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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1998
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 001-09630
CML GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-2451745
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
524 MAIN STREET, ACTON, MASSACHUSETTS 01720
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 264-4155
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:
NONE
(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. [ ]
The aggregate market value of voting Common Stock held by non-affiliates of
the registrant was approximately $23,330,287 based on the closing price of the
Common Stock as reported on the New York Stock Exchange on October 21, 1998.
Number of shares of Common Stock outstanding as of October 21, 1998:
62,214,099 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
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PART OF REPORT INTO
DOCUMENTS WHICH INCORPORATED
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Portions of Proxy Statement for the Annual Items 10, 11, 12 & 13 of Part III
Meeting of Stockholders to be held in
December 1998 to be filed with the
Securities and Exchange Commission in
November 1998 pursuant to Reg. 240.14a-6(b)
under the Securities Exchange Act of 1934.
</TABLE>
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PART I
ITEM 1. BUSINESS.
CML Group, Inc. (the "Company" or "CML") was incorporated under the laws of
the State of Delaware in 1969. Unless the context otherwise requires, the term
"Company" as used herein includes CML and its subsidiaries.
CML is a specialty marketing company whose principal operations are
NordicTrack, Inc. ("Nordic Track") and Smith Hawken, Ltd. ("Smith & Hawken").
NordicTrack, which was acquired in June 1986, designs, sources, and sells
physical fitness and exercise equipment and other health-related products under
the trade names NordicTrack(R) and Nordic Advantage(TM). Smith & Hawken, which
was acquired in February 1993 and conducts its business under the trade name
Smith & Hawken(R), sells gardening tools, work wear, outdoor furniture, plants
and accessories. On November 5, 1998, NordicTrack and Nordic Advantage Inc.
("Nordic Advantage") filed petitions with the United States Bankruptcy Court for
the Western Division of the District of Massachusetts seeking protection under
Chapter 11 of the United States Bankruptcy Code. A plan of reorganization which
may include a partial or complete liquidation of NordicTrack's operations is
being prepared and will be submitted to the Court.
The bankruptcy petitions filed by NordicTrack and Nordic Advantage on
November 5, 1998 constitute defaults under the Company's revolving credit
agreement. On November 5, 1998, however, lenders under the Company's revolving
credit facility and the holders of the 15% secured convertible redeemable
subordinated notes due 2003 agreed to forbear from exercising their rights under
the guaranties issued by the Company and its subsidiaries until the earlier of
January 31, 1999 or an event of default under the forbearance agreement. The
forbearance agreement increases the total borrowing capacity of the Company's
subsidiaries under the revolving credit facility to $72.0 million, including
$1.5 million of debtor in possession financing for NordicTrack.
The Company decided to dispose of one of its subsidiaries in fiscal 1995
and two other subsidiaries in fiscal 1996. Britches of Georgetowne ("Britches"),
which was sold in April 1996, operated a chain of retail stores that sold men's
apparel under the trade names Britches of Georgetowne(R) and Britches Great
Outdoors(TM). Substantially all of the assets of The Nature Company, which
conducted its business under the trade name The Nature Company(TM), and Hear
Music were sold in June 1996 and October 1996, respectively.
The Company's major sales channels consist of Company-operated specialty
retail stores and kiosks, and direct marketing, primarily through mail order
catalogs and on the Internet. At July 31, 1998, the Company operated 131 retail
stores and 28 mall kiosks and had proprietary mail order customer lists
containing approximately 1.7 million names. NordicTrack also markets exercise
equipment through its wholesale sales channel and has derived significant sales
in the past from advertisements in print and on television and from catalog
mailings. In the second quarter of fiscal 1998, however, NordicTrack decided to
discontinue direct response advertising and catalog mailings, thereby
eliminating these channels as sources. In October 1998, Nordic Advantage also
announced the closing of substantially all of its seasonal kiosks.
For the fiscal year ended July 31, 1998, approximately 62.0% of the
Company's total revenues were derived from retail stores and mall kiosks
compared with approximately 57.7% in fiscal 1997 and 68.2% in fiscal 1996. In
fiscal 1998, direct response and mail order sales accounted for approximately
33.6% of total revenues compared with 42.3% in fiscal 1997 and 31.8% in fiscal
1996. Wholesale sales were 4.4% of total revenues in fiscal 1998. In fiscal
1998, NordicTrack's Ellipse(TM) machines, motorized treadmills and UltraLift(TM)
weight machines provided 21.0%, 13.0% and 7.1% of total revenues, respectively.
NordicTrack's cross-country skiers accounted for 17.1% of total revenues in
fiscal 1997, and its AbWorks(TM) product provided an additional 16.1% of
revenues. In fiscal 1996, approximately 24.8% of the Company's consolidated net
sales were derived from NordicTrack's cross-country skiers, and 18.1% came from
the sale of non-motorized treadmills.
CML continues to operate in two industry segments: (i) NordicTrack and (ii)
Smith & Hawken. Additional information on each of these industry segments is
provided below and in Note 12 of Notes to Consolidated Financial Statements.
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NORDICTRACK (IN BANKRUPTCY PROCEEDINGS)
NordicTrack experienced operating losses in fiscal 1998 and 1997 and, as a
result of the continued losses, on November 5, 1998, NordicTrack and Nordic
Advantage filed petitions with the United States Bankruptcy Court for the
Western Division of the District of Massachusetts seeking protection under
Chapter 11 of the United States Bankruptcy Code. A plan of reorganization which
may include a partial or complete liquidation of NordicTrack's and Nordic
Advantage's assets is being prepared and will be submitted to the Court. In
October 1998, NordicTrack also announced the termination of up to 800 employees
at its Chaska, Minnesota headquarters and Glencoe, Minnesota facility, and the
closing of substantially all of its seasonal kiosks. The Company undertook a
reorganization of NordicTrack during the second quarter of fiscal 1998, at which
time the decision was made to exit manufacturing and eliminate the catalog and
direct response sales channels.
NordicTrack designs, sources and sells high quality aerobic and anaerobic
exercise equipment and related accessories which it markets to consumers
primarily through its wholly-owned subsidiary, Nordic Advantage. Nordic
Advantage operates specialty retail stores and kiosks located primarily in the
United States and Canada. NordicTrack began the wholesale marketing of its
exercise equipment in fiscal 1998, although the wholesale channel is not
expected to become a major source of revenues to NordicTrack.
NordicTrack's principal aerobic products consist of its new line of
total-body exercise machines marketed under the Ellipse(TM) and eMotion(TM)
trade names and sold at prices ranging from $400 to $900; several models of
cross-country ski exercisers sold at prices ranging from $430 to $600; and
several motorized treadmills marketed under the PowerTread(TM) trade name and
sold at prices ranging from $900 to $1,600. NordicTrack's cross-country ski
exercisers utilize a flywheel mechanism that replicates the non-jarring motion
of cross-country skiing and provides a complete upper and lower body workout.
Exercisers marketed under the Ellipse(TM) trade name use the Ellipta Glide(TM)
design with a floating crank mechanism to provide a smooth, fluid elliptical
motion.
NordicTrack's principal anaerobic products are its UltraLift(TM) line of
weight machines which sell at prices ranging from $600 to $1,000. UltraLift(TM)
weight machines provide health club quality strength training at home.
UltraLift(TM) weight machines utilize a four-bar linkage system that gives the
user weight resistance without the inconvenience of weight stacks or weight
plates.
During fiscal 1998, approximately 67.8% of NordicTrack's net sales were
derived from Nordic Advantage's retail operations, 25.8% came from its direct
response and mail order operations and the remaining 6.4% were from wholesale
sales.
Retail stores and kiosks have allowed Nordic Advantage to reach that
portion of the fitness market which does not traditionally purchase by direct
response or mail order. At the end of fiscal 1998, Nordic Advantage operated 102
stores, down from 123 stores at July 31, 1997 and 126 stores at July 31, 1996.
Two retail stores were opened during fiscal 1998 compared with three stores
during fiscal 1997 and 12 stores during fiscal 1996. Nordic Advantage's stores
vary in size from 1,077 to 4,500 square feet and average approximately 1,900
square feet. The stores generally are located in high traffic urban and suburban
malls in affluent areas and in discount outlet malls. A portion of Nordic
Advantage's retail sales have come from seasonal kiosks which generally have
been open for only a portion of the year. In October 1998, however, Nordic
Advantage announced the closing of substantially all of its seasonal kiosks.
NordicTrack's international sales are not a significant percentage of
revenues.
NordicTrack's operations, including personnel, stores, purchasing,
distribution, order fulfillment, accounting and management information systems,
are separate and distinct from the Company's other industry segment.
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SMITH & HAWKEN
The Smith & Hawken segment currently comprises the Company's Smith & Hawken
subsidiary, but included The Nature Company, Smith & Hawken and Hear Music prior
to fiscal 1997. Substantially all of the assets of The Nature Company and Hear
Music were sold in June 1996 and October 1996, respectively.
Smith & Hawken is a leading marketer of gardening-related products. Its
merchandise categories include furniture, plants, clothing, gardening tools and
equipment, and garden-related accessories, including containers, housewares,
gifts, and books. Smith & Hawken sells its products through its own Smith &
Hawken stores and mail order catalogs. As of July 31, 1998, Smith & Hawken
operated 29 retail stores ranging in size from 1,600 to 7,926 square feet and
averaging approximately 4,600 square feet. Many of the stores have indoor and
outdoor selling space. All of the stores are located in the United States and
generally can be found on main streets or in high traffic urban and suburban
malls located in affluent communities. Smith & Hawken's retail sales accounted
for 49.9% of its fiscal 1998 net sales; the remaining 50.1% of Smith & Hawken's
net sales in fiscal 1998 were primarily mail order sales. Approximately 19.0
million catalogs were mailed by Smith & Hawken during fiscal 1998. In fiscal
1999, Smith & Hawken plans to open between 7 and 12 stores and mail
approximately 20.3 million catalogs, depending on financing.
Prior to the sale of The Nature Company in June 1996, the companies
included in the Smith & Hawken segment shared real estate services, order
processing services, fulfillment and distribution services, and management
information services and systems. When The Nature Company business was sold,
Smith & Hawken contracted with the buyer to continue providing these services on
a negotiated fee basis. In August 1998, Smith & Hawken moved the management
information functions in-house but continues to purchase order processing,
fulfillment and distribution services from the buyer of The Nature Company's
business. Smith & Hawken's operations, including personnel, stores, purchasing,
merchandising, distribution, order fulfillment, accounting and management
information systems, are separate and distinct from the Company's other industry
segment.
TRADE NAMES
The Company believes that the names under which it conducts its business
are of significant value because they are established, well-known and respected.
Shown below are the Company's principal trade names and trademarks and
their estimated number of years in existence:
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PRINCIPAL TRADE NAMES YEARS IN
AND TRADEMARKS EXISTENCE
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<S> <C>
NordicTrack(R).............................................. Over 21
Nordic Advantage(TM)........................................ Over 7
Smith & Hawken(R)........................................... Over 13
</TABLE>
The Company has entered into licensing agreements with third parties for
the use of patents in connection with the manufacture of certain products,
including Ellipse(TM), eMotion(TM) and UltraLift(TM).
DISTRIBUTION
The manufacture of NordicTrack's products is outsourced in the United
States and overseas. Inventory shipments are received at NordicTrack's Glencoe,
Minnesota facility from which retail orders are fulfilled. Prior to fiscal 1999,
NordicTrack also received products at and distributed them from its Sioux Falls,
South Dakota distribution center. NordicTrack intends to sell its Glencoe,
Minnesota property and contract with third-party storage and transportation
companies to warehouse and distribute products. Certain NordicTrack products are
sold by NordicTrack to its wholly-owned subsidiary, Nordic Advantage, for resale
through its retail stores and kiosks. In October 1998, however, Nordic Advantage
announced the closing of substantially all of its seasonal kiosks. NordicTrack
also sells certain products on a wholesale basis to select third-party
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retailers, although the wholesale channel is not expected to become a major
source of revenues to NordicTrack.
Prior to the sale of The Nature Company's business to The Discovery Channel
Store ("DCS") in fiscal 1996, Smith & Hawken's products were shipped by
suppliers to a Florence, Kentucky distribution center leased by both Smith &
Hawken and The Nature Company. The Company's interest in the Florence, Kentucky
distribution center was sold with the assets of The Nature Company in June 1996.
When the Company's interest in the Kentucky distribution center terminated,
Smith & Hawken contracted with DCS to continue providing Smith & Hawken with
certain services on a fee-for-service basis. This service contract terminated on
August 31, 1998 and was replaced with a new fee-for-service contract that was
signed on October 22, 1998. Under the new contract, DCS provides Smith & Hawken
with warehousing, distribution and call center services, including the receipt
and processing of customer orders and customer service. The new agreement
requires written notice 180 days in advance to terminate it and may not be
terminated before August 31, 1999 for receiving and distribution services or
before August 31, 2000 for call center services.
Shipping charges associated with acquiring products and merchandise and
distributing them to customers are significant factors in the operation of the
Company's businesses. Increases in shipping costs, or disruptions in delivery
and shipping services, could adversely affect the Company's operating results.
SUPPLIERS
The Company has various domestic and foreign suppliers, none of which
accounts for more than 10% of its purchases, except for ICON Health & Fitness,
Inc. ("ICON Health & Fitness"). ICON Health & Fitness, which manufactures
motorized treadmills to specification for NordicTrack, accounted for
approximately 13% of the Company's total purchases in fiscal 1998. Generally,
the Company is not dependent upon any single source for any raw materials or
items of merchandise. Several of NordicTrack's products, however, are produced
by single but separate manufacturers, from which a disruption of supply could
adversely affect the Company's operating results. In general, Smith & Hawken
contracts with one or more printers and paper suppliers for its mail order
catalogs.
MANUFACTURING
The Company's principal manufacturing activity was conducted at
NordicTrack's Glencoe, Minnesota facility, which is approximately 284,000 square
feet in size. During the second quarter of fiscal 1998, the Company decided to
cease manufacturing operations at NordicTrack and sell the Glencoe, Minnesota
facility. The facility is currently listed for sale. Cross-country ski
exercisers and the Ellipse(TM) line of exercise machines were produced at the
Glencoe facility prior to the cessation of manufacturing activities.
COMPETITION
The markets in which the Company is engaged are highly competitive.
NordicTrack competes with several companies which design, manufacture and
distribute physical fitness and exercise equipment, have greater financial
resources and offer a greater selection of products. Its competitors include
such companies as ICON Health & Fitness, Inc., Precise Exercise Equipment,
Precor Incorporated, Fitness Quest Inc., Road Master Industries, Inc.,
Diversified Products Corp., Health Rider, Inc., Soloflex, Inc. and Consumer
Direct, Inc. In recent years, NordicTrack's competitors have introduced several
new and competitive products at competitive prices.
Many of the competitors of Smith & Hawken are larger companies with greater
financial resources, a greater selection of merchandise and nationwide
distribution. Smith & Hawken's retail competitors include a large number and
wide variety of specialty retail stores, discount stores, hardware stores, and
department stores which carry similar product lines. Smith & Hawken's mail order
catalogs compete with those of other companies selling garden-related
merchandise, such as Gardener's Eden, David Kay, Calyx & Corolla and Gardener's
Supply. Smith & Hawken competitors also include independent garden stores and
plant nurseries in towns and cities throughout the United States.
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Competition in the mail order business has intensified in recent years due
to increases in the number of competitors, the number of catalogs mailed and the
increasing popularity of e-commerce on the Internet.
SEASONALITY
The Company's businesses are seasonal, with a higher percentage of retail
sales in the second fiscal quarter. The following table shows the approximate
percentage of consolidated sales in each quarter of fiscal 1998:
<TABLE>
<CAPTION>
PERCENTAGE
FISCAL QUARTER ENDED OF SALES
- -------------------- ----------
<S> <C>
October.............................................. 21%
January.............................................. 40%
April................................................ 22%
July................................................. 17%
---
Total...................................... 100%
===
</TABLE>
WORKING CAPITAL REQUIREMENTS
The Company has a working capital deficiency of $112.9 million at July 31,
1998 compared with working capital of $9.7 million at July 31, 1997. Inventory
purchases represent the most significant use of working capital. The Company
believes that its working capital requirements follow the seasonal patterns of
other companies operating within its industry segments. Inventory represented
approximately 69% and 67% of the Company's working capital assets, excluding
cash and cash equivalents, and refundable and deferred income taxes, at July 31,
1998 and 1997, respectively. Inventory purchases are based on future anticipated
sales and typically reach their highest levels of the year in the fall in
anticipation of the Christmas holiday and winter seasons and early spring in
anticipation of the primary gardening season.
The bankruptcy petitions filed by NordicTrack and Nordic Advantage on
November 5, 1998 constitute defaults under the Company's revolving credit
agreement. On November 5, 1998, however, the lenders under the Company's
revolving credit facility and the holders of the 15% secured convertible
redeemable subordinated notes due 2003 agreed to forbear from exercising their
rights under the guaranties issued by the Company and its subsidiaries until the
earlier of January 31, 1999 or an event of default under the forbearance
agreement. The forbearance agreement increases the total borrowing capacity of
the Company's subsidiaries under the revolving credit facility to $72.0 million,
including $1.5 million of debtor in possession financing for NordicTrack.
BACKLOG, CONTRACTS AND RESEARCH
Backlog is not a significant factor in the Company's business.
The Company does not have any material contracts which are subject to
renegotiation. The Company's research and development activities primarily
consist of the design and development of new products and the improvement of
existing products at NordicTrack and Smith & Hawken.
ENVIRONMENTAL MATTERS
On June 3, 1991, the Company received from the United States Environmental
Protection Agency ("EPA") a Special Notice Letter containing a formal demand on
the Company as a Potentially Responsible Party ("PRP") for reimbursement of the
costs incurred and expected to be incurred in response to environmental problems
at a so-called "Superfund" site in Conway, New Hampshire. The EPA originally
estimated the costs of remedial action and future maintenance and monitoring
programs at the site at about
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$7.3 million. The Superfund site includes a vacant parcel of land owned by a
subsidiary of the Company as well as adjoining property owned by a third party.
No manufacturing or other activities involving hazardous substances have ever
been conducted by the Company or its affiliates on the Superfund site in Conway.
The environmental problems affecting the land resulted from activities by the
owners of the adjoining parcel. Representatives of the Company have engaged in
discussions with the EPA regarding responsibility for the environmental problems
and the costs of cleanup. The owners of the adjoining parcel are bankrupt. The
EPA commenced cleanup activities at the site in July 1992.
The EPA expended approximately $1.4 million for the removal phase of the
site cleanup, which has now been completed. The EPA had estimated that the
removal costs would exceed $3.0 million, but only a small portion of the solid
waste removed from the site was ultimately identified as hazardous waste.
Therefore, the EPA's actual response costs for the removal phase were less than
it originally estimated. The EPA implemented the groundwater phase of the
cleanup, which the EPA originally estimated would cost approximately $4.0
million.
The Company believes that the EPA's estimated cost for cleanup, including
the proposed remedial actions, is excessive and involves unnecessary actions. In
addition, a portion of the proposed remedial cost involves cleanup of the
adjoining property that is not owned by the Company or any of its affiliates.
Therefore, the Company believes it is not responsible for that portion of the
cleanup costs.
In May 1998, settlement discussions with the EPA resumed regarding
responsibility for the environmental problems and the costs of cleanup. An
agreement in principle has been reached pursuant to which the Company will be
required to pay $600,000 to the EPA in return for a release from liability. The
terms of the settlement document, including the release, are under negotiation.
The Company's primary insurer has agreed to pay $575,000 of the settlement and
the Company will pay $25,000.
In June 1992, the EPA notified the Company that it may be liable for the
release of hazardous substances by the Company's former Boston Whaler subsidiary
at a hazardous waste treatment and storage facility in Southington, Connecticut.
The EPA has calculated the Company's volumetric contribution at less than two-
tenths of one percent. Because complete cleanup cost estimates for the site are
not yet available, an accurate assessment of the Company's likely range of
liability cannot be made. Accordingly, the impact on the Company's business,
financial condition and results of operations is not presently determinable.
EMPLOYEES
During fiscal 1998, NordicTrack and Smith & Hawken employed approximately
2,400 people on average, including full-time, part-time and seasonal employees.
On January 28, 1998, NordicTrack announced the immediate termination of 51
full-time employees and 65 seasonal telemarketing representatives located at its
Chaska, Minnesota headquarters and Glencoe, Minnesota manufacturing and
distribution facility. At that time, NordicTrack announced plans to phase out an
additional 217 positions in May 1998 and an additional 70 positions in September
1998 at the Glencoe, Minnesota facility. NordicTrack also announced an
operational restructuring on October 14, 1998, including the reduction of its
Chaska, Minnesota and Glencoe, Minnesota work force by up to 300 employees, or
approximately 25 percent, from approximately 1,200 full-time equivalent
employees. On October 22, 1998, the Company announced further actions to
restructure NordicTrack and additional work force reductions of up to 500
employees.
The Company employs a large number of part-time employees from time to time
because of the seasonality of the Company's sales. The Company considers its
employee relations to be satisfactory. On November 2, 1998, NordicTrack, Inc.,
the NordicTrack Severance Pay Plan and CML Group, Inc. were named as defendants
in a Class Action Complaint in United States District Court for the District of
Minnesota. The named plaintiffs are five former NordicTrack employees. See Note
10 of Notes to Consolidated Financial Statements for additional information.
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FOREIGN AND DOMESTIC OPERATIONS
To date, international sales, licensing revenues and export sales have
accounted for less than five percent of the Company's total annual sales. The
Company's NordicTrack subsidiary operates a retail store and several kiosks in
the United Kingdom.
Intercompany sales between the Company's operating units are not
significant.
ITEM 2. PROPERTIES.
Most of the Company's facilities, including its retail stores, are leased
from third parties. However, its principal NordicTrack administrative and
distribution facilities are owned by NordicTrack. The Company also owns its
corporate offices in Acton, Massachusetts.
Shown below is a summary of the square footage of Smith & Hawken's and
NordicTrack's principal facilities at July 31, 1998, by primary function:
<TABLE>
<CAPTION>
SQUARE FEET
-----------------------------------------------------------
SMITH & HAWKEN NORDICTRACK
--------------------------- ----------------------------
OWNED LEASED TOTAL OWNED LEASED TOTAL
----- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Distribution.............. -- 8,802 8,802 18,000 7,500 25,500
Retail Selling............ 1,805 132,176 133,981 -- 189,443 189,443
Office & Administration... -- 26,000 26,000 70,000 28,900 98,900
----- ------- ------- ------ ------- -------
Total........... 1,805 166,978 168,783 88,000 225,843 313,843
===== ======= ======= ====== ======= =======
</TABLE>
The information excludes the Company's 8,900 square foot corporate offices
which are listed for sale, and NordicTrack's Glencoe, Minnesota, St. Peter,
Minnesota and Sioux Falls, South Dakota facilities. The Glencoe and St. Peter
facilities are for sale and are approximately 284,000 and 15,000 square feet,
respectively. The Sioux Falls facility, which is leased and available for
subleasing, is approximately 130,000 square feet in size.
Smith & Hawken has been notified by the landlord of its corporate offices
of the landlord's intent to terminate the lease in the Spring of 2000. The
current facility is approximately 26,000 square feet and is included in the data
shown above. Smith & Hawken is seeking to negotiate a new lease for a larger
space to accommodate future growth.
Most of the retail store leases have initial terms ranging from five to ten
years, with options to renew in certain cases. Retail store leases generally
provide for minimum or base rents, additional expenses for common area
maintenance charges and additional rent calculated as a percentage of sales in
excess of specified levels. Rental expense under all leases for fiscal 1998 was
approximately $21.6 million. For additional information regarding the Company's
lease obligations, see Note 10 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
NORDICTRACK AND NORDIC ADVANTAGE BANKRUPTCY FILING
On November 5, 1998, NordicTrack and Nordic Advantage filed petitions with
the United States Bankruptcy Court for the Western Division of the District of
Massachusetts seeking protection under Chapter 11 of the United States
Bankruptcy Code. A plan of reorganization which may include a partial or
complete liquidation of NordicTrack's operations is being prepared and will be
submitted to the Court.
LITIGATION
NordicTrack is named as the defendant in a Consolidated Class Action
Complaint ("Consolidated Complaint") filed on September 25, 1996 in the United
States District Court for the Southern District of New York and subsequently
transferred to the United States District Court for the District of Minnesota on
January 30, 1997. The named plaintiffs, Elissa Crespi and John Lucien Ware, Jr.,
allege in the Consolidated
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Complaint that NordicTrack made false and misleading claims in its advertising
concerning the weight loss of persons using its ski exercisers by
misrepresenting and failing to disclose material findings of weight loss studies
conducted by or on behalf of NordicTrack. The named plaintiffs assert claims of
common law fraud, fraudulent concealment, negligent misrepresentation and
omission, breach of express and implied warranties, and violation of Section 349
of the State of New York General Business Law. The named plaintiffs also seek to
represent a class allegedly consisting of all persons in the United States who
purchased a NordicTrack ski exerciser during the period from November 15, 1993
to April 10, 1996, excluding NordicTrack and its employees. On September 2,
1997, the named plaintiffs filed a motion to remand the case to state court in
New York, which NordicTrack opposed. On January 5, 1998, the parties reached an
agreement-in-principle concerning the general terms and conditions of a class
action settlement of the case which was memorialized in a Memorandum of
Understanding filed with the Minnesota Court. On January 8, 1998, the United
States District Court for the District of Minnesota remanded the case to the
Supreme Court for the State of New York for consideration of whether the
proposed settlement should be approved and a final judgment and order entered
thereon. Since the filing of the Memorandum of Understanding, the parties have
executed the comprehensive terms of a Stipulation of Settlement. Management
believes the settlement will not have a material adverse impact on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that the New York Court will ultimately approve the class
settlement. If the New York Court does approve the settlement, there can be no
assurance that it will not be reversed or modified on appeal.
NordicTrack is the defendant in a lawsuit in the United States District
Court for the District of Minnesota which commenced on August 12, 1996. In this
action, the plaintiff, Precise Exercise Equipment ("Precise"), alleges that
NordicTrack misappropriated trade secrets regarding Precise's abdominal exercise
product and further breached a non-competition agreement. The parties have
entered into settlement discussions and are in the process of negotiating and
drafting an acceptable written settlement agreement. Management believes the
contemplated settlement will not have a material adverse impact on the Company's
business, financial condition and results of operations. There can be no
assurance, however, that the parties will be successful in negotiating a
mutually acceptable written agreement or that the proposed settlement will
ultimately receive court approval.
In a complaint dated September 30, 1997, filed by Precor Incorporated
("Precor") in the United States District Court for the Western District of
Washington in Seattle, Precor alleges that the manufacture, offering for sale
and sale by NordicTrack of its exercisers marketed under the Ellipse(TM)
trademark infringe a United States patent which Precor has licensed from the
inventor, Larry Miller (the "Miller Patent"). The technology used in
NordicTrack's Ellipse(TM) exercisers is licensed by NordicTrack from a third
party, and the Company believes that NordicTrack's products do not infringe the
Miller Patent. In February 1998, Precor amended the complaint to add
infringement claims against a major wholesale customer of NordicTrack's and the
licenser of NordicTrack's technology. In March 1998, Precor added as parties the
two manufacturers of the Ellipse(TM) exercisers, one in Taiwan and one in
Tennessee. The complaint is scheduled for trial in 1999. Precor has returned the
Miller Patent to the United States Patent and Trademark Office for further
examination. NordicTrack filed a separate reexamination request in April 1998
and requested a stay of the litigation pending completion of the reexaminations.
The Court has denied the stay petition. Meanwhile, discovery has recently
commenced. While NordicTrack believes it has meritorious defenses to the
complaint and intends to vigorously defend against the allegations, this lawsuit
is in an early stage, and the Company is unable to determine the likelihood and
possible impact on the Company's business, financial condition and results of
operations of an unfavorable outcome.
On May 8, 1998, NordicTrack was named as a defendant in a complaint filed
by Fitness Quest Inc. ("Fitness Quest") in the United States District Court for
the Eastern Division of the Northern District of Ohio. Fitness Quest alleges the
marketing by NordicTrack of a line of elliptical exercise products under the
Ellipse(TM) trademark infringes the Eclipse Trainer(R) trademark used by Fitness
Quest on its elliptical motion exercise machines and also alleges various
violations of state and federal unfair competition laws. This complaint was
settled on September 28, 1998. Management believes the contemplated settlement
will not have a material adverse impact on the Company's business, financial
condition and results of operations.
8
<PAGE> 11
On May 21, 1998, NordicTrack was named as a defendant in a complaint filed
by Michael L. Richey ("Richey"), an individual inventor and patentee of United
States Patent No. 4,949,958 entitled "Weight Lifting Machine", in the United
States District Court for the Southern District of Indiana at Indianapolis.
Richey alleges that the NordicTrack UltraLift and Isolift exercise machines
infringe his patent. He seeks an injunction under the patent to block sale by
NordicTrack of those machines. No request for a preliminary injunction has yet
been filed. Discovery has recently begun. While NordicTrack believes it has
meritorious defenses to the complaint and intends to vigorously defend against
the allegations, this lawsuit is in its earliest stages, and the Company is
unable to determine the likelihood and possible impact on the Company's
business, financial condition and results of operations of an unfavorable
outcome.
On November 2, 1998, NordicTrack, Inc., the NordicTrack Severance Pay Plan
and CML Group, Inc. were named as defendants in a Class Action Complaint (the
"Class Action Complaint") filed in United States District Court for the District
of Minnesota by five former NordicTrack employees on behalf of themselves and
other persons similarly situated. The named plaintiffs, Jay Miller, Carol
Hamlin, Denisa Pulk, Colleen Entinger and Bernadine Venske allege in the Class
Action Complaint that NordicTrack and CML Group violated the Worker Adjustment
and Retraining Notification Act (the "WARN Act") by failing to provide sixty
days written notice to employees advising them that NordicTrack facilities in
Chaska, Minnesota and Glencoe, Minnesota were going to be shut down. The
plaintiffs further allege that NordicTrack and CML Group violated the Employee
Retirement Income Security Act ("ERISA") by breaching their fiduciary duty to
pay terminated NordicTrack employees benefits pursuant to the NordicTrack
Severance Pay Plan. The plaintiffs are seeking back pay and damages pursuant to
the WARN Act and severance benefits under the NordicTrack Severance Pay Plan.
While NordicTrack and CML Group believe they have meritorious defenses to the
Class Action Complaint and intend to vigorously defend against the allegations,
this lawsuit is in its earliest stages and the Company is unable to determine
the likelihood and possible impact on the Company's financial condition or
results of operations of an unfavorable outcome.
The Company is involved in various other legal proceedings which have
arisen in the ordinary course of business. Management believes the outcome of
such other legal proceedings will not have a material adverse impact on the
Company's consolidated financial condition or results of operations. See Note 10
of Notes to Consolidated Financial Statements for information on environmental
matters.
TAX MATTERS
The Internal Revenue Service ("IRS") has been engaged in an examination of
the Company's tax returns for the fiscal years 1987 through 1991. The IRS issued
a "30-day letter" to the Company proposing certain adjustments which, if
sustained, would result in a tax deficiency for the years under examination. The
Company has filed an appeal with the IRS protesting the proposed adjustments.
The adjustments proposed by the IRS primarily relate to: (i) the disallowance of
deductions taken by the Company with respect to incentive compensation payments
of $43.0 million made to the former owners of NordicTrack (acquired in June
1986) pursuant to their employment contracts; and (ii) incentive compensation
payments made to the former owners of Britches of Georgetowne (acquired in
August 1983 and sold in April 1996) pursuant to the terms of an earnout
agreement and the valuation of certain assets acquired in connection with the
acquisition of Britches of Georgetowne in the amount of $9.2 million. The net
federal tax due relating to the proposed adjustments approximates $15.9 million.
Interest on the proposed deficiencies approximates $22.2 million as of July 31,
1998.
The incentive compensation payments to the former owners of NordicTrack
were attributable to substantial increases in sales and profits at NordicTrack
during the years under examination. The Company believes that the tax deductions
taken were valid and in accordance with the Internal Revenue Code and intends to
vigorously oppose the proposed adjustments. However, at this stage no assurance
can be given of a favorable outcome on these matters. If the IRS proposed
adjustments are sustained, any back taxes owed and associated interest would
have a material adverse effect on the Company's consolidated operating results
for the period in which such issues are finally resolved and would also have a
material adverse effect on the Company's consolidated financial condition.
9
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended July 31, 1998.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John A. C. Pound..................... 43 Chairman of the Board of Directors and Chief
Executive Officer
Michael G. Koppel.................... 42 Chief Operating Officer
Glenn E. Davis....................... 44 Executive Vice President of Finance and
Administration, Chief Financial Officer and
Treasurer
Paul J. Bailey....................... 41 Vice President and Controller
</TABLE>
Mr. Pound became a director of the Company in December 1997. He was named
Chairman of the Board of Directors in January 1998, Acting Chief Executive
Officer in February 1998 and Chief Executive Officer of the Company in April
1998. Prior to joining the Company, he was a consultant on business strategy and
corporate governance to investment organizations and corporations from January
1988 until January 1998, a lecturer at Harvard Law School from September 1994
until June 1997, and a member of the faculty at the Kennedy School of Government
at Harvard University from September 1987 until June 1994.
Mr. Koppel became Chief Operating Officer of the Company and Chief
Financial Officer of NordicTrack in September 1998. Prior to joining the Company
and NordicTrack, he was Vice President and Chief Financial Officer of Lids
Corporation from March 1997 until August 1998, Vice President and Controller of
the Filenes division of May Department Stores from March 1993 until February
1997, and Vice President and Controller of the G. Fox & Co. division of May
Department Stores from January 1988 until February 1993.
Mr. Davis was named Executive Vice President of Finance and Administration
in February 1998. He has been a Vice President of the Company since November
1989 and served as Controller of the Company from May 1984 through June 1996. He
was named Chief Financial Officer in March 1996 and Treasurer in June 1996.
Mr. Bailey has been a Vice President of the Company since August 1998. He
joined the Company in January 1985 as the Director of Financial Operations. In
June 1996, he became Controller of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York Stock Exchange under
the symbol "CML."
The following table sets forth for the fiscal periods indicated the high
and low sales prices per share of the common stock as reported on the New York
Stock Exchange.
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997
-------------- --------------
QUARTER HIGH LOW HIGH LOW
- ------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
First............................................... $5.13 $2.81 $5.75 $3.13
Second.............................................. 4.13 1.50 4.88 2.88
Third............................................... 2.38 1.06 3.25 1.88
Fourth.............................................. 3.75 0.63 3.69 1.75
</TABLE>
The Company did not declare any cash dividends on its common stock during
fiscal 1998 and declared one cash dividend aggregating $0.01 per share on its
common stock during fiscal 1997. The Company is
10
<PAGE> 13
prohibited from paying cash dividends under the terms of its financing
agreements. Although in the past the Company has occasionally paid dividends to
its shareholders on a quarterly basis, the Company currently has a retained
earnings deficit and has no present intention to pay dividends to its
shareholders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and Note 6 of
Notes to Consolidated Financial Statements.
The number of shareholders of record of the Company's common stock as of
October 21, 1998 was 6,162.
On July 27, 1998, the Company sold a secured convertible redeemable
subordinated note in the principal amount of $20 million (the "Note") to the
State of Wisconsin Investment Board (the "Purchaser"). The Note is due July 27,
2003 and is convertible at the option of the Purchaser, at any time prior to
5:00 P.M. on July 27, 2003, at an initial rate of one share for each $4.00 of
principal amount surrendered, subject to adjustment ("Conversion Price"). The
Note is also convertible upon election by the Company: (i) at a conversion rate
based upon trading prices of the common stock prior to conversion, if the
Company receives gross proceeds of $30 million or more from the sale of its
equity securities and (ii) at the Conversion Price, if trading prices of common
stock exceed the Conversion Price for a specified period. The Note bears
interest at the rate of 15% per annum, is prepayable at any time by the Company
and may be redeemed in full at the election of the Purchaser after September 1,
2000. The Company's obligations under the Note are secured by a junior lien in
substantially all of the assets of the Company and its subsidiaries. The Company
also granted the Purchaser a right of first refusal in connection with future
issuances of equity by the Company. For this issuance, the Company has relied
upon an exemption from registration under Section 4(2) of the Securities Act of
1933 as an issuance not involving a public offering. No principal underwriter
was involved in the above issuance. See Note 7 of Notes to Consolidated
Financial Statements.
Pursuant to a July 27, 1998 Stock Purchase Agreement by and among the
Company, B III Capital Partners, L.P. ("B III Capital") and Mellon Bank, N.A.
("Mellon"), solely in its capacity as Trustee for General Motors Employees
Domestic Group Pension Trust as directed by DDJ Capital Management, LLC, Mellon
and B III Capital purchased 1,905,600 and 9,909,118 shares of common stock,
respectively, for a purchase price of $.10 per share. For this issuance, the
Company has relied upon an exemption from registration under Section 4(2) of the
Securities Act of 1933 as an issuance not involving a public offering. No
principal underwriter was involved in the above issuance.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 274,360 $341,315 $544,905 $712,613 $655,791
Income (loss) from continuing
operations before extraordinary
gain............................. (127,378) (40,214) (84,809) 15,906 50,563
Income (loss) per share from
continuing operations before
extraordinary gain............... (2.54) (0.81) (1.72) 0.32 0.98
Cash dividends declared per
share............................ -- 0.01 0.06 0.09 0.08
Working capital (deficiency)....... (112,915) 9,695 56,163 116,533 103,742
Total assets....................... 94,332 146,336 213,351 340,081 384,663
Noncurrent liabilities............. 10,427 51,489 48,794 69,021 84,356
Stockholders' equity
(deficiency)..................... (66,658) 45,728 85,797 188,552 219,237
</TABLE>
The Company sold its Hear Music subsidiary in fiscal 1997, its Britches of
Georgetowne and The Nature Company subsidiaries in fiscal 1996, and undertook
the reorganization of NordicTrack in fiscal 1998. See Notes 3, 4 and 5 of Notes
to Consolidated Financial Statements.
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The Company operates two subsidiaries, NordicTrack and Smith & Hawken, each
of which is treated as a separate segment in the accompanying consolidated
financial statements. On November 5, 1998, NordicTrack and Nordic Advantage
filed petitions with the United States Bankruptcy Court for the Western Division
of the District of Massachusetts seeking protection under Chapter 11 of the
United States Bankruptcy Code. A plan of reorganization which may include a
partial or complete liquidation of NordicTrack's and Nordic Advantage's assets
is being prepared and will be submitted to the Court. NordicTrack's assets,
liabilities and results of operations are included in the accompanying
Consolidated Financial Statements.
Prior to the Company's decision to divest The Nature Company and Hear Music
in the third quarter of fiscal 1996, both subsidiaries were included in the
results of the Smith & Hawken segment. In connection with its decision to sell
The Nature Company and Hear Music, the Company recorded a charge against
earnings which is included in the fiscal 1996 results for the Smith & Hawken
segment in the accompanying consolidated financial statements. In fiscal 1995,
the Company decided to sell its Britches of Georgetowne ("Britches") subsidiary,
which is accounted for as a discontinued operation in the accompanying
consolidated financial statements.
NordicTrack designs, sources and markets physical fitness and exercise
equipment and other health-related products through specialty stores and kiosks
operated by its wholly-owned subsidiary, Nordic Advantage; through direct
response advertising on the Internet; and to wholesale customers. Smith & Hawken
markets fine gardening tools, clothing, furniture, plants and accessories
through its catalogs and specialty retail stores. Industry segment information
is presented in Note 12 of Notes to Consolidated Financial Statements.
This Annual Report contains forward-looking statements. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements. There are a number of factors
that could cause the Company's actual results to differ materially from those
indicated by such forward-looking statements. These factors include, without
limitation, those set forth below under the caption "Certain Factors that May
Affect Future Results." See also Note 10 of the Notes to Consolidated Financial
Statements for information on commitments and contingencies.
RESULTS OF CONTINUING OPERATIONS -- FISCAL 1998 AND 1997
CML Consolidated
The Company had net sales of $274.4 million in fiscal 1998, a decrease of
$66.9 million, or 19.6%, from fiscal 1997. During fiscal 1998, the Company had a
net loss from continuing operations of $127.4 million compared with a net loss
from continuing operations of $40.2 million in fiscal 1997.
During fiscal 1998, retail sales decreased $26.9 million to $170.2 million,
or 13.7% below fiscal 1997's retail sales. The decrease in retail sales was
primarily due to lower retail sales at Nordic Advantage, offset in part by an
increase in retail sales at Smith & Hawken. During fiscal 1998, Smith & Hawken
and Nordic Advantage opened four stores and two stores, respectively.
Direct response and mail order sales decreased $52.0 million in fiscal
1998, or 36.1% below the prior year, to $92.2 million. The decrease in direct
response and mail order sales was primarily attributable to lower direct
response and mail order sales at NordicTrack offset in part by an increase in
mail order sales at Smith & Hawken. During the third quarter of fiscal 1998,
NordicTrack exited the direct response and mail order businesses. See Note 3 of
Notes to Consolidated Financial Statements.
In November 1997, NordicTrack began distributing its products through other
retailers and during fiscal 1998 recorded $12.0 million of sales to wholesale
customers. The Company does not expect wholesale sales to become a significant
source of revenues for NordicTrack.
12
<PAGE> 15
The Company expects future sales growth, if any, will result primarily from
the addition of new Smith & Hawken stores. The Company's international
operations were not significant during fiscal 1998 and are not expected to be
significant for the next several years.
Cost of goods sold increased as a percentage of sales from 48.1% in fiscal
1997 to 59.0% in fiscal 1998. The increase in cost of goods sold as a percentage
of sales was primarily attributable to lower margins on the Company's
NordicTrack products.
Selling, general and administrative expenses decreased as a percentage of
sales from 69.1% in fiscal 1997 to 67.7% in fiscal 1998 primarily as a result of
a decrease in selling, general and administrative expenses as a percentage of
sales at Smith & Hawken offset in part by an increase in selling, general and
administrative expenses as a percentage of sales at NordicTrack.
During the second quarter of fiscal 1998, NordicTrack announced that it
would focus on its retail sales channel and that it planned to exit the direct
response and catalog businesses. NordicTrack also announced that it would cease
manufacturing and distribution activities at its Glencoe, Minnesota facility. As
a result of those decisions, NordicTrack recorded asset impairment and
restructuring charges of $2.9 million and $8.9 million, respectively, during
fiscal 1998 to reposition its operations. Through July 31, 1998, $6.4 million
was charged against the reserve including $1.0 million for items which required
the expenditure of cash. The restructuring reserve balance at July 31, 1998 was
$2.1 million. Through July 31, 1998, NordicTrack had eliminated 65 telemarketing
positions, 98 manufacturing positions and 51 other full-time positions in
connection with the strategic repositioning of its operations. In October 1998,
NordicTrack announced the elimination of up to 800 additional full-time
equivalent positions throughout the company.
Net interest expense was $11.1 million, or 4.0% of net sales, in fiscal
1998 compared with $1.8 million, or 0.5% of net sales, in fiscal 1997. Net
interest expense increased primarily due to higher borrowings under the
Company's revolving credit agreement, higher interest rates on those borrowings
and transactions costs relating to the renegotiation during the year of the
Company's revolving credit agreement.
During fiscal 1998, the Company recorded an income tax provision of $31.4
million as a result of valuation reserves recorded against net deferred tax
assets. During fiscal 1997, the Company recorded an income tax benefit of $20.7
million or 34.0% of the pre-tax loss from continuing operations. See Notes 8 and
10 of the Notes to Consolidated Financial Statements for information related to
income taxes and tax matters.
The increase in the loss from continuing operations in fiscal 1998 was
primarily due to higher operating losses at NordicTrack and higher interest
expense, partially offset by improved operating results at Smith & Hawken.
NordicTrack (In Bankruptcy Proceedings)
On November 5, 1998, NordicTrack and Nordic Advantage filed petitions with
the United States Bankruptcy Court for the Western Division of the District of
Massachusetts seeking protection under Chapter 11 of the United States
Bankruptcy Code. A plan of reorganization which may include a partial or
complete liquidation of NordicTrack's and Nordic Advantage's assets is being
prepared and will be submitted to the Court.
Overall net sales decreased 30.4% from $267.7 million in fiscal 1997 to
$186.4 million in fiscal 1998. Retail sales decreased $33.2 million, or 20.8%,
to $126.3 million in fiscal 1998 compared with $159.5 million in fiscal 1997.
During fiscal 1998, NordicTrack opened two retail stores and closed 23 retail
stores. Comparable store sales decreased 19.0% during fiscal 1998.
Direct response and mail order sales decreased $60.1 million, or 55.5%, to
$48.1 million in fiscal 1998 from $108.2 million in fiscal 1997. The decrease in
retail, direct response and mail order sales was primarily due to lower sales of
cross-country skiers, non-motorized treadmills, riders and abdominal and thigh
exercisers, partially offset by higher sales of motorized treadmills and sales
of the new line of elliptical exercise products. During the third quarter of
fiscal 1998, NordicTrack exited the direct response and mail order businesses.
NordicTrack accounted for approximately 67.9% and 78.4% of the Company's
consolidated net
13
<PAGE> 16
sales in fiscal 1998 and fiscal 1997, respectively. NordicTrack accounted for
over 100.0% of the consolidated pre-tax operating loss before interest,
corporate and other expenses in each fiscal year.
NordicTrack's gross margin decreased to 35.8% in fiscal 1998 from 51.7% in
fiscal 1997, primarily due to: (i) reduced margins on cross-country skiers,
non-motorized treadmills and abdominal products which experienced lower sales
and higher discounting; (ii) the change in sales mix toward motorized treadmills
which have lower margins; (iii) sales promotions and after-sale product costs of
the elliptical exercise machines; (iv) the liquidation of inventories of
discontinued product lines; (v) inefficiencies which arose from capacity
underutilization at the Glencoe, Minnesota manufacturing plant; (vi) the
write-down of inventories resulting from the decision to exit direct response
and catalog operations; and (vii) discounts to wholesale customers. The effects
of these changes were partially offset by lower cost of goods sold as a
percentage of net sales from sales of NordicTrack's UltraLift(TM) line of
strength training machines. Selling, general and administrative expenses
increased as a percentage of sales from 73.6% in fiscal 1997 to 75.4% in fiscal
1998 primarily due to the decrease in sales, including comparable store sales,
over which fixed costs are spread, and higher customer shipping costs, partially
offset by a decrease in advertising expense primarily due to the elimination of
the direct response and mail order operations.
NordicTrack had an operating loss of $85.6 million in fiscal 1998 compared
with an operating loss of $58.6 million in fiscal 1997. The increase in the
operating loss was primarily attributable to lower sales, lower gross margins
and higher asset impairment and restructuring charges, offset in part by lower
advertising and other selling, general and administrative expenses.
Smith & Hawken
Smith & Hawken experienced a 19.6% increase in net sales in fiscal 1998,
with net sales increasing from $73.6 million in fiscal 1997 to $88.0 million in
fiscal 1998. Retail sales at Smith & Hawken increased $6.3 million, or 16.8%,
from $37.6 million in fiscal 1997 to $43.9 million in fiscal 1998 primarily due
to the opening of four new retail stores and an 8.3% increase in comparable
store sales during fiscal 1998. Mail order sales of the Smith & Hawken segment
increased $8.1 million, or 22.5%, to $44.1 million in fiscal 1998 from $36.0
million in fiscal 1997. The increase was primarily due to an increase in the
number of catalog pages circulated and an increase in average order size.
Smith & Hawken's gross margin decreased to 52.1% in fiscal 1998 from 52.7%
in fiscal 1997. The decrease in gross margin was primarily due to higher
markdowns taken to clear holiday catalog merchandise and to counteract lower
than expected retail sales due to poor weather in February and March. Selling,
general and administrative expenses decreased as a percentage of sales from
50.0% in fiscal 1997 to 48.8% in fiscal 1998. The decrease in selling, general
and administrative expenses as a percentage of net sales was primarily due to
improved cost controls within the retail sales channel and the leveraging of
fixed costs over higher sales. During fiscal 1998, Smith & Hawken's operating
income increased by $0.8 million, or 40.0%, from $2.0 million in fiscal 1997 to
$2.8 million in fiscal 1998.
Smith & Hawken expects to spend approximately $8.0 million, net of landlord
allowances, in fiscal 1999 primarily on new stores, store remodels and computer
hardware and software, depending on financing.
RESULTS OF CONTINUING OPERATIONS -- FISCAL 1997 AND 1996
CML Consolidated
The Company had net sales of $341.3 million in fiscal 1997, a decrease of
$203.6 million, or 37.4%, from fiscal 1996. During fiscal 1997, the Company had
a net loss from continuing operations of $40.2 million compared with a net loss
from continuing operations of $84.8 million in fiscal 1996.
During fiscal 1997, retail sales decreased $174.7 million to $197.1
million, or 47.0% below fiscal 1996's retail sales. The decrease was primarily
due to the decision during the third quarter of fiscal 1996 to divest The Nature
Company and Hear Music, and lower sales at Nordic Advantage, offset in part by
an increase in retail sales at Smith & Hawken. The decrease in Nordic
Advantage's retail sales was primarily due to lower sales of
14
<PAGE> 17
cross-country skiers, non-motorized treadmills and riders. During fiscal 1997,
Smith & Hawken and Nordic Advantage opened one store and three stores,
respectively.
Direct response and mail order sales decreased $28.9 million in fiscal
1997, or 16.7% below the prior year, to $144.2 million. The decrease in direct
response and mail order sales was primarily attributable to lower direct
response sales at NordicTrack, resulting from lower sales of cross-country
skiers, non-motorized treadmills and riders, offset in part by an increase in
mail order sales at Smith & Hawken.
The Company's international operations were not significant during fiscal
1997 and fiscal 1996.
Cost of goods sold as a percentage of sales increased from 47.1% in fiscal
1996 to 48.1% in fiscal 1997. The increase in cost of goods sold as a percentage
of sales was primarily attributable to increased sales promotions by NordicTrack
in response to lower demand for cross-country skiers, non-motorized treadmills
and riders and a change in the mix of product sales toward lower-margin
products.
Selling, general and administrative expenses decreased as a percentage of
sales from 70.8% in fiscal 1996 to 69.3% in fiscal 1997, primarily due to
improved cost controls at NordicTrack and Smith & Hawken. The cost control
improvements were accomplished despite higher fixed costs as a percentage of
sales at Nordic Advantage stores that experienced a decrease in comparable store
sales.
The decrease in the loss from continuing operations in fiscal 1997 was due,
in part, to improved operating results at Smith & Hawken, reduced operating
losses at NordicTrack, and the elimination of losses resulting from the
operation and sale of The Nature Company and Hear Music. In June 1996, the
Company sold substantially all of the assets of The Nature Company for $39.9
million plus the assumption of certain liabilities. In October 1996, the Company
completed the sale of substantially all of Hear Music's assets for $371,000 in
cash plus the assumption of certain liabilities.
Net interest expense was $1.8 million, or 0.5% of net sales, in fiscal 1997
compared with $3.1 million, or 0.6% of net sales, in fiscal 1996. Net interest
expense decreased primarily due to lower bank borrowings and interest earned
from the investment of excess cash balances in money market mutual funds.
The Company's income tax benefit as a percentage of the pre-tax loss from
continuing operations was 34.0% in fiscal 1997 compared with 35.4% in 1996.
NordicTrack
Overall net sales decreased 27.3% from $368.1 million in fiscal 1996 to
$267.7 million in fiscal 1997. Retail sales decreased $72.9 million, or 31.4%,
to $159.5 million in fiscal 1997 compared with $232.4 million in fiscal 1996.
The decrease in retail sales was primarily due to the reduction in the number of
kiosks during fiscal 1997, the closing of six retail stores and a 24.9% decrease
in comparable store sales. Direct response and mail order sales decreased $27.5
million, or 20.3%, to $108.2 million in fiscal 1997 from $135.7 million in
fiscal 1996. The decrease in retail, direct response and mail order sales was
primarily due to lower sales of cross-country skiers, non-motorized treadmills
and riders. In fiscal 1996, approximately 67.6% of the Company's consolidated
net sales and 60.4% of the Company's consolidated pre-tax operating loss before
interest, corporate and other expenses were attributable to NordicTrack.
NordicTrack's gross margin decreased to 51.7% in fiscal 1997 from 55.4% in
fiscal 1996, primarily due to increased sales promotions on cross-country
skiers, non-motorized treadmills and riders in response to lower demand and a
more competitive consumer environment, and a change in the sales mix toward
lower-margin products with royalty arrangements. Selling, general and
administrative expenses decreased as a percentage of sales from 74.9% in fiscal
1996 to 73.6% in fiscal 1997, primarily due to improved cost controls that were
offset, in part, by higher fixed costs as a percentage of sales at retail store
locations experiencing a decrease in comparable store sales.
NordicTrack had an operating loss of $58.6 million in fiscal 1997 compared
with an operating loss of $72.6 million in fiscal 1996. The decrease in the
operating loss, which was accomplished in a declining sales environment, was
primarily due to a reduction in selling, general and administrative expenses.
15
<PAGE> 18
Smith & Hawken
The Smith & Hawken segment experienced a 58.4% decrease in net sales in
fiscal 1997, with net sales declining from $176.8 million in fiscal 1996 to
$73.6 million in fiscal 1997. The decrease was due to the divestitures of The
Nature Company and Hear Music. Smith & Hawken's net sales increased $9.5
million, or 14.9%, to $73.6 million from $64.0 million in fiscal 1996. Retail
sales of the Smith & Hawken segment decreased $101.8 million, or 73.1%, from
$139.4 million in fiscal 1996 to $37.6 million in fiscal 1997 due to the sale of
The Nature Company and Hear Music. Smith & Hawken's retail sales increased $6.2
million, or 19.7%, in fiscal 1997 to $37.6 million. Comparable store sales at
Smith & Hawken increased 3.4% in fiscal 1997. Mail order sales of the Smith &
Hawken segment decreased $1.4 million, or 3.6%, to $36.0 million in fiscal 1997
from $37.4 million in fiscal 1996. The decrease was due to the divestiture of
The Nature Company. Smith & Hawken experienced a 10.3% increase in mail order
sales in fiscal 1997 compared with fiscal 1996.
The Smith & Hawken segment's gross margin increased to 52.7% in fiscal 1997
from 47.4% in fiscal 1996 and selling, general and administrative expenses
decreased as a percentage of net sales from 56.8% in fiscal 1996 to 50.0% in
fiscal 1997. The increase in gross margin and decrease in selling, general and
administrative expenses as a percentage of net sales were primarily due to the
divestitures of The Nature Company and Hear Music businesses. Operating results
of the Smith & Hawken segment improved from a loss of $47.7 million in fiscal
1996 to operating income of $2.0 million in fiscal 1997 primarily due to the
divestitures of The Nature Company and Hear Music. The Company recorded a
pre-tax loss of $30.8 million during the third quarter of fiscal 1996 as a
result of the decision to sell The Nature Company and Hear Music.
LIQUIDITY AND CAPITAL RESOURCES
Indebtedness and High Degree of Leverage
The Company is highly leveraged. As of July 31, 1998, the Company had $32.0
million of advances and $3.5 million of letters of credit outstanding under its
new $65.0 million revolving credit facility managed by DDJ Capital Management,
LLC and BankBoston, N.A., maturing on August 1, 1999. In addition, the Company
had outstanding $20.0 million of 15.0% secured convertible redeemable
subordinated notes due 2003 that were issued to the State of Wisconsin
Investment Board (the "Notes") and $41.6 million of 5.5% convertible
subordinated debentures due 2003 (the "Convertible Subordinated Debentures").
The Company's high degree of leverage may have important consequences for the
Company. These include the following:
(1) It may be difficult or impossible for the Company and its subsidiaries
to obtain additional financing for working capital, capital
expenditures or other purposes, if necessary.
(2) The Company will use a substantial portion of its cash flow and that of
its subsidiaries to pay interest expense. This will reduce the funds
which would otherwise be available for operations and future business
opportunities.
(3) The governing documents for the Notes, the Convertible Subordinated
Debentures and the revolving credit facility all contain covenants
that, among other things, limit the ability of the Company to take
various actions that might otherwise be beneficial to the Company. See
"Certain Factors That May Affect Future Results -- Certain
Restrictions."
(4) The Company may be more highly leveraged than its competitors, which
may place it at a competitive disadvantage.
(5) The Company's high degree of leverage will make it more vulnerable to a
downturn in its business or the economy generally.
(6) The Company's high degree of leverage may render advisable the
divestiture of all or some of its subsidiaries.
There can be no assurance that the Company will be able to reduce its
financial leverage significantly or that the Company will achieve an appropriate
balance between acceptable growth and future reductions in financial leverage.
16
<PAGE> 19
Cash Flows from Operating Activities
The Company used internally generated funds, proceeds from the sale of
assets and borrowings under its revolving credit agreement to finance its
operations during fiscal 1998. In addition, in prior fiscal years the Company
used proceeds from the sale of one or more of its subsidiaries to finance its
operating needs. Operating activities used $53.9 million of cash in fiscal 1998,
compared with a net cash use of $13.3 million in fiscal 1997 and a net cash use
of $448,000 in fiscal 1996. Depreciation and amortization was $17.0 million in
fiscal 1998, $14.8 million in fiscal 1997 and $28.7 million in fiscal 1996. The
increase in depreciation and amortization was primarily due to higher
amortization of costs related to the renegotiation of the Company's revolving
credit agreement, partially offset by lower depreciation resulting from the
writedown to estimated net realizable value of certain NordicTrack assets. The
Company's investment in working capital items decreased $16.4 million in fiscal
1998, increased $22.3 million in fiscal 1997 and decreased $12.9 million in
fiscal 1996.
Cash Flows from Investing Activities
During fiscal 1998, net cash used in investing activities was $1.1 million
compared with net cash provided by investing activities of $136,000 in fiscal
1997 and $25.0 million in fiscal 1996. Cash provided by investing activities in
fiscal 1998 decreased relative to fiscal 1997 primarily due to a higher level of
investment in new stores at Smith & Hawken and lower cash proceeds generated
from discontinued and divested businesses, partially offset by higher cash
proceeds from the sale of assets.
Capital expenditures were $6.7 million in fiscal 1998, of which NordicTrack
spent approximately $1.7 million and Smith & Hawken spent approximately $4.9
million. During fiscal 1997 and 1996, capital expenditures were $5.9 million and
$21.6 million, respectively. The fiscal 1998 capital expenditures were primarily
for new stores, product tooling, store remodeling and computer equipment.
Cash Flows from Financing Activities
The Company generated $52.4 million of cash from financing activities in
fiscal 1998 and used $177,000 and $15.2 million of cash for financing activities
in fiscal 1997 and fiscal 1996, respectively. At July 31, 1998, loans
outstanding under the Company's revolving credit agreement totaled $32.0
million. No loans were outstanding under the revolving credit agreement at the
end of fiscal 1997 and 1996. In July 1998, the Company received cash proceeds of
$20.0 million from the issuance of Notes to a stockholder of the Company (see
Note 7 of Notes to Consolidated Financial Statements). The Company repurchased
$1.3 million of its common stock in fiscal 1996. Dividends of $494,000 and $4.2
million were paid on the Company's common stock during fiscal 1997 and 1996,
respectively.
Capital Resources
In July 1998, the Company amended and restated its senior secured revolving
credit agreement which provides for borrowings and letters of credit of up to
$65.0 million through August 1, 1999. A portion of the borrowings and letters of
credit permitted under the amended and restated revolving credit agreement is
based upon a percentage of eligible accounts receivable and inventories. The
amended and restated agreement also provides for an overadvance facility which
varies from month to month of up to an additional $49.9 million. The agreement,
which is secured by the Company's assets and the shares and guarantees of the
Company's subsidiaries, requires the Company to comply with certain financial
and operating covenants. The Company is prohibited from paying cash dividends
and capital expenditures are limited under the agreement. The agreement also
requires the Company to reduce the total commitment to $35.0 million by April 1,
1999. If the Company is unsuccessful in reducing the total commitment to the
specified level, the Company must issue notes to the lenders in the principal
amount equal to interest which would have accrued at the rate of 1.5% per month,
compounded monthly, on the outstanding principal amount of the loans from
January 1, 1999 through the date on which the total commitment is reduced to the
specified level. The agreement also provides for a reduction in the commitment
for net cash proceeds received from the sale of assets not in the ordinary
course of business or from the issuance of subordinated debt or equity
securities. At July 31, 1998, loans outstanding under the revolving credit
agreement totaled $32.0 million and letters of credit outstanding at July 31,
1998
17
<PAGE> 20
totaled $3.5 million. Unused borrowing and letter of credit capacity under the
revolving credit agreement was $1.0 million at July 31, 1998. Total bank
borrowings averaged $25.4 million during fiscal 1998, $8.0 million during fiscal
1997 and $14.3 million during fiscal 1996.
The bankruptcy petitions filed by NordicTrack and Nordic Advantage on
November 5, 1998 constitute defaults under the Company's revolving credit
agreement. On November 5, 1998, however, the lenders under the Company's
revolving credit facility and the holders of the 15% secured convertible
redeemable subordinated notes due 2003 agreed to forbear from exercising their
rights under the guaranties issued by the Company and its subsidiaries until the
earlier of January 31, 1999 or an event of default under the forbearance
agreement. The forbearance agreement increases the total borrowing capacity of
the Company's subsidiaries under the revolving credit facility to $72.0 million,
including $1.5 million of debtor in possession financing for NordicTrack. See
Notes 1, 6 and 7 of Notes to Consolidated Financial Statements.
If the Company is unable to achieve its fiscal 1999 business plan, the
Company may require significant additional funds to continue its ongoing
operations, and if such funds are not available when needed, the Company may be
required to curtail parts of its business, sell one of its two operating
companies or seek protection under the insolvency laws.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements made in
this Annual Report on Form 10-K and presented elsewhere by management from time
to time.
Recent Operating Losses; Chapter 11 Filing by NordicTrack
The Company incurred substantial operating losses during fiscal 1998, 1997
and 1996, and may continue to incur losses in the future. The potential for
continued losses has had an adverse effect on the Company's liquidity and has
caused concern among the Company's customers, suppliers and employees about the
Company's future viability.
On November 5, 1998, NordicTrack and Nordic Advantage filed petitions with
the United States Bankruptcy Court for Western Division of the District of
Massachusetts seeking protection under Chapter 11 of the United States
Bankruptcy Code. A plan of reorganization is being prepared and will be
submitted to the Court. This plan may include a partial or complete liquidation
of NordicTrack's operations.
Certain Restrictions
The governing documents for the revolving credit facility impose certain
operating and financial restrictions on the Company. For example, the revolving
credit facility limits or restricts, among other things, the Company's ability
to:
(1) declare dividends, redeem or repurchase capital stock or make
distributions and restricted payments;
(2) issue equity;
(3) engage in mergers, consolidations, acquisitions and asset sales;
(4) alter its lines of business or accounting methods or make capital
expenditures in excess of stated amounts;
(5) prepay, redeem or purchase debt;
(6) make loans and investments;
(7) incur indebtedness and contingent obligations;
(8) incur liens and engage in sale/leaseback transactions;
18
<PAGE> 21
(9) amend or otherwise alter debt and other material agreements; and
(10) engage in transactions with affiliates.
The Note Purchase Agreement dated July 27, 1998 between the Company and the
State of Wisconsin Investment Board (the "Note Purchase Agreement") contains
many similar restrictions.
Events beyond the Company's control, such as prevailing economic and
financial conditions, may affect its ability to comply with such covenants. A
breach of any of these covenants could result in a default under the revolving
credit facility and the convertible subordinated debentures and notes. Upon the
occurrence of an event of default, the lenders could elect to declare all
outstanding borrowings to be immediately due and payable. If the Company were to
fail to repay any such amounts, the lenders could proceed against the collateral
securing such indebtedness. If the lenders were to accelerate the payment of
such indebtedness, there can be no assurance that the assets of the Company
would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company and its subsidiaries. In addition, because the
revolving credit facility and the Note Purchase Agreement limit the ability of
the Company to engage in certain transactions except under certain
circumstances, the Company may be prohibited from entering into transactions
that could be beneficial to the Company.
Available Funds
The Company's future financial performance will also depend on its ability
to purchase goods and services on credit and to borrow funds under its revolving
credit agreement. If the Company is unable to purchase goods and services on
credit or the Company's lenders do not provide the Company with credit
arrangements on acceptable terms, the Company may need to seek additional funds
from other parties. There can be no assurance, however, that the Company would
be able to obtain any such third-party funding or obtain such funding on terms
as favorable as those offered by its lenders. Also, in the event the Company
elects to raise additional funds through the sale of assets or securities or
both, the Company may not be able to complete such sales in a timely manner or
on terms favorable to the Company.
Consumer Spending
The success of the Company is influenced by a number of economic conditions
affecting disposable consumer income, such as employment levels, business
conditions, interest rates and taxation rates. Adverse changes in these economic
conditions may restrict consumer spending, thereby negatively affecting the
Company's results of operations. In addition, the Company's results of
operations could be adversely affected if consumer spending is lower than
anticipated during the holiday season.
Competition
The markets in which the Company is engaged are highly competitive.
NordicTrack competes with several companies which design, manufacture and
distribute physical fitness and exercise equipment, have greater financial
resources and offer a greater selection of products. During the past several
years, NordicTrack's competitors have introduced several new and competitive
products at competitive prices which have adversely affected NordicTrack's
revenues and profits. The future success of NordicTrack depends in part upon its
ability to introduce new and competitive products successfully, on a timely
basis and at competitive prices. The failure of NordicTrack to successfully
compete with its competitors could materially adversely affect the financial
condition of the Company.
Many of the competitors of Smith & Hawken are larger companies with greater
financial resources, a greater selection of merchandise and nationwide
distribution, including a large number and wide variety of specialty retail
stores, discount stores and department stores. Smith & Hawken also competes with
mail order catalogs that sell gardening-related merchandise and independent
garden stores and plant nurseries in towns and cities throughout the United
States. The failure of Smith & Hawken to successfully compete with these
companies could adversely affect the Company's operating results.
19
<PAGE> 22
New Products
Several new and enhanced products were introduced by the Company in fiscal
1998 and 1997. The Company's future financial performance will depend on the
continued market acceptance of the Company's existing products and the
successful development, introduction and customer acceptance of new and enhanced
products. If these products do not receive favorable market acceptance, the
Company's future operating results would be adversely affected. There can be no
assurance that the Company will be successful in developing new products and
marketing its existing or new products.
New Management Team
The Company has replaced a number of key executives. There can be no
assurance, however, that the new personnel will be able to successfully increase
revenues or reduce costs in the future.
Seasonality
The Company's businesses are seasonal, with a higher percentage of retail
sales in the second fiscal quarter. The Company expects this seasonality to
continue in the future. Because of this seasonality, the Company's revenues and
earnings have fluctuated and will continue to fluctuate from quarter to quarter.
Advertising and Marketing Programs
The Company's success in the markets in which it competes depends in part
upon the effectiveness of advertising and marketing programs of the Company and
the Company's ability to successfully manage its advertising in-house. The
inability of the Company to periodically design and successfully execute new and
effective advertising and marketing programs could adversely affect the
Company's operating results.
Cost Reduction Programs
In fiscal 1998 and 1997, the Company was able to reduce its operating costs
as net sales decreased. There can be no assurance, however, that the Company
will be able to further reduce operating costs if sales decline in the future.
In addition, postage expenses associated with mailing catalogs and shipping
charges associated with acquiring and distributing products and merchandise to
customers are significant factors in the operation of the Company's businesses.
Increases in postage or shipping costs, or disruptions in delivery and shipping
services, could adversely affect the Company's operating results.
Intellectual Property Rights
The Company will continue to be subject to the risk of adverse claims and
litigation alleging infringement of intellectual property rights. There can be
no assurance that third parties will not assert infringement claims in the
future with respect to the Company's current or future products or that any such
claims will not require the Company to enter into royalty arrangements or result
in costly litigation. While the Company believes that it currently has all
licenses necessary to conduct its business, no assurance can be given that
additional licenses will not be required in the future. Furthermore, no
assurance can be given that, if any additional licenses are required, such
licenses could be obtained on commercially reasonable terms.
Tax Matters
The Internal Revenue Service ("IRS") has conducted an examination of the
Company's tax returns for the fiscal years 1987 through 1991 and has issued a
"30-day letter" to the Company proposing certain adjustments which, if
sustained, would result in a significant tax deficiency for the years under
examination. The Company has filed an appeal with the IRS protesting the
proposed adjustments. The Company believes that the tax deductions taken were
valid and in accordance with the Internal Revenue Code and intends to vigorously
oppose the proposed adjustments. However, at this stage no assurance can be
given of a favorable outcome on these matters. If the IRS proposed adjustments
are sustained, any back taxes owed and associated
20
<PAGE> 23
interest would have a material adverse effect on the Company's consolidated
operating results for the period in which such issues are finally resolved and
would also have a material adverse effect on the Company's consolidated
financial condition. See Note 10 of Notes to Consolidated Financial Statements
for additional information on this and other contingent liabilities.
Year 2000 Software Issues
NordicTrack, Smith & Hawken and the corporate office of the Company each
have separate and distinct computer systems and applications. The Company and
its subsidiaries have reviewed the implications of year 2000 compliance and have
taken steps designed to ensure that their computer systems and applications will
manage dates beyond 1999. The Company believes that it has allocated adequate
resources for this purpose and that planned software upgrades, which are in the
normal course of business, will address the Company's internal year 2000 needs.
However, there can be no assurance that the systems of other parties upon which
the Company's businesses also rely will be converted on a timely basis. The
Company's business, financial condition and results of operations could be
materially adversely affected by the failure of its systems and applications or
those operated by other parties to properly operate or manage dates beyond 1999.
NordicTrack estimates that its year 2000 compliance effort is approximately
50% complete and due to NordicTrack's recent Chapter 11 bankruptcy filings may
not be 100% complete by December 31, 1999. NordicTrack's most critical year 2000
systems include its AS400 applications, including accounting, order processing,
inventory, distribution, payroll and host merchandising systems; store
point-of-sale system; certain older personal computers and personal computer
applications; vendor EDI documents and applications; telephone systems; and
security systems. The majority of NordicTrack's year 2000 exposure will be
resolved as a byproduct of the implementation of a new internal software package
needed to improve business processes and productivity. NordicTrack's and Nordic
Advantage's Chapter 11 bankruptcy petitions filed on November 5, 1998 and the
layoffs announced in October 1998, may impact NordicTrack's ability to continue
implementing its new software package as originally planned. Failure to
implement the new software package could have a material impact on the
operations of NordicTrack and its timely ability to address year 2000 problems.
NordicTrack has surveyed its outside vendors for year 2000 compliance and has
received assurance of timely compliance by some but not all major vendors.
NordicTrack will continue to monitor its major vendors' ability to address year
2000 issues and will seek assurances that they will be year 2000 compliant.
NordicTrack does not currently have a contingency plan in place in the event a
particular system is not year 2000 compliant. Contingency plans will be adopted
if it becomes clear that NordicTrack is not going to achieve its scheduled
compliance objectives.
Critical hardware and software configurations supporting Smith & Hawken's
business include its AS400 applications, including accounting, inventory and
merchandising software; internal personal computer network hardware, software
and applications; store polling and point-of-sale systems; telephone system
hardware and software; and the systems of major outside vendors, including The
Discovery Channel Store, which is the buyer of The Nature Company's business,
and which continues to provide order processing, fulfillment and distribution
services to Smith & Hawken. Smith & Hawken has completed the replacement of its
telephone switch, voicemail system, network server hardware and software, and
desktop computer hardware and software in order to make them year 2000
compliant. Projects in process which will address the year 2000 issue include
the upgrade of accounting, inventory and merchandising software (expected
completion date of May 1999); e-mail software conversion (expected completion
date of May 1999); and replacement of in-store systems hardware and software
(expected completion date of May 1999). Contingency plans will be developed as
part of the calendar 1999 planning process and modified based on the
effectiveness of the new system implementations at meeting Smith & Hawken's year
2000 compliance goals. In addition, Smith & Hawken will survey its major
third-party vendors to evaluate their year 2000 compliance status.
On or prior to December 31, 1999, the Company plans to transfer all
functions performed at the corporate office to one or more of its operating
subsidiaries, thereby resolving any corporate-office year 2000 issues.
21
<PAGE> 24
OTHER
Inflation has not had a significant effect on the Company's operations.
The Company is involved in various legal proceedings and claims and two
former subsidiaries of the Company are involved in two separate environmental
matters. See Note 10 of the Notes to Consolidated Financial Statements for
additional information on commitments and contingencies.
The Company plans to adopt Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," in fiscal
1999. The Company is evaluating the impact that implementation of SFAS Nos. 130
and 131 will have on the consolidated financial statements.
The adoption of Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities," did not affect the Company's financial position or results
of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the potential change in a financial instrument's value
caused by fluctuations in interest and currency exchange rates and equity and
commodity prices. The Company's operating activities expose it to many risks
that are continually monitored, evaluated and managed. Proper management of
these risks helps reduce the likelihood of earnings volatility. At July 31,
1998, the Company was not a party to any derivative arrangement and the Company
does not engage in trading, market-making or other speculative activities in the
derivatives markets. The Company's foreign currency exposure is not material and
the Company does not engage in regular hedging activities to minimize the impact
of foreign currency fluctuations. As discussed in Note 6 of Notes to
Consolidated Financial Statements, loans outstanding under the company's
revolving credit agreements bear interest at 4.0% above the lenders' base rate
which may vary over time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index to the Company's Consolidated Financial Statements and
Financial Statement Schedule and the accompanying consolidated financial
statements, notes and schedules which are filed as part of this Form 10-K
following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to this item is contained in part under the caption "Executive
Officers of the Company" in Part I hereof, and the remainder is incorporated by
reference to the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held in December 1998 (the "1998 Proxy Statement") at
"Election of Directors."
ITEM 11. EXECUTIVE COMPENSATION.
The response to this item is incorporated herein by reference to the
Company's 1998 Proxy Statement at "Election of Directors," "Compensation
Committee Interlocks and Insider Participation," "Summary Compensation," "Stock
Option Grants," "Year-End Option Table" and "Employment Agreements and Severance
Arrangements."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to this item is incorporated herein by reference to the
Company's 1998 Proxy Statement at "Security Ownership of Certain Beneficial
Owners and Management."
