day, the Business Day next preceding such thirtieth day). The period
during which Shelf Notes may be issued and sold pursuant to this Agreement is
herein called the "ISSUANCE PERIOD".
2B(3). PERIODIC SPREAD INFORMATION. Not later than 9:30 A.M. (New
York City local time) on a Business Day during the Issuance Period if there is
an Available Facility Amount on such Business Day, the Company may request by
telecopier or telephone, and Prudential will, to the extent reasonably
practicable, provide to the Company on such Business Day (or, if such request is
received after 9:30 A.M. (New York City local time) on such Business Day, on the
following Business Day), information (by telecopier or telephone followed by
telecopier notice, if requested by the Company) with respect to various spreads
at which Prudential or Prudential Affiliates might be interested in purchasing
Shelf Notes of different average lives; provided, however, that the Company may
not make such requests more frequently than once in every five Business Days or
such other period as shall be mutually agreed to by the Company and Prudential.
The amount and content of information so provided shall be in the sole
discretion of Prudential but it is the intent of Prudential to provide
information which will be of use to the Company in determining whether to
initiate procedures for use of the Facility. Information so provided shall not
constitute an offer to purchase Shelf Notes, and neither Prudential nor any
Prudential Affiliate shall be obligated to purchase Shelf Notes at the spreads
specified. Information so provided shall be representative of potential interest
only for the period commencing on the day such information is provided and
ending on the earlier of the fifth Business Day after such day and the first day
after such day on which further spread information is provided. Prudential may
suspend or terminate providing information pursuant to this paragraph 2B(3) for
any reason, including its determination that the credit quality of the Company
has declined since the date of this Agreement and shall be required to provide
written notice to the Company as soon as practicable of its decision to suspend
or terminate providing information to the Company.
2B(4). REQUEST FOR PURCHASE. The Company may from time to time
during the Issuance Period make requests for purchases of Shelf Notes (each such
request being herein called a "REQUEST FOR PURCHASE"). Each Request for Purchase
shall be made to Prudential by telecopier or overnight delivery service, and
shall (i) specify the aggregate principal amount of Shelf Notes covered thereby,
which shall not be less than $5,000,000 and not be greater than the Available
Facility Amount at the time such Request for Purchase is made, (ii) specify the
principal amounts, final maturities, principal prepayment dates and amounts and
interest payment periods (quarterly or semi-annual in arrears) of the Shelf
Notes covered thereby, (iii) specify the use of proceeds of such Shelf Notes,
(iv) specify the proposed day for the closing of the purchase and sale of such
Shelf Notes, which shall be a Business Day during the Issuance Period not less
than 10 days and not more than 25 days after the making of such Request for
Purchase, (v) specify the number of the account and the name and address of the
depository institution to which the purchase prices of such Shelf Notes are to
be transferred on the Closing Day for such purchase and sale, (vi) certify that
the representations and warranties contained in paragraph 8 are true on and as
of the date of such Request for Purchase and that there exists on the date of
such Request for Purchase no Event of Default or Default and (vii) be
substantially in the form of
3
<PAGE> 9
Exhibit B attached hereto. Each Request for Purchase shall be in writing and
shall be deemed made when received by Prudential.
2B(5). RATE QUOTES. Not later than five Business Days after the
Company shall have given Prudential a Request for Purchase pursuant to paragraph
2B(4), Prudential may, but shall be under no obligation to, provide to the
Company by telephone or telecopier with oral confirmation of receipt by the
Company, in each case between 9:30 A.M. and 1:30 P.M. New York City local time
(or such later time as Prudential may elect) interest rate quotes for the
several principal amounts, maturities, principal prepayment schedules, and
interest payment periods of Shelf Notes specified in such Request for Purchase.
Each quote shall represent the interest rate per annum payable on the
outstanding principal balance of such Shelf Notes at which Prudential or a
Prudential Affiliate would be willing to purchase such Shelf Notes at 100% of
the principal amount thereof.
2B(6). ACCEPTANCE. Within 30 minutes after Prudential shall have
provided any interest rate quotes pursuant to paragraph 2B(5) or such shorter
period as Prudential may specify to the Company (such period herein called the
"ACCEPTANCE WINDOW"), the Company may, subject to paragraph 2B(7), elect to
accept such interest rate quotes as to not less than $5,000,000 aggregate
principal amount of the Shelf Notes specified in the related Request for
Purchase. Such election shall be made by an Authorized Officer of the Company
notifying Prudential by telecopier or telephone followed by telecopier notice,
if requested by the Company within the Acceptance Window that the Company elects
to accept such interest rate quotes, specifying the Shelf Notes (each such Shelf
Note being herein called an "ACCEPTED NOTE") as to which such acceptance (herein
called an "ACCEPTANCE") relates. The day the Company notifies an Acceptance with
respect to any Accepted Notes is herein called the "ACCEPTANCE DAY" for such
Accepted Notes. Any interest rate quotes as to which Prudential does not receive
an Acceptance within the Acceptance Window shall expire, and no purchase or sale
of Shelf Notes hereunder shall be made based on such expired interest rate
quotes. Subject to paragraph 2B(6) and the other terms and conditions hereof,
the Company agrees to sell to Prudential or a Prudential Affiliate, and
Prudential agrees to purchase, or to cause the purchase by a Prudential
Affiliate of, the Accepted Notes at 100% of the principal amount of such Notes.
As soon as practicable following the Acceptance Day, the Company, Prudential and
each Prudential Affiliate which is to purchase any such Accepted Notes will
execute a confirmation of such Acceptance substantially in the form of Exhibit C
attached hereto (herein called a "CONFIRMATION OF ACCEPTANCE"). If the Company
should fail to execute and return to Prudential within three Business Days
following receipt thereof a Confirmation of Acceptance with respect to any
Accepted Notes, Prudential may at its election at any time prior to its receipt
thereof cancel the closing with respect to such Accepted Notes by so notifying
the Company in writing.
2B(7). MARKET DISRUPTION. Notwithstanding the provisions of
paragraph 2B(6), if Prudential shall have provided interest rate quotes pursuant
to paragraph 2B(5) and thereafter prior to the time an Acceptance with respect
to such quotes shall have been notified to Prudential in accordance with
paragraph 2B(6) the domestic market for U.S. Treasury securities or derivatives
shall have closed or there shall have occurred a general suspension, material
limitation, or significant disruption of trading in securities generally on the
New York Stock Exchange or in the domestic market for U.S. Treasury securities
or derivatives, then such interest rate quotes shall expire, and no purchase or
sale of Shelf Notes hereunder shall be made based on such expired interest rate
quotes. If the Company thereafter notifies Prudential of the Acceptance of any
such interest rate quotes, such Acceptance shall be ineffective for all purposes
4
<PAGE> 10
of this Agreement, and Prudential shall promptly notify the Company in writing
that the provisions of this paragraph 2B(7) are applicable with respect to such
Acceptance.
2B(8). FACILITY CLOSINGS. Not later than 11:30 A.M. (New York City
local time) on the Closing Day for any Accepted Notes, the Company will deliver
to each Purchaser listed in the Confirmation of Acceptance relating thereto at
the offices of the Prudential Capital Group, One Gateway Center, 11th Floor,
Newark, NJ 07102-5311, the Accepted Notes to be purchased by such Purchaser in
the form of one or more Notes in authorized denominations as such Purchaser may
request for each Series of Accepted Notes to be purchased on the Closing Day,
dated the Closing Day and registered in such Purchaser's name (or in the name of
its nominee), against payment of the purchase price thereof by transfer of
immediately available funds for credit to the Company's account specified in the
Request for Purchase of such Notes. If the Company fails to tender to any
Purchaser the Accepted Notes to be purchased by such Purchaser on the scheduled
Closing Day for such Accepted Notes as provided above in this paragraph 2B(8),
or any of the conditions specified in paragraph 3 shall not have been fulfilled
by the time required on such scheduled Closing Day, the Company shall, prior to
1:00 P.M., New York City local time, on such scheduled Closing Day notify
Prudential (which notification shall be deemed received by each Purchaser) in
writing whether (i) such closing is to be rescheduled (such rescheduled date to
be a Business Day during the Issuance Period not less than one Business Day and
not more than 10 Business Days after such scheduled Closing Day (the
"RESCHEDULED CLOSING DAY") and certify to Prudential (which certification shall
be for the benefit of each Purchaser) that the Company reasonably believes that
it will be able to comply with the conditions set forth in paragraph 3 on such
Rescheduled Closing Day and that the Company will pay the Delayed Delivery Fee
in accordance with paragraph 2B(9)(iii) or (ii) such closing is to be canceled.
In the event that the Company shall fail to give such notice referred to in the
preceding sentence, Prudential (on behalf of each Purchaser) may at its
election, at any time after 1:00 P.M., New York City local time, on such
scheduled Closing Day, notify the Company in writing that such closing is to be
canceled. Notwithstanding anything to the contrary appearing in this Agreement,
the Company may elect to reschedule a closing with respect to any given Accepted
Notes on not more than one occasion, unless Prudential shall have otherwise
consented in writing.
2B(9). FEES.
2B(9)(i). FACILITY FEE. At the time of the execution and delivery of
this Agreement by the Company and Prudential, the Company will pay to Prudential
in immediately available funds a fee (herein called the "FACILITY FEE") in the
amount of $15,000.
2B(9)(ii). ISSUANCE FEE. The Company will pay to Prudential in
immediately available funds a fee (herein called the "ISSUANCE FEE") on each
Closing Day (other than the Series A Closing Day) in an amount equal to 0.15% of
the aggregate principal amount of Notes sold on such Closing Day.
2B(9)(iii). DELAYED DELIVERY FEE. If the closing of the purchase and
sale of any Accepted Note is delayed for any reason beyond the original Closing
Day for such Accepted Note, the Company will pay to Prudential (a) on the
Cancellation Date or actual closing date of such purchase and sale and (b) if
earlier, the next Business Day following 90 days after the Acceptance Day for
such Accepted Note and on each Business Day following 90 days after the prior
payment hereunder, a fee (herein called the "DELAYED DELIVERY FEE") calculated
as follows:
5
<PAGE> 11
(BEY - MMY) X DTS/360 X PA
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per
annum of such Accepted Note, "MMY" means Money Market Yield, i.e., the yield per
annum on a commercial paper investment of the highest quality selected by
Prudential on the date Prudential receives notice of the delay in the closing
for such Accepted Note having a maturity date or dates the same as, or closest
to, the Rescheduled Closing Day or Rescheduled Closing Days (a new alternative
investment being selected by Prudential each time such closing is delayed);
"DTS" means Days to Settlement, i.e., the number of actual days elapsed from and
including the original Closing Day with respect to such Accepted Note (in the
case of the first such payment with respect to such Accepted Note) or from and
including the date of the next preceding payment (in the case of any subsequent
delayed delivery fee payment with respect to such Accepted Note) to but
excluding the date of such payment; and "PA" means Principal Amount, i.e., the
principal amount of the Accepted Note for which such calculation is being made.
In no case shall the Delayed Delivery Fee be less than zero. Nothing contained
herein shall obligate any Purchaser to purchase any Accepted Note on any day
other than the Closing Day for such Accepted Note, as the same may be
rescheduled from time to time in compliance with paragraph 2B(8).
2B(9)(iv). CANCELLATION FEE. If the Company at any time notifies
Prudential in writing that the Company is canceling the closing of the purchase
and sale of any Accepted Note, or if Prudential notifies the Company in writing
under the circumstances set forth in the last sentence of paragraph 2B(6) or the
penultimate sentence of paragraph 2B(8) that the closing of the purchase and
sale of such Accepted Note is to be canceled, or if the closing of the purchase
and sale of such Accepted Note is not consummated on or prior to the last day of
the Issuance Period (the date of any such notification, or the last day of the
Issuance Period, as the case may be, being herein called the "CANCELLATION
DATE"), the Company will pay the Purchasers in immediately available funds an
amount (the "CANCELLATION FEE") calculated as follows:
PI X PA
where "PI" means Price Increase, i.e., the quotient (expressed in decimals)
obtained by dividing (a) the excess of the ask price (as determined by
Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the bid
price (as determined by Prudential) of the Hedge Treasury Notes(s) on the
Acceptance Day for such Accepted Note by (b) such bid price; and "PA" has the
meaning ascribed to it in paragraph 2B(9)(iii). The foregoing bid and ask prices
shall be as reported by Bridge Telerate (or, if such data for any reason ceases
to be available through Bridge Telerate, any publicly available source of
similar market data). Each price shall be based on a U.S. Treasury security
having a par value of $100.00 and shall be rounded to the second decimal place.
In no case shall the Cancellation Fee be less than zero.
3. CONDITIONS OF CLOSING. The obligation of any Purchaser to
purchase and pay for any Notes is subject to the satisfaction, on or before the
Closing Day for such Notes, of the following conditions:
3A. CERTAIN DOCUMENTS. Such Purchaser shall have received the
following, each dated the date of the applicable Closing Day:
(i) The Note(s) to be purchased by such Purchaser.
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(ii) Certified copies of the resolutions of the Board of Directors
of the Company authorizing the execution and delivery of this Agreement
and the issuance of the Notes, and of all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary and
one other officer of the Company certifying the names and true signatures
of the officers of the Company authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder.
(iv) Certified copies of the Certificate of Incorporation and
By-laws of the Company.
(v) A favorable opinion of Timothy F. Micho, Esq., General Counsel
of the Company and Paul, Weiss, Rifkind, Wharton & Garrison, special
counsel to the Company (or such other counsel designated by the Company
and acceptable to the Purchaser(s)) satisfactory to such Purchaser and
substantially in the form of Exhibits E-1(A) and (B) (in the case of the
Series A Notes) or Exhibits E-2(A) and (B) (in the case of any Shelf
Notes) attached hereto and as to such other matters as such Purchaser may
reasonably request. The Company hereby directs each such counsel to
deliver such opinion, agrees that the issuance and sale of any Notes will
constitute a reconfirmation of such direction, and understands and agrees
that each Purchaser receiving such an opinion will and is hereby
authorized to rely on such opinion.
(vi) A good standing certificate for the Company from the Secretary
of State of New York dated of a recent date and such other evidence of the
status of the Company as such Purchaser may reasonably request.
(vii) Certified copies of Requests for Information or Copies (Form
UCC-11) or equivalent reports listing all effective financing statements
which name the Company or any Subsidiary (under its present name and
previous names) as debtor and which are filed in the offices of the
Secretaries of State of New York, New Jersey and Florida, together with
copies of such financing statements.
(viii) Additional documents or certificates with respect to legal
matters or corporate or other proceedings related to the transactions
contemplated hereby as may be reasonably requested by such Purchaser.
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties contained in this Agreement and those otherwise made in writing
by or on behalf of the Company in connection with the transactions contemplated
by this Agreement shall be true on and as of such Closing Day; there shall exist
on such Closing Day no Event of Default or Default; the Company shall have
performed or complied with all matters required to be performed or complied with
by it hereunder; there shall have been no material adverse change in the
business, financial condition or operations of the Company and its Subsidiaries,
taken as a whole, since January 31, 1998; and the Company shall have delivered
to such Purchaser an Officer's Certificate, dated such Closing Day, to each such
effect.
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3C. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and
payment for the Notes to be purchased by such Purchaser on such Closing Day on
the terms and conditions herein provided (including the use of the proceeds of
such Notes by the Company) shall not violate any applicable law or governmental
regulation (including, without limitation, Section 5 of the Securities Act or
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
and shall not subject such Purchaser to any tax (other than income taxes payable
on the receipt of income), penalty, liability or, in the reasonable judgment of
such Purchaser, other onerous condition under or pursuant to any applicable law
or governmental regulation.
3D. APPROVALS AND CONSENTS. The Company shall have duly received all
material authorizations, consents, approvals, licenses, franchises, permits and
certificates by or of all United States federal, state and local governmental
authorities and any third parties necessary in connection with the transactions
contemplated hereby, including any consents required under the Credit Agreement,
and all thereof shall be in full force and effect on such Closing Day. Any
consents from the shareholders of the Company required to be obtained in
connection with the transactions contemplated herein shall have been obtained.
The Company shall have delivered an Officer's Certificate to such Purchaser,
dated such Closing Day, to such effect.
3E. PAYMENT OF FEES. The Company shall have paid to Prudential any
fees due it pursuant to or in connection with this Agreement, including any
Facility Fee due pursuant to paragraph 2B(9)(i), any Issuance Fee due pursuant
to paragraph 2B(9)(ii) and any Delayed Delivery Fee due pursuant to paragraph
2B(9)(iii).
3F. INSURANCE CERTIFICATE. On the Series A Closing Day, the Company
shall have delivered to Prudential the Officer's Certificate required by
paragraph 5E.
have delivered to Prudential the following:
3G. SUBSIDIARY GUARANTEE. On the Series A Closing Day, the
Company shall have delivered to Prudential the following:
(i) A Guarantee, substantially in the form of Exhibit D, duly
authorized and executed by its Subsidiary, SwissAm, Inc. ("SWISSAM"),
(ii) A certified copy of the resolutions of the Board of Directors
of SwissAm, authorizing the execution, delivery and performance of the
Guarantee and of all documents evidencing other necessary corporate action
and government approval, if any,
(iii) A certified copy of the Certificate of Incorporation and
By-Laws of SwissAm,
(iv) A certificate of the Secretary or an Assistant Secretary and
one other officer of SwissAm, certifying the names and true signatures of
the officers of SwissAm authorized to sign the Guarantee, and
(v) A favorable opinion of counsel to SwissAm, satisfactory to
Prudential and substantially in the form of paragraphs 3 and 6 of Exhibit
E-1(A).
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<PAGE> 14
4. PREPAYMENTS. The Series A Notes and any Shelf Notes shall be
subject to the required prepayments specified in paragraphs 4A and 4B and the
optional prepayments permitted by paragraph 4C. The Series A Notes and any Shelf
Notes may also be acquired or required to be purchased under the circumstances
set forth in paragraphs 4F and 4G. Any prepayment made by the Company pursuant
to any other provision of this paragraph 4 shall not reduce or otherwise affect
its obligation to make any required prepayment as specified in paragraph 4A or
4B.
4A. REQUIRED PREPAYMENTS OF SERIES A NOTES. Until the Series A Notes
shall be paid in full, the Company shall apply to the prepayment of the Series A
Notes, without Yield-Maintenance Amount, the sum of $5,000,000 on October 30, in
each of the years 2006 to 2009 inclusive, and such principal amounts of the
Series A Notes, together with interest thereon to the prepayment dates, shall
become due on such prepayment dates. The remaining unpaid principal amount of
the Series A Notes shall become due on the stated maturity date of the Series A
Notes.
4B. REQUIRED PREPAYMENTS OF SHELF NOTES. Each Series of Shelf Notes
shall be subject to required prepayment, if any, set forth in the Notes of such
Series.
4C. OPTIONAL PREPAYMENT. The Notes of each Series shall be subject
to prepayment, in whole or from time to time in part (in an amount of at least
$1,000,000 and any larger integral multiples of $100,000), at the option of the
Company, at 100% of the principal amount so prepaid plus interest accrued
thereon to the prepayment date and the Yield-Maintenance Amount, if any, with
respect to each such Note; provided, however, that if any such prepayment is
made with Disposition Proceeds as contemplated by subparagraph (iii) of the
second paragraph of the definition of "DESIGNATED APPLICATIONS", such prepayment
shall be made at par plus interest accrued thereon to the prepayment date.
4D. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder
of each Note to be prepaid irrevocable written notice of such prepayment not
less than 10 Business Days prior to the prepayment date, specifying such
prepayment date, the aggregate principal amount of the Notes, and of the Notes
held by such holder, to be prepaid on such date and stating that such prepayment
is to be made pursuant to paragraph 4C. Notice of prepayment having been given
as aforesaid, the principal amount of the Notes specified in such notice,
together with interest thereon to the prepayment date and together with the
Yield-Maintenance Amount, if any, herein provided, shall become due and payable
on such prepayment date. The Company shall, on or before the day on which it
gives written notice of any prepayment pursuant to paragraph 4C, give telephonic
notice or notice by facsimile machine of the principal amount of the Notes to be
prepaid and the prepayment date to each holder of Notes which shall have
designated a recipient of such notices in the Purchaser Schedule attached hereto
or the applicable Confirmation of Acceptance or by notice in writing to the
Company.