22
<PAGE> 25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item is incorporated herein by reference to the
Company's 1998 Proxy Statement at "Certain Transactions" and "Employment
Agreements and Severance Arrangements."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of this Form 10-K.
1. Consolidated Financial Statements. The Consolidated Financial
Statements listed in the Index to Consolidated Financial Statements
and Financial Statement Schedule are filed as part of this Annual
Report on Form 10-K.
2. Financial Statement Schedule. The Financial Statement Schedule
listed in the Index to Consolidated Financial Statements and
Financial Statement Schedule is filed as part of this Annual Report
on Form 10-K.
3. Exhibits. The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K.
On July 28, 1998, the Company filed a Current Report on Form 8-K
announcing under Item 5 (Other Events) the sale to the State of Wisconsin
Investment Board of a redeemable subordinated note for a purchase price of
$20 million and establishment of a senior revolving credit facility
maturing August 1, 1999 of up to $65 million, with funds managed by DDJ
Capital Management LLC (the "Funds") and BankBoston, N.A. ("BankBoston").
In consideration of the senior revolving credit facility, the Company
issued to the Funds and BankBoston equity in the Company representing 19%
of the Company's outstanding common stock, calculated on a fully diluted
basis.
23
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CML GROUP, INC.
By: /s/ JOHN A.C. POUND
-----------------------------------
John A.C. Pound
Chairman and Chief Executive
Officer
Date: November 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
Chairman of the Board of
/s/ JOHN A.C. POUND Directors and Chief Executive
- --------------------------------------------- Officer (Principal Executive
John A.C. Pound Officer)
/s/ GLENN E. DAVIS Executive Vice President of
- --------------------------------------------- Finance and Administration, and
Glenn E. Davis Chief Financial Officer
(Principal Financial Officer)
/s/ PAUL J. BAILEY Vice President and Controller
- --------------------------------------------- (Principal Accounting Officer)
Paul J. Bailey
/s/ WARREN J. ISABELLE Director
- ---------------------------------------------
Warren J. Isabelle
/s/ THOMAS H. LENAGH Director
- ---------------------------------------------
Thomas H. Lenagh
/s/ KATHLEEN TIERNEY Director
- ---------------------------------------------
Kathleen Tierney
/s/ MARTIN E. WELCH, III Director
- ---------------------------------------------
Martin E. Welch, III
</TABLE>
November 13, 1998
25
<PAGE> 27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
OF
CML GROUP, INC.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Independent Auditors' Report................................ 26
Consolidated Financial Statements:
Consolidated Statements of Operations -- Years Ended July
31, 1998, 1997 and 1996................................ 27
Consolidated Balance Sheets -- July 31, 1998 and July 31,
1997................................................... 28-29
Consolidated Statements of Cash Flows -- Years Ended July
31, 1998, 1997 and 1996................................ 30
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) -- Years Ended July 31, 1998, 1997 and
1996................................................... 31
Notes to Consolidated Financial Statements................ 32-47
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts.......... 48
</TABLE>
All other schedules are omitted because either they are not applicable or
the required information is included in the consolidated financial statements or
notes thereto.
26
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of CML Group, Inc.:
We have audited the accompanying consolidated balance sheets of CML Group,
Inc. and its subsidiaries as of July 31, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity
(deficiency), and cash flows for each of the years in the three-year period
ended July 31, 1998. Our audits also included the financial statement schedule
listed in Item 14.(a)2. These financial statements and financial statement
schedule are the responsibility of CML Group, Inc. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CML Group, Inc. and its
subsidiaries at July 31, 1998 and 1997, and the results of their operations and
their cash flows for each of the years in the three-year period ended July 31,
1998, in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
The accompanying consolidated financial statements for the year ended July
31, 1998 have been prepared assuming that CML Group, Inc. will continue as a
going concern. As discussed in Note 1 to the financial statements, CML Group,
Inc.'s recurring losses from operations, stockholders' deficiency and
non-compliance with its financing agreements raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1 to the financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As further discussed in Note 1, on November 5, 1998 the Company filed a
petition with the United States Bankruptcy Court seeking protection for the
Company's NordicTrack subsidiary under Chapter 11 of the United States
Bankruptcy Code. The financial statements do not include any adjustments that
might result from this event.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
September 28, 1998 (except for Note 1, the second
paragraph of Note 7 and the tenth paragraph of Note 10
as to which the dates are November 5, October 14 and
November 12, 1998, respectively)
27
<PAGE> 29
CML GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales........................................... $ 274,360 $ 341,315 $ 544,905
----------- ----------- -----------
Less costs and expenses:
Cost of goods sold................................ 161,875 164,081 256,738
Selling, general and administrative expenses...... 185,606 235,765 385,539
Impairment charges................................ 2,877 603 --
Restructuring charges............................. 8,890 -- --
Provision for loss on disposition of businesses
held for sale.................................. -- -- 30,824
Interest expense, net............................. 11,074 1,797 3,088
----------- ----------- -----------
370,322 402,246 676,189
----------- ----------- -----------
Loss from continuing operations before income
taxes............................................. (95,962) (60,931) (131,284)
Provision (benefit) for income taxes................ 31,416 (20,717) (46,475)
----------- ----------- -----------
Loss from continuing operations..................... (127,378) (40,214) (84,809)
----------- ----------- -----------
Loss from discontinued operations:
Loss from operations, net of income taxes......... -- -- --
Provision for loss on disposal of discontinued
operations, net of income tax benefit.......... -- -- (15,615)
----------- ----------- -----------
-- -- (15,615)
----------- ----------- -----------
Net loss............................................ $ (127,378) $ (40,214) $ (100,424)
=========== =========== ===========
Loss per share, basic and diluted (Note 1):
Loss from continuing operations................... $ (2.54) $ (0.81) $ (1.72)
Net loss.......................................... $ (2.54) $ (0.81) $ (2.04)
Weighted average number of shares................... 50,207,014 49,837,026 49,339,007
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 30
CML GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
---------------------
1998 1997
-------- ---------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,851 $ 4,359
Accounts receivable -- trade, less allowance for doubtful
accounts of $2,115 in 1998 and $2,706 in 1997.......... 7,290 8,151
Refundable income taxes................................... 108 --
Deferred income taxes..................................... -- 3,903
Inventories:
Raw materials.......................................... 2,151 1,971
Work in process........................................ 178 836
Finished goods......................................... 22,424 31,115
------- --------
Total inventories........................................... 24,753 33,922
Other current assets........................................ 3,646 8,479
------- --------
Total current assets........................................ 37,648 58,814
------- --------
Property, plant and equipment:
Land and buildings........................................ 12,663 19,404
Machinery and equipment................................... 33,983 45,257
Leasehold improvements.................................... 28,773 30,020
------- --------
75,419 94,681
Less accumulated depreciation............................. (43,474) (46,223)
------- --------
Property, plant and equipment, net.......................... 31,945 48,458
Goodwill.................................................... 8,309 8,546
Deferred income taxes....................................... -- 24,412
Other assets................................................ 16,430 6,106
------- --------
$94,332 $146,336
======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 31
CML GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
---------------------
1998 1997
--------- --------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt......................... $ 237 $ 35
Revolving line of credit.................................. 31,982 --
Convertible subordinated debentures and notes............. 61,593 --
Accounts payable.......................................... 16,247 10,839
Accrued compensation...................................... 5,641 4,339
Accrued advertising....................................... 991 1,514
Accrued insurance......................................... 3,857 4,544
Accrued lease termination costs........................... 2,375 2,587
Other accrued expenses.................................... 27,640 25,261
--------- --------
Total current liabilities................................... 150,563 49,119
--------- --------
Noncurrent liabilities:
Long-term debt............................................ -- 245
Convertible subordinated debentures....................... -- 41,593
Other noncurrent liabilities.............................. 10,427 9,651
--------- --------
Total noncurrent liabilities................................ 10,427 51,489
Commitments and contingencies (Note 10).....................
Stockholders' equity (deficiency):
Common stock, par value $.10 per share
Authorized -- 120,000,000 shares Issued -- 64,927,274
shares in 1998 and 52,738,268 shares in 1997........... 6,493 5,274
Additional paid-in capital................................ 93,370 80,654
Retained deficit.......................................... (131,020) (3,642)
--------- --------
(31,157) 82,286
Less treasury stock, at cost, 2,817,471 shares in 1998 and
2,901,401 shares in 1997.................................. (35,501) (36,558)
--------- --------
(66,658) 45,728
--------- --------
$ 94,332 $146,336
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 32
CML GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------
1998 1997 1996
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(127,378) $(40,214) $(100,424)
--------- -------- ---------
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Impairment charges.................................. 2,877 603 --
Restructuring charges............................... 8,890 -- --
Depreciation and amortization....................... 17,023 14,830 28,738
Provision for loss on disposition of businesses held
for sale.......................................... -- -- 30,824
Provision for loss on disposal of discontinued
operations........................................ -- -- 24,023
Royalty settlement.................................. -- -- 1,367
Loss on disposal of property, plant and equipment... 47 1,197 2,465
Changes in assets and liabilities:
Accounts receivable -- trade...................... (190) 2,419 35,663
Refundable income taxes........................... (108) 53,874 (53,874)
Inventories....................................... 7,568 (3,488) 3,864
Other current assets.............................. 13,099 1,345 19,955
Deferred income taxes............................. 28,315 (16,918) 2,135
Accounts payable and accrued expenses............. 5,917 (29,627) 6,470
Accrued income taxes.............................. -- -- (1,833)
Other assets and noncurrent liabilities........... (9,914) 2,706 179
--------- -------- ---------
Total adjustments........................................ 73,524 26,941 99,976
--------- -------- ---------
Net cash used in operating activities.................... (53,854) (13,273) (448)
--------- -------- ---------
Cash flows from investing activities:
Acquisitions of property, plant and equipment.......... (6,666) (5,931) (21,555)
Net proceeds from sale of discontinued operations...... -- 1,658 11,618
Net proceeds from sale of business held for sale....... 768 4,368 34,870
Net proceeds from the sale of assets................... 4,782 -- --
Reduction in notes receivable.......................... 42 41 52
--------- -------- ---------
Net cash provided by (used in) investing activities...... (1,074) 136 24,985
--------- -------- ---------
Cash flows from financing activities:
Increase in long-term debt............................. 31,982 -- 289
Reduction in long-term debt............................ (43) (45) (10,249)
Proceeds from the sale of convertible debentures and
notes............................................... 20,000 -- --
Dividends paid......................................... -- (494) (4,189)
Exercise of stock options and employee stock purchase
rights.............................................. 481 362 242
Acquisition of treasury shares......................... -- -- (1,295)
--------- -------- ---------
Net cash provided by (used in) financing activities...... 52,420 (177) (15,202)
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents..... (2,508) (13,314) 9,335
Cash and cash equivalents at beginning of year........... 4,359 17,673 8,338
--------- -------- ---------
Cash and cash equivalents at end of year................. $ 1,851 $ 4,359 $ 17,673
--------- -------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 6,637 $ 2,579 $ 3,520
--------- -------- ---------
Income taxes........................................... $ 115 $ 444 $ 1,317
--------- -------- ---------
</TABLE>
The Company did not record any tax benefits resulting from the exercise of
stock options in fiscal 1998 or 1997 and recorded tax benefits of $59 during
fiscal 1996.
See Notes to Consolidated Financial Statements.
31
<PAGE> 33
CML GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
---------------------- ADDITIONAL RETAINED -------------------
SHARES PAR VALUE PAID-IN-CAPITAL EARNINGS (DEFICIT) SHARES COST
---------- --------- --------------- ------------------ --------- -------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1995.... 52,076,674 $5,207 $79,805 $ 140,444 2,797,791 $36,904
Exercise of stock
options................. 102,360 10 311 -- 38,857 204
Employee stock purchase
plan sales & benefit
plan contributions...... 91,729 9 (425) -- (62,215) (790)
Royalty settlement........ 352,941 36 1,332 -- -- --
Tax benefit from exercise
of stock options........ -- -- 59 -- -- --
Acquisition of treasury
shares.................. -- -- -- -- 189,000 1,295
Cash dividends ($0.06 per
share).................. -- -- -- (2,954) -- --
Net loss.................. -- -- -- (100,424) -- --
---------- ------ ------- --------- --------- -------
BALANCE, JULY 31, 1996.... 52,623,704 5,262 81,082 37,066 2,963,433 37,613
Exercise of stock
options................. 138,960 14 366 -- 29,333 99
Employee stock purchase
plan sales & benefit
plan contributions...... (24,396) (2) (794) -- (91,365) (1,154)
Cash dividends ($0.01 per
share).................. -- -- -- (494) -- --
Net loss.................. -- -- -- (40,214) -- --
---------- ------ ------- --------- --------- -------
BALANCE, JULY 31, 1997.... 52,738,268 5,274 80,654 (3,642) 2,901,401 36,558
Exercise of stock
options................. 183,614 18 462 -- -- --
Employee stock purchase
plan sales & benefit
plan contributions...... 114,054 11 (689) -- (83,930) (1,057)
Issuance of deferred
compensation plan
shares.................. 76,620 8 68 -- -- --
Shares issued to senior
secured lenders......... 11,814,718 1,182 9,895 -- -- --
Warrants issued to senior
secured lenders......... -- -- 2,980 -- -- --
Net loss.................. -- -- -- (127,378) -- --
---------- ------ ------- --------- --------- -------
BALANCE, JULY 31, 1998.... 64,927,274 $6,493 $93,370 $(131,020) 2,817,471 $35,501
========== ====== ======= ========= ========= =======
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 34
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
CML Group, Inc. and its wholly-owned subsidiaries (the "Company") and have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As shown
in the accompanying financial statements, during the years ended July 31, 1998,
1997 and 1996, the Company's losses from continuing operations before income
taxes aggregated $95,962, $60,931 and $131,284, respectively, and, as of July
31, 1998, the Company's current liabilities exceeded its current assets by
$112,915 and its total liabilities exceeded its total assets by $66,658. These
factors among others may indicate that the Company will be unable to continue as
a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. As described in Notes 6 and 7 of Notes to
Consolidated Financial Statements, the Company is not in compliance with its
financing agreements. On November 5, 1998, however, the lenders under the
Company's revolving credit facility and the holders of the 15% secured
convertible redeemable subordinated notes due 2003 agreed to forebear from
exercising their rights under the guaranties issued by the Company and its
subsidiaries until the earlier of January 31, 1999 or an event of default under
the forbearance agreement. The Company has classified amounts due under its
financing agreements as current liabilities in the accompanying balance sheet as
July 31, 1998. The Company's continuation as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms and covenants of its financing agreements, to
obtain additional financing or refinancing as may be required, and ultimately to
attain successful operations.
On November 5, 1998, the Company's NordicTrack and Nordic Advantage
subsidiaries filed petitions with the United States Bankruptcy Court for the
Western Division of the District of Massachusetts seeking protection under
Chapter 11 of the United States Bankruptcy Code. A plan of reorganization which
may include a partial or complete liquidation of NordicTrack's and Nordic
Advantage's assets is being prepared and will be submitted to the Court. In
addition, management intends to pursue a recapitalization plan which, if
successful, would result in a reduction in the amount of indebtedness
outstanding under the Company's revolving credit agreement to $35,000 or less by
April 1, 1999, to comply with the existing revolving credit agreement. The Plan
would also raise capital to fund expansion at Smith & Hawken. If the Company is
unable to execute its recapitalization plan, it could be forced to sell Smith &
Hawken or seek protection under the insolvency laws.
Summarized unaudited financial information with respect to NordicTrack as
of July 31, 1998 and 1997 and statement of operations information for each of
the fiscal years in the three year period ended July 31, 1998 is presented
below:
<TABLE>
<CAPTION>
JULY 31,
-------------------
BALANCE SHEET INFORMATION: 1998 1997
- -------------------------- -------- -------
<S> <C> <C>
Current assets.......................................... $ 20,170 $37,400
Noncurrent assets....................................... 16,747 50,894
-------- -------
Total assets....................................... $ 36,917 $88,294
======== =======
Current liabilities..................................... $ 62,358(1) $31,543
Noncurrent liabilities.................................. -- 220
Stockholders' equity (deficiency)....................... (25,441) 56,531
-------- -------
Total liabilities and stockholder's equity......... $ 36,917 $88,294
======== =======
</TABLE>
- ---------------
(1) Includes $24,735 of debt under the Company's revolving credit agreement
which is guaranteed by the Company and subsidiaries.
32
<PAGE> 35
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------
STATEMENT OF OPERATIONS INFORMATION: 1998 1997 1996
- ------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Sales.................................... $186,319 $267,740 $368,151
-------- -------- --------
Less costs and expenses:
Cost of goods sold.................... 119,679 129,269 163,849
Selling, general and administrative
expenses............................ 140,522 197,112 276,911
Impairment and restructuring
charges............................. 11,767 -- --
Interest (income) expense, net........ 2,533 (1,273) 135
-------- -------- --------
274,501 325,108 440,895
-------- -------- --------
Loss from continuing operations before
income taxes.......................... $(88,182) $(57,368) $(72,744)
======== ======== ========
</TABLE>
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All significant intercompany transactions and balances are eliminated.
Cash Equivalents
The Company considers all highly liquid debt instruments with purchased
remaining maturities of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market with cost being
determined by either the first-in, first-out or average cost methods.
Direct Response Advertising and Catalog Costs
Catalog costs are capitalized and amortized in proportion to the sales they
generate over periods not exceeding three months and six months, respectively.
Unamortized catalog costs are included in other current assets. Direct response
advertising expenses of the Company were $33,402, $72,149 and $113,213 in fiscal
1998, 1997 and 1996, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives which range from three to
forty years or over the terms of the related leases, if such periods are
shorter.
Goodwill
Goodwill associated with the purchase of the Company's Smith & Hawken
subsidiary is being amortized on a straight-line basis over forty years. On an
annual basis, the Company reviews the carrying value of goodwill against
projections of undiscounted cash flows to evaluate the propriety of its carrying
value and amortization period. Accumulated amortization was $1,203 at July 31,
1998 and $966 at July 31, 1997. The Company wrote off the goodwill and
accumulated amortization relating to The Nature Company in fiscal 1996 in
connection with its disposition.
33
<PAGE> 36
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred income taxes reflect the tax effects of temporary differences
between financial reporting and income tax reporting which result principally
from the valuation of finished goods inventories, the treatment of prepaid and
accrued expenses, net operating losses and depreciation methods.
Loan Origination Costs
Loan origination costs associated with the Company's revolving credit
facility are amortized over the life of the revolving credit facility.
Capitalized costs associated with the July 27, 1998 amendment to the revolving
credit facility total $13,819 as of July 31, 1998. These costs will be amortized
through interest expense over the 12 month period ended July 31, 1999.
Capitalized costs at July 31, 1998 include $11,077 for the issuance of
11,814,718 shares of common stock to the lenders, a commitment fee of $2,275 and
$467 for various other closing costs.
Per Share Data
Earnings per share data is presented in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which was
implemented by the Company in the second quarter of fiscal 1998. The Company
calculated loss per share for each fiscal year by dividing the net loss by the
weighted average number of common shares outstanding. The net losses and the
number of shares included in the calculations of basic and diluted net losses
per share are the same during each fiscal year. Certain securities that could
potentially dilute basic earnings per share in the future were not included in
the computations of diluted net losses per share because to do so would have
been antidilutive for the periods presented. These securities include the
Company's convertible subordinated debentures, convertible subordinated notes,
warrants, and stock options; 2,435,505 shares associated with these securities
would have been included in the weighted average share calculation for the year
ended July 31, 1998 had their inclusion not been antidilutive.
Impairment of Long-Lived Assets
The Company evaluates impairment of long-lived assets in compliance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." As such, the carrying values of impaired
assets are compared with their discounted expected future cash flows to
determine the extent of any impairment charge. For purposes of SFAS No. 121,
assets are grouped at the retail store level which is the lowest level for which
there is identifiable and independent cash flow information. The Company
recorded impairment charges of $2,877 in fiscal 1998 and $603 in fiscal 1997.
Employee Stock-Based Compensation
The Company measures employee stock-based compensation in its consolidated
financial statements according to the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation
expense is recognized under APB Opinion No. 25 when employee stock-based awards
are granted at prices different from the market price of the stock on the date
of grant. The Company discloses the pro forma impact on earnings and earnings
per share from application of the fair value method of calculating employee
stock-based compensation in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation."
New Accounting Standards
The Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in June 1997. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131 is also effective
35
<PAGE> 37
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for fiscal years beginning after December 15, 1997 but is not applicable to
interim financial statements in the initial year of application.
Use of Estimates
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the consolidated financial statements
and the reported amount of revenues and expenses during the period. Actual
results could differ from those estimates.
Reclassifications
Certain fiscal 1997 and 1996 amounts have been reclassified to conform to
the fiscal 1998 presentation.
NOTE 3 -- NORDICTRACK IMPAIRMENT AND RESTRUCTURING CHARGES
During the second quarter of fiscal 1998, NordicTrack announced plans to
strategically reposition its operations by outsourcing its manufacturing and
distribution activities and closing its Glencoe, Minnesota production facility;
exiting or outsourcing its direct response and catalog businesses; and closing
underperforming stores. As a result of these strategic initiatives, NordicTrack
recorded non-recurring restructuring charges of $8,890 during the second and
fourth quarters of fiscal 1998 for severance, plant shutdown and other costs. As
of July 31, 1998, $6,750 of the reserve had been utilized leaving a balance of
$2,140 to cover future costs. Of the costs charged against the reserve in the
third and fourth quarters of fiscal 1998, $1,042 required the expenditure of
cash, primarily for severance.
During the second quarter of fiscal 1998, NordicTrack also recorded $2,877
of asset impairment charges in compliance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Impaired assets included tooling used to
manufacture cross-country skiers and non-motorized treadmills in Glencoe,
Minnesota and retail store fixed assets. Tooling costs were written off in their
entirety. Store fixed asset write-downs were measured based on a comparison of
the assets' net book value to the net present value of the stores' estimated
future net cash flows.
In addition, in the second quarter of fiscal 1998, NordicTrack wrote down
inventory by $1,086, which was included in cost of goods sold, and accrued
$2,023 for lease termination and other costs related to the reorganization plan.
In October 1998, NordicTrack also announced the closing of substantially all of
its seasonal kiosks and additional layoffs of up to 800 employees at its Chaska,
Minnesota and Glencoe, Minnesota facilities.
NOTE 4 -- DISCONTINUED OPERATIONS
During fiscal 1995, the Company decided to sell its wholly-owned
subsidiary, Britches of Georgetowne ("Britches"), and accounted for Britches as
a discontinued operation. On April 12, 1996, the Company sold the common stock
of Britches for $13,400 in cash plus the assumption of certain liabilities. The
Company recorded a provision for loss on the disposal of Britches of $15,615,
net of an income tax benefit of $8,408 in fiscal 1996. Britches' net sales were
$89,285 in fiscal 1996.
NOTE 5 -- DIVESTITURE OF THE NATURE COMPANY AND HEAR MUSIC
The Company decided to divest its Nature Company and Hear Music
subsidiaries during the third quarter of fiscal 1996. Included in the loss from
continuing operations for fiscal 1996 is a pre-tax charge of $30,824 to write
down the net assets of The Nature Company and Hear Music to estimated net
realizable value and to accrue estimated lease termination and assignment costs
and other transaction costs. The Nature Company and Hear Music had sales of
$112,705 and pre-tax operating losses of $14,242 in fiscal 1996,
35
<PAGE> 38
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excluding the $30,824 write-down recorded in anticipation of the sale of The
Nature Company and Hear Music.
On June 6, 1996, substantially all of the assets of The Nature Company were
sold for $39,870 in cash and the assumption of certain liabilities. The Company
sold substantially all of the assets of Hear Music on October 23, 1996 for $371
in cash plus the assumption of certain liabilities.
NOTE 6 -- REVOLVING CREDIT AGREEMENT AND LONG-TERM DEBT
Long-term debt consisted of the following at July 31:
<TABLE>
<CAPTION>
1998 1997
-------- ----
<S> <C> <C>
Revolving credit loan..................................... $ 31,982 $ --
Note payable.............................................. 212 233
Obligations under capital leases (Note 9)................. 25 47
-------- ----
32,219 280
Less current portion...................................... (32,219) (35)
-------- ----
Long-term debt............................................ $ -- $245
======== ====
</TABLE>
Revolving Credit Agreement
On July 27, 1998, the Company's senior secured revolving credit agreement
was amended to, among other things, increase the total borrowing capacity of the
Company's subsidiaries for loan advances and letters of credit from $50,000 to
$65,000 and increase the maximum overadvance amount from $35,000 to $49,896. The
amended agreement, which expires on August 1, 1999, allocates the total
commitment between NordicTrack and Smith & Hawken. Loan advances under the
agreement bear interest at 4.0% above the lenders' "base rate" which
approximates the prime rate. At July 31, 1998, the lenders' prime rate was 8.5%.
The agreement provides for a reduction in the total commitment for net cash
proceeds received from the sale of assets not in the ordinary course of business
or the issuance of subordinated debt or equity securities. To the extent the
Company is not successful in reducing the total commitment to $35,000, or less,
by April 1, 1999, the Company must issue notes to the lenders in the principal
amount equal to interest which would have accrued at the rate of 1.5% per month,
compounded monthly, on the outstanding principal amount of the loans from
January 1, 1999 through the date on which the total commitment is reduced to not
more than $35,000. Thereafter and until the total commitment is reduced to
$35,000, all loans bear interest at the base rate plus 4.0%, payable monthly in
arrears in cash, plus 1.5% per month, payable monthly in arrears by issuance of
notes in the principal amount of such accrued unpaid interest. Overdue principal
and interest on loans and all other overdue amounts bear interest compounded
monthly and payable on demand at a rate per annum equal to 2.0% above the
otherwise applicable interest rate. An unused line fee of 0.5% per annum of the
unused commitment is payable quarterly in arrears. The Company may not pay cash
dividends and its capital expenditures are limited under the agreement. In
connection with an interim financing agreement obtained during April 1998, the
Company issued warrants to one of the lenders to purchase 1,621,741 shares of
the Company's common stock at a nominal exercise price. Prior to July 31, 1998,
approximately 1,045,400 warrants expired. In connection with the July 27, 1998
amendment, the Company issued 11,814,718 shares of common stock, with a market
value of $11,077 on July 27, 1998, to the other two lenders. The market value of
the common stock, together with a commitment fee of $2,275 and other closing
costs, are capitalized into other assets and will be amortized over the 12 month
period ending July 31, 1999. Advances under the Company's revolving line of
credit are classified as current liabilities in the consolidated financial
statements. An event of default under the revolving credit agreement, if not
waived by the senior secured lenders, constitutes a default under the terms of
the convertible subordinated debentures and notes described in Note 7 of Notes
to Consolidated Financial Statements.
36
<PAGE> 39
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The bankruptcy petitions filed by NordicTrack and Nordic Advantage on
November 5, 1998 (see Note 1 of Notes to Consolidated Financial Statements)
constitute defaults under the Company's revolving credit agreement. On November
5, 1998, however, the lenders under the Company's revolving credit facility and
the holders of the 15% secured convertible redeemable subordinated notes due
2003 agreed to forbear from exercising their rights under the guaranties issued
by the Company and its subsidiaries until the earlier of January 31, 1999 or an
event of default under the forbearance agreement. The forbearance agreement
increases the total borrowing capacity of the Company's subsidiaries under the
revolving credit facility to $72,000 including $1,500 of debtor in possession
financing for NordicTrack. In addition, the forbearance agreement included a
commitment fee of $1,380 payable in cash to the senior secured lenders. A
commitment fee of $400 also is due to the State of Wisconsin Investment Board,
which is the holder of $20,000 of secured convertible subordinated notes (see
Note 7 of Notes to Consolidated Financial Statements).
Loan advances outstanding under the Company's revolving credit agreement
averaged $25,398 in fiscal 1998 with a maximum of $48,518 outstanding at any
time. The average interest rate on advances outstanding during the year was
10.6% and the average effective rate, after giving effect to loan origination
costs and commitment fees, was 29.7%. At July 31, 1998, the Company had advances
of $31,982 and letters of credit of $3,549 outstanding under the agreement.
Note Payable
The note payable, which bears interest at 6.0%, is due in monthly
installments of approximately $3 and matures on August 1, 2006. As a result of
the Company's non-compliance with covenants in its revolving credit agreement,
all amounts payable under the note may be accelerated. Accordingly, the note
payable is classified as a current liability in the consolidated financial
statements.
Product Financing Arrangements
The Company has entered into two product financing arrangements, one in
fiscal 1996 with limited recourse and the other in fiscal 1997 with full
recourse. Under the arrangement with limited recourse, the Company assumes all
risk of credit loss on bad debts between 4% and 8% of average receivables; at
July 31, 1998 the receivable portfolio balance under this arrangement was
$17,962. The Company is responsible for all bad debts under the financing
arrangement with full recourse; the receivable portfolio balance under this
arrangement was $1,267 at July 31, 1998. Both arrangements require the Company
to pay the financing company, on a monthly basis, an amount equal to the
difference between the average monthly high-grade commercial paper rate, which
was 5.52% at July 31, 1998, and 5.75% on the average portfolio balance. The
arrangement with limited recourse is a five year contract that may be terminated
during the first three years upon six months notice. The arrangement with full
recourse expired in November 1997.
NOTE 7 -- CONVERTIBLE SUBORDINATED DEBENTURES AND NOTES (CLASSIFIED AS CURRENT
LIABILITIES)
On January 20, 1993, the Company issued $57,500 of 5 1/2% convertible
subordinated debentures due January 15, 2003. As of July 31, 1998, debentures
with a par value of $41,593 were outstanding. Interest on
37
<PAGE> 40
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the outstanding debentures is payable semiannually in arrears on January 15 and
July 15 of each year. The debentures are convertible into shares of the
Company's common stock at a conversion price of $25.917 per share, subject to
adjustment under certain circumstances. The debentures are redeemable at the
option of the Company, in whole or in part, at par. The estimated fair value of
the convertible subordinated debentures based upon quoted market prices was
approximately $22,980 and $30,155 at July 31, 1998 and 1997, respectively. The
convertible subordinated debentures are subject to redemption at the option of
the holders if the Company's common stock is neither listed for trading on a
United States national securities exchange nor approved for trading on an
established automated over-the-counter trading market in the United States. The
Company's common stock continues to be listed on the New York Stock Exchange,
although the Company does not currently meet the listing requirements of the
exchange. The New York Stock Exchange is reviewing the continued listing status
of the Company.
On July 27, 1998, the Company issued a $20,000 secured convertible
subordinated note to the State of Wisconsin Investment Board which, on October
14, 1998, was replaced with two notes totaling $20,000 payable to the State of
Wisconsin Investment Board. The notes mature on July 27, 2003 and bear interest
at 15% payable semiannually in arrears on June 30 and December 31. The notes are
convertible into shares of the Company's common stock at the rate of one share
of common stock for each $4.00 of principal amount surrendered for conversion,
subject to adjustment under certain circumstances. The notes are redeemable at
par at the option of the Company, in whole or in part, or at the option of the
holder after September 1, 2000. The estimated fair value of the secured
convertible subordinated notes was approximately $20,000 at July 31, 1998. The
Company's non-compliance with covenants contained in its revolving credit
agreement discussed in Note 6 of Notes to Consolidated Financial Statements,
constitutes defaults on the notes. The State of Wisconsin Investment Board,
however, agreed to forbear from exercising its rights and remedies under the
notes until January 31, 1999, in exchange for a commitment fee of $400 which
will be added to the principal amount of the notes. Under the terms of the
forbearance agreement, the State of Wisconsin Investment Board also agreed to
defer the due date of the first interest payment on the notes from December 31,
1998 until January 31, 1999.
NOTE 8 -- INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Current
Federal........................................... $ -- $ 31 $(48,740)
State and foreign................................. 78 106 143
------- -------- --------
78 137 (48,597)
Deferred
Federal........................................... 31,757 (20,084) 778
State and foreign................................. (419) (770) 1,344
------- -------- --------
Total............................................... $31,416 $(20,717) $(46,475)
======= ======== ========
Continuing operations............................... $31,416 $(20,717) $(46,475)
Discontinued operations (Note 3).................... -- -- (8,408)
------- -------- --------
Total............................................... $31,416 $(20,717) $(54,883)
======= ======== ========
</TABLE>
38
<PAGE> 41
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The sources of prepaid and deferred income taxes and the related tax effect
are as follows:
<TABLE>
<CAPTION>
JULY 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
Current Assets
Inventories............................................... $ 2,711 $ 2,343
Depreciation and amortization............................. 399 --
Compensation expenses..................................... 882 380
Occupancy expenses........................................ 191 335
Receivable reserves....................................... 573 853
Other..................................................... 3,026 2,015
Less valuation allowance.................................. (7,200) (1,134)
-------- -------
582 4,792
-------- -------
Noncurrent Assets
Depreciation and amortization............................. 1,610 999
Net operating losses...................................... 54,394 27,221
Insurance expenses........................................ 1,322 1,554
Occupancy expenses........................................ 632 897
Alternative minimum tax credit............................ 2,270 2,270
Other..................................................... 3,163 20
Less valuation allowance.................................. (61,885) (7,095)
-------- -------
1,506 25,866
-------- -------
Total assets................................................ $ 2,088 $30,658
======== =======
Current Liabilities
Catalog costs............................................. $ 414 $ 494
Advertising costs......................................... -- 234
Other..................................................... 168 161
-------- -------
582 889
-------- -------
Noncurrent Liabilities
Goodwill.................................................. 1,506 1,454
-------- -------
1,506 1,454
-------- -------
Total liabilities........................................... $ 2,088 $ 2,343
======== =======
Total net deferred taxes.................................... $ -- $28,315
======== =======
</TABLE>
See Note 10 "Tax Matters" for additional tax information.
The valuation allowance increased by $60,856 during fiscal 1998 to $69,085
at July 31, 1998 primarily due to net operating losses and a change in estimate
with respect to the future realization of the Company's deferred tax assets. The
July 31, 1998 valuation allowance primarily relates to net operating loss
carryforwards that may not be realized. The valuation allowance increased by
$446 during fiscal 1997 to $8,229 at July 31, 1997 primarily due to foreign
related losses. The July 31, 1997 valuation allowance primarily relates to
foreign net operating loss carryforwards that may not be realized and the
alternative minimum tax credit. Net operating loss carryforwards begin expiring
in 2000.
39
<PAGE> 42
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the effective
tax rate for continuing operations is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate........................... (34.0)% (34.0)% (35.0)%
State and foreign income taxes net of federal tax effect.... 0.1 0.2 (0.5)
Increase in valuation allowance, net........................ 66.6 -- --
Benefit of foreign sales corporation........................ -- (0.1) (0.2)
Other....................................................... -- (0.1) 0.3
----- ----- -----
Effective tax rate.......................................... 32.7% (34.0)% (35.4)%
===== ===== =====
</TABLE>
NOTE 9 -- EMPLOYEE BENEFIT PLANS
Stock Option Plans
At July 31, 1998, there were 340,458 and 2,629,436 shares reserved for
issuance pursuant to the Company's 1982 and 1991 Stock Option Plans,
respectively. The terms of both Plans generally provide for options to be
granted at fair market value as of the date of grant for a term of no longer
than ten years. The options generally become exercisable over the first four
years. However, options that fully vest over their first two years representing
760,000 shares of common stock were granted in fiscal 1998.
At July 31, 1998, there were 54,000 and 250,000 shares reserved for
issuance pursuant to the Company's 1993 and 1996 Director Option Plans,
respectively. The terms of both Plans generally provide for options to be
granted to non-employee directors at fair market value as of the date of grant
for a term of ten years. The options vest in three equal annual installments
beginning on the first anniversary of the date of grant.
Combined activity under the Company's option plans is summarized as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
----------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
---------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
BALANCE AT AUGUST 1, 1995......... 2,038,195 $ 8.97 1,359,209 $7.39
Granted......................... 553,728 5.03
Exercised....................... (102,360) 3.14
Terminated...................... (212,160) 13.72
---------- ------ --------- -----
BALANCE AT JULY 31, 1996.......... 2,277,403 $ 7.83 1,422,192 $7.91
Granted......................... 584,000 3.53
Exercised....................... (138,960) 2.74
Terminated...................... (385,475) 9.45
---------- ------ --------- -----
BALANCE AT JULY 31, 1997.......... 2,336,968 $ 6.79 1,438,088 $8.01
Granted......................... 1,280,929 2.30
Exercised....................... (183,614) 2.62
Terminated...................... (1,034,322) 6.89
---------- ------ --------- -----
BALANCE AT JULY 31, 1998.......... 2,399,961 $ 4.67 1,408,867 $5.88
========== ====== ========= =====
</TABLE>
40
<PAGE> 43
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of outstanding options as of July 31, 1998 follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------------------- ----------------------------
REMAINING
RANGE OF EXERCISE NUMBER OF WEIGHTED AVERAGE CONTRACTUAL LIFE NUMBER OF WEIGHTED AVERAGE
PRICES SHARES EXERCISE PRICE IN YEARS SHARES EXERCISE PRICE
- ----------------- --------- ---------------- ------------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$1.44 - $5.00........ 1,744,812 $ 2.48 7.81 836,683 $ 2.32
$5.01 - $10.00....... 477,499 7.57 6.00 394,534 7.77
$10.01 & higher...... 177,650 18.41 4.58 177,650 18.41
--------- ------ ---- --------- ------
2,399,961 $ 4.67 7.21 1,408,867 $ 5.88
========= ====== ==== ========= ======
</TABLE>
Employee Stock Purchase Plans
The Company's 1996 Employee Stock Purchase Plan authorizes the issuance of
975,000 shares in three annual offerings of 325,000 shares, plus the shares not
purchased in prior offerings. Under the third offering, which ends June 14,
1999, 202 employees have elected to receive 296,327 shares. The first offering
which ended June 14, 1997, and the second offering which ended June 14, 1998,
resulted in the issuance of 37,819 and 83,410 shares to 43 and 56 employees at
prices of $2.13 and $1.54 per share, respectively.
Employee Benefit Plan
The Company maintains a defined contribution benefit plan covering
substantially all of its employees. The Company makes annual contributions to
the plan, either in cash or the Company's common stock, based on a percentage of
employee compensation as provided by the terms of the plan. Contributions by the
Company to the plan charged to operations in fiscal 1998, 1997 and 1996 were
$563, $501 and $1,010, respectively.
Deferred Compensation Plan
The Company's Incentive Deferred Compensation Plan provides for the grant
of incentive compensation awards in the form of shares of common stock to senior
executive employees of the Company and its subsidiaries. These shares will be
issued to the participants and distributed to them no later than one year after
their retirement, disability or death, or their sixty-fifth birthday, whichever
occurs first. No awards have been made under the plan in the last ten fiscal
years. During fiscal 1998, the Company issued 76,620 shares of common stock to
plan participants leaving a balance of 28,140 shares in the plan as of July 31,
1998.
SFAS No. 123 Pro Forma Disclosures
Compensation cost based on the fair value method of valuing stock-based
awards would have resulted in the following pro forma losses and losses per
share, in accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation:"
41
<PAGE> 44
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
NET LOSS FROM CONTINUING OPERATIONS:
As reported.................................... $(127,378) $(40,214) $ (84,809)
Pro forma...................................... (128,480) (40,704) (85,093)
NET LOSS:
As reported.................................... $(127,378) $(40,214) $(100,424)
Pro forma...................................... (128,480) (40,704) (100,708)
BASIC & DILUTED NET LOSS PER SHARE FROM
CONTINUING OPERATIONS:
As reported.................................... $ (2.54) $ (0.81) $ (1.72)
Pro forma...................................... (2.56) (0.82) (1.72)
BASIC & DILUTED NET LOSS PER SHARE:
As reported.................................... $ (2.54) $ (0.81) $ (2.04)
Pro forma...................................... (2.56) (0.82) (2.04)
</TABLE>
Fair values were calculated using the Black-Scholes option pricing model.
Key assumptions used in the model were:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Dividend yield...................... 0.00% 0.00% 0.00%
Volatility.......................... 94.83 - 115.17% 61.73 - 76.89% 38.96 - 72.47%
Risk-free interest rate............. 5.42 - 6.33% 5.72 - 6.88% 5.82 - 6.81%
Expected life in years.............. 9.26 7.12 9.16
Weighted average grant date fair
value............................. $2.01 $1.49 $2.80
</TABLE>
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain office, distribution and retail space, as well
as vehicles and equipment, under agreements expiring over the next 15 years.
Most of the leases for retail space provide for renewal options, contain normal
escalation clauses and require the Company to pay real estate taxes and other
expenses.
Capital leases, which consist of vehicles included in machinery and
equipment in the consolidated financial statements, are as follows:
<TABLE>
<CAPTION>
JULY 31,
------------
1998 1997
---- ----
<S> <C> <C>
Machinery and equipment..................................... $ 40 $ 73
Less accumulated amortization............................... (37) (41)
---- ----
Machinery and equipment, net................................ $ 3 $ 32
==== ====
</TABLE>
42
<PAGE> 45
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under leases that have initial or remaining
noncancelable lease terms in excess of one year at July 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending July 31:
1999...................................................... $25 $12,375
2000...................................................... -- 11,548
2001...................................................... -- 9,708
2002...................................................... -- 7,786
2003...................................................... -- 6,725
Thereafter................................................ -- 18,341
--- -------
Total minimum lease payments.............................. 25 66,483
Less portion representing interest........................ -- --
--- -------
$25 $66,483
=== =======
</TABLE>
The total minimum payments required under operating leases do not include
contingent rentals which may be paid under certain store leases on the basis of
a percentage of sales in excess of stipulated amounts. Total rentals charged to
operations in fiscal 1998, 1997 and 1996 were $21,601, $25,633 and $53,616,
respectively. Contingent rentals were approximately $350 in fiscal 1998, $500 in
fiscal 1997 and $3,317 in fiscal 1996. Store construction credits of $2,153 and
$1,387 and deferred rent liabilities of $521 and $366 were included in other
noncurrent liabilities at July 31, 1998 and July 31, 1997, respectively.
Litigation
NordicTrack is named as the defendant in a Consolidated Class Action
Complaint ("Consolidated Complaint") filed on September 25, 1996 in the United
States District Court for the Southern District of New York and subsequently
transferred to the United States District Court for the District of Minnesota on
January 30, 1997. The named plaintiffs, Elissa Crespi and John Lucien Ware, Jr.,
allege in the Consolidated Complaint that NordicTrack made false and misleading
claims in its advertising concerning the weight loss of persons using its ski
exercisers by misrepresenting and failing to disclose material findings of
weight loss studies conducted by or on behalf of NordicTrack. The named
plaintiffs assert claims of common law fraud, fraudulent concealment, negligent
misrepresentation and omission, breach of express and implied warranties, and
violation of Section 349 of the State of New York General Business Law. The
named plaintiffs also seek to represent a class allegedly consisting of all
persons in the United States who purchased a NordicTrack ski exerciser during
the period from November 15, 1993 to April 10, 1996, excluding NordicTrack and
its employees. On September 2, 1997, the named plaintiffs filed a motion to
remand the case to state court in New York, which NordicTrack opposed. On
January 5, 1998, the parties reached an agreement-in-principle concerning the
general terms and conditions of a class action settlement of the case which was
memorialized in a Memorandum of Understanding filed with the Minnesota Court. On
January 8, 1998, the United States District Court for the District of Minnesota
remanded the case to the Supreme Court for the State of New York for
consideration of whether the proposed settlement should be approved and a final
judgment and order entered thereon. Since the filing of the Memorandum of
Understanding, the parties have executed the comprehensive terms of a
Stipulation of Settlement. Management believes the settlement will not have a
material adverse impact on the Company's business, financial condition and
results of operations. In addition, there can be no assurance that the New York
Court will ultimately approve the class settlement. If the New York Court does
approve the settlement, there can be no assurance that it will not be reversed
or modified on appeal.
43
<PAGE> 46
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NordicTrack is the defendant in a lawsuit in the United States District
Court for the District of Minnesota which commenced on August 12, 1996. In this
action, the plaintiff, Precise Exercise Equipment ("Precise"), alleges that
NordicTrack misappropriated trade secrets regarding Precise's abdominal exercise
product and further breached a non-competition agreement. The parties have
entered into settlement discussions and are in the process of negotiating and
drafting an acceptable written settlement agreement. Management believes the
contemplated settlement will not have a material adverse impact on the Company's
business, financial condition and results of operations. There can be no
assurance, however, that the parties will be successful in negotiating a
mutually acceptable written agreement or that the proposed settlement will
ultimately receive court approval.
In a complaint dated September 30, 1997, filed by Precor Incorporated
("Precor") in the United States District Court for the Western District of
Washington in Seattle, Precor alleges that the manufacture, offering for sale
and sale by NordicTrack of its exercisers marketed under the Ellipse(TM)
trademark infringe a United States patent which Precor has licensed from the
inventor, Larry Miller (the "Miller Patent"). The technology used in
NordicTrack's Ellipse(TM) exercisers is licensed by NordicTrack from a third
party, and the Company believes that NordicTrack's products do not infringe the
Miller Patent. In February 1998, Precor amended the complaint to add
infringement claims against a major wholesale customer of NordicTrack's and the
licenser of NordicTrack's technology. In March 1998, Precor added as parties the
two manufacturers of the Ellipse(TM) exercisers, one in Taiwan and one in
Tennessee. The complaint is scheduled for trial in 1999. Precor has returned the
Miller Patent to the United States Patent and Trademark Office for further
examination. NordicTrack filed a separate reexamination request in April 1998
and requested a stay of the litigation pending completion of the reexaminations.
The Court has denied the stay petition. Meanwhile, discovery has recently
commenced. While NordicTrack believes it has meritorious defenses to the
complaint and intends to vigorously defend against the allegations, this lawsuit
is in an early stage and the Company is unable to determine the likelihood and
possible impact on the Company's business, financial condition and results of
operations of an unfavorable outcome.
On May 8, 1998, NordicTrack was named as a defendant in a complaint filed
by Fitness Quest Inc. ("Fitness Quest") in the United States District Court for
the Eastern Division of the Northern District of Ohio. Fitness Quest alleges the
marketing by NordicTrack of a line of elliptical exercise products under the
Ellipse(TM) trademark infringes the Eclipse Trainer(R) trademark used by Fitness
Quest on its elliptical motion exercise machines and also alleges various
violations of state and federal unfair competition laws. This complaint was
settled on September 28, 1998. Management believes the contemplated settlement
will not have a material adverse impact on the Company's business, financial
condition and results of operations.
On May 21, 1998, NordicTrack was named as a defendant in a complaint filed
by Michael L. Richey ("Richey"), an individual inventor and patentee of United
States Patent No. 4,949,958 entitled "Weight Lifting Machine", in the United
States District Court for the Southern District of Indiana at Indianapolis.
Richey alleges that the NordicTrack UltraLift and Isolift exercise machines
infringe his patent. He seeks an injunction under the patent to block sale by
NordicTrack of those machines. No request for a preliminary injunction has yet
been filed. Discovery has recently begun. While NordicTrack believes it has
meritorious defenses to the complaint and intends to vigorously defend against
the allegations, this lawsuit is in its earliest stages and the Company is
unable to determine the likelihood and possible impact on the Company's
business, financial condition and results of operations of an unfavorable
outcome.
On November 2, 1998, NordicTrack, Inc., the NordicTrack Severance Pay Plan
and CML Group, Inc. were named as defendants in a Class Action Complaint (the
"Class Action Complaint") filed in United States District Court for the District
of Minnesota by five former NordicTrack employees on behalf of themselves and
other persons similarly situated. The named plaintiffs, Jay Miller, Carol
Hamlin, Denisa Pulk, Colleen Entinger and Bernadine Venske allege in the Class
Action Complaint that NordicTrack and CML Group violated the Worker Adjustment
and Retraining Notification Act (the "WARN Act") by failing to
44
<PAGE> 47
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provide sixty days written notice to employees advising them that NordicTrack
facilities in Chaska, Minnesota and Glencoe, Minnesota were going to be
shutdown. The plaintiffs further allege that NordicTrack and CML Group violated
the Employee Retirement Income Security Act ("ERISA") by breaching their
fiduciary duty to pay terminated NordicTrack employees benefits pursuant to the
NordicTrack Severance Pay Plan. The plaintiffs are seeking back pay and damages
pursuant to the WARN Act and severance benefits under the NordicTrack Severance
Pay Plan. While NordicTrack and CML Group believe they have meritorious defenses
to the Class Action Complaint and intend to vigorously defend against the
allegations, this lawsuit is in its earliest stages and the Company is unable to
determine the likelihood and possible impact on the Company's financial
condition or results of operations of an unfavorable outcome.
The Company is involved in various other legal proceedings which have
arisen in the ordinary course of business. Management believes the outcome of
such other legal proceedings will not have a material adverse impact on the
Company's consolidated financial condition or results of operations.
Environmental Matters
On June 3, 1991, the Company received from the United States Environmental
Protection Agency ("EPA") a Special Notice Letter containing a formal demand on
the Company as a Potentially Responsible Party ("PRP") for reimbursement of the
costs incurred and expected to be incurred in response to environmental problems
at a so-called "Superfund" site in Conway, New Hampshire. The EPA originally
estimated the costs of remedial action and future maintenance and monitoring
programs at the site at about $7,276. The Superfund site includes a vacant
parcel of land owned by a subsidiary of the Company as well as adjoining
property owned by a third party. No manufacturing or other activities involving
hazardous substances have ever been conducted by the Company or its affiliates
on the Superfund site in Conway. The environmental problems affecting the land
resulted from activities by the owners of the adjoining parcel. Representatives
of the Company have engaged in discussions with the EPA regarding responsibility
for the environmental problems and the costs of cleanup. The owners of the
adjoining parcel are bankrupt. The EPA commenced cleanup activities at the site
in July 1992.
The EPA expended approximately $1,415 for the removal phase of the site
cleanup, which has now been completed. The EPA had estimated that the removal
costs would exceed $3,000, but only a small portion of the solid waste removed
from the site was ultimately identified as hazardous waste. Therefore, the EPA's
actual response costs for the removal phase were less than it originally
estimated. The EPA implemented the groundwater phase of the cleanup, which the
EPA originally estimated would cost approximately $4,020.
The Company believes that the EPA's estimated cost for cleanup, including
the proposed remedial actions, is excessive and involves unnecessary actions. In
addition, a portion of the proposed remedial cost involves cleanup of the
adjoining property that is not owned by the Company or any of its affiliates.
Therefore, the Company believes it is not responsible for that portion of the
cleanup costs.
In May 1998, settlement discussions with the EPA resumed regarding
responsibility for the environmental problems and the costs of cleanup. An
agreement in principle has been reached pursuant to which the Company will be
required to pay $600 to the EPA in return for a release from liability. The
terms of the settlement document, including the release, are under negotiation.
The Company's primary insurer has agreed to pay $575 of the settlement and the
Company will pay $25.
In June 1992, the EPA notified the Company that it may be liable for the
release of hazardous substances by the Company's former Boston Whaler subsidiary
at a hazardous waste treatment and storage facility in Southington, Connecticut.
The EPA has calculated the Company's volumetric contribution at less than two-
tenths of one percent. Because complete cleanup cost estimates for the site are
not yet available, an accurate assessment of the Company's likely range of
liability cannot be made. Accordingly, the impact on the Company's business,
financial condition and results of operations is not presently determinable.
45
<PAGE> 48
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tax Matters
The Internal Revenue Service ("IRS") has been engaged in an examination of
the Company's tax returns for the fiscal years 1987 through 1991. The IRS issued
a "30-day letter" to the Company proposing certain adjustments which, if
sustained, would result in a tax deficiency for the years under examination. The
Company has filed an appeal with the IRS protesting the proposed adjustments.
The adjustments proposed by the IRS primarily relate to: (i) the disallowance of
deductions taken by the Company with respect to incentive compensation payments
of $43,000 made to the former owners of NordicTrack (acquired in June 1986)
pursuant to their employment contracts; and (ii) incentive compensation payments
made to the former owners of Britches of Georgetowne (acquired in August 1983
and sold in April 1996) pursuant to the terms of an earnout agreement and the
valuation of certain assets acquired in connection with the acquisition of
Britches of Georgetowne in the amount of $9,200 . The net federal tax due
relating to the proposed adjustments approximates $15,900. Interest on the
proposed deficiencies approximates $22,200 as of July 31, 1998.
The Company believes that its positions with respect to these issues taken
were valid and in accordance with the Internal Revenue Code and intends to
vigorously oppose the proposed adjustments. However, at this stage no assurance
can be given of a favorable outcome on these matters. If the IRS proposed
adjustments are sustained, any back taxes owed and associated interest would
have a material adverse effect on the Company's consolidated operating results
for the period in which such issues are finally resolved and would also have a
material adverse effect on the Company's consolidated financial condition.
Letters of Credit
At July 31, 1998, the Company was contingently liable for outstanding
letters of credit in the amount of $3,549.
NOTE 11 -- PREFERENCE STOCK
Preference Stock
The Company has 2,000,000 shares, $.10 par value, of preference stock
authorized, none of which was issued and outstanding at July 31, 1998.
NOTE 12 -- INDUSTRY SEGMENTS
The Company operates in two industry segments, NordicTrack and Smith &
Hawken. NordicTrack sells physical fitness exercise products. The Smith & Hawken
segment currently includes only Smith & Hawken which sells gardening related
products. Prior to April 28, 1996, the Smith & Hawken segment included The
Nature Company and Hear Music, in addition to Smith & Hawken, and sold nature,
music and gardening related items.
Britches of Georgetowne is treated as a discontinued operation in the
following industry segment information and in the accompanying consolidated
financial statements.
46
<PAGE> 49
CML GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Net Sales:
NordicTrack............................................. $186,319 $267,740 $ 368,151
Smith & Hawken.......................................... 88,041 73,575 176,754
-------- -------- ---------
$274,360 $341,315 $ 544,905
======== ======== =========
Operating Income (Loss):
NordicTrack............................................. $(85,649) $(58,641) $ (72,609)
Smith & Hawken (Note 5)................................. 2,801 2,008 (47,691)
-------- -------- ---------
(82,848) (56,633) (120,300)
Interest, Corporate and Other Expenses.................... (13,114) (4,298) (10,984)
-------- -------- ---------
$(95,962) $(60,931) $(131,284)
======== ======== =========
Identifiable Assets at July 31:
NordicTrack............................................. $ 36,917 $ 88,294 $ 138,431
Smith & Hawken.......................................... 45,075 43,744 45,898
Corporate and Other..................................... 12,340 14,298 29,022
-------- -------- ---------
$ 94,332 $146,336 $ 213,351
======== ======== =========
Depreciation and Amortization:
NordicTrack............................................. $ 8,886 $ 11,277 $ 11,369
Smith & Hawken.......................................... 3,095 2,800 12,412
Discontinued Operations................................. -- -- 4,454
Corporate and Other..................................... 5,042 753 503
-------- -------- ---------
$ 17,023 $ 14,830 $ 28,738
======== ======== =========
Capital Expenditures:
NordicTrack............................................. $ 1,714 $ 4,523 $ 7,551
Smith & Hawken.......................................... 4,941 1,403 12,459
Discontinued Operations................................. -- -- 1,536
Corporate and Other..................................... 11 5 9
-------- -------- ---------
$ 6,666 $ 5,931 $ 21,555
======== ======== =========
</TABLE>
47
<PAGE> 50
SCHEDULE II
CML GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT CHARGED BALANCE
BEGINNING TO COSTS AT END
DESCRIPTION OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
- ----------- --------- ------------ ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts Receivable:
Year Ended July 31, 1996..................... $2,141 $ 4,652 $ 3,305 $ 3,488
Year Ended July 31, 1997..................... 3,488 1,553 2,335 2,706
Year Ended July 31, 1998..................... 2,706 1,026 1,617 2,115
Allowance for Doubtful Notes Receivable:
Year Ended July 31, 1996..................... $ 9 $ -- $ -- $ 9
Year Ended July 31, 1997..................... 9 -- 3 6
Year Ended July 31, 1998..................... 6 -- 6 --
Accrual for Loss on Disposals:
Year Ended July 31, 1996..................... $6,276 $54,847 $58,416 $ 2,707
Year Ended July 31, 1997..................... 2,707 -- 2,707 --
Year Ended July 31, 1998..................... -- -- -- --
Income Tax Valuation Allowance:
Year Ended July 31, 1996..................... $3,522 $ 4,261 $ -- $ 7,783
Year Ended July 31, 1997..................... 7,783 446 -- 8,229
Year Ended July 31, 1998..................... 8,229 60,856 -- 69,085
</TABLE>
48
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<C> <C> <S>
2(a) -- Stock Purchase Agreement dated as of April 11, 1996 among
Britches of Georgetowne, Inc., the Company, Britches
Acquisition Corp. and Damrak Company Limited is incorporated
herein by reference to Exhibit 2 to the Company's Current
Report on Form 8-K filed April 29, 1996.
2(b) -- Asset Purchase and Sale Agreement dated as of June 6, 1996
by and among the Company, The Nature Company, The Nature
Company International, Inc. and Nordic Advantage of Ontario,
Discovery Communications, Inc. and The Discovery Channel
Store, Inc. is incorporated herein by reference to Exhibit 2
to the Company's Current Report on Form 8-K filed June 21,
1996.
3(a) -- Restated Certificate of Incorporation, as amended, of the
Company is incorporated herein by reference to Exhibit 3.1
to the Company's Registration Statement on Form S-8 filed
December 11, 1992 (File No. 33-55660)
3(b) -- By-Laws, as amended, of the Company are incorporated herein
by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-8 filed January 23, 1992 (File No.
33-45073)
4(a) -- Specimen certificate for shares of Common Stock of the
Company is incorporated herein by reference to Exhibit 4 to
the Company's Registration Statement on Form S-1 (File No.
2-86828)
4(b) -- Specimen certificates for the Company's 5 1/2% Convertible
Subordinated Debentures Due 2003 are incorporated herein by
reference to Exhibit 4.1 to the Company's Quarterly Report
on Form 10-Q filed March 16, 1993.
4(c) -- Terms of the Company's 5 1/2% Convertible Subordinated
Debentures Due 2003 are incorporated herein by reference to
Exhibit A to Exhibit 19.2 to the Company's Quarterly Report
on Form 10-Q filed March 16, 1993.
4(d) -- Secured Redeemable Subordinated Note Due 2003 dated as of
July 27, 1998 between the Company and the State of Wisconsin
Investment Board
*10(a) -- 1982 Stock Option Plan, as amended, and Forms of Option
Agreements are incorporated herein by reference to Exhibit
10(y) to the Company's Registration Statement on Form S-1
(File No. 2-86828)
*10(b) -- Amendment to Section 18 of the 1982 Stock Option Plan, dated
October 7, 1987, is incorporated herein by reference to
Exhibit 10(g) to the Company's Annual Report on Form 10-K
filed October 28, 1988.
*10(c) -- Amendment to Section 5(a) of the 1982 Stock Option Plan,
dated December 5, 1991, is incorporated herein by reference
to Exhibit 10(c) to the Company's Annual Report on Form 10-K
filed October 21, 1992, as amended by the Company's Form 8
filed October 28, 1992.
10(d) -- Revolving Credit Agreement dated as of April 17, 1996 and
amended and restated as of July 27, 1998 among the Company,
NordicTrack, Inc., Nordic Advantage, Inc. and Smith &
Hawken, Ltd., as Borrowers, and BankBoston, N.A. and the
other Lending Institutions listed on Schedule 1 thereto, as
Lenders.
*10(e) -- 1987 Employees' Severance Benefit Plan, dated October 7,
1987, is incorporated herein by reference to Exhibit 10(bb)
to the Company's Annual Report on Form 10-K filed October
28, 1988.
*10(f) -- 1991 Stock Option Plan and Forms of Option Agreements are
incorporated herein by reference to Exhibit 10(m) to the
Company's Annual Report on Form 10-K filed October 21, 1992,
as amended by the Company's Form 8 filed October 28, 1992.
*10(g) -- Form of Split Dollar Life Insurance Policy for the Benefit
of Certain Executive Officers is incorporated herein by
reference to Exhibit 10(n) to the Company's Annual Report on
Form 10-K filed October 21, 1992, as amended by the
Company's Form 8 filed October 28, 1992.
*10(h) -- 1993 Director Option Plan is incorporated herein by
reference to Exhibit 10(n) to the Company's Annual Report on
Form 10-K filed October 29, 1993.
</TABLE>
49
<PAGE> 52
<TABLE>
<C> <C> <S>
*10(i) -- 1993 Employee Stock Purchase Plan is incorporated herein by
reference to Exhibit 10(o) to the Company's Annual Report on
Form 10-K filed October 29, 1993.
10(j) -- Subscription Agreement, dated as of January 12, 1993, among
the Company, Lehman Brothers International (Europe),
Deutsche Bank A.G. London, Lombard Odier International
Underwriters, S.A., Swiss Bank Corporation and S.G. Warburg
Securities is incorporated herein by reference to Exhibit
19.1 to the Company's Quarterly Report on Form 10-Q filed
March 16, 1993.
10(k) -- Fiscal Agency Agreement, dated as of January 20, 1993,
between the Company and Chemical Bank is incorporated herein
by reference to Exhibit 19.2 to the Company's Quarterly
Report on Form 10-Q filed March 16, 1993.
*10(l) -- 1996 Director Option Plan is incorporated herein by
reference to Exhibit 10(a) to the Company's Quarterly Report
on Form 10-Q filed March 12, 1996.
*10(m) -- 1996 Employee Stock Purchase Plan is incorporated herein by
reference to Exhibit 10(b) to the Company's Quarterly Report
on Form 10-Q filed March 12, 1996.
*10(n) -- Form of Agreement Concerning Qualified Termination is
incorporated herein by reference to Exhibit 10(p) to the
Company's Annual Report on Form 10-K filed October 29, 1997.
*10(o) -- Severance agreement dated as of March 17, 1998 between the
Company and Charles M. Leighton.
*10(p) -- Employment Agreement dated as of June 18, 1998 among the
Company, Smith & Hawken, Ltd. and Kathleen Tierney.
10(q) -- NordicTrack Note dated as of July 27, 1998 among
NordicTrack, Inc., Nordic Advantage, Inc. and B III Capital
partners, L.P.
10(r) -- S&H Note dated as of July 27, 1998 between Smith & Hawken,
Ltd. and BankBoston, N.A.
10(s) -- Stock Purchase Agreement dated as of July 27, 1998 among the
Company, B III Capital Partners, L.P. and Mellon Bank, N.A.
solely in its capacity as Trustee for General Motors
Employees Domestic Group Pension Trust as directed by DDJ
Capital Management, LLC, and not in its individual capacity.
10(t) -- Registration Rights Agreement dated as of July 27, 1998
among the Company, B III Capital Partners, L.P. and Mellon
Bank, N.A. solely in its capacity as Trustee for General
Motors Employees Domestic Group Pension Trust as directed by
DDJ Capital Management, LLC, and not in its individual
capacity.
10(u) -- Amendment No. 1 to Common Stock Purchase Warrant No. 3 dated
as of July 27, 1998 between FSC Corp. and the Company.
10(v) -- Common Stock Purchase Warrant No. 1 dated as of March 11,
1998 between Rothschild Recovery Fund, L.P. and the Company.
10(w) -- Note Purchase Agreement dated as of July 27, 1998 between
the Company and the State of Wisconsin Investment Board.
*10(x) -- Severance agreement dated as of August 10, 1998 between the
Company and G. Robert Tod.
*10(y) -- First Amendment to Kathleen Tierney Employment Agreement
dated as of August 14, 1998 among the Company, Smith &
Hawken, Ltd. and Kathleen Tierney.
*10(z) -- Employment Agreement among the Company, Smith & Hawken, Ltd.
and David McCreight.
21 -- Subsidiaries of the Registrant.
23 -- Consent of Deloitte & Touche LLP.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement filed herewith in
response to Item 14(a)(3) of the instructions to Form 10-K.
50
<PAGE> 1
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
Dated as of April 17, 1996
and amended and restated
as of July 27, 1998
among
CML GROUP, INC.,
NORDICTRACK, INC., NORDIC ADVANTAGE, INC.
AND SMITH & HAWKEN, LTD.
AS BORROWERS
BANKBOSTON, N.A.
(F/K/A THE FIRST NATIONAL BANK OF BOSTON)
AND THE OTHER LENDING INSTITUTIONS LISTED ON SCHEDULE 1 HERETO
AS LENDERS
and
BANKBOSTON, N.A.
(F/K/A THE FIRST NATIONAL BANK OF BOSTON),
AS ADMINISTRATIVE AGENT
<PAGE> 2
TABLE OF CONTENTS
1. DEFINITIONS AND RULES OF INTERPRETATION.....................................
1.1. DEFINITIONS.........................................................
1.2. RULES OF INTERPRETATION.............................................
2. THE REVOLVING CREDIT FACILITIES.............................................
2.1. COMMITMENT TO LEND..................................................
2.1.1. COMMITMENT TO LEND NORDICTRACK LOANS......................
2.1.2. INTENTIONALLY OMITTED.....................................
2.1.3. COMMITMENT TO LEND S&H LOANS..............................
2.1.4. INTENTIONALLY OMITTED.....................................
2.1.5. OVERADVANCE FACILITY......................................
2.2. UNUSED LINE FEE.....................................................
2.3. REALLOCATION AND REDUCTION OF TOTAL COMMITMENT......................
2.3.1. REALLOCATION OF TOTAL COMMITMENT..........................
2.3.2. REDUCTION OF SUB-COMMITMENT...............................
2.3.3. MANDATORY REDUCTION OF TOTAL COMMITMENT...................
2.4. THE NOTES...........................................................
2.4.1. THE NORDICTRACK NOTES.....................................
2.4.2. INTENTIONALLY OMITTED.....................................
2.4.3. THE S&H NOTES.............................................
2.4.4. INTENTIONALLY OMITTED.....................................
2.5. INTEREST ON LOANS...................................................
2.6. REQUESTS FOR LOANS..................................................
2.6.1. LOAN REQUESTS.............................................
2.6.2. DAILY BORROWINGS..........................................
2.7. INTENTIONALLY OMITTED...............................................
2.7.1. INTENTIONALLY OMITTED.....................................
2.7.2. INTENTIONALLY OMITTED.....................................
2.7.3. INTENTIONALLY OMITTED.....................................
2.8. SETTLEMENT; FAILURE TO MAKE FUNDS AVAILABLE.........................
2.8.1. SETTLEMENT AND FUNDING PROCEDURES.........................
2.8.2. ADVANCES BY ADMINISTRATIVE AGENT..........................
2.8.3. FAILURE TO MAKE FUNDS AVAILABLE...........................
2.9. CHANGE IN BORROWING BASES...........................................
3. REPAYMENT OF THE LOANS......................................................
3.1. MATURITY............................................................
3.2. MANDATORY REPAYMENTS OF LOANS.......................................
3.2.1. NORDICTRACK LOANS.........................................
3.2.2. INTENTIONALLY OMITTED.....................................
3.2.3. S&H LOANS.................................................
3.2.4. REPAYMENTS FROM NET CASH PROCEEDS.........................
3.3. DEPOSITORY ARRANGEMENTS.............................................
3.3.1. THE BORROWERS' DEPOSITORY ARRANGEMENTS....................
3.3.2. CML'S DEPOSITORY ARRANGEMENTS.............................
3.3.3. THE OTHER GUARANTORS' DEPOSITORY ARRANGEMENTS.............
3.3.4. FEES AND EXPENSES; APPLICATION OF PAYMENT.................
3.4. OPTIONAL REPAYMENTS OF LOANS........................................
<PAGE> 3
4. LETTERS OF CREDIT...........................................................
4.1. LETTER OF CREDIT COMMITMENTS.......................................
4.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT....................
4.1.2. LETTER OF CREDIT APPLICATIONS............................
4.1.3. TERMS OF LETTERS OF CREDIT...............................
4.1.4. REIMBURSEMENT OBLIGATIONS OF LENDERS.....................
4.1.5. PARTICIPATIONS OF LENDERS................................
4.2. REIMBURSEMENT OBLIGATION OF CML AND THE BORROWERS..................
4.3. LETTER OF CREDIT PAYMENTS..........................................
4.4. OBLIGATIONS ABSOLUTE...............................................
4.5. RELIANCE BY ISSUER.................................................
5. CERTAIN GENERAL PROVISIONS..................................................
5.1. CLOSING FEE........................................................
5.2. ADMINISTRATIVE AGENT'S FEE.........................................
5.3. FUNDS FOR PAYMENTS.................................................
5.3.1. PAYMENTS TO ADMINISTRATIVE AGENT.........................
5.3.2. NO OFFSET, ETC...........................................
5.4. COMPUTATIONS.......................................................
5.5. INTENTIONALLY OMITTED..............................................
5.6. INTENTIONALLY OMITTED..............................................
5.7. ADDITIONAL COSTS, ETC..............................................
5.8. CAPITAL ADEQUACY...................................................
5.9. CERTIFICATE........................................................
5.10. INTENTIONALLY OMITTED..............................................
5.11. INTEREST AFTER DEFAULT.............................................
5.11.1. OVERDUE AMOUNTS.........................................
5.11.2. AMOUNTS NOT OVERDUE.....................................
6. COLLATERAL SECURITY AND GUARANTIES..........................................
6.1. SECURITY OF BORROWERS..............................................
6.2. GUARANTY, FOREIGN GUARANTIES AND SECURITY OF GUARANTORS............
7. GUARANTY....................................................................
7.1. GUARANTY OF PAYMENT AND PERFORMANCE................................
7.2. GUARANTORS' AGREEMENT TO PAY ENFORCEMENT COSTS, ETC................
7.3. WAIVERS BY THE GUARANTORS; LENDERS' FREEDOM TO ACT.................
7.4. UNENFORCEABILITY OF OBLIGATIONS AGAINST BORROWERS..................
7.5. SUBROGATION; SUBORDINATION.........................................
7.5.1. POSTPONEMENT OF RIGHTS AGAINST BORROWERS.................
7.5.2. SUBORDINATION............................................
7.5.3. PROVISIONS SUPPLEMENTAL..................................
7.6. SECURITY; SETOFF...................................................
7.7. FURTHER ASSURANCES.................................................
7.8. TERMINATION........................................................
7.9. SUCCESSORS AND ASSIGNS.............................................
<PAGE> 4
8. REPRESENTATIONS AND WARRANTIES..............................................
8.1. CORPORATE AUTHORITY................................................
8.1.1. INCORPORATION; GOOD STANDING.............................
8.1.2. AUTHORIZATION............................................
8.1.3. ENFORCEABILITY...........................................
8.2. GOVERNMENTAL APPROVALS.............................................
8.3. TITLE TO PROPERTIES; LEASES........................................
8.4. FINANCIAL STATEMENTS AND PROJECTIONS...............................
8.4.1. FINANCIAL STATEMENTS.....................................
8.4.2. PROJECTIONS..............................................
8.5. NO MATERIAL CHANGES, ETC.; SOLVENCY................................
8.5.2. SOLVENCY................................................
8.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC...............................
8.7. LITIGATION.........................................................
8.8. NO MATERIALLY ADVERSE CONTRACTS, ETC...............................
8.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC.......................
8.10. TAX STATUS.........................................................
8.11. NO EVENT OF DEFAULT................................................
8.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS........................
8.13. ABSENCE OF FINANCING STATEMENTS, ETC...............................
8.14. PERFECTION OF SECURITY INTEREST....................................
8.15. CERTAIN AFFILIATE TRANSACTIONS.....................................
8.16. EMPLOYEE BENEFIT PLANS.............................................
8.16.1. IN GENERAL..............................................
8.16.2. TERMINABILITY OF WELFARE PLANS..........................
8.16.3. GUARANTEED PENSION PLANS................................
8.16.4. MULTIEMPLOYER PLANS.....................................
8.17. REGULATIONS U, X AND G.............................................
8.18. ENVIRONMENTAL COMPLIANCE...........................................
8.19. SUBSIDIARIES, ETC..................................................
8.20. BANK ACCOUNTS......................................................
8.21. CHIEF EXECUTIVE OFFICES............................................
8.22. FISCAL YEAR........................................................
8.23. DISCLOSURE.........................................................
8.24. INSURANCE..........................................................
8.25. EQUITY DOCUMENTS, WISCONSIN DOCUMENTS..............................
<PAGE> 5
9. AFFIRMATIVE COVENANTS OF CML AND THE BORROWERS..............................
9.1. PUNCTUAL PAYMENT...................................................
9.2. MAINTENANCE OF OFFICE..............................................
9.3. RECORDS AND ACCOUNTS...............................................
9.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION.................
9.5. NOTICES............................................................
9.5.1. DEFAULTS.................................................
9.5.2. ENVIRONMENTAL EVENTS.....................................
9.5.3. NOTIFICATION OF CLAIM AGAINST COLLATERAL.................
9.5.4. NOTICE OF LITIGATION AND JUDGMENTS.......................
9.5.5. NOTICE OF TAX REFUNDS....................................
9.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES.....................
9.7. INSURANCE..........................................................
9.8. TAXES..............................................................
9.9. INSPECTION OF PROPERTIES AND BOOKS, ETC............................
9.9.1. GENERAL..................................................
9.9.5. ENVIRONMENTAL ASSESSMENTS................................
9.9.6. COMMUNICATIONS WITH ACCOUNTANTS..........................
9.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS.............
9.11. INVENTORY RESTRICTIONS.............................................
9.12. USE OF PROCEEDS....................................................
9.13. ADDITIONAL MORTGAGED PROPERTY......................................
9.14. AGENCY ACCOUNT AGREEMENTS..........................................
9.15. INVESTMENTS IN BORROWERS...........................................
9.16. OWNERSHIP OF SUBSIDIARIES..........................................
9.17. COLLATERAL NOTES...................................................
9.18. FURTHER ASSURANCES; ADDITIONAL LOCATIONS...........................
9.18.1. FURTHER ASSURANCES......................................
9.18.2. ADDITIONAL LOCATIONS....................................
9.19. FURTHER ASSURANCES AS TO TRUST.....................................
9.20. SALE OF S&H........................................................
10. CERTAIN NEGATIVE COVENANTS OF CML AND THE BORROWERS.........................
10.1 RESTRICTIONS ON INDEBTEDNESS.......................................
10.2 RESTRICTIONS ON LIENS..............................................
10.3 RESTRICTIONS ON INVESTMENTS........................................
10.4 DISTRIBUTIONS AND RESTRICTED PAYMENTS..............................
10.4.1. INTERCOMPANY DISTRIBUTIONS AND RESTRICTED PAYMENTS......
10.4.2. CML DISTRIBUTIONS.......................................
10.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS....................
10.5.1. MERGERS AND ACQUISITIONS................................
10.5.2. DISPOSITION OF ASSETS...................................
10.6. SALE AND LEASEBACK.................................................
10.7. COMPLIANCE WITH ENVIRONMENTAL LAWS.................................
10.8. SUBORDINATED DEBT..................................................
10.9. EMPLOYEE BENEFIT PLANS.............................................
10.10. BANK ACCOUNTS......................................................
10.11. TRANSACTIONS WITH AFFILIATES.......................................
10.12. RESTRICTIVE OR INCONSISTENT AGREEMENTS.............................
10.13. BUSINESS ACTIVITIES................................................
10.14. PRIVATE LABEL CREDIT CARD PROGRAMS.................................
10.15. ISSUANCE OF CAPITAL STOCK..........................................
10.16. WISCONSIN DOCUMENTS................................................
<PAGE> 6
11. FINANCIAL COVENANTS OF CML AND THE BORROWERS...............................
11.1. CAPITAL EXPENDITURES..............................................
11.2. MAXIMUM MONTHLY BORROWER EXPOSURE.................................
12. CLOSING CONDITIONS.........................................................
12.1. LOAN DOCUMENTS....................................................
12.2. CERTIFIED COPIES OF CHARTER DOCUMENTS.............................
12.3. CORPORATE ACTION..................................................
12.4. INCUMBENCY CERTIFICATE............................................
12.5. VALIDITY OF LIENS.................................................
12.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS....................
12.7. APPRAISALS; TAXES.................................................
12.8. TITLE INSURANCE...................................................
12.9. CERTIFICATES OF INSURANCE.........................................
12.10. AGENCY ACCOUNT AGREEMENTS.........................................
12.11. BORROWING BASE REPORT.............................................
12.12. ACCOUNTS RECEIVABLE AGING REPORT..................................
12.13. HAZARDOUS WASTE ASSESSMENTS.......................................
12.14. SOLVENCY CERTIFICATE..............................................
12.15. OPINION OF COUNSEL................................................
12.16. PAYMENT OF FEES...................................................
12.17. PAYOFF LETTER.....................................................
12.18. DISBURSEMENT INSTRUCTIONS.........................................
12.19. UPDATED COLLATERAL EXAMINATIONS...................................
12.20. LANDLORD LIEN WAIVERS.............................................
12.21. BORROWING AVAILABILITY............................................
13. CONDITIONS TO ALL BORROWINGS...............................................
13.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT.........................
13.2. NO LEGAL IMPEDIMENT...............................................
13.3. GOVERNMENTAL REGULATION...........................................
13.4. PROCEEDINGS AND DOCUMENTS.........................................
13.5. BORROWING BASE REPORT.............................................
14. EVENTS OF DEFAULT; ACCELERATION; ETC.......................................
14.1. EVENTS OF DEFAULT AND ACCELERATION................................
14.2. TERMINATION OF COMMITMENTS........................................
14.3. REMEDIES..........................................................
14.4. DISTRIBUTION OF COLLATERAL PROCEEDS...............................
15. SETOFF.....................................................................
16. THE ADMINISTRATIVE AGENT...................................................
16.1. AUTHORIZATION.....................................................
16.2. EMPLOYEES AND AGENTS..............................................
16.3. NO LIABILITY......................................................
16.4. NO REPRESENTATIONS................................................
16.5. PAYMENTS..........................................................
16.5.1. PAYMENTS TO ADMINISTRATIVE AGENT.......................
16.5.2. DISTRIBUTION BY ADMINISTRATIVE AGENT...................
16.5.3. DELINQUENT LENDERS.....................................
16.6. HOLDERS OF NOTES..................................................
16.7. INDEMNITY.........................................................
16.8. ADMINISTRATIVE AGENT AS LENDER....................................
16.9. RESIGNATION.......................................................
16.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT....................
16.11. DUTIES IN THE CASE OF ENFORCEMENT.................................
<PAGE> 7
17. EXPENSES...................................................................
18. INDEMNIFICATION............................................................
19. SURVIVAL OF COVENANTS, ETC.................................................
20. ASSIGNMENT AND PARTICIPATION...............................................
20.1. CONDITIONS TO ASSIGNMENT BY LENDERS...............................
20.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS....
20.3. REGISTER..........................................................
20.4. NEW NOTES.........................................................
20.5. PARTICIPATIONS....................................................
20.6. DISCLOSURE........................................................
20.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWERS.............
20.8. MISCELLANEOUS ASSIGNMENT PROVISIONS...............................
20.9. ASSIGNMENT BY BORROWERS OR GUARANTORS.............................
21. NOTICES, ETC...............................................................
22. GOVERNING LAW..............................................................
23. HEADINGS...................................................................
24. COUNTERPARTS...............................................................
25. ENTIRE AGREEMENT, ETC......................................................
26. WAIVER OF JURY TRIAL.......................................................
27. CONSENTS, AMENDMENTS, WAIVERS, ETC.........................................
28. SEVERABILITY...............................................................
<PAGE> 8
SCHEDULES AND EXHIBITS
Schedule 1 Lenders and Commitments
Schedule 2 Permitted Inventory Locations
Schedule 2.1.5 Sub-Overadvance Amounts
Schedule 8.3 Title to Properties; Leases
Schedule 8.5 Distributions since Balance Sheet Date
Schedule 8.7 Litigation
Schedule 8.10 Tax Status
Schedule 8.18 Environmental Matters
Schedule 8.19 Subsidiaries; Joint Ventures
Schedule 8.20 Bank Accounts
Schedule 8.21 Chief Executive Offices
Schedule 8.24 Insurance
Schedule 10.1 Existing Indebtedness
Schedule 10.2 Existing Liens
Schedule 10.3 Existing Investments
Schedule 10.5.2 Assets to be Sold
Schedule 10.6 Sales and Leasebacks
Schedule 11.2 Maximum Monthly Borrower Exposure
Exhibit A-1 Form of NordicTrack Note
Exhibit A-2 Form of S&H Note
Exhibit B Form of Loan Request
Exhibit C Form of Borrowing Base Report
Exhibit D Form of Compliance Certificate
Exhibit E Form of Agency Account Agreement
Exhibit F Form of Landlord Waiver
Exhibit G Form of Assignment and Acceptance
Exhibit H-2 Form of Commitment Reallocation Request
Exhibit I Form of Supplement to Schedule 2
Annex A Monthly Budget
<PAGE> 9
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of
April 17, 1996 and restated as of July 27, 1998, by and among (a) CML GROUP,
INC., a Delaware corporation ("CML"), (b) NORDICTRACK, INC., a Minnesota
corporation ("NT"), NORDIC ADVANTAGE, INC., a Minnesota corporation ("NA" and,
on a consolidated basis with NT, "NORDICTRACK"), and SMITH & HAWKEN, LTD., a
Delaware corporation ("S&H" and, together with NordicTrack, the "BORROWERS"),
(c) BANKBOSTON, N.A (f/k/a The First National Bank of Boston), a national
banking association ("BKB"), B III CAPITAL PARTNERS, L.P., a Delaware limited
partnership ("BIII"), MELLON BANK, N.A. solely in its capacity as trustee for
GENERAL MOTORS EMPLOYEES DOMESTIC GROUP PENSION TRUST, a trust ("GM"), and the
other lending institutions that may become Lenders hereunder, and (d) BKB as
administrative, collateral and documentation agent for the Lenders (the
"ADMINISTRATIVE AGENT").
RECITALS
CML, the Borrowers, certain of their Subsidiaries, BKB and BIII
(collectively, the "EXISTING LENDERS"), and the Administrative Agent are party
to a Revolving Credit Agreement, dated as of April 17, 1996, and amended and
restated as of August 28, 1997, and as further amended as of March 11, 1998, as
of March 30, 1998 and as of April 1, 1998, as supplemented as of June 15, 1998,
and as amended as of July 10, 1998, as of July 13, 1998, and as of July 15, 1998
(as amended, restated and supplemented, the "EXISTING CREDIT AGREEMENT")
pursuant to which the Existing Lenders made Loans and issued Letters of Credit
to the Borrowers (the "EXISTING CREDIT EXTENSIONS").
The Borrowers and CML have requested the Lenders and the
Administrative Agent to amend and restate the Existing Credit Agreement in its
entirety to, among other things,
(a) increase the Total Commitment;
(b) increase the Maximum Overadvance Amount;
(c) revise the interest rate provisions applicable to the
Loans;
(d) revise certain of the financial covenants set forth in
ss.11 of the Existing Credit Agreement; and
(e) make certain other changes to the terms and provisions of
the Existing Credit Agreement.
The Existing Lenders and the Administrative Agent are willing, on the
terms set forth in this Agreement and subject to the conditions and in reliance
on the representations set forth herein, to amend and restate the Existing
Credit Agreement so as to accomplish the foregoing.
Accordingly, in consideration of the premises and the mutual
agreements herein contained, the parties hereto hereby agree that, from and
after the Restatement Effective Date, the Existing Credit Agreement (including
all the SCHEDULES, EXHIBITS and ANNEXES thereto) is amended and restated in its
entirety to read as set forth above and as follows (and, in the case of the
SCHEDULES, EXHIBITS and ANNEXES, in the forms attached hereto). All Loans made
and Letters of Credit issued under the Existing Credit Agreement shall continue
as Loans and Letters of Credit under this Credit Agreement and shall be governed
by this Credit Agreement and secured by all the Collateral.
<PAGE> 10
DEFINITIONS AND RULES OF INTERPRETATION.
1. DEFINITIONS. The following terms shall have the meanings set forth
in this ss.1 or elsewhere in the provisions of this Credit Agreement referred
to below:
ACCOUNTS PAYABLE. At any time with respect to any Person, the
aggregate accounts payable of such Person and its Subsidiaries determined in
accordance with generally accepted accounting principles.
ACCOUNTS RECEIVABLE. All rights of any of the Borrowers to payment
for goods sold, leased or otherwise marketed in the ordinary course of business
and all rights of any of the Borrowers to payment for services rendered in the
ordinary course of business and all sums of money or other proceeds due thereon
pursuant to transactions with account debtors, except for that portion of the
sum of money or other proceeds due thereon that relate to sales, use or property
taxes in conjunction with such transactions, recorded on books of account in
accordance with generally accepted accounting principles.
ACCRUED EXPENSES. At any time with respect to any Person, the
aggregate accrued expenses of such Person and its Subsidiaries determined in
accordance with generally accepted accounting principles.
ADMINISTRATIVE AGENT. As defined in the preamble hereto.
ADMINISTRATIVE AGENT'S HEAD OFFICE. The Administrative Agent's head
office located at 100 Federal Street, Boston, Massachusetts 02110, or at such
other location as the Administrative Agent may designate from time to time.
ADMINISTRATIVE AGENT'S SPECIAL COUNSEL. Bingham Dana LLP or such
other counsel as may be approved by the Administrative Agent.
AFFILIATE. With respect to any Person (a) any Person which directly,
or indirectly, controls or is controlled by, or is under common control with,
the Person specified, or (b) any other Person who is a Relative, director,
officer or general partner of such Person or of any Person described in clause
(a). For purposes of this definition, control of a Person shall include the
power, whether direct or indirect, (x) to vote five percent (5%) or more of the
equity securities having ordinary voting power for the election of directors or
other managers of such Person or (y) to direct or cause the direction, of the
management and policies of such Person whether by contract or otherwise.
AEI CORP. See ss.10.1(n).
AGENCY ACCOUNT AGREEMENTS. The several Agency Account Agreements in
the form of EXHIBIT E hereto (or a form otherwise approved by the Administrative
Agent in its sole discretion) entered into by any of the Borrowers, any of the
Guarantors, the Administrative Agent and the Agency Account Institutions or
other depository institutions satisfactory to the Administrative Agent.
AGENCY ACCOUNT INSTITUTIONS. NorWest Bank Minnesota, N.A., Fifth
Third Bank and any other financial institutions which receive deposits directly
or indirectly (as a result of interim concentration of depository accounts),
from an aggregate eight or more retail stores of the Borrowers and their
Subsidiaries.
AGENCY ACCOUNTS. The depository accounts maintained by the Borrowers
and the Guarantors with the Agency Account Institutions or other depository
institutions satisfactory to the Administrative Agent, the funds from which are
periodically transferred to the applicable Concentration Account pursuant to the
Agency Account Agreements.
AGGREGATE BORROWING BASE. The sum of the NordicTrack Borrowing Base
and the S&H Borrowing Base.
<PAGE> 11
AMENDMENT AGREEMENT. The Amendment Agreement, dated as of July 27,
1998, among the parties to the Existing Credit Agreement.
AMENDMENT NO. 1 TO COMMON STOCK PURCHASE WARRANT. Amendment No. 1 to
Common Stock Purchase Warrant, dated as of the Restatement Effective Date,
between CML and BKB.
AMENDMENT NO. 1 TO CREDIT AGREEMENT. Amendment No. 1 to Credit
Agreement and Limited Waiver, dated as of March 11, 1998, among CML, the
Borrowers, the Lenders, the Issuing Bank and the Administrative Agent.
APPROVED BUDGETED EXPENSES. Expenses incurred by CML in the ordinary
course of business for itself or for the benefit of any of the Borrowers or
their Subsidiaries, in each case which were previously included in the
applicable CML Budget or, in the case of expenses incurred for the benefit of
any of the Borrowers or their Subsidiaries, in the Monthly Budget, prepared in
each case by CML and submitted to and approved by the Majority Lenders.
ASSIGNMENT AND ACCEPTANCE. See ss.20.1.
BALANCE SHEET DATE. July 31, 1997, the date of the most recent
audited financial statements of CML and its Subsidiaries, as of the Restatement
Effective Date.
BASE RATE. The higher of (i) the annual rate of interest announced
from time to time by BKB at its head office in Boston, Massachusetts, as its
"base rate" and (ii) one-half of one percent (0.50%) above the Federal Funds
Effective Rate. For the purposes of this definition, "FEDERAL FUNDS EFFECTIVE
RATE" shall mean for any day, the rate per annum equal to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three funds brokers of
recognized standing selected by the Administrative Agent.
BKB. As defined in the preamble hereto.
BORROWER EXPOSURE. At any time with respect to any Borrower, the sum
of (a) the outstanding amount of Loans made to such Borrower PLUS (b) the
aggregate Letter of Credit Exposure of such Borrower.
BORROWERS. As defined in the preamble hereto.
BORROWING BASE. The NordicTrack Borrowing Base and the S&H Borrowing
Base.
BORROWING BASE REPORT. A Borrowing Base Report signed by the chief
financial officer of CML in substantially the form of EXHIBIT C hereto.
BIII. As defined in the preamble hereto.
BUSINESS DAY. Any day on which banking institutions in Boston,
Massachusetts, are open for the transaction of banking business.
CAPITAL ASSETS. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); PROVIDED that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally accepted
accounting principles.
<PAGE> 12
CAPITAL EXPENDITURES. Amounts paid or indebtedness incurred by any
Person or any of its Subsidiaries in connection with the purchase or lease by
any such Person or any of its Subsidiaries of Capital Assets that would be
required to be capitalized and shown on the balance sheet of such Person in
accordance with generally accepted accounting principles.
CAPITALIZED LEASES. Leases under which CML or any of its Subsidiaries
is the lessee or obligor, the discounted future rental payment obligations under
which are required to be capitalized on the balance sheet of the lessee or
obligor in accordance with generally accepted accounting principles.
CAPITAL STOCK. Any shares, interests, participations, rights or other
equivalents (howsoever designated) of capital stock of a corporation (including
common or preferred stock) or any equivalent ownership interests in a Person
other than a corporation.
CERCLA. See ss.8.18.
CHANGE IN CONTROL. Any person or group of persons (within the meaning
of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall
have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated
by the Securities and Exchange Commission under said Act) of thirty percent
(30%) or more of the outstanding shares of common stock of CML; or, during any
period of twelve (12) consecutive calendar months, a majority of the seats
(other than vacant seats) on the board of directors of CML shall at any time be
occupied by Persons other than (i) directors on the Original Closing Date or
(ii) directors initially nominated or appointed by action of a majority of CML's
directors.
CITIBANK. Citibank, N.A., in its capacity as agent for the lenders
under the Citibank Facility.
CITIBANK FACILITY. The revolving credit facility among CML, certain
lenders party thereto and Citibank as agent for such lenders.
CLOSING DATE. The first date on which the conditions set forth
in ss.12 have been satisfied and any Loans are to be made or any Letter of
Credit is to be issued hereunder.
CML. As defined in the preamble hereto.
CML BUDGETS. Each of the monthly operating budget of CML for each of
the months of July 1998 through July 1999 delivered to the Administrative Agent
and the Lenders prior to the Restatement Effective Date.
CODE. The Internal Revenue Code of 1986.
COLLATERAL. All of the property, rights and interests of CML and its
Subsidiaries that are or are intended to be subject to the security interests
and mortgages created by the Security Documents.
COLLATERAL AGENCY AGREEMENT. The Collateral Agency and Intercreditor
Agreement, dated as of the date hereof, between BKB, Wisconsin, CML, the
Borrowers, the Guarantors and the Foreign Guarantors, in form and substance
satisfactory to the Lenders and the Administrative Agent.
COLLATERAL AGENT. BKB, as collateral agent under the Collateral
Agency Agreement.
COLLATERAL NOTES. Any promissory notes issued by one or more of the
Borrowers in favor of BKB as agent under such notes, executed and delivered
pursuant to ss.9.17, and assigned to the Administrative Agent, each of which
such notes shall be secured by one of the Mortgages.
<PAGE> 13
COMMITMENT. With respect to each Lender, the amount set forth on
SCHEDULE 1 hereto as the amount of such Lender's commitment to make Loans to,
and to participate in the issuance, extension and renewal of Letters of Credit
for the account of, the Borrowers, as the same may be reduced from time to time;
or if such commitment is terminated pursuant to the provisions hereof, zero.
COMMITMENT PERCENTAGE. With respect to each Lender, the percentage
set forth on SCHEDULE 1 hereto as such Lender's percentage of the aggregate
Commitments of all of the Lenders.
COMMITMENT REALLOCATION DATE. The date on which any reallocation of
the Sub-Commitments among the Borrowers is made or is to be made by CML in
accordance with ss.2.3.1.
COMMITMENT REALLOCATION REQUEST. See ss.2.3.1.
COMPLIANCE CERTIFICATE. See ss.9.4(d).
CONCENTRATION ACCOUNT. With respect to any Borrower or any Guarantor,
such Borrower's or such Guarantor's, as the case may be, depository account with
BKB under the control of the Administrative Agent for the benefit of the Lenders
and the Administrative Agent.
CONSOLIDATED OR CONSOLIDATED. With reference to any term defined
herein, shall mean that term as applied to the accounts of a Person and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
CONSOLIDATED ADJUSTED NET INCOME. With respect to any Person and its
Subsidiaries, for any period, an amount equal to consolidated net income for
such period, after deduction of all expenses, taxes and other proper charges,
determined in accordance with generally accepted accounting principles and after
eliminating therefrom all extraordinary nonrecurring items of income including,
without limitation (a) income from unusual transactions, (b) income from the
sale of Capital Assets and (c) income from the write-up in the book value of any
assets of such Person or its Subsidiaries; PROVIDED, HOWEVER, for the purposes
of determining Consolidated Adjusted Net Income, it shall include the estimated
deferred tax benefits for prior and current period losses which CML has been
including since the Original Closing Date regardless of whether or not generally
accepted accounting principles would permit such inclusion in the computation of
Consolidated Adjusted Net Income.
CONSOLIDATED EBITDA. With respect to any Person and its Subsidiaries,
for any period, Consolidated Adjusted Net Income plus, to the extent deducted in
determining Consolidated Adjusted Net Income, the sum of interest, taxes,
depreciation and amortization of such Person and its Subsidiaries for such
period on a consolidated basis, all determined in accordance with generally
accepted accounting principles.
CONSOLIDATED TANGIBLE NET WORTH. With respect to any Person, the
excess of Consolidated Total Assets over Consolidated Total Liabilities, and
less the sum of:
(a) the total book value of all assets of such Person and its
Subsidiaries properly classified as intangible assets under generally
accepted accounting principles, including such items as good will,
the purchase price of acquired assets in excess of the fair market
value thereof, trademarks, trade names, service marks, brand names,
copyrights, patents and licenses, and rights with respect to the
foregoing; PLUS
(b) all amounts representing any write-up in the book value of
any assets of such Person or its Subsidiaries resulting from a
revaluation thereof subsequent to the Balance Sheet Date; PLUS
<PAGE> 14
(c) to the extent otherwise includable in the computation of
Consolidated Tangible Net Worth, any subscriptions receivable
relating to Capital Stock.
CONSOLIDATED TOTAL ASSETS. All assets of a Person and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles; PROVIDED, HOWEVER, for the purposes of
determining Consolidated Total Assets, it shall include the estimated deferred
tax benefits for prior and current period losses which CML has been including
since the Original Closing Date regardless of whether or not generally accepted
accounting principles would permit such inclusion in the computation of
Consolidated Total Assets.
CONSOLIDATED TOTAL INTEREST EXPENSE. With respect to any Person for
any period, the aggregate amount of interest required to be paid or accrued by
such Person and its Subsidiaries during such period on all Indebtedness of such
Person and its Subsidiaries outstanding during all or any part of such period,
whether such interest was or is required to be reflected as an item of expense
or capitalized, including payments consisting of interest in respect of
Capitalized Leases and including commitment fees, agency fees, facility fees,
balance deficiency fees and similar fees or expenses in connection with the
borrowing of money, PROVIDED that Consolidated Total Interest Expense shall not
include amortization of fees and expenses paid in connection with the
transactions contemplated by the Credit Agreement.
CONSOLIDATED TOTAL LIABILITIES. All liabilities of a Person and its
Subsidiaries determined on a consolidated basis that in accordance with
generally accepted accounting principles should be classified upon the obligor's
balance sheet as liabilities.
CONTROLLED DISBURSEMENT ACCOUNT. With respect to any Borrower or CML,
such Borrower's or CML's, as the case may be, controlled disbursement account
with BKB, listed on SCHEDULE 8.20 hereto.
COPYRIGHT MORTGAGE. The Memorandum of Copyrights, dated as of the
Original Closing Date, made by the Borrowers and the Guarantors in favor of the
Administrative Agent, as amended by the First Amendment to Copyright Mortgage
and the Second Amendment to Copyright Mortgage, and in form and substance
satisfactory to the Lenders and the Administrative Agent.
CREDIT AGREEMENT. This Amended and Restated Revolving Credit
Agreement, including the Schedules, Exhibits and Annexes hereto.
DEFAULT. See ss.14.1.
DELINQUENT LENDER. See ss.16.5.3.
DISTRIBUTION. The declaration or payment of any dividend on or in
respect of any shares of any class of Capital Stock of a Person, other than
dividends payable solely in shares of common stock or similar non-preferred
equity interests of such Person; the purchase, redemption, or other retirement
of any shares of any class of Capital Stock or other equity interests of a
Person, directly or indirectly through a Subsidiary of such Person or otherwise;
the return of capital by a Person to its shareholders or equity holders as such;
or any other distribution on or in respect of any shares of any class of Capital
Stock or other equity interest of such Person.
DOLLARS or $. Dollars in lawful currency of the United States of
America.
DOMESTIC LENDING OFFICE. Initially, the office of each Lender
designated as such in SCHEDULE 1 hereto; thereafter, such other office of such
Lender, if any, located within the United States that will be making or
maintaining Loans.
DRAWDOWN DATE. The date on which any Loan is made or is to be made.
<PAGE> 15
ELIGIBLE ACCOUNTS RECEIVABLE. The aggregate of the unpaid portions of
Accounts Receivable (net of any credits, rebates, offsets, holdbacks or other
adjustments or commissions payable to third parties that are adjustments to such
Accounts Receivable) (i) that such Borrower reasonably and in good faith
determines to be collectible; (ii) that are with account debtors that (A) are
not Affiliates of CML or any of its Subsidiaries, (B) purchased the goods or
services giving rise to the relevant Account Receivable in an arm's length
transaction, (C) are not insolvent or the subject of any case or proceeding,
whether voluntary or involuntary, under any bankruptcy, reorganization,
arrangement, insolvency, adjustment of debt, dissolution, liquidation or similar
law of any jurisdiction and (D) are, in the Administrative Agent's reasonable
judgment, creditworthy; (iii) that are in payment of obligations that have been
fully performed and are not subject to dispute or any other similar claims that
would reduce the cash amount payable therefor; (iv) that are not subject to any
pledge, restriction, security interest or other lien or encumbrance other than
those created by the Loan Documents; (v) in which the Administrative Agent has a
valid and perfected first priority security interest; (vi) that are not
outstanding for more than (A) sixty (60) days past the date payment thereof is
due or (B) ninety (90) days past the earlier to occur of (x) the date of the
respective invoices therefor and (y) the date of shipment therefor in the case
of goods or the end of the calendar month following the provision thereof in the
case of services; (vii) that are not due from an account debtor located in
Indiana, Minnesota or New Jersey unless such Borrower (A) has received a
certificate of authority to do business and is in good standing in such state or
(B) has filed a notice of business activities report with the appropriate office
or agency of such state for the current year; (viii) that are not due from any
single account debtor if more than twenty-five percent (25%) of the aggregate
amount of all Accounts Receivable owing from such account debtor would otherwise
not be Eligible Accounts Receivable (after applying co-op advertising credits,
if any, to the balances more than sixty (60) days past the date payment thereof
is due); (ix) that are payable in Dollars; (x) that are not payable from an
office outside of the United States or Canada; (xi) that are not secured by a
letter of credit unless the Administrative Agent has a prior, perfected security
interest in such letter of credit; (xii) that are not "bill-and-hold",
guaranteed sale, sale-or-return, sale on approval or consignment basis
receivables; (xiii) that are not receivables arising under any Private Label
Credit Card Program or any other credit card receivables; (xiv) that are not due
from any single account debtor (other than American Express Company, Sears
Roebuck and Company and Target Stores, a division of Dayton Hudson Corporation
if and to the extent that, after inclusion of such Account Receivable in
Eligible Accounts Receivable, the aggregate amount of Eligible Accounts
Receivable owing from such account debtor would exceed twenty percent (20%) of
the aggregate amount of all Eligible Accounts Receivable; (xv) in the case of
NordicTrack, that are not due from NorWest Bank Minnesota, N.A.; and (xvi) in
the case of S&H, that do not arise from the sale of mailing lists or are due
from Felissimo Corporation.
ELIGIBLE ASSIGNEE. Any of (i) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (ii)
a savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with generally
accepted accounting principles; (iii) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, PROVIDED that such
bank is acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (iv) the
central bank of any country which is a member of the OECD; and (v) any other
bank, insurance company, commercial finance company or other financial
institution or other Person approved by the Administrative Agent, such approval
not to be unreasonably withheld and to be based only on the creditworthiness of
the potential assignee and the Administrative Agent's satisfaction that such
potential assignee's obligations hereunder will be enforceable.
ELIGIBLE INVENTORY. With respect to S&H, finished goods owned by such
Borrower; PROVIDED that Eligible Inventory shall not include any inventory (i)
held on consignment, or not otherwise owned by such Borrower, or of a type no
longer sold by such Borrower; (ii) which has been returned by a customer or is
<PAGE> 16
damaged or subject to any legal encumbrance other than Permitted Liens; (iii)
which is not in the possession of such Borrower unless (A) such inventory is
subject to a documentary letter of credit issued by a lender approved by the
Administrative Agent and the Administrative Agent has possession of and a first
priority, perfected security interest in the documents of title relating to such
inventory, (B) such inventory is in transit from one Permitted Inventory
Location of such Borrower within the United States of America to another
Permitted Inventory Location of such Borrower within the United States of
America or (C) the aggregate gross book value of such inventory does not exceed
$6,000,000 with respect to inventory located at such Borrower's distribution
center and warehouse located at 8145 Holton Drive, Florence, Kentucky and
operated by The Discovery Channel Store, Inc. pursuant to the Cooperation and
Services Agreement between The Discovery Channel Store, Inc. and such Borrower,
and $1,750,000 with respect to all other inventory locations and the
Administrative Agent has received (x) a waiver in form and substance
satisfactory to the Administrative Agent from the possessor of such inventory,
(y) financing statements in form and substance satisfactory to the
Administrative Agent executed and delivered by such Borrower as secured
party/bailor and the possessor of such inventory as debtor/bailee, for filing in
the appropriate jurisdictions PROVIDED, HOWEVER, that the Administrative Agent
may, with the consent of the Majority Lenders, waive the foregoing requirement
with respect to financing statements, and (z) an assignment in form and
substance satisfactory to the Administrative Agent by the secured party/bailor
to the Administrative Agent of the aforementioned financing statements; (iv) in
which the Administrative Agent does not have a valid and perfected first
priority security interest; (v) which has been shipped to a customer of such
Borrower regardless of whether such shipment is on a consignment basis; (vi)
which is not located at a Permitted Inventory Location of such Borrower within
the United States of America, unless (A) such inventory is subject to a
documentary letter of credit issued by a lender approved by the Administrative
Agent and the Administrative Agent has possession of and a first priority,
perfected security interest in the documents of title relating to such inventory
or (B) such inventory is in transit from one Permitted Inventory Location of
such Borrower within the United States of America to another Permitted Inventory
Location of such Borrower within the United States of America; (vii) which the
Majority Lenders reasonably deem to be obsolete or not marketable; (viii) which
is located in California unless the Administrative Agent has received a legal
opinion in form and substance satisfactory to the Administrative Agent that the
Loan Documents comply with the provisions of ss.9102(5)(b) of the Uniform
Commercial Code as in effect in California, or (ix) which consists of live
plantings.
ELIGIBLE NORDICTRACK INVENTORY. With respect to NordicTrack, finished
goods owned by NordicTrack; PROVIDED that Eligible NordicTrack Inventory shall
not include any inventory (i) consisting of work-in-progress or raw materials;
(ii) held on consignment, or not otherwise owned by NordicTrack, or of a type no
longer sold by NordicTrack; (iii) which has been returned by a customer or is
damaged or subject to any legal encumbrance other than Permitted Liens; (iv)
which is not in the possession of NordicTrack unless (A) such inventory is
subject to a documentary letter of credit issued by a lender approved by the
Administrative Agent and the Administrative Agent has possession of and a first
priority, perfected security interest in the documents of title relating to such
inventory, (B) such inventory is in transit from one Permitted Inventory
Location of NordicTrack within the United States of America to another Permitted
Inventory Location of NT or NA, as applicable, within the United States of
America or (C) the aggregate gross book value of such inventory does not exceed
$4,250,000 and the Administrative Agent has received (x) a waiver in form and
substance satisfactory to the Administrative Agent from the possessor of such
inventory, (y) financing statements in form and substance satisfactory to the
Administrative Agent executed and delivered by NT or NA, as applicable, as
secured party/bailor and the possessor of such inventory as debtor/bailee, for
filing in the appropriate jurisdictions PROVIDED, HOWEVER, that the
Administrative Agent may, with the consent of the Majority Lenders, waive the
foregoing requirement with respect to financing statements, and (z) an
assignment in form and substance satisfactory to the Administrative Agent by the
secured party/bailor to the Administrative Agent of the aforementioned financing
statements; (v) in which the Administrative Agent does not have a valid and
perfected first priority security interest; (vi) which has been shipped to a
customer of NordicTrack regardless of whether such shipment is on a consignment
basis; (vii) which is not located at a Permitted Inventory Location of NT or NA,
as applicable, within the United States of America, unless (A) such inventory is
subject to a
<PAGE> 17
documentary letter of credit issued by a lender approved by the Administrative
Agent and the Administrative Agent has possession of and a first priority,
perfected security interest in the documents of title relating to such inventory
or (B) such inventory is in transit from one Permitted Inventory Location of NT
or NA, as applicable, within the United States of America to another Permitted
Inventory Location of NT or NA, as applicable, within the United States of
America; (viii) which the Majority Lenders reasonably deem to be obsolete or not
marketable or (ix) which is located in California unless the Administrative
Agent has received a legal opinion in form and substance satisfactory to the
Administrative Agent that the Loan Documents comply with the provisions of
ss.9102(5)(b) of the Uniform Commercial Code as in effect in California.
EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning
of ss.3(3) of ERISA maintained or contributed to by CML, any of the Borrowers,
or any ERISA Affiliate, other than a Multiemployer Plan.
ENVIRONMENTAL LAWS. See ss.8.18(a).
EQUITY DOCUMENTS. Collectively, (a) the Stock Purchase Agreement, (b)
the Registration Rights Agreement, (c) the Amendment No. 1 to Common Stock
Purchase Warrant, (d) the Warrant Purchase Agreement, and (e) the Warrants.
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA AFFILIATE. Any Person which is treated as a single employer
with CML or any of the Borrowers under ss.414 of the Code.
ERISA REPORTABLE EVENT. A reportable event with respect to a
Guaranteed Pension Plan within the meaning of ss.4043 of ERISA and the
regulations promulgated thereunder as to which the requirement of notice has not
been waived.
EVENT OF DEFAULT. See ss.14.1.
EXISTING CREDIT AGREEMENT. As defined in the Recitals.
EXISTING LENDERS. As defined in the Recitals.
EXISTING LETTERS OF CREDIT. See ss.4.7.
FEE LETTER. The letter agreement, dated as of the Restatement
Effective Date, among CML, the Borrowers, the Administrative Agent, BKB and
BIII.
FIRST AMENDMENT TO COPYRIGHT MORTGAGE. Amendment No. 1 to the
Memorandum of Grant of Security Interest in Copyrights, dated as of February 27,
1998, among CML, the Borrowers, the Guarantors and the Administrative Agent and
in form and substance satisfactory to the Lenders and the Administrative Agent.
FIRST AMENDMENT TO SECURITY DOCUMENTS AGREEMENT. First Amendment to
Security Documents Agreement, dated as of the Restatement Effective Date, among
CML, the Borrowers, the Guarantors and the Administrative Agent and in form and
substance satisfactory to the Lenders and the Administrative Agent.
FISCAL AGENCY AGREEMENT. The Fiscal Agency Agreement dated as of
January 20, 1993 between CML and Chemical Bank (now known as The Chase Manhattan
Bank), as fiscal agent.
<PAGE> 18
FOREIGN GUARANTIES. The several foreign subsidiary guaranties, as
amended by the First Amendment to Security Documents, made by each of the
Foreign Guarantors in favor of the Administrative Agent pursuant to which each
Foreign Guarantor guaranties to the Administrative Agent for the benefit of the
Lenders and the Administrative Agent the payment and performance of the
Obligations.
FOREIGN GUARANTORS. CML International (FSC), Ltd., The Nature Company
Limited, NordicTrack (U.K.) Ltd., NordicTrack GmbH and Nordic Advantage of
Ontario, Inc.
FOREIGN PLEDGE AGREEMENT. Collectively, (a) the share pledge
agreement dated as of April 24, 1996 among NT and the Lenders pledging the
shares of NordicTrack GmbH, (b) the charge over securities dated as of April 29,
1996 between The Nature Company (now known as OTNC, Inc.) and the Administrative
Agent pledging the securities of The Nature Company Limited and (c) the charge
over securities dated as of April 29, 1996 between NT and the Administrative
Agent, pledging the securities of NordicTrack (U.K.) Ltd., in each case as
amended by the First Amendment to Security Documents, and in form and substance
satisfactory to the Lenders and the Administrative Agent.
GE CAPITAL CREDIT CARD PROGRAM. The credit card program made
available to customers of NordicTrack in accordance with the GE Capital Credit
Card Program Agreement.
GE CAPITAL CREDIT CARD PROGRAM AGREEMENT. The Account Purchase and
Consumer Credit Card Program Agreement, dated as of December 10, 1996, among
General Electric Capital Corporation and NordicTrack.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. (i) When used in ss.11,
whether directly or indirectly through reference to a capitalized term used
therein, means (A) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and
(B) to the extent consistent with such principles, the accounting practice of
CML and the Borrowers reflected in their financial statements for the year ended
on the Balance Sheet Date, and (ii) when used in general, other than as provided
above, means principles that are (A) consistent with the principles promulgated
or adopted by the Financial Accounting Standards Board and its predecessors, as
in effect from time to time, and (B) consistently applied with past financial
statements of CML and the Borrowers adopting the same principles, provided that
in each case referred to in this definition of "GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES" a certified public accountant would, insofar as the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied.
GM. As defined in the preamble hereto.
GORDON BROTHERS REPORT. The Gordon Brothers Partners, Inc. Inventory
Valuation and Review Report dated in May 1997 relating to the Borrowers'
inventory, or any subsequent appraisal thereof prepared in a manner consistent
with such report and in form and substance satisfactory to the Administrative
Agent.
GUARANTEED PENSION PLAN. Any employee pension benefit plan within the
meaning of ss.3(2) of ERISA maintained or contributed to by CML or any of the
Borrowers or any ERISA Affiliate the benefits of which are guaranteed on
termination in full or in part by the PBGC pursuant to Title IV of ERISA, other
than a Multiemployer Plan.
GUARANTORS. CML, each Borrower and the direct and indirect
Subsidiaries of CML listed on the signature pages hereto as Guarantors.
<PAGE> 19
GUARANTY. The Guaranty made by each of the Guarantors in favor of the
Lenders and the Administrative Agent pursuant to ss.7 hereof, pursuant to which
each Guarantor guaranties to the Lenders and the Administrative Agent the
payment and performance of the Obligations.
HAZARDOUS SUBSTANCES. See ss.8.18(b).
INDEBTEDNESS. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (i) all debt and similar monetary obligations, whether direct or
indirect; (ii) all liabilities secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (iii) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
INITIAL LENDERS. BIII, BKB and GM.
INTERCOMPANY SUBORDINATION AGREEMENT. The Intercompany Subordination
Agreement, dated as of the Original Closing Date, among CML, the Borrowers, and
their Subsidiaries and in form and substance satisfactory to the Lenders and the
Administrative Agent.
INTERCREDITOR AGREEMENT. The Intercreditor Agreement, dated as of the
Restatement Effective Date, between CML, the Borrowers, the Guarantors, the
Foreign Guarantors, Wisconsin and the Administrative Agent and in form and
substance satisfactory to the Lenders and the Administrative Agent.
INTEREST PAYMENT DATE. As to any Loan, the first day after the last
day of the Interest Period with respect thereto, beginning with the first such
day after the Restatement Effective Date.
INTEREST PERIOD. With respect to each Loan, (i) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of the
calendar month, and (ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such Loan and ending on the
last day of the calendar month, PROVIDED that all of the foregoing provisions
relating to Interest Periods are subject to the following:
(a) if any Interest Period with respect to a Loan would end on
a day that is not a Business Day, that Interest Period shall end on
the next succeeding Business Day;
(b) any Interest Period that would otherwise extend beyond the
Maturity Date shall end on the Maturity Date.
INVESTMENTS. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (i) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (ii) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(iii) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution);
<PAGE> 20
(iv) there shall not be deducted in respect of any Investment any amounts
received as earnings on such Investment, whether as dividends, interest or
otherwise, except that accrued interest included as provided in the foregoing
clause (ii) may be deducted when paid; and (v) there shall not be deducted from
the aggregate amount of Investments any decrease in the value thereof.
ISSUING BANK. With respect to any Letter of Credit, BKB and any
successor Issuing Bank.
KEY MAN LIFE INSURANCE POLICIES. Collectively, (i) the life insurance
policy issued on the life of Charles M. Leighton for the benefit of CML in the
face amount of $400,000 by The New England Mutual Life Insurance Company, Life
Policy number 8698540, (ii) the life insurance policy issued on the life of
Charles M. Leighton for the benefit of CML in the face amount of $800,000 by The
New England Mutual Life Insurance Company, Life Policy number 8672183, (iii) the
life insurance policy issued on the life of G. Robert Tod for the benefit of CML
in the face amount of $408,000 by The New England Mutual Life Insurance Company,
Life Policy number 8698541, and (iv) the life insurance policy issued on the
life of G. Robert Tod for the benefit of CML in the face amount of $800,000 by
The New England Mutual Life Insurance Company, Life Policy number 8672184.
KIOSK. Any temporary seasonal lease (not in excess of twelve (12)
months in any event) by any Borrower of space provided that not more than
$50,000 of Capital Expenditures may be expended by CML and its Subsidiaries in
respect of any one kiosk.
LANDLORD LIEN RESERVE. With respect to any Eligible Inventory or
Eligible NordicTrack Inventory which is located at a premises subject to a
Specified Lease, the Landlord Lien Reserve shall be the lesser of (a) the sum of
(i) all rent past due for more than thirty (30) days under such Specified Lease
at such time and (ii) all rent which may become due under such Specified Lease
during the twelve (12) month period commencing at the Original Closing Date, in
each case, unless otherwise requested by the Administrative Agent, calculated on
June 17, 1996 and at the end of each fiscal quarter thereafter by reference to
the average monthly rent on such Specified Lease during the immediately
preceding calendar year and (b) the net book value (determined on a first-in
first-out basis at lower of cost or market) of such Eligible Inventory or
Eligible NordicTrack Inventory.
LANDLORD WAIVER. A waiver from the lessor or sublessor of property
leased by any of the Borrowers as lessee in substantially the form of EXHIBIT F
hereto or otherwise approved by the Administrative Agent in its sole discretion.
LENDERS. BIII, GM and BKB, and any other Person who becomes a Lender
pursuant to ss.20.
LENDER REPRESENTATIVE. See ss.9.9.7.
LETTER OF CREDIT. See ss.4.1.1.
LETTER OF CREDIT APPLICATION. See ss.4.1.1.
LETTER OF CREDIT EXPOSURE. At any time, and with respect to any
Borrower or CML, the sum of (a) the Maximum Drawing Amount with respect to all
Letters of Credit issued at the request of such Borrower or, in the case of CML,
any Borrower and (b) all Unpaid Reimbursement Obligations of such Borrower or,
as the case may be, CML.
LETTER OF CREDIT PARTICIPATION. See ss.4.1.4.
LIFE INSURANCE COLLATERAL ASSIGNMENTS. The collateral assignments of
the Key Man Life Insurance Polices executed and delivered by CML to the
Administrative Agent.
<PAGE> 21
LOAN DOCUMENTS. This Credit Agreement, the Notes, the Letter of
Credit Applications, the Letters of Credit, the Fee Letter, the Intercompany
Subordination Agreement, the Amendment Agreement, the Intercreditor Agreement,
the Collateral Agency Agreement and the Security Documents.
LOAN REQUEST. See ss.2.6.1.
LOANS. The NordicTrack Loans and the S&H Loans.
MAJORITY LENDERS. As of any date, the Lenders (excluding any
Delinquent Lenders) holding at least fifty-one percent (51%) of the outstanding
principal amount of the Notes on such date; and if no such principal is
outstanding, the Lenders (excluding any Delinquent Lenders) whose aggregate
Commitments constitutes at least fifty-one percent (51%) of the Total
Commitment.
MATURITY DATE. August 1, 1999.
MAXIMUM DRAWING AMOUNT. The maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
MAXIMUM OVERADVANCE AMOUNT. $49,896,000.
MONOGRAM CREDIT CARD PROGRAM. The credit card program made available
to customers of NordicTrack pursuant to the Monogram Credit Card Program
Agreement.
MONOGRAM CREDIT CARD PROGRAM AGREEMENT. The Consumer Credit Card
Program Agreement dated as of November 29, 1995 among Monogram Credit Card Bank
of Georgia and NordicTrack as amended prior to the Restatement Effective Date in
the form delivered to the Administrative Agent on or prior to the Restatement
Effective Date.
MONTHLY BUDGET. The monthly operating budget of CML and its
Subsidiaries for the period from July 1, 1998 through July 31, 1999 delivered to
the Administrative Agent and the Lenders on or prior to the Restatement
Effective Date and attached as ANNEX A hereto, such Monthly Budget including a
report of each Borrower's projected monthly outstandings (including Loans and
Letter of Credit Exposure), Overadvances, Borrowing Base availability, Accounts
Payable and Accrued Expenses.
MORTGAGED PROPERTY. Any Real Estate which is subject to any Mortgage.
MORTGAGES. Collectively (a) the Mortgage Deeds, Assignments of Leases
and Security Agreements dated as of the Original Closing Date, from NordicTrack
to BKB as agent under the Collateral Note and assigned to the Administrative
Agent in accordance with the terms and provisions of (i) that certain Pledge
Agreement dated as of the Original Closing Date by and among NT, BKB as agent
and the Administrative Agent and (ii) that certain Assignment of Mortgage dated
as of the Original Closing Date by and between BKB as agent and the
Administrative Agent, with respect to the fee interest of NordicTrack in its
owned real properties, in each case in form and substance satisfactory to the
Administrative Agent and (b) such other mortgages and deeds of trust from any of
the Borrowers or Guarantors to the Administrative Agent, or amendments or
restatements thereof, which have been executed and delivered to the
Administrative Agent or which are required to be executed or delivered to the
Administrative Agent pursuant to ss.9.13 or ss.9.18 or Amendment No. 1 to
Credit Agreement.
MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of
ss.3(37) of ERISA maintained or contributed to by CML, any of the Borrowers or
any ERISA Affiliate.
NA. As defined in the preamble hereto.
<PAGE> 22
NT. As defined in the preamble hereto.
NT SPIN-OFF. See ss.10.4.2.
NET CASH PROCEEDS. With respect to any (a) sale of any assets
(including Capital Stock of any Subsidiary of CML) of any of CML, any of the
Borrowers or any of their Subsidiaries, or (b) issuance by CML of any Capital
Stock, the gross consideration received by CML, such Borrower, or such
Subsidiary (in cash) from such sale or issuance, net of commissions,
underwriting costs, direct sales costs, normal closing adjustments, income taxes
attributable to such sale and professional fees and expenses incurred directly
in connection therewith, to the extent the foregoing are actually paid in
connection with such sale or issuance.
NORDICTRACK. As defined in the preamble hereto.
NORDICTRACK BORROWING BASE. At the time of reference thereto, an
amount determined by the Administrative Agent by reference to the most recent
Borrowing Base Report, which is equal to the sum of:
(a) 80.00% of NordicTrack's Eligible Accounts Receivable for which
invoices have been issued and are payable; PLUS
(b) 55.00% of the net book value (determined on a first-in first-out
basis at lower of cost or market) of Eligible NordicTrack Inventory; MINUS
(c) the amount of any Landlord Lien Reserve with respect to
NordicTrack;
PROVIDED, HOWEVER, the Administrative reserves its rights, upon prior written
notice to the Borrowers, and with the consent of the Majority Lenders, to add
reserves and decrease the advance rates set forth herein, if, in the
Administrative Agent's judgment, the results of commercial finance examinations,
inventory appraisals or other credit or collateral considerations indicate a
deterioration in NordicTrack's Eligible Accounts Receivable or Eligible
NordicTrack Inventory, such that additional reserves or a lower advance rate for
NordicTrack's Eligible Accounts Receivable and/or Eligible NordicTrack Inventory
is warranted.
NORDICTRACK LOANS. Revolving credit loans made or to be made by the
Lenders to NordicTrack pursuant to ss.2.1.1.
NORDICTRACK NOTE RECORD. A record with respect to a NordicTrack Note.
NORDICTRACK NOTES. See ss.2.4.1.
NOTE RECORDS. Collectively, the NordicTrack Note Records and the S&H
Note Records.
NOTES. Collectively, the Collateral Notes, the NordicTrack Notes and
the S&H Notes.
OBLIGATIONS. All indebtedness, obligations and liabilities of any of
CML, the Borrowers and their Subsidiaries to any of the Lenders and the
Administrative Agent, individually or collectively, existing on the date of this
Credit Agreement or arising thereafter, direct or indirect, joint or several,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
secured or unsecured, arising by contract, operation of law or otherwise,
arising or incurred under this Credit Agreement or any of the other Loan
Documents or in respect of any of the Loans made or Reimbursement Obligations
incurred or any of the Notes, Letter of Credit Applications, Letter of Credits
or other instruments at any time evidencing any thereof.
<PAGE> 23
OPERATING ACCOUNT. With respect to any Borrower or CML, such
Borrower's or CML's as the case may be, demand deposit account(s) with BKB,
listed on SCHEDULE 8.20 hereto.
ORIGINAL CLOSING DATE. April 17, 1996.
OUTSTANDING. With respect to the Loans, the aggregate unpaid
principal thereof as of any date of determination.
OVERADVANCE. As of any date of determination, with respect to any
Borrower, Loans, the unpaid principal thereof which exceeds an amount equal to
such Borrower's Borrowing Base MINUS such Borrower's Letter of Credit Exposure.
PATENT ASSIGNMENT. The Patent Collateral Assignment and Security
Agreement, dated as of the Original Closing Date, and restated as of the
Restatement Effective Date, made by the Borrowers and the Guarantors in favor of
the Administrative Agent and in form and substance satisfactory to the Lenders
and the Administrative Agent.
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of
ERISA and any successor entity or entities having similar responsibilities.
PERFECTION CERTIFICATES. The Perfection Certificates as defined in
the Security Agreement.
PERMITTED CAPITAL STOCK. Capital Stock of the Borrower with respect
to which CML has no obligation to make any Distributions prior to the payment in
full in cash of all the Obligations.
PERMITTED DISPOSITION. Any disposition of assets of any Person
described in and permitted by ss.10.5.2.
PERMITTED EMPLOYEE ISSUANCE. Any issuance by CML of its common stock
to employees, officers or directors of CML or any of the Borrowers pursuant to
stock option plans and employee stock purchase plans of CML or any of the
Borrowers in compliance with ss.10.15.
PERMITTED INVENTORY LOCATIONS. The retail stores, distribution
centers and manufacturing facilities of the Borrowers located in the United
States of America and listed on SCHEDULE 2 hereto, as such SCHEDULE 2 may be
supplemented from time to time in accordance with the provisions of ss.9.4(j).
PERMITTED LIENS. Liens, security interests and other encumbrances
permitted by ss.10.2.
PERSON. Any individual, corporation, partnership, limited liability
company, limited liability partnership, trust, unincorporated association,
business, or other legal entity, and any government or any governmental agency
or political subdivision thereof.
PIK DATE. See ss.2.5.
PIK EVENT DATE. The failure of the Borrowers, by April 1, 1999, to
(a) permanently reduce the Total Commitment to not more than $35,000,000, and
(b) prepay all outstanding Loans such that, as of April 1, 1999, the outstanding
Loans and Letter of Credit Exposure of CML and the Borrowers does not exceed
$35,000,000 in the aggregate.
PIK NOTES. Promissory notes issued in payment of interest on the
Loans pursuant to ss.2.5, in form and substance satisfactory to the
Administrative Agent.
<PAGE> 24
PRIVATE LABEL CREDIT CARD PROGRAMS. The Monogram Credit Card Program,
the GE Capital Credit Card Program and all other credit card programs provided
to customers of NordicTrack by Persons other than CML, NordicTrack or their
Subsidiaries or Affiliates, together with all associated documentation.
REAL ESTATE. All real property now, or in the future, owned or leased
(as lessee or sublessee) by CML, any of the Borrowers or any of their
Subsidiaries.
RECORD. The grid attached to a Note, or the continuation of such
grid, or any other similar record, including computer records, maintained by any
Lender with respect to any Loan referred to in such Note.
REFERENCE BANK. BKB.
REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement,
dated as of the Restatement Effective Date, between CML, BIII and GM, in form
and substance satisfactory to the Lenders, whereby CML shall agree to effect the
registration, under the Securities Act of 1933, of the common stock of CML
issued to BIII and GM.
REIMBURSEMENT OBLIGATION. Each of CML's and each Borrower's
obligation to reimburse the Issuing Bank and the Lenders on account of any
drawing under any Letter of Credit issued on behalf of (a) in the case of CML,
any Borrower, and (b) in the case of any Borrower, such Borrower, all as
provided in ss.4.2.
RELATIVE. In relation to any Person, any spouse, parent, grandparent,
child, grandchild, brother or sister of such Person, or the spouse of any of the
foregoing.
RESTATEMENT EFFECTIVE DATE. As defined in the Amendment Agreement.
RESTRICTED PAYMENTS. In relation to CML, the Borrowers and their
Subsidiaries, (a) any Distribution or (b) any payment or prepayment by any
Borrower or its Subsidiaries to CML or to any other Affiliate of any of the
Borrowers or CML other than payments to Affiliates (other than CML) for goods
and services in the ordinary course of business on terms equivalent to those
obtainable in arms length transactions.
S&H. As defined in the preamble hereto.
S&H BORROWING BASE. At the relevant time of reference thereto, an
amount determined by the Administrative Agent by reference to the most recent
Borrowing Base Report, which is equal to the sum of:
(a) 80.00% of S&H's Eligible Accounts Receivable for which
invoices have been issued and are payable; PLUS
(b) 55.00% of the net book value (determined on a first-in
first-out basis at lower of cost or market) of S&H's Eligible
Inventory; MINUS
(c) the amount of any Landlord Lien Reserve with respect to
S&H;
PROVIDED, HOWEVER, the Administrative Agent reserves its rights, upon prior
written notice to the Borrowers, and with the consent of the Majority Lenders,
to add reserves and decrease the advance rates set forth herein, if, in the
Administrative Agent's judgment, the results of commercial finance examinations,
inventory appraisals or other credit or collateral considerations indicate a
deterioration in S&H's Eligible Accounts Receivable or Eligible Inventory, such
that additional reserves or a lower advance rate for S&H's Eligible Accounts
Receivable and/or Eligible Inventory is warranted.
<PAGE> 25
S&H LOANS. Revolving credit loans made or to be made by the Lenders
to S&H pursuant to ss.2.1.3.
S&H NOTE RECORD. A Record with respect to an S&H Note.
S&H NOTES. See ss.2.4.3.
SECOND AMENDMENT TO COPYRIGHT MORTGAGE. The Amendment No. 2 to the
Memorandum of Grant of Security Interest in Copyrights, dated as of the
Restatement Effective Date, among CML, the Borrowers, the Guarantors and the
Administrative Agent and in form and substance satisfactory to the Lenders and
the Administrative Agent.
SECURITY AGREEMENT. The Security Agreement, dated as of the Original
Closing Date, and restated as of the Restatement Effective Date, among the
Borrowers, the Guarantors and the Administrative Agent.
SECURITY DOCUMENTS. The Guaranty, the Foreign Guaranties, the
Security Agreement, the Mortgages, the Life Insurance Collateral Assignments,
the Patent Assignment, the Trademark Assignment, the Copyright Mortgage, the
First Amendment to Copyright Mortgage, the Second Amendment to Copyright
Mortgage, the Agency Account Agreements, the Stock Pledge Agreement, the Foreign
Pledge Agreements, the Collateral Agency Agreement, and the First Amendment to
Security Documents Agreement.
SETTLEMENT. Among the Lenders, the making or receiving of payments in
immediately available funds to the extent necessary to cause each Lender's
actual share of the outstanding amount of Loans (after giving effect to any Loan
Request) to be equal to each Lender's Commitment Percentage of the outstanding
amount of such Loans, in any case where, prior to such event or action, the
actual share is not so equal.
SETTLEMENT AMOUNT. See ss.2.8.
SETTLEMENT DATE. (a) The Drawdown Date relating to any Loan Request,
(b) Friday of each week, or if Friday is not a Business Day, the Business Day
immediately following such Friday, (c) the Business Day immediately following
the day the Agent becomes aware of the existence of an Event of Default, (d) the
Business Day immediately following any Business Day on which the amount of Loans
outstanding from BKB is equal to or greater than BKB's Commitment, (e) the
Business Day immediately following any Business Day on which the amount of Loans
outstanding increases or decreases by more than $1,000 as compared to the
previous Settlement Date, or (f) any Business Day on which (i) the amount of
outstanding Loans decreases and (ii) the amount of BKB's Loans outstanding
equals zero Dollars ($0).
SETTLING LENDER. See ss.2.8.
SPECIFIED LEASE. A lease by any of the Borrowers as lessee of Real
Estate at which Eligible Inventory or, in the case of NordicTrack, Eligible
NordicTrack Inventory, is held and as to which at any time the Administrative
Agent has not received evidence, in form and substance satisfactory to the
Administrative Agent, that based upon then existing law (as determined by the
Administrative Agent in the exercise of its reasonable discretion and on the
advice of counsel), the landlord of such property would not have a lien on
inventory superior to the security interest granted under the Security
Documents, securing rent obligations more than thirty (30) days past due or
securing future rent obligations accruing after the Original Closing Date;
PROVIDED, HOWEVER, that no lease for which the applicable Borrower and the
Administrative Agent have received a Landlord Waiver shall be a Specified Lease.
<PAGE> 26
STOCK PLEDGE AGREEMENT. The Stock Pledge Agreement, dated as of the
Original Closing Date, and restated as of the Restatement Effective Date, among
CML, certain of the Borrowers and the Administrative Agent, as amended and in
effect from time to time, in form and substance satisfactory to the Lenders and
the Administrative Agent.
STOCK PURCHASE AGREEMENT. The Stock Purchase Agreement, dated as of
the Restatement Effective Date, among CML, BIII and GM, in form and substance
satisfactory to the Lenders.
SUB-COMMITMENT. See ss.2.3.1.
SUB-OVERADVANCE AMOUNT. See ss.2.1.5(b).
SUBORDINATED DEBENTURES. The 5 1/2% Convertible Debentures due 2003
issued by CML pursuant to the Fiscal Agency Agreement.
SUBSIDIARY. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock.
TITLE INSURANCE COMPANY. Chicago Title Insurance Company.
TITLE POLICY. In relation to each Mortgaged Property, an ALTA
standard form title insurance policy issued by the Title Insurance Company (with
such reinsurance or co-insurance as the Administrative Agent may require, any
such reinsurance to be with direct access endorsements) in such amount as may be
determined by the Administrative Agent insuring the priority of the Mortgage of
such Mortgaged Property and that one of the Borrowers or one of the Guarantors
holds marketable fee simple title to such Mortgaged Property, subject only to
the encumbrances permitted by such Mortgage and which shall not contain
exceptions for mechanics liens or persons in occupancy (except as may be
permitted by such Mortgage), shall not insure over any matter except to the
extent that any such affirmative insurance is acceptable to the Administrative
Agent in its sole discretion, and shall contain such endorsements and
affirmative insurance as the Administrative Agent in its discretion may require,
including but not limited to (i) comprehensive endorsement, (ii) variable rate
of interest endorsement, (iii) usury endorsement, (iv) revolving credit
endorsement, (v) tie-in endorsement, (vi) doing business endorsement and (vii)
ALTA form 3.1 zoning endorsement.
TOTAL COMMITMENT. The sum of the Commitments of the Lenders, as in
effect from time to time.
TRADEMARK ASSIGNMENT. The Trademark Collateral Security and Pledge
Agreement, dated as of the Original Closing Date, and restated as of the
Restatement Effective Date, made by the Borrowers and the Guarantors in favor of
the Administrative Agent and in form and substance satisfactory to the Lenders
and the Administrative Agent.
TRUST. The Trust, as such term is defined in the Trust Agreement.
TRUST AGREEMENT. The Trust Agreement dated as of June 28, 1989,
between CML and Indian Head National Bank, pursuant to which CML has established
a "rabbi trust" for the benefit of certain executive employees of CML.
<PAGE> 27
TRUST ASSETS. Any assets or properties from time to time heretofore
or hereafter transferred to the Trust pursuant to the terms of the Trust
Agreement and constituting assets held in trust for the benefit of certain
executive employees of CML.
UNIFORM CUSTOMS. With respect to any Letter of Credit, the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 or any successor version thereto adopted
by the Issuing Bank in the ordinary course of its business as a letter of credit
issuer and in effect at the time of issuance of such Letter of Credit.
UNPAID REIMBURSEMENT OBLIGATION. Any Reimbursement Obligation for
which the applicable Borrower does not reimburse the Issuing Bank and the
Lenders on the date specified in, and in accordance with, ss.4.2.
UNUSED LINE FEE. See ss.2.2.
VOTING STOCK. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
performing similar functions) of the corporation, association, trust or other
business entity involved, whether or not the right so to vote exists by reason
of the happening of a contingency.
WARRANT PURCHASE AGREEMENT. The Warrant Purchase Agreement, dated as
of March 11, 1998, among CML, BKB and Rothschild Recovery Fund, L.P.
WARRANTS. The Common Stock Purchase Warrants of CML issued to BKB
pursuant to the terms of the Warrant Purchase Agreement, and as amended by the
Amendment No. 1 to Common Stock Purchase Warrant, in form and substance
satisfactory to BKB.
WISCONSIN. The State of Wisconsin Investment Board.
WISCONSIN DOCUMENTS. The Wisconsin Note Purchase Agreement, the
Wisconsin Subordinated Note, the Wisconsin Guaranties, the Intercreditor
Agreement and each other document, instrument or other agreement related
thereto.
WISCONSIN GUARANTIES. The several subordinated subsidiary guaranties,
made by each of the Subsidiaries of CML in favor of Wisconsin pursuant to which
each Subsidiary guaranties to Wisconsin the payment and performance of CML's
obligations under the Wisconsin Documents.
WISCONSIN NOTE PURCHASE AGREEMENT. The Note Purchase Agreement, dated
as of the date hereof, between Wisconsin and CML, pursuant to which the
Wisconsin Subordinated Note is issued, in form and substance satisfactory to the
Lenders.
WISCONSIN SUBORDINATED NOTE. The Secured Convertible Subordinated
Note in the principal amount of $20,000,000, dated as of the date hereof, issued
by CML to Wisconsin pursuant to the Wisconsin Note Purchase Agreement, in form
and substance satisfactory to the Lenders.
<PAGE> 28
1. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to time in
accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by generally accepted
accounting principles, which terms are defined in the Uniform Commercial Code as
in effect in the Commonwealth of Massachusetts, have the meanings assigned to
them therein, with the term "instrument" being that defined under Article 9 of
the Uniform Commercial Code.
(h) Reference to a particular "ss." refers to that section of this
Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Credit Agreement as a whole and not to any particular
section or subdivision of this Credit Agreement.
(j) BKB acts as Collateral Agent for the Secured Parties (as defined in
the Collateral Agency Agreement) pursuant to the Collateral Agency Agreement
with respect to the Collateral granted to the Collateral Agent pursuant to (i)
the Security Agreement, (ii) the Mortgages, (iii) the Patent Assignment, (iv)
the Trademark Assignment, (v) the Copyright Mortgage, and (vi) the Stock Pledge
Agreement. Accordingly, references in this Credit Agreement to BKB as
Administrative Agent with respect to such Collateral and such Security Documents
shall be deemed references to BKB as Collateral Agent. BKB acts as
Administrative Agent for the Lenders and the Administrative Agent pursuant to
this Credit Agreement with respect to (i) the Guaranty, (ii) the Foreign
Guaranties, (iii) the Life Insurance Collateral Assignments, and (iv) the
Foreign Pledge Agreements. All references in this Credit Agreement and in such
Security Documents to BKB as Administrative Agent shall be to BKB in such
capacity and not in its capacity as Collateral Agent. References in ss.8.14 and
in ss.10.2(j) to the Administrative Agent shall be deemed references to BKB in
its capacity as Administrative Agent and as Collateral Agent.
<PAGE> 29
1. THE REVOLVING CREDIT FACILITIES.
2. COMMITMENT TO LEND.
Subject to the terms and conditions set forth in this Credit Agreement
(including without limitation, the provisions of ss.11.4), each of the Lenders
severally agrees, in reliance upon the representations and warranties of
NordicTrack contained herein, to lend to NordicTrack and NordicTrack may borrow,
repay, and reborrow from time to time between the Restatement Effective Date and
the Maturity Date upon notice by NordicTrack to the Administrative Agent given
in accordance with ss.2.6, such sums as are requested by NordicTrack, PROVIDED
that the sum of the outstanding amount of the NordicTrack Loans (after giving
effect to all amounts requested) PLUS NordicTrack's Letter of Credit Exposure
shall not at any time exceed the lesser of (a) NordicTrack's Sub-Commitment and
(b) the NordicTrack Borrowing Base PLUS NordicTrack's Sub-Overadvance Amount in
effect at such time. The NordicTrack Loans shall be made PRO RATA in accordance
with each Lender's Commitment Percentage. Each request for a NordicTrack Loan
hereunder shall constitute a representation and warranty by NordicTrack that the
conditions set forth in ss.12 and ss.13, in the case of the initial
NordicTrack Loans to be made on the Restatement Effective Date, and ss.13, in
the case of all other NordicTrack Loans, have been satisfied on the date of such
request.
INTENTIONALLY OMITTED.
COMMITMENT TO LEND S&H LOANS. Subject to the terms and conditions set
forth in this Credit Agreement (including without limitation, the provisions
of ss.11.4), each of the Lenders severally agrees, and in reliance upon the
representations and warranties of S&H contained herein, to lend to S&H and
S&H may borrow, repay, and reborrow from time to time between the
Restatement Effective Date and the Maturity Date upon notice by S&H to the
Administrative Agent given in accordance with ss.2.6, such sums as are
requested by S&H, PROVIDED that the sum of the outstanding amount of the S&H
Loans (after giving effect to all amounts requested) PLUS S&H's Letter of
Credit Exposure shall not at any time exceed the lesser of (a) S&H's
Sub-Commitment and (b) the S&H Borrowing Base PLUS S&H's Sub-Overadvance
Amount in effect at such time. The S&H Loans shall be made PRO RATA in
accordance with each Lender's Commitment Percentage. Each request for a S&H
Loan hereunder shall constitute a representation and warranty by S&H that
the conditions set forth in ss.12 and ss.13, in the case of the initial
S&H Loans to be made on the Restatement Effective Date, and ss.13, in the
case of all other S&H Loans, have been satisfied on the date of such
request.
INTENTIONALLY OMITTED.
OVERADVANCE FACILITY.
2.1.5(A). MAXIMUM OVERADVANCE AMOUNT. As of any date of
determination, the sum of the Overadvances shall not exceed the Maximum
Overadvance Amount then in effect. Each Overadvance outstanding from
time to time shall bear interest calculated pursuant to ss.2.5.
2.1.5(B). SUB-OVERADVANCE AMOUNTS. The sum of the Overadvances
made to any Borrower shall not exceed, (i) as of the end of any month
described in SCHEDULE 2.1.5 hereto, the amount for such Borrower set
forth opposite such month in such SCHEDULE 2.1.5, or (ii) during any
month described in SCHEDULE 2.1.5 hereto, the greater of (A) the amount
for such month in such SCHEDULE 2.1.5 and (B) the amount for such
Borrower set
<PAGE> 30
forth opposite the month immediately preceding the month referred to in
clause (A) above (such amount being referred to herein as a
"SUB-OVERADVANCE AMOUNT" for such Borrower and such period). The
Administrative Agent shall keep a record of the Sub-Overadvance Amount
of each Borrower as in effect on each date and such record shall be
conclusive, in the absence of manifest error. The sum of the Borrowers'
Sub-Overadvance Amounts shall not at any time exceed the Maximum
Overadvance Amount.
1. UNUSED LINE FEE. Each Borrower agrees to pay to the Administrative
Agent for the accounts of the Lenders in accordance with their respective
Commitment Percentages an unused line fee (the "UNUSED LINE FEE") calculated at
the rate of one-half percent (0.50%) per annum on the average daily amount
during each calendar quarter or portion thereof from the date hereof to the
Maturity Date by which such Borrower's Sub-Commitment MINUS such Borrower's
Letter of Credit Exposure exceeds the outstanding amount of such Borrower's
Loans during such calendar quarter. The Unused Line Fee shall be payable
quarterly in arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Maturity Date or any
earlier date on which the Commitments shall terminate.
REALLOCATION AND REDUCTION OF TOTAL COMMITMENT.
REALLOCATION OF TOTAL COMMITMENT. On the Restatement Effective
Date, CML shall by written notice to the Administrative Agent allocate
the Total Commitment among the Borrowers (such amount allocated to any
Borrower and set forth on SCHEDULE 1, a "Sub-Commitment"), PROVIDED
that the sum of the Borrowers' Sub-Commitments shall not exceed the
Total Commitment. CML shall have the right, no more frequently than
once in any calendar month (unless otherwise permitted by the
Administrative Agent) to request that the Lenders reallocate the
unborrowed and unused portion of the Total Commitment. Concurrently
with its delivery of the Borrowing Base Report for the previous month
pursuant to ss.9.4(f), CML shall give to the Administrative Agent
written notice in the form of EXHIBIT H-2 hereto of each reallocation
requested under this ss.2.3.1 (a "COMMITMENT REALLOCATION REQUEST").
Each such notice shall specify (i) each Borrower's Sub-Commitment as of
the date of such notice, (ii) each Borrower's Sub-Commitment after
giving effect to such notice, and (iii) the effective date of such
reallocation, which date shall be no less than two (2) Business Days
after the date of such notice (the "COMMITMENT REALLOCATION DATE").
Upon giving effect to a Commitment Reallocation Request, the sum of the
Borrowers' Sub-Commitments shall not exceed the Total Commitment in
effect at that time. On the Commitment Reallocation Date, the
Sub-Commitment of each of the Borrowers shall be reallocated in
accordance with the Commitment Reallocation Request and SCHEDULE 1
shall be deemed revised to reflect the reallocation. The Administrative
Agent shall keep a record of each Commitment Reallocation Request and
the Sub-Commitment of each Borrower as in effect on each date and such
record shall be conclusive, in the absence of manifest error. A
reallocation of the Total Commitment under this ss.2.3.1 shall not be
deemed to be a reduction of the Total Commitment.
REDUCTION OF SUB-COMMITMENT. Each of the Borrowers and CML shall
have the right at any time and from time to time upon five (5) Business
Days prior written notice to the Administrative Agent to reduce by
$500,000 or an integral multiple thereof or terminate entirely its
Sub-Commitment or, in the case of CML, any Borrower's Sub-Commitment,
whereupon the Total Commitment shall be reduced by the amount specified
in such notice or, as the case may be, terminated and the Commitments
of the Lenders shall be reduced PRO RATA in accordance with their
respective Commitment Percentages of the amount specified in such
notice or, as the case may be, terminated. Promptly after receiving any
notice of any Borrower or CML delivered pursuant to this ss.2.3.2, the
Administrative Agent will notify the Lenders of the substance thereof.
Upon the effective date of any such reduction or termination, the
applicable Borrower shall pay to the Administrative Agent for the
respective accounts of the Lenders the full amount of any Unused
<PAGE> 31
Line Fee then accrued on the amount of the reduction. No reduction or
termination of the Commitments may be reinstated.
MANDATORY REDUCTION OF TOTAL COMMITMENT. Without limiting the
obligations of CML, the Borrowers and their Subsidiaries to comply with
the provisions of ss.10.5.2 of the Credit Agreement, in the event of
any (a) disposition of assets (including Capital Stock of any
Subsidiary of CML) by CML or any of its Subsidiaries (other than a
Permitted Disposition; PROVIDED that, for purposes of this ss.2.3.3,
the sale or other disposition by CML of Capital Stock of NT, or an NT
Spin-Off shall be treated as if it were not a Permitted Disposition,
and the requirements of this ss.2.3.3 shall apply in the case of any
such sale or other disposition or spin-off) or (b) issuance by CML of
any of its Capital Stock (other than a Permitted Employee Issuance),
the Total Commitment shall be permanently reduced on the date of
receipt by CML or any of its Subsidiaries of any Net Cash Proceeds from
such disposition or issuance (it being understood that the parties
hereto do not expect the conversion of the Wisconsin Note into common
stock of CML to result in any Net Cash Proceeds) by an amount equal to
such Net Cash Proceeds. On or prior to the date of any such sale,
disposition, issuance or spin-off, CML shall (i) allocate the reduction
of the Total Commitment among the Sub-Commitments of the Borrowers as
CML and the Lenders agree and (ii) give to the Administrative Agent
written notice setting forth the Total Commitment allocation after
giving effect to any reduction pursuant to this ss.2.3.3. In the event
CML fails, by the date of the receipt by CML or any of its Subsidiaries
of any Net Cash Proceeds from such sale, disposition, issuance or
spin-off, to reallocate the Sub-Commitments of the Borrowers to give
effect to such reductions, the Administrative Agent shall reallocate
the Sub-Commitments of the Borrowers in its sole discretion.
1. THE NOTES.
THE NORDICTRACK NOTES. The NordicTrack Loans shall be evidenced by
promissory notes of NordicTrack in substantially the form of EXHIBIT
A-1 hereto (each a "NORDICTRACK NOTE"), dated as of the Restatement
Effective Date (or other such date on which a Lender may become a party
hereto in accordance with ss.20 hereof) and completed with appropriate
insertions. One NordicTrack Note shall be payable to the order of each
Lender in a principal amount equal to such Lender's Commitment or, if
less, the outstanding amount of all NordicTrack Loans made by such
Lender, plus interest accrued thereon, as set forth below. NordicTrack
irrevocably authorizes each Lender to make or cause to be made, at or
about the time of the Drawdown Date of any NordicTrack Loan or at the
time of receipt of any payment of principal on such Lender's
NordicTrack Note, an appropriate notation on such Lender's NordicTrack
Note Record reflecting the making of such NordicTrack Loan or (as the
case may be) the receipt of such payment. The outstanding amount of the
NordicTrack Loans set forth on such Lender's NordicTrack Note Record
shall be PRIMA FACIE evidence of the principal amount thereof owing and
unpaid to such Lender, but the failure to record, or any error in so
recording, any such amount on such Lender's NordicTrack Note Record
shall not limit or otherwise affect the obligations of NordicTrack
hereunder or under any NordicTrack Note to make payments of principal
of or interest on any NordicTrack Note when due.
INTENTIONALLY OMITTED.