4E. APPLICATION OF PREPAYMENTS. Upon any partial prepayment of Notes
of any Series pursuant to paragraphs 4A, 4B or 4C, the principal amount to be
prepaid shall be applied pro rata to all outstanding Notes of such Series
(including for the purpose of this paragraph 4E only, all Notes prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or Affiliates other than by prepayment pursuant to paragraph
4A, 4B or 4C) according to the respective unpaid principal amounts thereof.
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<PAGE> 15
4F. RETIREMENT OF NOTES. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or
in part prior to their stated final maturity (other than by prepayment pursuant
to paragraph 4A, 4B or 4C by purchase pursuant to paragraph 4G or upon
acceleration of such final maturity pursuant to paragraph 7A), or purchase or
otherwise acquire, directly or indirectly, Notes of any Series held by any
holder unless the Company or such Subsidiary or Affiliate shall have offered to
prepay or otherwise retire or purchase or otherwise acquire, as the case may be,
the same proportion of the aggregate principal amount of Notes of such Series
held by each other holder of Notes of such Series at the time outstanding upon
the same terms and conditions.
4G. PURCHASES OF NOTES BY THE COMPANY. (a) At any time after the
occurrence of a Purchase Event and prior to the expiration of the later of (x)
90 days after receipt of an Event Notice (as defined below) relating thereto and
(y) 15 days after receipt of an Other Holder Notice (as defined below), any
holder of a Note may deliver a notice (a "PURCHASE NOTICE") to the Company (x)
stating that it is electing to exercise its right to require the purchase by the
Company pursuant to this paragraph 4G of any or all of the Notes then held by it
(which shall not exceed the Retirement Fraction applicable to such holder's
Notes) and (y) specifying the period (which shall be at least 10 Business Days)
during which such purchase shall occur (which period shall commence not earlier
than 15 Business Days after the date on which such holder shall have delivered
such Purchase Notice to the Company), and in any such event the Company, on a
date in such period specified by the Company (which shall be the first Business
Day therein if the Company shall not specify another date), shall purchase the
Note or Notes then held by such holder in the amount specified in such Purchase
Notice (which shall not exceed the Retirement Fraction applicable to such
holder's Notes), without recourse, representation or warranty (other than a
statement as to the holder's full right, title and interest free of any Lien or
adverse claim in such Note or Notes and the holder's authority to sell such Note
or Notes), and such holder shall sell such Note or Notes to the Company at a
price, payable in immediately available funds by wire transfer to the accounts
specified in paragraph 11A or to such other account in the United States as may
be specified in such notice, in an amount equal to the then outstanding
principal amount thereof, together with interest accrued on such principal
amount to the date of purchase. In the event the Company shall be in receipt of
a Purchase Notice from more than one holder of Notes, without having effectuated
the purchase of Notes required by any such Purchase Notice, specifying purchase
periods with an overlapping day or days, it shall purchase the Notes relating to
such Purchase Notices simultaneously on the earliest overlapping date specified
in such Purchase Notices.
(b) Promptly, and in any event within 5 Business Days following its
receipt thereof and at least 5 Business Days prior to the date on which the
Company intends to purchase any Notes pursuant to subparagraph (a) above (the
"PURCHASE DATE") pursuant thereto, the Company will deliver to each holder of a
Note a copy of each Purchase Notice received by it pursuant to subparagraph (a)
of this paragraph 4G (an "OTHER HOLDER NOTICE").
(c) The Company covenants that it will deliver to each holder of a
Note promptly, and in any event within 5 Business Days following the occurrence
thereof, a notice of the occurrence of a Purchase Event, together with a
statement of the date of occurrence of such Purchase Event and a reasonably
detailed description of the facts and circumstances underlying such occurrence
known to it, and which specifies the applicable Retirement Fraction and states
that the Company is obligated, upon receipt of a Purchase Notice described in
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subparagraph (a) of this paragraph 4G, to purchase Notes pursuant to
subparagraph (a) of this paragraph 4G (an "EVENT NOTICE").
4H. CANCELLATION OF NOTES. Any Notes acquired pursuant to paragraph
4F or purchased pursuant to paragraph 4G or prepaid pursuant to paragraphs 4A,
4B or 4C, or otherwise acquired by or on behalf of the Company or a Subsidiary,
shall be canceled and shall not be reissued and shall not be deemed to be
outstanding for any purpose of this Agreement. Any Note held by any Affiliate of
the Company shall not be deemed outstanding for the purpose of determining the
aggregate principal amount of Notes outstanding for purposes of determining
whether or not any specified percentage of holders of outstanding Notes have
given any consent or taken any other action hereunder.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will
deliver to each holder of any Note in duplicate:
(i) as soon as practicable and in any event within 75 days
after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, consolidated statements of
operations and consolidated statements of changes in shareholders'
equity and cash flows of (a) the Company and its Restricted
Subsidiaries, and (b) the Company and its Unrestricted Subsidiaries
for such quarterly period and, in the case of the second and third
quarterly periods, for the period from the beginning of the current
fiscal year to the end of such quarterly period, and a consolidated
balance sheet of (a) the Company and its Restricted Subsidiaries,
and (b) the Company and its Unrestricted Subsidiaries as at the end
of such quarterly period, setting forth in each case in comparative
form figures for the corresponding period in the preceding fiscal
year, all in reasonable detail and satisfactory in form to the
Required Holder(s) (the detail and form reflected in the quarterly
financial statements identified in paragraph 8B being deemed
satisfactory as to consolidated statements) and certified by an
authorized financial officer of the Company, subject to changes
resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 120 days
after the end of each fiscal year, consolidated and consolidating
statements of operations and consolidated statements of changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries for such year, and a consolidated and consolidating
balance sheet of the Company and its Subsidiaries as at the end of
such year, setting forth in each case in comparative form
corresponding consolidated figures from the preceding annual audit,
all in reasonable detail and satisfactory in form to the Required
Holder(s) (the detail and form reflected in the annual financial
statements identified in paragraph 8B(i) being deemed satisfactory
as to consolidated statements) and, as to the consolidated
statements, reported on by independent public accountants of
recognized national standing selected by the Company whose report
shall be without limitation as to the scope of the audit and
satisfactory in substance to the Required Holder(s) (the substance
set forth in the reports accompanying the aforesaid annual financial
statements being deemed satisfactory) and, as to the
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consolidating statements, certified by an authorized financial
officer of the Company;
(iii) promptly upon transmission thereof, (a) copies of all
such financial statements, proxy statements, notices and reports as
it shall send to its public shareholders, (b) copies of all
registration statements (without exhibits) and all reports which it
publicly files with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the
Securities and Exchange Commission) (including, without limitation,
reports on Form 10-K and Form 10-Q not later than the date on which
the same are required to be filed) and (c) copies of all press
releases;
(iv) promptly upon receipt thereof and if such holder is a
Significant Holder, a copy of each other report submitted to the
Company or any Subsidiary by independent accountants in connection
with any annual, interim or special audit made by them of the books
of the Company or any Subsidiary which constitutes a "significant
subsidiary" within the meaning of Regulation S-X of the Securities
and Exchange Commission (including management letters submitted to
the board of directors of the Company or any such Subsidiary); and
(v) with reasonable promptness and if such holder is a
Significant Holder, such other information with respect to the
business, finances and affairs of the Company and its Subsidiaries
as such Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each holder of any Notes an Officer's
Certificate (a) demonstrating (with computations in reasonable detail)
compliance by the Company and its Subsidiaries with the provisions of paragraphs
6A, 6B, 6C, 6D, 6F and 6I, (b) specifying the circumstances of any designation
of Restricted Subsidiaries pursuant to paragraph 6K within the preceding fiscal
quarter, (c) containing a list of all reports, certificates and other
informational materials then being furnished to its lenders under any credit
agreement or loan agreement, (d) stating that there exists no Event of Default
or Default, or, if any Event of Default or Default exists, specifying the nature
and period of existence thereof and what action the Company has taken or
proposes to take with respect thereto and (e) if any of the Subsidiaries
included in such statements shall not be Restricted Subsidiaries, specifying the
adjustments which are necessary to permit the holders of the Notes to confirm
the foregoing calculations. Together with each delivery of financial statements
required by clause (ii) above, the Company will deliver to each record holder of
any Note (x) the Officer's Certificate required pursuant to paragraph 5E, and
(y) a certificate of the accountants referred to in said clause (ii) above
stating that, in making the audit necessary for their report on such financial
statements, they have obtained no knowledge of any Event of Default or Default,
or, if they have obtained knowledge of any Event of Default or Default,
specifying the nature and period of existence thereof. Such accountants,
however, shall not be liable to anyone by reason of their failure to obtain
knowledge of any Event of Default or Default, which Event of Default or Default
would not normally be disclosed or discovered in the course of an audit
conducted in accordance with generally accepted auditing standards. The Company
also covenants that promptly after any Responsible Officer obtains actual
knowledge that any existing state of facts or circumstances constitutes an Event
of Default or Default (and in any event within 5 Business Days of obtaining such
knowledge), it
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will deliver to each holder of any Note an Officer's Certificate specifying the
nature and period of existence thereof and what action the Company has taken or
proposes to take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it
will, upon the request of the holder of any Note, provide such holder, and any
qualified institutional buyer permitted to purchase any Note under the terms of
this Agreement designated by such holder, such financial and other information
as such holder may reasonably determine to be necessary in order to permit
compliance with the information requirements of Rule 144A under the Securities
Act in connection with the resale of Notes, except at such times as the Company
is subject to the reporting requirements of section 13 or 15(d) of the Exchange
Act. For the purpose of this paragraph 5B, the term "qualified institutional
buyer" shall have the meaning specified in Rule 144A under the Securities Act.
5C. INSPECTION OF PROPERTY; BOOKS AND RECORDS. The Company covenants
that it will permit any Person designated in writing by any Significant Holder,
at the Company's expense while an Event of Default is continuing and otherwise
at such Significant Holder's expense, to visit and inspect any of the properties
of the Company and its Restricted Subsidiaries, to examine the corporate books
and financial records of the Company and its Restricted Subsidiaries and make
copies thereof or extracts therefrom and to discuss the affairs, finances and
accounts of any of such corporations with the principal officers thereof or with
its independent public accountants (and by this provision the Company hereby
agrees that it will make such officers available for any such discussion and
authorizes such accountants to discuss such matters with such Person), all at
such reasonable times, upon reasonable notice, and as often as such Significant
Holder may reasonably request. The Company will maintain or cause to be
maintained the books of record and account of the Company and its Subsidiaries
in good order in accordance with sound business and financial practice and its
financial statements (including those required to be delivered pursuant to
paragraph 5A) prepared in accordance with generally accepted accounting
principles.
5D. MAINTENANCE OF PROPERTIES. The Company will maintain or cause to
be maintained in good repair, working order and condition all properties used in
or necessary for the operation of the business of the Company and its Restricted
Subsidiaries (ordinary wear and tear excepted) and from time to time will make
or cause to be made all reasonable repairs, renewals and replacements thereof,
all to the extent material to the business and operations of the Company and its
Restricted Subsidiaries taken as a whole. The Company will procure and maintain
in full force and effect all franchises, certificates, licenses, permits and
other authorizations from governmental political subdivisions or regulatory
authorities and all patents, trademarks, service marks, trade names, copyrights,
licenses and other rights, in each case that are necessary in any material
respect for the ownership, maintenance and operation of the business and
operations of the Company and its Restricted Subsidiaries taken as a whole.
5E. MAINTENANCE OF INSURANCE. The Company covenants that it and each
of its Restricted Subsidiaries will maintain with financially sound and
reputable insurers insurance against fire, explosion, hazards insured against by
extended coverage and liability for other hazards and risks, and insurance
against liability to Persons and for property damage, all to the extent and in
the manner as is customarily maintained by other companies of established
reputation operating comparable or similar businesses, and, on the Closing Date
and together
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with each delivery of financial statements under clause (ii) of paragraph 5A, it
will deliver an Officer's Certificate setting forth a summary schedule of such
insurance in effect.
5F. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company will, and will
cause each of its Subsidiaries and each of its Affiliates that are controlled by
the Company or its Subsidiaries to, comply with, or operate pursuant to valid
waivers of, applicable Environmental Laws and Environmental Permits, including,
without limitation, to the extent required by applicable Environmental Laws or
Environmental Permits, conducting, on a timely basis, periodic tests and
monitoring for contamination of ground water, surface water, air and land and
for biological toxicity and completing proper, thorough and effective clean-up,
removal, remediation and/or restoration, except to the extent that failure so to
comply with any Environmental Law or Environmental Permit does not have a
material adverse effect on the business, financial condition or operations of
the Company and its Restricted Subsidiaries, taken as a whole, and, except that,
with respect to any testing, monitoring, clean-up, removal, remediation or other
such action required pursuant to such law or permits, neither the Company nor
any of its Subsidiaries or Affiliates shall be required to perform any such
action if the applicability or validity thereof is being contested in good faith
by appropriate proceedings and adequate reserves have been established in
accordance with generally accepted accounting principles.
5G. ERISA NOTICES. The Company covenants that it shall deliver to
each Significant Holder, promptly upon the Company or its Subsidiaries or any of
their respective ERISA Affiliates:
(i) giving or being required to give notice to the PBGC of any
"reportable event" (as defined in section 4043 of ERISA) with respect to
any Plan which might constitute grounds for a termination of such Plan
under Title IV of ERISA by the PBGC, or becoming aware that any plan
administrator of any Plan has given or is required to give notice of any
such "reportable event", a copy of the notice of such reportable event
given or which should have been given to the PBGC;
(ii) receiving notice of the Company's or an ERISA Affiliate's
complete or partial withdrawal from a Multiemployer Plan under Title IV of
ERISA, or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice;
(iii) receiving notice from the PBGC under Title IV of ERISA of its
intent to terminate, impose liability (other than for premiums under
section 4007 of ERISA) in respect of, or appoint a trustee to administer
any Plan, a copy of such notice;
(iv) applying for a waiver of the minimum funding standard under
section 412 of the Code, a copy of such application;
(v) giving notice to the PBGC of intent to terminate any Plan under
section 4041(c) of ERISA, a copy of such notice and other information
filed with the PBGC;
(vi) giving notice to the PBGC of withdrawal from any Plan pursuant
to section 4063 of ERISA, a copy of such notice; or
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(vii) failing to make any required payment or required contribution
to any Plan or Multiemployer Plan or making any amendment to any Plan
which has resulted in the posting of a bond or other security, a
certificate of the chief financial officer or the chief accounting officer
of the Company setting forth details as to such occurrence and the action,
if any, which the Company is required to take.
5H. PAYMENT OF TAXES AND CLAIMS. The Company will pay or discharge,
or cause to be paid or discharged, before the same shall become delinquent (a)
all taxes, assessments and governmental charges (including claims of the IRS and
the PBGC and claims made at the insistence of the PBGC) levied or imposed upon
it or any ERISA Affiliate or any Code Affiliate or upon its or their income,
profits or property, (b) all lawful claims for labor, materials and supplies,
which, if unpaid, might by law become a Lien upon its or its Subsidiaries,
properties, and (c) all required installments under section 412(m) of the Code
and all other required payments under section 412 of the Code with respect to
any Plan maintained by the Company or any ERISA Affiliate; provided, however,
that, in the case of clause (a) and (b) above, the Company shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim, the applicability or validity of which is being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established in accordance with generally accepted accounting principles.
5I. CORPORATE EXISTENCE, ETC. Subject to the provisions of paragraph
6F, the Company will at all times preserve and keep in full force and effect its
and its Restricted Subsidiaries, corporate existence, and will qualify, and
cause each of its Restricted Subsidiaries to qualify, to do business in any
jurisdiction where the failure to do so would have a material adverse effect on
the business, financial condition or operations of the Company and its
Restricted Subsidiaries taken as a whole.
5J. COMPLIANCE WITH LAWS, ETC. The Company will comply and cause its
Subsidiaries to comply with the requirements of all applicable laws, rules,
regulations and judicial or administrative orders and judgments of any court or
governmental authority (including those relating to environmental protection,
employee benefits and welfare and employee safety), the noncompliance with which
would materially adversely affect the business, financial condition or
operations of the Company and its Restricted Subsidiaries taken as a whole.
5K. COVENANT TO SECURE NOTES EQUALLY.
5K(1). The Company covenants that if it or any Restricted Subsidiary
shall create or assume any Lien upon any of its property or assets, whether now
owned or hereafter acquired, other than Liens permitted by the provisions of
paragraph 6B (unless prior written consent to the creation or assumption thereof
shall have been obtained pursuant to paragraph 11C), it will make or cause to be
made effective provision satisfactory in form and substance to the Required
Holder(s) (including, without limitation, opinions of counsel relating thereto)
whereby the Notes will be secured by such Lien equally and ratably with any and
all other Debt thereby secured so long as any such other Debt shall be so
secured. Securing the Notes as provided in this paragraph 5K(1) shall not permit
the existence of any Lien not permitted by paragraph 6B.
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5K(2). The Company covenants that if at any time after the date of
this Agreement any Restricted Subsidiary guarantees or provides collateral in
any manner for any Indebtedness of the Company under the Credit Agreement, it
will simultaneously cause such Restricted Subsidiary to guarantee or provide
such collateral for the Notes equally and ratably with all Indebtedness
guaranteed or secured by such Restricted Subsidiary for so long as such
Indebtedness is guaranteed and pursuant to a guarantee substantially in the form
of Exhibit D hereto, together with an opinion of counsel substantially in the
form of paragraphs 3 and 6 of Exhibit E-1(A) hereto. Upon the execution and
delivery of such guarantee, such Restricted Subsidiary shall become a Subsidiary
Guarantor.
5L. COVENANT TO MAINTAIN BUSINESS. The Company covenants that the
Company and its Restricted Subsidiaries taken as a whole will engage primarily
in the Core Business.
6. NEGATIVE COVENANTS.
6A. MAINTENANCE OF CONSOLIDATED NET WORTH. The Company covenants
that it will not at the end of any fiscal quarter permit Consolidated Net Worth
to be less than the sum of (i) $115,000,000 and (ii) the Incremental Net Worth
Amount. As of any date of determination the "INCREMENTAL NET WORTH AMOUNT" shall
be an amount equal to the sum of 25% of Consolidated Net Income for all fiscal
years of the Company preceding or ending on such date of determination
(beginning with the fiscal year which began on February 1, 1998) in which
Consolidated Net Income is a positive number, but excluding Consolidated Net
Income for the first 6 months of the fiscal year ending February 1, 1999.
6B. LIMITATIONS ON LIENS. The Company covenants that neither it nor
any of its Restricted Subsidiaries will create, assume or suffer to exist any
Lien upon any of its Property or assets (including, without limitation, any
capital stock of a Restricted Subsidiary owned by the Company or any
Subsidiary), whether now owned or hereafter acquired and whether or not
provision is made for equally and ratably securing the Notes as provided in
paragraph 5K; provided, however, that the foregoing restriction and limitation
shall not apply to the following Liens:
(i) Liens for taxes, assessments or governmental charges or
levies not yet delinquent or which are being contested in good faith
by appropriate proceedings for which adequate reserves have been
established in accordance with, and as permitted by, paragraph 5H;
(ii) Liens imposed by law, such as carriers', landlords',
warehousemen's and mechanics' liens and other similar liens arising
in the ordinary course of business which secure payment of
obligations not more than 60 days past due or which are being
contested in good faith by appropriate proceedings as permitted by
paragraph 5H; Liens (other than ERISA Liens) arising out of pledges
or deposits under worker's compensation laws, unemployment
insurance, old age pensions, or other social security or retirement
benefits, or similar legislation; servitudes, easements,
rights-of-way, restrictions, minor defects or irregularities in
title and such other encumbrances or charges against real property
as are of a nature generally existing with respect to properties of
a similar character and which do not in any material way affect the
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marketability of the same or interfere in any material way with the
use thereof in the business of the Company or its Restricted
Subsidiaries; and other Liens incidental to the conduct of the
Company's or any Restricted Subsidiary's business, or the ownership
of the Company's or its Restricted Subsidiaries' Property, provided,
that, in each case, such Liens (a) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit
(other than vendors, liens in respect of current accounts payable
not overdue and extended in the ordinary course of business) or the
payment of a deferred purchase price and (b) do not in the aggregate
materially detract from the value of the Property of the Company and
its Restricted Subsidiaries taken as a whole, or materially impair
the use thereof in the operation of the business of the Company and
its Restricted Subsidiaries taken as a whole;
(iii) Liens on property or assets of a Restricted Subsidiary
to secure obligations of such Restricted Subsidiary to the Company
or to a Wholly-owned Restricted Subsidiary;
(iv) subject to compliance with paragraph 6D, (a) Capitalized
Leases and (b) Liens (other than Liens permitted by clause (iii)
above) on Property existing at the time of acquisition or placed on
Property being acquired or constructed to secure the purchase price
or cost thereof or Debt incurred to finance such purchase or
construction, provided, that (w) in the case of any Lien on Property
existing at the time of acquisition, such Lien was not created in
contemplation of such acquisition, (x) the principal amount of the
Debt secured by such Lien shall not exceed the lesser of (1) the
cost of the Property subject thereto or (2) the fair market value of
such Property, (y) such Lien is confined to the Property so acquired
or constructed and (z) no Default or Event of Default shall exist or
result therefrom;
(v) Capitalized Leases and Liens existing on the date of this
Agreement securing Debt or securing certain other obligations as
described in Schedule 6B; and
(vi) other Liens (including any renewal or extension of any
Lien permitted under the preceding clauses (iv) and (v) if such Lien
is not extended to other Property), provided, that, after incurrence
of the Debt secured by such Lien, (y) Adjusted Priority Debt shall
not exceed 20% of Consolidated Total Capitalization and (z) no
Default or Event of Default shall exist or result therefrom.