THE S&H NOTES. The S&H Loans shall be evidenced by promissory
notes of S&H in substantially the form of EXHIBIT A-2 hereto (each an
"S&H NOTE"), dated as of the Restatement Effective Date (or other such
date on which a Lender may become a party hereto in accordance with
ss.20 hereof) and completed with appropriate insertions. One S&H Note
shall be payable to the order of each Lender in A principal amount
equal to such Lender's Commitment or, if less, the outstanding amount
of all S&H Loans made by such Lender, plus interest accrued thereon, as
set forth below. S&H irrevocably authorizes each Lender to make or
cause to be made, at or about
<PAGE> 32
the time of the Drawdown Date of any S&H Loan or at the time of receipt
of any payment of principal on such Lender's S&H Note, an appropriate
notation on such Lender's S&H Note Record reflecting the making of such
S&H Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the S&H Loans set forth on such Lender's S&H Note
Record shall be PRIMA FACIE evidence of the principal amount thereof
owing and unpaid to such Lender, but the failure to record, or any
error in so recording, any such amount on such Lender's S&H's Note
Record shall not limit or otherwise affect the obligations of S&H
hereunder or under any S&H Note to make payments of principal of or
interest on any S&H Note when due.
INTENTIONALLY OMITTED.
1. INTEREST ON LOANS. Except as otherwise provided in ss.5.11.
(a) During the period from the Restatement Effective Date through
the earlier to occur of (i) the Maturity Date, or (ii) the PIK Event
Date (such earlier date being referred to herein as the "PIK DATE"),
each Loan shall bear interest at the rate of four percent (4.00%) per
annum above the Base Rate. On the PIK Date (A) each Borrower shall
issue to each Lender a PIK Note in the principal amount equal to
interest which would have accrued at the rate of one and one-half of
one percent (1.50%) per month, compounded monthly, on the outstanding
principal amount of the Loans of such Lender to such Borrower during
the period commencing on January 1, 1999 and ending on the PIK Date,
and (B) all Loans will from and after the PIK Date bear interest at the
rate equal to (x) the annual rate equal to the Base Rate plus four
percent (4.00%), payable monthly in arrears on each Interest Payment
Date in cash, plus (y) one and one-half of one percent (1.50%) per
month, payable monthly in arrears on each Interest Payment Date by the
issuance of PIK Notes on such Interest Payment Date in the principal
amount of such accrued unpaid interest at the rate of one and one-half
of one percent (1.50%) per month. Each PIK Note issuable pursuant to
this ss.2.5(a) shall bear interest, from and after the date that such
PIK Note was required by this ss.2.5 to be issued, at the rate of one
and one-half of one percent (1.50%) per month, compounded monthly, and
shall be payable upon the earlier to occur of (a) the Maturity Date, or
(b) the acceleration or payment in full of all the other Loans. In the
event that any Borrower fails to issue any PIK Note on any PIK Date or
within five (5) Business Days after any Interest Payment Date or on any
other date as required by this ss.2.5, (i) such failure shall be an
immediate and automatic Event of Default hereunder, and (ii) without
derogation or waiver of any of the rights and remedies of the
Administrative Agent or the Lenders as a result of such Event of
Default, interest shall accrue on the Obligations as if all PIK Notes
required to be issued pursuant to this ss.2.5 had been timely issued
in accordance with the requirements of this ss.2.5.
(b) Each of the Borrowers promises to pay interest on each of its
Loans in arrears on each Interest Payment Date with respect thereto.
1. REQUESTS FOR LOANS.
LOAN REQUESTS. Each of the Borrowers shall give to the
Administrative Agent written notice in the form of EXHIBIT B hereto (or
telephonic notice confirmed in a writing in the form of EXHIBIT B
hereto) of each Loan requested by such Borrower hereunder (a "LOAN
REQUEST") not later than (i) 10:00 a.m. (Boston time) on the proposed
Drawdown Date of any Loan. Each such notice shall specify (A) the
principal amount of the Loan requested, (B) the proposed Drawdown Date
of such Loan, (C) the Interest Period for such Loan, and (D) the
Borrower requesting such Loan. Promptly upon receipt of any such
notice, the Administrative Agent shall notify each of the Lenders
thereof. Each Loan Request shall be irrevocable and binding on the
requesting Borrower and shall obligate the requesting Borrower to
accept the Loan requested from the Lenders on the
<PAGE> 33
proposed Drawdown Date. Each Loan Request shall be in a minimum
aggregate amount of $100,000 or a larger integral multiple thereof.
DAILY BORROWINGS. Notwithstanding the notice and minimum amount
requirements set forth in ss.2.6.1 but otherwise in accordance with
the terms and conditions of this Credit Agreement, the Administrative
Agent may, in its sole discretion and without conferring with the
Lenders, make Loans to each Borrower (i) by entry of credits to such
Borrower's Controlled Disbursement Account to cover checks or other
charges which such Borrower has drawn or made against such account or
(ii) in an amount as otherwise requested by such Borrower. Each
Borrower hereby requests and authorizes the Administrative Agent to
make from time to time such Loans by means of appropriate entries of
such credits sufficient to cover checks and other charges then
presented. Each Borrower acknowledges and agrees that the making of
such Loans shall, in each case, be subject in all respects to the
provisions of this Credit Agreement as if they were Loans covered by a
Loan Request including, without limitation, the limitations set forth
in ss.2.1 and the requirements that the applicable provisions of
secs.12 and 13 (in the case of Loans made on the Restatement Effective
Date) and ss.13 (in all other cases) be satisfied. All actions taken
by the Administrative Agent pursuant to the provisions of this
ss.2.6.2 shall be conclusive and binding on the applicable Borrower
absent the Administrative Agent's gross negligence or willful
misconduct.
1. INTENTIONALLY OMITTED.
2. INTENTIONALLY OMITTED.
3. INTENTIONALLY OMITTED.
4. INTENTIONALLY OMITTED.
2.7.4. INTENTIONALLY OMITTED.
SETTLEMENT; FAILURE TO MAKE FUNDS AVAILABLE.
SETTLEMENT AND FUNDING PROCEDURES. On each Settlement Date, the
Administrative Agent shall, not later than 11:30 a.m. (Boston time),
give telephonic or facsimile notice (i) to the Lenders and the
Borrowers of the respective outstanding amount of Loans made by the
Administrative Agent on behalf of the Lenders from the immediately
preceding Settlement Date through the close of business on the prior
day and (ii) to the Lenders of the amount (a "SETTLEMENT AMOUNT") that
each Lender (the "SETTLING LENDER") shall pay to effect a Settlement of
any Loan. A statement of the Administrative Agent submitted to the
Lenders and the applicable Borrower or to the Lenders with respect to
any amounts owing under this ss.2.8.1 shall be PRIMA FACIE evidence of
the amount due and owing. The Settling Lender shall, not later than
3:00 p.m. (Boston time) on such Settlement Date, effect a wire transfer
of immediately available funds to the Administrative Agent in the
amount of such Lender's Settlement Amount. All funds advanced by any
Lender as a Settling Lender pursuant to this ss.2.8.1 shall for all
purposes be treated as a Loan made by such Settling Lender to the
applicable Borrower and all funds received by any Lender pursuant to
this ss.2.8.1 shall for all purposes be treated as repayment of
amounts owed with respect to Loans made by such Lender. In the event
that any bankruptcy, reorganization, liquidation, receivership or
similar cases or proceedings in which any of the Borrowers is a debtor
prevent a Settling Lender from making any Loan to effect a Settlement
as contemplated hereby, such Settling Lender will make such disposition
and arrangements with the other Lenders with respect to such Loans,
either by way of purchase of participations, distribution, PRO TANTO
assignment of claims, subrogation or otherwise as shall result in each
Lender's share of the outstanding Loans being equal, as nearly as
<PAGE> 34
may be, to such Lender's Commitment Percentage of the outstanding
amount of the Loans. Each Lender's obligation to fund its Settlement
Amount in connection with any Settlement pursuant to this ss.2.8.1
shall be absolute and unconditional and shall not be affected by any
circumstance, including (v) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against the
Administrative Agent, any Borrower or any other Person for any reason
whatsoever; (w) the occurrence and continuation of any Default or Event
of Default; (x) any adverse change in the condition (financial or
otherwise) of any of CML or its Subsidiaries or any other Lender;
(y) any breach of any of the Loan Documents by any of CML or its
Subsidiaries or any other Lender; or (z) any other circumstance,
happening or event whatsoever, whether or not similar to any of the
foregoing.
ADVANCES BY ADMINISTRATIVE AGENT. The Administrative Agent may,
unless notified to the contrary by any Lender prior to a Settlement
Date, assume that such Lender has made or will make available to the
Administrative Agent on such Settlement Date the amount of such
Lender's Settlement Amount, and the Administrative Agent may (but it
shall not be required to), in reliance upon such assumption, make
available to the applicable Borrower a corresponding amount. If any
Lender makes available to the Administrative Agent such amount on a
date after such Settlement Date, such Lender shall pay to the
Administrative Agent on demand an amount equal to the product of (i)
the average computed for the period referred to in clause (iii) below,
of the weighted average interest rate paid by the Administrative Agent
for federal funds acquired by the Administrative Agent during each day
included in such period, TIMES (ii) the amount of such Settlement
Amount, TIMES (iii) a fraction, the numerator of which is the number of
days that elapse from and including such Settlement Date to the date on
which the amount of such Settlement Amount shall become immediately
available to the Administrative Agent, and the denominator of which is
360. A statement of the Administrative Agent submitted to such Lender
with respect to any amounts owing under this paragraph shall be PRIMA
FACIE evidence of the amount due and owing to the Administrative Agent
by such Lender. If such Lender's Settlement Amount is not made
available to the Administrative Agent by such Lender within three (3)
Business Days following such Settlement Date, the Administrative Agent
shall be entitled to recover such amount from the applicable Borrower
on demand, with interest thereon at the rate per annum applicable to
the Loans (but not PIK Notes) as of such Settlement Date.
FAILURE TO MAKE FUNDS AVAILABLE. The failure or refusal of any
Lender to make available to the Administrative Agent at the aforesaid
time and place on any Settlement Date the amount of its Settlement
Amount (i) shall not relieve any other Lender from its several
obligations hereunder to make available to the Administrative Agent the
amount of such other Lender's Settlement Amount and (ii) shall not
impose upon such other Lender any liability with respect to such
failure or refusal or otherwise increase the Commitment of such other
Lender.
1. CHANGE IN BORROWING BASES. Each Borrowing Base shall be determined
weekly (or at such other interval as may be specified pursuant to ss.9.4(f)) by
the Administrative Agent by reference to the Borrowing Base Report. The
Administrative Agent shall give to the Lenders and the applicable Borrower(s)
written notice of any change in such Borrower's Borrowing Base determined by the
Administrative Agent resulting from the Administrative Agent's determination to
add reserves or decrease the advance rates with respect to such Borrowing Base
based on commercial finance examinations, inventory appraisals or other credit
or collateral considerations, which notice shall be effective upon receipt by
the applicable Borrower(s). The Administrative Agent will not give any such
notice to the applicable Borrower(s) without the consent of the Majority
Lenders. Prior to such time as the applicable Borrower receives such notice,
such Borrower's Borrowing Base shall be the amount in effect in the absence of
such notice. For purposes of this Credit Agreement and the other Loan Documents,
the Administrative Agent may assume, subject to adjustment based upon the
provisions of this Credit Agreement, that each Borrower's Borrowing Base in
effect on any given date is such Borrower's Borrowing Base as indicated on
<PAGE> 35
the most recent Borrowing Base Report delivered on a timely basis to the Lenders
and the Administrative Agent in accordance with the provisions of ss.9.4(f)
hereof.
1. REPAYMENT OF THE LOANS.
2. MATURITY. Each Borrower promises to pay on the Maturity Date, and
there shall become absolutely due and payable on the Maturity Date, all of its
Loans outstanding on such date, together with any and all accrued and unpaid
interest thereon.
1. MANDATORY REPAYMENTS OF LOANS.
NORDICTRACK LOANS. If at any time the sum of the outstanding
amount of the NordicTrack Loans and NordicTrack's Letter of Credit
Exposure exceeds the lesser of (i) NordicTrack's Sub-Commitment in
effect at such time and (ii) the NordicTrack Borrowing Base plus
NordicTrack's Sub-Overadvance Amount in effect at such time, then
NordicTrack shall immediately pay the amount of such excess to the
Administrative Agent for the respective accounts of the Lenders for
application: FIRST, to any Unpaid Reimbursement Obligations in respect
of Letters of Credit issued at the request of NordicTrack; SECOND, to
the NordicTrack Loans; and THIRD, to provide to the Administrative
Agent cash collateral for Reimbursement Obligations in respect of
Letters of Credit issued at the request of NordicTrack as contemplated
by ss.4.2(b) and (c). Each payment of any Unpaid Reimbursement
Obligations or prepayment of NordicTrack Loans shall be allocated among
the Lenders, in proportion, as nearly as practicable, to each Unpaid
Reimbursement Obligation or (as the case may be) the respective unpaid
principal amount of each Lender's NordicTrack Note, with adjustments to
the extent practicable to equalize any prior payments or repayments not
exactly in proportion.
3.2.2. INTENTIONALLY OMITTED.
3.2.3. S&H LOANS. If at any time the sum of the outstanding amount
of the S&H Loans and S&H's Letter of Credit Exposure exceeds the lesser
of (i) S&H's Sub-Commitment in effect at such time and (ii) the S&H
Borrowing Base PLUS S&H's Sub-Overadvance Amount in effect at such
time, then S&H shall immediately pay the amount of such excess to the
Administrative Agent for the respective accounts of the Lenders for
application: FIRST, to any Unpaid Reimbursement Obligations in respect
of Letters of Credit issued at the request of S&H; SECOND, to the S&H
Loans; and THIRD, to provide to the Administrative Agent cash
collateral for Reimbursement Obligations in respect of Letters of
Credit issued at the request of S&H as contemplated by ss.4.2(b) and
(c). Each payment of any Unpaid Reimbursement Obligations or prepayment
of S&H Loans shall be allocated among the Lenders, in proportion, as
nearly as practicable, to each Unpaid Reimbursement Obligation or (as
the case may be) the respective unpaid principal amount of each
Lender's S&H Note, with adjustments to the extent practicable to
equalize any prior payments or repayments not exactly in proportion.
3.2.4. REPAYMENTS FROM NET CASH PROCEEDS.
(a) CML shall, not later than the Business Day next following
each day any Net Cash Proceeds arising from any (i) sale or other
disposition by CML of the Capital Stock of any Subsidiary of CML, or
(ii) issuance by CML of any Capital Stock (other than a Permitted
Employee Issuance), are received by CML, pay to the Administrative
Agent the full amount of such Net Cash Proceeds for application to the
Loans.
<PAGE> 36
(b) The Borrowers and its Subsidiaries shall, not later than the
Business Day next following each day any Net Cash Proceeds arising from
(i) a Permitted Disposition set forth in ss.10.5.2(c), or (ii) an NT
Spin-Off are received by the any Borrower or its Subsidiaries, pay to
the Administrative Agent the full amount of such Net Cash Proceeds for
application to the Loans.
(c) On or prior to the date of any prepayment made pursuant to
ss.3.2.4, CML shall (a) allocate the payment of the Loans among the
respective Loans of NordicTrack and S&H as CML and the Lenders agree
and (b) give to the Administrative Agent written notice setting forth
the allocation of such prepayment after giving effect to any prepayment
pursuant to ss.3.2.4. In the event CML fails, by the date of such
prepayment, to allocate the payments to the Loans of the Borrowers to
give effect to such payments the Administrative Agent shall allocate
the payments in its sole discretion. Each prepayment of Loans, pursuant
to ss.3.2.4 shall be allocated among the Lenders, in proportion, as
nearly as practicable, to the respective unpaid principal amount of
each Lender's respective Note, with adjustments to the extent
practicable to equalize any prior payments or repayments not exactly in
proportion.
(d) The Borrowers shall be permitted, subject to (i) any
mandatory reductions in the Total Commitment required under ss.2.3.3,
and (ii) borrowing availability requirements under this Credit
Agreement, to reborrow all amounts repaid under this ss.3.2.4, in
compliance with the provisions of this Credit Agreement.
1. DEPOSITORY ARRANGEMENTS.
THE BORROWERS' DEPOSITORY ARRANGEMENTS. Each of the Borrowers will
(i) on or prior to the Original Closing Date, maintain a depository
concentration account (such Borrower's "CONCENTRATION ACCOUNT") with
and under the control of the Administrative Agent, as contemplated by
the terms of this Credit Agreement, (ii) direct each Agency Account
Institution pursuant to the Agency Account Agreements (whereby such
Agency Account Institution shall, among other things, waive any right
of set off, other than for service charges and returns incurred in
connection therewith), to cause all funds held by such Agency Account
Institution in the Agency Accounts to be transferred daily (or such
other period as the Administrative Agent requests) to, and only to, the
Administrative Agent for deposit in such Borrower's Concentration
Account and (iii) direct its account debtors and obligors on
instruments or other obligors of such Borrower with respect to any of
the Collateral to make all payments on or with respect to any of the
Collateral due or to become due to such Borrower directly to such
Borrower's Concentration Account or the Agency Accounts. If,
notwithstanding the requirements of the foregoing sentence, any of the
Borrowers receives any cash proceeds of any of the Collateral, whether
in the form of money, checks or otherwise, such Borrower will hold such
cash proceeds in trust for the benefit of the Administrative Agent and
the Lenders and turn such cash proceeds promptly over to the
Administrative Agent in the identical form received by deposit to any
Agency Account or Concentration Account. The Administrative Agent
shall, (i) with respect to all funds and cash proceeds in the form of
money, checks and like items received in any Borrower's Concentration
Account, on the same Business Day on which the Administrative Agent
determines that good collected funds have been received, and prior to
the final collection of good collected funds, on a provisional basis
until such final collection, (ii) with respect to all funds and cash
proceeds in the form of a wire transfer received in any Borrower's
Concentration Account, on the same Business Day as the Administrative
Agent's receipt of such amounts (or such later date as the
Administrative Agent determines that good collected funds have been
received) and (iii) with respect to all funds and cash proceeds in the
form of an automated clearing house transfer received in any Borrower's
Concentration Account, on the next Business Day following the
Administrative Agent's receipt of such amounts (or such later date as
the Administrative Agent determines that good collected funds have been
received), in each case, apply to the principal of the applicable
Borrower's Loans all such funds and cash proceeds which were deposited
to such
<PAGE> 37
Borrower's Concentration Account and, so long as no Default or Event of
Default has occurred and is continuing, the Administrative Agent shall
cause any excess to be credited to the applicable Borrower's Operating
Account. From and after the occurrence and during the continuance of a
Default or an Event of Default, the Administrative Agent may, from time
to time in the Administrative Agent's discretion, retain any or all of
such excess to pay any Obligations then due and payable in accordance
with ss.14.4 and to provide cash collateral for any Obligations not
then due and payable, including an amount equal to 105% of the Maximum
Drawing Amount to secure Reimbursement Obligations with respect to
Letters of Credit issued at the request of the applicable Borrower,
with the Administrative Agent causing any surplus, subject to the
rights of any other persons entitled thereto, to be credited to the
applicable Borrower's Operating Account. For purposes of the foregoing
provisions of this ss.3.3.1, the Administrative Agent shall not be
deemed to have received any such cash proceeds on any day unless
received by the Administrative Agent before 4:00 p.m. (Boston time) on
such day. Each of the Borrowers further acknowledges and agrees that
any such provisional credit by the Administrative Agent shall be
subject to reversal if final collection in good collected funds of the
related item is not received by the Administrative Agent in accordance
with the Administrative Agent's customary procedures and practices for
collecting provisional items.
CML'S DEPOSITORY ARRANGEMENTS. CML will (i) on or prior to the
Original Closing Date, maintain a depository concentration account
(CML's "CONCENTRATION ACCOUNT") with and under the control of the
Administrative Agent, as contemplated by the terms of this Credit
Agreement, (ii) direct each Agency Account Institution pursuant to the
Agency Account Agreements (whereby such Agency Account Institution
shall, among other things, waive any right of set off, other than for
service charges and returns incurred in connection therewith), to cause
all funds held by such Agency Account Institution in the Agency
Accounts to be transferred daily (or such other period as the
Administrative Agent requests) to, and only to, the Administrative
Agent for deposit in such Borrower's Concentration Account, (iii)
direct its account debtors and obligors on instruments or other
obligors of CML with respect to any of the Collateral to make all
payments on or with respect to any of the Collateral due or to become
due to CML directly to CML's Concentration Account or the Agency
Accounts and (iv) cause any and all tax refunds received by CML to be
immediately deposited into CML's Concentration Account. If,
notwithstanding the requirements of the foregoing sentence, CML
receives any cash proceeds of any of the Collateral, whether in the
form of money, checks or otherwise, CML will hold such cash proceeds in
trust for the benefit of the Administrative Agent and the Lenders and
turn such cash proceeds promptly over to the Administrative Agent in
the identical form received by deposit to any Agency Account or
Concentration Account. The Administrative Agent shall, (i) with respect
to all funds and cash proceeds in the form of money, checks and like
items received in CML's Concentration Account, on the same Business Day
on which the Administrative Agent determines that good collected funds
have been received, and prior to the final collection of good collected
funds, on a provisional basis until such final collection, (ii) with
respect to all funds and cash proceeds in the form of a wire transfer
received in CML's Concentration Account, on the same Business Day as
the Administrative Agent's receipt of such amounts (or such later date
as the Administrative Agent determines that good collected funds have
been received), and (iii) with respect to all funds and cash proceeds
in the form of an automated clearing house transfer received in CML's
Concentration Account, on the next Business Day following the
Administrative Agent's receipt of such amounts (or such later date as
the Administrative Agent determines that good collected funds have been
received), in each case, apply to the principal of the Borrowers' Loans
in such proportions as the Administrative Agent shall determine in its
sole discretion all such funds and cash proceeds which were deposited
to CML's Concentration Account and, so long as no Default or Event of
Default has occurred and is continuing, the Administrative Agent shall
cause any excess to be credited to CML's Operating Account. From and
after the occurrence and during the continuance of a Default or an
Event of Default, the Administrative Agent may, from time to time in
the Administrative Agent's discretion, retain any or all of such excess
to pay any
<PAGE> 38
Obligations then due and payable in accordance with ss.14.4 and to
provide cash collateral for any Obligations not then due and payable,
including an amount equal to 105% of the Maximum Drawing Amount to
secure Reimbursement Obligations of the Borrowers and CML, with the
Administrative Agent causing any surplus, subject to the rights of any
other persons entitled thereto, to be credited to CML's Operating
Account. For purposes of the foregoing provisions of this ss.3.3.2,
the Administrative Agent shall not be deemed to have received any such
cash proceeds on any day unless received by the Administrative Agent
before 4:00 p.m. (Boston time) on such day. CML further acknowledges
and agrees that any such provisional credit by the Administrative Agent
shall be subject to reversal if final collection in good collected
funds of the related item is not received by the Administrative Agent
in accordance with the Administrative Agent's customary procedures and
practices for collecting provisional items.
THE OTHER GUARANTORS' DEPOSITORY ARRANGEMENTS. Each of the
Guarantors not subject to secs.3.3.1 or 3.3.2 will (i) direct each
Agency Account Institution pursuant to the Agency Account Agreements
(whereby such Agency Account Institution shall, among other things,
waive any right of set off, other than for service charges and returns
incurred in connection therewith), to cause all funds held by such
Agency Account Institution in the Agency Accounts to be transferred
daily (or such other period as the Administrative Agent requests) to,
and only to, the Administrative Agent for deposit in the Concentration
Account of the Borrower which is such Guarantor's direct or indirect
parent, in accordance with this ss.3.3.3 and (ii) direct its account
debtors and obligors on instruments or other obligors of such Guarantor
with respect to any of the Collateral to make all payments on or with
respect to any of the Collateral due or to become due to such Guarantor
directly to the Concentration Account of such Guarantor's direct or
indirect parent or the Agency Accounts of such Guarantor or such
Guarantor's direct or indirect parent. If, notwithstanding the
requirements of the foregoing sentence, any of the Guarantors receives
any cash proceeds of any of the Collateral, whether in the form of
money, checks or otherwise, such Guarantor will hold such cash proceeds
in trust for the benefit of the Administrative Agent and the Lenders
and turn such cash proceeds promptly over to the Administrative Agent
in the identical form received by deposit to any Agency Account or
Concentration Account. The Administrative Agent shall, (i) with respect
to all funds and cash proceeds in the form of money checks and like
items received in any Borrower's or CML's Concentration Account, on the
same Business Day on which the Administrative Agent determines that
good collected funds have been received, and prior to the final
collection of good collected funds, on a provisional basis until such
final collection, (ii) with respect to all funds and cash proceeds in
the form of a wire transfer received in any Borrower's or CML's
Concentration Account, on the same Business Day as the Administrative
Agent's receipt of such amounts (or such later date as the
Administrative Agent determines that good collected funds have been
received), and (iii) with respect to all funds and cash proceeds in the
form of an automated clearing house transfer received in any Borrower's
or CML's Concentration Account, on the next Business Day following the
Administrative Agent's receipt of such amounts (or such later date as
the Administrative Agent determines that good collected funds have been
received), in each case, apply, in accordance with the provisions of
ss.3.3.1 or ss.3.3.2, as the case may be, all such funds and cash
proceeds so long as no Default or Event of Default has occurred and is
continuing, the Administrative Agent shall cause any excess to be
credited in accordance with the provisions of ss.3.3.1 or ss.3.3.2,
as the case may be. From and after the occurrence and during the
continuance of a Default or an Event of Default, the Administrative
Agent may, from time to time in the Administrative Agent's discretion,
retain any or all of such excess to pay any Obligations then due and
payable in accordance with ss.14.4 and to provide cash collateral for
any Obligations not then due and payable, including an amount equal to
105% of the Maximum Drawing Amount to secure Reimbursement Obligations
of the Borrowers, with the Administrative Agent causing any surplus,
subject to the rights of any other persons entitled thereto, to be
credited in accordance with the provisions of ss.3.3.1 or ss.3.3.2,
as the case may be. For purposes of the foregoing provisions of this
ss.3.3.3, the Administrative Agent shall not be deemed to have
received any such cash proceeds on any day unless received by the
<PAGE> 39
Administrative Agent before 4:00 p.m. (Boston time) on such day. Each
of the Guarantors subject to this ss.3.3.3 further acknowledges and
agrees that any such provisional credit by the Administrative Agent
shall be subject to reversal if final collection in good collected
funds of the related item is not received by the Administrative Agent
in accordance with the Administrative Agent's customary procedures and
practices for collecting provisional items.
FEES AND EXPENSES; APPLICATION OF PAYMENT. Each of the Borrowers
and the Guarantors agrees to pay to the Administrative Agent any and
all reasonable fees, costs and expenses which the Administrative Agent
incurs in connection with the opening and maintaining of the
Concentration Accounts, the Controlled Disbursement Accounts and the
depositing for collection by the Administrative Agent of any check or
other item of payment. Absent gross negligence or willful misconduct by
the Administrative Agent, each of the Borrowers and each of the
Guarantors agrees to indemnify the Administrative Agent and to hold the
Administrative Agent harmless from and against any loss, cost or
expense sustained or incurred by the Administrative Agent on account of
any claims of third parties arising in connection with the
Administrative Agent's operation of the Concentration Account. Each
partial prepayment of Loans under this ss.3.3 shall be allocated among
the Lenders in proportion, as nearly as practicable, to the respective
unpaid principal amount of each Lender's applicable Note, with
adjustments to the extent practicable to equalize any prior repayments
not exactly in proportion.
1. OPTIONAL REPAYMENTS OF LOANS. Each Borrower shall have the right, at
its election, to repay the outstanding amount of its Loans, as a whole or in
part, at any time without penalty or premium. The applicable Borrower shall give
the Administrative Agent, no later than 1:00 p.m., (Boston time), at least one
(1) Business Day prior written notice of any proposed prepayment pursuant to
this ss.3.4 of Loans, in each case specifying the proposed date of prepayment
of its Loans and the principal amount to be prepaid. Each such partial
prepayment of the Loans shall be in an integral multiple of $500,000 and shall
be applied to the principal of the applicable Borrower's Loans. Each partial
prepayment shall be allocated among the Lenders, in proportion, as nearly as
practicable, to the respective unpaid principal amount of each Lender's
applicable Note, with adjustments to the extent practicable to equalize any
prior repayments not exactly in proportion. Any prepayment of the Loans made
pursuant to ss.3.3 shall not be subject to the provisions of this ss.3.4.
1. LETTERS OF CREDIT.
2. LETTER OF CREDIT COMMITMENTS.
3. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the terms and
conditions hereof and the execution and delivery by any of the
Borrowers and CML of a letter of credit application on the Issuing
Bank's customary form (a "LETTER OF CREDIT Application"), the Issuing
Bank on behalf of the Lenders and in reliance upon the agreement of the
Lenders set forth in ss.4.1.4 and upon the representations and
warranties of the applicable Borrower and CML contained herein, agrees,
in its individual capacity, to issue, extend and renew for the account
of such Borrower and CML one or more standby or documentary letters of
credit (individually, a "LETTER OF CREDIT"), in such form as may be
requested from time to time by the applicable Borrower and agreed to by
the Issuing Bank; PROVIDED, HOWEVER, that, after giving effect to such
request, (a) the sum of the aggregate Letter of Credit Exposure of the
Borrowers shall not exceed $10,000,000 at any one time and (b) the sum
of (i) each Borrower's Letter of Credit Exposure and (ii) the amount of
all Loans of such Borrower outstanding shall not exceed the lesser of
(A) such Borrower's Sub-Commitment and (B) such Borrower's Borrowing
Base PLUS such Borrower's Sub-Overadvance Amount.
<PAGE> 40
1. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit
Application shall be completed to the satisfaction of the Issuing Bank.
In the event that any provision of any Letter of Credit Application
shall be inconsistent with any provision of this Credit Agreement, then
the provisions of this Credit Agreement shall, to the extent of any
such inconsistency, govern.
1. TERMS OF LETTERS OF CREDIT. Each Letter of Credit issued,
extended or renewed hereunder shall, among other things, (i) provide
for the payment of sight drafts for honor thereunder when presented in
accordance with the terms thereof and when accompanied by the documents
described therein, (ii) subject to clause (iii) hereof, with respect to
documentary Letters of Credit, have a term of not more than one hundred
eighty (180) days from the date of issuance, extension or renewal
thereof (unless the Issuing Bank, in its sole discretion, shall have
agreed to a longer term of up to but not exceeding two hundred seventy
(270) days) and with respect to standby Letters of Credit, have a term
of not more than one (1) year from the date of issuance, extension or
renewal thereof, and (iii) have an expiry date no later than July 24,
1999.
1. REIMBURSEMENT OBLIGATIONS OF LENDERS. Each Lender severally
agrees that it shall be absolutely liable, without regard to the
occurrence of any Default or Event of Default or any other condition
precedent whatsoever, to the extent of such Lender's Commitment
Percentage, to reimburse the Issuing Bank on demand for the amount of
each draft paid by the Issuing Bank under each Letter of Credit to the
extent that such amount is not reimbursed by the Borrowers or CML
pursuant to ss.4.2 (such agreement for a Lender being called herein
the "LETTER OF CREDIT PARTICIPATION" of such Lender).
1. PARTICIPATIONS OF LENDERS. Each such payment made by a Lender
shall be treated as the purchase by such Lender of a participating
interest in CML's and the Borrowers' Reimbursement Obligations under
ss.4.2 in an amount equal to such payment. Each Lender shall share in
accordance with its participating interest in any interest which
accrues pursuant to ss.4.2.
1. REIMBURSEMENT OBLIGATION OF CML AND THE BORROWERS. In order to
induce the Issuing Bank to issue, extend and renew each Letter of Credit and the
Lenders to participate therein, each Borrower and CML hereby agrees to reimburse
or pay to the Issuing Bank, for the account of the Issuing Bank or (as the case
may be) the Lenders, with respect to each Letter of Credit issued, extended or
renewed by the Issuing Bank hereunder at the request of such Borrower and CML,
(a) except as otherwise expressly provided in ss.4.2(b) and (c),
on each date that any draft presented under such Letter of Credit is
honored by the Issuing Bank, or the Issuing Bank otherwise makes a
payment with respect thereto, (i) the amount paid by the Issuing Bank
under or with respect to such Letter of Credit, and (ii) the amount of
any taxes, fees, charges or other costs and expenses whatsoever
incurred by the Issuing Bank or any Lender in connection with any
payment made by the Issuing Bank or any Lender under, or with respect
to, such Letter of Credit,
(b) upon the reduction (but not termination) of such Borrower's
Sub-Commitment to an amount less than the Maximum Drawing Amount with
respect to Letters of Credit issued at the request of such Borrower, an
amount equal to 105% of such difference, which amount
<PAGE> 41
shall be held by the Issuing Bank for the benefit of the Lenders, the
Issuing Bank and the Administrative Agent as cash collateral for all
Reimbursement Obligations with respect to Letters of Credit issued at
the request of such Borrower, and
(c) upon the termination of the such Borrower's Sub-Commitment, or
the acceleration of the Reimbursement Obligations with respect to
Letters of Credit issued at the request of such Borrower in accordance
with ss.14, an amount equal to 105% of the then Maximum Drawing Amount
with respect to Letters of Credit issued at the request of such
Borrower, which amount shall be held by the Issuing Bank for the
benefit of the Lenders, the Issuing Bank and the Administrative Agent
as cash collateral for all Reimbursement Obligations with respect to
Letters of Credit issued at the request of such Borrower.
Each such payment shall be made to the Issuing Bank at the Issuing Bank's head
office located at 100 Federal Street, Boston, Massachusetts in immediately
available funds. Interest on any and all amounts remaining unpaid by the
Borrowers under this ss.4.2 at any time from the date such amounts become due
and payable (whether as stated in this ss.4.2, by acceleration or otherwise)
until payment in full (whether before or after judgment) shall be payable to the
Issuing Bank on demand at the rate specified in ss.5.11 for overdue principal
on the Loans.
1. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or other
demand for payment shall be made under any Letter of Credit, the Issuing Bank
shall notify the applicable Borrower of the date and amount of the draft
presented or demand for payment and of the date and time when it expects to pay
such draft or honor such demand for payment. If the applicable Borrower or CML
fails to reimburse the Issuing Bank as provided in ss.4.2 on or before the date
that such draft is paid or other payment is made by the Issuing Bank, the
Issuing Bank may at any time thereafter notify the Lenders of the amount of any
such Unpaid Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on
the Business Day next following the receipt of such notice, each Lender shall
make available to the Issuing Bank, at its head office located at 100 Federal
Street, Boston, Massachusetts, in immediately available funds, such Lender's
Commitment Percentage of such Unpaid Reimbursement Obligation, together with an
amount equal to the product of (i) the average, computed for the period referred
to in clause (iii) below, of the weighted average interest rate paid by the
Issuing Bank for federal funds acquired by the Issuing Bank during each day
included in such period, TIMES (ii) the amount equal to such Lender's Commitment
Percentage of such Unpaid Reimbursement Obligation, TIMES (iii) a fraction, the
numerator of which is the number of days that elapse from and including the date
the Issuing Bank paid the draft presented for honor or otherwise made payment to
the date on which such Lender's Commitment Percentage of such Unpaid
Reimbursement obligation shall become immediately available to the Issuing Bank,
and the denominator of which is 360. The responsibility of the Issuing Bank to
CML, the Borrowers and the Lenders shall be only to determine that the documents
(including each draft) delivered under each Letter of Credit in connection with
such presentment shall be in conformity in all material respects with such
Letter of Credit.
1. OBLIGATIONS ABSOLUTE. Each Borrower's and CML's obligations under
this ss.4 shall be absolute and unconditional under any and all circumstances
and irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which any Borrower or CML may have or have had against the Issuing Bank, any
Lender, any Agent or any beneficiary of a Letter of Credit. Each Borrower and
CML further agrees with the Issuing Bank and the Lenders that the Issuing Bank
and the Lenders shall not be responsible for, and each Borrower's and CML's
Reimbursement Obligations under ss.4.2 shall not be affected by, among other
things, the validity or genuineness of documents or of any endorsements thereon,
even if such documents should in fact prove to be in any or all respects
invalid, fraudulent or forged, or any dispute between or among any Borrower,
CML, the beneficiary of any Letter of Credit or any financing institution or
other party to which any Letter of Credit may be transferred or any claims or
defenses whatsoever of any Borrower against the beneficiary of any Letter of
Credit or any such transferee. The Issuing Bank and the Lenders shall not be
liable for any error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in connection with
any Letter of Credit. Each Borrower and CML agrees that any action taken or
omitted by the Issuing Bank or any Lender under or in connection with each
Letter of Credit and the related drafts and documents, if done in good faith,
shall be binding upon such Borrower and CML and shall not result in any
liability on the part of the Issuing Bank or any Lender to such Borrower.
<PAGE> 42
1. RELIANCE BY ISSUER. To the extent not inconsistent with ss.4.4, the
Issuing Bank shall be entitled to rely, and shall be fully protected in relying
upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Issuing Bank. The Issuing Bank shall be fully
justified in failing or refusing to take any action under this Credit Agreement
unless it shall first have received such advice or concurrence of the Majority
Lenders as it reasonably deems appropriate or it shall first be indemnified to
its reasonable satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Issuing Bank shall in all cases be fully protected in
acting, or in refraining from acting, under this Credit Agreement in accordance
with a request of the Majority Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon the Lenders and all future
holders of the Notes or of a Letter of Credit Participation.
4.6 LETTER OF CREDIT FEE. Each Borrower shall, on the date of issuance,
or any extension or renewal of any Letter of Credit, pay a fee (in each case, a
"LETTER OF CREDIT FEE") to the Issuing Bank (i) in respect of each standby
Letter of Credit issued at the request of such Borrower equal to four percent
(4.00%) per annum of the face amount of such standby Letter of Credit, and (ii)
in respect of each documentary Letter of Credit issued at the request of such
Borrower equal to four percent (4.00%) per annum of the face amount of such
documentary Letter of Credit. The Issuing Bank shall, in turn, remit to each
Lender its PRO RATA portion of such Letter of Credit Fee. In addition, the
applicable Borrower shall pay to the Issuing Bank, for its own account, on the
date of issuance, or any extension or renewal of any Letter of Credit and at
such other time or times as such charges are customarily made by the Issuing
Bank, a fronting fee equal to one-half percent (0.50%) per annum of the face
amount of such Letter of Credit and the Issuing Bank's standard issuance,
processing, negotiation, amendment and administrative fees, determined in
accordance with customary fees and charges for similar facilities. For all
Letters of Credit issued prior to the Restatement Effective Date, the provisions
contained in ss.4.6 prior to the Restatement Effective Date shall govern.
4.7 EXISTING LETTERS OF CREDIT. CML, the Borrowers and the Lenders each
agree that (a) all letters of credit which have previously been issued by BKB
under the Existing Credit Agreement (the "EXISTING LETTERS OF CREDIT") for the
account of CML or any Borrower, shall be deemed Letters of Credit issued under
and governed by this Credit Agreement, (b) this Credit Agreement supersedes any
and all prior agreements between CML and the Borrowers and BKB with respect to
the Existing Letters of Credit, other than as specifically provided for in
ss.4.6, and (c) all the Existing Letters of Credit, from and after the
Restatement Effective Date, shall be subject to and governed by the terms of
this Credit Agreement.
1. CERTAIN GENERAL PROVISIONS.
2. COMMITMENT FEES. The Borrowers jointly and severally agree to pay to
the Administrative Agent the commitment and other fees described in the Fee
Letter as and when due and payable under the Fee Letter.
1. ADMINISTRATIVE AGENT'S FEE. The Borrowers jointly and severally
shall pay to the Administrative Agent an Administrative Agent's fee as provided
in the Fee Letter.
1. FUNDS FOR PAYMENTS.
2. PAYMENTS TO ADMINISTRATIVE AGENT. All payments of principal,
interest, Reimbursement Obligations, Unused Line Fees, Letter of Credit
Fees and any other amounts due
<PAGE> 43
hereunder or under any of the other Loan Documents shall be made to the
Administrative Agent, for the respective accounts of the Lenders and
the Administrative Agent, at the Administrative Agent's Head Office or
at such other location in the Boston, Massachusetts area that the
Administrative Agent may from time to time designate, in each case in
immediately available funds.
1. NO OFFSET, ETC. All payments by the Borrowers hereunder and
under any of the other Loan Documents shall be made without setoff or
counterclaim and free and clear of and without deduction for any taxes,
levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein unless any
Borrower is compelled by law to make such deduction or withholding. If
any such obligation is imposed upon any Borrower with respect to any
amount payable by it hereunder or under any of the other Loan
Documents, such Borrower will pay to the Administrative Agent, for the
account of the Lenders or (as the case may be) the Administrative
Agent, on the date on which such amount is due and payable hereunder or
under such other Loan Document, such additional amount in Dollars as
shall be necessary to enable the Lenders or the Administrative Agent to
receive the same net amount which the Lenders or the Administrative
Agent would have received on such due date had no such obligation been
imposed upon such Borrower. Such Borrower will deliver promptly to the
Administrative Agent certificates or other valid vouchers for all taxes
or other charges deducted from or paid with respect to payments made by
such Borrower hereunder or under such other Loan Document.
1. COMPUTATIONS. All computations of interest on the Loans and of
Unused Line Fees, Letter of Credit Fees or other fees shall, unless otherwise
expressly provided herein, be based on a 360-day year and paid for the actual
number of days elapsed. Whenever a payment hereunder or under any of the other
Loan Documents becomes due on a day that is not a Business Day, the due date for
such payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension. The outstanding amount of the Loans as
reflected on the Note Records from time to time shall be considered correct and
binding on the applicable Borrower unless within five (5) Business Days after
receipt of any notice by the Administrative Agent or any of the Lenders of such
outstanding amount, the Administrative Agent or such Lender shall notify such
Borrower to the contrary.
1. INTENTIONALLY OMITTED.
2. INTENTIONALLY OMITTED.
3. ADDITIONAL COSTS, ETC. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Lender or the Administrative Agent by any central bank
or other fiscal, monetary or other authority (whether or not having the force of
law), shall:
(a) subject any Lender or the Administrative Agent to any tax,
levy, impost, duty, charge, fee, deduction or withholding of any nature
with respect to this Credit Agreement, the other Loan Documents, any
Letters of Credit, such Lender's Commitment or the Loans (other than
taxes based upon or measured by the income or profits of such Lender or
the Administrative Agent), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to any Lender of the principal
of or the interest on any Loans or any other
<PAGE> 44
amounts payable to any Lender or the Administrative Agent under this
Credit Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement)
any special deposit, reserve, assessment, liquidity, capital adequacy
or other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans
by, or letters of credit issued by, or commitments of an office of any
Lender, or
(d) impose on any Lender or the Administrative Agent any other
conditions or requirements with respect to this Credit Agreement, the
other Loan Documents, any Letters of Credit, the Loans, such Lender's
Commitment, or any class of loans, letters of credit or commitments of
which any of the Loans or such Lender's Commitment forms a part, and
the result of any of the foregoing is
(i) to increase the cost to any Lender of making, funding,
issuing, renewing, extending or maintaining any of the Loans or
such Lender's Commitment or any Letter of Credit, or
(ii) to reduce the amount of principal, interest,
Reimbursement Obligation or other amount payable to such Lender
or the Administrative Agent hereunder on account of such Lender's
Commitment, any Letter of Credit or any of the Loans, or
(iii) to require such Lender or the Administrative Agent to
make any payment or to forgo any interest or Reimbursement
Obligation or other sum payable hereunder, the amount of which
payment or forgone interest or Reimbursement Obligation or other
sum is calculated by reference to the gross amount of any sum
receivable or deemed received by such Lender or the
Administrative Agent from the Borrowers hereunder,
then, and in each such case, the Borrowers will, upon demand made by such Lender
or (as the case may be) the Administrative Agent at any time and from time to
time and as often as the occasion therefor may arise, pay to such Lender or the
Administrative Agent such additional amounts as will be sufficient to compensate
such Lender or the Administrative Agent for such additional cost, reduction,
payment or forgone interest or Reimbursement Obligation or other sum.
1. CAPITAL ADEQUACY. If after the date hereof any Lender or the
Administrative Agent determines that (i) the adoption of or change in any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) regarding capital requirements for banks or bank
holding companies or any change in the interpretation or application thereof by
a court or governmental authority with appropriate jurisdiction, or (ii)
compliance by such Lender or the Administrative Agent or any corporation
controlling such Lender or the Administrative Agent with any law, governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) of any such entity regarding capital adequacy, has the effect of
reducing the return on such Lender's or the Administrative Agent's capital as a
result of such Lender's obligations hereunder to a level below that which such
Lender or the Administrative Agent could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's or the
Administrative Agent's then existing policies with respect to capital adequacy
and assuming full utilization of such entity's capital) by any amount deemed by
such Lender or (as the case may be) the Administrative Agent to be material,
then such Lender or the Administrative Agent may notify the Borrowers of such
fact. To the extent that the amount of such reduction in the return on capital
is not reflected in the Base Rate, the Borrowers agree to pay such Lender or (as
the case may be) the Administrative Agent for the amount of such reduction in
the return on capital as and when such reduction is determined upon presentation
by such Lender or (as the case may be) the Administrative
<PAGE> 45
Agent of a certificate in accordance with ss.5.9 hereof. Each Lender shall
allocate such cost increases among its customers in good faith and on an
equitable basis.
1. CERTIFICATE. A certificate setting forth any additional amounts
payable pursuant to secs.5.7 or 5.8 and a brief explanation of such amounts
which are due, submitted by any Lender or the Administrative Agent to the
Borrowers, shall be conclusive, absent manifest error, that such amounts are due
and owing.
1. INTENTIONALLY OMITTED.
2. INTEREST AFTER DEFAULT.
3. OVERDUE AMOUNTS. Overdue principal and (to the extent permitted
by applicable law) interest on the Loans and all other overdue amounts
payable hereunder or under any of the other Loan Documents shall bear
interest compounded monthly and payable on demand at a rate per annum
equal to two percent (2.00%) above the rate of interest otherwise
applicable thereto until such amount shall be paid in full (after as
well as before judgment).
1. AMOUNTS NOT OVERDUE. During the continuance of an Event of
Default the principal of the Loans and any of the PIK Notes not overdue
shall, until such Event of Default has been cured or remedied or such
Event of Default has been waived by the Majority Lenders pursuant to
ss.27, bear interest at a rate per annum equal to the rate of interest
applicable to overdue principal pursuant to ss.5.11.1.
1. COLLATERAL SECURITY AND GUARANTIES.
2. SECURITY OF BORROWERS. The Obligations shall be secured by a
perfected first priority security interest (subject only to Permitted Liens
entitled to priority under applicable law) in all of the assets of the
Borrowers, (with such exceptions as are acceptable to the Majority Lenders),
including, without limitation, the stock of all Borrowers, Guarantors (other
than CML) and Foreign Guarantors, and all intercompany obligations owing to the
Borrowers, in each case wherever located and whether now owned or hereafter
acquired, pursuant to the terms of the Security Documents to which any of such
Borrower is a party.
1. GUARANTY, FOREIGN GUARANTIES AND SECURITY OF GUARANTORS. The
Obligations shall also be guaranteed pursuant to the terms of the Guaranty and
the Foreign Guaranties. The obligations of the Guarantors under the Guaranty
shall be in turn secured by a perfected first priority security interest
(subject only to Permitted Liens entitled to priority under applicable law) in
all of the assets of each such Guarantor (with such exceptions as are acceptable
to the Majority Lenders) and all intercompany obligations owing to the
Guarantors, in each case wherever located and whether now owned or hereafter
acquired, pursuant to the terms of the Security Documents to which such
Guarantor is a party.
GUARANTY.
1. GUARANTY OF PAYMENT AND PERFORMANCE. Each of the Guarantors hereby
jointly and severally guarantees to the Lenders, the Issuing Bank and the
Administrative Agent the full and punctual payment when due (whether at stated
maturity, by required pre-payment, by acceleration or otherwise), as well as the
performance, of all of the Obligations including all such which would become due
but for the operation of the automatic stay pursuant to ss.362(a) of the
Federal Bankruptcy Code and the operation of secs.502(b) and 506(b) of the
Federal Bankruptcy Code. This Guaranty is an absolute, unconditional and
continuing guaranty of the full and punctual payment and performance of all of
the Obligations and not of their collectability only and is in no way
conditioned upon any requirement that any Agent, the Issuing Bank or any Lender
first attempt to collect any of the Obligations from the applicable Borrower or
resort to any collateral security or other means of obtaining payment. Should
any of the Borrowers default in the
<PAGE> 46
payment or performance of any of the Obligations, the obligations of the
Guarantors hereunder with respect to such Obligations in default shall, upon
demand by the Administrative Agent, become immediately due and payable to the
Administrative Agent, for the benefit of the Lenders, the Issuing Bank and the
Administrative Agent, without demand or notice of any nature, all of which are
expressly waived by each of the Guarantors. Payments by the Guarantors hereunder
may be required by the Administrative Agent on any number of occasions. All
payments by any of the Guarantors hereunder shall be made to the Administrative
Agent, in the manner and at the place of payment specified therefor in ss.5
hereof, for the account of the Lenders, the Issuing Bank and the Administrative
Agent.
1. GUARANTORS' AGREEMENT TO PAY ENFORCEMENT COSTS, ETC. Each of the
Guarantors further jointly and severally agrees, as the principal obligor and
not as a guarantor only, to pay to the Administrative Agent, on demand, all
reasonable costs and expenses (including court costs and legal expenses,
including the allocated cost of staff counsel) incurred or expended by any
Agent, the Issuing Bank or any Lender in connection with the Obligations, this
Guaranty and the enforcement thereof, together with interest on amounts
recoverable under this ss.7 from the time when such amounts become due until
payment, whether before or after judgment, at the rate of interest for overdue
principal set forth in ss.5.11 hereof, PROVIDED that if such interest exceeds
the maximum amount permitted to be paid under applicable law, then such interest
shall be reduced to such maximum permitted amount.
1. WAIVERS BY THE GUARANTORS; LENDERS' FREEDOM TO ACT. Each of the
Guarantors agrees that the Obligations will be paid and performed strictly in
accordance with their respective terms, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of any Agent, the Issuing Bank or any Lender with respect thereto.
Each of the Guarantors waives promptness, diligence, presentment, demand,
protest, notice of acceptance, notice of any Obligations incurred and all other
notices of any kind, all defenses which may be available by virtue of any
valuation, stay, moratorium law or other similar law now or hereafter in effect,
any right to require the marshalling of assets of the applicable Borrower or any
other entity or other Person primarily or secondarily liable with respect to any
of the Obligations, and all suretyship defenses generally. Without limiting the
generality of the foregoing, each of the Guarantors agrees to the provisions of
any instrument evidencing, securing or otherwise executed in connection with any
Obligation and agrees that the obligations of such Guarantor hereunder shall not
be released or discharged, in whole or in part, or otherwise affected by (i) the
failure of any Agent, the Issuing Bank or any Lender to assert any claim or
demand or to enforce any right or remedy against the applicable Borrower or any
other entity or other person primarily or secondarily liable with respect to any
of the Obligations; (ii) any extensions, compromise, refinancing, consolidation
or renewals of any Obligation; (iii) any change in the time, place or manner of
payment of any of the Obligations or any rescissions, waivers, compromise,
refinancing, consolidation or other amendments or modifications of any of the
terms or provisions of this Credit Agreement, the other Loan Documents or any
other agreement evidencing, securing or otherwise executed in connection with
any of the Obligation, (iv) the addition, substitution or release of any entity
or other person primarily or secondarily liable for any Obligation; (v) the
adequacy of any rights which any Agent, the Issuing Bank or any Lender may have
against any collateral security or other means of obtaining repayment of any of
the Obligations; (vi) the impairment of any collateral securing any of the
Obligations, including without limitation the failure to perfect or preserve any
rights which any Agent, the Issuing Bank or any Lender might have in such
collateral security or the substitution, exchange, surrender, release, loss or
destruction of any such collateral security; or (vii) any other act or omission
which might in any manner or to any extent vary the risk of such Guarantor or
otherwise operate as a release or discharge of such Guarantor, all of which may
be done without notice to such Guarantor. To the fullest extent permitted by
law, each of the Guarantors hereby expressly waives any and all rights or
defenses arising by reason of (A) any "one action" or "anti-deficiency" law
which would otherwise prevent any Agent, the Issuing Bank or any Lender from
bringing any action, including any claim for a deficiency, or exercising any
other right or remedy (including any right of set-off), against such Guarantor
before or after such Agent's, the Issuing Bank's or such Lender's commencement
or completion of any foreclosure action, whether judicially, by exercise of
power of sale or otherwise, or (B)
<PAGE> 47
any other law which in any other way would otherwise require any election of
remedies by any Agent, the Issuing Bank or any Lender.
1. UNENFORCEABILITY OF OBLIGATIONS AGAINST BORROWERS. If for any reason
any of the Borrowers has no legal existence or is under no legal obligation to
discharge any of the Obligations, or if any of the Obligations have become
irrecoverable from such Borrower by reason of such Borrower's insolvency,
bankruptcy or reorganization or by other operation of law or for any other
reason, this Guaranty shall nevertheless be binding on each of the Guarantors to
the same extent as if each such Guarantor at all times had been the principal
obligor on all such Obligations. In the event that acceleration of the time for
payment of any of the Obligations is stayed upon the insolvency, bankruptcy or
reorganization of such Borrower, or for any other reason, all such amounts
otherwise subject to acceleration under the terms of this Credit Agreement, the
other Loan Documents or any other agreement evidencing, securing or otherwise
executed in connection with any Obligation shall be immediately due and payable
by each of the Guarantors.
1. SUBROGATION; SUBORDINATION.
POSTPONEMENT OF RIGHTS AGAINST BORROWERS. Until the final payment
and performance in full in cash of all of the Obligations: none of the
Guarantors shall exercise any rights against any Borrower arising as a
result of payment by each such Guarantor hereunder, by way of
subrogation, reimbursement, restitution, contribution or otherwise, and
will not prove any claim in competition with any Agent, the Issuing
Bank or any Lender in respect of any payment hereunder in any
bankruptcy, insolvency or reorganization case or proceedings of any
nature; none of the Guarantors will claim any setoff, recoupment or
counterclaim against any Borrower in respect of any liability of any
such Guarantor to such Borrower; and each of the Guarantors waives any
benefit of and any right to participate in any collateral security
which may be held by any Agent, the Issuing Bank or any Lender.
SUBORDINATION. The payment of any amounts due with respect to any
indebtedness of the Borrowers for money borrowed or credit received now
or hereafter owed to any of the Guarantors is hereby subordinated to
the prior payment in full in cash of all of the Obligations. Each of
the Guarantors agrees that, after the occurrence of any default in the
payment or performance of any of the Obligations, such Guarantor will
not demand, sue for or otherwise attempt to collect any such
indebtedness of any Borrower to such Guarantor until all of the
Obligations shall have been paid in full. If, notwithstanding the
foregoing sentence, any of the Guarantors shall collect, enforce or
receive any amounts in respect of such indebtedness while any
Obligations are still outstanding, such amounts shall be collected,
enforced and received by such Guarantor as trustee for the Lenders, the
Issuing Bank and the Administrative Agent and be paid over to the
Administrative Agent, for the benefit of the Lenders, the Issuing Bank
and the Administrative Agent, on account of the Obligations without
affecting in any manner the liability of the Guarantors under the other
provisions of this Guaranty.
PROVISIONS SUPPLEMENTAL. The provisions of this ss.7.5 shall be
supplemental to and not in derogation of any rights anD remedies of the
Lenders, the Issuing Bank and the Administrative Agent under any
separate subordination agreement which the Administrative Agent may at
any time and from time to time enter into with any of the Guarantors
for the benefit of the Lenders, the Issuing Bank and the Administrative
Agent.
1. SECURITY; SETOFF. Each of the Guarantors grants to each of the
Administrative Agent, the Issuing Bank and the Lenders, as security for the full
and punctual payment and performance of all of the Guarantors' obligations
hereunder, a continuing lien on and security interest in all securities or other
property belonging to each such Guarantor now or hereafter held by such Agent,
the Issuing Bank or such
<PAGE> 48
Lender and in all deposits (general or special, time or demand, provisional or
final) and other sums credited by or due from such Agent, the Issuing Bank or
such Lender to such Guarantor or subject to withdrawal by such Guarantor.
Regardless of the adequacy of any collateral security or other means of
obtaining payment of any of the Obligations, each of the Administrative Agent,
the Issuing Bank and the Lenders is hereby authorized at any time and from time
to time, without notice to any of the Guarantors (any such notice being
expressly waived by each of the Guarantors) and to the fullest extent permitted
by law, to set off and apply such deposits and other sums against the
obligations of such Guarantor under this Guaranty, whether or not such Agent,
the Issuing Bank or such Lender shall have made any demand under this Guaranty
and although such obligations may be contingent or unmatured.
1. FURTHER ASSURANCES. Each of the Guarantors agrees that it will from
time to time, at the request of the Administrative Agent, do all such things and
execute all such documents as the Administrative Agent may consider necessary or
desirable to give full effect to this Guaranty and to perfect and preserve the
rights and powers of the Lenders, the Issuing Bank and the Administrative Agent
hereunder. Each of the Guarantors acknowledges and confirms that such Guarantor
itself has established its own adequate means of obtaining from the Borrowers on
a continuing basis all information desired by such Guarantor concerning the
financial condition of the Borrowers and that such Guarantor will look to the
Borrowers and not to any Agent, the Issuing Bank or any Lender in order for such
Guarantor to keep adequately informed of changes in any of the Borrowers'
financial condition.
1. TERMINATION. Notwithstanding any termination of this Guaranty, this
Guaranty shall continue to be effective or be reinstated, if at any time any
payment made or value received with respect to any Obligation is rescinded or
must otherwise be returned by any Agent, the Issuing Bank or any Lender upon the
insolvency, bankruptcy or reorganization of any Borrower, or otherwise, all as
though such payment had not been made or value received.
1. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon each of
the Guarantors, its successors and assigns, and shall inure to the benefit of
the Administrative Agent, the Issuing Bank and the Lenders and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing sentence, each Lender may, in accordance with the provisions of
ss.20, assign or otherwise transfer this Credit Agreement, the other Loan
Documents or any other agreement or note held by it evidencing, securing or
otherwise executed in connection with the Obligations, or sell participations in
any interest therein, to any other entity or other person, and such other entity
or other person shall thereupon become vested, to the extent set forth in the
agreement evidencing such assignment, transfer or participation, with all the
rights in respect thereof granted to such Lender herein. None of the Guarantors
may assign any of its obligations hereunder.
1. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers and, to the extent the representation relates to
CML, CML represents and warrants to the Lenders and the Administrative Agent as
follows:
1. CORPORATE AUTHORITY.
2. INCORPORATION; GOOD STANDING. Each of CML, the Borrowers and
each of their Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation, (ii) has all requisite corporate power to own its
property and conduct its business as now conducted and as presently
contemplated, and (iii) is in good standing as a foreign corporation
and is duly authorized to do business in each jurisdiction where such
qualification is necessary except where a failure to be so qualified
would not have a materially adverse effect on the business, assets or
financial condition of CML, such Borrower or such Subsidiary.
<PAGE> 49
1. AUTHORIZATION. The execution, delivery and performance of this
Credit Agreement and the other Loan Documents to which CML, any of the
Borrowers or any of their Subsidiaries is or is to become a party and
the transactions contemplated hereby and thereby (i) are within the
corporate authority of such Person, (ii) have been duly authorized by
all necessary corporate proceedings, (iii) do not conflict with or
result in any breach or contravention of any provision of law, statute,
rule or regulation to which CML, any of the Borrowers or any of their
Subsidiaries is subject or any judgment, order, writ, injunction,
license or permit applicable to CML, any of Borrower or any of their
Subsidiaries and (iv) do not conflict with any provision of the
corporate charter or bylaws of, or any agreement or other instrument
binding upon, CML, any of the Borrowers or any of their Subsidiaries.
1. ENFORCEABILITY. The execution and delivery of this Credit
Agreement and the other Loan Documents to which CML, any of the
Borrowers or any of their Subsidiaries is or is to become a party will
result in valid and legally binding obligations of such Person
enforceable against it in accordance with the respective terms and
provisions hereof and thereof, except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights
and except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of the
court before which any proceeding therefor may be brought.
1. GOVERNMENTAL APPROVALS. The execution, delivery and performance by
CML, any of the Borrowers and any of their Subsidiaries of this Credit Agreement
and the other Loan Documents to which CML, any of the Borrowers or any of their
Subsidiaries is or is to become a party and the transactions contemplated hereby
and thereby do not require the approval or consent of, or filing with, any
governmental agency or authority other than those already obtained.
1. TITLE TO PROPERTIES; LEASES. Except as indicated on SCHEDULE 8.3
hereto, CML, the Borrowers and their Subsidiaries own all of the assets
reflected in the consolidated balance sheet of CML, the Borrowers and their
Subsidiaries as at the Balance Sheet Date or acquired since that date (except
property and assets sold or otherwise disposed of in the ordinary course of
business since that date), subject to no rights of others, including any
mortgages, leases, conditional sales agreements, title retention agreements,
liens or other encumbrances except Permitted Liens.
1. FINANCIAL STATEMENTS AND PROJECTIONS.
2. FINANCIAL STATEMENTS. There has been furnished to each of the
Lenders (a) the consolidated balance sheet of CML, the Borrowers and
their Subsidiaries as at the Balance Sheet Date, and the consolidated
statements of income and cash flows of CML, the Borrowers and their
Subsidiaries for the fiscal year then ended, certified by Deloitte and
Touche LLP and (b) the consolidated balance sheet of CML, the Borrowers
and their Subsidiaries as at May 2, 1998 and the consolidated
statements of income and cash flows of CML, the Borrowers and their
Subsidiaries for the fiscal quarters then ended. All such balance
sheets, statements of income and statements of cash flows have been
prepared in accordance with generally accepted accounting principles
and fairly present the consolidated financial condition of CML, the
Borrowers and their Subsidiaries as at the close of business on the
dates thereof and the results of operations for the fiscal year or
quarter, as the case may be, then ended. There are no contingent
liabilities of CML, any of the Borrowers or any of their Subsidiaries
as of May 2, 1998 involving material amounts, known to the officers of
CML or any the Borrowers, which were not disclosed in the balance sheet
as of May 2, 1998 or the notes related thereto.
1. PROJECTIONS. The projections of the annual operating budgets of
CML, the Borrowers and their Subsidiaries on a consolidated basis,
balance sheets and cash flow statements for the
<PAGE> 50
1998 to 1999 fiscal years, copies of which have been delivered to each
Lender, disclose all assumptions made with respect to general economic,
financial and market conditions used in formulating such projections.
To the knowledge of CML, any of Borrowers or any of their Subsidiaries,
no facts exist that (individually or in the aggregate) would result in
any material change in any of such projections. The projections are
based upon reasonable estimates and assumptions, have been prepared on
the basis of the assumptions stated therein and reflect the reasonable
estimates of CML, the Borrowers and its Subsidiaries of the results of
operations and other information projected therein.
1. NO MATERIAL CHANGES, ETC.; SOLVENCY.
CHANGES. Since May 2, 1998 there has occurred no materially
adverse change in the condition (financial or otherwise), operations,
assets, liabilities and/or prospects of CML, the Borrowers and their
Subsidiaries other than as disclosed to the Administrative Agent and
the Lenders in writing (including the Monthly Budget attached as ANNEX
A hereto) on or prior to the Restatement Effective Date.
8.5.2. SOLVENCY. CML, each of the Borrowers and each of their
Subsidiaries, taken as a whole (after giving effect to the transactions
contemplated by this Credit Agreement and the other Loan Documents), is
Solvent. As used herein, "SOLVENT" shall mean such Person, (i) has
assets having a fair value in excess of its liabilities, (ii) has
assets having a fair value in excess of the amount required to pay its
liabilities on existing debts as such debts become absolute and
matured, and (iii) has, and expects to continue to have, access to
adequate capital for the conduct of its business and the ability to pay
its debts from time to time incurred in connection with the operation
of its business as such debts mature.
1. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of CML, the Borrowers and
their Subsidiaries possesses all franchises, patents, copyrights, trademarks,
trade names, licenses and permits, and rights in respect of the foregoing,
adequate for the conduct of its business substantially as now conducted without
known conflict with any rights of others.
1. LITIGATION. Except as set forth in SCHEDULE 8.7 hereto, there are no
actions, suits, proceedings or investigations of any kind pending or threatened
against CML, any of the Borrowers or any of their Subsidiaries before any court,
tribunal or administrative agency or board that, if adversely determined, might,
either in any case or in the aggregate, materially adversely affect the
properties, assets, financial condition or business of CML, the Borrowers and
their Subsidiaries or materially impair the right of CML, the Borrowers and
their Subsidiaries, considered as a whole, to carry on business substantially as
now conducted by them, or result in any substantial liability not adequately
covered by insurance, or for which adequate reserves are not maintained on the
consolidated balance sheet of CML, the Borrowers and their Subsidiaries, or
which question the validity of this Credit Agreement or any of the other Loan
Documents, or any action taken or to be taken pursuant hereto or thereto.
1. NO MATERIALLY ADVERSE CONTRACTS, ETC. None of CML, any of the
Borrowers nor any of their Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation that
has or is expected in the future to have a materially adverse effect on the
business, assets or financial condition of CML, any of the Borrowers or any of
their Subsidiaries. None of CML, any of the Borrowers nor any of their
Subsidiaries is a party to any contract or agreement that has or is expected, in
the judgment of CML's officers, to have any materially adverse effect on the
business of CML, any of the Borrowers or any of their Subsidiaries.
1. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. None of CML, any of
the Borrowers nor any of their Subsidiaries is in violation of any provision of
its charter documents, bylaws, or any agreement
<PAGE> 51
or instrument to which it may be subject or by which it or any of its properties
may be bound or any decree, order, judgment, statute, license, rule or
regulation, in any of the foregoing cases in a manner that could result in the
imposition of substantial penalties or materially and adversely affect the
financial condition, properties or business of CML, any of the Borrowers or any
of their Subsidiaries.
1. TAX STATUS. Each of CML, the Borrowers and their Subsidiaries (i)
have made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which any of them is
subject, (ii) have paid all taxes and other governmental assessments and charges
shown or determined to be due on such returns, reports and declarations, except
those being contested in good faith and by appropriate proceedings and (iii)
have set aside on their books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. Except as set forth on SCHEDULE 8.10, there are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and none of the officers of CML or any of the Borrowers knows of
any basis for any such claim.
1. NO EVENT OF DEFAULT. No Default or Event of Default has occurred and
is continuing.
1. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. None of CML, any of the
Borrowers nor any of their Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an affiliate" of a "holding company", as
such terms are defined in the Public Utility Holding Company Act of 1935; nor is
it an "investment company", or an "affiliated company" or a "principal
underwriter" of an "investment company", as such terms are defined in the
Investment Company Act of 1940.
1. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of CML, any of the Borrowers or any of their
Subsidiaries or any rights relating thereto.
1. PERFECTION OF SECURITY INTEREST. All filings, assignments, pledges
and deposits of documents or instruments have been made and all other actions
have been taken that are necessary or advisable, under applicable law, to
establish and perfect the Administrative Agent's security interest in the
Collateral (with such exceptions as are acceptable to the Majority Lenders). The
Collateral and the Administrative Agent's rights with respect to the Collateral
are not subject to any setoff, claims, withholdings or other defenses. CML, one
of the Borrowers or one of their Subsidiaries, as specified in the Security
Documents, is the owner of the Collateral free from any lien, security interest,
encumbrance and any other claim or demand, except for Permitted Liens.
1. CERTAIN AFFILIATE TRANSACTIONS. None of CML, any of the Borrowers
nor any of their Subsidiaries is a party to any transaction in violation of
ss.10.11. None of CML, any of Borrowers nor any of their Subsidiaries is a
party to any tax sharing agreement.
1. EMPLOYEE BENEFIT PLANS.
2. IN GENERAL. Each Employee Benefit Plan has been maintained and
operated in compliance in all material respects with the provisions of
ERISA and, to the extent applicable, the Code, including but not
limited to the provisions thereunder respecting prohibited
transactions. The Borrowers have heretofore delivered to the
Administrative Agent the most recently completed annual report, Form
5500, with all required attachments, and actuarial statement required
to be submitted under ss.103(d) of ERISA, with respect to each
Guaranteed Pension Plan.
<PAGE> 52
1. TERMINABILITY OF WELFARE PLANS. Under each Employee Benefit
Plan which is an employee welfare benefit plan within the meaning of
ss.3(1) or ss.3(2)(B) of ERISA, no benefits are due unless the event
giving rise to the benefit entitlement occurs prior to plan termination
(except as required by Title I, Subtitle B, Part 6 of ERISA). Any of
CML, the Borrowers or an ERISA Affiliate, as appropriate, may terminate
each such Plan at any time (or at any time subsequent to the expiration
of any applicable bargaining agreement) in the discretion of CML, such
Borrower or such ERISA Affiliate without liability to any Person other
than for benefits accrued prior to such termination.
1. GUARANTEED PENSION PLANS. None of CML, any of the Borrowers nor
any ERISA Affiliate maintains or operates a Guaranteed Pension Plan.
1. MULTIEMPLOYER PLANS. None of CML, any of the Borrowers nor any
ERISA Affiliate maintains or operates a Multiemployer Plan.
1. REGULATIONS U, X AND G. The proceeds of the Loans shall be used
solely to (a) pay in full, on the Restatement Effective Date, (i) all exit fees
and reimbursable expenses required to be paid under the Existing Credit
Agreement, and (ii) the Commitment Fee, the Agency Fee (each as defined in the
Fee Letter), and all other amounts required by the Amendment Agreement to be
paid on the Restatement Effective Date, and (b) for working capital and general
corporate purposes of the Borrowers. Each of the Borrowers will obtain Letters
of Credit solely for working capital purposes. No portion of any Loan is to be
used, and no portion of any Letter of Credit is to be obtained, for the purpose
of purchasing or carrying any "margin security" or "margin stock" as such terms
are used in Regulations U, X and G of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Parts 221 and 224.
1. ENVIRONMENTAL COMPLIANCE. The Borrowers have taken all necessary
steps to investigate the past and present condition and usage of the Real Estate
and the operations conducted thereon and have determined that:
(a) none of CML, any Borrower, any of their Subsidiaries nor any
of their operations is in violation, or alleged violation, of any
judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation, those arising
under the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the
Federal Clean Air Act, the Toxic Substances Control Act, or any state
or local statute, regulation, ordinance, order or decree relating to
health, safety or the environment (hereinafter "ENVIRONMENTAL LAWS"),
which violation could have a material adverse effect on the environment
or the business, assets or financial condition of CML, any of the
Borrowers or any of their Subsidiaries;
(b) except as set forth on SCHEDULE 8.18 attached hereto, none of
CML, any of the Borrowers nor any of their Subsidiaries has received
notice from any third party including, without limitation, any federal,
state or local governmental authority, (i) that any one of them has
been identified by the United States Environmental Protection Agency
("EPA") as a potentially responsible party under CERCLA with respect to
a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C.
ss.6903(5), any hazardous substances as defined by 42 U.S.C.
ss.9601(14), any pollutant or contaminant as defined by 42 U.S.C.
ss.9601(33) and any toxic substances, oil or hazardous materials or
other chemicals or substances regulated by any Environmental LawS
("HAZARDOUS SUBSTANCES") which any one of them has generated,
transported or disposed of has been found at any site at which a
federal, state or local agency or other third party has conducted or
has ordered that CML, any Borrower or any
<PAGE> 53
of their Subsidiaries conduct a remedial investigation, removal or
other response action pursuant to any Environmental Law; or (iii) that
it is or shall be a named party to any claim, action, cause of action,
complaint, or legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in connection
with the release of Hazardous Substances;
(c) except as set forth on SCHEDULE 8.18 attached hereto: (i) no
portion of the Real Estate has been used for the handling, processing,
storage or disposal of Hazardous Substances except in accordance with
applicable Environmental Laws; and no underground tank or other
underground storage receptacle for Hazardous Substances is located on
any portion of the Real Estate; (ii) in the course of any activities
conducted by CML, the Borrowers, their Subsidiaries or operators of
their properties, no Hazardous Substances have been generated or are
being used on the Real Estate except in accordance with applicable
Environmental Laws; (iii) there have been no releases (i.e. any past or
present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Substances on, upon, into or from the
properties of CML, the Borrowers or their Subsidiaries, which releases
would have a material adverse effect on the value of any of the Real
Estate or adjacent properties or the environment; (iv) to the best of
CML's and the Borrowers' knowledge, there have been no releases on,
upon, from or into any real property in the vicinity of any of the Real
Estate which, through soil or groundwater contamination, may have come
to be located on, and which would have a material adverse effect on the
value of, the Real Estate; and (v) in addition, to the best of CML's
and the Borrowers' knowledge, any Hazardous Substances that have been
generated on any of the Real Estate have been transported offsite only
by carriers having an identification number issued by the EPA, treated
or disposed of only by treatment or disposal facilities maintaining
valid permits as required under applicable Environmental Laws, which
transporters and facilities have been and are, to the best of CML's and
each Borrowers' knowledge, operating in compliance with such permits
and applicable Environmental Laws; and
(d) except as set forth on SCHEDULE 8.18 attached hereto, none of
CML, the Borrowers and their Subsidiaries, any Mortgaged Property or
any of the other Real Estate is subject to any applicable environmental
law requiring the performance of Hazardous Substances site assessments,
or the removal or remediation of Hazardous Substances, or the giving of
notice to any governmental agency or the recording or delivery to other
Persons of an environmental disclosure document or statement by virtue
of the transactions set forth herein and contemplated hereby, or as a
condition to the recording of any Mortgage or to the effectiveness of
any other transactions contemplated hereby.
1. SUBSIDIARIES, ETC. Set forth on SCHEDULE 8.19 hereto is a complete
and accurate list of all Subsidiaries of CML, each Borrower and each of their
Subsidiaries, showing as of the Restatement Effective Date (as to each such
Subsidiary) the jurisdiction of its incorporation, the number of shares of each
class of Capital Stock authorized and the number outstanding on the Restatement
Effective Date and the percentage of the outstanding shares of each such class
owned (directly or indirectly) by CML, such Borrower or such Subsidiary at the
Restatement Effective Date and the number of shares covered by all outstanding
options, warrants, rights of conversion or purchase and similar rights at the
date hereof. All of the outstanding Capital Stock of all such Subsidiaries has
been validly issued, is fully paid and non-assessable and is owned by CML or one
or more of its Subsidiaries free and clear of all liens except those created by
the Security Documents. Except as set forth on SCHEDULE 8.19 hereto, none of
CML, any of the Borrowers nor any of their Subsidiaries is engaged in any joint
venture or partnership with any other Person. None of the Guarantors (other than
the Borrowers and CML) or the Foreign Guarantors has assets having an aggregate
net book value in excess of $1,000,000.
<PAGE> 54
1. BANK ACCOUNTS. SCHEDULE 8.20 sets forth the account numbers,
location and a description of all bank accounts of CML, each of the Borrowers
and each of their Subsidiaries.
1. CHIEF EXECUTIVE OFFICES. Set forth on SCHEDULE 8.21 hereto is a
complete and accurate list of the chief executive office of each of CML, each
Borrower and each of their Subsidiaries, at which location such Person keeps its
books and records.
FISCAL YEAR. Each of CML, each Borrower and each of their Subsidiaries
has a fiscal year which is the twelve (12) months ending on July 31 of each
year.
DISCLOSURE No representation or warranty made by CML or any of the
Borrowers in this Credit Agreement or in any agreement, instrument, document,
certificate, statement or letter furnished to any Agent or any Lender by or on
behalf of CML and the Borrowers in connection with any of the transactions
contemplated by any of the Loan Documents contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances in
which they are made.
INSURANCE. CML, the Borrowers and each of their Subsidiaries maintains
with financially sound and reputable insurers insurance with respect to its
properties and businesses against such casualties and contingencies as are in
accordance with sound business practices, with the details of such coverage
being more fully described on SCHEDULE 8.24 hereto.
EQUITY DOCUMENTS, WISCONSIN DOCUMENTS. All representations and
warranties (a) (except by Wisconsin) set forth in the Wisconsin Documents and
(b) (except by a Lender) set forth in the Equity Documents and, to the knowledge
of CML and the Borrowers and each of their Subsidiaries, all representations and
warranties of Wisconsin and any Lender set forth, respectively, in the Wisconsin
Documents and the Equity Documents, were true and correct in all material
respects as of the Restatement Effective Date as if made on and as of such date,
except to the extent that such representations and warranties expressly relate
to an earlier date.
1. AFFIRMATIVE COVENANTS OF CML AND THE BORROWERS.
Each of CML and each of the Borrowers covenants and agrees that, so
long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit, Note or any
other Obligation is outstanding or any Lender has any obligation to make any
Loans or the Issuing Bank has any obligation to issue, extend or renew any
Letters of Credit:
1. PUNCTUAL PAYMENT. Each Borrower will duly and punctually pay or
cause to be paid the principal and interest on its Loans, all Reimbursement
Obligations in respect of letters of credit issued at the request of such
Borrower, the Letter of Credit Fees relating to such Letters of Credit, its
Unused Line Fees, the Administrative Agent's fee and all other amounts provided
for in this Credit Agreement and the other Loan Documents to which CML, any of
the Borrowers or any of their Subsidiaries is a party, all in accordance with
the terms of this Credit Agreement and such other Loan Documents.
1. MAINTENANCE OF OFFICE. Each of CML and each of the Borrowers will
maintain its chief executive office at the location set forth on SCHEDULE 8.21
hereto, or at such other place in the United States of America as CML or such
Borrower shall designate upon prior written notice to the Administrative Agent,
where notices, presentations and demands to or upon such Person in respect of
the Loan Documents to which such Person is a party may be given or made.
1. RECORDS AND ACCOUNTS. Each of CML and each of the Borrowers will (i)
keep, and cause each of its Subsidiaries to keep, true and accurate records and
books of account in which full, true and
<PAGE> 55
correct entries will be made in accordance with generally accepted accounting
principles and (ii) maintain adequate accounts and reserves for all taxes
(including income taxes), depreciation, depletion, obsolescence and amortization
of its properties and the properties of its Subsidiaries, contingencies, and
other reserves.
1. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. CML and the
Borrowers will deliver to each of the Lenders:
(a) as soon as practicable, but in any event not later than ninety
(90) days after the end of each fiscal year of CML, the consolidated
balance sheet of CML and its Subsidiaries and the consolidating balance
sheets of CML and its Subsidiaries, each as at the end of such year,
and the related consolidated statement of income and consolidated
statement of cash flow and consolidating statements of income and
consolidating statements of cash flow for such year, each setting forth
in comparative form the figures for the previous fiscal year and all
such consolidated and consolidating statements to be in reasonable
detail, prepared in accordance with generally accepted accounting
principles, and all such consolidated statements to be certified
without qualification by Deloitte and Touche LLP or by other
independent certified public accountants satisfactory to the
Administrative Agent, together with a written statement from such
accountants to the effect that they have read a copy of this Credit
Agreement, and that, in making the examination necessary to said
certification, they have obtained no knowledge of any Default or Event
of Default, or, if such accountants shall have obtained knowledge of
any then existing Default or Event of Default they shall disclose in
such statement any such Default or Event of Default; PROVIDED that such
accountants shall not be liable to the Lenders for failure to obtain
knowledge of any Default or Event of Default;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the first three fiscal
quarters in each fiscal year of CML, copies of the unaudited
consolidated balance sheet of CML and its Subsidiaries and the
unaudited consolidating balance sheets of CML and its Subsidiaries,
each as at the end of such quarter, and the related consolidated
statement of income and consolidated statement of cash flow and
consolidating statements of income and consolidating statements of cash
flow for the portion of CML's fiscal year then elapsed, all in
reasonable detail and prepared in accordance with generally accepted
accounting principles, together with a certification by the principal
financial or accounting officer of CML that the information contained
in such financial statements fairly presents the financial position of
CML and its Subsidiaries on the date thereof (subject to year-end
adjustments);
(c) as soon as practicable, but in any event within twenty (20)
days after the end of the first eleven months in each fiscal year of
CML, copies of the unaudited monthly consolidated balance sheet of CML
and its Subsidiaries and the unaudited consolidating balance sheets of
CML and its Subsidiaries, each as at the end of such month and the
related consolidated statement of income, consolidated statement of
cash flow, consolidating statements of income and consolidating
statements of cash flow for such month, each prepared in accordance
with generally accepted accounting principles, together with a
certification by the principal financial or accounting officer of CML
that the information contained in such financial statements fairly
presents the financial condition of CML and its Subsidiaries on the
date thereof (subject to quarter and year-end adjustments);
(d) simultaneously with the delivery of the financial statements
referred to in subsections (a), (b) and (c) above, a statement
certified by the principal financial or accounting officer of CML in
substantially the form of EXHIBIT D hereto (a "COMPLIANCE CERTIFICATE")
and setting forth in reasonable detail computations evidencing
compliance with the covenants contained in ss.11 and (iF applicable)
reconciliations to reflect changes in generally accepted accounting
principles since the Balance Sheet Date;
<PAGE> 56
(e) contemporaneously with the filing or mailing thereof, copies
of all material of a financial nature filed with the Securities and
Exchange Commission or sent to the stockholders of CML;
(f) (i) within three (3) Business Days after the end of each
calendar week or at such earlier time as the Administrative Agent may
reasonably request, a Borrowing Base Report setting forth the Borrowing
Bases as at the end of such calendar week or other date so requested by
the Administrative Agent and (ii) within fifteen (15) days after the
end of each calendar month, a Borrowing Base Report setting forth the
Borrowing Bases as at the end of such calendar month, containing such
adjustments to the applicable weekly Borrowing Base Reports as may be
appropriate;
(g) within fifteen (15) days after the end of each calendar month,
an Accounts Receivable aging report with respect to the Borrowers;
(h) from time to time as the Administrative Agent may request
detailed management prepared reports summarizing the Borrowers'
inventory, including information on the aging and obsolescence of such
inventory;
(i) as soon as practicable, but in any event not later than thirty
(30) days prior to the beginning of each fiscal year, management-
prepared financial forecasts of CML and its Subsidiaries with respect
to such fiscal year;
(j) prior to the opening by any Borrower of any new retail store,
distribution center or manufacturing facility at which Eligible
Inventory or Eligible NordicTrack Inventory, as the case may be, is to
be located, a supplement to SCHEDULE 2 hereto in the form of EXHIBIT I
hereto, listing any additions or deletions to the list of retail
stores, distribution centers and manufacturing facilities of the
Borrowers located in the United States, which supplement, together with
SCHEDULE 2 hereto and any prior supplements, shall be deemed to
constitute SCHEDULE 2 for all purposes of this Credit Agreement;
(k) when completed, copies of final or substantially final drafts
of any offering memorandum or prospectus prepared by or for CML or any
Borrower and relating to any proposed sale of stock or assets of CML or
any Borrower or any other Subsidiary of CML;
(l) from time to time at the request of any Agent or any Lender,
any current list of prospective purchasers of any stock or assets of
CML or any Borrower or any other Subsidiary of CML;
(m) any proposal letter or letter of intent or purchase agreement
or similar writing received or signed by CML or any Borrower or any
other Subsidiary of CML relating to the proposed sale of any stock or
assets of CML or any Borrower or any other Subsidiary of CML;
(n) from time to time at the request of the Administrative Agent
or any Lender, periodic updates on the status of any efforts to sell
the stock or assets of CML or any Borrower or any other Subsidiary of
CML;
(o) within three (3) Business Day after the end of each calendar
week, a report of the sales of each of the Borrowers for the
immediately preceding calendar week;
(p) as soon as practicable, but in any event within twenty (20)
days after the end of each month (commencing on August 20, 1998), a
report of the Capital Expenditures of each of the Borrowers for the
immediately preceding month;
<PAGE> 57
(q) as soon as practicable, but in any event within twenty (20)
days after the end of each month (commencing on August 20, 1998), a
report containing a comparison of (i) each Borrower's forecasted
monthly outstandings (including Loans and Letter of Credit Exposure),
Overadvances, and Borrowing Base availability to (ii) each Borrower's
actual monthly outstandings (including Loans and Letter of Credit
Exposure), Overadvances, and Borrowing Base availability, each for the
immediately preceding month; and
(r) from time to time such other financial data and information
(including accountants' management letters) as the Administrative Agent
or any Lender may reasonably request.
1. NOTICES.
2. DEFAULTS. The Borrowers and CML will promptly notify the
Administrative Agent and each of the Lenders in writing of the
occurrence of any Default or Event of Default. If any Person shall give
any notice or take any other action in respect of a claimed default
(whether or not constituting an Event of Default) under (a) this Credit
Agreement or (b) any other note, evidence of indebtedness, indenture or
other obligation to which or with respect to which CML, any Borrower or
any of their Subsidiaries is a party or obligor, whether as principal,
guarantor, surety or otherwise and the aggregate amount of such
obligations referred to in this clause (b) in default is in excess of
$1,000,000, the Borrowers and CML shall forthwith give written notice
thereof to the Administrative Agent and each of the Lenders, describing
the notice or action and the nature of the claimed default.
1. ENVIRONMENTAL EVENTS. The Borrowers and CML will promptly give
notice to the Administrative Agent and each of the Lenders (i) of any
violation of any Environmental Law that CML, any of the Borrowers or
any of their Subsidiaries reports in writing or is reportable by such
Person in writing (or for which any written report supplemental to any
oral report is made) to any federal, state or local environmental
agency and (ii) upon becoming aware thereof, of any inquiry,
proceeding, investigation, or other action, including a notice from any
agency of potential environmental liability, of any federal, state or
local environmental agency or board, that has the potential to
materially affect the assets, liabilities, financial conditions or
operations of CML, any of the Borrowers or any of their Subsidiaries,
or the Administrative Agent's mortgages, deeds of trust or security
interests pursuant to the Security Documents.
1. NOTIFICATION OF CLAIM AGAINST COLLATERAL. The Borrowers and CML
will, immediately upon becoming aware thereof, notify the
Administrative Agent and each of the Lenders in writing of any setoff,
claims (including, with respect to the Real Estate, environmental
claims), withholdings or other defenses to which any of the Collateral,
or the Administrative Agent's rights with respect to the Collateral,
are subject.
1. NOTICE OF LITIGATION AND JUDGMENTS. CML and each of the
Borrowers will, and will cause each of their Subsidiaries to, give
notice to the Administrative Agent and each of the Lenders in writing
within fifteen (15) days of becoming aware of any litigation or
proceedings threatened in writing or any pending litigation and
proceedings affecting CML, any of the Borrowers or any of their
Subsidiaries or to which CML, any of the Borrower or any of their
Subsidiaries is or becomes a party involving an uninsured claim against
CML, any of the Borrowers or any of their Subsidiaries that could
reasonably be expected to have a materially adverse effect on CML, any
of the Borrowers or any of their Subsidiaries and stating the nature
and status of such litigation or proceedings. Each of CML and each of
the Borrowers will, and will cause each of its Subsidiaries to, give
notice to the Administrative Agent and each of the Lenders, in writing,
in form and detail satisfactory to the Administrative Agent, within ten
(10)
<PAGE> 58
days of any judgment not covered by insurance, final or otherwise,
against CML, any of the Borrowers or any of their Subsidiaries in an
amount in excess of $1,000,000.
1. NOTICE OF TAX REFUNDS. CML and each of the Borrowers will give
notice promptly to the Administrative Agent of such Person's receipt of
any federal or state tax refund in excess of $1,000,000 and will,
within fifteen (15) days of the end of each fiscal quarter, give notice
to the Administrative Agent of the aggregate amount of federal and
state tax refunds received by such Person during such fiscal quarter.
1. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. CML and the
Borrowers will do or cause to be done all things necessary to preserve and keep
in full force and effect their corporate existence, rights and franchises and
those of their Subsidiaries and will not, and will not cause or permit any of
their Subsidiaries to, convert to a limited liability company or a limited
liability partnership. They (i) will cause all of their properties and those of
their Subsidiaries used or useful in the conduct of their business or the
business of their Subsidiaries to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment, (ii) will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of CML or the Borrowers, may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, and (iii) will, and will
cause each of their Subsidiaries to, continue to engage primarily in the
businesses now conducted by them and in related businesses; PROVIDED that
nothing in this ss.9.6 shall prevent CML or the Borrowers from discontinuing the
operation and maintenance of any of their properties or any of those of their
Subsidiaries if such discontinuance is, in the judgment of CML or the Borrowers
as the case may be, desirable in the conduct of its or their business and that
do not in the aggregate materially adversely affect the business of CML, the
Borrowers and their Subsidiaries on a consolidated basis.
1. INSURANCE. Each of CML and each Borrower will, and will cause each
of their Subsidiaries to, maintain with financially sound and reputable insurers
having an A.M. Best rating of not less than A- (or an equivalent rating
reasonably satisfactory to the Administrative Agent) (except that NordicTrack's
workers' compensation insurance may be self-insured) insurance with respect to
its properties and business against such casualties and contingencies as shall
be in accordance with the general practices of businesses engaged in similar
activities in similar geographic areas and in amounts, containing such terms, in
such forms and for such periods as described on SCHEDULE 8.24 hereto and as may
be reasonable and prudent and in accordance with the terms of the Security
Agreement. Each of CML and each Borrower will, and will cause each of their
Subsidiaries to, maintain insurance on the Mortgaged Properties in accordance
with the terms of the Mortgages.
1. TAXES. Each of CML and each Borrower will, and will cause each of
their Subsidiaries to, duly pay and discharge, or cause to be paid and
discharged, before the same shall become overdue, all taxes, assessments and
other governmental charges imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; PROVIDED that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if CML, such Borrower or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto; and PROVIDED FURTHER that CML, each
Borrower and each Subsidiary of such Persons will pay all such taxes,
assessments, charges, levies or claims forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security therefor.
<PAGE> 59
1. INSPECTION OF PROPERTIES AND BOOKS, ETC.
2. GENERAL. Each of CML and each Borrower shall permit the
Lenders, through the Administrative Agent or any of the Lenders' other
designated representatives, to visit and inspect any of the properties
of CML, any of the Borrowers or any of their Subsidiaries, to examine
the books of account of CML, the Borrowers and their Subsidiaries (and
to make copies thereof and extracts therefrom), and to discuss the
affairs, finances and accounts of the Borrowers and their Subsidiaries
with, and to be advised as to the same by, its and their officers, all
at such reasonable times and intervals as the Administrative Agent or
any Lender may reasonably request.
9.9.2. INVENTORY REPORTS AND APPRAISALS. From time to time, upon
the request of the Administrative Agent, the Borrowers will obtain and
deliver to the Administrative Agent a report of an independent
collateral auditor or appraiser satisfactory to the Administrative
Agent (which may be affiliated with one of the Lenders) with respect to
the inventory components included in the Borrowing Bases, which report
(i) shall indicate whether or not the information set forth in the
Borrowing Base Report most recently delivered is accurate and complete
in all material respects based upon a review by such auditors of the
inventory (including verification as to the value, location and
respective types) and (ii) shall, in any event, be not less extensive
in scope than the Gordon Brothers Report delivered to the
Administrative Agent prior to the Restatement Effective Date. All such
collateral value reports shall be conducted and made at the expense of
the applicable Borrower.
9.9.3. COMMERCIAL FINANCE EXAMINATIONS. From time to time, upon
the Administrative Agent's request, CML and the Borrowers shall permit
the Administrative Agent's commercial finance examiners to conduct
commercial finance examinations of CML's, the Borrowers' and their
Subsidiaries' property, all at such reasonable times and intervals as
the Administrative Agent may reasonably request. All such commercial
finance examinations shall be conducted and made at the expense of the
Borrowers.
9.9.4. APPRAISALS. From time to time, upon the request of the
Administrative Agent, the Borrowers will obtain and deliver to the
Administrative Agent appraisal reports in form and substance and from
appraisers satisfactory to the Administrative Agent, stating the then
current fair market, orderly liquidation and forced liquidation values
of all or any portion of the equipment or real estate owned by CML, any
of the Borrowers or any of their Subsidiaries. From time to time, upon
the request of the Administrative Agent, the Borrowers will obtain and
deliver to the Administrative Agent appraisal reports in form and
substance and from appraisers satisfactory to the Administrative Agent
stating the then current business value of each of CML, each Borrower
and their Subsidiaries. No later than June 30th of each year, the
Borrowers will obtain and deliver to the Administrative Agent appraisal
reports in form and substance and from appraisers satisfactory to the
Administrative Agent, stating the then current fair market value of (i)
NordicTrack's Mortgaged Property and (ii) NordicTrack's machinery and
equipment. All such appraisals referred to in this ss.9.9.4 shall be
conducted and made at the expense of the Borrowers.
9.9.5. ENVIRONMENTAL ASSESSMENTS. Whether or not an Event of
Default shall have occurred, upon prior notice to CML and the
Borrowers, the Administrative Agent may, from time to time, in its
discretion for the purpose of assessing and ensuring the value of any
Mortgaged Property, obtain one or more environmental assessments or
audits of such Mortgaged Property prepared by a hydrogeologist, an
independent engineer or other qualified consultant or expert approved
by the Administrative Agent to evaluate or confirm (i) whether any
Hazardous Materials are present in the soil or water at such Mortgaged
Property and (ii) whether the use and operation of such Mortgaged
Property complies with all Environmental Laws. Environmental
assessments may include without limitation detailed visual inspections
of such Mortgaged Property including any and all storage areas, storage
tanks, drains, dry wells and leaching areas, and the taking of soil
samples, surface water samples and ground water samples, as well as
such other investigations or analyses as the Administrative Agent deem
appropriate. All such environmental assessments shall be
<PAGE> 60
conducted and made at the expense of the Borrowers. Prior to requiring
that such inspections be performed, the Administrative Agent shall
discuss with CML and the Borrowers the views of CML and the Borrowers
as to whether the results of such inspections would be confidential and
would be required to be reported to governmental authorities and the
consequences of potential findings from such inspections.
9.9.6. COMMUNICATIONS WITH ACCOUNTANTS. Each of CML and each
Borrower authorizes the Administrative Agent and, if accompanied by the
Administrative Agent, the Lenders to communicate directly with CML's
and the Borrowers' independent certified public accountants and
authorizes such accountants to disclose to the Administrative Agent and
the Lenders any and all financial statements and other supporting
financial documents and schedules including copies of any management
letter with respect to the business, financial condition and other
affairs of CML, any of the Borrowers or any of their Subsidiaries. At
the request of the Administrative Agent, CML and the Borrowers shall
deliver a letter addressed to such accountants instructing them to
comply with the provisions of this ss.9.9.6.
9.9.7. COMMUNICATIONS WITH OTHER REPRESENTATIVES. CML and each of
the Borrowers hereby irrevocably authorizes each Lender and its
representatives, agents and counsel (each referred to in this ss.9.9.7
as a "LENDER REPRESENTATIVE") to have discussions directly witH any
representatives or agents (including Lehman Brothers) engaged by CML or
any Borrower to assist in selling any of the stock or assets of CML or
any Borrower or any other Subsidiary of CML, and has authorized and
directed and will continue to authorize and direct such representatives
and agents to have such discussions with the Lenders and their Lender
Representatives. Any such discussions between any Lender or its Lender
Representative and any such representative or agent engaged by CML or
any Borrower shall be subject to prior notice given by such Lender or
its Lender Representative to CML or such Borrower, and an opportunity
given to CML or such Borrower to participate in such discussions.
1. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. Each of CML
and each Borrower will, and will cause each of their Subsidiaries to, comply
with (i) the applicable laws and regulations wherever its business is conducted,
including all Environmental Laws, (ii) the provisions of its charter documents
and by-laws, (iii) all agreements and instruments by which it or any of its
properties may be bound and (iv) all applicable decrees, orders, and judgments.
If any authorization, consent, approval, permit or license from any officer,
agency or instrumentality of any government shall become necessary or required
in order that CML, any of the Borrowers or any of their Subsidiaries may fulfill
any of its obligations hereunder or any of the other Loan Documents to which
CML, such Borrower or such Subsidiary is a party, CML or such Borrower will, or
(as the case may be) will cause such Subsidiary to, immediately take or cause to
be taken all reasonable steps within the power of CML or such Borrower or such
Subsidiary to obtain such authorization, consent, approval, permit or license
and furnish the Administrative Agent and the Lenders with evidence thereof.
1. INVENTORY RESTRICTIONS. Each of the Borrowers shall cause all
Eligible Inventory and, in the case of NordicTrack, all Eligible NordicTrack
Inventory, to be located at all times solely at Permitted Inventory Locations,
and to be sold or otherwise disposed of in the ordinary course of such
Borrower's business, consistent with past practices or as required pursuant to
the terms of this Credit Agreement.
1. USE OF PROCEEDS. Each Borrower will use the proceeds of its Loans
and will obtain Letters of Credit solely for the purposes set forth in ss.8.17.
1. ADDITIONAL MORTGAGED PROPERTY. If, after the Original Closing Date,
CML, any of the Borrowers or any of their Subsidiaries acquires real estate used
as a manufacturing or warehouse facility, CML or such Borrower shall, or shall
cause such Subsidiary to, forthwith deliver to the Administrative Agent a fully
executed mortgage or deed of trust over such real estate, in form and substance
satisfactory to the Administrative
<PAGE> 61
Agent, together with title insurance policies, surveys, evidences of insurance
with the Administrative Agent named as loss payee and additional insured, legal
opinions and other documents and certificates with respect to such real estate
as was required for Real Estate of NordicTrack as of the Original Closing Date.
CML and each Borrower further agrees that, following the taking of such actions
with respect to such real estate, the Administrative Agent shall have for the
benefit of the Lenders and the Administrative Agent a valid and enforceable
first priority mortgage or deed of trust over such real estate, free and clear
of all title defects and encumbrances except for Permitted Liens.
AGENCY ACCOUNT AGREEMENTS. The Borrowers have delivered to the
Administrative Agent Agency Account Agreements in form and substance
satisfactory to the Administrative Agent from each of the Agency Account
Institutions. Each of CML and the Borrowers will, and will cause each of their
Subsidiaries to, use its best efforts to obtain Agency Account Agreements from
each other depository institution with which any of the Borrowers or any of the
Guarantors has an account.
INVESTMENTS IN BORROWERS. Within five (5) Business Days of receipt by
CML of any tax refund from any governmental authority or any other funds
received by CML from a third party, CML will invest all such refunds and other
funds in the Borrowers as subordinated loans or as contributions to capital.
1. OWNERSHIP OF SUBSIDIARIES. Except as otherwise permitted by
ss.10.4.2, ss.10.5.2 or ss.10.15 of this Credit Agreement, (a) CML will maintain
legal and beneficial ownership of one hundred percent (100%) of the equity
interests of each of the Guarantors (other than CML and NA) and (b) NT will
maintain legal and beneficial ownership of one hundred percent (100%) of the
equity interests of NA.
1. COLLATERAL NOTES. In addition to the NordicTrack Notes and the S&H
Notes, the Borrowers agree that with respect to any or all of the Mortgaged
Properties, they will execute and deliver or cause to be executed and delivered
such Collateral Notes as the Administrative Agent may request, it being
understood, however, that (a) the aggregate of all payments or recoveries on
such Collateral Notes shall not exceed the amount of the Obligations (exclusive
of the Collateral Notes), and (b) any payments or recoveries on such Collateral
Notes shall be credited to the unpaid amount of the Obligations and in such
order of application as may be required by ss.3.3 and ss.14.4 hereof. In the
event that the appraised value of any Mortgaged Property, a lien on which
secures any of the Collateral Notes, exceeds the amount of the Obligations
secured by the applicable Collateral Note, the applicable Borrower will execute
and deliver such amended Collateral Notes, amendments to Mortgages and other
documents, and will obtain such endorsements to the Title Policy covering such
Mortgaged Property, so as to reflect such altered appraised value.
FURTHER ASSURANCES; ADDITIONAL LOCATIONS.
FURTHER ASSURANCES.
(a) CML and each Borrower will, and will cause each of their
Subsidiaries to, cooperate with the Lenders and the Administrative
Agent and execute such further instruments and documents as the Lenders
or the Administrative Agent shall reasonably request to carry out to
their satisfaction the transactions contemplated by this Credit
Agreement and the other Loan Documents.
(b) CML and each Borrower will, and will cause each of their
Subsidiaries to, cooperate with the Lenders and the Administrative
Agent, and execute such further instruments and documents, including
without limitation, the execution and delivery of any amendments to the
Foreign Guaranties and the Foreign Pledge Agreements or any other
instruments or documents
<PAGE> 62
related thereto, deemed appropriate by the Administrative Agent or any
of the Lenders as a result of amending and restating the Existing
Credit Agreement.
(c) NordicTrack will, (i) within thirty (30) days following the
Restatement Effective Date, (A) execute and deliver an amended and
restated Mortgage to the Administrative Agent in respect of each of the
Mortgaged Properties located in Minnesota, (B) cause its counsel to
deliver a favorable legal opinion, in form and substance satisfactory
to the Lenders, in connection with the execution and delivery of such
Mortgages, and (ii) within thirty (30) days following the delivery of
such Mortgages, deliver (A) a new Title Policy, or (B) new endorsements
to each existing Title Policy with respect to each such Mortgage, and
(iii) execute such further instruments and documents deemed appropriate
by the Administrative Agent or any of the Lenders as a result of
amending any such Mortgage. The form and substance of each such
Mortgage, and each new Title Policy or endorsement shall be
satisfactory to the Administrative Agent.
(d) CML and each Borrower will, and will cause each of their
Subsidiaries to, (i) within thirty (30) days following the Restatement
Effective Date, deliver (A) a new Title Policy, or (B) a new
endorsements to each existing Title Policy with respect to each
Mortgage, and (ii) execute such further instruments and documents
deemed appropriate by the Administrative Agent or any of the Lenders as
a result of amending the Mortgages. The form and substance of each such
endorsement shall be satisfactory to the Administrative Agent.
ADDITIONAL LOCATIONS. Prior to the opening by any Borrower of any
new retail store, distribution center or manufacturing facility at
which Eligible Inventory or Eligible NordicTrack Inventory, as the case
may be, is to be located, such Borrower shall take all actions
necessary or advisable, under applicable law, to establish and perfect
the Administrative Agent's security interest in the Collateral located
or to be located at such retail store, distribution center or
manufacturing facility (with such exceptions as are acceptable to the
Majority Lenders).
1. FURTHER ASSURANCES AS TO TRUST. CML will take all steps reasonably
requested by the Administrative Agent or any of the Lenders which are necessary
to grant in favor of the Administrative Agent, for the benefit of the Lenders
and the Administrative Agent, a security interest in all of CML's right, title
and interest in and to the Trust and the Trust Assets, and all proceeds thereof,
to the extent that such grant of a security interest by CML would not breach any
of CML's obligations under the Trust Agreement or limit CML's performance of its
obligations under the Trust.
1. SALE OF S&H. On the PIK Date CML shall (a) immediately commence the
sale of S&H, and (b) consummate and complete the sale of S&H within 120 days of
the PIK Date for Net Cash Proceeds from such sale sufficient to cause all the
Loans, PIK Notes, and all other Obligations to be paid in full and all Letters
of Credit to be cash collateralized on terms satisfactory to the Lenders.
1. CERTAIN NEGATIVE COVENANTS OF CML AND THE BORROWERS.
Each of CML and each of the Borrowers covenants and agrees that, so
long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit, Note or any
other Obligation is outstanding or any Lender has any obligation to make any
Loans or the Issuing Bank has any obligations to issue, extend or renew any
Letters of Credit:
10.1 RESTRICTIONS ON INDEBTEDNESS. Neither CML nor any of the Borrowers
will, and none will permit any of their Subsidiaries to, create, incur, assume,
guarantee or be or remain liable, contingently or otherwise, with respect to any
Indebtedness other than:
<PAGE> 63
(a) Indebtedness to the Lenders and the Administrative Agent
arising under any of the Loan Documents;
(b) current liabilities of CML, such Borrower or such Subsidiary
incurred in the ordinary course of business not incurred through (i)
the borrowing of money, or (ii) the obtaining of credit except for
credit on an open account basis customarily extended and in fact
extended in connection with normal purchases of goods and services;
(c) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be
made in accordance with the provisions of ss.9.8;
(d) Indebtedness in respect of judgments or awards that have been
in force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which CML,
such Borrower or such Subsidiary shall at the time in good faith be
prosecuting an appeal or proceedings for review and in respect of which
a stay of execution shall have been obtained pending such appeal or
review;
(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(f) Subordinated Debt not exceeding $41,593,000 in aggregate
principal amount at any time outstanding;
(g) obligations under Capitalized Leases and purchase money
Indebtedness incurred in connection with the acquisition of any real or
personal property by CML, such Borrower or such Subsidiary, in each
case which were outstanding as of March 6, 1998;
(h) Indebtedness not otherwise permitted by thisss.10.1 existing
on the date hereof and listed and described on SCHEDULE 10.1 hereto;
(i) Indebtedness of a Guarantor which is a Subsidiary of any
Borrower to such Borrower in respect of loans permitted by ss.10.3(e);
(j) Indebtedness of any Borrower to CML in respect of Investments
by CML in such Borrower permitted under ss.10.3(i);
(k) Indebtedness of NordicTrack under the Monogram Credit Card
Program and the GE Capital Credit Card Program;
(l) Indebtedness consisting of guaranties by CML or any of its
Subsidiaries of obligations of any direct or indirect Subsidiaries of
such Person in respect of operating leases of such Subsidiary;
(m) Indebtedness of CML to any Borrower in respect of Investments
by such Borrower in CML permitted under ss.10.3(k);
(n) Indebtedness consisting of the guaranty by CML of the
liabilities of NordicTrack to Air Express International Corporation
("AEI CORP.") for services rendered by AEI Corp. to NT and/or NA under
air waybills or Bills of Lading issued by AEI Corp. prior to September
16, 1998 up to an amount not in excess of $1,500,000; and
<PAGE> 64
(o) Indebtedness to Wisconsin arising under (i) the Wisconsin
Subordinated Note, in an aggregate principal amount not to exceed
$20,000,000, and (ii) the Wisconsin Guaranties.
10.2 RESTRICTIONS ON LIENS. Neither CML nor any of the Borrowers will,
and none will permit any of their Subsidiaries to, (i) create or incur or suffer
to be created or incurred or to exist any lien, encumbrance, mortgage, pledge,
charge, restriction or other security interest of any kind upon any of its
property or assets of any character whether now owned or hereafter acquired, or
upon the income or profits therefrom; (ii) transfer any of such property or
assets or the income or profits therefrom for the purpose of subjecting the same
to the payment of Indebtedness or performance of any other obligation in
priority to payment of its general creditors; (iii) acquire, or agree or have an
option to acquire, any property or assets upon conditional sale or other title
retention or purchase money security agreement, device or arrangement; (iv)
suffer to exist for a period of more than thirty (30) days after the same shall
have been incurred any Indebtedness or claim or demand against it that if unpaid
might by law or upon bankruptcy or insolvency, or otherwise, be given any
priority whatsoever over its general creditors; or (v) sell, assign, pledge or
otherwise transfer any accounts, contract rights, general intangibles, chattel
paper or instruments, with or without recourse; PROVIDED that CML, any of the
Borrowers and any of their Subsidiaries may create or incur or suffer to be
created or incurred or to exist:
(a) liens in favor of such Borrower on all or part of the assets
of Subsidiaries of such Borrower securing Indebtedness owing by
Subsidiaries of such Borrower to such Borrower;
(b) liens to secure taxes, assessments and other government
charges in respect of obligations not overdue or liens on properties
other than Mortgaged Properties to secure claims for labor, material or
supplies in respect of obligations not overdue;
(c) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(d) liens on properties other than Mortgaged Properties in respect
of judgments or awards, the Indebtedness with respect to which is
permitted by ss.10.1(d);
(e) liens of carriers, warehousemen, mechanics and materialmen,
and other like liens on properties other than Mortgaged Properties, in
existence less than 120 days from the date of creation thereof in
respect of obligations not overdue;
(f) encumbrances on Real Estate other than the Mortgaged Property
consisting of easements, rights of way, zoning restrictions,
restrictions on the use of real property and defects and irregularities
in the title thereto, landlord's or lessor's liens under leases to
which CML, any of the Borrowers or any of their Subsidiaries is a
party, and other minor liens or encumbrances none of which in the
opinion of CML or such Borrower interferes materially with the use of
the property affected in the ordinary conduct of the business of CML,
such Borrower or their Subsidiaries, as the case may be, which defects
do not individually or in the aggregate have a materially adverse
effect on the business of CML or such Borrower, as the case may be
individually or of CML, the Borrowers and their Subsidiaries on a
consolidated basis;
(g) liens existing on the date hereof and listed on SCHEDULE 10.2
hereto;
(h) liens to secure Capitalized Lease obligations of the type and
amount permitted by ss.10.1(g), so long as such liens cover only the
property subject to such Capitalized Leases, and purchase money
security interests in or purchase money mortgages on real or personal
property other than Mortgaged Properties acquired after the date hereof
to secure purchase money Indebtedness of the type and amount permitted
by ss.10.1(g), incurred in connection with the
<PAGE> 65
acquisition of such property, which security interests or mortgages
cover only the real or personal property so acquired;
(i) liens and encumbrances on each Mortgaged Property as and to
the extent permitted by the Mortgage applicable thereto;
(j) liens in favor of the Administrative Agent under the Loan
Documents; and
(k) liens on assets of NordicTrack granted in accordance with the
Monogram Credit Card Program and the GE Capital Credit Card Program.
10.3 RESTRICTIONS ON INVESTMENTS. Neither CML nor any of the Borrowers
will, and none will permit any of their Subsidiaries to, make or permit to exist
or to remain outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United
States of America that mature within one (1) year from the date of
purchase by CML or such Borrower;
(b) demand deposits, certificates of deposit, bankers acceptances
and time deposits of United States banks having total assets in excess
of $1,000,000,000 and money market accounts of brokerage firms
acceptable to the Administrative Agent;
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States
of America or any state thereof that at the time of purchase have been
rated and the ratings for which are not less than "P 1" if rated by
Moody's Investors Services, Inc., and not less than "A 1" if rated by
Standard and Poor's Ratings Group, a division of McGraw-Hill, Inc.;
(d) Investments existing on the date hereof and listed on SCHEDULE
10.3 hereto;
(e) Investments by any Borrower in any Subsidiary of that Borrower
that is a Guarantor in the form of loans made in cash;
(f) Investments consisting of the Guaranty;
(g) Investments consisting of promissory notes received as
proceeds of asset dispositions permitted by ss.10.5.2;
(h) Investments consisting of loans and advances to employees for
moving, entertainment, travel and other similar expenses in the
ordinary course of business not to exceed $2,000,000 in the aggregate
at any time outstanding;
(i) Investments by CML in any of the Borrowers in the form of
contributions to capital, subordinated loans or a repayment of a loan
previously made to such Borrower so long as such entities remain
Borrowers hereunder;
(j) Investments consisting of guaranties by CML or any of its
Subsidiaries of obligations of any direct or indirect Subsidiaries of
such Person in respect of operating leases of such Subsidiary;
(k) Investments by any Borrower in CML in the form of
distributions, subordinated loans or a repayment of a loan previously
made to CML by such Borrower, provided such Investment would be
permitted under ss.10.4 hereof; and
<PAGE> 66
(l) Investments consisting of the guaranty by CML of the
liabilities of NordicTrack to AEI Corp. for services rendered by AEI
Corp. to NT and/or NA under air waybills or Bills of Lading issued by
AEI Corp. prior to September 16, 1998 up to an amount not in excess of
$1,500,000.
PROVIDED, HOWEVER, that, with the exception of loans and advances referred to in
ss.10.3(h), such Investments will be considered Investments permitted by this
ss.10.3 only if all actions have been taken to the satisfaction of the
Administrative Agent to provide to the Administrative Agent, for the benefit of
the Lenders and the Administrative Agent, a first priority perfected security
interest in all of such Investments free of all encumbrances other than
Permitted Liens.
10.4 DISTRIBUTIONS AND RESTRICTED PAYMENTS.
10.4.1. INTERCOMPANY DISTRIBUTIONS AND RESTRICTED PAYMENTS. The
Borrowers will not make any Restricted Payments, PROVIDED HOWEVER, that
the Borrowers may make Restricted Payments to CML (a) in amounts
required to pay income and other taxes and governmental levies owed or
payable by CML, and (b) in amounts required to pay Approved Budgeted
Expenses, in the case of each of the foregoing clauses (a) and (b),
such amounts to be paid by CML not later than five (5) Business Days
after the date on which the relevant Restricted Payment to CML in
respect thereof is made. CML will not incur any payment obligations or
expenses except for (x) those permitted to be funded by Restricted
Payments in accordance with the provisions of the immediately foregoing
sentence, (y) those permitted to be funded with the net proceeds from
the sale of any of the assets described on SCHEDULE 10.5.2 hereto in
accordance with the provisions of ss.10.5.2(b); PROVIDED that in the
case of any such payment obligations or expenses of CML incurred in
accordance with the foregoing clause (y), the amount of payment
obligations or expenses permitted to be funded by Restricted Payments
in accordance with the provisions of the immediately foregoing sentence
shall be reduced dollar for dollar by the amount of such payment
obligations or expenses incurred in accordance with the foregoing
clause (y). The Borrowers will not make any Restricted Payments to CML
for the purpose of funding (A) payments of interest on the Subordinated
Debentures if any Event of Default is continuing, (B) any prepayment,
redemption or repurchase of any of the Subordinated Debentures, or (C)
any payment, prepayment, redemption or repurchase of, on or in respect
of any Wisconsin Subordinated Note or any other Wisconsin Document, to
the extent that such payment, prepayment, redemption or repurchase
would be prohibited by the Intercreditor Agreement.
10.4.2. CML DISTRIBUTIONS. CML will not make any Distributions
other than
(a) purchases or redemptions by CML of the stock of CML
resulting solely from any holder of any stock option issued by CML
paying (a) all or a portion of the exercise price of such stock
option or (b) any taxes due from such holder as a result of the
exercise of such stock option, by such holder's relinquishment of
rights under such stock option, and
(b) a distribution by CML, to holders of its common stock,
of shares of stock of NT (an "NT SPIN-OFF"), PROVIDED THAT, (i)
prior to any such distribution, CML and the Borrowers have (A)
permanently reduced the Total Commitment to not more than
$35,000,000, and (B) prepaid all outstanding Loans such that, as
of April 1, 1999, the outstanding Loans and Letter of Credit
Exposure of CML and the Borrowers does not exceed $35,000,000 in
the aggregate, (ii) all (if any) Net Cash Proceeds from any such
distribution are applied to prepay the Loans as required by
ss.3.2.4, (iii) concurrently with receipt of any such Net Cash
Proceeds by CML or any of its Subsidiaries, the Total Commitment
shall be permanently reduced as required by ss.2.3.3, (iv) the
terms and documentation for such NT Spin-Off are reasonably
satisfactory to the Majority Lenders,
<PAGE> 67
and (v) prior to such NT Spin-Off, the Loan Documents shall have
been amended in all respects deemed appropriate by the
Administrative Agent and the Majority Lenders.
10.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
10.5.1. MERGERS AND ACQUISITIONS. Neither CML nor any of the
Borrowers will, and none will permit any of their Subsidiaries to,
become a party to any merger or consolidation, or agree to or effect
any asset acquisition or stock acquisition (other than the acquisition
of assets in the ordinary course of business consistent with past
practices).
10.5.2. DISPOSITION OF ASSETS. Neither CML nor any of the
Borrowers will, and none will permit any of their Subsidiaries to,
become a party to or agree to or effect any disposition of assets,
other than (a) the disposition of assets in the ordinary course of
business, consistent with past practices, (b) the disposition of any of
the assets listed and described on SCHEDULE 10.5.2 hereto so long as
such assets are sold on terms consented to by the Administrative Agent
and the Majority Lenders and so long as the net proceeds from the sale
of such assets are deposited in the applicable Concentration Account
and applied to the Obligations in accordance with the applicable
provisions of ss.3.3 hereof; PROVIDED that CML shall be permitted to
pay with such net proceeds, promptly after receipt of such net
proceeds, any expenses (and CML shall be permitted to reduce the amount
of such net proceeds which are required to be applied to the
Obligations by the amount of any such expenses so paid by CML) which
would otherwise be permitted to be funded by Restricted Payments in
accordance with the provisions of ss.10.4.1, (c) the termination or
assignment of store leases of any Borrower or its Subsidiaries;
provided that all Net Cash Proceeds from any such termination or
assignment referred to in this clause (c) are applied to prepay the
Loans of the applicable Borrower, or, in the case of CML, any of the
Borrowers as required by ss.3.2.4, (d) the sale of accounts receivable
of NordicTrack to General Electric Capital Corporation in accordance
with the GE Capital Credit Card Program Agreement, and (e) the sale by
CML of NT; PROVIDED that (i) concurrently with such sale, all principal
of and interest on all NordicTrack Loans and all PIK Notes issued or
then required to be issued pursuant to ss.2.5 are paid in full and all
Letters of Credit issued for the account of NordicTrack are cash
collateralized on terms satisfactory to the Lenders, (ii) any Net Cash
Proceeds from any such sale which are remaining following the payments
made pursuant to the preceding subclause (i) shall be applied to prepay
the S&H Loans as required by ss.3.2.4, (iii) concurrently with receipt
of such Net Cash Proceeds by CML or any of its Subsidiaries, the Total
Commitment shall be permanently reduced as required by ss.2.3.3, (iv)
the terms and documentation for such sale are reasonably satisfactory
to the Majority Lenders, and (v) prior to such sale, the Loan Documents
shall have been amended in all respects deemed appropriate by the
Administrative Agent and the Majority Lenders.
10.6. SALE AND LEASEBACK. Neither CML nor any of the Borrowers will,
and none will permit any of their Subsidiaries to, enter into any arrangement,
directly or indirectly, whereby CML, any of the Borrowers or any of their
Subsidiaries shall sell or transfer any property owned by it in order then or
thereafter to lease such property or lease other property that CML, any of the
Borrowers or any of their Subsidiaries intends to use for substantially the same
purpose as the property being sold or transferred, other than the sale and
subsequent leaseback described on Schedule 10.6.
10.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. Neither CML nor any of the
Borrowers will, and none will permit any of their Subsidiaries to, (i) use any
of the Real Estate or any portion thereof for the handling, processing, storage
or disposal of Hazardous Substances in violation of Environmental Laws, (ii)
cause or permit to be located on any of the Real Estate any underground tank or
other underground storage receptacle for Hazardous Substances in violation of
Environmental Laws, (iii) generate any Hazardous Substances on any of the Real
Estate in violation of Environmental Laws, (iv) conduct any activity at any Real
Estate or use any Real Estate in any manner so as to cause a release (i.e.
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing or dumping) or
<PAGE> 68
threatened release of Hazardous Substances on, upon or into the Real Estate or
(v) otherwise conduct any activity at any Real Estate or use any Real Estate in
any manner that would violate any Environmental Law or bring such Real Estate in
violation of any Environmental Law.
10.8. SUBORDINATED DEBT. Neither CML nor any of the Borrowers will, and
none will permit any of their Subsidiaries to, amend, supplement or otherwise
modify the terms of any of the Subordinated Debentures or Fiscal Agency
Agreement or prepay, redeem or repurchase any of the Subordinated Debentures.
10.9. EMPLOYEE BENEFIT PLANS. None of CML, any Borrower nor any ERISA
Affiliate will
(a) engage in any "prohibited transaction" within the meaning of
ss.406 of ERISA or ss.4975 of the Code which could result in a material
liability for CML, any of the Borrowers or any of their Subsidiaries;
or
(b) operated or maintain any Guaranteed Pension Plan or
Multiemployer Plan.
10.10. BANK ACCOUNTS. Neither CML nor any of the Borrowers will, and
none will permit any of their Subsidiaries to, (i) establish any bank accounts
other than those listed on SCHEDULE 8.20 (as such may be amended from time to
time to include those depository institutions which have executed and delivered
to the Administrative Agent Agency Account Agreements) unless such new account
is subject to an Agency Account Agreement, (ii) violate directly or indirectly
any Agency Account Agreement in favor of the Administrative Agent for the
benefit of the Lenders and the Administrative Agent with respect to such account
or (iii) deposit into any of the payroll accounts listed on SCHEDULE 8.20 any
amounts in excess of amounts necessary to pay current payroll obligations from
such accounts.
10.11. TRANSACTIONS WITH AFFILIATES. Neither CML nor any of the
Borrowers will, nor will they permit any of their Subsidiaries to, enter into,
or cause, suffer or permit to exist any transaction or agreement with any
Affiliate except:
(a) employment agreements entered into in the ordinary course of
business by CML, any of the Borrowers or any of their Subsidiaries and loans and
advances to employees of CML, any of the Borrowers or any of their Subsidiaries
in the ordinary course of business for travel expenses, drawing accounts or
other similar business related expenses;
(b) any transaction or agreement having terms not less favorable to
CML, the Borrowers and their Subsidiaries than would be the case if such
transaction or agreement had been entered into with a Person that is not an
Affiliate, PROVIDED that the aggregate potential value payable or receivable by
CML, the Borrowers and their Subsidiaries in connection with all such
transactions during any fiscal year of CML (excluding transactions or agreements
exclusively among or between CML, the Borrowers and their Subsidiaries) shall
not exceed $500,000;
(c) tax sharing agreements in form and substance satisfactory to the
Administrative Agent among CML and any of its Subsidiaries;
(d) the Wisconsin Documents, and CML's performance of its obligations
in accordance with the terms of the Wisconsin Documents.
10.12. RESTRICTIVE OR INCONSISTENT AGREEMENTS. Neither CML nor any of
the Borrowers will, nor will they permit any of their Subsidiaries to, enter
into any agreement:
(a) other than the Loan Documents and the Wisconsin Documents, which,
directly or indirectly, prohibits or restrains, or has the effect of prohibiting
or restraining, or otherwise imposes any materially
<PAGE> 69
adverse or burdensome condition upon, the declaration or payment of dividends or
distributions, the incurrence of Indebtedness, the granting of liens, the making
of loans or advances to any of CML, any Borrower or any of their Subsidiaries or
the amendment or modification of any of the Loan Documents; or
(b) containing any provision that would be violated or breached by any
Loan or by the performance by CML, any Borrower or any of their Subsidiaries of
their obligations hereunder or under any of the Loan Documents.
10.13. BUSINESS ACTIVITIES. CML will not engage in any business
activity except its ownership of its Subsidiaries, including the Borrowers,
activities reasonably related thereto, its performance from time to time of its
obligations under this Credit Agreement, the other Loan Documents, the
Subordinated Debentures and the Fiscal Agency Agreement and each other
agreement, instrument or document contemplated hereby, whether or not executed
on or before the Original Closing Date.
10.14. PRIVATE LABEL CREDIT CARD PROGRAMS. Neither CML nor NordicTrack
will amend, supplement or otherwise modify any terms or provisions of any
Private Label Credit Card Program without the prior written consent of the
Administrative Agent. Without limitation of the foregoing, neither CML nor
NordicTrack will (a) increase the Credit Review Point (as such term is defined
in the Monogram Credit Card Program Agreement) above $123,000,000 without the
prior written consent of the Administrative Agent or (b) increase the Credit
Review Point (as such term is defined in the GE Capital Credit Card Program
Agreement) above $20,000,000 without the prior written consent of the
Administrative Agent. Notwithstanding anything contained herein to the contrary,
CML and NordicTrack may terminate any Private Label Credit Card Program without
the prior written consent of the Administrative Agent, PROVIDED, that CML and
NordicTrack will promptly notify the Administrative Agent of the termination of
any Private Label Credit Card Program and of the termination of the
Intercreditor Agreement dated as of December 10, 1996 among General Electric
Capital Corporation, the Lenders and the Administrative Agent.
10.15. ISSUANCE OF CAPITAL STOCK. Neither CML nor any of the Borrowers
will, nor will they permit any of their Subsidiaries to, issue any Capital
Stock; PROVIDED, HOWEVER, that
a CML may (i) issue Capital Stock, including the issuance of Capital
Stock pursuant to CML's employee stock option plan and employee
stock purchase program, if (A) such Capital Stock is Permitted
Capital Stock, (B) the issuance of such Capital Stock, or the
exercise or conversion thereof, would not result in a Change in
Control, (C) all Net Cash Proceeds from any such issuance shall be
applied concurrently with receipt of such Net Cash Proceeds by CML
to prepay the Loans to the extent required by ss.3.2.4, (D)
concurrently with receipt of such Net Cash Proceeds by CML, the
Total Commitment shall be permanently reduced to the extent
required by ss.2.3.3, and (E) the terms and documentation for such
issuance (except any Permitted Employee Issuance) are reasonably
satisfactory to the Majority Lenders, (ii) issue Capital Stock
pursuant to the terms of the Wisconsin Note Purchase Agreement,
PROVIDED that (a) such Stock (A) is Permitted Capital Stock, or
(B) preferred stock or other securities issued in exchange for, in
substitution for, or upon the conversion of, any Wisconsin
Subordinated Note; PROVIDED that (1) such preferred stock or other
securities have rights and benefits substantially identical to the
Wisconsin Subordinated Note and are issued on terms and pursuant
to documentation satisfactory to the Lenders, and (2) the Lenders
are satisfied that the Intercreditor Agreement adequately
subordinates any claims of the holders of any such securities to
the Senior Debt (as such term is defined in the Intercreditor
Agreement).
b NT may issue Capital Stock, or options to acquire Capital Stock,
to senior management of NT, if (A) such Capital Stock is Permitted
Capital Stock which is common stock, or such options are to
acquire such Permitted Capital Stock, (B) after giving effect to
any such issuance, the total number of shares of common stock of
NT then or previously issued to
<PAGE> 70
senior management (on a fully diluted basis, after giving effect
to the exercise of all options granted to senior management) shall
not exceed ten percent (10%) of the issued and outstanding shares
of common stock of NT (on a fully diluted basis, after giving
effect to the exercise of all options granted to senior
management), (C) all Net Cash Proceeds from any such issuance
shall be applied concurrently with receipt of such Net Cash
Proceeds by NT to prepay the Loans pursuant to the provisions
of ss.3.2.4, (D) concurrently with receipt of such Net Cash
Proceeds by NT, the Total Commitment shall be permanently reduced
pursuant to the provisions of ss.2.3.3, and (E) the terms and
documentation for such issuance are reasonably satisfactory to the
Majority Lenders.
10.16. WISCONSIN DOCUMENTS. Neither CML nor any of the Borrowers will,
and none will permit any of their Subsidiaries to, amend, supplement or
otherwise modify the terms of any of the Wisconsin Documents or prepay, redeem
or repurchase any principal of or interest on the Wisconsin Subordinated Note.
1. FINANCIAL COVENANTS OF CML AND THE BORROWERS.
Each of CML and each of the Borrowers covenants and agrees that, so
long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit, Note or any
other Obligation is outstanding or any Lender has any obligation to make any
Loans or the Issuing Bank has any obligation to issue, extend or renew any
Letters of Credit:
1. CAPITAL EXPENDITURES. Neither CML nor any of the Borrowers will
make, nor will they permit any of their Subsidiaries to make, Capital
Expenditures, except that (a) S&H may make Capital Expenditures during the
period from August 1, 1998 through July 31, 1999 not to exceed $9,532,000 in the
aggregate, PROVIDED that the aggregate amount of Capital Expenditures of CML and
its Subsidiaries in connection with S&H opening up to twelve (12) new stores
during the period from August 1, 1998 through July 31, 1999, shall not exceed
$8,000,000 and (b) NordicTrack may make Capital Expenditures during the period
from August 1, 1998 through July 31, 1999 not to exceed $2,815,000 in the
aggregate. During the period from August 1, 1998 through July 31, 1999, S&H
shall have earned an aggregate amount of not less than $1,200,000 in landlord
allowances in connection with S&H's leasehold improvement projects and shall
have collected such amounts in respect of such landlord allowances as are
reflected in the Monthly Budget.
MAXIMUM MONTHLY BORROWER EXPOSURE. Notwithstanding any provision to the
contrary contained herein, CML and the Borrowers will not permit the aggregate
Borrower Exposure of any Borrower at the end of any month set forth in SCHEDULE
11.2 hereto to exceed the amount for such Borrower set forth opposite such month
end in such SCHEDULE 11.2.
1. CLOSING CONDITIONS.
The obligations of the Lenders to make the initial Loans and of the
Issuing Bank to issue any initial Letters of Credit shall be subject to the
satisfaction of the following conditions precedent on or prior to the Original
Closing Date.
1. LOAN DOCUMENTS. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the
Lenders. Each Lender shall have received a fully executed copy of each such
document.
1. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Lenders shall
have received from CML, each of the Borrowers and each of their Subsidiaries a
copy, certified by a duly authorized officer of
<PAGE> 71
such Person to be true and complete on the Original Closing Date, of each of (i)
its charter or other incorporation documents as in effect on such date of
certification, and (ii) its by-laws as in effect on such date.
1. CORPORATE ACTION. All corporate action necessary for the valid
execution, delivery and performance by CML, each of the Borrowers and each of
their Subsidiaries of this Credit Agreement and the other Loan Documents to
which it is or is to become a party shall have been duly and effectively taken,
and evidence thereof satisfactory to the Lenders shall have been provided to
each of the Lenders.
1. INCUMBENCY CERTIFICATE. Each of the Lenders shall have received from
CML, each of the Borrowers and each of their Subsidiaries an incumbency
certificate, dated as of the Original Closing Date, signed by a duly authorized
officer of CML, such Borrower or such Subsidiary, and giving the name and
bearing a specimen signature of each individual who shall be authorized: (i) to
sign, in the name and on behalf of each of CML, such Borrower or such
Subsidiary, each of the Loan Documents to which CML, such Borrower or such
Subsidiary is or is to become a party; (ii) in the case of such Borrower, to
make Loan Requests and Conversion Requests and to apply for Letters of Credit;
and (iii) to give notices and to take other action on its behalf under the Loan
Documents.
1. VALIDITY OF LIENS. The Security Documents shall be effective to
create in favor of the Administrative Agent a legal, valid and enforceable first
(except for Permitted Liens entitled to priority under applicable law) security
interest in and lien upon the Collateral (with such exceptions as are acceptable
to the Majority Lenders). All filings, recordings, deliveries of instruments and
other actions necessary or desirable in the opinion of the Administrative Agent
to protect and preserve such security interests shall have been duly effected
(with such exceptions as are acceptable to the Majority Lenders). The
Administrative Agent shall have received evidence thereof in form and substance
satisfactory to the Administrative Agent.
1. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Administrative
Agent shall have received from each of CML, each of the Borrowers and their
Subsidiaries a completed and fully executed Perfection Certificate and the
results of UCC, patent, trademark and copyright searches with respect to the
Collateral, indicating no liens other than Permitted Liens and otherwise in form
and substance satisfactory to the Administrative Agent.
1. APPRAISALS; TAXES. The Administrative Agent shall have received (i)
appraisals of NordicTrack's Mortgaged Property performed by appraisers mutually
agreed upon by the Administrative Agent and the Borrowers and such appraisals
shall be in form and substance satisfactory to the Administrative Agent; and
(ii) evidence of payment of real estate taxes and municipal charges on all Real
Estate not delinquent on or before the Original Closing Date.
1. TITLE INSURANCE. The Administrative Agent shall have received a
Title Policy covering each Mortgaged Property (or commitments to issue such
policies, with all conditions to issuance of the Title Policy deleted by an
authorized agent of the Title Insurance Company) together with proof of payment
of all fees and premiums for such policies, from the Title Insurance Company and
in amounts satisfactory to the Administrative Agent, insuring the interest of
each of the Administrative Agent and each of the Lenders as mortgagee under the
Mortgages.
1. CERTIFICATES OF INSURANCE. The Administrative Agent shall have
received (i) a certificate of insurance from an independent insurance broker
dated as of the Original Closing Date, identifying insurers, types of insurance,
insurance limits, and policy terms, and otherwise describing the insurance
obtained in accordance with the provisions of the Security Agreement and (ii)
certified copies of all policies evidencing such insurance (or certificates
therefore signed by the insurer or an agent authorized to bind the insurer) and
the Administrative Agent shall be satisfied with the adequacy of all such
insurance.
<PAGE> 72
1. AGENCY ACCOUNT AGREEMENTS. The Administrative Agent shall have
received an Agency Account Agreement, from each depository institution at which
CML, any of the Borrowers or any of the Guarantors maintains depository accounts
which the Administrative Agent in its sole discretion has identified as a key
concentration account concerning the Administrative Agent's interest for the
benefit of the Lenders and the Administrative Agent in such accounts.
1. BORROWING BASE REPORT. The Administrative Agent shall have received
from the Borrowers the initial Borrowing Base Report dated as of the Original
Closing Date.
1. ACCOUNTS RECEIVABLE AGING REPORT. The Administrative Agent shall
have received from NordicTrack and S&H the most recent Accounts Receivable aging
report of NordicTrack and S&H dated as of a date which shall be no more than
fifteen (15) days prior to the Original Closing Date and, as applicable shall
have notified the Administrative Agent in writing on the Original Closing Date
of any material deviation from the Accounts Receivable values reflected in such
Accounts Receivable aging report and shall have provided the Administrative
Agent with such supplementary documentation as the Administrative Agent may
reasonably request.
1. HAZARDOUS WASTE ASSESSMENTS. The Administrative Agent shall have
received hazardous waste site assessments from environmental engineers and in
form and substance satisfactory to the Administrative Agent, covering (a) all
currently owned real estate and (b), as requested by the Administrative Agent,
all other real property in respect of which CML, any of the Borrowers or any of
their Subsidiaries may have material liability, whether contingent or otherwise,
for dumping or disposal of Hazardous Substances.
1. SOLVENCY CERTIFICATE. Each of the Lenders shall have received an
officer's certificate of CML dated as of the Original Closing Date as to the
solvency of CML and its Subsidiaries following the consummation of the
transactions contemplated herein and in form and substance satisfactory to the
Lenders.
1. OPINION OF COUNSEL. Each of the Lenders and the Administrative Agent
shall have received a favorable legal opinion addressed to the Lenders and the
Administrative Agent, in form and substance satisfactory to the Lenders and the
Administrative Agent, from:
(a) Hale and Dorr, counsel to CML, the Borrowers and the
Guarantors; and
(b) local counsel to CML, the Borrowers and their Subsidiaries in
the United Kingdom, Germany, Canada, the U.S. Virgin Islands and the
states of California and Minnesota, as applicable.
Each of CML, the Borrowers and their Subsidiaries have instructed each
such counsel to deliver its opinion to the Lenders and the Administrative Agent.
1. PAYMENT OF FEES. The Borrowers shall have paid to the Administrative
Agent the Closing Fee and Administrative Agent's fee pursuant to secs.5.1 and
5.2.
1. PAYOFF LETTER. The Administrative Agent shall have received a payoff
letter from Citibank and the other lenders under the Citibank Facility,
indicating the amount of the loan obligations of CML to Citibank to be
discharged on the Original Closing Date and an acknowledgment by Citibank that
upon receipt of such funds it will forthwith execute and deliver to the
Administrative Agent for filing all termination statements and take such other
actions as may be necessary to discharge all mortgages, deeds of trust and
security interests granted by CML, any of the Borrowers or any of their
Subsidiaries in favor of Citibank and the other lenders under the Citibank
Facility.
<PAGE> 73
1. DISBURSEMENT INSTRUCTIONS. The Administrative Agent shall have
received disbursement instructions from the Borrowers, indicating that a portion
of the proceeds of the Loans, in an amount equal to the aggregate loan
obligations of CML under the Citibank Facility, are paid to Citibank.
1. UPDATED COLLATERAL EXAMINATIONS. The Administrative Agent shall have
reviewed and been satisfied with the update of the commercial finance
examinations performed by the Administrative Agent's field examiners, including
satisfactory review of the Borrowers' books and records in connection with the
calculation of the Borrowing Base and the Administrative Agent's satisfaction
with the components and the Borrowers' method of calculating the Borrowing Base.
1. LANDLORD LIEN WAIVERS. The Administrative Agent shall have received
landlord waivers with respect to material leased locations of the Borrowers
located in Kentucky, Minnesota, South Dakota and Virginia in form and substance
satisfactory to the Administrative Agent.
1. BORROWING AVAILABILITY. The Administrative Agent shall have received
evidence satisfactory to the Administrative Agent that after giving effect to
all transactions to occur on the Original Closing Date and after deducting the
amount of accounts payable of the Borrowers' more than thirty (30) days past
due, the Borrowers shall have aggregate borrowing availability under the Credit
Agreement on the Original Closing Date of not less than $9,000,000.
1. CONDITIONS TO ALL BORROWINGS.
The obligations of the Lenders to make any Loan, and of the Issuing
Bank to issue, extend or renew any Letter of Credit, in each case whether on or
after the Original Closing Date, shall also be subject to the satisfaction of
the following conditions precedent:
1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of CML, the Borrowers and their
Subsidiaries contained in this Credit Agreement, the other Loan Documents or in
any document or instrument delivered pursuant to or in connection with this
Credit Agreement shall be true as of the date as of which they were made and
shall also be true at and as of the time of the making of such Loan or the
issuance, extension or renewal of such Letter of Credit, with the same effect as
if made at and as of that time (except to the extent that such representations
and warranties relate expressly to an earlier date) and no Default or Event of
Default shall have occurred and be continuing.
1. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Lender would make it illegal for such Lender to make such Loan or to
participate in the issuance, extension or renewal of such Letter of Credit or in
the reasonable opinion of the Issuing Bank would make it illegal for the Issuing
Bank to issue, extend or renew such Letter of Credit.
1. GOVERNMENTAL REGULATION. Each Lender shall have received such
statements in substance and form reasonably satisfactory to such Lender as such
Lender shall require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System or the Securities and Exchange Commission.
1. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the
transactions contemplated by this Credit Agreement, the other Loan Documents and
all other documents incident thereto shall be satisfactory in substance and in
form to the Lenders and to the Administrative Agent and the Administrative
Agent's Special Counsel, and the Lenders, the Administrative Agent and such
counsel shall have received all information and such counterpart originals or
certified or other copies of such documents as the Administrative Agent may
reasonably request.
<PAGE> 74
1. BORROWING BASE REPORT. The Administrative Agent shall have received
the most recent Borrowing Base Report required to be delivered to the
Administrative Agent in accordance with ss.9.4(f).
1. EVENTS OF DEFAULT; ACCELERATION; ETC.
2. EVENTS OF DEFAULT AND ACCELERATION. If any of the following events
("EVENTS OF DEFAULT" or, if the giving of notice or the lapse of time or both is
required, then, prior to such notice or lapse of time, "DEFAULTS") shall occur:
(a) any of the Borrowers shall fail to pay any principal of the
Loans or any Reimbursement Obligation when the same shall become due
and payable, whether at the stated date of maturity or any accelerated
date of maturity or at any other date fixed for payment;
(b) CML, any of the Borrowers or any of their Subsidiaries shall
fail to pay any interest on the Loans, the Unused Line Fees, any Letter
of Credit Fee, the Administrative Agent's fee, or other sums due
hereunder or under any of the other Loan Documents, when the same shall
become due and payable, whether at the stated date of maturity or any
accelerated date of maturity or at any other date fixed for payment;
(c) CML or any of the Borrowers shall fail to comply with any of
its covenants contained in secs.9.1, 9.4, 9.5, 9.7, 9.9, 9.12, 9.14
through 9.20, 10 or 11 or any of the covenants contained in any of the
Mortgages;
(d) CML, any of the Borrowers or any of their Subsidiaries shall
fail to perform any term, covenant or agreement contained herein or in
any of the other Loan Documents (other than those specified elsewhere
in this ss.14.1) for fifteen (15) days after written notice of such
failure has been given to the Borrowers by the Administrative Agent;
(e) any representation or warranty of CML, any of the Borrowers or
any of their Subsidiaries in this Credit Agreement or any of the other
Loan Documents or in any other document or instrument delivered
pursuant to or in connection with this Credit Agreement shall prove to
have been false in any material respect upon the date when made or
deemed to have been made or repeated;
(f) CML, any of the Borrowers or any of their Subsidiaries shall
fail to pay at maturity, or within any applicable period of grace, (i)
any obligation for borrowed money or credit received or in respect of
any Capitalized Leases, and the aggregate amount of such obligations
and Capitalized Leases is in excess of $2,000,000, or (ii) any
Indebtedness under the Wisconsin Documents or the Subordinated Debt, or
fail to observe or perform any term, covenant or agreement contained in
any agreement by which it is bound, evidencing or securing any
indebtedness or obligations described in subclauses (i) or (ii) of this
clause (f), for such period of time as would permit (assuming the
giving of appropriate notice if required) the holder or holders thereof
or of any obligations issued thereunder to accelerate the maturity
thereof;
(g) CML, any of the Borrowers or any of their Subsidiaries shall
make an assignment for the benefit of creditors, or admit in writing
its inability to pay or generally fail to pay its debts as they mature
or become due, or shall petition or apply for the appointment of a
trustee or other custodian, liquidator or receiver of CML, any of the
Borrowers or any of their Subsidiaries or of any substantial part of
the assets of CML, any of the Borrowers or any of their Subsidiaries or
shall commence any case or other proceeding relating to CML, any of the
Borrowers or any of their Subsidiaries under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or
hereafter in effect, or
<PAGE> 75
shall take any action to authorize or in furtherance of any of the
foregoing, or if any such petition or application shall be filed or any
such case or other proceeding shall be commenced against CML, any of
the Borrowers or any of their Subsidiaries and CML, any of the
Borrowers or any of their Subsidiaries shall indicate its approval
thereof, consent thereto or acquiescence therein or such petition or
application shall not have been dismissed within sixty (60) days
following the filing thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating CML, any of the
Borrowers or any of their Subsidiaries bankrupt or insolvent, or
approving a petition in any such case or other proceeding, or a decree
or order for relief is entered in respect of CML, any of the Borrowers
or any of their Subsidiaries in an involuntary case under federal
bankruptcy laws as now or hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days, whether or not consecutive,
any final judgment against CML, any of the Borrowers or any of their
Subsidiaries that, with other outstanding final judgments,
undischarged, against CML, any of the Borrowers or any of their
Subsidiaries exceeds in the aggregate $2,000,000;
(j) the holders of (i) any of the Subordinated Debt shall
accelerate prior to the maturity thereof or any of the Subordinated
Debt shall be prepaid, redeemed or repurchased in whole or in part, or
CML shall become obligated to prepay, redeem or repurchase, in whole or
in part, any of the Subordinated Debt, or (ii) any of the Wisconsin
Subordinated Note shall accelerate prior to the maturity thereof or any
of the Wisconsin Subordinated Note shall be prepaid, redeemed or
repurchased in whole or in part, or CML shall become obligated to
prepay, redeem or repurchase, in whole or in part, any of the Wisconsin
Subordinated Note;
(k) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or the Administrative Agent's security interests,
mortgages or liens in a substantial portion of the Collateral shall
cease to be perfected, or shall cease to have the priority contemplated
by the Security Documents, in each case otherwise than in accordance
with the terms thereof or with the express prior written agreement,
consent or approval of the Lenders, or any action at law, suit or in
equity or other legal proceeding to cancel, revoke or rescind any of
the Loan Documents shall be commenced by or on behalf of CML, any of
the Borrowers or any of their Subsidiaries party thereto or any of
their respective stockholders, or any court or any other governmental
or regulatory authority or agency of competent jurisdiction shall make
a determination that, or issue a judgment, order, decree or ruling to
the effect that, any one or more of the Loan Documents is illegal,
invalid or unenforceable in accordance with the terms thereof;
(l) CML, any of the Borrowers or any of their Subsidiaries shall
be enjoined, restrained or in any way prevented by the order of any
court or any administrative or regulatory agency from conducting any
material part of its business and such order shall continue in effect
for more than thirty (30) days;
(m) there shall occur any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public
enemy, or other casualty, which in any such case causes, for more than
fifteen (15) consecutive days, the cessation or substantial curtailment
of revenue producing activities at any facility of CML, any of the
Borrowers or any of their Subsidiaries if such event or circumstance is
not covered by business interruption insurance and would have a
material adverse effect on the business or financial condition of CML,
such Borrower or such Subsidiary;
<PAGE> 76
(n) there shall occur the loss, suspension or revocation of, or
failure to renew, any license or permit now held or hereafter acquired
by CML, any of the Borrowers or any of their Subsidiaries if such loss,
suspension, revocation or failure to renew would have a material
adverse effect on the business or financial condition of CML, such
Borrower or such Subsidiary;
(o) CML, any of the Borrowers or any of their Subsidiaries shall
be indicted for a state or federal crime, or any civil or criminal
action otherwise shall have been brought against CML, any of the
Borrowers or any of their Subsidiaries, a punishment for which in any
such case could include the forfeiture of any assets of such Person
included in any of the Borrowing Bases or any assets of such Person not
included in the Borrowing Bases but having a fair market value in
excess of $2,000,000;
(p) (i) CML shall at any time, legally or beneficially own less
than one hundred percent (100%) of the shares of Capital Stock of the
Borrowers (other than NA), or (ii) NT shall at any time, legally or
beneficially own less than one hundred percent (100%) of the common
stock of NA; PROVIDED, that (i) the sale of NT by CML in compliance
with the provisions of ss.10.5.2(e), (ii) an NT Spin-Off in compliance
with the provisions of ss.10.4.2, and (iii) the issuance of Capital
Stock of NT to NT's senior management in compliance with the provisions
of ss.10.15, shall not result in an Event of Default under this
paragraph (p),
(q) any Change in Control shall have occurred, or any Change in
Control (as defined in the Subordinated Debentures) shall have
occurred;
(r) there shall have occurred any materially adverse change in the
condition (financial or otherwise), operations, assets, liabilities
and/or prospects of CML and its Subsidiaries since May 2, 1998 other
than as disclosed to the Administrative Agent and the Lenders in
writing (including the Monthly Budget attached hereto) on or prior to
the Restatement Effective Date;
(s) CML shall fail to perform any term, covenant or agreement
contained in any of the Equity Documents;
then, and in any such event, so long as the same may be continuing, the
Administrative Agent may, and upon the request of the Majority Lenders shall, by
notice in writing to the Borrowers declare all amounts owing with respect to
this Credit Agreement, the Notes and the other Loan Documents and all
Reimbursement Obligations to be, and they shall thereupon forthwith become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by the Borrowers; PROVIDED
that in the event of any Event of Default specified in secs.14.1(g), 14.1(h) or
14.1(j), all such amounts shall become immediately due and payable automatically
and without any requirement of notice from the Administrative Agent or any
Lender.
1. TERMINATION OF COMMITMENTS. If any one or more of the Events of
Default specified in ss.14.1(g), ss.14.1(h) or ss.14.1(j) shall occur, any
unused portion of the credit hereunder shall forthwith terminate and each of the
Lenders shall be relieved of all further obligations to make Loans to the
Borrowers and the Issuing Bank shall be relieved of all further obligations to
issue, extend or renew Letters of Credit. If any other Event of Default shall
have occurred and be continuing, or if on any Drawdown Date or other date for
issuing, extending or renewing any Letter of Credit the conditions precedent to
the making of the Loans to be made on such Drawdown Date or (as the case may be)
to issuing, extending or renewing such Letter of Credit on such other date are
not satisfied, the Administrative Agent may and, upon the request of the
Majority Lenders, shall, by notice to the Borrowers, terminate the unused
portion of the credit hereunder, and upon such notice being given such unused
portion of the credit hereunder shall terminate immediately and each of the
Lenders shall be relieved of all further obligations to make Loans and the
Issuing Bank shall be relieved of all further obligations to issue, extend or
renew Letters of Credit.
<PAGE> 77
No termination of the credit hereunder shall relieve CML, any of the Borrowers
or any of their Subsidiaries of any of the Obligations.
1. REMEDIES. In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Lenders shall have
accelerated the maturity of the Loans pursuant to ss.14.1, each Lender, if owed
any amount with respect to the Loans or the Reimbursement Obligations, may, with
the consent of the Majority Lenders but not otherwise, proceed to protect and
enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Credit Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Lender are evidenced,
including as permitted by applicable law the obtaining of the EX PARTE
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Lender. No remedy herein conferred upon any
Lender or the Administrative Agent or the holder of any Note or purchaser of any
Letter of Credit Participation is intended to be exclusive of any other remedy
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or any other provision of law.
1. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that following the
occurrence or during the continuance of any Default or Event of Default, the
Administrative Agent or any Lender, as the case may be, receives any monies in
connection with the enforcement of any the Security Documents, or otherwise with
respect to the realization upon any of the Collateral, such monies shall be
distributed for application (x) so long as the Collateral Agency Agreement is in
effect, as provided in the Collateral Agency Agreement, and (y) to the extent
required or permitted by the Collateral Agency Agreement or after the Collateral
Agency Agreement is no longer in effect, as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Administrative Agent for or in respect of the
Administrative Agent's fee payable pursuant to ss.5.2 and all
reasonable costs, expenses, disbursements and losses which shall have
been incurred or sustained by the Administrative Agent in connection
with the collection of such monies by the Administrative Agent, for the
exercise, protection or enforcement by the Administrative Agent of all
or any of the rights, remedies, powers and privileges of the
Administrative Agent under this Credit Agreement or any of the other
Loan Documents or in respect of the Collateral or in support of any
provision of adequate indemnity to the Administrative Agent against any
taxes or liens which by law shall have, or may have, priority over the
rights of the Administrative Agent to such monies;
(b) Second, to all other Obligations in such order or preference
as the Majority Lenders may determine; PROVIDED, HOWEVER, that
distributions in respect of Obligations owing to the Lenders with
respect to each type of Obligation such as interest, principal, fees
and expenses, shall be made among the Lenders PRO RATA; and PROVIDED,
FURTHER, that the Administrative Agent may in its discretion make
proper allowance to take into account any Obligations not then due and
payable;
(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Lenders and the
Administrative Agent of all of the Obligations, as required by the
Collateral Agency Agreement, to the extent then in effect, and
thereafter, to the payment of any obligations required to be paid
pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of the
Commonwealth of Massachusetts; and
(d) Fourth, the excess, if any, shall be returned to the Borrowers
or to such other Persons as are entitled thereto.
<PAGE> 78
1. SETOFF.
Regardless of the adequacy of any collateral, during the continuance of
any Event of Default, any deposits or other sums credited by or due from any of
the Lenders to any of the Borrowers and any securities or other property of any
of the Borrowers in the possession of such Lender may be applied to or set off
by such Lender against the payment of Obligations and any and all other
liabilities, direct, or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of such Borrower to such Lender. Each of the
Lenders agrees with each other Lender that (i) if an amount to be set off is to
be applied to Indebtedness of such Borrower to such Lender, other than
Indebtedness evidenced by the Notes held by such Lender or constituting
Reimbursement Obligations owed to such Lender, such amount shall be applied
ratably to such other Indebtedness and to the Indebtedness evidenced by all such
Notes held by such Lender or constituting Reimbursement Obligations owed to such
Lender, and (ii) if such Lender shall receive from such Borrower, whether by
voluntary payment, exercise of the right of setoff, counterclaim, cross action,
enforcement of the claim evidenced by the Notes held by, or constituting
Reimbursement Obligations owed to, such Lender by proceedings against such
Borrower at law or in equity or by proof thereof in bankruptcy, reorganization,
liquidation, receivership or similar proceedings, or otherwise, and shall retain
and apply to the payment of the Note or Notes held by, or Reimbursement
Obligations owed to, such Lender any amount in excess of its ratable portion of
the payments received by all of the Lenders with respect to the Notes held by,
and Reimbursement Obligations owed to, all of the Lenders, such Lender will make
such disposition and arrangements with the other Lenders with respect to such
excess, either by way of distribution, PRO TANTO assignment of claims,
subrogation or otherwise as shall result in each Lender receiving in respect of
the Notes held by it or Reimbursement Obligations owed it, its proportionate
payment as contemplated by this Credit Agreement; PROVIDED that if all or any
part of such excess payment is thereafter recovered from such Lender, such
disposition and arrangements shall be rescinded and the amount restored to the
extent of such recovery, but without interest.
1. THE ADMINISTRATIVE AGENT.
2. AUTHORIZATION.
(a) The Administrative Agent is authorized to take such action on
behalf of each of the Lenders and to exercise all such powers as are
hereunder and under any of the other Loan Documents and any related
documents delegated to the Administrative Agent, together with such
powers as are reasonably incident thereto, PROVIDED that no duties or
responsibilities not expressly assumed herein or therein shall be
implied to have been assumed by the Administrative Agent.
(b) The relationship between the Administrative Agent and each of
the Lenders is that of an independent contractor. The use of the term
"Administrative Agent" is for convenience only and is used to describe,
as a form of convention, the independent contractual relationship
between the Administrative Agent and each of the Lenders. Nothing
contained in this Credit Agreement nor the other Loan Documents shall
be construed to create an agency, trust or other fiduciary relationship
between the Administrative Agent and any of the Lenders.
(c) As an independent contractor empowered by the Lenders to
exercise certain rights and perform certain duties and responsibilities
hereunder and under the other Loan Documents, the Administrative Agent
is nevertheless a "representative" of the Lenders, as that term is
defined in Article 1 of the Uniform Commercial Code, for purposes of
actions for the benefit of the Lenders and the Administrative Agent
with respect to all collateral security and guaranties contemplated by
the Loan Documents. Such actions include the designation of the
Administrative Agent as "secured party", "mortgagee" or the like on all
financing statements and other documents and instruments, whether
recorded or otherwise, relating to the attachment, perfection, priority
or enforcement of any security interests, mortgages or deeds of trust
in collateral security intended to
<PAGE> 79
secure the payment or performance of any of the Obligations, all for
the benefit of the Lenders and the Administrative Agent.
1. EMPLOYEES AND AGENTS. The Administrative Agent may exercise its
powers and execute its duties by or through employees or agents and shall be
entitled to take, and to rely on, advice of counsel concerning all matters
pertaining to its rights and duties under this Credit Agreement and the other
Loan Documents. The Administrative Agent may utilize the services of such
Persons as the Administrative Agent in its sole discretion may reasonably
determine, and all reasonable fees and expenses of any such Persons shall be
paid by the Borrower.
1. NO LIABILITY. Neither the Administrative Agent nor any of its
shareholders, directors, officers or employees nor any other Person assisting
them in their duties nor any agent or employee thereof, shall be liable for any
waiver, consent or approval given or any action taken, or omitted to be taken,
in good faith by it or them hereunder or under any of the other Loan Documents,
or in connection herewith or therewith, or be responsible for the consequences
of any oversight or error of judgment whatsoever, except that the Administrative
Agent or such other Person, as the case may be, may be liable for losses due to
its willful misconduct or gross negligence.
NO REPRESENTATIONS. The Administrative Agent shall not be responsible
for the execution or validity or enforceability of this Credit Agreement, the
Notes, the Letters of Credit, any of the other Loan Documents or any instrument
at any time constituting, or intended to constitute, collateral security for the
Notes, or for the value of any such collateral security or for the validity,
enforceability or collectability of any such amounts owing with respect to the
Notes, or for any recitals or statements, warranties or representations made
herein or in any of the other Loan Documents or in any certificate or instrument
hereafter furnished to it by or on behalf of CML, any of the Borrowers or any of
their Subsidiaries, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or in
any instrument at any time constituting, or intended to constitute, collateral
security for the Notes or to inspect any of the properties, books or records of
CML, any of the Borrowers or any of their Subsidiaries. The Administrative Agent
shall not be bound to ascertain whether any notice, consent, waiver or request
delivered to it by any of the Borrowers or any holder of any of the Notes shall
have been duly authorized or is true, accurate and complete. The Administrative
Agent has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Lenders, with
respect to the credit worthiness or financial conditions of CML, any of the
Borrowers or any of their Subsidiaries. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Lender, and based upon such information and documents as it has deemed
appropriate, made its own credit analysis and decision to enter into this Credit
Agreement.
1. PAYMENTS.
2. PAYMENTS TO ADMINISTRATIVE AGENT. A payment by any of the
Borrowers to the Administrative Agent hereunder or any of the other
Loan Documents for the account of any Lender shall constitute a payment
to such Lender. The Administrative Agent agrees promptly to distribute
to each Lender such Lender's PRO RATA share of payments received by the
Administrative Agent for the account of the Lenders except as otherwise
expressly provided herein or in any of the other Loan Documents.
1. DISTRIBUTION BY ADMINISTRATIVE AGENT. If in the opinion of the
Administrative Agent the distribution of any amount received by it in
such capacity hereunder, under the Notes or under any of the other Loan
Documents might involve it in liability, it may refrain from making
distribution until its right to make distribution shall have been
adjudicated by a court of competent jurisdiction. If a court of
competent jurisdiction shall adjudge that any amount received and
<PAGE> 80
distributed by the Administrative Agent is to be repaid, each Person to
whom any such distribution shall have been made shall either repay to
the Administrative Agent its proportionate share of the amount so
adjudged to be repaid or shall pay over the same in such manner and to
such Persons as shall be determined by such court.
1. DELINQUENT LENDERS. Notwithstanding anything to the contrary
contained in this Credit Agreement or any of the other Loan Documents,
any Lender that fails (i) to make available to the Administrative Agent
its PRO RATA share of any Loan or to purchase any Letter of Credit
Participation or (ii) to comply with the provisions of ss.15 with
respect to making dispositions and arrangements with the other Lenders,
where such Lender's share of any payment received, whether by setoff or
otherwise, is in excess of its PRO RATA share of such payments due and
payable to all of the Lenders, in each case as, when and to the full
extent required by the provisions of this Credit Agreement, shall be
deemed delinquent (a "DELINQUENT LENDER") and shall be deemed a
Delinquent Lender until such time as such delinquency is satisfied. A
Delinquent Lender shall be deemed to have assigned any and all payments
due to it from the Borrowers, whether on account of outstanding Loans,
Unpaid Reimbursement Obligations, interest, fees or otherwise, to the
remaining nondelinquent Lenders for application to, and reduction of,
their respective PRO RATA shares of all outstanding Loans and Unpaid
Reimbursement Obligations. The Delinquent Lender hereby authorizes the
Administrative Agent to distribute such payments to the nondelinquent
Lenders in proportion to their respective PRO RATA shares of all
outstanding Loans and Unpaid Reimbursement Obligations. A Delinquent
Lender shall be deemed to have satisfied in full a delinquency when and
if, as a result of application of the assigned payments to all
outstanding Loans and Unpaid Reimbursement Obligations of the
nondelinquent Lenders, the Lenders' respective PRO RATA shares of all
outstanding Loans and Unpaid Reimbursement Obligations have returned to
those in effect immediately prior to such delinquency and without
giving effect to the nonpayment causing such delinquency. Until such
time as its delinquency is satisfied, a Delinquent Lender shall have no
right to vote with respect to any matters under or in respect of the
Credit Agreement and shall not be entitled to receive its portion of
any Unused Line Fee paid in accordance with ss.2.2 of this Credit
Agreement.
1. HOLDERS OF NOTES. The Administrative Agent may deem and treat the
payee of any Note or the purchaser of any Letter of Credit Participation as the
absolute owner or purchaser thereof for all purposes hereof until it shall have
been furnished in writing with a different name by such payee or by a subsequent
holder, assignee or transferee.
1. INDEMNITY. The Lenders ratably agree hereby to indemnify and hold
harmless the Administrative Agent from and against any and all claims, actions
and suits (whether groundless or otherwise), losses, damages, costs, expenses
(including any expenses for which the Administrative Agent has not been
reimbursed by the Borrowers as required by ss.17), and liabilities of every
nature and character arising out of or related to this Credit Agreement, the
Notes, or any of the other Loan Documents or the transactions contemplated or
evidenced hereby or thereby, or the Administrative Agent's actions taken
hereunder or thereunder, except to the extent that any of the same shall be
directly caused by the Administrative Agent's willful misconduct or gross
negligence.
1. ADMINISTRATIVE AGENT AS LENDER. In its individual capacity, BKB
shall have the same obligations and the same rights, powers and privileges in
respect to its Commitment and the Loans made by it, and as the holder of any of
the Notes and as the purchaser of any Letter of Credit Participations, as it
would have were it not also the Administrative Agent.
1. RESIGNATION. The Administrative Agent may resign at any time by
giving sixty (60) days prior written notice thereof to the Lenders and the
Borrowers. Upon any such resignation, the Majority Lenders shall have the right
to appoint a successor Administrative Agent in such capacity. Unless a Default
or
<PAGE> 81
Event of Default shall have occurred and be continuing, such successor
Administrative Agent shall be reasonably acceptable to the Borrowers. If no
successor Administrative Agent shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within thirty (30) days after
the retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a financial institution having a rating of
not less than A or its equivalent by Standard & Poor's Ratings Group, a division
of McGraw-Hill, Inc. Upon the acceptance of any appointment as an Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation,
the provisions of this Credit Agreement and the other Loan Documents shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Administrative Agent.
1. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Lender hereby
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall promptly notify the Administrative Agent thereof. The Administrative
Agent hereby agrees that upon receipt of any notice under this ss.16.10 it shall
promptly notify the other Lenders of the existence of such Default or Event of
Default.
1. DUTIES IN THE CASE OF ENFORCEMENT. In case one of more Events of
Default have occurred and shall be continuing, and whether or not acceleration
of the Obligations shall have occurred, the Administrative Agent shall, if (i)
so requested by the Majority Lenders and (ii) the Lenders have provided to the
Administrative Agent such additional indemnities and assurances against expenses
and liabilities as the Administrative Agent may reasonably request, proceed to
enforce the provisions of the Security Documents authorizing the sale or other
disposition of all or any part of the Collateral and exercise all or any such
other legal and equitable and other rights or remedies as it may have in respect
of such Collateral. The Majority Lenders may direct the Administrative Agent in
writing as to the method and the extent of any such sale or other disposition,
the Lenders hereby agreeing to indemnify and hold the Administrative Agent,
harmless from all liabilities incurred in respect of all actions taken or
omitted in accordance with such directions, PROVIDED that the Administrative
Agent need not comply with any such direction to the extent that the
Administrative Agent reasonably believes the Administrative Agent's compliance
with such direction to be unlawful or commercially unreasonable in any
applicable jurisdiction.
1. EXPENSES.
Each of the Borrowers jointly and severally agrees to pay (i) the
reasonable costs of producing and reproducing this Credit Agreement, the other
Loan Documents and the other agreements and instruments mentioned herein, (ii)
any taxes (including any interest and penalties in respect thereto) payable by
the Administrative Agent or any of the Lenders (other than taxes based upon the
Administrative Agent's or any Lender's net income) on or with respect to the
transactions contemplated by this Credit Agreement (the Borrowers hereby
agreeing to indemnify the Administrative Agent and each Lender with respect
thereto); (iii) the reasonable fees, expenses and disbursements of the
Administrative Agent's Special Counsel or any local counsel to the
Administrative Agent or any counsel to any Initial Lender incurred in connection
with the preparation, administration, interpretation or syndication of the Loan
Documents and other instruments mentioned herein, each closing hereunder, and
amendments, modifications, approvals, consents or waivers hereto or hereunder
(including in each case the allocated cost of staff counsel) and the syndication
and the termination hereof; (iv) the reasonable fees, expenses and disbursements
of the Administrative Agent incurred by the Administrative Agent in connection
with the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, including all title insurance premiums and
surveyor, engineering and appraisal charges and the fees, expenses and
disbursements of the Administrative Agent and the Initial Lenders for waivers
and modifications of the Loan Documents; (v) any reasonable fees, costs,
expenses and bank charges, including bank charges for
<PAGE> 82
returned checks, incurred by the Administrative Agent in establishing,
maintaining or handling agency accounts, lock box accounts and other accounts
for the collection of any of the Collateral; (vi) all reasonable out-of-pocket
expenses (including without limitation reasonable attorneys' fees and costs,
which attorneys may be employees of any Lender or the Administrative Agent, and
reasonable consulting, accounting, appraisal, investment banking and similar
professional fees and charges) incurred by any Lender or the Administrative
Agent in connection with (A) the enforcement of or preservation of rights under
any of the Loan Documents against CML, any of the Borrowers or any of their
Subsidiaries or the administration thereof after the occurrence of a Default or
Event of Default and (B) any litigation, proceeding or dispute whether arising
hereunder or otherwise, in any way related to any Lender's or the Administrative
Agent's relationship with CML, any of the Borrowers or any of their
Subsidiaries; (vii) all reasonable fees, expenses and disbursements of any
Lender or the Administrative Agent incurred in connection with UCC searches, UCC
filings, intellectual property searches, intellectual property filings, or
mortgage recordings and (viii) all reasonable costs of conducting commercial
finance examinations and appraisals of the Borrowers' properties, including the
applicable daily time charges of the Administrative Agent's commercial finance
examiners, agents, consultants and representatives engaged in such examinations
and appraisals as in effect from time to time and reasonable out-of-pocket
travel and other related expenses. The covenants of this ss.17 shall survive
payment or satisfaction of all other Obligations.
1. INDEMNIFICATION.
Each of the Borrowers jointly and severally agrees to indemnify and
hold harmless the Administrative Agent and the Lenders from and against any and
all claims, actions and suits whether groundless or otherwise, and from and
against any and all liabilities, losses, damages and expenses of every nature
and character arising out of this Credit Agreement or any of the other Loan
Documents or the transactions contemplated hereby including, without limitation,
(i) any actual or proposed use by CML, any of the Borrowers or any of their
Subsidiaries of the proceeds of any of the Loans or Letters of Credit, (ii) the
reversal or withdrawal of any provisional credits granted by the Administrative
Agent upon the transfer of funds from bank agency or lock box accounts or in
connection with the provisional honoring of checks or other items, (iii) any
actual or alleged infringement of any patent, copyright, trademark, service mark
or similar right of CML, any of the Borrowers or any of their Subsidiaries
comprised in the Collateral, (iv) CML, any of the Borrowers or any of their
Subsidiaries entering into or performing this Credit Agreement or any of the
other Loan Documents or (v) with respect to CML, the Borrowers and their
Subsidiaries and their respective properties and assets, the violation of any
Environmental Law, the presence, disposal, escape, seepage, leakage, spillage,
discharge, emission, release or threatened release of any Hazardous Substances
or any action, suit, proceeding or investigation brought or threatened with
respect to any Hazardous Substances (including, but not limited to, claims with
respect to wrongful death, personal injury or damage to property), in each case
including, without limitation, the reasonable fees and disbursements of counsel
and allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding. In litigation, or the preparation
therefor, the Lenders and the Administrative Agent shall be entitled to select
their own counsel and, in addition to the foregoing indemnity, the Borrowers
agree to pay promptly the reasonable fees and expenses of such counsel. If, and
to the extent that the obligations of the Borrowers under this ss.18 are
unenforceable for any reason, the Borrowers hereby agree to make the maximum
contribution to the payment in satisfaction of such obligations which is
permissible under applicable law. The covenants contained in this ss.18 shall
survive payment or satisfaction in full of all other Obligations.
1. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein,
in the Notes, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of CML, any of the Borrowers or any of their
Subsidiaries pursuant hereto shall be deemed to have been relied upon by the
Lenders and the Administrative Agent, notwithstanding any investigation
heretofore or hereafter made by
<PAGE> 83
any of them, and shall survive the making by the Lenders of any of the Loans and
the issuance, extension or renewal of any Letters of Credit, as herein
contemplated, and shall continue in full force and effect so long as any Letter
of Credit or any amount due under this Credit Agreement or the Notes or any of
the other Loan Documents remains outstanding or any Lender has any obligation to
make any Loans or the Issuing Bank has any obligation to issue, extend or renew
any Letter of Credit, and for such further time as may be otherwise expressly
specified in this Credit Agreement. All statements contained in any certificate
or other paper delivered to any Lender or the Administrative Agent at any time
by or on behalf of CML, any of the Borrowers or any of their Subsidiaries
pursuant hereto or in connection with the transactions contemplated hereby shall
constitute representations and warranties by CML, such Borrower or such
Subsidiary hereunder.
1. ASSIGNMENT AND PARTICIPATION.
2. CONDITIONS TO ASSIGNMENT BY LENDERS. Except as provided herein, each
Lender may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Loans at the time owing to it, the Notes held by it and its participating
interest in the risk relating to any Letters of Credit); PROVIDED that (i) the
Administrative Agent shall have given its prior written consent to such
assignment, (ii) so long as BIII holds at least fifty-one percent (51%) of the
outstanding principal amount of the Notes, BIII shall have given its prior
written consent to such assignment, (iii) each such assignment shall be a
constant PRO RATA percentage, and not a varying percentage, of all the assigning
Lender's rights and obligations under this Credit Agreement, (iv) each
assignment shall be in an amount that at least $5,000,000 or, if less, the
entire remaining Commitment of such Lender and (v) the parties to such
assignment shall execute and deliver to the Administrative Agent, for recording
in the Register (as hereinafter defined), an Assignment and Acceptance,
substantially in the form of EXHIBIT G hereto (an "ASSIGNMENT AND ACCEPTANCE"),
together with any Notes subject to such assignment. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
(5) Business Days after the execution thereof, (i) the assignee thereunder shall
be a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder, and (ii) the assigning
Lender shall, to the extent provided in such assignment and upon payment to the
Administrative Agent of the registration fee referred to in ss.20.3, be released
from its obligations under this Credit Agreement. Upon each such consent to an
assignment by BIII given pursuant to this ss.20.1, the assigning Lender agrees
to pay to BIII a consent fee in the sum of $1,000.
1. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS. By
executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Lender makes no
representation or warranty, express or implied, and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, the other Loan Documents
or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or
mortgage;
(b) the assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of
CML, the Borrowers and their Subsidiaries or any other Person primarily
or secondarily liable in respect of any of the Obligations, or the
performance or observance by CML, the Borrowers and their Subsidiaries
or any other Person primarily or secondarily liable in respect of any
of the Obligations of any of their obligations
<PAGE> 84
under this Credit Agreement or any of the other Loan Documents or any
other instrument or document furnished pursuant hereto or thereto;
(c) such assignee confirms that it has received a copy of this
Credit Agreement, together with copies of the most recent financial
statements referred to in ss.8.4 and ss.9.4 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance upon
the assigning Lender, the Administrative Agent or any other Lender and
based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not
taking action under this Credit Agreement;
(e) such assignee represents and warrants that it is an Eligible
Assignee;
(f) such assignee appoints and authorizes the Administrative Agent
to take such action as agent on its behalf and to exercise such powers
under this Credit Agreement and the other Loan Documents as are
delegated to the Administrative Agent by the terms hereof or thereof,
together with such powers as are reasonably incidental thereto;
(g) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Credit
Agreement are required to be performed by it as a Lender;
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; and
(i) such assignee acknowledges that it has made arrangements with
the assigning Lender satisfactory to such assignee with respect to its
PRO RATA share of Letter of Credit Fees in respect of outstanding
Letters of Credit.
1. REGISTER. The Administrative Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register or similar list (the
"REGISTER") for the recordation of the names and addresses of the Lenders and
the Commitment Percentage of, and principal amount of the Loans owing to and
Letter of Credit Participations purchased by, the Lenders from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrowers, the Administrative Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Borrowers and the Lenders at any reasonable time and from time
to time upon reasonable prior notice. Upon each such recordation, the assigning
Lender agrees to pay to the Administrative Agent a registration fee in the sum
of $1,000.
1. NEW NOTES. Upon its receipt of an Assignment and Acceptance executed
by the parties to such assignment, together with each Note subject to such
assignment, the Administrative Agent shall (i) record the information contained
therein in the Register, and (ii) give prompt notice thereof to the Borrowers
and the Lenders (other than the assigning Lender). Within five (5) Business Days
after receipt of such notice, each Borrower, at its own expense, shall execute
and deliver to the Administrative Agent, in exchange for each surrendered Note,
a new Note with respect to such Borrower to the order of such Eligible Assignee
in an amount equal to the amount assumed by such Eligible Assignee pursuant to
such Assignment and Acceptance and, if the assigning Lender has retained some
portion of its obligations hereunder, a new Note to the order of the assigning
Lender in an amount equal to the amount retained by it hereunder. Such new Notes
shall provide that they are replacements for the surrendered Notes, shall be in
an aggregate principal
<PAGE> 85
amount equal to the aggregate principal amount of the surrendered Notes, shall
be dated the effective date of such in Assignment and Acceptance and shall
otherwise be substantially the form of the assigned Notes. Within five (5) days
of issuance of any new Notes pursuant to this ss.20.4, the Borrowers shall
deliver an opinion of counsel, addressed to the Lenders and the Administrative
Agent, relating to the due authorization, execution and delivery of such new
Notes and the legality, validity and binding effect thereof, in form and
substance satisfactory to the Lenders. The surrendered Notes shall be cancelled
and returned to the Borrowers.
1. PARTICIPATIONS. Each Lender may sell participations to one or more
banks or other entities in all or a portion of such Lender's rights and
obligations under this Credit Agreement and the other Loan Documents; PROVIDED
that (i) each such participation shall be in an amount of not less than
$5,000,000, (ii) any such sale or participation shall not affect the rights and
duties of the selling Lender hereunder to the Borrowers and (iii) the only
rights granted to the participant pursuant to such participation arrangements
with respect to waivers, amendments or modifications of the Loan Documents shall
be the rights to approve waivers, amendments or modifications that would reduce
the principal of or the interest rate on any Loans, extend the term or increase
the amount of the Commitment of such Lender as it relates to such participant,
reduce the amount of any Unused Line Fees or Letter of Credit Fees to which such
participant is entitled or extend any regularly scheduled payment date for
principal or interest.
1. DISCLOSURE. CML and each of the Borrowers agrees that in addition to
disclosures made in accordance with standard and customary banking practices any
Lender may disclose information obtained by such Lender pursuant to this Credit
Agreement to assignees or participants and potential assignees or participants
hereunder; PROVIDED that such assignees or participants or potential assignees
or participants shall agree (i) to treat in confidence such information unless
such information otherwise becomes public knowledge, (ii) not to disclose such
information to a third party, except as required by law or legal process and
(iii) not to make use of such information for purposes of transactions unrelated
to such contemplated assignment or participation.
1. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWERS. If any
assignee Lender (other than BIII or any Affiliate of BIII) is controlled by or
under common control with CML or any Borrower, then any such assignee Lender
shall have no right to vote as a Lender hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Administrative Agent pursuant to ss.14.1
or ss.14.2, and the determination of the Majority Lenders shall for all purposes
of this Credit Agreement and the other Loan Documents be made without regard to
such assignee Lender's interest in any of the Loans. If any Lender sells a
participating interest in any of the Loans or Reimbursement Obligations to a
participant, and such participant is CML, a Borrower or an entity controlled by
or under common control with a Borrower or CML, then such transferor Lender
shall promptly notify the Administrative Agent of the sale of such
participation. A transferor Lender shall have no right to vote as a Lender
hereunder or under any of the other Loan Documents for purposes of granting
consents or waivers or for purposes of agreeing to amendments or modifications
to any of the Loan Documents or for purposes of making requests to the
Administrative Agent pursuant to ss.14.1 or ss.14.2 to the extent that such
participation is beneficially owned by CML, a Borrower or an entity controlled
by or under common control with a Borrower, and the determination of the
Majority Lenders shall for all purposes of this Agreement and the other Loan
Documents be made without regard to the interest of such transferor Lender in
the Loans to the extent of such participation.
1. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Lender shall
retain its rights to be indemnified pursuant to ss.17 with respect to any claims
or actions arising prior to the date of such assignment. If any assignee Lender
is not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Borrowers and the Administrative Agent
<PAGE> 86
certification as to its exemption from deduction or withholding of any United
States federal income taxes. If the Reference Bank transfers all of its
interest, rights and obligations under this Credit Agreement, the Administrative
Agent shall, in consultation with the Borrowers and with the consent of the
Borrowers and the Majority Lenders, appoint another Lender to act as the
Reference Bank hereunder. Anything contained in this ss.20 to the contrary
notwithstanding, any Lender may at any time pledge all or any portion of its
interest and rights under this Credit Agreement (including all or any portion of
its Notes) to any of the twelve Federal Reserve Banks organized under ss.4 of
the Federal Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement
thereof shall release the pledgor Lender from its obligations hereunder or under
any of the other Loan Documents.
1. ASSIGNMENT BY BORROWERS OR GUARANTORS None of CML, any of the
Borrowers nor any of the Guarantors shall assign or transfer any of its rights
or obligations under any of the Loan Documents without the prior written consent
of each of the Lenders.
1. NOTICES, ETC.
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Notes or any Letter of Credit Applications shall be in
writing and shall be delivered in hand, mailed by United States registered or
certified first class mail, postage prepaid, sent by overnight courier, or sent
by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier
or postal service, addressed as follows:
(a) if to CML, at 524 Main Street, Acton, Massachusetts 01720,
Attention: Chief Financial Officer, or at such other address for notice
as CML shall last have furnished in writing to the Person giving the
notice;
(b) if to any of the Borrowers, at c/o CML Group, Inc., 524 Main
Street, Acton, Massachusetts 01720, Attention: Chief Financial Officer,
or at such other address for notice as such Borrower shall last have
furnished in writing to the Person giving the notice with a copy to the
Chief Financial Officer of such Borrower at the address set forth for
such Borrower on SCHEDULE 8.21 hereto;
(c) if to any of the Guarantors or Foreign Guarantors, at c/o CML
Group, Inc., 524 Main Street, Acton, Massachusetts 01720, Attention:
Chief Financial Officer, or at such other address for notice as such
Guarantor shall last have furnished in writing to the Person giving the
notice with a copy to the Chief Financial Officer of such Guarantor or
Foreign Guarantor at the address set forth for such Guarantor or
Foreign Guarantor on SCHEDULE 8.21 hereto;
(d) if to the Administrative Agent, at 100 Federal Street, Boston,
Massachusetts 02110, USA, Attention: Mark J. Forti, Vice President, or
such other address for notice as the Administrative Agent shall last
have furnished in writing to the Person giving the notice; and
(e) if to any Lender, at such Lender's address set forth on
SCHEDULE 1 hereto, or such other address for notice as such Lender
shall have last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
<PAGE> 87
1. GOVERNING LAW.
THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). CML, EACH OF THE
BORROWERS AND EACH OF THE GUARANTORS AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF
THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE
COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN
AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF
PROCESS IN ANY SUCH SUIT BEING MADE UPON CML, THE BORROWERS AND THE GUARANTORS
BY MAIL AT THE ADDRESS SPECIFIED IN SS.21. CML, EACH OF THE BORROWERS AND EACH
OF THE GUARANTORS HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE
TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN
AN INCONVENIENT COURT.
1. HEADINGS.
The captions in this Credit Agreement are for convenience of reference
only and shall not define or limit the provisions hereof.
1. COUNTERPARTS.
This Credit Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when executed and delivered shall be an original, and all of which together
shall constitute one instrument. In proving this Credit Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.
1. ENTIRE AGREEMENT, ETC.
The Loan Documents express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Credit Agreement
nor any term hereof may be changed, waived, discharged or terminated, except as
provided in ss.27.
1. WAIVER OF JURY TRIAL.
CML, each Borrower and each Guarantor hereby waives its right to a jury
trial with respect to any action or claim arising out of any dispute in
connection with this Credit Agreement, the Notes or any of the other Loan
Documents, any rights or obligations hereunder or thereunder or the performance
of which rights and obligations. Except as prohibited by law, CML, each Borrower
and each Guarantor hereby waives any right it may have to claim or recover in
any litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. CML, each Borrower and each Guarantor (i) certifies that no
representative, agent or attorney of any Lender or the Administrative Agent has
represented, expressly or otherwise, that such Lender or the Administrative
Agent, would not, in the event of litigation, seek to enforce the foregoing
waivers and (ii) acknowledges that the Administrative Agent and the Lenders have
been induced to enter into this Credit Agreement, the other Loan Documents to
which it is a party by, among other things, the waivers and certifications
contained herein.
<PAGE> 88
1. CONSENTS, AMENDMENTS, WAIVERS, ETC.
The provisions of this Credit Agreement and the other Loan Documents
may from time to time be amended, modified or waived, and any Collateral may be
released, if such amendment, modification, waiver or release is consented to in
writing by the Majority Lenders and, in the case of any amendment or
modification, CML or its Subsidiaries party to the relevant Loan Document.
Notwithstanding the foregoing, no such amendment, modification, waiver or
release:
(a) which would modify any requirement hereunder that any particular
action be taken by all the Lenders shall be effective unless
consented to by each Lender;
(b) which would modify this ss.27 or change the definition of
"Majority Lenders" shall be effective unless consented to by eacH
Lender;
(c) which would release any Collateral from the lien of the Security
Documents shall be effective unless consented to by each Lender,
unless (i) such release is in connection with the sale of such
Collateral and such sale is permitted by this Credit Agreement,
or such sale is consented to by the Majority Lenders, all Net
Cash Proceeds of such sale are used to prepay the Loans and,
except with respect to Permitted Dispositions (other than the
disposition of the Capital Stock of NT or an NT Spin-Off), the
Total Commitment is reduced, concurrently with such prepayment,
by the amount of such prepayment, as provided for herein, (ii)
such release is of Collateral consisting of cash or cash
equivalents and substantially all such cash or cash equivalents
is used to pay or prepay Obligations in accordance with the
Credit Agreement, (iii) such release is "cash collateral", as
defined in Section 363(a) of the federal Bankruptcy Code, in any
case where CML, a Borrower or a Guarantor is a debtor, and the
release is made under a cash collateral stipulation with the
debtor approved by the Majority Lenders and the Administrative
Agent, (iv) such release is of foreign Collateral and such
release is effected with the approval of the Administrative Agent
pursuant to the last sentence of this ss.27, or (v) such release
is of other Collateral and the aggregate value of all Collateral
releases permitted under this clause (v) from and after the
Restatement Effective Date shall not exceed $1,000,000;
(d) which would increase the Commitment or Commitment Percentage of
any Lender, reduce any Unused Line Fee, Letter of Credit Fee or
other fees payable to any Lender, extend the Maturity Date,
increase the advance rates of any Borrowing Base, or make any
other change which would have the effect of increasing the credit
available to any Borrower hereunder or reduce the principal
amount of or rate of interest on any Loan of any Lender shall be
effective unless consented to by such Lender;
a which would adversely affect the interests, rights or obligations
of the Administrative Agent, in its capacity as the
Administrative Agent, or would amend the provisions of ss.ss.2.1
or 2.8 relating to the transfer of funds between The
Administrative Agent and the Lenders (including the types of
funds or the method of such transfer), shall be effective unless
consented to by the Administrative Agent; or
b which would adversely affect the interests, rights or obligations
of the Issuing Bank, in its capacity as the Issuing Bank, or
would amend the provisions of ss.4.3 relating to the transfer of
funds between the Issuing Bank and the Lenders (including thE
types of funds or the method of such transfer), shall be
effective unless consented to by the Issuing Bank.
<PAGE> 89
The Guarantors (other than CML and the Borrowers) shall not be deemed a party to
this Credit Agreement for any purpose except for purposes of ss.3.3, ss.7 and
ss.ss.20 through 28. The consent of any Guarantor (other than CML and the
Borrowers) shall not be required for any amendment, modification or waiver of
any provision of this Credit Agreement, unless such amendment, modification or
waiver relates to ss.3.3, ss.7, and ss.ss.20 through 28 and adversely affects
such Guarantor. No waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon. No course of dealing or delay or
omission on the part of the Administrative Agent or any Lender in exercising any
right shall operate as a waiver thereof or otherwise be prejudicial thereto. No
notice to or demand upon CML or any of the Borrowers shall entitle CML or any of
the Borrowers to other or further notice or demand in similar or other
circumstances.
If CML has demonstrated to the reasonable satisfaction of the Administrative
Agent that the pledge of the stock of any foreign Subsidiary of CML (to the
extent greater than sixty-five percent (65%) of the outstanding stock of such
foreign Subsidiary) or the Foreign Guaranty given by any such foreign Subsidiary
will result in material tax obligations for CML and its Subsidiaries, which tax
obligations would not arise if such pledge or guaranty were released by the
Administrative Agent and/or the Lenders, the Administrative Agent and/or the
Lenders, as appropriate, upon ten (10) days' prior written request of CML
delivered to the Administrative Agent and the Lenders shall release such pledge
(to the extent applicable to greater than sixty-five percent (65%) of the
outstanding stock of the relevant foreign Subsidiary) or guaranty; PROVIDED that
(i) no such release shall be required if any Event of Default is continuing and
(ii) no such release shall be required in any event prior to July 15, 1997.
1. SEVERABILITY.
The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Credit Agreement in any jurisdiction.
<PAGE> 90
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.
CML GROUP, INC.
By: ________________________________________
Glenn E. Davis, Vice President - Finance
NORDICTRACK, INC.
NORDIC ADVANTAGE, INC.
SMITH & HAWKEN, LTD.
By: ________________________________________________
Glenn E. Davis, Vice President
BANKBOSTON N.A. (f/k/a The First
National Bank of Boston), individually
and as Administrative Agent
By: ________________________________________________
Name:
Title:
B III CAPITAL PARTNERS, L.P.
By: DDJ Capital III, L.L.C., its General Partner
By: DDJ Capital Management, LLC, Manager
By: ________________________________________________
Title:
Member:
For purposes of ss.3.3, ss.7, and ss.ss.20 through 28 hereof:
OCR, INC.
OBW, INC.
WFH GROUP, INC.
OTNC, INC.
BFPI, INC.
By: ___________________________________________
Glenn E. Davis, Vice President
<PAGE> 1
CML GROUP, INC.
524 MAIN STREET
ACTON, MASSACHUSETTS 01720
March 17, 1998
Mr. Charles M. Leighton
P. O. Box 247
51 Vaughan Hill Road
Bolton, Massachusetts 01740-0247
Dear Charlie:
In order to resolve amicably your separation from the Company and
establish the terms of your severance, CML Group, Inc. agrees to pay you the
following severance benefits in return for the execution of a copy of this
letter with the release it includes.
Your termination of employment with CML Group, Inc. (the "Company") is
effective March 31, 1998. In addition, effective as of the end of February, 1998
you will no longer use the Company plane.
In connection with your termination, the Company will provide the
following:
1. As severance, you will receive $240,000 payable as follows:
(a) $80,000 will be paid on or about August 1, 1998; (b) $80,000 will be paid on
or about November 1, 1998; and (c) $80,000 will be paid on or about January 1,
1999.
2. In addition, the Company will immediately take steps to (a)
notify the Trustee of said so-called Rabbi Trust established in connection with
the terms of the Retirement Income and Survivor Security Program (" Retirement
Income Program") that the Retirement Income Program established for your benefit
has been modified and amended to provide for immediate distribution to you of
the policies currently held in
<PAGE> 2
Mr. Charles M. Leighton
March 17, 1998
Page 2
said Trust for the purpose of providing your benefits under the Retirement
Income Program and (b) issue to you 38,310 shares of common stock of the Company
to which you are entitled under the Company's Incentive Deferred Compensation
Plan. These distributions will constitute full payment and satisfaction of the
Company's obligations to you under the Retirement Income Program and of all
other retirement or severance obligations to you, other than as stated in this
letter and other than retirement benefits provided under the terms of any
qualified retirement plan under Section 401 of the Internal Revenue Code.
3. You and the Company agree to take steps promptly to surrender
the three split-dollar insurance policies listed in APPENDIX A hereto in
exchange for their respective cash surrender values (cumulatively "Insurance
Proceeds") and further agree to distribute $8,039 of the Insurance Proceeds to
the Company (being the amount equal to the aggregate cumulative premiums paid by
the Company to the extent not previously withdrawn) and the balance of the
Insurance Proceeds to you.
4. As you know, it is the Company's intention to sell the plane
it now owns. The Company intends to offer you the opportunity to purchase the
plane if you are willing to purchase it on terms which are equivalent to the
best offer the Company receives.
In consideration of the Company's undertakings, you agree as follows:
1. You hereby fully, forever, irrevocably and unconditionally
release the Company, its officers, directors, stockholders, corporate
affiliates, attorneys, agents and employees from any and all claims of every
kind and nature which you ever had or now have against the Company, its
officers, directors, stockholders, corporate affiliates, attorneys, agents and
employees, including, but not limited to, all claims arising out of your
employment, all employment discrimination claims under Title VII of the Civil
Rights Act of 1964, 42 U.S.C. Section 2999e Et Seq., the Americans With
Disabilities Act, 42 U.S.C. Section 12191 Et Seq., the Age Discrimination in
Employment Act, 29 U.S.C. Section 621 Et Seq., and Massachusetts Fair Employment
Practices Act, M.G. L. c.151B, Section 1 Et Seq., wrongful discharge claims or
other common law claims.
2. You agree that, during the two year period beginning on the
date of your execution of a copy of this letter, you will not, without the prior
specific consent of the Company, in any capacity, either separately, jointly, or
in association with others, directly or indirectly, encourage, solicit,
initiate, engage or participate in discussions or negotiations with any person
or entity concerning any merger, consolidation, purchase of material assets,
tender offer, accumulation of shares of the Company's capital stock,
<PAGE> 3
Mr. Charles M. Leighton
March 17, 1998
Page 3
proxy solicitation or other business combination involving the Company, any
subsidiary of the Company or any division of the Company or any such subsidiary;
PROVIDED, HOWEVER, that nothing herein shall prevent you from bringing to the
attention of the Company any unsolicited offer or proposal relating to the
foregoing.
3. You agree that, as a condition for these payments to you, you
will not make any false, disparaging or derogatory statements in public or
private regarding the Company or any of its directors, officers, employees,
agents, or representatives or the Company's business affairs and financial
condition; and the Company agrees that it will not make any false, disparaging
or derogatory statements in public or private regarding you.
4. You will not, directly or indirectly, during the two year
period beginning on the date of your execution of this letter, recruit, solicit
or hire any key employee of the Company, or induce or attempt to induce any key
employee of the Company to terminate his or her employment with, or otherwise
cease his or her relationship with, the Company.
5. You expressly agree that breach of your agreement to the
provisions in Paragraphs 2, 3 and 4 would result in irreparable injuries to the
Company, that the remedy at law for any such breach would be inadequate and that
upon breach of either of these provisions, the Company, in addition to all other
available remedies, shall be entitled as a matter of right to injunctive relief
in any court of competent jurisdiction without the necessity of proving the
actual damage to the Company.
This agreement will be governed by the laws of the Commonwealth of
Massachusetts and is binding upon and shall inure to the benefit of the parties
and their respective agents, assigns, heirs, executors, successors and
administrators.
This letter contains and constitutes the entire understanding and
agreement between you and the Company with respect to severance and supercedes
and cancels all previous oral and written negotiations, agreements, commitments
and writings in connection with your severance. To the extent permitted by law,
you agree that the contents of our discussions and negotiations resulting in
this letter and agreement, shall be maintained as confidential by you, your
agents and representatives, and any dispute resolved by this document shall also
remain confidential, and none of the above shall be disclosed except to the
extent required by federal or state law or as otherwise agreed to in writing by
the authorized agent of each party.
<PAGE> 4
Mr. Charles M. Leighton
March 17, 1998
Page 4
You hereby acknowledge you have been given twenty-one (21) days to
consider this agreement and that the Company advised you to consult with any
attorney of your choosing prior to signing this agreement. You may revoke this
agreement for a period of seven (7) days after its execution, and the agreement
will not be effective or enforceable until the expiration of this seven (7) day
revocation period.
Very truly yours,
CML Group, Inc.
By /s/ John A.C. Pound
------------------------------------
John A.C. Pound, Chairman
I agree to all the terms of this letter.
/s/ Charles M. Leighton
- ------------------------------------
Charles M. Leighton
Dated: March 17, 1998
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this ______ day of
____________, is entered into by CML Group, Inc., a corporation with its
principal place of business at 524 Main Street, Acton, MA (the "CML"), Facsimile
Number 978-263-2178, Smith & Hawken, Ltd., a wholly-owned subsidiary of CML,
with its principal place of business at 117 E. Strawberry Drive, Mill Valley, CA
(the "Company") Facsimile Number , and Kathleen Tierney, residing at
3069 West Dry Creek Road, Healdsburg, CA 95448, (the "Employee") Facsimile
Number .
The Company desires to continue to employ the Employee, and the
Employee desires to continue to be employed by the Company. In consideration of
the mutual covenants and promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, the parties agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to continue to employ the
Employee, and the Employee hereby accepts continued employment with the Company,
upon the terms set forth in this Agreement, commencing on April 1, 1998 (the
"Commencement Date") and continuing hereunder until a termination in accordance
with the provisions of Section 4 (the "Employment Period").
2. TITLE; CAPACITY.
3 2.1 The Employee shall serve as President and Chief Executive
Officer of the Company and be subject to the supervision of the Board of
Directors of the Company (the "Board"). She shall have such authority as is
consistent with her service as President and Chief Executive Officer.
4 The Employee hereby agrees to continue employment with the Company and
serve as President and Chief Executive Officer and perform the duties and
responsibilities of such positions and such other duties and responsibilities,
consistent with her position as President and Chief Executive Officer or the
Chief Operating Officer of the Company,
1
<PAGE> 2
as the Board or as the CML Board or its designee shall from time to time
reasonably assign to her.
1 2.2 The Employee shall continue to be based at the Company's
headquarters in Mill Valley, California, or such other place or places within
the San Francisco metropolitan area in which the headquarters is located,
without her prior consent. The Employee agrees to devote her entire business
time, attention and energies to the business and interests of the Company during
the Employment Period.
2. COMPENSATION AND BENEFITS.
3 3.1 SALARY. Effective April 1, 1998, the Company shall pay the
Employee, in monthly installments, an annual base salary of $260,000 during the
Employment Period ("Annual Base Salary"). Such salary shall be reviewed annually
by the CML Board at the beginning of each fiscal year of the Company, beginning
with the fiscal year commencing August 1, 1999.
4 3.2 BONUSES. Set forth in Sections 3.2 and 3.3.2 are the terms of
the cash and option bonuses for which the Employee is eligible, based on (i) an
objective formula, and (ii) discretionary criteria, which may be awarded to the
Employee for the Company's fiscal year ending July 31, 1998 (the "98 Bonuses").
In addition, the Company, CML, and the Employee shall work together, in good
faith, beginning as soon as practicable after the Company's financial goals for
the fiscal year ending July 31, 1999 have been determined, to establish the
terms of bonuses, based on concepts set forth on SCHEDULE A (to be completed by
the parties as soon as practicable), for which the Employee will be eligible,
based on the performance of the Employee and the Company, during the Company's
fiscal year ending July 31, 1999 (the "99 Bonuses"). The terms of the 99 Bonuses
will be set forth in a written instrument signed by all parties to this
Agreement.
5 3.2.1 FORMULA BONUS. The Company shall pay the Employee a
cash bonus for the Company's fiscal year ending July 31, 1998 ("FY 98"), if the
Employee is employed on July 31, 1998, equal to the largest amount for which she
qualifies under the provisions of the attached SCHEDULE B.
6
7 "EBIT" as used in this Agreement, and in any Schedules to this
Agreement, means the Company's Earnings Before Interest and Taxes as determined
in accordance with generally accepted accounting principles by the Company's
independent accountants; provided that in determining EBIT the bonus that would
otherwise have been payable to the Employee and to Messrs. McCreight and Shahan
under the bonus program set forth on SCHEDULE C, which is no longer in effect,
shall be included as a
2
<PAGE> 3
compensation expense in determining FY 98 EBIT and not the bonuses payable under
Sections 3.2.1 and 3.2.2.
8 3.2.2 DISCRETIONARY BONUS. The Company may, in the sole
discretion of the Board, pay the Employee a discretionary bonus of up to 25% of
Annual Base Salary. In determining the amount of the discretionary bonus, if
any, to be paid under this provision, the Board will consider those factors it
deems appropriate, including, without limitation, the extent of Employee's
attainment of those operational and organizational goals set forth in SCHEDULE D
annexed hereto.
9 3.2.3 BONUS PAYMENT. Employee must be employed by the
Company on July 31, 1998 in order to receive any bonus and any bonus will be
paid within 30 days following the completion of the FY 98 audit by the Company's
independent accountants.
10 3.3 OPTIONS.
11 3.3.1 IMMEDIATE OPTION GRANT. Upon execution of this
Agreement, Employee will be granted an option to purchase 100,000 shares of
common stock of CML with an exercise price equal to the closing price of CML's
common stock on the New York Stock Exchange (the "Fair Market Value") on the
date of grant. Such option will vest as to 50% of the shares covered thereby on
the date of grant, an additional 25% on April 1, 1999, if she is then still
employed by the Company, and the remaining 25% on April 1, 2000, if she is then
still employed by the Company. The option shall be subject to such other
provisions as are set forth in the stock option agreements attached hereto as
APPENDIX I.
12 3.3.2 PERFORMANCE OPTION.
13 (a) FORMULA GRANT. After completion of the audit
of CML's financial statements for FY 98, the Company will grant to the Employee
an option to purchase the largest number of shares of common stock of CML for
which she qualifies in accordance with the provisions of the attached SCHEDULE
E, provided that she is then employed by the Company.
14 (b) DISCRETIONARY GRANT. After the end of FY 98,
the Company may, in the sole discretion of the Board, grant Employee an option
to purchase up to an additional 100,000 shares of CML common stock. In
determining whether to grant any such additional options, the Board will
consider those factors it deems appropriate, including, without limitation, the
extent of Employee's attainment of those operational and organizational goals
set forth on the attached SCHEDULE D.
15 (c) GRANT PROCESS. Options to be granted to the
Employee pursuant to this Section 3.3.2. shall be granted promptly after
completion of the FY 98 audit by the Company's independent accountants. Such
options will be exercisable at
3
<PAGE> 4
Fair Market Value on the date of grant and will vest as to 50% of the shares
covered thereby on the date of grant, an additional 25% on July 31, 1999, if the
Employee is then still employed by the Company and the remaining 25% on July 31,
2000, if the Employee is then still employed by the Company. The option will be
subject to such other provisions as are set forth in the stock option agreements
attached hereto as APPENDIX I. To the extent consistent with the law, the
Company will grant options intended to qualify as incentive stock options to the
Employee under this Section 3.
16 3.4 SALE BONUS. In the event that, during the Employment Period
(or within 90 days thereafter if Employee is terminated without Cause under
Section 4.3), CML sells the Company, either through (i) a sale of all of the
Company stock held by CML, or (ii) a sale of all or substantially all of the
assets of the Company, or, a merger or consolidation involving the Company
(other than a merger or consolidation with CML) in which the Company is not the
surviving Company, Company is merged into or consolidated with another company
or otherwise consummates a business combination with another company (each
hereinafter referred to as a "Sale"), the Company agrees to pay the Employee a
bonus ("Sale Bonus") calculated as a percentage of the "Net Consideration"
received in connection with the Sale. The Sale Bonus shall be calculated as
follows:
(a) If the Net Consideration is $50 Million or less, the Sale
Bonus is Zero ($0).
(b) If the Net Consideration is greater than $50 Million but less
than or equal to $70 Million the Sale Bonus shall equal
three-fourths of one percent (3/4%) of the amount by which the
Net Consideration exceeds $50 Million.
(c) If the Net Consideration is greater than $70 Million, the Sale
Bonus shall be equal to (i) $150,000, plus (ii) one and
one-quarter percent (1 and 1/4%) of the amount by which the
Net Consideration exceeds $70 Million.
The Sale Bonus will be paid in twelve (12) equal monthly installments over the
12-month period following receipt of the Net Consideration, PROVIDED, HOWEVER,
that in the event the Employee's employment with the Company is terminated for
death or disability pursuant to Section 4.2, or the Employee is terminated
without Cause under Section 4.3, the balance of the Sale Bonus shall be paid to
the Employee in a lump-sum at the time of such termination.
The term "Net Consideration" means the fair market value on the date of
the consummation of the Sale of all consideration in the form of cash or
securities received
4
<PAGE> 5
by CML or the Company in connection with the Sale, less (i) all fees and
expenses incurred in connection with the Sale, and (ii) any liabilities of the
Company not assumed in the Sale and any expenses incurred in the settlement of
such liabilities. If any portion of the Net Consideration is other than cash,
then for the purpose of computing any Sale Bonus payable to the Employee, the
Net Consideration shall be valued as follows: (i) publicly traded securities
shall be valued at the average of their closing prices (as reported in the Wall
Street Journal) for the twenty (20) trading days prior to the consummation of
the Sale; (ii) any other consideration such as straight or convertible debt
securities or obligations, or installment sale notes, unmarketable securities or
other securities shall be valued at the fair market value thereof as determined
in good faith by CML. In the event of any acquisition of Company assets, the
face amount of debt assumed by the acquiring party shall be valued at the time
of the sale and included as part of the Net Consideration. Any Sale Bonus
calculated on amounts paid into escrow will be payable at the time or times such
amounts are released from such escrow. If the payment of any portion of the Net
Consideration is contingent on any future event, that portion of the Net
Consideration will be calculated and payable if and when such contingent payment
is made.
3.5 BENEFITS. The Employee shall be entitled to
participate in all other benefit programs that the Company provides to its
employees, if any, to the extent that Employee's position, tenure, salary, age,
health and other qualifications make her eligible to participate. In addition,
she shall be entitled to the benefits as set forth on SCHEDULE F to this
Agreement.
3.6 REIMBURSEMENT OF EXPENSES. The Company shall
reimburse the Employee for all reasonable travel, entertainment and other
expenses incurred or paid by the Employee in connection with, or related to, the
performance of her duties, responsibilities or services under this Agreement,
upon presentation by the Employee of documentation, expense statements, vouchers
and/or such other supporting information as the Company may request, PROVIDED,
HOWEVER, that the amount available for such travel, entertainment and other
expenses may be fixed in advance by the Board, consistent with past practice.
1. EMPLOYMENT TERMINATION. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:
2 4.1 At the election of the Board, for Cause, immediately upon
written notice by the Board to the Employee. For the purposes of this Section
4.1, Cause for termination shall be deemed to exist upon (a) a good faith
finding by the Board of a material failure of the Employee to perform her
assigned duties for the Company (a
5
<PAGE> 6
"Material Failure"), dishonesty, gross negligence or misconduct, or (b) the
conviction of the Employee of, or the entry of a pleading of guilty or nolo
contendere by the Employee to, any crime involving moral turpitude or any
felony; provided that any termination based on a Material Failure can only occur
after the Employee has received a written notice identifying such Material
Failure (whether or not such Material Failure existed prior to the notice but
was not the subject of a notice) and giving her at least thirty (30) days within
which to correct such Material Failure (the "Warning") and such correction has
not occurred within such thirty (30) days period, and; provided further that
only one Warning will be required under this Agreement and thereafter, even if
correction occurred after the Warning, the Employee may be terminated without
any further Warning, if the Board determines that any previously identified
Material Failure has recurred after such 30-day period.
3 4.2 Thirty days after the death or disability of the Employee. As
used in this Agreement, the term "disability" shall mean the inability of the
Employee, due to a physical or mental disability, for a period of ninety (90)
days, whether or not consecutive, during any 360-day period to perform the
services contemplated under this Agreement. A determination of disability shall
be made by a physician satisfactory to both the Employee and the Company,
PROVIDED THAT if the Employee and the Company do not agree on a physician, the
Employee and the Company shall each select a physician and these two together
shall select a third physician, whose determination as to disability shall be
binding on all parties;
4 4.3 At the election of the Company, without Cause, or, at the
election of the Employee, upon written notice to the other parties to this
Agreement.
5. EFFECT OF TERMINATION.
6 5.1 TERMINATION FOR CAUSE OR UPON EMPLOYEE'S ELECTION TO
TERMINATE. In the event the Employee's employment is terminated for cause
pursuant to Section 4.1 or at the Employee's election under Section 4.3, the
Company shall pay to the Employee the compensation and benefits otherwise
payable to her under Section 3 through the last day of her actual employment by
the Company including any payment due to Employee under the terms of any Formula
Bonus provision in effect for the fiscal year of the Company ended prior to the
Employee's last day of employment.
7 5.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of disability pursuant to Section
4.2, the Company shall pay to the estate of the Employee or to the Employee, as
the case may be, the compensation which would otherwise be payable to the
Employee up to the end of the month in which the termination of her employment
because of death or disability occurs and any payment due to Employee under the
terms of any Formula Bonus
6
<PAGE> 7
provision in effect for the fiscal year of the Company ended prior to the
Employee's last day of employment.
8 5.3 TERMINATION OTHER THAN FOR CAUSE, OR UPON DEATH OR DISABILITY.
If the Employee's employment is terminated by the Company other than on account
of Cause, Death or Disability, then the Employee will receive: (i) all
compensation and benefits payable to her under Section 3 of this Agreement,
through the end of the month in which her employment terminates, (ii) monthly
payments of 1/12 of her Annual Base Salary at the rate she is being paid at the
time of such termination, for thirty (30) months following the end of the month
in which or with which such termination occurs, (iii) a fraction of any bonus
she would have received after the end of the fiscal year in which such
termination occurs, under any formula bonus program in which she is
participating at the time of such termination, determined by multiplying the
amount she would have received by a fraction, the numerator of which is the
number of full or partial months of the fiscal year in which she was employed
and the denominator of which is 12, and (iv) any payment due to Employee under
the terms of any Formula Bonus provision in effect for the fiscal year of the
Company ended prior to the Employee's last day of employment.
9 5.4 SURVIVAL. The provisions of Sections 3.4, 5, 6 and 7 shall
survive the termination of this Agreement.
10. NON-SOLICITATION.
11 (a) During the Employment Period, and for a period of 30 months
after the termination thereof, the Employee will not directly or indirectly:
12 (i) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
13 (ii) solicit, divert or take away, or attempt to divert or
to take away, the Company's relationship with vendors or suppliers, or with
customers with which the Company has a contract, which were contacted, solicited
or served by the Employee while employed by the Company.
14 (b) If any restriction set forth in this Section 6 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
15 (c) The restrictions contained in this Section 6 are necessary for
the protection of the business and goodwill of the Company and are considered by
the Employee to be reasonable for such purpose. The Employee agrees that any
breach of
7
<PAGE> 8
this Section 6 may cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.
16. PROPRIETARY INFORMATION AND DEVELOPMENTS.
17 7.1 PROPRIETARY INFORMATION.
18 (a) Employee agrees that all information and know-how,
whether or not in writing, of a private, secret or confidential nature
concerning the Company's business or financial affairs (collectively,
"Proprietary Information") is and shall be the exclusive property of the
Company. By way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data, clinical
data, financial data, personnel data, computer programs, and customer and
supplier lists. Except as required by law, Employee will not disclose any
Proprietary Information to others outside the Company or, use the same, for any
unauthorized purposes without written approval by an officer of CML, either
during or after her employment, unless and until such Proprietary Information
has become public knowledge without fault by the Employee.
19 (b) Employee agrees that all files, letters, memoranda,
reports, records, data, sketches, drawings, laboratory notebooks, program
listings, or other written, photographic, or other tangible material containing
Proprietary Information, whether created by the Employee or others, which shall
come into her custody or possession, shall be and are the exclusive property of
the Company to be used by the Employee only in the performance of her duties for
the Company.
20 (c) Employee agrees that her obligation not to disclose
or use information, know-how and records of the types set forth in paragraphs
(a) and (b) above, also extends to such types of information, know-how, records
and tangible property of customers of the Company or suppliers to the Company or
other third parties who may have disclosed or entrusted the same to the Company
or to the Employee in the course of the Company's business unless such
information, know-how, records or tangible property is in the public domain.
21 7.2 DEVELOPMENTS.
22 (a) Employee will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries, methods, developments,
software, and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by the Employee or under her direction or
jointly with others during her employment by the Company, whether or not during
normal
8
<PAGE> 9
working hours or on the premises of the Company (all of which are collectively
referred to in this Agreement as "Developments").
23 (b) Employee agrees to assign and does hereby assign to
the Company (or any person or entity designated by the Company) all her right,
title and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this Section 7(b)
shall not apply to Developments which do not relate to the present or planned
business or research and development of the Company and which are made and
conceived by the Employee not during normal working hours, not on the Company's
premises and not using the Company's tools, devices, equipment or Proprietary
Information.
24 (c) Employee agrees to cooperate fully with the Company,
both during and after her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights and patents (both in the
United States and foreign countries) relating to Developments. Employee shall
sign all papers, including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignment of priority
rights, and powers of attorney, which the Company may reasonably deem necessary
or desirable in order to protect its rights and interests in any Development.
25 7.3 OTHER AGREEMENTS. Employee hereby represents that she is not
bound by the terms of any agreement with any previous employer (other than any
other company which was a subsidiary of CML) or other party to refrain from
using or disclosing any trade secret or confidential or proprietary information
in the course of her employment with the Company or to refrain from competing,
directly or indirectly, with the business of such previous employer or any other
party. Employee further represents that her performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information, knowledge or data
acquired by him in confidence or in trust prior to her employment with the
Company.
26. NOTICES. All notices required or permitted under this Agreement shall
be in writing and shall be deemed effective upon (a) personal delivery, or (b)
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other parties at the addresses shown above, or
at such other address or addresses as any party shall designate to the others in
accordance with this Section 8, or (c) sending by facsimile to the other parties
at the facsimile numbers shown above, or at such other number or numbers as any
party shall designate to the others in accordance with this Section 8.
9
<PAGE> 10
27. PRONOUNS. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
28. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
29. AMENDMENT. This Agreement may be amended or modified only by a written
instrument executed by both the Company, CML and the Employee.
30. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
31. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company or CML may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by her.
32. MISCELLANEOUS.
33 a. No delay or omission by the Company, CML or the Employee in
exercising any right under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by the Company, CML or the Employee
on any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.
34 b. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
35 c. In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
36 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
37
CML GROUP,INC. SMITH & HAWKEN, LTD.
By: /s/ John A.C. Pound By: /s/ Kathy Tierney
-------------------------- ------------------------------
John A.C. Pound Kathleen Tierney
Title: Chairman Title: CEP/President
6/19/98 Employee
10
<PAGE> 11
/s/ Kathy Tierney
----------------------------------
Kathleen Tierney
11
<PAGE> 12
SCHEDULE B
FY 98 Formula Bonus
FY 98 EBIT
<TABLE>
<CAPTION>
Equal To or FY 98
Greater Than Less Than Formula Bonus
- ------------ --------- -------------
<S> <C> <C>
$ 0 $3,200,000 $ 26,000
$3,200,000 $3,730,000 $ 65,000
$3,730,000 $4,200,000 $130,000
$4,200,000 $195,000
</TABLE>
12
<PAGE> 13
SCHEDULE D
FY 98 Operational and Organizational Goals
1. Identify and recruit individuals to fill key executive positions
including chief operating officer, vice president of retail and vice
president of trade.
2. Retain and motivate key employees.
3. Resolve leadership issues relating to catalog business.
4. Develop and implement catalog strategy.
5. Successfully execute retail expansion strategy.
6. Work effectively with CML Group, Inc. during current restructuring.
13
<PAGE> 14
SCHEDULE E
FY 98 Performance Options - Formula Grant
FY 98 EBIT
<TABLE>
<CAPTION>
Equal To or FY 98
Greater Than Less Than Formula Option For:
- ------------ --------- -------------------
<S> <C> <C>
$ 0 $3,730,000 50,000 shares
$3,730,000 $4,200,000 100,000 shares
$4,200,000 150,000 shares
</TABLE>
14
<PAGE> 15
SCHEDULE F
1. Continued lease by the Company of the automobile Employee
currently uses to be replaced by a new automobile of comparable cost at the end
of the lease term.
2. Continued use of Bayview Apartment by Employee while employed
by the Company as long as it is owned by the Company and available for such use
in the discretion of the Board.
15
<PAGE> 1
NORDICTRACK NOTE
$52,000,000 July 27, 1998
FOR VALUE RECEIVED, the undersigned NORDICTRACK, INC., a Minnesota
corporation, and NORDIC ADVANTAGE, INC., a Minnesota corporation (together, the
"COMPANIES" and each, individually, a "COMPANY"), hereby jointly and severally
promise to pay to the order B III CAPITAL PARTNERS, L.P., a Delaware partnership
(the "LENDER") at the Administrative Agent's Head Office (as defined in the
Credit Agreement, as hereinafter defined):
(a) prior to or on the Maturity Date the principal amount of FIFTY-TWO
MILLION DOLLARS ($52,000,000) or, if less, the aggregate unpaid principal
amount of the NordicTrack Loans advanced by the Lender to the Companies
pursuant to the Revolving Credit Agreement dated as of April 17, 1996, and
restated as of July 27, 1998 (as amended, supplemented, modified or
restated and in effect from time to time, the "CREDIT AGREEMENT"), among
(a) CML Group, Inc., (b) the Companies and certain other Borrowers party
thereto, (c) the Lender and the other lending institutions as may become
parties to the Credit Agreement from time to time, and (d) BankBoston, N.A.
(f/k/a The First National Bank of Boston), as administrative, collateral,
and documentation agent for the Lenders;
(b) the principal outstanding hereunder from time to time at the times
provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time
outstanding until such amount is paid in full, at the times and at the
rates provided in the Credit Agreement.
This Note (this "NOTE") evidences borrowings under and has been issued by
the Companies in accordance with the terms of the Credit Agreement. The Lender
and any holder hereof is entitled to the benefits of the Credit Agreement, the
Security Documents and the other Loan Documents, and may enforce the agreements
of the Companies contained therein, and any holder hereof may exercise the
respective remedies provided for thereby or otherwise available in respect
thereof, all in accordance with the respective terms thereof. All capitalized
terms used in this Note and not otherwise defined herein that are defined in the
Credit Agreement shall have the same meanings herein as in the Credit Agreement.
Each of the Companies irrevocably authorizes the Lender to make or cause to
be made, at or about the time of the Drawdown Date of any NordicTrack Loan or at
the time of receipt of any payment of principal of this Note, an appropriate
notation on the grid attached to this Note, or the continuation of such grid, or
any other similar record, including computer records, reflecting the making of
such NordicTrack Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the NordicTrack Loans set forth on the grid attached to
this Note, or the continuation of such grid, or any other similar record,
including computer records, maintained by the Lender with respect to any
NordicTrack Loans shall be PRIMA FACIE evidence of the principal amount thereof
owing and unpaid to the Lender, but the failure to record, or any error in so
recording, any such amount on any such grid, continuation or other record shall
not limit or otherwise affect the obligation of any of the Companies hereunder
or under the Credit Agreement to make payments of principal of and interest on
this Note when due.
<PAGE> 2
The Companies have the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Lender or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Lender or such holder, nor shall any delay, omission or
waiver on any one occasion be deemed a bar or waiver of the same or any other
right on any further occasion.
Each of the Companies and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF EACH COMPANY HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). EACH COMPANY AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURT AND EACH COMPANY HEREBY EXPRESSLY APPOINTS CML AT THE ADDRESS
SPECIFIED IN ss.21 OF THE CREDIT AGREEMENT AS ITS AGENT FOR SERVICE OF PROCESS
IN ANY SUCH SUIT.
This Note may not be assigned to any Person or party except as permitted
under ss.20 of the Credit Agreement.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, each of the undersigned has caused this NordicTrack
Note to be signed in its corporate name and its corporate seal to be impressed
thereon by its duly authorized officer as of the day and year first above
written.
NORDICTRACK, INC.
[Corporate Seal]
By: ______________________________
Title:
NORDIC ADVANTAGE, INC.
[Corporate Seal]
By: ______________________________
Title:
<PAGE> 3
___________________________________________________________________________
| Amount of Amount of Balance of |
| NordicTrack Principal Paid Principal Notation |
| Date Loan or Prepaid Unpaid Made By: |
|___________________________________________________________________________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
<PAGE> 1
S&H NOTE
$3,000,000 July 27, 1998
FOR VALUE RECEIVED, the undersigned SMITH & HAWKEN, LTD., a Delaware
corporation (the "COMPANY"), hereby promises to pay to the order of BANKBOSTON,
N.A., a national banking association (the "LENDER") at the Administrative
Agent's Head Office (as defined in the Credit Agreement, as hereinafter
defined):
(a) prior to or on the Maturity Date the principal amount of THREE
MILLION DOLLARS ($3,000,000) or, if less, the aggregate unpaid principal
amount of the S&H Loans advanced by the Lender to the Company pursuant to
the Revolving Credit Agreement dated as of April 17, 1996, and restated as
of July 27, 1998 (as amended, supplemented, modified or restated and in
effect from time to time, the "CREDIT AGREEMENT"), among (a) CML Group,
Inc., (b) the Company and certain other Borrowers party thereto, (c) the
Lender and the other lending institutions as may become parties to the
Credit Agreement from time to time, and (d) BankBoston, N.A. (f/k/a The
First National Bank of Boston), as administrative, collateral, and
documentation agent for the Lenders;
(b) the principal outstanding hereunder from time to time at the times
provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time
outstanding until such principal amount is paid in full, at the times and
at the rates provided in the Credit Agreement.
This Note (this "NOTE") evidences borrowings under and has been issued by
the Company in accordance with the terms of the Credit Agreement. The Lender and
any holder hereof is entitled to the benefits of the Credit Agreement, the
Security Documents and the other Loan Documents, and may enforce the agreements
of the Company contained therein, and any holder hereof may exercise the
respective remedies provided for thereby or otherwise available in respect
thereof, all in accordance with the respective terms thereof. All capitalized
terms used in this Note and not otherwise defined herein that
<PAGE> 2
are defined in the Credit Agreement shall have the same meanings herein as in
the Credit Agreement.
The Company irrevocably authorizes the Lender to make or cause to be made,
at or about the time of the Drawdown Date of any S&H Loan or at the time of
receipt of any payment of principal of this Note, an appropriate notation on the
grid attached to this Note, or the continuation of such grid, or any other
similar record, including computer records, reflecting the making of such S&H
Loan or (as the case may be) the receipt of such payment. The outstanding amount
of the S&H Loans set forth on the grid attached to this Note, or the
continuation of such grid, or any other similar record, including computer
records, maintained by the Lender with respect to any S&H Loans shall be PRIMA
FACIE evidence of the principal amount thereof owing and unpaid to the Lender,
but the failure to record, or any error in so recording, any such amount on any
such grid, continuation or other record shall not limit or otherwise affect the
obligation of the Company hereunder or under the Credit Agreement to make
payments of principal of and interest on this Note when due.
The Company has the right in certain circumstances and the obligation under
certain other circumstances to prepay the whole or part of the principal of this
Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Lender or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Lender or such holder, nor shall any delay, omission or
waiver on any one occasion be deemed a bar or waiver of the same or any other
right on any further occasion.
The Company and every endorser and guarantor of this Note or the obligation
represented hereby waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note, and assents to any extension or
postponement of the
<PAGE> 3
time of payment or any other indulgence, to any substitution, exchange or
release of collateral and to the addition or release of any other party or
person primarily or secondarily liable.
<PAGE> 4
THIS NOTE AND THE OBLIGATIONS OF THE COMPANY HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE COMPANY AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURT AND THE COMPANY HEREBY EXPRESSLY APPOINTS CML AT THE ADDRESS
SPECIFIED IN ss.21 OF THE CREDIT AGREEMENT AS ITS AGENT FOR SERVICE OF PROCESS
IN ANY SUCH SUIT.
This Note may not be assigned to any Person or party except as permitted
under ss.20 of the Credit Agreement.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has caused this S&H Note to be signed
in its corporate name and its corporate seal to be impressed thereon by its duly
authorized officer as of the day and year first above written.
SMITH & HAWKEN, LTD.
[Corporate Seal]
By: ________________________________
Title:
<PAGE> 5
___________________________________________________________________________
| Amount of Amount of Balance of |
| S&H Principal Paid Principal Notation |
| Date Loan or Prepaid Unpaid Made By: |
|___________________________________________________________________________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
| | | | | |
|______________|_____________|__________________|______________|____________|
<PAGE> 1
EXHIBIT 10(u)
================================================================================
CML GROUP, INC.
---------------------
STOCK PURCHASE AGREEMENT
---------------------
11,814,718 SHARES OF COMMON STOCK,
PAR VALUE $.10 PER SHARE
OF
CML GROUP, INC.