6C. LIMITATIONS ON DEBT. The Company covenants that it will not, and
will not permit any of its Restricted Subsidiaries to, create, incur, assume or
otherwise become or be liable with respect to any Debt (collectively referred to
herein as an "incurrence" or "to incur" such Debt, all Debt of a Person existing
at the time it shall become a Restricted Subsidiary being deemed incurred as of
that time and all Debt owing by the Company or any Restricted Subsidiary to any
other Restricted Subsidiary being deemed to be incurred at the time such "other
Restricted Subsidiary" shall cease to be a Restricted Subsidiary as defined
herein), except:
(i) Debt represented by the Notes and the 1993 Notes;
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<PAGE> 23
(ii) Debt of any Restricted Subsidiary owing to the
Company or to a Restricted Subsidiary;
(iii) Current Debt of the Company or a Restricted Subsidiary
(subject to the limitations of paragraph 6D), provided no such
Current Debt shall be permitted to exist on any day after the date
hereof unless either
(A) there shall have been a period of at least 30
consecutive days in the preceding period of 15 consecutive
calendar months (a "CURRENT DEBT COMPUTATION PERIOD") when the
aggregate amount of Consolidated Current Debt outstanding on
such date shall not have exceeded $20,000,000 at any time
during such Current Debt Computation Period (a "CLEAN DOWN
PERIOD"), or
(B) the aggregate amount of Consolidated Funded Debt and
Excess Current Debt shall not exceed 55% of the sum of
Consolidated Total Capitalization and Excess Current Debt; and
(iv) other Funded Debt of the Company or a Restricted
Subsidiary (subject to the limitations of paragraph 6D) if at the
time of incurrence thereof and after giving effect thereto and to
the application of the proceeds thereof the aggregate amount of
Consolidated Funded Debt and Excess Current Debt shall not exceed
the sum of 55% of Consolidated Total Capitalization and Excess
Current Debt.
6D. LIMITATIONS ON PRIORITY DEBT. The Company covenants that it will
not permit, at any time, Priority Debt to exceed 20% of Consolidated Total
Capitalization.
6E. MERGER, CONSOLIDATION, SALE OR TRANSFER OF ASSETS. The Company
covenants that it will not, and will not permit any of its Restricted
Subsidiaries to, be a party to any merger, amalgamation, consolidation,
reorganization, reconstruction or arrangement with any other Person or sell,
lease or transfer or otherwise dispose of all or substantially all of its assets
to any Person, except that:
(i) subject to the provisions of clause (iv) below, as
applicable, any Subsidiary may merge or consolidate with the Company
or any one or more Wholly-owned Restricted Subsidiaries;
(ii) subject to the provisions of clause (iv) below, as
applicable, any Restricted Subsidiary or the Company may sell,
lease, transfer or otherwise dispose of any of its assets to the
Company or to any Wholly-owned Restricted Subsidiary, whether by
dissolution, liquidation or otherwise;
(iii) any Restricted Subsidiary may merge or consolidate with,
or sell, lease, transfer or otherwise dispose of all or
substantially all of its assets to, any other Person subject to the
provisions of paragraph 6F and paragraph 6G; and
(iv) the Company may merge or consolidate or amalgamate with
any other corporation, or enter into a plan of arrangement, or sell,
transfer, or otherwise dispose of all or substantially all of its
assets, provided that the
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Company shall be the continuing or surviving corporation, or the
continuing, surviving or acquiring corporation shall be a
corporation organized under the laws of any State of the United
States, the District of Columbia or Canada or a province thereof or,
subject to written consent by each holder of a Note that is subject
to limitations on foreign investments, under the laws of another
foreign jurisdiction or any local governmental authority which shall
expressly assume in writing (in an instrument satisfactory in form
and substance to the Required Holder(s)) all of the obligations of
the Company under this Agreement and the Notes;
provided, that at the time of such merger, consolidation, sale, transfer or
disposition and after giving effect thereto there shall exist no Default or
Event of Default; and provided, further, that in the case of the transactions
described in clause (iv) above, (a) the Company or the continuing, surviving or
acquiring corporation, as the case may be, could incur an additional $1 of
Funded Debt pursuant to the provisions of paragraph 6C(iv), (b) if such
continuing, surviving or acquiring corporation is a corporation organized under
the laws of Canada, the United Kingdom, Switzerland or any local governmental
authority of any of the aforesaid jurisdictions, provision satisfactory to the
Required Holder(s) shall be made in respect of any tax issues arising out of
such transaction, and (c) the Company shall have delivered to the holders of the
Notes an opinion of counsel satisfactory to the Required Holder(s) and an
Officer's Certificate each to the effect that the foregoing provisions have been
complied with.
6F. SALES OF ASSETS. The Company covenants that it will not, and
will not permit any of its Restricted Subsidiaries to, Dispose of its Property
(including, without limitation, subject to compliance with paragraphs 6G and 6I
as applicable, shares of capital stock of a Restricted Subsidiary and Property
Disposed of pursuant to a Sale and Lease-back Transaction) except:
(i) sales of inventory in the ordinary course of business;
(ii) if no Default or Event of Default exists following
such Disposition
(a) Dispositions from any Restricted Subsidiary to
the Company or any other Restricted Subsidiary; and
(b) Dispositions of Property with an Asset Percentage
Value, when combined with the Asset Percentage Value of any
other Property Disposed pursuant to this clause (b) during the
preceding four consecutive fiscal quarters of the Company, of
not more than 10% and for consideration representing the fair
market value of such Property at the time of such Disposition,
provided, that, any such Disposition or portion thereof shall
be excluded from the aforesaid Asset Percentage Value test if
either (x) the Disposition Proceeds arising from such
Disposition are applied immediately after receipt thereof to
one or more of the Designated Applications, or (y) an amount
equal to the Disposition Proceeds shall be available to the
Company from binding commitments (subject to no conditions
which the Company is unable to meet) from responsible
financial institutions pending application within a period of
not more than 180 days to one or more of the Designated
Applications; and
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provided, further that to the extent that the entire Disposition
Proceeds in respect of any Disposition are applied only partially to
the foregoing purposes, such Disposition shall be disregarded for
purposes of determining such Asset Percentage Value to the extent of
such application; and
(iii) any transaction involving the Company described in and
permitted pursuant to the provisions of paragraph 6E.
6G. DISPOSITION OF SUBSIDIARY STOCK. The Company covenants that it
will not, and will not permit any of its Restricted Subsidiaries to, issue, sell
or otherwise dispose of, or part with control of, any shares of capital stock of
any class of any Restricted Subsidiary, except to the Company or a Wholly-owned
Restricted Subsidiary (other than director's qualifying shares required by law),
and except that, subject in all events to the provisions of paragraph 6F, all
shares of capital stock of any Restricted Subsidiary at the time owned by the
Company and all Restricted Subsidiaries may be sold as an entirety for a
consideration which represents the fair value (as determined in good faith by
the Board of Directors) at the time of sale of the shares of capital stock so
sold, provided that at the time of such sale, such Restricted Subsidiary shall
not own, directly or indirectly, any shares of capital stock of any other
Restricted Subsidiary (unless all of the shares of stock of such other
Restricted Subsidiary owned, directly or indirectly, by the Company and all
Restricted Subsidiaries are simultaneously being sold as permitted by this
paragraph 6G).
6H. LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER
DISTRIBUTIONS. The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any of such
Restricted Subsidiaries (in any way which is material to the Company and its
Restricted Subsidiaries considered as a whole) to (i) pay dividends or make any
other distributions on its capital stock or any other interest or participation
in its profits owned by the Company or any of its Restricted Subsidiaries, or
pay any Debt owed by any of the Company's Restricted Subsidiaries to the Company
or to any other Restricted Subsidiary, (ii) make loans or advances to the
Company or to any other Restricted Subsidiary or (iii) transfer any of its
properties or assets to the Company or to any other Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of
applicable law, this Agreement, and those encumbrances or restrictions
identified in Schedule 6H.
6I. SALE AND LEASE-BACK TRANSACTIONS. The Company covenants that it
will not, and will not permit any of its Restricted Subsidiaries to, enter into
any Sale and Lease-Back Transaction with respect to any Property of the Company
or any Restricted Subsidiary ("SUBJECT PROPERTY"), whether such Subject Property
is now owned or hereafter acquired, unless no Default or Event of Default is
then existing, the Disposition Proceeds are received in cash and
(i) if the lease resulting from such Sale and Lease-back
Transaction is not a Capitalized Lease, such Disposition is
permitted under the terms of paragraph 6F, or
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<PAGE> 26
(ii) if the lease resulting from such Sale and Lease-back
Transaction is a Capitalized Lease, the terms of paragraphs 6C and
6D (substituting solely for purposes of this clause (ii) the term
"Adjusted Priority Debt" for "Priority Debt" in paragraph 6D) are
satisfied.
6J. TRANSACTIONS WITH AFFILIATES. Other than between or among
the Company and its Wholly-owned Restricted Subsidiaries, the Company
covenants that it will not, and will not permit any Restricted Subsidiary to,
directly or indirectly,
(i) Dispose of any Property to any Affiliate,
(ii) merge or consolidate with, or purchase, acquire or lease
any Property from any Affiliate, or
(iii) otherwise deal with, in the ordinary course of business
or otherwise, any Affiliate, except (1) any Affiliate who is a
natural person may serve as an employee or director of the Company
or any Restricted Subsidiary and receive reasonable compensation for
his or her services in such capacity, (2) in transactions (other
than those identified in clause (iii) above) which are pursuant to
the reasonable requirements of the Company's Core Business and which
are on no less favorable terms to the Company or such Restricted
Subsidiary than would be the case with a similar transaction with an
unaffiliated Person negotiated at arm's length and (3) those
transactions described in Schedule 6J.
6K. SUBSIDIARIES. The Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary by furnishing to each holder of a Note an
Officer's Certificate as provided in paragraph 5A; provided that no such
designation shall be made if, after giving effect thereto, a Default or Event of
Default shall exist and the Company could not incur an additional $1 of Funded
Debt pursuant to the provisions of paragraph 6C(iv). No Unrestricted Subsidiary
shall own any shares of capital stock of any Restricted Subsidiary. All
Investments, Debt, Liens, Guarantees and other obligations which any
Unrestricted Subsidiary (the "SUBJECT SUBSIDIARY") may have, or be liable for,
shall be deemed made or incurred immediately after the time the Subject
Subsidiary shall become a Restricted Subsidiary of the Company. Dispositions by
the Company or a Restricted Subsidiary of any Debt of the Company or of any
other Restricted Subsidiary to any Person other than the Company or a Restricted
Subsidiary shall be deemed an incurrence of such Debt at the date of disposition
thereof.
7. DEFAULTS; REMEDIES.
7A. EVENTS OF DEFAULT. If any of the following events shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults (x) in the payment of any principal
of or Yield-Maintenance Amount in respect of any Note when the same
shall become due, either by the terms thereof or otherwise as herein
provided, or (y) in the performance of its obligation to purchase
any Note as provided in paragraph 4G; or
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(ii) the Company defaults in the payment of any interest on
any Note for a period of 5 Business Days after the same shall become
due; or
(iii) the Company or any Restricted Subsidiary defaults
(whether as primary obligor or as guarantor or as surety) in any
payment of principal of or interest on any other Debt Obligation for
money borrowed, any Capitalized Lease Obligation, any Debt
Obligation under a conditional sale or other title retention
agreement, any Debt Obligation issued or assumed as full or partial
payment for property whether or not secured by a purchase money
mortgage, or any Debt Obligation under notes payable or drafts
accepted representing extensions of credit (any of the foregoing
being herein called a "PAYMENT DEFAULT") beyond any period of grace
provided with respect thereto; or the Company or any Restricted
Subsidiary fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such Debt
Obligation is created (or if any other event thereunder or under any
such agreement shall occur and be continuing) and the effect of such
failure or other event is to cause, or to permit the holder or
holders of such Debt Obligation (or a trustee on behalf of such
holder or holders) at such time to cause, such Debt Obligation to
become due (or to be purchased by the Company or any Restricted
Subsidiary) prior to any stated maturity; provided, that the
aggregate amount of all Debt Obligations as to which such a Payment
Default shall occur and be continuing or such a failure or other
event causing or permitting acceleration (or repurchase by the
Company or any Restricted Subsidiary) shall occur and be continuing
exceeds $5,000,000 (or the equivalent amount in any foreign
currency); or
(iv) any representation or warranty made by the Company herein
or by the Company or any of its officers in any writing furnished in
connection with or pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(v) the Company fails to perform or observe any agreement
contained in the last sentence of paragraph 5A, in paragraph 5I with
respect to the Company's corporate existence or in paragraph 6 and,
in the case of paragraph 6, if such failure is capable of remedy
within 30 days, such failure shall continue unremedied for a period
of 30 days after the earlier of (x) notice thereof from the holder
of any Note and (y) the date any Responsible Officer obtains actual
knowledge thereof; or
(vi) the Company fails to perform or observe any other
agreement, term or condition contained herein, and any such failure
described in this clause (vi) shall continue unremedied for a period
of 30 days after the earlier of (x) notice thereof from the holder
of any Note and (y) the date any Responsible Officer obtains actual
knowledge thereof; or
(vii) the Company or any Significant Subsidiary Group makes a
general assignment for the benefit of creditors or admits in writing
its inability to pay its debts as such debts become due or ceases or
threatens to cease carrying on its business permanently; or
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(viii) any decree or order for relief in respect of the
Company or any Significant Subsidiary Group is entered under any
bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, composition, dissolution, winding up or
liquidation or other similar law, whether now or hereafter in effect
(herein called the "BANKRUPTCY LAW"), of any jurisdiction; or
(ix) the Company or any member of a Significant Subsidiary
Group petitions or applies to any tribunal for, or consents to, the
appointment of, or taking possession by, a trustee, receiver,
custodian, liquidator or similar official of the Company or any
Significant Subsidiary Group, or of any substantial part of the
assets of the Company or any Significant Subsidiary Group, or
commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings (other than proceedings for the voluntary
liquidation and dissolution of a Subsidiary) relating to the Company
or any Significant Subsidiary Group under the Bankruptcy Law of any
other jurisdiction or takes any corporate action to authorize any of
the actions described in this clause (ix); or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Significant
Subsidiary Group and the Company or any Subsidiary by any act
indicates its or their approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect
for more than 30 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or an encumbrancer takes possession
of, or a receiver or receiver manager is appointed over, all or
substantially all of the assets and the revenues of the Company; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Restricted Subsidiary
decreeing a split-up of the Company or such Restricted Subsidiary
which requires the divestiture of assets representing a substantial
part, or the divestiture of the stock of a Restricted Subsidiary
whose assets represent a substantial part, of the consolidated
assets of the Company and its Restricted Subsidiaries (determined in
accordance with generally accepted accounting principles) or which
requires the divestiture of assets, or stock of a Restricted
Subsidiary, which shall have contributed a substantial part of the
Consolidated Net Income of the Company and its Restricted
Subsidiaries (determined in accordance with generally accepted
accounting principles) for any of the three fiscal years then most
recently ended, and such order, judgment or decree remains unstayed
and in effect for more than 90 days; or
(xiii) a final judgment or judgments for the payment of money
aggregating in excess of $1,500,000 (or the equivalent amount in any
foreign
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<PAGE> 29
currency) are rendered against one or more of the Company and its
Restricted Subsidiaries and which judgments are not, within 90 days
after entry thereof, bonded, discharged or stayed pending appeal, or
are not discharged within 90 days after the expiration of any such
stay; or
(xiv) any "reportable event" as such term is defined in
section 4043 of ERISA occurs in connection with any Plan or trust
created thereunder for which the thirty day notice requirement has
not been waived under applicable regulations, or any event occurs
requiring the Company or any ERISA Affiliate to provide security to
a Plan under section 401(a)(29) of the Code; any "prohibited
transaction" occurs, as such term is defined in section 4975 of the
Code or in section 406 of ERISA, in connection with any Plan or any
trust created thereunder; any notice of intent to terminate a Plan
or Plans is filed under section 4041(c) of ERISA by the Company or
any ERISA Affiliate, any Plan administrator or any combination of
the foregoing; any proceedings are instituted by the PBGC to
terminate or to cause a trustee to be appointed to administer any
Plan; any partial or complete withdrawal is made by the Company or
an ERISA Affiliate from any Multiemployer Plan; any proceedings are
instituted by a fiduciary of any Plan against the Company or any
Code Affiliate to enforce section 515 of ERISA and such proceeding
shall not have been dismissed within 30 days thereafter; the Company
or a Code Affiliate fails to make a required installment under
section 412(m) of the Code or to pay any amount to the PBGC or to a
Plan under Title IV of ERISA on or before the due date; any
application is filed by the Company or a Code Affiliate for a waiver
of the minimum funding standard under section 412 of the Code or
section 302 of ERISA; or any "reorganization" (as defined in section
418 of the Code or Title IV ERISA) of any Plan which is a
Multiemployer Plan occurs; and each such instance individually, or
any two or more such instances in the aggregate, would result in
liability of the Company or any Code Affiliate or ERISA Affiliate to
the IRS, the PBGC or a Plan in an aggregate amount exceeding
$1,000,000; or
(xv) any Subsidiary Guaranty shall at any time after its
execution and delivery and for any reason cease to be in full force
and effect or shall be declared null and void, or the validity or
enforceability thereof shall be contested by any Subsidiary
Guarantor or any Subsidiary Guarantor shall deny it has any further
liability or obligation under its Subsidiary Guaranty or shall fail
to perform its obligations thereunder;
then (a) if such event is an Event of Default specified in clauses (viii), (ix)
or (x) of this paragraph 7A with respect to the Company, all of the Notes at the
time outstanding shall automatically become immediately due and payable at the
principal amount thereof together with interest accrued thereon without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company and (b) if such event is any other Event of Default, the
Required Holder(s) of the Notes of any Series may, at its or their option and in
addition to any right, power or remedy permitted by law or equity, by notice in
writing to the Company, declare all of the Notes of such Series to be, and all
of the Notes of such Series shall thereupon be and become, immediately due and
payable at the principal amount thereof, together with interest accrued thereon
and together with the Yield-Maintenance Amount, if any, with respect to each
Note of such Series, without presentment, demand, protest or other notice of any
kind,
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all of which are hereby waived by the Company; provided, that the Yield
Maintenance Amount, if any, with respect to each Note shall be due and payable
upon any such declaration only if (x) such event is an Event of Default
specified in any of clauses (i) to (vi), inclusive, or clauses (xi) to (xiv),
inclusive, of this paragraph 7A, (y) the holder or holders referred to in clause
(b) of this paragraph 7A shall have given to the Company, at least 10 Business
Days before such declaration, written notice stating its or their intention so
to declare such Notes to be immediately due and payable and identifying one or
more such Events of Default whose occurrence on or before the date of such
notice permits such declaration and (z) one or more of the Events of Default so
identified shall be continuing at the time of such declaration.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the
Notes of any Series shall have been declared immediately due and payable
pursuant to paragraph 7A, the Required Holder(s) of the Notes of such Series
may, by notice in writing to the Company, rescind and annul such declaration and
its consequences if (i) the Company shall have paid all overdue interest on the
Notes of such Series, the principal of and Yield-Maintenance Amount, if any,
payable with respect to any Notes of such Series which have become due otherwise
than by reason of such declaration, and interest on such overdue interest and
overdue principal and Yield-Maintenance Amount at the rate specified in the
Notes of such Series, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due as a consequence of such declaration. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note of any
Series shall be declared immediately due and payable pursuant to paragraph 7A or
any such declaration shall be rescinded and annulled pursuant to paragraph 7B,
the Company shall forthwith give written notice thereof to the holder of each
Note of such Series at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur
and be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company
represents, covenants and warrants as follows:
8A. ORGANIZATION; AUTHORITY; ENFORCEABILITY. Each of the Company and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to
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own and operate its properties and to carry on its business and, in the case of
the Company, to enter into and perform all of its obligations under this
Agreement and the Notes and to issue and sell the Notes and, in the case of each
Subsidiary Guarantor, to enter into and perform all of its obligations under its
Subsidiary Guarantee. Each of the Company and its Subsidiaries is duly licensed
or qualified to do business as a foreign corporation in each state where the
failure to be so licensed or qualified would have a material adverse effect on
the business, financial condition or operations of the Company and its
Subsidiaries taken as a whole and has all corporate power, licenses, franchises
and other governmental authorizations and approvals necessary to carry on its
present business, with respect to which the failure to possess would have a
material adverse effect on the business, financial condition or operations of
the Company and its Subsidiaries taken as a whole. Schedule 8A includes a
correct list as to each of the Company's Subsidiaries on the date hereof (i) its
name, (ii) the jurisdiction of its incorporation, (iii) its capital stock issued
and outstanding and the holders by percentage of that stock and (v)) whether it
is a Domestic or Foreign Subsidiary. This Agreement and each Subsidiary
Guarantee are, and the Notes when issued and delivered hereunder will be, legal,
valid, binding and enforceable obligations of the Company or such Subsidiary
Guarantor, as the case may be, except to the extent that such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors, rights generally and by
general equitable principles (regardless of whether enforcement is sought in
equity or at law).
8B. BUSINESS; FINANCIAL STATEMENTS. The Company has furnished each
Purchaser of any Notes with the audited consolidated and consolidating balance
sheets of the Company and Subsidiaries at January 31, 1997 and 1998 and the
related consolidated and consolidating statements of income and cash flows and
changes in shareholders' equity for each of the years in the three year period
ended January 31, 1998, all reported on by Price Waterhouse LLP or its
successor, PriceWaterhouseCooper; and the unaudited consolidated balance sheets
of the Company and Subsidiaries at July 31, 1998 and the related consolidated
and consolidating statements of income and cash flows and changes in
shareholders' equity for the six months ended July 31, 1998 and 1997. The
financial statements referred to in this subparagraph (i) are herein
collectively referred to as the "HISTORICAL FINANCIAL STATEMENTS."
The Historical Financial Statements (including any related schedules
and/or notes) are true and correct in all material respects (subject, as to
interim statements, to changes resulting from audits and year-end adjustments)
and fairly present the consolidated financial position and the consolidated
results of the operations and consolidated cash flows of the corporations
described therein at the dates and for the periods shown, all in conformity with
generally accepted accounting principles applied on a consistent basis (except
as otherwise stated therein or in the notes thereto stated) throughout the
periods involved. None of the Company and its Subsidiaries has any contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments which are
substantial and material in amount in relation to the consolidated financial
condition of the Company, except as referred to or reflected or provided for in
the Historical Financial Statements. Since January 31, 1998, (i) there has been
no change in the assets, liabilities or condition (financial or otherwise) of
the Company or any of its Subsidiaries, other than changes which have not been,
either in any case or in the aggregate, materially adverse to the Company and
its Subsidiaries taken as a whole and (ii) neither the business, operations,
affairs nor any of the Properties or assets of the Company or any of its
Subsidiaries have been affected by any occurrence or development (whether or not
insured against) which
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has been, either in any case or in the aggregate, materially adverse to the
Company and its Subsidiaries taken as a whole.
8C. ACTIONS PENDING. There is no action or proceeding pending or (to
the best knowledge of the Company) threatened or (to the best knowledge of the
Company) investigation pending or threatened which questions the validity or
legality of or seeks damages in connection with this Agreement or any Subsidiary
Guarantee or any action taken or to be taken pursuant to this Agreement or any
Subsidiary Guarantee, and, except as set forth in Schedule 8C, there is no
action or proceeding pending or (to the best knowledge of the Company)
threatened or (to the best knowledge of the Company) investigation pending or
threatened which could reasonably be expected to result in any material adverse
change in the business, financial condition or operations of the Company and its
Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. Neither the Company nor any of its
Subsidiaries has outstanding any Debt except as permitted by paragraphs 6C and
6D. Schedule 8D correctly describes all secured and unsecured Debt of the
Company and its Subsidiaries outstanding, or for which the Company or any of its
Subsidiaries have commitments, on the date of this Agreement, and identifies the
collateral, if any, securing such Debt. There exists no default or temporary
waiver of default under the provisions of any instrument evidencing such Debt or
of any agreement relating thereto.
8E. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company
nor its Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
the business, operations or financial condition of the Company and its
Subsidiaries taken as a whole. Neither the execution nor delivery of this
Agreement, each Subsidiary Guarantee or the Notes hereunder, nor the offering,
issuance and sale of the Notes hereunder, nor fulfillment or any compliance with
the terms and provisions hereof and thereof will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
or result in any violation of, or result in the creation of any Lien upon any of
the properties or assets of the Company or any of its Subsidiaries pursuant to,
the charter or by-laws of the Company or any of its Subsidiaries, as the case
may be, any agreement (including any agreement with shareholders), instrument,
order, judgment, decree or arbitrator's award, or any statute, law, rule or
regulation, to which the Company or any of its Subsidiaries or their respective
properties is subject. The Company is not a party to, or otherwise subject to,
any contract or agreement (including its charter) which limits the amounts of,
or otherwise imposes restrictions on the incurring of, indebtedness of the type
to be evidenced by the Notes except as set forth in the agreements listed in
Schedule 8E, and the Company has received all consents necessary with respect to
such agreements in connection with the consummation of the transactions
contemplated hereby.
8F. TITLE TO PROPERTIES. The Company has and each of its
Subsidiaries has (all to the extent material to the Company and its Subsidiaries
taken as a whole) good and marketable title to its respective real properties
(other than properties which it leases) and good title (or leasehold rights) to
all of its other respective material properties and assets, including the
properties and assets reflected in the consolidated balance sheet as at January
31, 1998 referred to in paragraph 8B (other than properties and assets disposed
of in the ordinary course of business or as set forth in Schedule 8F), subject
to no Lien of any kind except Liens not prohibited by paragraph 6B. All leases
necessary in any material respect for the conduct of the
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respective businesses of the Company and its Subsidiaries are valid and
subsisting and are in full force and effect.
8G. PATENTS, LICENSES, FRANCHISES, ETC. The Company and its
Subsidiaries possess all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities and, all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary in any material respect for the ownership, maintenance and
operation of the properties and assets, as presently conducted, of the Company
and its Subsidiaries taken as a whole and neither the Company nor any of its
Subsidiaries is in violation of any thereof in any material respect. No event
has occurred which permits, or after notice or lapse of time (except expiration
of the stated term thereof), or both, would permit, the revocation or
termination of any such franchise, license, authorization or other right so as
to affect adversely in any material respect the business, financial condition or
operations of the Company and its Subsidiaries taken as a whole. All such
franchises, permits, licenses and other authorizations have been validly issued
or granted to the Company or a Subsidiary, and each such franchise, permit,
license or other authorization is valid and subsisting, in each case to the
extent necessary in any material respect for the conduct of the respective
businesses of the Company and its Subsidiaries taken as a whole. The Company and
its Subsidiaries are operating their respective businesses in material
compliance with the terms and conditions of such franchises, permits, licenses
and other authorizations and are in material compliance with all applicable
statutes, laws, rules and regulations, all to the extent material to the
business of the Company and its Subsidiaries taken as a whole.
8H. TAXES. The Company has and each of its Subsidiaries has filed all
federal, state and other income tax returns (and to the best of the Company's
knowledge all other tax returns) which are required to be filed, and each has
paid all income taxes (and to the best of its knowledge all other material
taxes) as shown on such returns and on all assessments received by it to the
extent that such taxes have become due, except such taxes as are being contested
in good faith by appropriate proceedings for which adequate reserves have been
established in accordance with generally accepted accounting principles, and the
Company has no knowledge of any basis for any further material assessment to the
Company and its Subsidiaries taken as a whole that has not been adequately so
provided for on the books of the Company.
8I. OFFERING OF NOTES. Neither the Company nor any agent acting on
its behalf has, directly or indirectly, offered the Notes or any similar
security of the Company for sale to, or solicited any offers to buy the Notes or
any similar security of the Company from, or otherwise approached or negotiated
with respect thereto with, any Person other than Prudential and not more than 10
other "qualified institutional buyers" as such term is defined in Rule 144A
under the Securities Act, and neither the Company nor any agent acting on its
behalf has taken or will take any action which would subject the issuance or
sale of the Notes hereunder to the provisions of section 5 of the Securities Act
or to the registration provisions of any securities or Blue Sky law of any
applicable jurisdiction.
8J. REGULATION U, ETC. Neither the Company nor any Subsidiary owns or
has any present intention of acquiring any "margin stock" as defined in
Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve
System (herein called "MARGIN STOCK"), exceeding in value 5% of Consolidated Net
Worth. None of the proceeds of the
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issuance of any Notes will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying any margin
stock, or for the purpose of maintaining, reducing or retiring any indebtedness
which was originally incurred to purchase or carry any stock that is currently a
margin stock and in any such case which will constitute this transaction a
violation of such Regulation U. Neither the Company nor any agent acting on its
behalf has taken or will take any action which might cause this Agreement or the
Notes to violate Regulation T, Regulation U, Regulation X or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
Section 7 of the Exchange Act, in each case as in effect now or as the same may
hereafter be in effect.
8K. ERISA. (a) No accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived, exists
with respect to any Plan (other than a Multiemployer Plan). No liability to the
PBGC has been or is expected by the Company or any ERISA Affiliate to be
incurred with respect to any Plan (other than a Multiemployer Plan) by the
Company, any Subsidiary or any ERISA Affiliate which is or would be materially
adverse to the business, financial condition or operations of the Company and
its Subsidiaries, taken as a whole. Neither the Company, nor any Subsidiary nor
any ERISA Affiliate has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan which
is or would be materially adverse to the business, financial condition or
operations of the Company and its Subsidiaries, taken as a whole.
(b) Neither the Company nor any of its Subsidiaries has breached the
fiduciary rules of ERISA or engaged in any prohibited transaction in connection
with which the Company or any of its Subsidiaries or ERISA Affiliates could be
subjected to (in the case of any such breach) a suit for damages or (in the case
of any such prohibited transaction) with a civil penalty assessed under section
502(i) of ERISA or a tax imposed by section 4975 of the Code, which suit,
penalty or tax, in any case, would be materially adverse to the business,
financial condition or operations of the Company and its Subsidiaries, taken as
a whole. Assuming the accuracy of each Purchaser's representations in paragraph
9B, the execution and delivery of this Agreement and the issuance and sale of
the Notes will be exempt from, or will not involve any transaction which is
subject to, the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
(c) There has been no reportable event (within the meaning of
section 4043(b) of ERISA) or any other event or condition with respect to any
Plan (other than a Multiemployer Plan) which presents a risk of termination of
any such Plan by the PBGC under circumstances which in any case could result in
liability which would be materially adverse to the business, financial condition
or operations of the Company and its Subsidiaries, taken as a whole.
(d) Except as described in Schedule 8K, the present value of all
vested accrued benefits under all Plans (other than Multiemployer Plans),
determined as of the end of the Company's most recently ended fiscal year on the
basis of reasonable actuarial assumptions, did not exceed the current value of
the assets of such Plans allocable to such vested accrued benefits. The terms
"present value", "current value", and "accrued benefit" have the meanings
specified in section 3 of ERISA.
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(e) Neither the Company nor any of its Subsidiaries is or has ever
been obligated to contribute to any Multiemployer Plan.
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8L. ENVIRONMENTAL COMPLIANCE. To the best knowledge of any
Responsible Environmental Officer, (i) the Company and its Subsidiaries have
complied at all times and in all respects with all applicable Environmental Laws
and all administrative orders, judgments, rulings and regulations relating to
protection of the Environment, except, in any such case, where failure to comply
would not result in a material adverse effect on the business, financial
condition or operations of the Company and its Subsidiaries, taken as a whole,
and (ii) neither the Company nor any of its Subsidiaries nor any other person or
entity for whose conduct either the Company or any Subsidiary is responsible,
are reasonably expected to have any liability, under any applicable
Environmental Laws, which, either in any case or in the aggregate, would be
materially adverse to the business, financial condition or operations of the
Company and its Subsidiaries, taken as a whole. Without limiting the foregoing,
except as described in Schedule 8L, no Responsible Environmental Officer has any
knowledge of the Release or Threat of Release of any Hazardous Material on, in,
under, or in the vicinity of the any of the properties owned, leased or operated
by the Company or any of its Subsidiaries that may be required to be remediated
under any applicable Environmental Law. No Lien has been imposed on any of the
properties owned or operated by the Company or any of its Subsidiaries by any
governmental agency at the federal, state, or local level in connection with the
presence on or off such property of any Hazardous Material, except as described
in Schedule 8L. Except as described in Schedule 8L, to the best knowledge of any
Responsible Environmental Officer, neither the Company nor any Subsidiary nor
any other person or entity for whose conduct either the Company or any
Subsidiary is responsible, has in the previous five years: (i) entered into or
been subject to any consent decree, compliance order, or administrative order
under any applicable Environmental Laws with respect to any of the properties
owned, leased or operated by the Company or any of its Subsidiaries or any
facilities or improvements or any operations or activities thereon, (ii)
received notice under the citizen suit provision of any applicable Environmental
Law in connection with any of the properties owned, leased or operated by the
Company or any of its Subsidiaries or any facilities or improvements or
operations or activities thereon; (iii) received any request for information,
written notice, demand letter, administrative inquiry, or formal or informal
complaint or claim with respect to environmental matters relating to any of the
properties owned or operated by the Company or any Subsidiary or any facilities
or improvements or operations or activities thereon that required or will
require any environmental investigation, environmental site assessment,
corrective action or environmental remediation; or (iv) been subject to or
threatened with any governmental or citizen enforcement action under any
applicable Environmental Laws with respect to any of the properties owned,
leased or operated by the Company or any of its Subsidiaries or any facilities
or improvements or operations or activities thereon. To the best knowledge of
any Responsible Environmental Officer, except as described in Schedule 8L,
neither the Company nor any of its Subsidiaries has any reason to believe that
any of the above will be forthcoming, the effect of which would have a material
adverse effect on the business, financial condition or operations of the Company
and its Subsidiaries, taken as a whole. The Company and its Subsidiaries have
all Environmental Permits necessary for all facilities, operations, activities,
improvements, and alterations, including past or ongoing improvements or
alterations, at the properties owned or operated by the Company or any of its
Subsidiaries, except where the failure to have such permits would not have a
material adverse effect on the business, financial condition or operations of
the Company and its Subsidiaries, taken as a whole.
8M. PROCEEDS OF FINANCING. The proceeds of the issuance of the
Series A Notes will be used for general corporate purposes.
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8N. GOVERNMENTAL CONSENT. Neither the nature of the Company or of
any Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
other action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the date of closing with the
Securities and Exchange Commission and/or state Blue Sky authorities) in
connection with the execution and delivery of this Agreement, the offering,
issuance, sale or delivery of the Notes or fulfillment of or compliance with the
terms and provisions hereof or of the Notes.
8O. COMPLIANCE; DEFAULT. The Company and its Subsidiaries and all of
their respective properties and facilities have complied at all times and in all
respects with all contractual obligations and all federal, state, local and
regional statutes, laws, ordinances and judicial or administrative orders,
judgments, rulings and regulations (including those relating to protection of
the environment) except where failure to comply, in the aggregate, would not
result in a material adverse effect on the business, financial condition or
operations of the Company and its Subsidiaries taken as a whole. No Default or
Event of Default exists as of the date hereof.
8P. INVESTMENT COMPANY ACT. The Company is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
8Q. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
8R. FOREIGN ASSETS CONTROL REGULATIONS. None of the transactions
contemplated by this Agreement (including the use of proceeds of the sale of the
Notes) will result in a violation of any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended), or any ruling issued thereunder or any enabling
legislation or Presidential Executive Order granting authority therefor.
8S. DISCLOSURE. Neither this Agreement nor any other document,
certificate or written statement furnished to any Purchaser by or on behalf of
the Company in connection herewith (including, without limitation, the
Historical Financial Statements and the Memorandum when read together and taken
as a whole but excluding the Projections) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which they were made, not misleading. There is no fact peculiar to the Company
or any of its Subsidiaries which materially adversely affects or in the future
may (so far as the Company can now reasonably foresee) materially adversely
affect the business, financial condition or operations of the Company and its
Subsidiaries taken as a whole, and which HAS not been set forth in this
Agreement or in the Historical Financial Statements.
8T. HOSTILE TENDER OFFERS. None of the proceeds of the sale of
any Notes will be used to finance a Hostile Tender Offer.
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8U. YEAR 2000. The Company has reviewed the areas within its
business and operations which could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications, as well as embedded
microchips in non-computing devices, used or manufactured by the Company may be
unable to recognize and perform date-sensitive functions involving certain dates
prior to and any date after December 31, 1999). The Company has developed or is
developing programs to address its "Year 2000 Problem" on a timely basis. Based
on such review and programs, the Company reasonably believes based on current
information that its "Year 2000 Problem" will not have a material adverse effect
on the business, financial condition or operations of the Company and its
Subsidiaries taken as a whole.
9. REPRESENTATIONS OF THE PURCHASER. Each Purchaser represents as
follows:
9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes to
be purchased by it hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act, provided that the
disposition of the Purchaser's property shall at all times be and remain within
its control.
9B. SOURCE OF FUNDS. No part of the funds being used by such
Purchaser to pay the purchase price of the Notes being purchased by such
Purchaser hereunder constitutes assets allocated to any separate account
maintained by such Purchaser. For the purpose of this paragraph 9B, the term
"separate account" shall have the meaning specified in section 3 of ERISA.
10. DEFINITIONS AND ACCOUNTING MATTERS. For the purpose of this
Agreement, as used herein, the terms defined in paragraphs 10A and 10B (or
within the text of any other paragraph) shall have the respective meanings
specified therein and all accounting matters shall be subject to determination
as provided in paragraph 10C.
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to paragraph 4C or is
declared to be immediately due and payable pursuant to paragraph 7A, as the
context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal
of any Note, 0.50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the Business Day preceding
the Settlement Date with respect to such Called Principal, on the display
designated as "Page 678" on Bridge Telerate (or such other display as may
replace Page 678 on Bridge Telerate) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement
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Date, or (ii) if such yields shall not be reported as of such time or the yields
reported as of such time shall not be ascertainable, the Treasury Constant
Maturity Series yields reported, for the latest day for which such yields shall
have been so reported as of the Business Day preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release H.15
(519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between yields reported for various
maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the
Called Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid pursuant
to paragraph 4C or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, a
premium equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (ii)
interest accrued thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
10B. OTHER DEFINED TERMS.
"1993 NOTES" shall mean the $40,000,000 original principal amount of
6.56% Senior Notes due 2005 issued by the Company to Prudential on November 9,
1993.
"ACCEPTANCE" shall have the meaning specified in paragraph 2B(6).