Dated as of July 27, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. AGREEMENT TO SELL AND PURCHASE THE COMMON STOCK ........................... 1
-----------------------------------------------
2. CLOSING OF SALE OF SHARES ................................................. 1
-------------------------
3. CONDITIONS TO CLOSING ..................................................... 2
---------------------
3.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER ON THE
------------------------------------------------------------
CLOSING DATE ..................................................... 2
------------
(a) REPRESENTATIONS AND WARRANTIES ................................ 2
------------------------------
(b) PERFORMANCE ................................................... 2
-----------
(c) COMPLIANCE CERTIFICATE ........................................ 2
----------------------
(d) OPINION OF COUNSEL ............................................ 2
------------------
(e) LEGAL INVESTMENT .............................................. 2
----------------
(f) COMPLIANCE WITH SECURITIES LAWS ............................... 2
-------------------------------
(g) PROCEEDINGS AND DOCUMENTS ..................................... 2
-------------------------
(h) SALE OF OTHER SHARES .......................................... 3
--------------------
(i) REGISTRATION RIGHTS AGREEMENT ................................. 3
-----------------------------
(j) RELATED MATTERS ............................................... 3
---------------
(k) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION ............... 3
-----------------------------------------------
(l) GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. .......... 3
---------------------------------------------------
(m) SECRETARY'S CERTIFICATE ....................................... 3
-----------------------
(n) PAYMENT OF EXPENSES ........................................... 4
-------------------
(o) CREDIT AGREEMENT .............................................. 4
----------------
(p) AMENDMENT TO STOCK PURCHASE WARRANT ........................... 4
-----------------------------------
(q) CANCELLATION OF ROTHSCHILD WARRANTS ........................... 4
-----------------------------------
(r) NOTE PURCHASE AGREEMENT ....................................... 4
-----------------------
3.2.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY ON THE
----------------------------------------------------------
CLOSING DATE ...................................................... 5
------------
(a) REPRESENTATIONS AND WARRANTIES ................................ 5
------------------------------
(b) PERFORMANCE ................................................... 5
-----------
(c) COMPLIANCE WITH SECURITIES LAWS ............................... 5
-------------------------------
(d) SALE OF OTHER SHARES .......................................... 5
--------------------
(e) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION ............... 5
-----------------------------------------------
4. REPRESENTATIONS AND WARRANTIES, ETC. ...................................... 6
------------------------------------
4.1. ORGANIZATIONS AND QUALIFICATION: AUTHORITY ........................... 6
------------------------------------------
4.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION: NO CONTRAVENTION ........... 6
----------------------------------------------------------
4.3. VALIDITY AND BINDING EFFECT .......................................... 6
---------------------------
4.4. CAPITALIZATION ....................................................... 7
--------------
4.5. OUTSTANDING DEBT ..................................................... 7
----------------
4.6. NO MATERIAL ADVERSE CHANGE ........................................... 7
--------------------------
4.7. PRIVATE OFFERINGS .................................................... 8
-----------------
4.8. BROKER'S OR FINDER'S COMMISSIONS ..................................... 8
--------------------------------
4.9. DISCLOSURE ........................................................... 8
----------
(i)
<PAGE> 3
SECTION PAGE
- ------- ----
4.10. FOREIGN ASSETS CONTROL REGULATION, ETC. ........................... 9
--------------------------------------
4.11. INVESTMENTS COMPANY ACT ........................................... 9
-----------------------
4.12. PUBLIC UTILITY HOLDING COMPANY ACT ................................ 9
----------------------------------
4.13. INTERSTATE COMMERCE ACT ........................................... 9
-----------------------
4.14. CREDIT AGREEMENT .................................................. 9
----------------
5. PURCHASE FOR INVESTMENT: SOURCE OF FUNDS ................................ 10
-----------------------------------------
6. RESTRICTIONS ON TRANSFER ..................................................10
------------------------
6.1. RESTRICTIVE LEGENDS ............................................... 10
-------------------
6.2. NOTICE OF TRANSFER: OPINIONS OF COUNSEL .......................... 11
----------------------------------------
7. ANTI-DILUTION PROTECTION ................................................. 12
------------------------
7.1. PURCHASE RIGHTS ................................................... 12
---------------
7.2. RESERVATION OF STOCK .............................................. 13
--------------------
8. DEFINITIONS .............................................................. 13
-----------
9. MISCELLANEOUS ............................................................ 16
-------------
9.1. INDEMNIFICATION: EXPENSES, ETC. ................................... 16
------------------------------
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; SEVERABILITY .......... 17
--------------------------------------------------------
9.3. AMENDMENT AND WAIVER .............................................. 18
--------------------
9.4. NOTICES, ETC. ..................................................... 18
------------
9.5. SUCCESSORS AND ASSIGNS ............................................ 18
----------------------
9.6. DESCRIPTIVE HEADINGS .............................................. 18
--------------------
9.7. SATISFACTION REQUIREMENT .......................................... 19
------------------------
9.8. GOVERNING LAW ..................................................... 19
-------------
9.9. SERVICE OF PROCESS: WAIVER OF OFFSETS ............................. 19
-------------------------------------
9.10. COUNTERPARTS ...................................................... 19
------------
9.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS ..................... 19
---------------------------------------------
9.12. WAIVER OF JURY TRIAL .............................................. 20
--------------------
(ii)
<PAGE> 4
SCHEDULES
---------
SCHEDULE 4.1 -- Qualified Jurisdictions
SCHEDULE 4.2 -- Authorization
SCHEDULE 4.4(a) -- Agreements Affecting Securities
SCHEDULE 4.4(b) -- Capitalization
SCHEDULE 4.5 -- Debt and Other Liabilities
SCHEDULE 4.6 -- Material Developments
EXHIBITS
--------
EXHIBIT A -- Form of Opinion of Hale & Dorr LLP
(iii)
<PAGE> 5
CML GROUP, INC.
524 Main Street
Acton, Massachusetts 01720
STOCK PURCHASE AGREEMENT dated as of July 27, 1998 between CML Group, Inc.,
a Delaware corporation (the "Company"), and the purchaser listed on the
signature page hereto (the "Purchaser"). Unless otherwise defined, capitalized
terms used in this Agreement are defined in Section 8; references to a
"Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an
Exhibit attached to this Agreement; references to a "section" or a "subdivision"
are, unless otherwise specified, to a section or a subdivision of this
Agreement.
The Company in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, agrees with the Purchaser as
follows:
1. AGREEMENT TO SELL AND PURCHASE THE COMMON STOCK. At the Closing provided
for in Section 2, the Company will issue and sell to the Purchaser and, subject
to the terms and conditions of this Agreement, the Purchaser will purchase from
the Company (i) the number of shares of the Company's Common Stock, par value
$.10 per share ("Common Stock"), specified opposite the Purchaser's name on the
signature page hereto at the purchase price per share of $.10 payable in chase
by wire transfer of immediately available funds. The term "Shares" refers to the
shares of Common Stock to be purchased by the Purchaser under this Agreement.
Contemporaneously with entering into this Agreement, the Company is entering
into separate stock purchase agreements (the "Other Stock Purchase Agreements")
identical with this Agreement with certain purchasers other than the Purchaser
(the "Other Purchasers" and, together with the Purchaser, the "Purchasers"),
providing for the sale to each of the Other Purchasers, at such Closing and at
the purchase price set forth above, of the number of shares of Common Stock
specified opposite such Other Purchaser's name on the signature pages to the
Other Stock Purchase Agreements.
2. CLOSING OF SALE OF SHARES. The purchase and delivery of the Shares to be
purchased by the Purchasers shall take place at the offices of Goodwin, Procter
& Hoar LLP, Exchange Place, Boston, Massachusetts, at a closing (the "Closing")
on July 27, 1998 or at such other place or on such other date as the Purchasers
and the Company may agree upon (such date on which the Closing shall have
actually occurred, the "Closing Date"). At the Closing, the Company will deliver
or cause to be delivered to the Purchaser duly recorded on the books of the
Company in the name the Purchaser or its nominee or designee in such
denominations as the Purchaser may request in such form as to give the Purchaser
title without adverse claims the Shares to be purchased by it against payment of
the purchase price therefor. If at the Closing the Company shall fail to tender
to the Purchaser any of the Shares to be purchased by it as provided in this
Section 2, or any of the conditions specified in Section 3 shall not have been
satisfied or waived by the Purchaser, the Purchaser shall, at its election, be
relieved of all further obligations under this Agreement, without thereby
waiving any other rights it may have by reason of such failure or such
non-fulfillment.
<PAGE> 6
3. CONDITIONS TO CLOSING.
3.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER ON THE CLOSING
DATE. The Purchaser's obligation to purchase and pay for the Shares to be sold
to it at the Closing is subject to the fulfillment prior to or at the Closing of
the following conditions, any or all of which may be waived at the option of the
Purchaser:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 4 hereof shall be correct in all
material respects when made and at the time of the Closing, after giving effect
to the sale of the Shares and the other transactions contemplated to be
consummated at the Closing by this Agreement, except that any representations
and warranties that relate to a particular date or period shall be true in all
material respects as of such date or period.
(b) PERFORMANCE. The company shall have performed and complied in
all material respects with all agreements and conditions contained in this
Agreement required to be performed or complied with prior to or at the Closing.
(c) COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchaser an Officers' Certificate, dated the date of the Closing, certifying
that the conditions specified in Sections 3.1(a) and (b) have been fulfilled.
(d) OPINION OF COUNSEL. The Purchaser shall have received from Hale
& Dorr LLP, counsel for the Company, their favorable opinion substantially in
the form set forth in EXHIBIT A, addressed to the Purchaser, dated the Closing
Date and otherwise satisfactory in substance and form to the Purchaser.
(e) LEGAL INVESTMENT. On the Closing Date, the Purchaser's purchase
of the Shares shall be permitted by the laws and regulations of the jurisdiction
to which the Purchaser is subject (including, without limitation, Section 5 of
the Securities Act), and credit controls (whether voluntary or mandatory) or
similar restraints applicable to the Purchaser shall not subject the Purchaser
to any tax, penalty, liability or other onerous condition under or pursuant to
any applicable law or governmental regulation, and shall not be enjoined
(temporarily or permanently) under, prohibited by or contrary to any injunction,
order or decree applicable to the Purchaser.
(f) COMPLIANCE WITH SECURITIES LAWS. The offering, issuance and sale
of the Shares under this Agreement shall have complied with all applicable
requirements of federal securities laws and the Purchaser shall have received
evidence, if any, of such compliance in form and substance satisfactory to the
Purchaser.
(g) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
contemplated by this Agreement shall be satisfactory to the Purchaser and the
Purchasers' Counsel, and the Purchaser and the Purchasers' Counsel shall have
received all such counterpart originals or certified or other copies of such
documents as the Purchaser or the Purchasers' counsel may reasonably request.
2
<PAGE> 7
(h) SALE OF OTHER SHARES. Concurrently with the Closing, the Company
shall have issued and sold to each of the Other Purchasers, and each such Other
Purchaser shall have purchased from the Company, the Shares to be issued and
sold to each such Other Purchaser at the Closing as specified in the applicable
signature page of each of the Other Stock Purchase Agreements.
(i) REGISTRATION RIGHTS AGREEMENT. Simultaneously with or prior to
the issuance and sale to the Purchasers of the Shares to be purchased by the
Purchasers at the Closing, the company and the Purchasers shall have duly
entered into a registration rights agreement satisfactory in substance and form
to the Purchasers (the "Registration Rights Agreement"), the Purchasers shall
have received fully-executed counterparts of the Registration Rights Agreement
in such numbers reasonably requested by them, such agreement shall be in full
force and effect and no term or condition thereof shall have been amended,
modified or waived.
(j) RELATED MATTERS. As of the Closing, the Company's and its
Subsidiaries' By-laws and Certificates of Incorporation or documents equivalent
thereto shall not have been modified or amended since the date such documents
were delivered to the Purchaser by the Company.
(k) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. No legislation,
order, rule, ruling or regulation shall have been enacted or made by or on
behalf of any governmental body, department or agency of the United States, nor
shall any legislation have been introduced and favorably reported for passage to
either house of Congress by any committee of either such house to which such
legislation has been referred for consideration, nor shall any decision of any
court of competent jurisdiction within the United States have been rendered
which, in the Purchaser's reasonable judgment, could materially and adversely
affect any of the Shares or any part thereof as an investment. There shall be no
action, suit, investigation or proceeding pending or threatened, against or
affecting the Purchaser, any of its properties or rights, or any of its
Affiliates, associates, officers or director, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin, prevent
the consummation of or otherwise affect the transactions contemplated by this
Agreement, or (ii) questions the validity or legality of any such transactions
or seeks to recover damages or to obtain other relief in connection with any
such transactions, and, to the Purchaser's knowledge, there shall be no valid
basis for any such action, proceeding or investigation.
(l) GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. The Company
and its Subsidiaries shall have duly applied for and obtained all approvals,
orders, licenses, consents and other authorizations (collectively, the
"Approvals") from each federal, state and local government and governmental
agency, department or body, or pursuant to any agreement to which the Company or
any of its Subsidiaries is a party or to which any of them or any of their
assets is subject, which may be required in connection with this Agreement.
(m) SECRETARY'S CERTIFICATE. The Purchaser shall have received a
certificate, dated the Closing Date, of the Secretary or Assistant Secretary of
the Company, (i) certifying as true, complete and correct its Charter Documents
(as appropriate) and
3
<PAGE> 8
resolutions relating to the transactions contemplated hereby attached thereto,
(ii) as to the absence of proceedings or other action for dissolution,
liquidation or reorganization of the Company, (iii) as to the incumbency and
specimen signatures of officers who shall have executed instruments, agreements
and other documents in connection with the transactions contemplated hereby,
(iv) as to the effect that certain agreements, instruments and other documents
are in the form approved in the resolutions referred to in clause (i) above, and
(v) covering such other matters, and with such other attachments thereto, as
Purchasers' Counsel may reasonably request at least one Business Day before the
Closing Date, which certificates and attachments thereto shall be satisfactory
in form and substance to such Purchaser.
(n) PAYMENT OF EXPENSES. The Company shall have paid the fees,
expenses and disbursements of the Purchasers' Counsel, including, without
limitation, reasonable legal fees and expenses, reflected in statements of such
counsel rendered prior to or on the Closing Date.
(o) CREDIT AGREEMENT. Simultaneously with or prior to the issuance
and sale to the Purchasers of the Shares to be purchased by the Purchasers at
the Closing, the Company shall have entered into an Amended and Restated
Revolving Credit Agreement of even date herewith by and among the Company,
certain Subsidiaries, the Purchasers, and BankBoston N.A. (the "Credit
Agreement"), satisfactory in substance and form to the Purchasers, and the other
agreements required under the Credit Agreement.
(p) AMENDMENT TO STOCK PURCHASE WARRANT. Simultaneously with or
prior to the issuance and sale to the Purchasers of the Shares to be purchased
by the Purchasers at the Closing, the Company shall have amended that certain
Common Stock Purchase Warrant No. 3 by the Company in favor of FSC Corp. dated
March 11, 1998 such that the total number of warrants to purchase Company Common
Stock outstanding under such Warrant is no more that 571,680 and such that the
Warrant is otherwise satisfactory in substance and form to the Purchasers (the
"Warrant Amendment"), the Purchasers shall have received fully-executed
counterparts of such amendment in such numbers reasonably requested by them,
such amendment shall be in full force and effect and no term or condition
thereof shall have been amended, modified or waived.
(q) CANCELLATION OF ROTHSCHILD WARRANTS. Simultaneously with or
prior to the issuance and sale to the Purchasers of the Shares to be purchased
by the Purchasers at the Closing, the Company shall have canceled that certain
Common Stock Purchase Warrant No. 1 by the Company in favor of Rothschild
Recovery Fund, L.P. dated March 11, 1998 (the "Rothschild Warrant"), the
Purchasers shall have received fully-executed counterparts of such cancellation
in such numbers reasonably requested by them, such cancellation shall be in full
force and effect and no term or condition thereof shall have been amended,
modified or waived.
(r) NOTE PURCHASE AGREEMENT. Simultaneously with or prior to the
issuance and sale to the Purchasers of the Shares to be purchased by the
Purchasers at the Closing, the Company shall have entered into a Note Purchase
Agreement of even date
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herewith by and between the Company and the State of Wisconsin Investment Board
(the "Note Purchase Agreement"), satisfactory in substance and form to the
Purchasers, and the other agreements required under the Note Purchase Agreement.
3.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY ON THE CLOSING
DATE. The Company's obligation to issue the Shares at the Closing is subject to
the fulfillment prior to or at the Closing of the following conditions, any or
all of which may be waived at the option of the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser in Section 5 hereof shall be correct in all material
respects when made and at the time of the Closing, after giving effect to the
sale of the Shares and the other transactions contemplated to be consummated at
the Closing by this Agreement, except that any representations and warranties
that relate to a particular date or period shall be true in all material
respects as of such date or period.
(b) PERFORMANCE. The Purchaser shall have performed and complied in
all material respects with all agreements and conditions contained in this
Agreement required to be performed or complied with prior to or at the Closing.
(c) COMPLIANCE WITH SECURITIES LAWS. The offering, issuance and sale
of the Shares under this Agreement shall have complied with all applicable
requirements of federal securities laws.
(d) SALE OF OTHER SHARES. Concurrently with the Closing, the Company
shall have issued and sold to each of the Other Purchasers, and each such Other
Purchaser shall have purchased from the Company, the Shares to be issued and
sold to each such Other Purchaser at the Closing as specified in the applicable
signature page of each of the Other Stock Purchase Agreements.
(e) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. No legislation,
order, rule, ruling or regulation shall have been enacted or made by or on
behalf of any governmental body, department or agency of the United States, nor
shall any legislation have been introduced and favorably reported for passage to
either house of Congress by any committee of either such house to which such
legislation has been referred for consideration, nor shall any decision of any
court of competent jurisdiction within the United States have been rendered
which, in the Company's reasonable judgment, could materially and adversely
affect any of the Shares or any part thereof as an investment. There shall be no
action ,suit, investigation or proceeding pending or threatened, against or
affecting the Company, any of its properties or rights, or any of its
Affiliates, associates, officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin, prevent
the consummation of or otherwise affect the transactions contemplated by this
Agreement, or (ii) questions the validity or legality of any such transactions
or seeks to recover damages or to obtain other relief in connection with any
such transactions, and, to the Company's knowledge, there shall be no valid
basis for any such action, proceeding or investigation.
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4. REPRESENTATIONS AND WARRANTIES, ETC. In order to induce the Purchaser to
purchase the Shares, the Company represents and warrants that:
4.1 ORGANIZATION AND QUALIFICATION: AUTHORITY. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own and lease its properties and carry on its business as presently
conducted, is duly qualified, registered or licensed as a foreign corporation to
do business and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the character of its present operations makes
such qualification, registration or licensing necessary, except where the
failure so to qualify or be in good standing would not have a material adverse
effect on the condition (financial or otherwise), assets, business or results of
operations of (a "Material Adverse Effect" on) the company and its Subsidiaries
on a consolidated basis. The Company has heretofore delivered to Purchasers'
Counsel complete and correct copies of the certificate of incorporation or
articles of organization or equivalent organizational document and of the
by-laws or equivalent document of the Company, each as amended to date and as
presently in effect (collectively, "Charter Documents"). A list of all
jurisdictions in which the Company is qualified, registered or licensed to do
business as a foreign corporation is attached hereto as Schedule 4.1.
4.2 CORPORATE AND GOVERNMENTAL AUTHORIZATION: NO CONTRAVENTION. Except
as set forth on Schedule 4.2, the execution, delivery and performance by the
Company and its Subsidiaries of the Transaction Documents to which they are a
party and all other instruments or agreements to be executed in connection
herewith or therewith, and the issuance and sale to the Purchasers of the Shares
pursuant to this Agreement and the Other Stock Purchase Agreements, are within
the Company's and Subsidiaries' respective corporate powers, having been duly
authorized by all necessary corporate action on the part of the Company and each
such Subsidiary; do not require any License, authorization, approval,
qualification or formal exemption from, or other action by or in respect of, or
filing of a declaration or registration with the New York Stock Exchange, any
court, Governmental Authority, agency or official or other Person (except such
as have been obtained or as may be required under the Securities Act or state
securities or Blue Sky laws); do not contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation of any
Governmental Authority, (ii) the Charter Documents of the Company or any of its
Subsidiaries, (iii) any agreement (or require the consent of any Person under
any agreement that has not been obtained) to which the Company or any of its
Subsidiaries is a party, or (iv) any judgment, injunction, order, decree or
other instrument binding upon the Company, any of its Subsidiaries or any of
their respective properties, except where such contravention, default or
violation would not have a Material Adverse Effect on the Company and its
Subsidiaries on a consolidated basis or on the Subsidiaries, individually; and
do not and will not result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries.
4.3 VALIDITY AND BINDING EFFECT. Each of the Transaction Documents has
been duly executed and delivered by the Company and Subsidiaries which are a
party thereto and is a valid and binding agreement of the Company and its
Subsidiaries, as applicable, enforceable against the Company and such
Subsidiaries, as applicable, in accordance with its
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terms, except for (a) the effect upon the Transaction Documents of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting the rights of creditors generally, and (b) limitations imposed by a
court of competent jurisdiction under general equitable principles upon the
specific enforceability of any of the remedies, covenants or other provisions of
the Transaction Documents and upon the availability of injunctive relief or
other equitable remedies.
4.4 CAPITALIZATION. As of the Closing Date, except as set forth on
Schedule 4.4(a) hereto, there are no outstanding subscriptions, options,
warrants, rights, convertible or exchangeable securities, "poison pill" or
similar charter provisions or rights or other agreements or commitments of any
character obligating the Company or its Subsidiaries to issue any securities. As
of the Closing Date, except as set forth on Schedule 4.4(a), there are no voting
trusts or other agreements or understandings to which the Company or its
Subsidiaries is a party with respect to the voting of the Capital Stock of the
Company or the Subsidiaries. Except as set forth on Schedule 4.4(a) or as
contemplated by the Registration Rights Agreement, neither the Company nor any
of its Subsidiaries has entered into any agreement to register its equity or
debt securities under the Securities Act. Schedule 4.4(b) lists and describes
the authorized capital stock of the Company on and as of the Closing Date, and
all securities exercisable for or convertible into capital stock of the Company
after giving effect to this Agreement, the Other Stock Purchase Agreements, the
Warrant Amendment, the issuance of the Secured Redeemable Subordinated Note
under the Note Purchase Agreement to the State of Wisconsin Investment Board,
and the Cancellation of the Rothschild Warrant.
4.5 OUTSTANDING DEBT. Except as set forth in the Financial Statements or
on Schedule 4.5 hereto, at and as of the Closing Date, neither the Company nor
any of its Subsidiaries will have outstanding any debt for borrowed money, or
obligations or liabilities evidenced by bonds, debentures, notes or other
similar instruments or under capital leases other than short-term debt incurred
in the ordinary course of business. Schedule 4.5 contains a complete and
accurate list of all material guarantees, assumptions, purchase agreements and
similar agreements and arrangements whereby the Company or any of its
Subsidiaries is or may become directly or indirectly liable or responsible for
the indebtedness or other obligations of another Person other than the Company
or any of its Subsidiaries, except for negotiable instruments endorsed for
collection or deposit in the ordinary course of its business, identifying, with
respect to each of the respective parties, amounts and maturities.
4.6 NO MATERIAL ADVERSE CHANGE. Except as set forth on Schedule 4.6 or
reports filed with the Commission since May 2, 1998, copies of which have been
provided to the Purchasers, since May 2, 1998, there has been (i) no material
adverse change in the condition (financial or other), assets, business, or
results of operations of the Company or any of its Subsidiaries (except that the
Company and its subsidiaries have incurred losses from operations), (ii) no
obligation or liability (contingent or other) incurred by the Company or any of
its Subsidiaries, other than obligations and liabilities incurred in the
ordinary course of business, and no mortgage, encumbrance or Lien placed on any
of the properties of the Company or any of its Subsidiaries which remains in
existence on the date hereof, and (iii) no acquisition or disposition of any
material assets by the Company or any of its Subsidiaries (or
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<PAGE> 12
any contract or arrangement therefor), or any other material transaction,
otherwise than for fair value in the ordinary course of business.
4.7 PRIVATE OFFERINGS. No form of general solicitation or general
advertising including, but not limited to, advertisements, articles, notices or
other communications, published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising, was used
by the Company or any of its Subsidiaries or any of the Company's or such
Subsidiary's representatives, or, to the knowledge of the Company, any other
Person acting on behalf of the Company or any of its Subsidiaries, in connection
with the offering of the Shares being purchased under this Agreement or under
any other Transaction Document. Neither the Company, any of its Subsidiaries nor
any Person acting on the Company's or such Subsidiary's behalf has directly or
indirectly offered the Shares, or any part thereof or any other similar
securities or the securities being purchased under any other Transaction
Document, for sale to, or sold or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof with any Person
or Persons other than the Purchasers and other investors who the Company
reasonably believed has such knowledge and experience in financial and business
matters that they were capable of evaluating the merits and risks of purchasing
the Shares. The Company further represents to the Purchaser that, assuming the
accuracy of the representations of the Purchaser as set forth in Section 5
hereof, neither the Company, any of its Subsidiaries nor any Person acting on
the Company's or such Subsidiary's behalf has taken or will take any action
which would subject the issue and sale of the Shares or the securities being
purchased under any other Transaction Document to the provisions of Section 5 of
the Securities Act, except as contemplated by the Registration Rights Agreement.
4.8 BROKER'S OR FINDER'S COMMISSIONS. In addition to and not in
limitation of any other rights hereunder, the Company and the Subsidiaries agree
that they will indemnify and hold harmless the Purchaser from and against any
and all claims, demands or liabilities for broker's, finder's, placement agent's
or other similar fees or commissions and any and all liabilities with respect to
any taxes (including interest and penalties) payable or incurred or alleged to
have been incurred by the Company or any of its Subsidiaries or any Person
acting or alleged to have been acting on the Company's or such Subsidiary's
behalf, in connection with this Agreement, the issuance or sale of the Shares,
or any other transaction contemplated by any of the Transaction Documents.
4.9 DISCLOSURE.
(a) As of the Closing Date, each report the Company has filed with
the Commission with respect to events occurring, or periods ending, on or after
May 2, 1998 (the "SEC Filings") complies in all material respects with the
requirements of the 1934 Act and as of the date thereof, did not contain an
untrue statement of material fact required to be stated therein or necessary to
make statements therein not misleading.
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(b) The SEC Filings, taken as a whole, do not as of the date of this
Agreement contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make statements
therein no misleading.
(c) There is no material fact known to the Company which the Company
has not disclosed in the SEC Filings which has or, insofar as the Company can
reasonably foresee, may have or will have a Material Adverse Effect on the
Company and its Subsidiaries on a consolidated basis or on the Subsidiaries,
individually, or a Material Adverse Effect on the ability of the Company or any
of its Subsidiaries to perform its obligations under any of the Transaction
Documents to which it is a party or in respect of the Shares or any document
contemplated hereby or thereby.
4.10 FOREIGN ASSETS CONTROL REGULATION, ETC. Neither the issue and sale
of the Shares by the Company nor its use of the proceeds thereof as contemplated
by this Agreement will violate the Foreign Assets Control Regulations, the
Transaction Control Regulations, the Cuban Assets Control Regulations, the
Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the
Nicaraguan Trade Control Regulations, the South African Transactions Control
Regulations, the Libyan Sanctions Regulations, the Soviet Gold Coin Regulations,
the Panamanian Transactions Regulations, the Haitian Transactions Regulations,
or the Iraqi Sanctions Regulations of the United States Treasury Department (31
C.F.R., Subtitle B, Chapter V, as amended) or Executive Orders 12722 and 12724
(transactions with Iraq).
4.11 INVESTMENT COMPANY ACT. The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the "1940
Act"), and is not deemed to be an "investment company" for purposes of Section
12(d)(1) of the 1940 Act.
4.12 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.
4.13 INTERSTATE COMMERCE ACT. Neither the Company nor any of its
Subsidiaries is, nor will be, a "rail carrier," or a Person controlled by or
affiliated with a "rail carrier," within the meaning of Title 49, U.S.C. Neither
the Company nor any of its Subsidiaries is a "carrier" or other Person to which
49 U.S.C. Section 11301(b)(1) is applicable.
4.14 CREDIT AGREEMENT. The representations and warranties of the
Company contained in the Credit Agreement, as modified by the Schedules thereto,
are true and correct in all material respects as of the date hereof as if such
representations and warranties were made herein and the Schedules incorporated
herein by reference.
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5. PURCHASE FOR INVESTMENT: SOURCE OF FUNDS. To induce the Company to enter
into this Agreement and to issue the Shares, the Purchaser represents and
warrants to, and covenants and agrees with, the Company, as follows:
(a) Each Purchaser represents that (i) it is an accredited investor as
defined in Regulation D under the Securities Act, or (ii) by reason of its
business and financial experience, such Purchaser has such knowledge,
sophistication and experience in business and financial matters as to be
capable of evaluating the merits and risk of the prospective investment,
and is acquiring the Shares for its own account (and/or on behalf of
managed accounts that are purchasing for its own account) and with no
present intention of distributing or reselling the same or any part thereof
other than pursuant to a registration statement under the Securities Act or
an exemption thereunder, without prejudice, however, to its right (subject
to the terms of the Transaction Documents) at all times to sell or
otherwise dispose of all or any part of the Securities pursuant to a
registration under the Securities Act, or under an exemption from such
registration available under the Securities Act, and subject, nevertheless,
to the disposition of its assets being at all times within its control.
(b) The Purchaser has full power and authority and has taken all
action necessary to authorize it to enter into and perform its obligations
under this Agreement, the Registration Rights Agreement and all other
documents or instruments contemplated hereby to which it is a party. This
Agreement and the Registration Rights Agreement are legal, valid and
binding obligations of the Purchaser, and each such agreement is
enforceable in accordance with its respective terms, except: (i) that such
enforceability may be subject to bankruptcy, insolvency, reorganization,
moratorium, or other similar laws now or hereafter in effect relating to
creditors' rights generally; (ii) that such enforceability may be subject
to general equitable principles, including, without limitation, the
principle that the availability or equitable remedies, such as specific
enforcement, injunctive relief or reformation, is subject to the discretion
of the court before which any proceeding might be brought; and (iii) as
rights to indemnity referred to or provided in any such agreements may be
limited by federal or state securities laws or public policy underlying
such laws.
(c) The Purchaser acknowledges that the Shares being acquired by it
are subject to the restrictions on transfer as provided in Section 6
hereof.
6. RESTRICTIONS ON TRANSFER.
6.1. RESTRICTIVE LEGENDS. Except as otherwise permitted by this
Section 6, each certificate representing the Shares shall be stamped or
otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT
TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE.
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SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 UNDER SUCH ACT, OR (iii) ANY
OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT,
PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL
REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO THE
COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT IS AVAILABLE.
The Company shall maintain a copy of this Agreement and any amendments
thereto on file in its principal office, and will make such copy available
during normal business hours for inspection to any party thereto or will provide
such copy to the Purchaser upon its request.
Whenever the legend requirement imposed by this section 6.1 shall
terminate, as hereinabove provided, the respective holders of Shares for which
such legend requirements have terminated shall be entitled to receive from the
Company, at the Company's expense, certificates without such legend.
6.2. Notice of Transfer; Opinions of Counsel. The holder of each
certificate representing the Shares bearing the restrictive legend set forth in
Section 6.1 above ("Restricted Security"), agrees to provide to the Company (a)
upon request, a written description of the manner or circumstances of any
transfer of any Restricted Security and (b) upon reasonable request by the
Company, an opinion of counsel (including in-house counsel), in form and
substance reasonably satisfactory to the Company, to the effect that the
proposed transfer of such Restricted Security may be effected without
registration of such Restricted Security under the Securities Act. If for any
reason the Company (after having been furnished with the opinion required to be
furnished pursuant to this Section 6.2) shall fail to notify such holder within
five business days after such holder shall have delivered such opinion to the
Company that, in its or its counsel's opinion, the transfer may not be legally
effective (the "Illegal Transfer Notice"), such holders shall thereupon be
entitled to transfer the Restricted Security as proposed. If the holder of the
Restricted Security delivers to the Company an opinion of counsel (including
in-house counsel or regular counsel to such Purchaser or its investment adviser)
in form and substance reasonably satisfactory to the Company that subsequent
transfers of such Restricted Security will not require registration under the
Securities Act, or if the Company does not provide the holders with an Illegal
Transfer Notice as set forth above, the Company will promptly after such
contemplated transfer deliver now certificates for such Restricted Security
which do not bear the Securities Act legend set forth in Section 6.1 above. The
restrictions imposed by this Section 6 upon the transferability of any
particular Restricted Security shall cease and terminate when such Restricted
Security has been sold pursuant to an effective registration statement under the
Securities Act or transferred pursuant to Rule 144 promulgated under the
Securities Act. The holder of any Restricted
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Security as to which such restrictions shall have terminated shall be entitled
to receive from the Company a new security of the same type but not bearing the
restrictive Securities Act legend set forth in Section 6.1 and not containing
any other reference to the restrictions imposed by this Section 6.
Notwithstanding any of the foregoing, no opinion of counsel will be required to
be rendered pursuant to this Section 6.2 with respect to the transfer of any
Securities on which the restrictive legend has been removed in accordance with
this Section 6.2. As used in this Section 6.2, the term "transfer" encompasses
any sale, transfer or other disposition of any Securities referred to herein.
7. ANTI-DILUTION PROTECTION.
7.1. PURCHASE RIGHTS. On August 1, 1999, and each anniversary date
thereafter until payment in full by the Company of all amounts owed under the
Credit Agreement, the Purchaser shall have the right to purchase from the
Company, at the purchase price per share of $.10, the number of shares of Common
Stock (the "Amount") such that the ratio of (a) the number of Shares purchased
by the Purchaser pursuant to this Agreement to (b) the Beginning Outstanding
Shares (as defined below) is equal to the ration of (x) the number of Shares
purchased by the Purchaser pursuant to this Agreement plus the Amount to (y) the
total number of shares of Common Stock on a fully-diluted basis currently
outstanding as of such date. Notwithstanding the foregoing, if (and on each
occasion that) at any time prior to the later of (a) August 1, 1999 or (b)
payment in full by the Company of all amounts owed under the Credit Agreement,
there shall occur: (x) any issuance or sale of any shares of Common Stock
(including pursuant to any options, warrants or other rights exercisable for
shares of Common Stock) or any shares of other classes of capital stock of the
Company or other securities or rights then convertible into or exercisable for
shares of Common Stock for a purchase price of $10 million or greater, (y) there
shall be any adjustment to any conversion rate for any convertible securities
convertible into or exercisable for Common Stock, or (z) an NT Spin-Off (as
defined in the Credit Agreement), then the Purchaser shall have the right from
and after such occurrence to purchase from the Company, at the purchase price
per share of $.10, the number of shares of Common Stock (the "Amount") such that
the ratio of (a) the number of Shares purchased by the Purchaser pursuant to
this Agreement to (b) the Beginning Outstanding Shares is equal to the ratio of
(x) the number of Shares purchased by the Purchaser pursuant to this Agreement
plus the Amount to (y) the Increased Outstanding Shares (as defined below)
immediately after such event of transaction.
For purposes of this Section 7.1, "Beginning Outstanding Shares" shall mean
the total number of shares of Common Stock on a fully-diluted basis (excluding,
however, the number of shares of Common Stock into which the Subordinated
Debentures (as defined in the Credit Agreement) are convertible) immediately
following the issuance of Shares under this Purchase Agreement and the shares of
Common Stock under the Other Stock Purchase Agreements, the effectiveness of the
Warrant Amendment, the issuance of the Secured Redeemable Subordinated Note
under the Note Purchase Agreement, and the cancellation of the Rothschild
Warrant.
For purposes of this Section 7.1, "Increased Outstanding Shares" shall mean
the total number of shares of Common Stock of the Company on a fully-diluted
basis immediately
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following (a) any issuance or sale of any shares of Common Stock (including
pursuant to any options, warrants or other rights exercisable for shares of
Common Stock) or any shares of other classes of capital stock of the Company or
other securities or rights then convertible into or exercisable for shares of
Common Stock, or any adjustment to any conversion rate for any convertible
securities convertible into or exercisable for Common Stock; or (b) a NT
Spin-Off (as defined in the Credit Agreement), as the case may be.
For purposes of this Section 7.1, any amendment to the exercise or
conversion price or any other repricing of any of the Subordinated Debentures
(as defined in the Credit Agreement) shall constitute an issuance of securities,
exercisable for or convertible into Common Stock.
7.2. RESERVATION OF STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of
Purchaser's rights set forth in Section 7.1 hereof, such number of Shares, as
from time to time shall be issuable upon the exercise of such rights.
8. DEFINITIONS. As used herein the following terms have the following
respective meanings:
"AFFILIATE," except as otherwise defined in this Agreement, means any
Person directly or indirectly controlling or controlled by or under common
control with the Company, provided, however, that, for purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"AGREEMENT" means this Agreement, as amended, modified or supplemented
from time to time, together with any exhibits, schedules or other attachments
thereto.
"BUSINESS DAY" means any day other than a day on which banks are
authorized or required to be closed in the State of New York.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"CHARTER DOCUMENTS" has the meaning ascribed thereto in Section 4.1
hereof.
"CLOSING" has the meaning ascribed thereto in Section 2 hereof.
"CLOSING DATE" has the meaning ascribed thereto in Section 2 hereof.
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"COMMISSION" means the United States Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act.
"COMMON STOCK" means the common stock, par value $.10 per share, of the
Company.
"COMPANY" has the meaning ascribed thereto in the introduction hereof.
"CREDIT AGREEMENT" has the meaning ascribed thereto in Section 3.1(q)
hereto.
"FINANCIAL STATEMENTS" means complete the consolidated financial
statements for the fiscal year ended July 31, 1997 and the nine months ended May
2, 1998 and pro forma financial statements for the fiscal year ended July 31,
1997 and the nine months ended May 2, 1998 for the Company, together with the
notes thereto.
"GOVERNMENTAL AUTHORITY" means any governmental or quasi-governmental
authority including, without limitation, any federal, state, territorial,
county, municipal or other governmental or quasi-governmental agency, board,
branch, bureau, committee, court, department or other instrumentality or
political unit or subdivision, whether domestic or foreign.
"ILLEGAL TRANSFER NOTICE" has the meaning ascribed thereto in Section
6.2 hereof.
"INDEMNIFIED PARTY" or "INDEMNIFIED PARTIES" has the meaning ascribed
thereto in Section 9.1(a) hereof.
"LICENSE" or "LICENSES" means all material licenses, franchises,
permits, consents, registrations, certificates and other approvals
(individually, a "License" and collectively, "Licenses") required for the
conduct of the Company's or such Subsidiary's business, as the case may be, as
now being conducted.
"LIEN" means any mortgage, lien (statutory or otherwise), charge,
pledge, hypothecation, conditional sales agreement, adverse claim, title
retention agreement or other security interest, encumbrance or other title
defect in or on any interest or title of any vendor, lessor, lender or other
secured party to or of such Person under any conditional sale, trust receipt or
other title retention agreement with respect to any Property or asset of such
Person.
"LOSSES" has meaning ascribed thereto in Section 9.1(a) hereof.
"MATERIAL ADVERSE EFFECT" has the meaning ascribed thereto in Section
4.1. hereof.
"NOTE PURCHASE AGREEMENT" has the meaning ascribed thereto in Section
3.1(r) hereof.
14
<PAGE> 19
"OFFICERS' CERTIFICATE" means a certificate executed on behalf of the
Company by (a) the Chairman of the Board of Directors (if an officer) or the
President or one of the Vice Presidents of the Company and (b) the Treasurer or
one of the Assistant Treasurers or the Secretary or one of the Assistant
Secretaries of the Company.
"OTHER PURCHASERS" has the meaning ascribed thereto in Section 1 hereof.
"OTHER STOCK PURCHASE AGREEMENTS" has the meaning ascribed thereto in
Section 1 hereof.
"PERSON" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"PURCHASER" except as defined elsewhere in this Agreement, has the
meaning ascribed thereto in the introduction hereof.
"PURCHASERS" except as defined elsewhere in this Agreement, shall mean
the Purchaser and the Other Purchasers.
"PURCHASERS' COUNSEL" means Goodwin, Procter & Hoar LLP, a partnership
including professional corporations, acting as counsel to the Purchasers in
connection with the transactions contemplated hereunder.
"REGISTRATION RIGHTS AGREEMENT" has the meaning ascribed thereto in
Section 3.1(j), as amended or supplemented from time to time in accordance with
the terms thereof.
"RESTRICTED SECURITY" has the meaning ascribed thereto in Section 6.2
hereof.
"RULE 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"ROTHSCHILD WARRANT" has the meaning ascribed thereto in Section 3.1(q)
hereof.
"SECURITIES ACT" means the Securities Act of 1933, and the rules and
regulations of the Commission promulgated thereunder, as amended.
"SHARES" has the meaning ascribed thereto in Section 1 hereof.
"SUBSIDIARY" means with respect to any Person, any corporation,
association or other business entity of which securities representing more than
50% of the combined voting power of the total Voting Stock (or in the case of an
association or other business entity which is not a corporation, more than 50%
of the equity interest) is at the time owned or controlled,
15
<PAGE> 20
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof.
"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the Other
Stock Purchase Agreements, the Registration Rights Agreement and any and all
agreements, certificates, instruments and other documents contemplated thereby
or executed and delivered in connection therewith.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to vote for the election of directors, managers or trustees of any
Persons (irrespective of whether or not at the time, stock of any class or
classes will have, or might have, voting power by the reason of the happening of
any contingency).
"WARRANT AMENDMENT" has the meaning ascribed thereto in Section 3.1(p)
hereof.
9. MISCELLANEOUS.
9.1. INDEMNIFICATION; EXPENSES, ETC.
(a) In addition to any and all obligations of the Company to
indemnify the Purchaser hereunder or under the other Transaction Documents, the
Company agrees, without limitation as to time, to indemnify and hold harmless
the Purchaser, the Affiliates, and the employees, officers, directors, and
agents of the Purchaser and the Affiliates (individually, an "Indemnified Party"
and, collectively the "Indemnified Parties") from and against any and all
losses, claims, damages, liabilities, costs (including the cost of preparation
and attorneys' fees) and expenses (including expenses of investigation)
(collectively, "Losses") incurred or suffered by an Indemnified party (i) in
connection with or arising out of any breach of any warranty, or the inaccuracy
of any representation, as the case may be, made by the Company, or the failure
of the Company to fulfill any agreement or covenant contained in this Agreement
or (ii) in connection with any proceeding against the Company or any Indemnified
Party brought by an third party arising out of or in connection with this
Agreement or the other Transaction Documents or the transactions contemplated
hereby or thereby or any action taken in connection herewith or therewith (or
any other document or instrument executed herewith or pursuant hereto or
thereto), whether or not the transactions contemplated by this Agreement are
consummated and whether or not any Indemnified party is a formal party to an
Proceeding; PROVIDED, HOWEVER, that the Company shall not be liable for any
losses resulting from action on the part of any Indemnified party which is
finally determined in such proceeding to be wrongful or which is an act of gross
negligence, recklessness, or willful misconduct by such Indemnified Party. The
Company agrees promptly to reimburse any Indemnified party for all such Losses
as they are incurred or suffered by such Indemnified Party.
Except as otherwise provided herein, the Company agrees (for the benefit of
the Purchaser) to pay, and to hold the Purchaser harmless from and against, all
costs and expenses
16
<PAGE> 21
(including, without limitation, attorneys' fees, expenses and disbursements), if
any, in connection with the enforcement against the Company, as the case may be,
of this Agreement or any other Transaction Document or any other agreement or
instrument furnished pursuant hereto or thereto or in connection herewith or
therewith in any action in which the Purchaser in attempting to enforce any of
the foregoing shall prevail or in any action in which the Purchaser shall in
good faith assert any provision of any of the foregoing as a defense.
(b) If any Indemnified party is entitled to indemnification
hereunder, such Indemnified party shall give prompt notice to the Company of any
claim or of the commencement of any proceeding against the Company or any
Indemnified party brought by any third party with respect to which such
Indemnified party seeks indemnification pursuant hereto; PROVIDED, HOWEVER, that
the failure so to notify the Company shall not relieve the Company from any
obligation or liability except to the extent the Company is prejudiced by such
failure. The Company shall have the right, exercisable by giving written notice
to an Indemnified Party promptly after the receipt of written notice from such
Indemnified Party of such claim or proceeding, to assume, at the expense of the
Company, the defense of any such claim or proceeding with counsel reasonably
satisfactory to such Indemnified party. The Indemnified party or Parties will
not be subject to any liability for any settlement that does not include as an
unconditional term thereof the giving by claimant or plaintiff to such
Indemnified party or Parties of a release, inform and substance satisfactory to
the Indemnified party or Parties, from all liability in respect of such claim,
litigation or proceeding.
(c) In addition to any other obligations of the Company to
indemnify the Purchasers herein or pursuant to any of the Transaction Documents
or any other agreements or documents executed and delivered in connection
therewith, the Company will save the Purchaser and each other holder of any of
the Securities harmless from liability for the payment of all expenses arising
in connection with such transactions, including, without limitation: (i) all
document production and duplication charges and the reasonable fees, charges and
expenses of Purchasers' Counsel (whether arising before or after the Closing
Date), the transactions contemplated hereby and any subsequent proposed
modification shall be effected or proposed consent granted; (ii) the costs and
expenses, including attorneys' fees, incurred by the Purchaser in enforcing any
rights under this Agreement or in responding to any subpoena or other legal
process issued in connection with this Agreement or the transactions
contemplated hereby or thereby or by reason of the Purchaser's having acquired
any of the Securities, including without limitation costs and expenses incurred
by the Purchaser in any bankruptcy case; (iii) the cost of delivering to the
Purchaser's principal office, insured to its satisfaction, the Shares delivered
to the Purchaser hereunder; and (iv) the reasonable out-of-pocket expenses
incurred by the Purchaser in connection with such transactions and any such
amendments or waivers.
9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; SEVERABILITY. All
representations and warranties contained in this Agreement or the Transaction
Documents or made in writing by or on behalf of the Company in connection with
the transactions
17
<PAGE> 22
contemplated by this Agreement or the Transaction Documents shall survive, for
the duration of any statutes of limitation applicable thereto, the execution and
delivery of this Agreement, any investigation at any time made by the Purchaser
or on its behalf, the purchase of the Shares by the Purchasers under this
Agreement and the Other Stock Purchase Agreements and any disposition of or
payment on the Shares. All statements contained in any certificate or other
instrument delivered to the Purchaser by or on behalf of the Company pursuant to
this Agreement or the Transaction Documents shall be deemed representations and
warranties of the Company under this Agreement. Any provision of this Agreement
that 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 or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
9.3. AMENDMENT AND WAIVER. This Agreement may be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may be given, provided that the same are in writing and signed by the Purchaser
and the Company.
9.4. NOTICES, ETC. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
shall be delivered, or mailed by registered or certified mail, return receipt
requested, or by a nationally recognized overnight courier, postage prepaid,
addressed, (a) if to the Purchaser, at such address as the Purchaser shall have
furnished to the Company in writing, or (b) if to any other holder of any
Shares, at such address as such other holder shall have furnished to the Company
in writing, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Shares who has
furnished an address to the Company, or (c) if to the Company, at its address
set forth at the beginning of this Agreement, to the attention of its President,
or at such other address, or to the attention of such other officer, as the
Company shall have furnished to the Purchaser and each such other holder in
writing. This Agreement and the other Transaction Documents and all documents
delivered in connection herewith or therewith embody the entire agreement and
understanding between the Purchaser and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.
9.5. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of the
parties hereto are referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of the respective parties which are contained in this Agreement
shall bind and inure to the benefit of the successors and assigns of all other
parties. The terms and provisions of this Agreement and the other Transaction
Documents shall inure to the benefit of and shall be binding upon any assignee
or transferee of the Purchaser, and in the event of such transfer or assignment,
the rights and privileges herein conferred upon the Purchaser shall
automatically extend o and be vested in, and become an obligation of, such
transferee or assignee, all subject to the terms and conditions hereof.
9.6 DESCRIPTIVE HEADINGS. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
18
<PAGE> 23
9.7 SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or an action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser or to the holders of a specified
portion of the Shares, the determination of such satisfaction shall be made by
the Purchaser or such holders, as the case may be, in the sole and exclusive
judgment (exercised in good faith) of the Person or Persons making such
determination.
9.8 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 COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF
LAW.
9.9 SERVICE OF PROCESS; WAIVER OF OFFSETS. The Company (a) hereby
irrevocably submits itself to the jurisdiction of the state courts of the
Commonwealth of Massachusetts and to the jurisdiction of the United States
District Court for the Commonwealth of Massachusetts for the purpose of any
suit, action or other proceeding arising out of or based upon this Agreement,
the Shares, the other Transaction Documents or the subject matter hereof or
thereof brought by the Purchaser (or the Other Purchasers) or their successors
or assigns, and (b) hereby waives, and agrees not to assert, by way of motion,
as a defense, or otherwise, in any such suit, action or proceeding, any claim
that it is not subject personally to the jurisdiction of the above-named courts,
that its property is exempt or immune from attachment or execution, that the
suit, action or proceeding is brought in an inconvenient forum, that the venue
of the suit, action or proceeding is improper or that this Agreement or the
subject matter hereof may not be enforced in or by such court, and (c) hereby
waives any offsets or counterclaims in any such action, suit or proceeding
(other than compulsory counterclaims). The Company hereby consents to service of
process by registered mail at the address to which notices are to be given . The
Company agrees that its submission to jurisdiction and its consent to service of
process by mail is made for the express benefit of the Purchaser. Final judgment
against the Company in any such action, suit or proceeding shall be conclusive
and may be enforced in other jurisdictions (a) by suit, action or proceeding on
the judgment, a certified or true copy of which shall be conclusive evidence of
the fact and of the amount of any indebtedness or liability of the Company
therein described or (b) in any other manner provided by or pursuant to the laws
of such other jurisdiction. Notwithstanding the foregoing, however, the
Purchaser and any successors and assigns may at its option bring suit or
institute other judicial proceedings against the Company or any of the Company's
assets in any state or federal court of the Untied States or in any country or
place where the Company or such assets may be found.
9.10. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
9.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Agreement may
not be used to interpret another agreement, indenture, loan or debt agreement of
the Company or an Subsidiary. Any such agreement, indenture, loan or debt
agreement may not be used to interpret this Agreement.
19
<PAGE> 24
9.12. WAIVER OF JURY TRIAL. THE COMPANY HEREBY WAIVES ITS RIGHT TO TRIAL
BY JURY IN ANY LITIGATION, SUIT OR PROCEEDING, IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE SHARES, ANY OTHER
TRANSACTION DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS
AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, OR RELATING TO THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT, THEREOF.
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20
<PAGE> 25
[THIS PAGE INTENTIONALLY LEFT BLANK]
21
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STOCK PURCHASE AGREEMENT
If this Agreement is satisfactory, please so indicate by signing the
applicable attached signature page of this Agreement and delivering such
counterpart to the Company, whereupon this Agreement will become binding among
the parties hereto in accordance with its terms.
CML GROUP, INC., a Delaware corporation
By: /s/ John Pound
------------------------
Name: John Pound
Title: Chairman & CEO
/s/ Glenn E. Davis
Exec. V.P.
<PAGE> 27
STOCK PURCHASE AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Number of
date first written above: Shares of Common Stock
to be Purchased: 9,909,118
B III CAPITAL PARTNERS, L.P.,
a Delaware limited partnership
Purchase Price: $990,911.80
By: DDJ Capital III, LLC,
its General Partner
By: DDJ Capital Management, LLC,
its Manager
By: /s/ Judy K. Mencher
-----------------------------
Name: Judy K. Mencher
Title: Member
Address: c/o DDJ Capital Management, LLC
Attn: Wendy Schnipper Clayton
141 Linden Street, Suite 4
Wellesley, MA 02181
Telephone: (617) 283-8500
Telecopy: (617) 283-8541
Nominee (name in which the Units are to be registered, if different than name of
Purchaser):
GOLDMAN SACHS & COMPANY FFC: BIII CAPITAL PARTNERS, L.P.
- ---------------------------------------------------------
(Nominee's Name)
<PAGE> 28
STOCK PURCHASE PRICE AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Number of
date first written above: Shares of Common Stock
to be Purchased: 1,905,600
Mellon Bank, N.A. solely in its
capacity as Trustee for General
Motors Employees Domestic Purchase Price: $190,560
Group Pension Trust as directed
by DDJ Capital Management, LLC,
and not in its individual capacity
By: /s/ Bernadette T. Rist
-------------------------------
Name: BERNADETTE RIST
Title: AUTHORIZED SIGNATORY
Address: c/o DDJ Capital Management, LLC
Attn: Wendy Schnipper Clayton
141 Linden Street, Suite 4 The decision to participate in this
Wellesley, MA 02181 investment, any representations made
herein by the participant, and any
actions taken hereunder by the
participant has/have been made solely
at the direction of the investment
Telephone: (617) 283-8500 fiduciary who has sole investment
Telecopy: (617) 283-8541 discretion with respect to this
investment.
Nominee (name in which the Units are to be registered, if different than name of
Purchaser):
MELLON BANK, N.A. SOLELY IN ITS CAPACITY AS TRUSTEE FOR
- -------------------------------------------------------
GENERAL MOTORS EMPLOYEES DOMESTIC GROUP PENSION TRUST
- -----------------------------------------------------
(Nominee's Name)
<PAGE> 29
SCHEDULE 4.1
JURISDICTIONS
The Company is qualified, registered or licensed to do business as a foreign
corporation in the following jurisdictions:
1. Massachusetts
2. California
<PAGE> 30
SCHEDULE 4.2
AUTHORIZATION
N O N E
<PAGE> 31
SCHEDULE 4.4(b)
CAPITALIZATION - OTHER
AUTHORIZED CAPITAL STOCK:
Common Stock: 120,000,000, $0.10 par value *
Preference Stock: 2,000,000, $0.10 par value
* As of July 21, 1998, the Company had 50,274,694 shares of Common Stock
and -0- shares of Preference Stock issued and outstanding. Such
amounts do not include 11,814,718 shares of Common Stock issued on
July 27, 1998 pursuant to the terms of the Agreement and the Other
Stock Purchase Agreements.
OTHER SECURITIES EXERCISABLE OR CONVERTIBLE INTO COMMON STOCK:
Shares issuable upon conversion/exercise of or pursuant to:
1. 5-1/2% Subordinated Convertible Debentures Due 2003
($41,593,000/$25.917 shares): 1,604,854
2. Warrants issued to BankBoston, N.A. on March 11, 1998
as amended July 27, 1998 576,300
3. Third Offering of the Company's 1996 Employee Stock
Purchase Plan: 296,332
4. 1982 Stock Option Plan: 465,858
5. 1991 Stock Option Plan: 1,458,388
6. 1993 Director Option Plan: 54,000
7. 1996 Director Option Plan: 227,757
8. Incentive Deferred Compensation Plan: 28,140
9. 15% Secured Convertible Redeemable Subordinated
Note due 2003 ($20,000,000/$4.00 share): 5,000,000
<PAGE> 32
SCHEDULE 4.5
OUTSTANDING DEBT
Outstanding Debt that is permitted by, or disclosed in, the Credit Agreement is
incorporated herein by reference.
<PAGE> 33
SCHEDULE 4.6
NO MATERIAL ADVERSE CHANGE
Items and information that are disclosed in the Credit Agreement is incorporated
herein by reference.
<PAGE> 1
Exhibit 10(v)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of July 27,
1998 by and among CML Group, Inc., a Delaware corporation (the "Company"), and
each Holder (as hereinafter defined) executing a signature page hereto.
This Agreement is made pursuant to those certain Stock Purchase
Agreements dated as of the date hereof by and between the Company and each of
the purchasers named therein ( the "Purchase Agreements"). In order to induce
the purchasers to enter into the Purchase Agreements, the Company has agreed to
provide the registration rights set forth in this Agreement. The execution of
this Agreement is a condition to the closing of the transactions contemplated by
the Purchase Agreements.
In consideration of the foregoing, the parties hereby agree as
follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
"ADVICE" has the meaning set forth in Section 4.
"AFFILIATE" means, with respect to any specified Person, any other
Person who, directly or indirectly, controls, is controlled by, or is under
common control with such specified Person.
"BUSINESS DAY" means any day other than a day on which banks are
authorized or required to be closed in the State of New York.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.10 per share, of
the Company.
"COMPANY" has the meaning set forth in the preamble and shall include
the Company's successors by merger, acquisition, reorganization or otherwise.
"CONTROLLING PERSONS" has the meaning set forth in Section 6(a).
"DAMAGES" has the meaning set forth in Section 6(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, and the rules and regulations of
the Commission promulgated thereunder.
<PAGE> 2
"HOLDER" means (i) each Person (other than the Company and its
Affiliates) who is a signatory to this Agreement and (ii) each Person (other
than the Company and its Affiliates) to whom a Holder transfers Securities if
such Person acquires such Securities as Registrable Securities.
"HOLDERS' COUNSEL" means Goodwin, Procter & Hoar LLP, special counsel
to the Holders, or any successor counsel selected by Holders of a majority in
interest of the Registrable Securities.
"INSPECTORS" has the meaning set forth in Section 4(m).
"NASD" has the meaning set forth in Section 4(q).
"Nasdaq" has the meaning set forth in Section 4(o).
"Objection Notice" has the meaning set forth in Section 4(a).
"Objecting Party" has the meaning set forth in Section 4(a).
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization, government or other agency or political subdivision
thereof, or any other entity of whatever nature.
"PIGGY-BACK REGISTRATION" has the meaning set forth in Section 3(a).
"PROSPECTUS" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments and
supplements to the prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such prospectus.
"PUBLIC OFFERING" means a public offering of Securities registered on
Form S-11 or Form S-3 (or any successor or equivalent forms) under the
Securities Act for the Company's own or others' account.
"PURCHASE AGREEMENTS" means the Securities Purchase Agreements, dated
as of the date hereof, between the Company and the Holders pursuant to which the
Securities are being issued as amended, modified or supplemented from hereto
time, together with any exhibits, schedules or other attachments thereto.
"RECORDS" has the meaning set forth in Section 4(m).
2
<PAGE> 3
"REGISTRABLE SECURITIES" means the Securities; PROVIDED, HOWEVER,
that any Securities shall cease to be Registrable Securities when (i) a
Registration Statement covering such Registrable Securities has been declared
effective and such Registrable Securities have been disposed of by the holder
thereof pursuant to such effective Registration Statement, (ii) such Registrable
Securities are transferred by the holder thereof to any Person other than a
Holder pursuant to Rule 144 (or any successor rule or similar provision then in
effect, but not Rule 144A) under the Securities Act, including a sale pursuant
to the provisions of Rule 144(k), or (iii) such Securities shall have ceased to
be outstanding.
"REGISTRATION EXPENSES" has the meaning set forth in Section 5.
"REGISTRATION STATEMENT" means any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement (including any Shelf Registration Statement), and all
amendments and supplements to any such registration statement, including
post-effective amendments, in each case including the Prospectus, all exhibits,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"REQUIRED FILING DATE" has the meaning set forth in Section 2(a).
"SECURITIES" means (I) all shares of Common Stock held by any Holder,
(ii) all shares of Common Stock issued to any Holder upon exercise of any
options, warrants or other rights to subscribe for, purchase or otherwise
acquire Common Stock and (iii) all shares of Common Stock directly or indirectly
issued or issuable in respect of the securities referred to in clauses (i) and
(ii) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation, or other
reorganization.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"SHELF REGISTRATION STATEMENT" has the meaning set forth in
Section 2(a).
"SUSPENSION NOTICE" has the meaning set forth in Section 4.
"SUSPENSION PERIOD" has the meaning set forth in Section 4.
"TARGET EFFECTIVE DATE" means the date 60 days after the earlier of
(i) the Required Filing Date or (ii) the date on which the Shelf Registration
Statement is actually filed with the Commission.
"TARGET EFFECTIVE PERIOD" means the period of time between the date
on which a Shelf Registration Statement is actually declared effective and the
later of (i) the date which is 24 months following the date hereof, and (ii) the
date which is three months after the date on which a Holder
3
<PAGE> 4
ceases to be an Affiliate of the Company, provided that the Company first
provides each Holder with an opinion of counsel to such effect.
SECTION 2. SHELF REGISTRATION.
(a) FILING; EFFECTIVENESS. As soon as practicable but not later
than the sixtieth (60th) day following the date hereof (the "Required Filing
Date"), the Company shall prepare and file with the Commission a "shelf"
registration statement (the "Shelf Registration Statement") on the appropriate
form for an offering to be made on a continuous basis pursuant to Rule 415 under
the Securities Act (or any successor rule or similar provision then in effect)
covering all of the Registrable Securities. The Company shall use its best
efforts to have the Shelf Registration Statement declared effective on or before
the Target Effective Date and to keep such Shelf Registration Statement
continuously effective for the Target Effective Period. Any Holder of
Registrable Securities shall be permitted to withdraw all or any part of the
Registrable Securities from a Shelf Registration Statement at any time prior to
the effective date of such Shelf Registration Statement.
(b) SUPPLEMENTS; AMENDMENTS. The Company agrees, if necessary, to
supplement or amend the Shelf Registration Statement, as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration Statement or by the Securities Act or as
requested (which request shall result in the filing of a supplement or
amendment) by any Holder of Registrable Securities to which such Shelf
Registration Statement relates, and the Company agrees to furnish to the
Holders, Holders' Counsel and any managing underwriter copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission.
(c) LIQUIDATED DAMAGES. If the Shelf Registration Statement is not
filed on or before the Required Filing Date, the company shall pay liquidated
damages to each Holder in an amount equal to $8,300 beginning on the Required
Filing Date. If the Shelf Registration Statement is filed, but has not become
effective on or before the Target Effective Date, the Company shall pay
liquidated damages to each Holder in an amount equal to $8,300 beginning on the
Target Effective Date. The liquidated damages payable by the Company to the
Holders as a result of a late filing or a late declaration of effectiveness
shall increase to $16,600 one month after the Required Filing Date or the Target
Effective Date, as the case may be, and shall thereafter increase to $24,900 at
the end of each subsequent one month period for so long as the Shelf
Registration Statement is not filed or is not declared effective. If a stop
order is imposed or if for any other reason the effectiveness of the Shelf
Registration Statement is suspended during the Target Effective Period, then the
Company shall pay liquidated damages to each Holder of the Registrable
Securities in an amount equal to $8,300 beginning on the date of such stop order
or other suspension of effectiveness. The liquidated damages payable by the
Company to the Holders as a result of the imposition of a stop order or such
other suspension of the effectiveness of the Shelf Registration Statement during
the Target Effective Period shall increase to $16,600 one month after the stop
order was imposed or the effectiveness of the Shelf Registration Statement was
otherwise suspended and shall thereafter increase to $24,900 at the end of each
subsequent
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one month period for so long as such stop order remains in effect or the
effectiveness of the Shelf Registration Statement continues to be suspended. For
purposes of the two preceding sentences, the Holders will not be entitled to
receive liquidated damages under this Agreement during a Suspension Period (as
hereinafter defined) except to the extent permitted by Section 4 of this
Agreement. The Registrable Securities with respect to which liquidated damages
shall accrue and be payable in accordance with this Section 2(c) shall be those
Registrable Securities held by the Holders which are included or proposed to be
included in the Shelf Registration Statement.
The liquidated damages payable by the Company to the Holders pursuant
to this Section 2(c) shall be deemed to commence accruing on the day on which
the event triggering such liquidated damages occurs. Such liquidated damages
shall cease to accrue (i) with respect to the liquidated damages payable as a
result of the Company's failure to file the Shelf Registration Statement on or
prior to the Required Filing Date, on the day after the Shelf Registration
Statement is filed, (ii) with respect to the liquidated damages payable as a
result of the Company's failure to have the Shelf Registration Statement
declared effective on or prior to the Target Effective Date, on the day after
the Shelf Registration Statement is declared effective, or (iii) with respect to
the liquidated damages payable as a result of the imposition of a stop order or
the suspension for any other reason of the effectiveness of the Shelf
Registration Statement, on the day after the stop order is withdrawn or the
effectiveness of the Shelf Registration Statement is otherwise reinstated.
The parties hereto agree that the liquidated damages provided for in
this Section 2 constitute a reasonable estimate as of the date hereof of the
damages that will be suffered by Holders of Registrable Securities by reason of
the failure of the Shelf Registration Statement to be filed, to be declared
effective and/or to remain effective, as the case may be, in accordance with
this Agreement. However, the right of the Holders to be paid the liquidated
damages provided for in this Section 2(c) is not intended to be and shall not be
construed or deemed to be an exclusive remedy, it being understood that the
Holders shall have the full right to pursue all available remedies at law or in
equity for any breach by the Company of any of its obligations under this
Agreement.
(d) EFFECTIVE REGISTRATION. A registration will not be deemed to
have been effected as a Shelf Registration Statement unless the Shelf
Registration Statement with respect thereto has been declared effective by the
Commission and the Company has complied in all material respects with its
obligations under this Agreement with respect thereto; PROVIDED, HOWEVER, that
if after the Shelf Registration Statement has been declared effective, the
offering of Registrable Securities pursuant to such Shelf Registration Statement
is interfered with by any stop order, injunction or other order or requirement
of the Commission or any other governmental agency or court, such Shelf
Registration Statement will be deemed not to have become effective during the
period of such interference (and liquidated damages shall accrue and be payable
under Section 2(c)) until the offering of Registrable Securities pursuant to
such Shelf Registration Statement may legally resume. If a registration
requested pursuant to this Section 2 is deemed not to have been effected, then
the Company shall continue to be obligated to effect a registration pursuant to
this Section 2.
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(e) SELECTION OF UNDERWRITER. If the Holders so elect, the offering
of Registrable Securities pursuant to a Shelf Registration Statement shall be in
the form of an underwritten offering. If they so elect, the Holders
participating in such Shelf Registration Statement shall select one or more
nationally recognized firms of investment bankers to act as the book-running
managing underwriter or underwriters in connection with such offering and shall
select any additional investment bankers and managers to be used in connection
with the offering; PROVIDED, HOWEVER, that such selection shall be subject to
the consent of the Company, which consent shall not be unreasonably withheld.
SECTION 3. PIGGY-BACK REGISTRATION.
(a) REQUEST FOR REGISTRATION. Each time the Company proposes to
file a registration statement under the Securities Act with respect to an
offering by the Company for its own account or for the account of any of its
securityholders of any class of equity security (other than (i) a registration
statement on form S-4 or S-8 (or any substitute form that is adopted by the
Commission) or (ii) a registration statement filed in connection with an
exchange offer or the offering of securities solely to the Company's existing
securityholders), then the Company shall give written notice of such proposed
filing to each Holder of Registrable Securities as soon as practicable (but in
no event less than 30 days before the anticipated filing date), and such notice
shall offer such Holder the opportunity to register such number of shares of
Registrable Securities as each such Holder may request (which request must be
made in writing and shall specify the Registrable Securities intended to be
disposed of by such Holder and the intended method of distribution thereof) (a
"Piggy-Back Registration"). The Company shall permit, or, if the offering
relating to a Piggy-Back Registration is an underwritten offering, shall use its
best efforts to cause the managing underwriter or underwriters of such proposed
underwritten offering to permit, the Registrable Securities requested to be
included in such Piggy-Back Registration to be included on the same terms and
conditions as any similar securities of the Company or any other securityholder
included therein and shall permit, or use its best efforts to cause such
managing underwriter or underwriters to permit, the sale or other disposition of
such Registrable Securities in accordance with such Holder's intended method of
distribution thereof. Any Holder shall have the right to withdraw its request
for inclusion of its Registrable Securities in any registration statement
pursuant to this Section 3 by giving written notice to the Company of such
withdrawal. The Company may withdraw a Piggy-Back Registration at any time prior
to the time it becomes effective, provided that the Company shall give immediate
notice of such withdrawal to the Holders who requested Registrable Securities to
be included in such Piggy-Back Registration and shall reimburse such Holders for
all reasonable out-of-pocket expenses (including counsel fees and expenses)
incurred prior to such withdrawal.
(b) REDUCTION OF OFFERING. In connection with an underwritten
offering where Holders have requested a Piggy-Back Registration pursuant to
Section 3(a), the company shall use its best efforts to cause all Registrable
Securities requested to be included in such Piggy-Back Registration to be
included as provided in Section 3(a). If the managing underwriter or
underwriters of any such Piggy-Back Registration which is an underwritten
offering have informed, in writing, the Holders requesting inclusion of
Registrable Securities in such offering
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<PAGE> 7
that it is their opinion that the total number of shares which the Company,
Holders of Registrable Securities and any other Persons participating in such
registration intend to include in such offering is such as to materially and
adversely affect the success of such offering, then the number of shares to be
offered for the account of all Persons (other than the Holders) participating in
such Piggy-Back Registration shall be reduced or limited (to zero if necessary)
PRO RATA in proportion to the respective number of shares requested to be
included in such offering by such Persons to the extent necessary to reduce the
total number of shares requested to be included in such offering to the number
of shares, if any, recommended by such managing underwriter or underwriters.
Although the specific shares of Common Stock disposed of pursuant to
a Piggy-Back Registration will cease to be Registrable Securities, the mere
registration of Registrable Securities under this Section 3 shall not relieve
the Company of its obligation to effect or maintain a Shelf Registration
Statement pursuant to Section 2. No failure by the Holders to elect a Piggy-Back
Registration under this Section 3 or to complete the sale of Registrable
Securities pursuant to the registration statement effected in connection
therewith, and no withdrawal of Registrable Securities from a Piggy-Back
Registration, shall relieve the Company of any other obligation under this
Agreement, including without limitation, the Company's obligations under
Sections 5 and 6.
SECTION 4. REGISTRATION PROCEDURES.
In connection with the obligations of the Company to effect or cause
the registration of any Registrable Securities pursuant to the terms and
conditions of this Agreement, the Company shall use its best efforts to effect
the registration and sale of such Registrable Securities in accordance with the
intended method of distribution thereof as quickly as practicable, and in
connection therewith:
(a) The Company shall prepare and file with the Commission a
Registration Statement on the appropriate form under the Securities
Act, which Registration Statement shall comply as to form in all
material respects with the requirements of the applicable form and
include all financial statements required by the Commission to be
filed therewith, and use its best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
the provisions of this Agreement; PROVIDED, HOWEVER, that, at least
ten Business Days prior to filing a Registration Statement or
Prospectus or any amendments or supplements thereto, including
documents incorporated by reference after the initial filing of the
Registration Statement, the Company shall furnish to the Holders of
the Registrable Securities covered by such Registration Statement,
Holders' Counsel and the underwriters, if any, draft copies of all
such documents proposed to be filed, which documents will be subject
to the review of Holders' Counsel and the underwriters, if any, and
the Company will not, unless required by law or this Agreement, file
any Registration Statement or amendment thereto or any Prospectus or
any supplement thereto to which Holders holding a majority in
interest of the Registrable Securities covered by such Registration
Statement or the underwriters with respect to such Securities, if
any, shall object; PROVIDED, HOWEVER, that any such objection to the
filing of any Registration Statement or amendment thereto or any
Prospectus or supplement thereto shall be made by
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<PAGE> 8
written notice (the "OBJECTION NOTICE") delivered to the Company no
later than ten Business Days after the party or parties asserting
such objection (the "OBJECTING PARTY") receives draft copies of the
documents that the Company proposes to file. The Objection Notice
shall set forth the objections and the specific areas in the draft
documents where such objections arise. The Company shall have five
Business Days after receipt of the Objection Notice to correct such
deficiencies to the satisfaction of the Objecting Party, and will
notify each Holder of any stop order issued or threatened by the
Commission in connection therewith and shall use its best efforts to
prevent the entry of such stop order or, if entered, to have such
stop order withdrawn at the earliest possible moment.
(b) The Company shall promptly prepare and file with the
Commission such amendments and post-effective amendments to the
Registration Statement as may be necessary to keep such Registration
Statement effective for as long as the Company is required to keep
such Registration Statement effective pursuant to the terms hereof;
shall cause the Prospectus to be supplemented by any required
Prospectus supplement, and, as so supplemented, to be filed pursuant
to Rule 424 under the Securities Act; and shall comply with the
provisions of the Securities Act applicable to it with respect to the
disposition of all Registrable Securities covered by such
Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holders set forth in
such Registration Statement or amendment thereto or such Prospectus
or supplement thereto;
(c) The Company shall promptly furnish to any Holder and the
underwriters, if any, without charge, such number of conformed copies
of such Registration Statement and any post-effective amendment
thereto and such number of copies of the Prospectus (including each
preliminary Prospectus) and any amendments or supplements thereto,
any documents incorporated by reference therein and such other
documents as any such Holder or underwriter may request in order to
facilitate the public sale or other disposition of the Registrable
Securities being sold by such Holder.
(d) The Company shall, on or prior to the date on which a
Registration Statement is declared effective, (i) use its best
efforts to register or qualify the Registrable Securities covered by
such Registration Statement under the securities or "blue sky" laws
of each of the 50 states of the United States (or such jurisdictions
as any Holder, Holders' counsel or underwriter may request) or obtain
appropriate exemptions therefrom; (ii) do any and all other acts and
things which may be necessary or advisable to enable the Holders of
Registrable Securities included in such Registration Statement to
consummate the disposition of such Registrable Securities in
accordance with their intended method of distribution thereof;
(iii)use its best efforts to keep each such state securities or "blue
sky" registration or qualification (or exemption therefrom) effective
during the period in which the Company is required to keep the
Registration Statement effective; and (iv) do any and all other acts
or things which may be necessary or advisable to enable the Holders
of Registrable Securities included in such Registration Statement to
complete the disposition in such jurisdictions of such Registrable
Securities in accordance with their intended
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<PAGE> 9
method of distribution thereof; PROVIDED, HOWEVER, that the Company
shall not be required (A) to qualify to do business in any
jurisdiction where it would not otherwise be required to so qualify
but for this Section 4(d) or (B) to file any general consent to
service of process.
(e) The Company shall use its best efforts to cause the
Registrable Securities covered by a Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Company to enable the Holders to consummate the
disposition of such Registrable Securities in accordance with their
intended method of distribution thereof.
(f) The Company shall promptly notify each Holder, Holders'
Counsel and any underwriter and (if requested by any such Person)
confirm such notice in writing, (i) when a Registration Statement or
a Prospectus or any post-effective amendment or any Prospectus
supplement has been filed and, with respect to a Registration
Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the Commission or any state
securities authority for amendments and supplements to a Registration
Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of a
Registration Statement or the initiation or threatening of any
proceedings for that purpose, (iv) of the issuance by any state
securities commission or other regulatory authority of any order
suspending the registration or qualification or exemption from
registration or qualification of any of the Registrable Securities
under state securities or "blue sky" laws or the initiation of any
proceedings for that purpose, (v) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any, relating to the
offering of such Registrable Securities cease to be true and correct
in all material respects, and (vi) of the happening of any event
which makes any statement of a material fact made in a Registration
Statement or related Prospectus untrue or which requires the making
of any changes in such Registration Statement or Prospectus so that
such Registration Statement or prospectus will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading; and, as promptly as practicable thereafter, prepare
and file an amendment to such Registration Statement with the
Commission and furnish to the Holders and any underwriter a
supplement or amendment to such Prospectus so that, as thereafter
deliverable to the purchasers of such Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
(g) The Company shall make generally available to the Holders
an earnings statement satisfying the provisions of Section 11(a) of
the Securities Act no later than 30
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<PAGE> 10
days after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the
effective date of a Registration Statement, which earnings statement
shall cover said 12-month period, and which requirement will be
deemed to be satisfied if the Company timely files complete and
accurate information on Forms 10-Q, 10-K and 8-K under the Exchange
Act and otherwise complies with Rule 158 under the Securities Act.
(h) The Company shall promptly use its best efforts to
prevent the issuance of any order suspending the effectiveness of a
Registration Statement, and, if any such order suspending the
effectiveness of a Registration Statement is issued, shall promptly
use its best efforts to obtain the withdrawal of such order at the
earliest possible moment.
(i) The Company shall, if requested by the managing
underwriter or underwriters, if any, Holders' Counsel, or any Holder
promptly incorporate in a Prospectus supplement or post-effective
amendment such information as such managing underwriter or
underwriters or Holder or Holders' Counsel requests to be included
therein, including, without limitation, with respect to the
Registrable Securities being sold by such Holder to such underwriter
or underwriters, the purchase price being paid therefore by such
underwriter or underwriters and any other terms of an underwritten
offering of the Registrable Securities to be sold in such offering,
and the Company shall promptly make all required filings of such
Prospectus supplement or post-effective amendment.