"ACCEPTANCE DAY" shall have the meaning specified in paragraph
2B(6).
"ACCEPTANCE WINDOW" shall have the meaning specified in paragraph
2B(6).
"ACCEPTED NOTE" shall have the meaning specified in paragraph
2B(6).
"ADJUSTED PRIORITY DEBT" shall mean, without duplication, the sum
of: (i) all Priority Debt, (ii) all Debt of the Company or a Restricted
Subsidiary secured by a Lien permitted by clause (iv) or (vi) of paragraph 6B,
and (iii) all Attributable Debt.
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"AFFILIATE" shall mean any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, the Company, (ii) which beneficially owns or holds five
percent (5%) or more of any class of the Voting Stock of the Company, (iii) five
percent (5%) or more of the Voting Stock (or in the case of a person which is
not a corporation, five percent (5%) or more of the voting equity interest) or
five percent (5%) of the ownership interests (other than limited partnership
interests) of which is beneficially owned or held by the Company and/or one or
more Subsidiaries or (iv) who is a director or an officer of the Company or a
Subsidiary. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"ASSET PERCENTAGE VALUE" of any assets in connection with any
Disposition shall mean the percentage that the value of such assets (taken at
the higher of book value or the fair market value thereof as determined in good
faith by the Board of Directors of the Company) represents of the sum of (i)
Consolidated Total Assets and (ii) the excess, if any, of such assets' fair
market value over book value, as of the end of the fiscal quarter of the Company
immediately preceding the date of such Disposition.
"ASSET SALE ALLOCATION NOTICE" and "ASSET SALE RETIREMENT AMOUNT,"
shall have the respective meanings specified in the definition of "Designated
Applications."
"ATTRIBUTABLE DEBT" shall mean (i) in respect of any Sale and
Lease-Back Transaction which involves a Capitalized Lease, as of the time of
determination, the greater of (a) the fair market value of the Subject Property
and (b) the total obligation (discounted to present value at the rate of
interest implicit in the lease included in such transaction) of the lessee for
rental payments (other than amounts required to be paid on account of property
taxes as well as maintenance, repairs, insurance, assessments, utilities,
operating and labor costs and other items which do not constitute payments for
property rights) during the remaining portion of the remaining term (including
extensions which are at the option of the lessor) of the lease included in such
transaction (in the case of any lease which is terminable by the lessee upon the
payment of a penalty, such rental obligation shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated) and (ii)
the average amount of Receivables outstanding from time to time that have been
sold by the Company or any of its Restricted Subsidiaries under any Asset
Securitization Program ("SUBJECT RECEIVABLES") multiplied by the Receivables
Fraction. The Receivables Fraction shall be a fraction the denominator of which
is 100% and the numerator of which is equal to (x) the percentage of Subject
Receivables as to which there is recourse to the Company or a Restricted
Subsidiary and/or (y) the percentage interest of the Company and its Restricted
Subsidiaries in the Subject Receivables. As used in this definition and in the
definition of Attributable Debt, "ASSET SECURITIZATION PROGRAM" shall mean an
agreement or a series of agreements entered into by the Company or any of its
Restricted Subsidiaries providing for the sale of Receivables of the Company or
any of its Restricted Subsidiaries, and "RECEIVABLES" shall mean any accounts,
contract rights and other forms of obligation for the payment of money arising
from the sale of goods or other rendering of services by the Company or any of
its Restricted Subsidiaries, including those outstanding under any Asset
Securitization Program of the Company or any of its Restricted Subsidiaries.
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"AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its
chief executive officer, its chief financial officer, any vice president of the
Company designated as an "Authorized Officer" of the Company in the Information
Schedule attached hereto or any vice president of the Company designated as an
"Authorized Officer" of the Company for the purpose of this Agreement in an
Officer's Certificate executed by the Company's chief executive officer or chief
financial officer and delivered to Prudential, and (ii) in the case of
Prudential, any officer of Prudential designated as its "Authorized Officer" in
the Information Schedule or any officer of Prudential designated as its
"Authorized Officer" for the purpose of this Agreement in a certificate executed
by one of its Authorized Officers. Any action taken under this Agreement on
behalf of the Company by any individual who on or after the date of this
Agreement shall have been an Authorized Officer of the Company and whom
Prudential in good faith believes to be an Authorized Officer of the Company at
the time of such action shall be binding on the Company even though such
individual shall have ceased to be an Authorized Officer of the Company, and any
action taken under this Agreement on behalf of Prudential by any individual who
on or after the date of this Agreement shall have been an Authorized Officer of
Prudential and whom the Company in good faith believes to be an Authorized
Officer of Prudential at the time of such action shall be binding on Prudential
even though such individual shall have ceased to be an Authorized Officer of
Prudential.
"AVAILABLE FACILITY AMOUNT" shall have the meaning specified in
paragraph 2B(1).
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii)
of paragraph 7A.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or a
Sunday, (ii) a day on which commercial banks in New York City are required or
authorized to be closed, and (iii) for purposes of paragraph 2B(3) only, a day
on which Prudential is not open for business.
"CANCELLATION DATE" shall have the meaning specified in paragraph
2B(9)(iv).
"CANCELLATION FEE" shall have the meaning specified in paragraph
2B(9)(iv).
"CAPITAL STOCK" shall mean any and all shares of corporate stock
of the Company.
"CAPITALIZED LEASE" shall mean any lease under which the obligation
to make rental payments thereunder constitutes a Capitalized Lease Obligation.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation
which, under generally accepted accounting principles, would be required to be
capitalized on the books of the Company or any Restricted Subsidiary, in each
case taken at the amount thereof accounted for as indebtedness (net of interest
expense) in accordance with such principles.
"CLEAN DOWN PERIOD" shall have the meaning specified in paragraph
6C(iii).
"CLOSING" shall have the meaning specified in paragraph 2.
"CLOSING DAY" shall mean, with respect to the Series A Notes, the
Series A Closing Day and, with respect to any Accepted Note, the Business Day
specified for the closing of
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the purchase and sale of such Accepted Note in the Request for Purchase of such
Accepted Note, provided that (i) if the Company and the Purchaser which is
obligated to purchase such Accepted Note agree on an earlier Business Day for
such closing, the "CLOSING DAY" for such Accepted Note shall be such earlier
Business Day, and (ii) if the closing of the purchase and sale of such Accepted
Note is rescheduled pursuant to paragraph 2B(8), the Closing Day for such
Accepted Note, for all purposes of this Agreement except references to "original
Closing Day" in paragraph 2B(9)(iii), shall mean the Rescheduled Closing Day
with respect to such Accepted Note.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations and rulings promulgated thereunder.
"CODE AFFILIATE" shall mean each Person which together with the
Company or any of its Subsidiaries is treated as a "single employer" under
subsection (b), (c), (m) or (o) of section 414 of the Code.
"CONFIRMATION OF ACCEPTANCE" shall have the meaning specified in
paragraph 2B(6).
"CONSOLIDATED CURRENT DEBT" as of any date shall mean the aggregate
amount of Current Debt of the Company and its Restricted Subsidiaries (excluding
Debt permitted by clause (ii) of paragraph 6C) outstanding on that date.
"CONSOLIDATED FUNDED DEBT" as of any date shall mean the aggregate
amount of Funded Debt of the Company and its Restricted Subsidiaries (excluding
Debt permitted by clause (ii) of paragraph 6C) outstanding on that date.
"CONSOLIDATED NET INCOME" of the Company for any period means the
consolidated net income (loss) of the Company and its Subsidiaries for such
period, all determined in accordance with generally accepted accounting
principles consistently applied and after provisions for minority interests, but
not including in the computation of the foregoing any of the following:
(i) extraordinary gains or extraordinary losses;
(ii) net income or loss of any Person (other than a Restricted
Subsidiary) in which the Company or a Restricted Subsidiary has an
ownership interest unless, in the case of net income, such net income has
actually been received thereafter in cash by the Company or a Restricted
Subsidiary;
(iii) any portion of the net income of any Restricted Subsidiary
which for any reason is unavailable to pay dividends to the Company or any
Restricted Subsidiary by reason of legal or contractual restrictions;
(iv) any aggregate net gain (in excess of any net losses) exceeding
$200,000 in any fiscal year arising from the sale, exchange or other
disposition of capital assets (such term to include all fixed assets,
whether tangible or intangible, all inventory sold in conjunction with the
disposition of fixed assets, and all securities);
(v) any write-up of any asset;
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(vi) any gain or loss arising from the acquisition of any securities
of the Company or its Restricted Subsidiaries;
(vii) net income or gain (net of any loss) resulting from
discontinuing or disposing of operations, or prior period adjustments; and
(viii) the income (or loss) of any Person accrued prior to the date
it becomes a Restricted Subsidiary.
"CONSOLIDATED NET WORTH" as of any date shall mean shareholders'
equity of the Company and its Restricted Subsidiaries as computed as of that
date in accordance with generally accepted accounting principles, but in any
event not including shareholders' equity in respect of Unrestricted Subsidiaries
at that date or any "comprehensive income adjustment" as the same would
otherwise be reflected therein.
"CONSOLIDATED TOTAL ASSETS" at any date means the consolidated total
assets of the Company and its Restricted Subsidiaries as would be shown on a
consolidated balance sheet of the Company and its Restricted Subsidiaries
prepared as of such date in accordance with generally accepted accounting
principles.
"CONSOLIDATED TOTAL CAPITALIZATION" as of any date shall mean the
sum of (x) Consolidated Funded Debt as of that date (less any Guarantees of Debt
of Persons other than the Company or a Restricted Subsidiary included therein),
(y) Consolidated Net Worth as of the end of the immediately preceding fiscal
quarter and (z) deferred taxes properly recorded on the books of the Company and
its Restricted Subsidiaries as of the end of the immediately preceding fiscal
quarter.
"CORE BUSINESS" shall mean the business of designing, manufacturing
and distributing watches, jewelry and other accessories, other businesses
reasonably related thereto or businesses that in the judgment of the board of
directors of the Company are derived from the exploitation by the Company of its
trademarks.
"CREDIT AGREEMENT" shall mean the Amended and Restated Credit
Agreement dated as of July 23, 1997 among the Company, the Lenders signatory
thereto and The Chase Manhattan Bank as Agent, as Swingline Bank and as Issuing
Bank and Fleet Bank, N.A., as Co-Agent, as amended and any substitute or
successor agreement.
"CURRENT DEBT" shall mean without duplication any Debt Obligation
(other than Funded Debt) payable on demand or within a period of one year from
the date of determination thereof; provided that any obligation shall be treated
as Funded Debt regardless of its term, if such obligation is, directly or
indirectly, renewable or extendible by the debtor pursuant to the terms thereof
or of a revolving credit or similar agreement for a period that lasts beyond the
date that is more than one year from the date of determination.
"CURRENT DEBT COMPUTATION PERIOD" shall have the meaning specified
in paragraph 6C(iii).
"DEBT" shall mean Funded Debt and/or Current Debt.
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"DEBT OBLIGATION" of any Person as of any date shall mean and
include without duplication (i) all indebtedness for money borrowed or evidenced
by notes, bonds, debentures or similar evidences of indebtedness of such Person,
(ii) all monies raised by or on behalf of such Person pursuant to any acceptance
credit or any discounted bills of exchange, (iii) Capitalized Lease Obligations
of such Person, (iv) indebtedness of such Person representing the deferred and
unpaid purchase price of any property or business or services, excluding (A)
trade payables constituting current liabilities, (B) current accounts payable
and current accrued liabilities incurred in the ordinary course of business and
(C) rental obligations arising from a lease that is not a Capitalized Lease, (v)
obligations of such Person in respect of reimbursement obligations under letters
of credit which have been drawn upon, other than letters of credit issued to
support trade payables, (vi) any obligation secured by a Lien on, or payable out
of the proceeds of production from, property of such Person, even though such
obligation shall not be assumed by such Person, (vii) all Attributable Debt of
such Person and (viii) all Guarantees by such Person (x) of obligations of
others similar to those listed in clauses (i) through (vii) above or (y) to the
transferee of any assets sold or otherwise disposed of that such assets will
have a certain minimum value to the transferee. In any case in which the maximum
amount of any Guarantee of a Debt Obligation cannot be determined by the
provisions of the instrument or agreement creating such Guarantee, the amount
thereof at any time shall be determined on the basis of the best available
reasonable estimate of the Company at the time as of which the amount thereof is
being determined.
"DELAYED DELIVERY FEE" shall have the meaning specified in
paragraph 2B(9)(iii).
"DESIGNATED APPLICATIONS" shall mean:
(i) the purchase of operating assets by the Company
for use in the Core Business, and/or
(ii) the permanent retirement of Funded Borrowings,
and/or
(iii) Permitted Investments so long as the proceeds of
such Investments are applied to one or more of the preceding
Designated Applications within a period of 180 days after the
relevant Disposition.
The Company may allocate any portion of any Disposition Proceeds to
the retirement of Funded Borrowings only if it shall give notice of its election
to such effect to each holder of Notes (an "ASSET SALE ALLOCATION NOTICE")
specifying the amount to be so allocated (the "ASSET SALE RETIREMENT AMOUNT"),
provided only that
(i) such Asset Sale Allocation Notice shall constitute,
and shall state that it constitutes, a "Purchase EVENT" for the
purpose of paragraph 4G, and such Notice shall also contain a
reasonably detailed description of the Disposition giving rise to
such Asset Sale Allocation Notice and the allocation to the Notes as
required by clause (ii) below at the price specified in paragraph
4G;
(ii) each holder of Notes shall be entitled to cause the
Company to purchase the Notes held by such holder pursuant to
paragraph 4G in the respective principal amounts which bear the same
proportion to the Asset
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<PAGE> 45
Sale Retirement Amount as the principal amount of Notes held by such
holder bear to the aggregate principal amount of Funded Borrowings
outstanding on the date of the Asset Sale Allocation Notice (the
"RETIREMENT FRACTION"); and
(iii) nothing herein shall prohibit the Company from
prepaying Notes pursuant to the provisions of paragraph 4C in
connection with any such retirement of Funded Borrowings.
No retirement of Funded Borrowings required by the foregoing provisions may be
effected by any payment at maturity or pursuant to any mandatory sinking fund or
installment payment or any scheduled prepayment or purchase or analogous
provision applicable to any Funded Borrowings.
"DISPOSITION" shall mean the sale, lease, transfer or other
disposition of Property of the Company or any Restricted Subsidiary, and
"DISPOSED OF" and "DISPOSE" shall have meanings correlative to the foregoing.
"DISPOSITION PROCEEDS" shall mean the aggregate proceeds received by
the Company or a Restricted Subsidiary upon the Disposition of any Property,
after deducting from the amount of such proceeds:
(i) all costs and expenses of such Disposition,
(ii) all taxes incurred in respect of the Disposition, and
(iii) any amount actually paid by the Company or any such Restricted
Subsidiary to repay or discharge Debt secured by a Lien on
such Property other than Debt incurred in contemplation of the
Disposition of such Property.
Any proceeds to be paid subsequent to the consummation of such Disposition shall
be valued at the aggregate amount thereof discounted from the respective payment
dates therefor at the yield to maturity for such installment obligation. If the
amount of proceeds to be paid subsequent to such consummation cannot be
determined at the time of consummation or if there is uncertainty as to the
collectibility thereof (whether or not the amount of such proceeds can be so
determined), the Company shall estimate the amount and time of receipt thereof
in good faith, consistent with the treatment in its financial statement of the
payment obligations in respect of such proceeds and the preceding sentence shall
then apply to such estimated amount. Any proceeds not consisting of cash or
promissory notes or other deferred payment obligations shall, for purposes of
this Agreement, be deemed to have been paid in cash in an amount equal to the
fair market value thereof in the good faith judgment of the Company.
"DOLLAR" or "$" shall mean a reference to United States dollars.
"DOMESTIC SUBSIDIARY" shall mean any Subsidiary which is
incorporated under the laws of one of the states of the United States or the
District of Columbia, and the operating assets of which are located and the
principal business of which is carried on within the United States.
"ENVIRONMENT" shall mean soil, surface waters, ground waters, land
stream
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<PAGE> 46
sediments, surface or subsurface strata, and ambient air.
"ENVIRONMENTAL LAW" shall mean any law, regulation, rule or
ordinance at the federal, state or local level related to pollution, protection
of the environment or worker health and safety, whether or not previously
enforced, and, for purposes of complying in the future with such laws,
regulations, rules or ordinances, those that are subsequently enacted.
"ENVIRONMENTAL PERMITS" shall mean all permits, licenses and other
authorizations required under any applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which, together with the Company, would be treated as a single
employer under section 4001(b) of ERISA.
"ERISA LIEN" shall mean a Lien created or otherwise imposed under
the provisions of ERISA.
"EVENT OF DEFAULT" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "DEFAULT" shall mean
any of such events, whether or not any such requirement has been satisfied.
"EVENT NOTICE" shall have the meaning specified in paragraph 4G(c).
"EXCESS CURRENT DEBT" as of any date of determination shall mean (x)
zero, if there shall have been a Clean Down Period in the Current Debt
Computation Period preceding such date and (y) in all other cases, an amount
equal to the aggregate principal amount of Consolidated Current Debt exceeding
$20,000,000 which is outstanding on such date.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FACILITY" shall have the meaning specified in paragraph 2B(1).
"FACILITY FEE" shall have the meaning specified in paragraph
2B(9)(i).
"FOREIGN SUBSIDIARY" shall mean any Subsidiary that is not a
Domestic Subsidiary.
"FUNDED BORROWINGS" shall mean and include any Debt Obligation of
the Company or a Restricted Subsidiary described in clause (i) of the definition
of Funded Debt (excluding Debt permitted by clause (ii) of paragraph 6C and Debt
which is subordinated in any manner to the Notes).
"FUNDED DEBT" shall mean and include without duplication, with
respect to the Company and its Restricted Subsidiaries consolidated in
accordance with generally accepted accounting principles,
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<PAGE> 47
(i) any Debt Obligation payable more than one year from
the date of incurrence thereof (including current maturities
thereof) and any obligation described in the proviso to the
definition of Current Debt; and
(ii) outstanding Preferred Stock of any Restricted
Subsidiary not owned by the Company directly or indirectly through
another Wholly-owned Restricted Subsidiary.
"GUARANTEE" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation or asset of another,
including, without limitation, any such obligation or asset directly or
indirectly guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business) or discounted or sold with recourse by such Person,
or in respect of which such Person is otherwise directly or indirectly liable,
including, without limitation, any such obligation or asset in effect guaranteed
by such Person through any agreement (contingent or otherwise) to purchase,
repurchase or otherwise acquire such obligation or asset or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), or to maintain the solvency or any balance sheet or other
financial condition of the obligor of such obligation or asset, or to make
payment for any products, materials or supplies or for any transportation or
services regardless of the non-delivery or non-furnishing thereof, in any such
case if the purpose or intent of such agreement is to provide assurance that
such obligation will be paid or discharged or the value of any asset maintained,
or that any agreements relating thereto will be complied with, or that the
holders of such obligation or asset will be protected against loss in respect
thereof. The term "Guarantee" used as a verb shall have a correlative meaning.
The amount of any Guarantee shall be equal to the outstanding principal amount
of the obligation guaranteed, the guaranteed value of the subject asset or such
lesser amount to which the maximum exposure of the guarantor shall have been
specifically limited.
"HAZARDOUS MATERIAL" shall mean any pollutant, toxic substance,
hazardous waste, hazardous material, hazardous substance, or oil as defined in
or pursuant to the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, the Federal Clean Water Act, or any other federal, state or local
environmental law, regulation, ordinance, rule, or by-law.
"HEDGE TREASURY NOTE(S)" shall mean, with respect to any Accepted
Note, the United States Treasury Note or Notes whose duration (as determined by
Prudential) most closely matches the duration of such Accepted Note.
"HISTORICAL FINANCIAL STATEMENTS" shall have the meaning
specified in paragraph 8B.
"HOSTILE TENDER OFFER" shall mean, with respect to the use of
proceeds of any Note, any offer to purchase, or any purchase of, shares of
capital stock of any corporation or equity interests in any other entity, or
securities convertible into or representing the beneficial ownership of, or
rights to acquire, any such shares or equity interests, if such shares, equity
interests, securities or rights are of a class which is publicly traded on any
securities exchange or in any over-the-counter market, other than purchases of
such shares, equity interests, securities
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<PAGE> 48
or rights representing less than 5% of the equity interests or beneficial
ownership of such corporation or other entity for portfolio investment purposes,
and such offer or purchase has not been duly approved by the board of directors
of such corporation or the equivalent governing body of such other entity prior
to the date on which the Company makes the Request for Purchase of such Note.
"INVESTMENT" shall mean and include all (i) investments in any
Person by stock purchase, capital contribution, loan, advance, Guarantee of
obligations of (other than any Guarantee of an obligation of the Company or a
Restricted Subsidiary) or creation or assumption of any other liability in
respect of any indebtedness (other than indebtedness of the Company or any
Restricted Subsidiary) of such Person and (ii) investments in any other
property.
"IRS" shall mean the Internal Revenue Service and any successor
governmental agency.
"ISSUANCE PERIOD" shall have the meaning specified in paragraph
2B(2).
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, contractual deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any bankers right of set-off, and the filing of or agreement to give
any financing statement under the Uniform Commercial Code of any jurisdiction)
or any other type of preferential arrangement for the purpose, or having the
effect, of protecting a creditor against loss or securing the payment or
performance of an obligation.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NOTES" shall have the meaning specified in paragraph 1B.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name
of the Company by an Authorized Officer of the Company.
"OTHER HOLDER NOTICE" shall have the meaning specified in
paragraph 4F(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor corporation or governmental agency.
"PERMITTED INVESTMENTS" shall mean:
(i) Investments in direct obligations of the United
States of America, or obligations of any instrumentality or agency
thereof, or obligations the payment of which is unconditionally
guaranteed by the United States of America or any instrumentality or
agency thereof (all of which Investments shall mature within five
years from the time of acquisition thereof);
(ii) Investments maturing within three years from the
time of acquisition thereof in obligations of any State or municipal
government or obligations of any instrumentality or agency thereof
or obligations of any
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<PAGE> 49
corporate issuer which, at the time of acquisition, are rated A or
better by Standard & Poor's Corporation ("S&P") or A2 or better by
Moody's Investors Service, Inc. ("Moody's") (or if neither S&P nor
Moody's shall rate such obligations, an equivalent rating of any
other national rating agency of established reputation in the United
States); and
(iii) Investments in readily marketable commercial paper
which, at the time of acquisition, are rated A-2 or better by S&P or
Prime-2 or better by NCO/Moody's Commercial Paper Division of
Moody's and maturing within 270 days from the time of acquisition
thereof (or if neither S&P nor Moody's shall rate such obligations,
an equivalent rating of any other national rating agency of
established reputation in the United States).
"PERSON" shall mean and include an individual, a partnership, a
joint venture, a corporation, limited liability company, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"PLAN" shall mean any "employee pension benefit plan" (as such term
is defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any ERISA Affiliate.
"PREFERRED STOCK" shall mean any class of capital shares of the
Company or any of its Restricted Subsidiaries which is redeemable (other than
shares of Class A Common Stock, par value $0.01 per share, of the Company) or
which has a preference upon liquidation or in the payment of dividends over the
respective common shares of the Company or any of its Subsidiaries.
"PRIORITY DEBT" shall mean, without duplication, the sum of (i) all
Debt of Restricted Subsidiaries, other than (a) Debt owed to the Company, (b)
Guarantees of the Notes and the 1993 Notes and (c) Guarantees of the obligations
of the Company under the Credit Agreement to the extent the Notes share in such
Guarantee, (ii) all Debt of the Company or any of its Restricted Subsidiaries
secured by a Lien (including Capitalized Leases), other than (a) a Lien existing
on Property at the time of acquisition thereof and which meets the terms of
clause (iv) of paragraph 6B, (b) Liens described in clause (iii) of paragraph 6B
and (c) Liens described in Schedule II, and (iii) all Preferred Stock of
Restricted Subsidiaries not owned by the Company directly or indirectly through
a Wholly-owned Restricted Subsidiary.
"PROPERTY" shall mean and include all interests in property and
assets, whether tangible or intangible and whether real, personal or mixed.
"PRUDENTIAL" shall mean The Prudential Insurance Company of
America.
"PRUDENTIAL AFFILIATE" shall mean (i) any corporation or other
entity all of the Voting Stock (or equivalent voting securities or interests) of
which is owned by Prudential either directly or through Prudential Affiliates
and (ii) any investment fund which is managed by Prudential or a Prudential
Affiliate.
"PURCHASE DATE" shall have the meaning specified in paragraph
4G(b).
"PURCHASE EVENT" shall mean the election by the Company to retire
Funded
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Borrowings in connection with a Disposition pursuant to paragraph 6F.
"PURCHASE NOTICE" shall have the meaning specified in paragraph
4G(a).
"PURCHASERS" shall mean Prudential with respect to the Series A
Notes and, with respect to any Accepted Notes, Prudential and/or the Prudential
Affiliate(s) which are purchasing such Accepted Notes.
"RELEASE" shall mean any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing, or dumping into the Environment.
"REQUEST FOR PURCHASE" shall have the meaning specified in
paragraph 2B(4).
"REQUIRED HOLDER(S)" shall mean at any particular time the holder or
holders of at least 51% of the aggregate principal amount of the Notes or of a
Series of Notes, as the context may require, from time to time outstanding.
"RESCHEDULED CLOSING DAY" shall have the meaning specified in
paragraph 2B(8).
"RESPONSIBLE ENVIRONMENTAL OFFICER" shall mean with respect to the
Company or any of its Subsidiaries, any Responsible Officer and any other
officer of the Company or such Subsidiary principally responsible for the
supervision and administration of environmental compliance or the supervision
and administration of the handling of Hazardous Material, including, without
limitation, all officers holding the titles set forth in Schedule 8L and any
Person who, regardless of title, is performing the duties of any such officers.
"RESPONSIBLE OFFICER" shall mean with respect to any certificate,
report, notice or information to be delivered or given hereunder or knowledge of
any Default or Event of Default hereunder, unless the context otherwise
requires, the president, chief executive officer, chief financial officer,
principal legal officer, principal accounting officer or treasurer of the
Company or other senior legal, accounting or financial officer of the Company
who in the normal performance of his or her operational duties would have
knowledge of the subject matter relating to such certificate, report, notice,
Default or Event of Default.
"RESTRICTED SUBSIDIARY" shall mean (x) any Domestic Subsidiary and
(y) any Foreign Subsidiary which is listed in Schedule 8A or which shall be
designated as a Restricted Subsidiary by the Board of Directors at a subsequent
date as provided in paragraph 6K.
"RETIREMENT FRACTION" shall have the meaning specified in the
definition of Designated Applications.
"SALE AND LEASE-BACK TRANSACTION" of a Person (a "TRANSFEROR") shall
mean any arrangement (other than between the Company and a Wholly-owned
Restricted Subsidiary or between Wholly-owned Restricted Subsidiaries) whereby
(a) Property has been or is to be Disposed of by such Transferor to any other
Person with the intention on the part of such Transferor of taking back a lease
of such Property pursuant to which the rental payments are calculated to
amortize the purchase price of such Property substantially over the useful life
of such Property, and (b) such property is in fact so leased by such Transferor
or an Affiliate of
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such Transferor.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES" shall have the meaning specified in paragraph 1B.
"SERIES A CLOSING DAY" shall have the meaning specified in paragraph
2A.
"SERIES A NOTE(S)" shall have the meaning specified in paragraph 1A.
"SIGNIFICANT HOLDER" shall mean (x) Prudential, so long as
Prudential or any Prudential Affiliate shall hold (or be committed under this
Agreement to purchase) any Note and (y) any other holder of Notes holding by
itself or together with one or more of its affiliates Notes having an aggregate
principal amount of not less than 10% of the aggregate principal amount of the
Notes of any Series at the time outstanding.
"SIGNIFICANT SUBSIDIARY GROUP" shall mean any Subsidiary which is,
or any group of Subsidiaries all of which are, at any time of determination,
subject to one or more of the proceedings or conditions described in paragraph
7A(vii), (viii), (ix) or (x) and which Subsidiary or group of Subsidiaries, (x)
generated total revenues (or in the case of a recently formed or acquired
Subsidiary would have generated revenues on a pro forma basis) equal in amount
to more than 10% of the total consolidated revenues of the Company and its
Restricted Subsidiaries for the fiscal year most recently ended or (y) had total
assets equal in amount to more than 10% of Consolidated Total Assets as of the
end of the most recently ended fiscal quarter.
"SUBSIDIARY" shall mean any Person a majority of the total combined
voting power of all classes of Voting Stock of which shall, at the time as of
which any determination is being made, be owned or controlled by the Company
either directly or through Subsidiaries.
"SUBSIDIARY GUARANTEE" means a Guarantee substantially in the form
of Exhibit D granted by a Subsidiary of the Company in favor of the Purchasers,
guaranteeing the Company's performance of its obligations under this Agreement
and the Notes including, without limitation, the Guarantee executed and
delivered by Swissam.
"SUBSIDIARY GUARANTOR' shall mean any Subsidiary of the Company
which has duly executed and delivered to the Purchasers a Subsidiary Guarantee.
"SWISSAM" shall have the meaning specified in paragraph 3H.
"THREAT OF RELEASE" shall mean a substantial likelihood of a Release
which requires action to prevent or mitigate damage to the Environment which may
result from such Release.
"TRANSFEREE" shall mean any direct or indirect transferee of all or
any part of any Note purchased by the Purchaser under this Agreement.
"UNRESTRICTED SUBSIDIARY" shall mean any Foreign Subsidiary not
identified on Schedule 8A and any other Foreign Subsidiary until designated as a
Restricted Subsidiary in accordance with the provision of paragraph 6K.
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"VOTING STOCK" shall mean, with respect to any Person, any shares of
stock of or other ownership interest in such Person whose holders are entitled
under ordinary circumstances to vote for the election of directors or similar
body of such Person (irrespective of whether at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" shall mean any Restricted
Subsidiary all of the outstanding Capital Stock (or other equity interests) of
which (other than directors, qualifying shares, if any) is owned by the Company
either directly or indirectly through other Wholly-owned Restricted
Subsidiaries.
10C. ACCOUNTING TERMS AND DETERMINATIONS. (a) All references in this
agreement to "generally accepted accounting principles" shall mean generally
accepted accounting principles in effect in the United States at the time of
application thereof. Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all determinations with respect to accounting
matters hereunder shall be made, and all financial statements and certificates
and reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with generally accepted accounting principles, applied
on a basis consistent with the most recent audited consolidated financial
statements of the Company and its Subsidiaries (except as otherwise stated
therein or in the notes thereto) delivered pursuant to paragraph 5A(ii), or, if
no such statements have been so delivered, the most recent audited financial
statements referred to in paragraph 8B.
(b) All references herein to "the Company and its Restricted
Subsidiaries" for the purposes of computing the consolidated financial position,
results of operations or other balance sheet or financial statement items shall
be deemed to include only the Company and its Restricted Subsidiaries as
separate legal entities and, unless otherwise provided herein, shall not include
the position, operations, cash flows or other such items of any other Person,
whether by way of the equity method of accounting or otherwise (whether or not,
in any particular instance, such accounting treatment would be in accordance
with generally accepted accounting principles).
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as any
Purchaser shall hold any Note, it will make payments of principal of, interest
on and any Yield-Maintenance Amount payable with respect to such Note, which
comply with the terms of this Agreement, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to (i) the account or accounts of such Purchaser specified in the
Purchaser Schedule attached hereto in the case of any Series A Note, (ii) the
account or accounts of such Purchaser specified in the Confirmation of
Acceptance with respect to such Note in the case of any Shelf Note or (iii) such
other account or accounts in the United States as such Purchaser may designate
in writing, notwithstanding any contrary provision herein or in any Note with
respect to the place of payment. Each Purchaser agrees that, before disposing of
any Note, it will make a notation thereon (or on a schedule attached thereto) of
all principal payments previously made thereon and of the date to which interest
thereon has been paid. The Company agrees to afford the benefits of this
paragraph 11A to any Transferee which shall have made the same agreement as the
Purchaser has made in this paragraph 11A.
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<PAGE> 53
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save Prudential, each
Purchaser and any Transferee harmless against liability for the payment of, all
out-of-pocket expenses arising in connection with such transactions (other than
a transaction in which a Person becomes a Transferee), including (i) all
document production and duplication charges and the fees and expenses of any
special counsel engaged by the Purchaser or such Transferee in connection with
any subsequent proposed modification of, or proposed consent under, this
Agreement, whether or not such proposed modification shall be effected or
proposed consent granted (which shall be a single counsel representing all the
holders of the Notes and any local counsel retained by them, unless there shall
be a conflict in any such representation of all the holders), and (ii) the costs
and expenses, including attorneys' fees, incurred by any Purchaser or such
Transferee in enforcing (or determining whether or how to enforce) any rights
under this Agreement or the Notes or in responding to any subpoena or other
legal process or informal investigative demand issued in connection with this
Agreement or the transactions contemplated hereby or by reason of any
Purchaser's or such Transferee's having acquired any Note, including without
limitation costs and expenses incurred in any bankruptcy case. The obligations
of the Company under this paragraph 11B shall survive the transfer of any Note
or portion thereof or interest therein by any Purchaser or any Transferee and
the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holder(s) of the
Notes of each Series except that, (i) with the written consent of the holders of
all Notes of a particular Series, and if an Event of Default shall have occurred
and be continuing, of the holders of all Notes of all Series, at the time
outstanding (and not without such written consents), the Notes of such Series
may be amended or the provisions thereof waived to change the maturity thereof,
to change or affect the principal thereof, or to change or affect the rate or
time of payment of interest on or any Yield-Maintenance Amount payable with
respect to the Notes of such Series, (ii) without the written consent of the
holder or holders of all Notes at the time outstanding, no amendment to or
waiver of the provisions of this Agreement shall change or affect the provisions
of paragraph 7A or this paragraph 11C insofar as such provisions relate to
proportions of the principal amount of the Notes of any Series, or the rights of
any individual holder of Notes, required with respect to any declaration of
Notes to be due and payable or with respect to any consent, amendment, waiver or
declaration, (iii) with the written consent of Prudential (and not without the
written consent of Prudential) the provisions of paragraph 2B may be amended or
waived (except insofar as any such amendment or waiver would affect any rights
or obligations with respect to the purchase and sale of Notes which shall have
become Accepted Notes prior to such amendment or waiver), and (iv) with the
written consent of all of the Purchasers which shall have become obligated to
purchase Accepted Notes of any Series (and not without the written consent of
all such Purchasers), any of the provisions of paragraphs 2B and 3 may be
amended or waived insofar as such amendment or waiver would affect only rights
or obligations with respect to the purchase and sale of the Accepted Notes of
such Series or the terms and provisions of such Accepted Notes. Each holder of
any Note at the time or thereafter outstanding shall be bound by any consent
authorized by this paragraph 11C, whether or not such Note shall have been
marked to indicate such consent, but any Notes issued thereafter may bear a
notation referring to any such consent. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein and
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<PAGE> 54
in the Notes, the term "THIS AGREEMENT" and references thereto shall mean this
Agreement as it may from time to time be amended or supplemented. No course of
dealing between the Company and the holder of any Note nor any delay in
exercising any rights hereunder or under any Note shall operate as a waiver of
any rights of any holder of such Note. The Company will not, directly or
indirectly, solicit, request or obtain any proposed waiver or amendment of or
consent in respect of any of the provisions of this Agreement or the Notes
unless each holder shall be informed thereof by the Company and shall be
afforded an opportunity of considering the same information supplied by the
Company to any other holder of Notes. The Company will not, directly or
indirectly, pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, to any holder of Notes as
consideration for or as an inducement to the entering into by such holder of
Notes of any waiver or amendment of, or giving a consent in respect of, any of
the terms and provisions of this Agreement or any Note unless such remuneration
is concurrently paid, on the same terms, ratably to all such holders of Notes of
the same Series, whether or not any such holder shall have entered into any such
waiver or amendment or given any such consent. The Company will give prompt
written notice of the receipt and effect of each such waiver, amendment or
consent to all holders of the Notes. As used herein and in the Notes, the term
"THIS AGREEMENT" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES.
The Notes are issuable as registered notes without coupons in denominations of
at least $2,500,000 and otherwise in integral multiples of $100,000. The Company
shall keep at its principal office a register in which the Company shall provide
for the registration of Notes and of transfers of Notes. Upon surrender for
registration of transfer of any Note at the principal office of the Company, the
Company shall, at its expense, execute and deliver one or more new Notes of like
tenor and of a like aggregate principal amount, registered in the name of such
Transferee or Transferees. At the option of the holder of any Note, such Note
may be exchanged for other Notes of like tenor and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the Note
to be exchanged at the principal office of the Company. Whenever any Notes are
so surrendered for exchange, the Company shall, at its expense, execute and
deliver the Notes which the holder making the exchange is entitled to receive.
Every Note surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the holder of such Note or such holder's attorney duly authorized in writing.
Any Note or Notes issued in exchange for any Note or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which were carried by
the Note so exchanged or transferred, so that neither gain nor loss of interest
shall result from any such transfer or exchange. Upon receipt of written notice
from the holder of any Note of the loss, theft, destruction or mutilation of
such Note and, in the case of any such loss, theft or destruction, upon receipt
of such holder's unsecured indemnity agreement, or in the case of any such
mutilation upon surrender and cancellation of such Note, the Company will make
and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment
for registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on and any Yield-Maintenance Amount
payable with respect to such Note and for all other purposes whatsoever, whether
or not such Note shall be overdue, and the
49
<PAGE> 55
Company shall not be affected by notice to the contrary. Subject to the
preceding sentence, the holder of any Note may from time to time grant
participations in such Note to any Person on such terms and conditions as may be
determined by such holder in its sole and absolute discretion, provided that any
such participation shall be in a principal amount of at least $2,500,000 and
otherwise in integral multiples of $100,000.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of any Purchaser or any Transferee. Subject to the
preceding sentence, this Agreement and the Notes embody the entire agreement and
understanding between the Purchasers and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in
this Agreement contained by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11H. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be
given independent effect so that if a particular action or condition is
prohibited by any one of such covenants, the fact that it would be permitted by
an exception to, or otherwise be in compliance within the limitations of,
another covenant shall not avoid the occurrence of a Default or Event of Default
if such action is taken or such condition exists.
11I. NOTICES. All written communications provided for hereunder
(other than communications provided for under paragraph 2) shall be sent by
first class mail or nationwide overnight delivery service (with charges prepaid)
and (i) if to any Purchaser, addressed as specified for such communications in
the Purchaser Schedule attached hereto (in the case of the Series A Notes) or
the Purchaser Schedule attached to the applicable Confirmation of Acceptance (in
the case of any Shelf Notes) or at such other address as any such Purchaser
shall have specified to the Company in writing, (ii) if to any other holder of
any Note, addressed to it at such address as it shall have specified in writing
to the Company or, if any such holder shall not have so specified an address,
then addressed to such holder in care of the last holder of such Note which
shall have so specified an address to the Company and (iii) if to the Company,
addressed to it at Movado Group, Inc., 1200 Wall Street West, 6th Floor,
Lyndhurst, NJ 07071, Attention: Kenneth J. Adams, Chief Financial Officer, phone
number (201) 460-3756, fax number (201) 460-4880, with a copy to Movado Group,
Inc., 125 Chubb Avenue, Lyndhurst, NJ 07071, Attention: Timothy F. Michno,
General Counsel, phone number (201) 460-3792, fax number (201) 460-4857,
provided, however, that any such communication to the Company may also, at the
option of the Person sending such communication, be delivered by any other means
either to the Company at its address specified above or to any Authorized
Officer of the Company. Any communication pursuant to paragraph 2 shall be made
by the method specified for such communication in paragraph 2, and shall be
effective to create any rights or obligations under this Agreement only if, in
the case of a telephone communication, an Authorized Officer of the
50
<PAGE> 56
party conveying the information and of the party receiving the information are
parties to the telephone call, and in the case of a telecopier communication,
the communication is signed by an Authorized Officer of the party conveying the
information, addressed to the attention of an Authorized Officer of the party
receiving the information, and in fact received at the telecopier terminal the
number of which is listed for the party receiving the communication in the
Information Schedule or at such other telecopier terminal as the party receiving
the information shall have specified in writing to the party sending such
information.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement
or the Notes to the contrary notwithstanding, any payment of principal of or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall not be included in the computation
of the interest payable on such Business Day.
11K. SATISFACTION REQUIREMENT. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to any Purchaser or to the Required
Holder(s), the determination of such satisfaction shall be made by such
Purchaser or the Required Holder(s), as the case may be, in the sole and
exclusive judgment (exercised in good faith) of the Person or Persons making
such determination.
11L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW
OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
11M. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11N. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11O. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
11P. CONFIDENTIALITY. For the purposes of this paragraph,
"Confidential Information" means information delivered to the Purchaser by or on
behalf of the Company or any of its Subsidiaries in connection with the
transactions contemplated by or otherwise pursuant to this Agreement which is
proprietary in nature and which was clearly marked or labeled when received by
the Purchaser as being confidential information of the Company, provided that
such term does not include information (a) which was publicly known or otherwise
known to the Purchaser prior to the time of such disclosure, (b) which
subsequently becomes publicly known through no act or omission by the Purchaser
or any Person acting on its behalf or (c) which otherwise becomes known to the
Purchaser other than through disclosure by the Company or any of its
Subsidiaries. The Purchaser will use its best efforts hold in confidence
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<PAGE> 57
and not to disclose any Confidential Information, provided that the Purchaser
may deliver or disclose Confidential Information to (i) its and its
Subsidiaries, directors, officers, employees, agents, attorneys, financial
advisors and other professional advisors (to the extent such disclosure
reasonably relates to the administration of the investment represented by the
Notes), (ii) any other holder of any Note, (iii) any Person to which the
Purchaser sells or offers to sell such Note or any part thereof (if such Person
has agreed in writing prior to its receipt of such Confidential Information to
be bound by the provisions of this paragraph 11P, (iv) any Person to which the
Purchaser sells or offers to sell a participation in all or any part of such
Note (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this paragraph 11P,
(v) any Person from which the Purchaser offers to purchase any security of the
Company, (vi) any federal or state regulatory authority having jurisdiction over
the Purchaser, (vii) the National Association of Insurance Commissioners (the
"NAIC") or any similar organization or (viii) any other Person to which such
delivery or disclosure may be necessary or appropriate (w) to effect compliance
with any law, rule, regulation or order applicable to the Purchaser (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which the Purchaser is a party or (z) if an Event of Default has
occurred and is continuing, to the extent the Purchaser may reasonably determine
such delivery and disclosure to be necessary or appropriate in the enforcement
of the rights and remedies under the Notes and this Agreement. Any person
entering into an agreement referred to in clause (iii) or (iv) of this paragraph
11P is entitled to all the benefits of this paragraph 11P.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement among the
Company and the Purchaser.
Very truly yours,
MOVADO GROUP, INC.
By____________________________
Title:
The foregoing Agreement is hereby
accepted as of the date first above
written.
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By______________________________
Title:
52
<PAGE> 58
EXHIBIT A-1
[FORM OF SERIES A NOTE]
MOVADO GROUP, INC.
6.90% SENIOR SERIES A NOTE DUE OCTOBER 30, 2010
No. _____ [Date]
$________
FOR VALUE RECEIVED, the undersigned, MOVADO GROUP, INC. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
New York, hereby promises to pay to THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
or registered assigns, the principal sum of _______________________ DOLLARS
($_________) on October 30, 2010, with interest (computed on the basis of a
360-day year--30-day month) (a) on the unpaid balance thereof at the rate of
6.90% per annum from the date hereof, payable semi-annually on April 30 and
October 30 in each year, commencing with the April 30 next succeeding the date
hereof, until the principal hereof shall have become due and payable, and (b) on
any overdue payment (including any overdue prepayment) of principal, any overdue
payment of Yield Maintenance Amount and any overdue payment of interest, payable
semi-annually as aforesaid (or, at the option of the registered holder hereof,
on demand), at a rate per annum from time to time equal to the greater of (i)
8.90% or (ii) 2% over the rate of interest publicly announced by Bank of New
York from time to time in New York City as its Prime Rate.
Payments of principal, Yield Maintenance Amount, if any, and interest are
to be made at the main office of Bank of New York in New York City or at such
other place as the holder hereof shall designate to the Company in writing, in
lawful money of the United States of America.
This Note is one of a series of Senior Notes (herein called the "Notes")
issued pursuant to a Note Purchase and Private Shelf Agreement, dated as of
November __, 1998 (herein called the "Agreement"), between the Company, on the
one hand, and The Prudential Insurance Company of America each Prudential
Affiliate which becomes party thereto, on the other hand, and is entitled to the
benefits thereof. As provided in the Agreement, this Note is subject to
prepayment, in whole or from time to time in part, in certain cases without
Yield Maintenance Amount and in other cases with the Yield Maintenance Amount
specified in the Agreement.
A-1-1
<PAGE> 59
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for the then outstanding principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
The Company agrees to make prepayments of principal of this Note on the
dates and in the amounts specified in the Agreement.
In case an Event of Default shall occur and be continuing, the principal
of this Note may be declared or otherwise become due and payable in the manner
and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings (if any) provided in the Agreement.
This Note is intended to be performed in the State of New York and shall
be construed and enforced in accordance with the internal law of such State.
MOVADO GROUP, INC.
By: ______________________
Title: ___________________
A-1-2
<PAGE> 60
EXHIBIT A-2
[FORM OF SHELF NOTE]
MOVADO GROUP, INC.
SENIOR SERIES ___ NOTE
No. ___
ORIGINAL PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE:
INTEREST RATE:
INTEREST PAYMENT DATES:
FINAL MATURITY DATE:
PRINCIPAL PREPAYMENT DATES AND AMOUNTS:
FOR VALUE RECEIVED, the undersigned, MOVADO GROUP, INC. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
New York, hereby promises to pay to ________________________, or registered
assigns, the principal sum of ___________________________ DOLLARS [on the Final
Maturity Date specified above] [, payable on the Principal Prepayment Dates and
in the amounts specified above, and on the Final Maturity Date specified above
in an amount equal to the unpaid balance of the principal hereof,] with interest
(computed on the basis of a 360-day year--30-day month) (a) on the unpaid
balance thereof at the Interest Rate per annum specified above, payable on each
Interest Payment Date specified above and on the Final Maturity Date specified
above, commencing with the Interest Payment Date next succeeding the date
hereof, until the principal hereof shall have become due and payable, and (b) on
any overdue payment (including any overdue prepayment) of principal, any overdue
payment of Yield Maintenance Amount and any overdue payment of interest, payable
on each Interest Payment Date as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) 2% over the Interest Rate specified above or (ii) 2% over the
rate of interest publicly announced by Bank of New York from time to time in New
York City as its Prime Rate.
Payments of principal, Yield Maintenance Amount, if any, and interest are
to be made at the main office of Bank of New York in New York City or at such
other place as the holder hereof shall designate to the Company in writing, in
lawful money of the United States of America.
This Note is one of a series of Senior Notes (herein called the "Notes")
issued pursuant to a Note Purchase and Private Shelf Agreement, dated as of
November __, 1998 (herein
A-2-1
<PAGE> 61
called the "Agreement"), between the Company, on the one hand, and The
Prudential Insurance Company of America and each Prudential Affiliate (as
defined in the Agreement) which becomes party thereto, on the other hand, and is
entitled to the benefits thereof.
This Note is subject to optional prepayment, in whole or from time to time
in part, on the terms specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for the then outstanding principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the principal
of this Note may be declared or otherwise become due and payable in the manner
and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings (if any) provided in the Agreement.
This Note is intended to be performed in the State of New York and shall
be construed and enforced in accordance with the internal law of such State.
MOVADO GROUP, INC.
By:_________________________
Title:______________________
A-2-2
<PAGE> 62
EXHIBIT B
[FORM OF REQUEST FOR PURCHASE]
MOVADO GROUP, INC.
Reference is made to the Note Purchase and Private Shelf Agreement (the
"Agreement"), dated as of November __, 1998 between Movado Group, Inc. (the
"Company"), on the one hand, and The Prudential Insurance Company of America
("Prudential") and each Prudential Affiliate which becomes party thereto, on the
other hand. Capitalized terms used and not otherwise defined herein shall have
the respective meanings specified in the Agreement.
Pursuant to Paragraph 2B(4) of the Agreement, the Company hereby makes the
following Request for Purchase:
1. Aggregate principal amount of
the Notes covered hereby
(the "Notes") : $___________
2. Individual specifications of the Notes:
<TABLE>
<CAPTION>
Principal
Final Prepayment Interest
Principal Maturity Dates and Payment
Amount(1) Date Amounts Period(2)
- --------- ---- ------- ---------
<S> <C> <C> <C>
</TABLE>
3. Use of proceeds of the Notes:
4. Proposed day for the closing of the purchase and sale of the Notes:
- --------
(1) Minimum principal amount of $5,000,000.
(2) Specify quarterly or semi-annually.
B-1
<PAGE> 63
5. The purchase price of the Notes is to be transferred to:
<TABLE>
<CAPTION>
Name, Address
and ABA Routing Number of
Number of Bank Account
-------------- -------
<S> <C>
</TABLE>
6. The Company certifies (a) that the representations and warranties
contained in paragraph 8 of the Agreement are true on and as of the
date of this Request for Purchase except to the extent of changes
caused by the transactions contemplated in the Agreement and (b)
that there exists on the date of this Request for Purchase no Event
of Default or Default.
7. The Issuance Fee to be paid pursuant to the Agreement will be paid
by the Company on the closing date.
Dated: MOVADO GROUP, INC.
By: ____________________
Authorized Officer
B-2
<PAGE> 64
EXHIBIT C
[FORM OF CONFIRMATION OF ACCEPTANCE]
MOVADO GROUP, INC.
Reference is made to the Note Purchase and Private Shelf Agreement (the
"Agreement"), dated as of November __, 1998 between Movado Group, Inc. (the
"Company"), on the one hand, and The Prudential Insurance Company of America
("Prudential") and each Prudential Affiliate which becomes party thereto, on the
other hand. All terms used herein that are defined in the Agreement have the
respective meanings specified in the Agreement.
Prudential or the Prudential Affiliate which is named below as a Purchaser
of Notes hereby confirms the representations as to such Notes set forth in
paragraph 9 of the Agreement, and agrees to be bound by the provisions of
paragraphs 2B(6) and 2B(8) of the Agreement relating to the purchase and sale of
such Notes and by the provisions of the penultimate sentence of paragraph 11A of
the Agreement.
Pursuant to paragraph 2B(6) of the Agreement, an Acceptance with respect
to the following Accepted Notes is hereby confirmed:
I. Accepted Notes: Aggregate principal amount $__________________
(A) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal prepayment dates and amounts:
(e) Interest rate:
(f) Interest payment period:
(g) Payment and notice instructions: As set forth on attached
Purchaser Schedule
(B) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal prepayment dates and amounts:
(e) Interest rate:
(f) Interest payment period:
(g) Payment and notice instructions: As set forth on attached
Purchaser Schedule
[(C), (D)... same information as above.]
II. Closing Day:
E-1-1
<PAGE> 65
Dated: MOVADO GROUP, INC.
By:_______________________
Title:____________________
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:____________________
Vice President
[PRUDENTIAL AFFILIATE]
By:_____________________
Vice President
E-1-1
<PAGE> 66
EXHIBIT D
FORM OF GUARANTEE
REFERENCE IS HEREBY MADE to the Note Purchase and Master Shelf Agreement
dated as of __________, 1998 (which, as the same has heretofore been or may
hereafter be amended from time to time, will be called herein the "Note Purchase
Agreement") between Movado Group, Inc., a New York corporation (the "Company"),
The Prudential Insurance Company of America ("Prudential") and each Prudential
Affiliate (as defined therein) which becomes a party to the Note Purchase
Agreement (collectively, the "Purchasers"). All capitalized terms used herein
and not defined shall have the respective meanings ascribed to them in the Note
Purchase Agreement.
WHEREAS, pursuant to the terms and conditions of the Note Purchase
Agreement, Prudential has purchased $25,000,000 of Series A Senior Notes of the
Company and the Purchasers have provided the Company with the Facility pursuant
to which the Purchasers may purchase up to an additional $25,000,000 of Notes;
and
WHEREAS, all the obligations and liabilities (whether now existing or
hereafter arising) of the Company under the Note Purchase Agreement (whether for
principal, interest, fees, Yield-Maintenance Amount, costs of enforcement or
otherwise) will be called herein the "Obligations"; and
WHEREAS, the Guarantor has obtained and expects to obtain substantial
economic benefit from the issuance of the Notes under the Note Purchase
Agreement; and
WHEREAS, the execution and delivery of this guaranty by the Guarantor is
required pursuant to the terms of the Note Purchase Agreement;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Guarantor hereby agrees with the Purchasers as
follows:
1. The Guarantor hereby unconditionally guarantees to the Purchasers that
the Company will promptly pay, perform and observe all the Obligations, and that
all sums stated to be payable in, or which becomes payable under, the Note
Purchase Agreement by the Company will be promptly paid in full when due,
whether at stated maturity or earlier by reason of acceleration or otherwise,
and, in the case of one or more extensions of time of payment or performance of
any Obligation, that the same will be promptly paid or performed (as the case
may be) when due according to such extension, whether at stated maturity or
earlier by reason of acceleration or otherwise, irrespective of the validity,
regularity, or enforceability of the Note Purchase Agreement and irrespective of
any present or future law or order of any government (whether of right or in
fact and whether the Purchasers shall have consented thereto) or of any agency
thereof purporting to reduce, amend, restructure or otherwise affect any
Obligation of the Company or other obligor or to vary the terms of payment;
provided, however, that the liability of the Guarantor hereunder with respect to
the Obligations shall not exceed at any time 90% of Adjusted Net Worth (as
hereinafter defined). The term "Adjusted Net Worth" means the current Net Worth
of the Guarantor, plus (as and when Net Worth increases) any increase in such
amount of Net Worth after the date hereof (without any decrease for any
reduction after the date hereof in current Net Worth as so increased). The term
"Net Worth" means the amount of all assets of the Guarantor, at a fair
valuation, less the total liabilities of the
<PAGE> 67
Guarantor (including contingent liabilities other than the liabilities of the
Guarantor under this guaranty).
2. The Guarantor agrees that, as among the Guarantors and the Purchasers,
the Obligations may be declared to be due and payable for purposes of this
guaranty notwithstanding any stay, injunction or other prohibition which may
prevent, delay or vitiate any such declaration as against the Company and that,
in the event of any such declaration (or attempted declaration), such
Obligations (whether or not due and payable by the Company) shall forthwith
become due and payable by the Guarantor for purposes of this guaranty. The
Guarantor further guarantees that all payments made by the Company to the
Purchasers of any Obligation will, when made, be final and agrees that if any
such payment is recovered from, or repaid by, any Purchaser in whole or in part
in any bankruptcy, insolvency or similar proceeding instituted by or against the
Company, this guaranty shall continue to be fully applicable to such Obligation
to the same extent as though the payment so recovered or repaid had never been
originally made on such Obligation.
3. This is a guaranty of payment and not of collection only.
4. The Guarantor hereby consents that from time to time, without notice to
or further consent of the Guarantor, the payment, performance or observance of
any or all of the Obligations may be waived or the time of payment or
performance thereof extended or accelerated, in whole or in part, or the terms
of the Note Purchase Agreement or any part thereof may be changed and any
collateral therefor may be exchanged, surrendered or otherwise dealt with as the
Required Holders may determine, and any of the acts mentioned in the Note
Purchase Agreement may be done, all without affecting the liability of the
Guarantor hereunder. The Guarantor hereby waives presentment of any instrument,
demand of payment, protest and notice of non-payment or protest thereof or of
any exchange, sale, surrender or other handling or disposition of such
collateral, and any requirement that any Purchaser exhaust any right, power or
remedy or proceed against the Company under the Note Purchase Agreement or
against any other person, under any other guaranty of, or security for, any of
the Obligations. The Guarantor hereby further waives any defense whatsoever
which might constitute a defense available to, or discharge of, the Company or a
guarantor. No payment by the Guarantor pursuant to any provision hereunder shall
entitle the Guarantor, by subrogation to the rights of any Purchaser or
otherwise, to any payment by the Company (or out of the property of the Company)
except after payment in full of all sums (including interest, Yield-Maintenance
Amount, costs and expenses) which may be or become payable by the Company to the
Purchasers at any time or from time to time.
5. This guaranty shall be a continuing guaranty, and any other guarantor,
and any other party liable upon or in respect of any Obligation hereby
guaranteed may be released without affecting the liability of any Guarantor. The
liability of the Guarantor hereunder shall be joint and several with the
liability of any other guarantor or other party upon or in respect of the
Obligations.
6. Any Purchaser may assign its rights and powers hereunder, with all or
any of the Obligations, and, in the event of such assignment, the assignee
hereof or of such rights and powers, shall have the same rights and remedies as
if originally named herein.
7. Notice of acceptance of this guaranty and of the incurring of any and
all of the Obligations of the Company pursuant to the Note Purchase Agreement is
hereby waived. THIS GUARANTY AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES ARISING
HEREUNDER SHALL BE GOVERNED BY
2
<PAGE> 68
AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF NEW YORK. Unless the context
otherwise requires, all terms used herein which are defined in the Uniform
Commercial Code shall have the meanings therein stated.
8. No provision of this guaranty may be modified or waived without the
prior written consent of the Required Holders.
9. Without limiting the rights of any Purchaser under any other agreement,
any financial accommodation (including, without limitation, interest accruing at
the agreed to contract rate after the commencement of any bankruptcy,
reorganization or similar proceeding) extended by the Guarantor to or for the
account of the Company, or in respect of which the Company may be liable to the
Guarantor in any capacity, is hereby subordinated to all the Obligations, and
such financial accommodation of the Guarantor to the Company, if the Required
Holders so request, shall be collected, enforced and received by the Guarantor
as trustee for the Purchasers and be paid over to the Purchasers on account of
the Obligations but without reducing or affecting in any manner the liability of
such Guarantor, or any other Guarantor, under the other provisions of this
guaranty.
10. The Guarantor hereby irrevocably submits to the jurisdiction of any
New York State or Federal court sitting in New York City in any action or
proceeding arising out of or relating to this guaranty, and the Guarantor hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such New York State or Federal court. The Guarantor
irrevocably consents to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to the Guarantor at its
address specified on the signature page hereof. The Guarantor agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this paragraph shall affect the rights of the
Purchasers to serve legal process in any other manner permitted by law or affect
the rights of the Purchasers to bring any action or proceeding against the
Guarantor or any of its property in the courts of any other jurisdiction. To the
extent that the Guarantor has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether from service or
notice, attachment prior to judgment, attachment in aid of execution, execution
or otherwise) with respect to itself or its property, the Guarantor hereby
irrevocably waives such immunity in respect of its Obligations under this
guaranty. The Guarantor hereby expressly waives any and every right to a trial
by jury in any action on or related to this guaranty, the Obligations or the
enforcement of either or all of the same, and does further expressly waive any
and every right to interpose any counterclaim in any such action or proceeding.
The Guarantor agrees to reimburse the Purchasers on demand for all reasonable
costs, expenses, and charges (including, without limitation, reasonable
attorneys' fees) incurred by the Purchasers in connection with any enforcement
of this guaranty.
11. The rights, powers and remedies granted to the Purchasers herein shall
be cumulative and in addition to any rights, powers and remedies to which the
Purchasers may be entitled either by operation of law or pursuant to the Note
Purchase Agreement or any other document or instrument delivered or from time to
time to be delivered to any Purchaser in connection with the Note Purchase
Agreement.
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly
executed by its proper officer(s) this ____ day of ___________, 199__.
WITNESS: [NAME OF GUARANTOR]
3
<PAGE> 69
____________________________ By:__________________________
Name:_______________________ Name:_______________________
Title:______________________
Address of Guarantor:
_____________________________
_____________________________
_____________________________
4
<PAGE> 70
PURCHASER SCHEDULE
Series A Notes
MOVADO GROUP, INC.
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
Notes to be Note Denom-
Purchased ination(s)
--------- ----------
<S> <C> <C>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $25,000,000 $25,000,000
</TABLE>
(1) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No. 890-0304-391, Prudential Managed Account
Bank Of New York
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set forth the name
of the Company, a reference to "6.90% Senior Notes
due October 30, 2010, PPN 657209\A, INV 6248", and
the due date and application (as among principal,
interest and Yield-Maintenance Amount) of the
payment being made.
(2) Address for all notices relating to payments:
The Prudential Insurance Company of America
Three Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Manager, Billings and Collections
Telephone: (973) 802-5260
Fax: (973) 802-8055
(3) Address for all other communications and notices:
Purchaser Schedule - 1
<PAGE> 71
The Prudential Insurance Company of America
c/o Prudential Capital Group
One Gateway Center, 11th Floor
7-45 Raymond Boulevard West
Newark, New Jersey 07102-5311
Attention: Managing Director
Telephone: (973) 802-9182
Fax: (973) 802-3200
(4) Recipient of telephonic prepayment notices:
Manager, Trade Management
Telephone: (973) 802-7398
Fax: (973) 802-9425
(5) Tax Identification No.: 22-1211670
Purchaser Schedule - 2
<PAGE> 72
INFORMATION SCHEDULE
Authorized Officers for Prudential
Charles Y. King, Managing Director Phone: (973) 802-9182
Yvonne M. Guajardo, Vice President Phone: (973) 802-6706
Kevin J. Kraska, Vice President Phone: (973) 802-4519
Prudential Capital Group
One Gateway Center, 11th Floor
Newark, NJ 07102-5311
Fax for all: (973) 802-3200
Tom Cecka, Managing Director
Prudential Capital Group
Four Gateway Center, 7th Floor
Newark, NJ 07102-4069
Phone: (973) 802-8286
Fax: (973) 624-6432
Authorized Officers for the Company
[Provide name, address, phone and fax numbers for each such officer of the
Company.]
Information Schedule - 1
<PAGE> 73
EXHIBIT E-1(A) and (B)
[FORM OF OPINION OF COMPANY'S COUNSEL]
[Letterhead of ________________]
[Date of Closing]
The Prudential Insurance Company of America
c/o Prudential Capital Group
One Gateway Center, 11th Floor
Newark, NJ 07102-5311
Ladies and Gentlemen:
We have acted as counsel for Movado Group, Inc. (the "Company") in
connection [As _________________ of Movado Group, Inc. (the "Company"), I am
familiar] with the Note Purchase and Private Shelf Agreement, dated as of
November __, 1998 (the "Agreement") between the Company, on the one hand, and
The Prudential Insurance Company of America and each Prudential Affiliate which
becomes a party thereto, on the other hand, pursuant to which the Company has
issued to you today its Senior Series A Notes in the aggregate principal amount
of $25,000,000 (the "Notes"). Capitalized terms used and not otherwise defined
herein shall have the meanings provided in the Agreement. This letter is being
delivered to you in satisfaction of the condition set forth in paragraph 3A(v)
of the Agreement and with the understanding you are purchasing the Notes in
reliance on the opinions expressed herein.
In this connection, [we] [I] have examined such certificates of public
officials, certificates of officers of the Company and copies certified to [our]
[my] satisfaction of corporate documents and records of the Company and of other
papers, and have made such other investigations, as [we] [I] have deemed
relevant and necessary as a basis for [our] [my] opinion hereinafter set forth.
[We] [I] have relied upon such certificates of public officials and of officers
of the Company with respect to the accuracy of material factual matters
contained therein which were not independently established. With respect to the
opinion expressed in paragraph 3 below, [we] [I] have also relied upon the
representation made by [each of] you in paragraph 9A of the Agreement.
Based on the foregoing, it is [our] [my] opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of New York. Each Subsidiary is a
corporation duly organized and validly existing in good standing under the laws
of its jurisdiction of incorporation. The Company and its Subsidiaries have the
corporate power to carry on their respective businesses as now being conducted.
E-1-1
<PAGE> 74
2. The Agreement and the Notes have been duly authorized by all requisite
corporate action and duly executed and delivered by authorized officers of the
Company, and are valid obligations of the Company, legally binding upon and
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and (b) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
3. The Subsidiary Guarantee has been duly authorized by all requisite
corporate actions and duly executed and delivered by authorized officers of
Swissam, Inc. and is a valid obligation of Swissam, Inc., legally binding upon
and enforceable against it in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
(b) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4. It is not necessary in connection with the offering, issuance, sale and
delivery of the Notes under the circumstances contemplated by the Agreement to
register the Notes under the Securities Act or to qualify an indenture in
respect of the Notes under the Trust Indenture Act of 1939, as amended.
5. The extension, arranging and obtaining of the credit represented by the
Notes do not result in any violation of regulation U, T or X of the Board of
Governors of the Federal Reserve System.
6. The execution and delivery of the Agreement and the Notes, the
offering, issuance and sale of the Notes and fulfillment of and compliance with
the respective provisions of the Agreement and the Notes do not conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien upon any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, or require any authorization, consent, approval,
exemption, or other action by or notice to or filing with any court,
administrative or governmental body or other Person (other than routine filings
after the date hereof with the Securities and Exchange Commission and/or state
Blue Sky authorities) pursuant to, the charter or by-laws of the Company or any
of its Subsidiaries, any applicable law (including any securities or Blue Sky
law), statute, rule or regulation or (insofar as is known to [us] [me] after
having made due inquiry with respect thereto) any agreement (including, without
limitation, any agreement listed in Schedule 8G to the Agreement), instrument,
order, judgment or decree to which the Company or any of its Subsidiaries is a
party or otherwise subject.
Very truly yours,
E-1-2
<PAGE> 75
EXHIBIT E-2(A) and (B)
[FORM OF OPINION OF COMPANY'S COUNSEL]
[Letterhead of __________]
[Date of Closing]
[Name(s) and address(es) of
purchaser(s)]
Ladies and Gentlemen:
We have acted as counsel for Movado Group, Inc. (the "Company") in
connection [As ___________________ of Movado Group, Inc. (the "Company"), I am
familiar] with the Note Purchase and Private Shelf Agreement, dated as of
November __, 1998 (the "Agreement") between the Company, on the one hand, and
The Prudential Insurance Company of America and each Prudential Affiliate which
becomes a party thereto, on the other hand, pursuant to which the Company has
issued to you today Senior Series ___ Notes of the Company in the aggregate
principal amount of $___ (the "Notes"). Capitalized terms used and not otherwise
defined herein shall have the meanings provided in the Agreement. This letter is
being delivered to you in satisfaction of the condition set forth in paragraph
3A(v) of the Agreement and with the understanding that you are purchasing the
Notes in reliance on the opinions expressed herein.
In this connection, [we] [I] have examined such certificates of public
officials, certificates of officers of the Company and copies certified to [our]
[my] satisfaction of corporate documents and records of the Company and of other
papers, and have made such other investigations, as [we] [I] have deemed
relevant and necessary as a basis for [our] [my] opinion hereinafter set forth.
[We] [I] have relied upon such certificates of public officials and of officers
of the Company with respect to the accuracy of material factual matters
contained therein which were not independently established. With respect to the
opinion expressed in paragraph 3 below, [we] [I] have also relied upon the
representation made by [each of] you in paragraph 9A of the Agreement.
Based on the foregoing, it is [our] [my] opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of New York. Each Subsidiary is a
corporation duly organized and validly existing in good standing under the laws
of its jurisdiction of incorporation. The Company and its Subsidiaries have the
corporate power to carry on their respective businesses as now being conducted.
E-2-1
<PAGE> 76
2. The Agreement and the Notes have been duly authorized by all requisite
corporate action and duly executed and delivered by authorized officers of the
Company, and are valid obligations of the Company, legally binding upon and
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and (b) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
3. It is not necessary in connection with the offering, issuance, sale and
delivery of the Notes under the circumstances contemplated by the Agreement to
register the Notes under the Securities Act or to qualify an indenture in
respect of the Notes under the Trust Indenture Act of 1939, as amended.
4. The extension, arranging and obtaining of the credit represented by the
Notes do not result in any violation of regulation U, T or X of the Board of
Governors of the Federal Reserve System.
5. The execution and delivery of the Agreement and the Notes, the
offering, issuance and sale of the Notes and fulfillment of and compliance with
the respective provisions of the Agreement and the Notes do not conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien upon any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, or require any authorization, consent, approval,
exemption, or other action by or notice to or filing with any court,
administrative or governmental body or other Person (other than routine filings
after the date hereof with the Securities and Exchange Commission and/or state
Blue Sky authorities) pursuant to, the charter or by-laws of the Company or any
of its Subsidiaries, any applicable law (including any securities or Blue Sky
law), statute, rule or regulation or (insofar as is known to [us] [me] after
having made due inquiry with respect thereto) any agreement (including, without
limitation, any agreement listed in Schedule 8G to the Agreement), instrument,
order, judgment or decree to which the Company or any of its Subsidiaries is a
party or otherwise subject.
Very truly yours,
E-2-2
<PAGE> 1
Exhibit 10.32
FEBRUARY 1999 AMENDMENT AND WAIVER AS
TO AMENDED AND RESTATED CREDIT AGREEMENT
----------------------------------------
THIS AMENDMENT, dated as of the 19th day of February, 1999 among MOVADO
GROUP, INC., a New York corporation (the "Borrower"); each of the Lenders which
is a signatory to the Credit Agreement referred to below; THE CHASE MANHATTAN
BANK, as Agent, as Swingline Bank and as Issuing Bank; and FLEET BANK, N.A., as
Co-Agent.
PRELIMINARY STATEMENTS
----------------------
A. Reference is made to the Amended and Restated Credit Agreement date as
of July 23, 1997 (the "Original Credit Agreement") among the Borrower, the
Lenders signatory thereto, The Chase Manhattan Bank, as Agent, as Swingline Bank
and as Issuing Bank, and Fleet Bank, N.A., as Co-Agent. The Original Credit
Agreement was amended by an Amendment date as of August 5, 1997 and by a June
1998 Amendment dated as of June 10, 1998 and by an Amendment and Waiver dated as
of November 17, 1998. The Original Credit Agreement, as so amended, will be
called herein the "Credit Agreement". All capitalized terms used herein and not
defined shall have the respective meanings ascribed to them in the Credit
Agreement.
B. The Borrower has requested that certain provisions of the Credit
Agreement be amended or waived.
NOW, THEREFORE, for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties hereto agree as
follows:
ARTICLE 1. PARTICULAR AMENDMENTS
---------------------
Section 1.1 Capital Expenditures. Section 9.05 of the Credit Agreement is
--------------------
hereby amended to read as follows:
"The Borrower shall not permit Consolidated Capital Expenditures to exceed
$10,000,000 during any fiscal year (on an noncumulative basis), except that
with respect to the fiscal year ending January 31, 1999 Consolidated
Capital Expenditures shall not exceed $12,500,000; nor shall the Borrower
permit Consolidated Capital Expenditures to exceed $30,000,000 during the
period from the Closing Date until the Maturity Date."
Section 1.2. Reporting as to Special Transaction. (a) With respect to the
-----------------------------------
Special Transaction only, the Banks hereby waive the requirement (contained in
clause (c) of the definition of "Designated Sales" in Section 1.01 of the Credit
Agreement) that the Borrower provide the financial statements and certificate
described in such clause (c) to the Agent at least 20 days before the effective
date of the sale comprising the Special Transaction.
(b) The Borrower covenants and agrees to provide to the Agent, within
20 days after the effective date of the sale comprising the Special
Transaction, the financial statements and certificate described in the
aforesaid clause (c).
(c) The Borrower represents and warrants to the Bank that the
Borrower, as of the date hereof, reasonably and in good faith believes that
the sale comprising the Special Transaction will not result in a Default
immediately after the consummation of such sale.
<PAGE> 2
Section 1.3. Prepayment Threshold for Special Transaction. Clause (a) of
the definition of "Designated Sales" in Section 1.01 of the Credit Agreement is
hereby amended by changing the amount of "$30,000,000" to "$31,500,000" (in each
of the two places in which such amount appears in such clause).
ARTICLE 2. MATTERS GENERALLY
Section 2.1. Representations and Warranties. The Borrower hereby
represents and warrants that:
(a) All the representations and warranties set forth in the
Credit Agreement are true and complete on and as of the date hereof
(with the same effect as though made on and as of such date).
(b) No Default or Event of Default exists.
(c) The Borrower has no offset or defense with respect to any of
its obligations under the Credit Agreement or any of the Notes or any
other Facility Document, and no claim or counterclaim against any
Lender, the Swingline Bank, the Issuing Bank, the Agent or the Co-Agent
whatsoever (any such offset defense, claim or counterclaim as may now
exist being hereby irrevocably waived by the Borrower).
(d) This Amendment and Waiver has been duly authorized, executed
and delivered by the Borrower.
Section 2.2. Guarantor Consent. The Guarantors shall execute this
Amendment and Waiver in the space provided below to indicate their consent to
the terms of this Amendment and Waiver.
Section 2.3. Expenses. The Borrower shall pay all reasonable expenses
incurred by the Agent in connection with this Amendment and Waiver, including
(without limitation) the fees and disbursements of counsel for the Agent.
Section 2.4. Continuing Effect. Except as otherwise expressly provided
in this Amendment and Waiver, all the terms and conditions of the Credit
Agreement shall continue in full force and effect. All the Facility Documents
also shall continue in full force and effect.
Section 2.5. Entire Agreement. This Amendment and Waiver constitutes the
entire agreement of the parties hereto with respect to an amendment or waiver
of the Credit Agreement pertaining to the subject matter hereof, and it
supersedes and replaces all prior and contemporaneous agreements, discussions
and understandings (whether written or oral) with respect to such amendment and
waiver.
Section 2.6. Counterparts. This Amendment and Waiver may be executed in
two or more counterparts, each of which shall be deemed to be an original, but
all of which taken together shall constitute one and the same agreement.
Section 2.7. Effectiveness. This Amendment and Waiver shall not become
effective unless and until it shall have been executed and delivered by all the
parties hereto (which execution and delivery may be evidenced by telecopies).
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment and
Waiver as of the day and year first above written.
MOVADO GROUP, INC.
By:_________________________________
John Rooney
Corporate Controller
THE CHASE MANHATTAN BANK, as Agent,
as Lender, as Swingline Bank and as
Issuing Bank
By: /s/ Leonard Noll
----------------------------------
Name (Print): Leonard Noll
Title: VP
FLEET BANK, N.A., as Co-Agent and as
Lender
By:_________________________________
Name (Print):
Title:
MARINE MIDLAND BANK
By:_________________________________
Name (Print):
Title:
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Amendment and
Waiver as of the day and year first above written.
MOVADO GROUP, INC.
By:_________________________________
John Rooney
Corporate Controller
THE CHASE MANHATTAN BANK, as Agent,
as Lender, as Swingline Bank and as
Issuing Bank
By:
----------------------------------
Name (Print):
Title:
FLEET BANK, N.A., as Co-Agent and as
Lender
By: /s/ Christian J. Covello
----------------------------------
Name (Print): Christian J. Covello
Title: Vice President
MARINE MIDLAND BANK
By:_________________________________
Name (Print):
Title:
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment and
Waiver as of the day and year first above written.
MOVADO GROUP, INC.
By:_________________________________
John Rooney
Corporate Controller
THE CHASE MANHATTAN BANK, as Agent,
as Lender, as Swingline Bank and as
Issuing Bank
By:
__________________________________
Name (Print):
Title:
FLEET BANK, N.A., as Co-Agent and as
Lender
By:_________________________________
Name (Print):
Title:
MARINE MIDLAND BANK
By: /s/ Diane M. Zieske
----------------------------------
Name (Print): Dian M. Zieske
Title: Assistant Vice President
5
<PAGE> 6
THE BANK OF NEW YORK
By: /s/ Linda M. Coppa
---------------------------------
Name (Print): Linda M. Coppa
Title: Vice President
CREDIT SUISSE FIRST BOSTON
By:
---------------------------------
Name (Print):
Title:
By:
---------------------------------
Name (Print):
Title:
CONSENTED TO:
SWISSAM INC., as Guarantor
By:
---------------------------------
Name (Print):
Title:
NAW CORPORATION, as Guarantor
By:
---------------------------------
Name (Print):
Title:
NAWC CORUM CORPORATION, as Guarantor
By:
---------------------------------
Name (Print):
Title:
MOVADO CORPORATION, as Guarantor
By:
---------------------------------
Name (Print):
Title:
6
<PAGE> 7
THE BANK OF NEW YORK
By: ---------------------------
Name (Print):
Title:
CREDIT SUISSE FIRST BOSTON
By: /s/ Karl M. Studer
---------------------------
Name (Print): Karl M. Studer
Title: Director
By: /s/ Jamier Model
---------------------------
Name (Print): Jamier Model
Title: Associate
CONSENTED TO:
SWISSAM INC., as Guarantor
By: ---------------------------
Name (Print):
Title:
NAW CORPORATION, as Guarantor
By: ---------------------------
Name (Print):
Title:
NAWC CORUM CORPORATION, as Guarantor
By: ---------------------------
Name (Print):
Title:
MOVADO CORPORATION, as Guarantor
By: ---------------------------
Name (Print):
Title:
7
<PAGE> 8
THE BANK OF NEW YORK
By: ---------------------------
Name (Print):
Title:
CREDIT SUISSE FIRST BOSTON
By: ---------------------------
Name (Print):
Title:
By: ---------------------------
Name (Print):
Title:
CONSENTED TO:
SWISSAM INC., as Guarantor
By: /s/ Timothy F. Mizhno
---------------------------
Name (Print): Timothy F. Mizhno
Title: Secretary
NAW CORPORATION, as Guarantor
By: /s/ Timothy F. Mizhno
---------------------------
Name (Print): Timothy F. Mizhno
Title: Secretary
NAWC CORUM CORPORATION, as Guarantor
By: /s/ Timothy F. Mizhno
---------------------------
Name (Print): Timothy F. Mizhno
Title: Secretary
MOVADO CORPORATION, as Guarantor
By: /s/ Timothy F. Mizhno
---------------------------
Name (Print): Timothy F. Mizhno
Title: Secretary
8
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
All issued and outstanding shares of each of the following subsidiaries are
wholly owned; directly or indirectly, by the Registrant except for statutorily
required nominee shares in the case of the Hong Kong subsidiaries.
CALIFORNIA
North American Watch Service Corporation
DELAWARE
Movado International, Ltd.
Movado Corporation
NAWC Corum Corporation
NAW Delaware Corporation
Movado Group Delaware Holdings Corporation
NEW JERSEY
EWC Marketing Corp.
SwissAm, Inc.
Movado Retail Group, Inc.
SWITZERLAND
Concord Watch Company, S.A.
Movado Watch Company, S.A.
N.A. Trading, Ltd.
Montres Movado Bienne, S.A.
CANADA
Movado Group of Canada, Inc.
GERMANY
Movado Deutschland GmbH
Concord Deutschland GmbH
SINGAPORE
SwissAm Pte., Ltd.
HONG KONG
SwissAm, Ltd.
SwissAm Products, Ltd.
JAPAN
Concord Movado Japan Co., Ltd.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-72232 and 333-13927) of Movado Group, Inc. of our
report dated March 25, 1999, appearing on page F-1 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
April 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JANUARY 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-1-1998
<PERIOD-END> JAN-31-1999
<CASH> 5626
<SECURITIES> 0
<RECEIVABLES> 109,102
<ALLOWANCES> 0
<INVENTORY> 104,027
<CURRENT-ASSETS> 262,431
<PP&E> 22,998
<DEPRECIATION> 0
<TOTAL-ASSETS> 296,375
<CURRENT-LIABILITIES> 67,580
<BONDS> 55,000
0
0
<COMMON> 129
<OTHER-SE> 166,297
<TOTAL-LIABILITY-AND-EQUITY> 296,375
<SALES> 277,836
<TOTAL-REVENUES> 277,836
<CGS> 111,766
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,437
<INCOME-PRETAX> 27,238
<INCOME-TAX> 6,265
<INCOME-CONTINUING> 20,973
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,973
<EPS-PRIMARY> 1.63<F1>
<EPS-DILUTED> 1.58
<FN>
<F1>The amount is reported as EPS basic and not for EPS primary
</FN>
</TABLE>