(j) The Company shall, as promptly as practicable after the
filing with the Commission of any document which is incorporated by
reference into a Registration Statement (in the form in which it was
incorporated), deliver a copy of each such document to each of the
Holders and to Holders' Counsel.
(k) The Company shall cooperate with the Holders and the
managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (which shall not bear
any restrictive legends unless required under applicable law)
representing Registrable Securities sold under a Registration
Statement to the purchasers thereof, and enable such Registrable
Securities to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or such Holders
may request and keep available and make available to the Company's
transfer agent prior to the effectiveness of such Registration
Statement a supply of such certificates.
(l) The Company shall enter into such customary agreements
(including, if applicable, an underwriting agreement in customary
form) and take such other actions as the Holders or the underwriters
retained by the Holders participating in an underwritten public
offering, if any, may request in order to expedite or facilitate the
disposition of Registrable Securities (the Holders may, at their
option, require that any or all of the representations, warranties
and covenants of the Company to or for the benefit of any
underwriters also be made to and for the benefit of the Holders).
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<PAGE> 11
(m) The Company shall promptly make available to each Holder,
any underwriter participating in any disposition of Registrable
Securities pursuant to a Registration Statement, and any attorney,
accountant or other agent or representative retained by any such
Holder or underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably
necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information requested by any such Inspector
in connection with such Registration Statement.
(n) The Company shall furnish to each underwriter, if any, a
signed counterpart, addressed to such underwriter, of (i) an opinion
or opinions of counsel to the Company, and (ii) a comfort letter or
comfort letters from the company's independent public accountants,
each in customary form and covering matters of the type customarily
covered by opinions or comfort letters, as the case may be.
(o) The Company shall use its best efforts to cause the
Registrable Securities included in a Registration Statement (if the
company and the Registrable Securities so qualify) (i) to be listed
on each national securities exchange, if any, on which similar
securities issued by the Company are then listed, or (ii) if similar
securities of the Company are not then listed, to be authorized for
quotation or listing, as applicable, on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq Stock Market, Inc.'s
("Nasdaq") National Market.
(p) The Company shall provide a CUSIP number for all
Registrable Securities covered by a Registration Statement not later
than the effective date of such Registration Statement.
(q) The Company shall cooperate with each Holder and each
underwriter participating in the disposition of Registrable
Securities and their respective counsel in connection with any
filings required to be made with the National Association of
Securities Dealers, Inc. ("NASD").
(r) The Company shall, during the period when the Prospectus
is required to be delivered under the Securities Act, promptly file
all documents required to be filed with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act.
(s) The Company shall appoint or maintain a transfer agent
and registrar for all Registrable Securities covered by a
Registration Statement not later than the effective date of such
Registration Statement.
(t) In connection with an underwritten offering, the Company
shall participate, to the extent reasonably requested by the managing
underwriter for the offering or the
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Holders, in customary efforts to sell the securities being offered,
including without limitation, participating in "road shows".
(u) If a holder proposes to sell a block of Registrable
Securities with a value in excess of $5 million, the Company shall
make members of the management of the Company available for
reasonable selling efforts, including senior management attendance at
road shows, provided, however, that the selling Holder or Holders
shall reimburse the Company for its reasonable out-of-pocket expenses
actually incurred at the request of such selling Holder or Holders in
connection with such selling efforts.
(v) If the Registrable Securities are of a class of
securities that is listed on a national securities exchange, the
Company shall file copies of any Prospectus with such exchange in
compliance with Rule 153 under the Securities Act so that the Holders
shall benefit from the prospectus delivery procedures described
therein.
In the case of a Shelf Registration Statement, each Holder, upon
receipt of any notice (a "Suspension Notice") from the Company of the happening
of any event of the kind described in Section 4(f)(vi), shall forthwith
discontinue disposition of the Registrable Securities pursuant to the Shelf
Registration Statement covering such Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 4(f) or until such Holder is advised in writing (the "Advice") by the
Company that the use of the Prospectus may be resumed, and such Holder has
received copies of any additional or supplemental filings which are incorporated
by reference in the Prospectus, and, if so directed by the Company, such Holder
will, or will request the managing underwriter or underwriters, if any, to,
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice; PROVIDED, HOWEVER, that the Company shall not give a Suspension Notice
until after the Shelf Registration Statement has been declared effective and
shall not give more than one Suspension Notice during any period of 12
consecutive months and in no event shall the period from the date on which any
Holder receives a Suspension Notice to the date on which any Holder receives
either the Advice or copies of the supplemented or amended Prospectus
contemplated by Section 4(f) (the "Suspension Period") exceed 30 days. In the
event that the Company shall give any suspension Notice, (i) the Company shall
use its best efforts and take such actions as are reasonably necessary to render
the Advice and end the Suspension Period as promptly as practicable and (ii) the
time periods for which a shelf Registration Statement is required to be kept
effective pursuant to Section 2 hereof shall be extended by the number of days
during the suspension Period. If any Suspension Period exceeds 30 days or more
than one Suspension Notice is given during any period of 12 consecutive months,
the Company shall pay liquidated damages to each Holder of Registrable
Securities in an amount equal to $8,300 beginning on the 31st day of such
Suspension Period or the date of such additional suspension Notice, as the case
may be. The liquidated damages payable by the Company to the Holders as a result
of the continuance of a Suspension Period beyond 30 days or as a result of the
giving of more than one Suspension Notice during any 12 months period shall
increase to $16,600 one month after the event triggering such liquidated damages
and shall thereafter increase by an
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amount equal to $24,900 at the end of each subsequent one month period for so
long as the event triggering such liquidated damages has not been eliminated.
The Company shall pay the liquidated damages due with respect to any Registrable
Securities at the end of each week during which such damages accrue. Liquidated
damages shall be paid to the Holders of Registrable Securities entitled to
received such liquidated damages by wire transfer in immediately available funds
to the accounts designated by such Holders.
If any Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not required by the
Securities act or any similar Federal or state securities or "blue sky" statute
and the rules and regulations thereunder then in force, the deletion of the
reference to such Holder.
SECTION 5. REGISTRATION EXPENSES. Any and all expenses incident to
the Company's performance of or compliance with this Agreement, including
without limitation, all Commission and securities exchange, Nasdaq or NASD
registration, listing and filing fees, all fees and expenses incurred in
connection with compliance with state securities or "blue sky" laws (including
reasonable fees and disbursements of counsel for any underwriters or Holder in
connection with the state securities or "blue sky" qualifications of the
Registrable Securities), printing expenses, messenger and delivery expenses,
internal expenses (including, without limitation, all salaries and expenses of
the Company's officers and employees performing legal or accounting duties), all
expenses for word processing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, the fees and
expenses incurred in connection with the listing of the Registrable Securities,
the fees and disbursements of counsel for the Company and of the independent
certified public accountants of the Company (including the expenses of any
comfort letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letter requested pursuant to
Section 4(n), Securities Act liability insurance (if the Company elects to
obtain such insurance), the reasonable fees and expenses of any special experts
or other Persons retained by the Company in connection with any registration,
the reasonable fees and disbursements of Holders' counsel and any reasonable
out-of-pocket expenses of the Holders and their agents, including any reasonable
travel costs (but excluding underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of Registrable Securities)
(all such expenses being herein called "Registration Expenses"), will be borne
by the Company whether or not the Shelf Registration Statement or Piggy-Back
Registration to which such expenses relate becomes effective.
SECTION 6. INDEMNIFICATION AND CONTRIBUTION.
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(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, each Holder, its
partners, officers, directors, trustees, stockholders, employees, agents and
investment advisers, and each Person who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or
is under common control with, or is controlled by, such Holder, together with
the partners, officers, directors, trustees, stockholders, employees, agents and
investment advisors of such controlling Person (collectively, the "CONTROLLING
PERSONS"), from and against all losses, claims, damages, liabilities and
expenses (including, without limitation, any legal or other fees and expenses
incurred by an Holder or any such Controlling Person in connection with
defending or investigating any action or claim in respect thereof)
(collectively, the "DAMAGES") to which such Holder, its partners, officers,
directors, trustees, stockholders, employees, agents and investment advisers,
and any such Controlling Person, may become subject under the Securities Act or
otherwise, insofar as such Damages (or proceedings in respect thereof) arise out
of or are based upon any untrue or alleged untrue statement of material fact
contained in any Registration Statement (or any amendment thereto) pursuant to
which Registrable Securities were registered under the Securities Act, including
all documents incorporated therein by reference, or are caused by any omission
or alleged omission to state therein a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or are caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that the Company shall not be liable for Damages to any Holder under this
Section 5(a) to the extent that any such Damages (i) arise out of or are based
upon any such untrue statement or omission which is based upon information
relating to such Holder furnished in writing to the Company by such Holder
expressly for use in any such Registration Statement (or any amendment thereto)
or Prospectus (or amendment or supplement thereto); or (ii) were caused by the
fact that such Holder sold Securities to a Person as to whom it shall be
established that there was not sent or given, or deemed sent or given pursuant
to Rule 153 under the Securities Act, at the time of or prior to the written
confirmation of such sale, a copy of the Prospectus as then amended or
supplemented if, and only if, (a) the Company has previously furnished copies of
such amended or supplemented Prospectus to such Holder and (b) such Damages were
caused by any untrue statement or omission or alleged untrue statement or
omission contained in the Prospectus so delivered which was corrected in such
amended or supplemented Prospectus. In connection with an underwritten offering,
the Company will indemnify the underwriters thereof, their officers and
directors and each Person who controls such underwriters (within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act) to
the same extent as provided above with respect to the indemnification of the
Holders of Registrable Securities except with respect to information provided by
the underwriter specifically for inclusion therein.
(b) INDEMNIFICATION BY THE HOLDERS. Each holder agrees, severally
and not jointly, to indemnify and hold harmless the Company, its directors and
officers and each Person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act
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or Section 20 of the Exchange Act from and against all Damages to the same
extent as the foregoing indemnity from the Company to such Holder, but only to
the extent such Damages arise out of or are based upon any untrue statement of a
material fact contained in any Registration Statement (or any amendment thereto)
or Prospectus (or any amendment or supplement thereto) or are caused by any
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, which untrue statement or omission is based upon information
relating to such Holder furnished in writing to the Company by such Holder
expressly for use in any such Registration Statement (or any amendment thereto)
or any such Prospectus (or any amendment or supplement thereto); PROVIDED,
HOWEVER, that such Holder shall not be obligated to provide such indemnity to
the extent that such Damages result from the failure of the Company to promptly
amend or take action to correct or supplement any such Registration Statement or
Prospectus on the basis of corrected or supplemental information furnished in
writing to the Company by such Holder expressly for such purpose. In no event
shall the liability of any Holder of Registrable Securities hereunder be greater
in amount than the amount of the proceeds received by such Holder upon the sale
of the Registrable Securities giving rise to such indemnification obligation.
(c) INDEMNIFICATION PROCEDURES. In case any proceeding (including
any governmental investigation) shall be instituted involving any Person in
respect of which indemnity may be sought pursuant to either paragraph (a) or (b)
above, such Person (the "indemnified party") shall promptly notify the Person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceedings and shall pay the fees and disbursements of such counsel relating to
such proceeding. The failure of an indemnified party to notify the indemnifying
party with respect to a particular proceeding shall not relieve the indemnifying
party from any obligation or liability (i) which it may have pursuant to this
Agreement if the indemnifying party is not materially prejudiced by such failure
to so notify it or (ii) which it may otherwise have pursuant to this Agreement.
The failure of an indemnified party to notify the indemnifying party with
respect to a particular proceeding shall not relieve the indemnifying party from
any obligation or liability (i) which it may have pursuant to this Agreement if
the indemnifying party is not substantially prejudiced by such failure to so
notify it or (ii) which it may have otherwise than pursuant to this Agreement.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, or (ii) the
indemnifying party fails promptly to assume the defense of such proceeding or
fails to employ counsel reasonably satisfactory to such indemnified party, or
(iii) (A) the named parties to any such proceeding (including any impleaded
parties) include both such indemnified party or an Affiliate of such indemnified
party and any indemnifying party or an Affiliate of such indemnifying party, (B)
there may be one or more defenses available to such indemnified party or any
Affiliate of such indemnified party that are different from or additional to
those available to any indemnifying party or any Affiliate of any indemnifying
party and (C) such indemnified party shall have been advised by such counsel
that there may exist a conflict of interest between
15
<PAGE> 16
or among such indemnified party or any Affiliate of such indemnified party and
such indemnifying party or any Affiliate of such indemnifying party, in which
case, if such indemnified party notifies the indemnifying party in writing that
it elects to employ separate counsel of its choice at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the indemnifying
party, it being understood, however, that unless there exists a conflict among
indemnified parties, the indemnifying parties shall not, in connection with any
one such proceeding or separate but substantially similar or related proceedings
in the same jurisdiction, arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for such
indemnified parties. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but, if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify each indemnified party from and against
any loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of each indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which such
indemnified party is a party, and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on all claims that are the subject
matter of such proceeding with no payment by such indemnified party of
consideration in connection with such settlement.
(d) CONTRIBUTION. If the indemnification from the indemnifying
party provided for in this Section 6 is found, pursuant to a final judicial
determination not subject to appeal, to be unavailable to an indemnified party
hereunder or insufficient in respect of any Damages incurred by such indemnified
party, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the Damages paid or payable by such indemnified party
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified parties in connection with the actions or
omissions that resulted in such Damages, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action or omission in question, including any untrue or alleged untrue statement
of a material fact of the omission or alleged omission to state a material fact,
has been made by, or relates to information supplied by, such indemnifying party
or indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the Damages referred to above shall be
deemed to include, subject to the limitations set forth in Section 6(c), any
legal or other expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6(d), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public (less any
16
<PAGE> 17
underwriting discounts or commissions) exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no selling Holder
shall be required to contribute any amount in excess of the amount by which the
total net proceeds received by such selling Holder with respect to Registrable
Securities sold by such selling Holder exceeds the amount of any damages which
such selling Holder has otherwise been required to pay by reason of such untrue
statement or alleged untrue statement or omission or alleged omission. Each
Holder's obligation to contribute pursuant to this Section 6(d) is several and
not joint and shall be determined by reference to the proportion that the
proceeds of the offering received by such Holder bears to the total proceeds of
the offering received by all the Holders. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 6 are
not exclusive and shall not limit any rights or remedies that may otherwise be
available to any indemnified party at law or in equity.
Notwithstanding the foregoing, if indemnification is available under
paragraph (a) or (b) of this Section 6, the indemnifying parties shall indemnify
each indemnified party to the full extent provided in such paragraphs without
regard to the relative fault of said indemnifying party or indemnified party or
any other equitable consideration provided for in this Section 6(d).
SECTION 7. RULE 144. The Company covenants that it will file any
reports required to be filed by it under the Securities Act and the Exchange
Act, and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales of the Registrable Securities under Rule 144 under the Securities
Act), and it will take such further action as any Holder may request, all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any successor rule or similar
provision or regulation hereafter adopted by the Commission. Upon the request of
any Holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
SECTION 9. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not entered
into nor will the Company on or after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's other issued and outstanding securities under any such agreements.
17
<PAGE> 18
(b) AMENDMENTS AND WAIVERS. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company has obtained the written
consent of Holders of at least a majority in interest of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or consent; PROVIDED, HOWEVER, that, no amendment, modification,
supplement, waiver or consent to any departure from the provisions of Section 4
hereof (other than any immaterial amendment, modification, supplement, waiver or
consent) shall be effective as against any Holder of Registrable Securities
unless consented to in writing by such Holder.
(c) NOTICES. All notices and other communications provided
for or permitted hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by telecopier, registered or
certified mail (return receipt requested), postage prepaid or courier to the
parties at their respective addresses set forth on the signature pages hereof
(or at such other address for any party as shall be specified by like notice,
provided that notices of a change of address shall be effective only upon
receipt thereof).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; by confirmed
receipt of transmission, if telecopied; and on the next Business Day if timely
delivered to a courier guaranteeing overnight delivery.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders. If any transferee of any Holder shall
acquire Registrable Securities in any manner, whether by operation of law or
otherwise, such Registrable Securities shall be held subject to all of the terms
of this Agreement, and by taking and holding such Registrable Securities such
person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement and such person shall be
entitled to receive the benefits hereof.
(e) COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
without regard to principles or rules of conflicts of law.
18
<PAGE> 19
(h) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Holders shall be enforceable to the fullest extent permitted by law.
(i) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be the
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(j) ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall, to the extent permitted by
applicable law, be entitled to recover reasonable attorneys' fees in addition to
any other available remedy.
(k) FURTHER ASSURANCES. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
(l) REMEDIES. In the event of a breach or a threatened
breach by any party to this Agreement of its obligations under this Agreement,
any party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that remedies at law
for violations hereof, including monetary damages, are inadequate and that the
right to object in any action for specific performance or injunctive relief
hereunder on the basis that a remedy at law would be adequate is waived.
[Remainder of Page Intentionally Left Blank]
19
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
CML GROUP, INC.
By: /s/ John Pound
--------------------------
Name: John Pound
Title: Chairman & CEO
/s/ Glenn E. Davis
------------------------------
Name: Glenn E. Davis
Title: Exec. V.P.
Notice Information:
Mr. Glenn E. Davis
CML Group, Inc.
524 Main Street
Acton, Massachusetts 01720
Phone: (978) 264-4155
Fax: (978) 264-4073
<PAGE> 21
REGISTRATION RIGHTS AGREEMENT
PURCHASER SIGNATURE PAGE
B III CAPITAL PARTNERS, L.P.,
a Delaware limited partnership
By: DDJ CAPITAL III, LLC,
its General Partner
By: DDJ CAPITAL MANAGEMENT, LLC,
its Manager
By: /s/ Judy K. Mencher
------------------------------------
Name: Judy K. Mencher
Title: Member
Notice Information:
c/o DDJ Capital Management, LLC
Attn: Wendy Schnipper Clayton, Esq.
141 Linden Street, Suite 4
Wellesley, Massachusetts 02181
Phone: (781) 283-8500
Fax: (781) 283-8541
<PAGE> 22
REGISTRATION RIGHTS AGREEMENT
PURCHASER SIGNATURE PAGE
Mellon Bank, N.A., solely in its capacity
as Trustee for General Motors Employees
Domestic Group Pension Trust as directed
by DDJ Capital Management, LLC, and not in
its individual capacity
By: /s/ Bernadette Rist
------------------------------------
Name: BERNADETTE RIST
Title: AUTHORIZED SIGNATORY
Notice Information:
c/o DDJ Capital Management, LLC
Attn: Wendy Schnipper Clayton, Esq.
141 Linden Street, Suite 4
Wellesley, Massachusetts 02181
Phone: (781) 283-8500
Fax: (781) 283-8541
The decision to participate in this
investment, any representations made
herein by the participant, and any actions
taken hereunder by the participant
has/have been made solely at the direction
of the investment fiduciary who has sole
investment discretion with respect to this
investment.
<PAGE> 1
CML GROUP, INC.
AMENDMENT NO. 1
TO
COMMON STOCK PURCHASE WARRANT
NO. 3
AMENDMENT NO. 1, dated as of July 27, 1998, to the Common Stock Purchase
Warrant No. 3, dated as of March 11, 1998, (the "WARRANT"), executed by CML
GROUP, INC., a Delaware corporation ("COMPANY"), in favor of FSC Corp.
("HOLDER").
The Company and the Holder hereby agree as follows:
1. The number of shares of Common Stock for which the Warrant shall be
exercisable as of the date of this Amendment No. 1 ("AMENDMENT") shall be
576,300. The first paragraph of the Warrant is hereby amended accordingly.
2. The following new ss.7.1 is hereby added to the Warrant in appropriate
order:
SS.7.1. GENERAL. If (and on each occasion that) at any time during the
period commencing July 27, 1998 and ending on the earlier to occur of
August 1, 1999 or the date all the obligations under the Credit Agreement
have been paid in full there shall occur any issuance or sale of any shares
of Common Stock (including pursuant to any options, warrants or other
rights exercisable for shares of Common Stock) or any shares of other
classes of capital stock of the Company or other securities or rights then
convertible into or exercisable for shares of Common Stock, or there shall
be any adjustment to any conversion rate for any convertible securities
convertible into or exercisable for Common Stock, so that in any such case
the total number of shares of Common Stock on a Fully-Diluted Basis
immediately following such issuance, sale or adjustment exceeds the total
number of shares of Common Stock on a Fully-Diluted Basis as of July 27,
1998 immediately following the effectiveness of Amendment No. 1 to this
Warrant, the issuance of the July 1998 Securities and the cancellation of
certain Warrants issued to Rothschild Recovery Group, L.P., then the number
of shares of Common Stock to be received by the holder of this Warrant
shall be appropriately and automatically adjusted such that, with respect
to the unexercised portion of this Warrant the proportion of (a) the number
of shares of Common Stock issuable hereunder immediately prior to such
event or transaction to (b) the total number of shares of Common Stock of
the Company on a Fully-Diluted Basis immediately prior to such event or
transaction is equal to the proportion of (x) the number of shares of
Common Stock issuable hereunder immediately after such event or transaction
to (y) the total number of shares of Common Stock on a Fully-Diluted Basis
immediately after such event or transaction and the Exercise Price shall be
appropriately adjusted such that the aggregate Exercise Price for the total
number of shares of Common Stock of the Company issuable hereunder
immediately prior to such event or transaction is equal to the aggregate
Exercise Price for the total number of shares
<PAGE> 2
of Common Stock of the Company issuable hereunder immediately after such event
or transaction. No adjustment to the number of shares of Common Stock to be
received by the holder of this Warrant or to the Exercise Price shall be made
pursuant to this ss.7.1 as a result of any transaction for which an adjustment
shall be required under ss.6, the other provisions of ss.7 or ss.8. For purposes
of this ss.7.1, any amendment to the exercise or conversion price or any other
re-pricing of any of the Excluded Securities shall constitute an issuance of
securities exercisable for or convertible into Common Stock. Upon any such
amendment or re-pricing, such securities shall no longer constitute Excluded
Securities hereunder.
The existing provisions of ss.7 shall be re-numbered (i.e. ss.7.2 ET SEQ.), as
appropriate.
1. The following new defined terms are hereby added to ss.12:
EXCLUDED SECURITIES means the 5 1/2% Subordinated Debentures Due 2003
of the Company.
FULLY-DILUTED BASIS means, with respect to the Common Stock of the
Company at any time, the number of issued and outstanding shares of Common
Stock at such time, calculated assuming (i) the exercise in full of the
Warrants (as defined in the Warrant Agreement), and (ii) the conversion
into shares of Common Stock of all shares of other classes of capital stock
of the Company or other securities then convertible into shares of Common
Stock (other than Excluded Securities) and (iii) the exercise in full of
all options, warrants, convertible securities or other rights for the
issuance of shares of Common Stock (other than Excluded Securities).
JULY 1998 SECURITIES means, collectively, (i) the Secured Redeemable
Subordinated Note, dated July 27, 1998, issued by the Company to the State
of Wisconsin Investment Board, and (ii) the 11,814,718 shares of Common
Stock of the Company issued by the Company as of July 27, 1998 to certain
funds advised or managed by DDJ Capital Management, LLC.
1. The Warrant Agreement is hereby amended in each of the following
respects:
a. the reference to "400,000" set forth in the definition of "Minimum
Number" is hereby amended to read "200,000"; and
b. the reference to "$1,000,000" set forth in ss.8.1(a)(i) is hereby
amended to read "$500,000."
1. The Company hereby represents and warrants to the Holder and covenants
with the Holder that:
a. The SCHEDULE attached hereto lists and describes the authorized capital
stock of the Company on and as of the date hereof, and all securities
exercisable for or convertible into capital stock of the Company (other
than Excluded Securities), after giving effect to this Amendment, the
issuance of the July 1998 Securities
<PAGE> 3
and the cancellation of Warrants issued to Rothschild Recovery
Group, L.P.;
b. the execution and delivery by the Company of this Agreement and the
performance by the Company of its agreements and obligations under this
Agreement, the Warrant Agreement and the Warrant have been duly and
properly authorized by all necessary corporate or other action on the
part of the Company, and do not and will not conflict with, result in
any violation of, or constitute any default under (i) any provision of
any governing document of the Company, (ii) any contractual obligation
of the Company or (iii) any applicable law;
c. each of this Amendment, the Warrant Agreement and the Warrant, as
amended hereby, constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
reorganization, insolvency, moratorium or other similar laws, and to
general equitable principles; and
d. all obligations of the Company under the Warrant Agreement and the
Warrant are hereby ratified and confirmed in all respects.
1. Except as otherwise expressly provided herein, all of the terms,
conditions and provisions of the Warrant and the Warrant Agreement, and all the
rights of the Holder thereunder, shall remain unchanged.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 1 TO
COMMON STOCK PURCHASE WARRANT NO. 3 to be executed by their respective
authorized officers as of the date first above written.
COMPANY: HOLDER:
CML GROUP, INC. FSC CORP.
By: _____________________________ By: __________________________
Name: Name:
Title: Title
<PAGE> 1
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OR
CONVERSION OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT OR IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE 1933 ACT.
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION OF THIS
WARRANT ARE SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A WARRANT PURCHASE
AGREEMENT, DATED AS OF MARCH 11, 1998. THE COMPANY WILL FURNISH COPIES OF SUCH
AGREEMENT TO THE HOLDER OF THIS WARRANT UPON WRITTEN REQUEST.
CML GROUP, INC.
524 Main Street
Acton, Massachusetts 01720
COMMON STOCK PURCHASE WARRANT
Dated as of March 11, 1998
Void after Warrant Expiration Date
No. 1
Common Stock
THIS CERTIFIES that Rothschild Recovery Fund, L.P. (the "ORIGINAL HOLDER"),
or registered assigns, is entitled, at any time during the Warrant Exercise
Period (as hereinafter defined), to subscribe for and purchase from CML GROUP,
INC., a Delaware corporation (including any corporation which shall succeed to
or assume the obligations of the company hereunder, the "COMPANY"), up to
810,870 fully paid and non-assessable shares of the Company's Common Stock (as
defined below), at an initial purchase
(footnote continued from previous page)
<PAGE> 2
price per share of $.10 (such price per share as adjusted from time to time as
provided herein is referred to herein as the "EXERCISE PRICE"). The number and
character of such shares of Common Stock and the Exercise Price are subject to
adjustment as provided herein.
This Warrant was originally issued by the Company to the Original Holder
under the terms of, and as provided and contemplated by, that certain Warrant
Purchase Agreement, dated as of March 11, 1998 (herein, as so amended and from
time to time in effect, called the "WARRANT AGREEMENT"), between the Company,
the Original Holder, and the other parties thereto.
Copies of the Warrant Agreement are on file and available for inspection at
the principal office of the Company or at such other office of the Company as
the Company shall designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company.
This Warrant is subject to the following terms and conditions:
SS.1. DEFINITIONS. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
COMMON STOCK shall mean and include (i) the Company's Common Stock, $.10
par value per share, (ii) any other capital stock of any class or classes
(however designated) of the Company, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating distributions after the payment of dividends
and distributions on any shares entitled to preference, and (iii) any other
securities into which or for which any of the securities described in clauses
(i) or (ii) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
COMPANY shall have the meaning set forth in the first introductory
paragraph.
CREDIT AGREEMENT shall mean the Revolving Credit Agreement, dated as of
April 17, 1996, by and among the
(footnote continued from previous page)
<PAGE> 3
Company, certain of the Company's subsidiaries, the Original Holder, certain
other lenders party thereto and the Administrative Agent (as defined therein),
as amended and in effect from time to time.
EXERCISE PRICE shall have the meaning set forth in the first introductory
paragraph.
EXERCISE SHARES shall have the meaning set forth in ss.2.1 hereof.
ORIGINAL HOLDER shall have the meaning set forth in the first introductory
paragraph.
ORIGINAL ISSUE DATE shall mean March 11, 1998.
OTHER SECURITIES shall mean any stock (other than Common Stock) and other
securities of the Company or any other entity (corporate or otherwise) which (i)
the holder of this Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of this Warrant, in lieu of or in addition to
Common Stock, or (ii) at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or other securities, in each case
pursuant to ss.ss.6, 7 or 8 hereof.
WARRANT AGREEMENT shall have the meaning set forth in the second
introductory paragraph.
WARRANT EXERCISE PERIOD shall mean the period beginning on the date of this
Warrant and ending on the Warrant Expiration Date.
WARRANT EXPIRATION DATE shall have the meaning set forth in ss.2.4 hereof.
WARRANT STOCK shall mean: (i) the Company's Common Stock authorized as at
the date of this Warrant and issuable upon the exercise or conversion of this
Warrant or any warrants delivered in substitution or exchange therefor; and (ii)
shall include also any other capital stock of any other class which may become
and be issuable upon such exercise or conversion.
SS.2. EXERCISE OF WARRANT.
(footnote continued from previous page)
<PAGE> 4
SS.2.1. EXERCISE. This Warrant may be exercised prior to its expiration
pursuant to ss.2.4 hereof by the holder hereof at any time or from time to
time, by surrender of this Warrant, with the form of subscription attached
as EXHIBIT A hereto duly executed by such holder, to the Company at its
principal office, accompanied by payment, by certified or official bank
check payable to the order of the Company or by wire transfer to its
account, in the amount obtained by multiplying the number of shares of
Common Stock for which this Warrant is then being exercised by the Exercise
Price then in effect. In the event the Warrant is not exercised in full,
the Company, at its expense, will forthwith issue and deliver to or upon
the order of the holder hereof a new Warrant or Warrants of like tenor, in
the name of the holder hereof or as such holder (upon payment by such
holder of any applicable transfer taxes) may request, calling in the
aggregate on the face or faces thereof for the number of shares of Common
Stock equal (without giving effect to any adjustment therein) to the number
of such shares called for on the face of this Warrant minus the number of
such shares (without giving effect to any adjustment therein) for which
this Warrant shall have been exercised. Upon any exercise of this Warrant,
in whole or in part, the holder hereof may pay the aggregate Exercise Price
with respect to the shares of Common Stock for which this Warrant is then
being exercised (collectively, the "EXERCISE SHARES") by surrendering its
rights to a number of Exercise Shares having a fair market value in excess
of the aggregate Exercise Price for such Exercise Shares that is equal to
or greater than the required aggregate Exercise Price, in which case the
holder hereof would receive the number of Exercise Shares to which it would
otherwise be entitled upon such exercise, less the surrendered shares. For
purposes of this ss.2.1, the fair market value of one share of Common Stock
as at any date shall be equal to the average of the closing prices (if
listed on a stock exchange or quoted on the NASDAQ National Market System
or any successor thereto) or the average of the bid and asked prices (if
quoted on NASDAQ or otherwise publicly traded) of the Common Stock on the
five trading days preceding such date.
SS.2.2. CONFLICT WITH OTHER LAWS. Any other provisions hereof to the
contrary notwithstanding, no holder of this Warrant that is a subsidiary of
a bank
(footnote continued from previous page)
<PAGE> 5
holding company shall be entitled to exercise this Warrant to purchase any
share or shares of Common Stock if, under any law or any regulation, rule
or other requirement of any governmental authority at any time applicable
to such holder or any of its affiliates, (a) as a result of such purchase,
such holder and all of its affiliates, taken as a whole, would own, control
or have power to vote a greater quantity of securities of any kind than
such holder and its affiliates shall be permitted to own, control or have
power to vote, or (b) such purchase would not be permitted. For purposes of
this ss.2.2, a written statement of such holder or its affiliate exercising
this Warrant, delivered upon surrender of the Warrant to the effect that
such holder or its affiliate is legally entitled to exercise its right
under this Warrant to purchase securities and that such purchase will not
violate the prohibitions set forth in the preceding sentence, shall be
conclusive and binding upon the Company and shall absolutely obligate the
Company to deliver certificates representing the shares of Common Stock so
purchased in accordance with the other provisions hereof.
SS.2.3. WARRANT AGENT. In the event that a bank or trust company shall
have been appointed as trustee for the holder of this Warrant pursuant to
ss.6.2 hereof, such bank or trust company shall have all the powers and
duties of a warrant agent appointed pursuant to ss.16 hereof and shall
accept, in its own name for the account of the Company or such successor
entity as may be entitled thereto, all amounts otherwise payable to the
Company or such successor, as the case may be, on exercise of this Warrant
pursuant to this ss.2.
SS.2.4. TERMINATION. This Warrant shall terminate upon the earlier to
occur of (i) exercise in full, or (ii) March 11, 2008 (the "WARRANT
EXPIRATION DATE").
SS.3. REGISTRATION RIGHTS. The original holder of this Warrant and its
Permitted Transferees have the right to cause the Company to register shares of
Warrant Stock issued upon exercise or conversion hereof under the Securities Act
and any blue sky or securities laws of any jurisdictions within the United
States at the time and in the manner specified in ss.8 of the Warrant Agreement.
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<PAGE> 6
SS.4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant or any portion thereof. With respect to any fraction of a share
called for upon the exercise or conversion of this Warrant or any portion
thereof, an amount equal to such fraction multiplied by the then current fair
market value of a share of Warrant Stock (as determined in good faith by the
Board of Directors of the Company) shall be paid to the holder hereof in cash by
the Company.
SS.5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of
Warrant Stock upon the exercise or conversion of this Warrant or any portion
thereof shall be made without charge to the holder hereof for any issue or
transfer taxes or any other incidental expenses in respect of the issuance of
such certificates, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the holder of this Warrant;
PROVIDED, HOWEVER, that any income taxes or capital gains taxes or similar taxes
shall be payable by the holder of this Warrant.
SS.6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
SS.6.1. CERTAIN ADJUSTMENTS. In case at any time or from time to time the
Company shall (a) effect a capital reorganization, reclassification or
recapitalization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of this Warrant, on the exercise
hereof as provided in ss.2 hereof at any time after the consummation of such
reorganization, recapitalization, consolidation or merger or the effective date
of such dissolution, as the case may be, shall receive, in lieu of the Common
Stock (or Other Securities) issuable on such exercise prior to such consummation
or effective date, the stock and Other Securities and property (including cash)
to which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant immediately prior thereto, all subject to further
adjustment thereafter as provided in ss.ss.7 and 8 hereof.
SS.6.2. APPOINTMENT OF TRUSTEE FOR WARRANT HOLDERS UPON DISSOLUTION. In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and Other Securities and property (including cash, where applicable) receivable
by the holders of this Warrant after the effective date of such dissolution
pursuant to this ss.6 to a bank or trust company having its principal office in
Boston, Massachusetts, as trustee for the holder or holders of this Warrant.
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<PAGE> 7
SS.6.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this ss.6, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and Other Securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or Other Securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in ss.9 hereof.
SS.7. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price
and number of shares of Warrant Stock issuable upon exercise or conversion
hereof shall be subject to adjustment from time to time at any time after the
Original Issue Date as follows:
SS.7.1. ADJUSTMENTS FOR STOCK DIVIDENDS, STOCK SPLITS AND COMBINATIONS.
If (and on each occasion that) the Company shall, at any time after the
Original Issue Date, (a) issue any shares of Common Stock as a dividend or
distribution, or (b) issue any shares of Common Stock in subdivision of
outstanding shares of Common Stock by reclassification or otherwise, or (c)
combine outstanding shares of Common Stock by reclassification or
otherwise, the then current number of shares of Warrant Stock issuable upon
exercise or conversion hereof shall be proportionately adjusted to an
amount equal to the number of shares of Warrant Stock the holder hereof
would have received had such holder exercised or converted this Warrant
immediately prior to such event, plus the number of shares of Common Stock
the holder would have received in connection with such event and the
Exercise Price shall be proportionately adjusted so that the aggregate
Exercise Price is the same after as before such adjustment in the number of
shares of Warrant Stock issuable hereunder.
SS.7.2. ADJUSTMENTS FOR CERTAIN OTHER DIVIDENDS AND DISTRIBUTIONS. In
case the Company shall, at any time after the Original Issue Date, declare
a dividend or make a distribution upon the Common Stock payable otherwise
than in Common Stock, then the holder hereof will be entitled to receive
(and the Company shall distribute to such holder) on the date thereof the
dividend or distribution to which such holder would have been entitled if
such holder had exercised this Warrant in full on or prior to the
declaration of such dividend or
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<PAGE> 8
the making of such distribution so as to be entitled thereto. If the
Company is prohibited by applicable law from making any such dividend or
distribution to the holder hereof on the date of such dividend or
distribution in accordance with the prior sentence, then the holder hereof,
upon the exercise or conversion of any of the rights represented by this
Warrant, will be entitled to receive the number of shares of Warrant Stock
being purchased upon such exercise or conversion and, in addition and
without further payment, the cash, stock or other securities and other
property which the holder hereof would have received by way of dividends
and distributions (otherwise than in Common Stock) if such holder (a) had
exercised or converted this Warrant immediately prior to the declaration of
such dividend or the making of such distribution so as to be entitled
thereto, and (b) had retained all dividends in stock or securities payable
in respect of such Common Stock or in respect of any stock or securities
paid as dividends and distributions and originating directly or indirectly
from such Common Stock.
SS.8. ADJUSTMENTS FOR ISSUANCE OF OTHER SECURITIES. In case any Other
Securities shall have been issued, or shall then be subject to issue upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
other issuer of Other Securities or any other entity referred to in ss.6 hereof)
or to subscription, purchase or other acquisition pursuant to any rights or
options granted by the Company (or such other issuer or entity), the holder
hereof shall be entitled to receive upon exercise hereof such amount of Other
Securities (in lieu of or in addition to Common Stock) as is determined in
accordance with the terms hereof, treating all references to Common Stock herein
as references to Other Securities to the extent applicable, and the
computations, adjustments and readjustments provided for in ss.7 and this ss.8
with respect to the number of shares of Warrant Stock issuable upon exercise of
this Warrant shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
on the exercise of the Warrant, so as to provide the holder of the Warrant with
the benefits intended by ss.7 and this ss.8 and the other provisions of this
Warrant.
SS.9. NO DILUTION. The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger or dissolution, avoid or seek to avoid the observance or performance of
any of the terms of the Warrant. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any shares of
stock receivable on the exercise of the Warrant above the amount payable
therefor on such exercise, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares of stock on the exercise of the Warrant from time to
time outstanding, (c) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding up, unless the rights of the
holders thereof with respect to dividends and distributions shall be limited to
a fixed sum or percentage of par value in respect of participation in
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<PAGE> 9
dividends and in any such distribution of assets, and (d) will not transfer all
or substantially all of its properties and assets to any other entity (corporate
or otherwise), or consolidate with or merge into any other entity or permit any
such entity to consolidate with or merge into the Company (if the Company is not
the surviving entity), unless such other entity shall expressly assume in
writing and will be bound by all the terms of this Warrant and the Warrant
Agreement.
SS.10. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In the case of each
event that may require any adjustment or readjustment in the shares of Warrant
Stock issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment, or
stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (a) the number of shares of the Company's Common
Stock then outstanding on a fully diluted basis, and (b) the number of shares of
Warrant Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted (if required by ss.7 or ss.8) on account thereof. The Company will
forthwith mail a copy of each such certificate to each holder of a Warrant, and
will, on the written request at any time of any holder of a Warrant, furnish to
such holder a like certificate setting forth the calculations used to determine
such adjustment or readjustment. At its option, the holder of a Warrant may
confirm the adjustment noted on the certificate by causing such adjustment to be
computed by an independent certified public accountant at the expense of the
Company.
SS.11. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any Other Securities or property, or to receive any other right;
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any consolidation
or merger of the Company with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in each such event, the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (a) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(b) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is anticipated to take place, and the time, if any is to be fixed, as
of which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice
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<PAGE> 10
shall be mailed at least thirty (30) days prior to the date specified in such
notice on which any such action is to be taken.
SS.12. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. Sufficient
shares of authorized but unissued Common Stock of the Company have been reserved
by appropriate corporate action in connection with the prospective exercise of
this Warrant. The issuance of this Warrant or the shares of Warrant Stock will
not require any further corporate action by the stockholders or directors of the
Company, will not be subject to pre-emptive rights in any present or future
stockholders of the Company and will not conflict with any provision of any
agreement to which the Company is a party or by which it is bound, and such
Common Stock, when issued upon exercise of this Warrant in accordance with their
terms or upon such conversion, will be duly authorized, fully paid and
non-assessable.
SS.13. NO RIGHTS OR RESPONSIBILITIES AS SHAREHOLDER. This Warrant neither
entitles the holder hereof to any rights, nor subjects the holder hereof to any
responsibilities, as a shareholder of the Company.
SS.14. EXCHANGE. This Warrant is exchangeable, upon the surrender hereof by
the registered holder at the principal office of the Company, for new warrants
of like tenor and date representing in the aggregate the right to purchase the
number of shares of Warrant Stock purchasable hereunder, each of such new
warrants to represent the right to purchase such number of shares of Warrant
Stock as shall be designated by said registered holder at the time of such
surrender.
SS.15. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new warrant of like tenor and date, in lieu of this Warrant.
SS.16. WARRANT AGENT. The Company may, by written notice to the holder of
this Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock on the exercise of this Warrant pursuant to ss.2
hereof, and exchanging or replacing this Warrant pursuant to this Warrant and
the Warrant Agreement, or any of the foregoing, and thereafter any such
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<PAGE> 11
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
SS.17. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
SS.18. TRANSFER OF WARRANT. This Warrant and all rights hereunder are
transferable to any Permitted Transferee (as such term is defined in the Warrant
Agreement), in whole or in part, at the office or agency of the Company by the
registered holder hereof in person or by a duly authorized attorney, upon
surrender of this Warrant together with an assignment hereof in the form of
EXHIBIT B attached hereto properly endorsed. Until transfer hereof on the
registration books of the Company, the Company may treat the registered holder
hereof as the owner hereof for all purposes.
SS.19. COMMUNICATIONS AND NOTICES. All communications and notices hereunder
must be in writing, either delivered in hand or sent by first-class mail,
postage prepaid, or sent by telecopier, and, if to the Company, shall be
addressed to it at the address set forth on the first page hereof, or at such
other address as the Company may hereafter designate in writing by notice to the
registered holder of this Warrant, and, if to such registered holder, addressed
to such holder at the address of such holder as shown on the books of the
Company.
SS.20. SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking
of any action required or the expiration of any right granted herein shall be a
Sunday or a Saturday or shall be a legal holiday or a day on which banking
institutions in Boston, Massachusetts, are authorized or required by law to
remain closed, then such action may be taken or right may be exercised on the
next succeeding day which is not a Sunday, a Saturday or a legal holiday and not
a day on which banking institutions in Boston, Massachusetts, are authorized or
required by law to remain closed.
SS.21. MISCELLANEOUS.
(a) THIS WARRANT SHALL BE BINDING UPON THE COMPANY'S SUCCESSORS IN TITLE
AND ASSIGNS. THIS
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<PAGE> 12
WARRANT SHALL CONSTITUTE A CONTRACT UNDER SEAL AND, FOR ALL PURPOSES, SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
(b) Reference is made to the Warrant Agreement. For all purposes of the
Warrant Agreement the Original Holder hereof and its Permitted Transferees shall
be bound by all of the terms and conditions contained in, and entitled to all of
the benefits of, the Warrant Agreement.
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<PAGE> 13
IN WITNESS WHEREOF, CML GROUP, INC. has caused this COMMON STOCK PURCHASE
WARRANT to be signed in its corporate name and its corporate seal to be
impressed hereon by its duly authorized officers.
THE COMPANY:
Dated as of: CML GROUP, INC.
- --------------, ----
By:
-----------------------------------------
Title:
Attest:
- --------------------
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<PAGE> 14
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise or conversion of Common Stock Purchase Warrant)
TO: [COMPANY]
The undersigned, the registered holder of the within Common Stock Purchase
Warrant of ___________________________, hereby irrevocably elects:
(check one)
A. _____ to exercise this Common Stock Purchase Warrant for, and to
purchase thereunder, _____* shares of Common Stock of
_________________________ and the undersigned herewith makes
payment of $_______ therefor.
B. _____ to convert _____* Warrants represented by this Common Stock
Purchase Warrant into ______ shares of Common Stock of
__________________________.
The undersigned requests that the certificates for such shares be issued in the
name of and delivered to __________________, whose address is ________________.
Dated: ______________________
---------------------------------------------
(Signature must conform in all
respects to name of registered
holder as specified on the face of
the Warrant)
---------------------------------------------
(Address)
Signed in the presence of:
- --------------------------
- --------------------------
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<PAGE> 15
*Insert here the number of shares (all or part of the number of shares
called for in the Common Stock Purchase Warrant) as to which the Common Stock
Purchase Warrant is being exercised or converted without making any adjustment
for any other stock or other securities or property or cash which, pursuant to
the adjustment provisions of the Common Stock Purchase Warrant, may be
deliverable on exercise or conversion.
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<PAGE> 16
EXHIBIT B
FORM OF ASSIGNMENT
(To be signed only on transfer of Common Stock Purchase Warrant)
ASSIGNMENT
For value received, the undersigned, _______________________, hereby sells,
assigns, and transfers unto ____________________ the right represented by the
within Common Stock Purchase Warrant to purchase _____________ shares of Common
Stock of _______________________ to which the within Common Stock Purchase
Warrant relates, and appoints ___________ Attorney to transfer such right on the
books of ____________________ with full power of substitution in the premises.
Dated: _____________ ______________________________
-------------------------------------------------
(Signature must conform in all respects
to name of registered holder as
specified on the face of the Warrant)
--------------------------------------------
(Address)
Signed in the presence of:
- --------------------------
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<PAGE> 1
EXECUTION COPY
NOTE PURCHASE AGREEMENT
This Agreement dated as of July 27, 1998 (this "Agreement"), is entered
into between CML Group, Inc., a Delaware corporation (the "Company"), and the
State of Wisconsin Investment Board, an independent agency of the State of
Wisconsin (the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. AUTHORIZATION AND ISSUE OF NOTE.
1.1 AUTHORIZATION. The Company has, or before the Closing
(as defined in Section 2) will have, duly authorized the sale and issuance,
pursuant to the terms of this Agreement, of its Secured Convertible Redeemable
Subordinated Note (the "Note"), in the aggregate principal amount of Twenty
Million United States Dollars ($20,000,000), to be dated the Closing Date, to
mature July 27, 2003, to bear interest on the unpaid principal balance from the
date of issue until the principal shall have become due and payable at the rate
of fifteen percent (15%) per annum, payable semi-annually in arrears, and to
bear interest on overdue principal and, to the extent permitted by law, overdue
interest at the rate of sixteen and one-half percent (16.5%) per annum, and to
be substantially in the form attached hereto as EXHIBIT A.
1.2 PURCHASE AND SALE OF NOTE. Subject to the terms and
conditions of this Agreement, at the Closing the Company will sell and issue to
the Purchaser, and the Purchaser will purchase, the Note at a purchase price of
Twenty Million United States Dollars ($20,000,000).
2. THE CLOSING. The closing ("Closing") of the sale and purchase
of the Note shall take place at the offices of Bingham Dana LLP, 150 Federal
Street, Boston, Massachusetts, at 10:00 a.m. on July 27, 1998, or at such other
location or on such other date as the Company and the Purchaser may agree. At
the Closing the Company shall deliver to the Purchaser the Note against payment
to the Company of the purchase price therefor, by wire transfer, certified
check, or other method reasonably acceptable to the Company. The date of the
Closing is herein referred to as the "Closing Date."
3. REPRESENTATIONS OF THE COMPANY. The Company hereby represents
and warrants to the Purchaser as follows:
3.1 ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has full power and authority, corporate and otherwise, to own,
operate and lease its property and to carry on its business as now being
conducted. The Company has full power and authority, corporate or otherwise, to
execute and deliver, and to perform its obligations under, this Agreement, the
<PAGE> 2
Note, the Security Documents (as defined below) and each of the other
agreements, documents, instruments, certificates and notices contemplated hereby
or thereby (collectively, the "Transaction Documents"), and to issue and sell
the Note. This Agreement and each other Transaction Document have been duly
authorized by all necessary corporate action on the part of the Company, have
been duly executed and delivered by authorized officers of the Company, are the
legal, valid and binding obligations of the Company, and are enforceable against
the Company in accordance with their respective terms.
3.2 CAPITALIZATION. The authorized capital stock of the
Company (immediately prior to the Closing) consists of (a) 120,000,000 shares of
Common Stock, $0.10 par value per share (the "Common Stock"), of which
50,274,694 shares are issued and outstanding as of July 21, 1998, and (b)
2,000,000 shares of Preference Stock, $0.10 par value per share (the "Preference
Stock"), of which no shares are issued and outstanding as of the Closing Date.
All of the issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable.
3.3 ISSUANCE OF NOTE. The issuance, sale and delivery of
the Note in accordance with this Agreement have been, or will be on or prior to
the Closing, duly authorized by all necessary corporate action on the part of
the Company. The Note, when so issued, sold and delivered against payment
therefor, in accordance with the provisions of this Agreement, will be duly and
validly issued.
3.4 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement and the other Transaction
Documents, and the consummation by the Company of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action.
This Agreement and each of the other Transaction Documents has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms. The
execution of and performance of the transactions contemplated by this Agreement
and the other Transaction Documents and compliance with its and their provisions
by the Company will not violate any provision of law and will not conflict with
or result in any breach of any of the terms, conditions or provisions of, or
constitute a default under, or require a consent or waiver under, its
Certificate of Incorporation or By-Laws (each as amended to date) or any
indenture, lease, agreement or other instrument to which the Company is a party
or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
3.5 GOVERNMENTAL AND EXCHANGE CONSENTS. No consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any governmental authority or the New
York Stock Exchange is required on the part of the Company in connection with
the execution and delivery of this Agreement and the other Transaction
Documents, and the offer, issuance, sale and delivery of Shares, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing. Based on the representations made by the Purchaser in Section 4 of this
Agreement, the offer, issuance and sale of the Note to the Purchaser will be in
compliance with applicable Federal and state securities laws.
3.6 DISCLOSURES. None of this Agreement, any other
Transaction Document or
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<PAGE> 3
any other document, certificate or statement furnished to the Purchaser by or on
behalf of the Company in connection herewith, or filed by or on behalf of the
Purchaser with the Securities and Exchange Commission, 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.
3.7 NO CONFLICT OF INTEREST. To the best of its
knowledge, no officer or employee of the Purchaser has or will receive, directly
or indirectly, a personal interest in the Company or its property or anything of
substantial economic value for his or her private benefit from the Company, or
anyone acting on its behalf, in connection with the investment made pursuant to
this Agreement.
3.8 NO BAD ACTOR. None of the Company, any of its
affiliates, or any directors or officers of the Company or any of its officers
is or has been the subject of, or a defendant in: (i) an enforcement action or
prosecution (or settlement in lieu thereof) brought by a governmental authority
relating to a violation of securities, tax, fiduciary or criminal laws, or (ii)
a civil action (or settlement in lieu thereof) brought by investors in a common
investment vehicle for violation of duties owed to the investors. The Company
will notify the Purchaser within five days in the event any such action or
prosecution is initiated during any period in which the Note is outstanding or
the Purchaser holds any equity securities of the Company or NordicTrack.
4. REPRESENTATIONS OF THE PURCHASER. The Purchaser represents and
warrants to the Company as follows:
4.1 INVESTMENT. The Purchaser is acquiring the Note for
its own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same; and the Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
4.2 AUTHORITY. The Purchaser has the necessary power and
authority to enter into and to perform this Agreement and the other Transaction
Documents to which it is a party in accordance with their respective terms.
4.3 ACCREDITED INVESTOR. The Purchaser is an "accredited
investor," within the meaning of Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
5. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The obligation
of the Purchaser to purchase the Note at the Closing is subject to the
fulfillment, or the waiver by the Purchaser, of each of the following conditions
on or before the Closing:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each
representation and warranty contained in Section 3 shall be true on and as of
the Closing Date with the same effect as though such representation and warranty
had been made on and as of that date.
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<PAGE> 4
5.2 PERFORMANCE. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be performed or complied with by the Company prior to or at the Closing, and
the Company shall deliver to the Purchaser a certificate of a senior officer of
the Company to such effect.
5.3 OPINION OF COUNSEL. The Purchaser shall have received
an opinion from Hale and Dorr LLP, counsel for the Company, dated the Closing
Date, addressed to the Purchaser, and satisfactory in form and substance to the
Purchaser, as to each of the matters set forth in Sections 3.1 through 3.5,
inclusive.
5.4 CREDIT FACILITY. The Company, NordicTrack (as defined
herein), Nordic Advantage, Inc. ("NA") and S&H (as defined herein) shall have
entered into a credit agreement (the "Credit Agreement") with B III Capital
Partners, L.P. ("B III"), General Motors Employees Domestic Group Pension Trust
("GM Trust"), and BankBoston, N.A., individually ("Bank Boston"; collectively
with B III and GM Trust, the "Working Capital Lenders") and as Administrative
Agent for the Working Capital Lenders (in such capacity, the "Administrative
Agent"), in form and substance satisfactory to the Purchaser, in its sole and
absolute discretion, wherein the Working Capital Lenders shall have committed to
extend up to $65,000,000 in credit facilities to the Company. The Company shall
have delivered a true, correct and complete copy of the Credit Agreement, and
each of the related agreements, instruments, documents, certificates and notices
completed thereby to the Purchaser.
5.5 INTERCREDITOR AGREEMENT. The Purchaser shall have
entered into an intercreditor agreement with the Company and the Administrative
Agent, in form and substance satisfactory to the Purchaser, in its sole and
absolute discretion, which conforms to that certain term sheet executed by DDJ
Capital Management, LLC, and the Purchaser.
5.6 COLLATERAL AGENCY AGREEMENT. The Purchaser shall have
entered into a collateral agency agreement (the "Collateral Agency Agreement")
with the Company, NordicTrack, NA, S&H and BankBoston, N.A., as collateral agent
for the Working Capital Lenders and the Purchaser (in such capacity, the
"Collateral Agent"), in form and substance satisfactory to the Purchaser, in its
sole and absolute discretion, wherein the Collateral Agent agrees to act as
collateral agent for and on behalf of the Administrative Agent and the Working
Capital Lenders, as senior secured parties, and the Purchaser, as junior secured
party.
5.7 SECURITY DOCUMENTS. The Company and each of its
subsidiaries (whether direct or indirect), to the extent a party thereto, shall
have executed and delivered each of the Security Documents, as defined in the
Collateral Agency Agreement (other than (x) the Life Insurance Collateral
Assignments and (y) that certain charge over securities dated as of April 29,
1996 between NordicTrack and the Administrative Agent, pledging the securities
of NordicTrack (U.K.) Ltd., as amended by the First Amendment to Securities
Documents (as defined in the Credit Agreement)) (collectively, all such Security
Documents are referred to herein as the "Security Documents"), and the Purchaser
shall have determined that the Collateral Agent, on behalf of the Working
Capital Lenders and the Purchaser, has a first priority perfected lien and
security interest in and to all assets and properties of the Company and such
subsidiaries covered by the Security Documents. The Company shall have delivered
a true, correct and complete
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<PAGE> 5
copy of each of the Security Documents to the Purchaser.
5.8 GUARANTEES. Each of NordicTrack, NA, S&H, OCR, Inc.,
OBW, Inc., WFH Group, Inc., OTNC, Inc., BFPI, Inc., CML International (FSC),
Ltd., The Nature Company Limited, NordicTrack (U.K.) Ltd., NordicTrack GmbH, and
Nordic Advantage of Ontario, Inc. (each a "Guarantor", and collectively the
"Guarantors") shall have executed and delivered its Guaranty (each a "Guaranty",
and collectively the "Guarantees") of the Company's obligations to the
Purchaser.
6. CONDITION OF THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company under Section 1.2 of this Agreement are subject to fulfillment,
or the waiver, of the following condition on or before the Closing:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchaser contained in Section 4 shall be
true on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of that date.
7. COVENANTS OF THE COMPANY.
7.1 REGISTRATION OF NOTE AND CONVERSION SHARES. The
Company shall file on or before 60 days after the Closing Date registration
statements (the "Registration Statements") with the Securities and Exchange
Commission to register under the Securities Act of 1933, as amended, the Note
and the shares of Common Stock into which it is convertible pursuant to the Note
(the "Conversion Shares"). The Company shall use its best efforts to have the
Registration Statements declared effective as soon as practicable after filing.
Until the Registration Statements are declared effective, the Company shall not
file any registration statement with respect to its securities (other than on
Form S-8 or its equivalent) unless the Note and the Conversion Shares are
included therein.
7.2 FUTURE ISSUANCE OF SECURITIES.
(a) The Conversion Shares, the NordicTrack
Warrants and the NordicTrack Warrant Shares (as such terms are defined below),
when issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions, claims
and encumbrances. Neither the issuance, sale or delivery of the Conversion
Shares, the NordicTrack Warrants or the NordicTrack Warrant Shares are subject
to any preemptive right, right of first refusal, or are subject to any other
similar rights (except as disclosed in the Credit Agreement) in favor of any
person or entity.
(b) On or before the date of issuance of any
Conversion Shares, NordicTrack Warrants or NordicTrack Warrant Shares, the
Purchaser shall have received an opinion from Hale and Dorr LLP, as counsel for
the Company (or other reputable counsel retained by the Company as is
satisfactory to the Purchaser) dated the date of issuance, addressed to the
Purchaser, and satisfactory in form and substance to the Purchaser, as to each
of the
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matters set forth in Sections 3.1 through 3.5, inclusive, except that
such opinions shall be given as of the date of issuance with respect to the
securities being issued rather than the Note, and that such securities are fully
paid and non-assessable (assuming, in the case of the NordicTrack Warrants, the
payment of $0.01 per NordicTrack Warrant Share).
7.3 ISSUANCE OF SHARES AND WARRANTS. The issuance, sale
and delivery of the Conversion Shares and the NordicTrack Warrants in accordance
with the Transaction Documents, and the NordicTrack Warrant Shares in accordance
with the NordicTrack Warrants, will be on or prior to the issuance thereof, duly
authorized by all necessary corporate action on the part of the Company or
NordicTrack, Inc., a Minnesota corporation or its successor ("NordicTrack"), as
the case may be. The Conversion Shares, NordicTrack Warrants and NordicTrack
Warrant Shares, when so issued, sold and delivered in accordance with the
provisions of this Agreement, will be duly and validly issued, fully paid and
non-assessable and will be subject to an effective registration statement under
the Securities Act of 1933, as amended, or will be issued pursuant to an
exemption therefrom.
7.4 SMITH & HAWKEN. Upon the occurrence and during the
continuation of any default in the payment of any installment of principal or
interest on the Note, to the maximum extent consistent with the fiduciary duties
of the Company's Board of Directors, the Company shall use its best efforts to
sell all or substantially all of the assets or stock of Smith & Hawken, Ltd., a
Delaware corporation ("S&H"), or its successor, for the maximum consideration of
cash or securities (provided that such securities are subject to an effective
registration statement under the Securities Act of 1933, as amended, and listed
on a major United States stock exchange), obtainable on an arms-length basis
from an unaffiliated third party (the "S&H Sale"). To the maximum extent
consistent with the fiduciary duties of the Company's Board of Directors, the
Company shall use its best efforts to close the S&H Sale within 120 days after
the occurrence of any such default and, prior to S&H (i) making a composition or
an assignment for the benefit of creditors or trust mortgage, (ii) applying for,
consenting to, acquiescing in, filing a petition, seeking or admitting (by
answer, default or otherwise) the material allegations of a petition filed
against it seeking the appointment of a trustee, receiver or liquidator, in
bankruptcy or otherwise, of itself or of all or a substantial portion of its
assets, or a reorganization, arrangement with creditors or other remedy, relief
or adjudication available to or against a bankrupt or insolvent debtor under any
bankruptcy or insolvency law or any law affecting the rights of creditors
generally, or (iii) admitting in writing its inability to pay its debts
generally as they become due.
7.5 NORDICTRACK WARRANTS. In the event that the Company
shall distribute any of the capital stock of NordicTrack to the Company's
shareholders at any time prior to the full redemption or full conversion of the
Note, the Company shall cause to be issued to the Purchaser perpetual warrants,
exercisable in whole or in part, in form and substance satisfactory to the
Purchaser (the "NordicTrack Warrants"), to purchase, at a purchase price per
share equal to $0.01, that number of shares of NordicTrack capital stock which
the Purchaser would have been entitled to receive in such distribution if it had
converted the Note in full immediately prior to the record date for such
distribution (upon the exercise of the NordicTrack Warrants, the "NordicTrack
Warrant Shares").
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<PAGE> 7
7.6 NO REPRICING OF OPTIONS. At all times while the Note
is outstanding or the Purchaser owns any shares of common stock of the Company,
the Company shall not reprice any options with respect to the Company's capital
stock.
7.7 CHAIRMAN OF BOARD OF DIRECTORS. At all times while
the Note is outstanding or the Purchaser owns any shares of common stock of the
Company, the Company shall cause John A.C. Pound ("Pound") to be Chairman of the
Board of Directors of the Company and, at all times after a distribution of the
capital stock of NordicTrack to the Company's shareholders, NordicTrack. In the
event that Pound is unable to serve as Chairman of the Board of Directors of
either the Company or NordicTrack, the Company shall cause only the Independent
Directors on the respective Boards of Directors of the Company and NordicTrack
to select the Chairman of the Board of Directors.
7.8 OUTSIDE AND INDEPENDENT DIRECTORS. At all times while
the Note is outstanding or the Purchaser owns any shares of common stock of the
Company, the Company shall cause a majority of the members of the Board of
Directors of the Company and, at all times after a distribution of the capital
stock of NordicTrack to the Company's shareholders, NordicTrack, to be comprised
of outside and "independent directors," as such term is defined by the Council
of Institutional Investors ("Independent Directors").
7.9 NO BACKSTOPPED RIGHTS OFFERING. At all times while
the Note is outstanding or the Purchaser owns any shares of common stock of the
Company, the Company shall not conduct any "backstopped" rights offering without
the consent of the Purchaser or any other rights offering in which any person or
entity facilitating such transaction will receive securities of the Company or
any of its subsidiaries for consideration less than the purchase price therefor
offered to all shareholders of the Company.
7.10 NO DIVIDENDS DURING DEFAULT. At all times while the
Note is outstanding, the Company shall not declare or pay any dividend on any
capital stock of the Company, or make any other distribution to holders of
capital stock of the Company (other than a distribution of the capital stock of
NordicTrack to the Company's shareholders), following the occurrence and during
the continuation of any default under the Note or this Agreement.
7.11 RIGHTS OFFERING. In the event that the Company
undertakes a rights offering with respect to the holders of any of its capital
stock at any time while the Note is outstanding, the Company shall grant the
Purchaser the right to be issued its pro rata percentage of such rights based on
the number of shares of capital stock into which the Note is then convertible.
7.12 NO DIRECTORS ELECTED BY WORKING CAPITAL LENDERS. At
all times prior to the earlier of (a) August 1, 1999 or (b) the indefeasible
payment in full of any loans or other extensions of credit and the termination
of any commitments to extend credit (collectively, "Working Capital Credit
Facilities") by the Working Capital Lenders, the Company shall not permit any
Working Capital Lender to elect, directly or by proxy, any members of the Board
of Directors of the Company, unless prior to such election the Working Capital
Lenders have converted all or a portion (but not less than $20,000,000 of
outstanding indebtedness) of the
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<PAGE> 8
Working Capital Credit Facilities into common stock of the Company.
7.13 INDEBTEDNESS; LIENS. At all times while the Note is
outstanding, the Company shall not incur any Indebtedness, or grant any Liens,
with senior or pari passu rights in payment or collateral, except as permitted
under the Note or the Working Capital Credit Facilities. As used herein,
"Indebtedness" shall have the meaning ascribed thereto in the Credit Agreement.
As used herein, "Lien" means any lien (statutory or other), security interest,
mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, the interest of a
vendor or lessor under any conditional sale, capitalized lease or other title
retention agreement).
7.14 WORKING CAPITAL CREDIT FACILITIES. The Company shall
give the Purchaser written notice as soon as practicable (but prior to the
effectiveness) of any amendment of, waiver or consent, and any request therefor,
under the Working Capital Credit Facilities.
7.15 DEFAULTS. The Company shall give the Purchaser
written notice as soon as practicable after it becomes aware of any default,
event of default or similar event (or any event or occurrence which, with the
passage of time and/or notice would become a default, event of default or
similar event) under this Agreement, any other Transaction Document, the Working
Capital Credit Facilities or any indenture, lease, agreement or other instrument
to which the Company is a party or by which it or any of its properties is
bound, or any decree, judgment, order, statute, rule or regulation applicable to
the Company. Upon the request of the Purchaser, the Company shall promptly
provide the Purchaser with all such information, documentation and inspection
rights provided to the Administrative Agent, the Working Capital Lenders, or any
other person or entity in connection with such default, event of default or
similar event and such other information, documentation and inspection rights as
may be requested by the Purchaser.
7.16 RIGHT OF FIRST REFUSAL. The Company agrees that it
will not issue (other than through (a) conversion of currently outstanding
warrants, debentures and stock options, as disclosed on SCHEDULE 7.16 attached
hereto or (b) the Company's stock plans existing on the date hereof or as
subsequently approved by the Company's stockholders) any shares of its Common
Stock, or any convertible securities, exchangeable or exercisable for shares of
Common Stock ("Convertible Securities") unless the Company shall first have
offered all of such Common Stock or Convertible Securities to the Purchaser, on
terms and conditions, including without limitation with respect to price and
method of payment, at least as favorable to the Purchaser as are proposed to be
offered to any other person or entity. Any such offer shall be made in writing
and shall remain open for a period of not less than 10 days after the receipt of
such offer by the Purchaser. The Purchaser may accept the Company's offer as to
the full amount of securities offered, but not any lesser number, by written
notice thereof given by it to the Company prior to the expiration of the 10 day
period, in which event the Company shall promptly sell and the Purchaser shall
buy, upon the terms specified, such securities offered by the Company.
7.17 INFORMATION REQUIRED BY RULE 144A. The Company will,
upon the request of the Purchaser or any transferee, provide the Purchaser or
any transferee, and any qualified institutional buyer (as defined in Rule 144A
promulgated by the Securities and Exchange
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Commission under the Securities Act of 1933, as amended) designated by the
Purchaser or any transferee, such financial and other information as the
Purchaser or any transferee may reasonably determine to be necessary in order to
permit compliance with the information requirements of Rule 144A in connection
with a resale or proposed resale of the Note, the Conversion Shares, the
NordicTrack Warrants or the NordicTrack Warrant Shares.
7.18 CREDIT AGREEMENT COVENANTS. The Company will comply
with each of the covenants set forth in Sections 9.1, 9.2, 9.3, 9.6, 9.7, 9.8,
9.10, 9.11, 9.13, 9.14, 10.7, 10.9, 10.11 and 10.13 of the Credit Agreement (the
"Incorporated Covenants"), which are incorporated in this Agreement by reference
by the terms set forth below. The Company and the Purchaser hereby agree that
the Incorporated Covenants, and, to the extent they apply to such covenants, the
definitions and other definitional provisions set forth in Section 1 of the
Credit Agreement, together with the other sections of the Credit Agreement to
which reference is made therein, are incorporated in this Agreement by reference
as though specifically set forth herein, and they shall continue in full force
and effect with respect to this Agreement notwithstanding the termination of the
Credit Agreement and the payment of all indebtedness and obligations thereunder.
8. COVENANTS OF THE PURCHASER.
8.1 TERMINATION OF SECURITY INTEREST. Provided that no
Event of Default (as defined under the Note), and no default, event of default
or similar event hereunder, under the Note, any Guaranty or Security Document,
has occurred and is continuing, the Purchaser agrees that upon the request of
the Company it shall execute such documents and take such reasonable steps (in
each case at the sole expense of the Company) to terminate any interest the
Purchaser has in the liens and security interests held by the Collateral Agent
(a) upon receiving satisfactory evidence that the Company has received gross
proceeds of $30,000,000 or more from the sale of equity securities of the
Company, other than pursuant to conversion of the Note, or (b) on August 1,
1999, upon receiving satisfactory evidence that the Company has received gross
proceeds of $25,000,000 or more (but less than $30,000,000) from the sale of
equity securities of the Company prior to August 1, 1999, other than pursuant to
conversion of the Note.
8.2 RELEASE OF FOREIGN PLEDGE AND GUARANTY. If the
Company has demonstrated to the reasonable satisfaction of the Purchaser that
the pledge of stock of any foreign subsidiary of the Company to the Collateral
Agent (to the extent greater than sixty-five percent (65%) of the outstanding
stock of such foreign subsidiary) or any Guaranty given by a foreign Guarantor
will result in material tax obligations for the Company and its subsidiaries,
which tax obligations would not arise if such pledge or Guaranty were released
by the Purchaser, the Purchaser, upon ten (10) days' prior written request of
the Company delivered to the Purchaser, shall consent to the Collateral Agent's
release of such pledge (to the extent applicable to greater than sixty-five
percent (65%) of the outstanding stock of the relevant foreign subsidiary of the
Company) or release such Guaranty, as applicable; PROVIDED that no such release
shall be required if any Default (as defined in the Note) or any breach or
violations of the provisions hereof or any Security Document or Guaranty has
occurred and is continuing.
9. MISCELLANEOUS.
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<PAGE> 10
9.1 ENTIRE AGREEMENT. This Agreement and Exhibits hereto
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter.
9.2 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
9.3 SECTION HEADINGS. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.
9.4 SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
9.5 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
9.6 EXPENSES. The Company agrees, whether or not the
transaction provided for hereby shall be consummated, to pay on demand, and save
the Purchaser and its transferees harmless against liability for the payment of,
all out-of-pocket expenses arising in connection with such transactions
("Expenses"), including (i) all document production and duplication charges and
the reasonable fees and expenses of Michael Best & Friedrich LLP, its special
transaction counsel, and its agents and of any other special or local counsel or
other special advisers engaged by the Purchaser in connection with the
transactions contemplated by this Agreement and with any subsequent proposed
modification of, or proposed waiver or consent, requested by the Company under
the Transaction Documents, whether or not such transactions are consummated or
proposed modification shall be effected or proposed waiver or consent granted,
(ii) the costs (other than underwriting discounts and commissions) of issuance
and obtaining an effective registration statement with respect to the Note, the
Conversion Shares and the NordicTrack Shares under the Securities Act of 1933,
as amended, and such state securities and blue sky laws as the Purchaser may
reasonably request, and (iii) the costs and expenses, including reasonable
attorneys' fees and the fees of any other special advisers, incurred by the
Purchaser or any of its transferees in evaluating, monitoring or enforcing any
rights under the Transaction Documents (including, without limitation, any
costs, expenses or fees incurred in connection with perfecting or maintaining
perfection of any lien now or hereafter existing in favor of the Purchaser or
any of its transferees securing any of the obligations of the Company under the
Transaction Documents or maintaining or protecting the collateral which is the
subject of such lien) or in responding to any subpoena or other legal process
issued in connection with the Transaction Documents or the transactions provided
for hereby or thereby or by reason of the Purchaser or any transferee having
acquire the Note or any of the Conversion Shares, NordicTrack Warrants or
NordicTrack Warrant Shares, including without limitation costs and expenses
incurred in connection with any bankruptcy or insolvency of any of the Company
or any of its Subsidiaries or in connection with any workout or restructuring of
any of the transactions contemplated by the Transaction Documents. The
obligations of the Company under
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this Section 9.6 shall survive the transfer of any Note, any of the Conversion
Shares, NordicTrack Warrants or NordicTrack Warrant Shares or portion of any of
the Shares thereof or interest therein by the Purchaser or any transferee and
the payment of the Note.
9.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT. All representations and warranties contained in any Transaction
Document or made in any other writing by or on behalf of the Company in
connection herewith shall survive the execution and delivery of such Transaction
Document or other writing, the transfer by the purchaser of the Note or any
Conversion Shares, NordicTrack Warrants and NordicTrack Warrant Shares, or any
portion thereof or interest therein and the payment of the Note and any
redemption of Conversion Shares, NordicTrack Warrants and Nordic Track Shares
and may be relied upon by any transferee, regardless of any investigation made
at any time by or on behalf of the Purchase or any transferee. The Transaction
Documents embody the entire agreement and understanding between the purchaser
and the Company and supersede all prior agreements and understandings relating
to the subject matter hereof and thereof.
9.8 SUCCESSOR AND ASSIGNS. All covenants and other
agreements in this Agreement contained by or on behalf of either 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; provided the Company may not assign any of its
obligations hereunder.
9.9 NOTICES. All notices and other written communications
provided for hereunder shall be given in writing and sent by overnight delivery
service (with charges prepaid) or by facsimile transmission with the original of
such transmission being sent by overnight delivery service (with charges
prepaid) by the next succeeding Business Day and addressed to such party as
follows:
If to the Company: CML Group, Inc.
524 Main Street
Acton, Massachusetts 01720
Attn: President
Facsimile: (978) 264-4073
If to the Purchaser: State of Wisconsin Investment Board
121 East Wilson Street
Madison, Wisconsin 53702
Attn: Investment Director, Small Cap Stocks
Facsimile: (608) 266-2436
or at such other address or fax number as such party shall have specified to the
other party in writing. Notice given in accordance with this Section 9.9 shall
be effective upon the earlier of the date of delivery or the second Business Day
at the place of delivery after dispatch.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CML GROUP, INC.
By:
--------------------------------------
Name:
Title:
STATE OF WISCONSIN INVESTMENT BOARD
By:
--------------------------------------
Name:
Title:
<PAGE> 1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT IS AVAILABLE.
No. 1
CML GROUP, INC.
Secured Redeemable Subordinated Note Due 2003
$20,000,000 Boston, Massachusetts
July 27, 1998
---------------------
CML Group, Inc., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to the State of Wisconsin Investment Board
("SWIB"), or registered assigns, the principal sum of Twenty Million Dollars
($20,000,00) on July 27, 2003, and to pay interest (computed on the basis of a
365-day year) from the date hereof on the unpaid balance of such principal
amount from time to time outstanding at the rate of fifteen percent (15%) per
annum, subject to increase in accordance with Sections 5(a) and 6 hereof, such
interest to be due and payable by wire transfer each June 30 and December 31
during the term of this Note.
This note is issued by the Company pursuant to the Note Purchase Agreement
dated July 27, 1998 between the Company and SWIB, the original holder of this
Note (the "Purchase Agreement"), to which reference is made for a statement of
certain additional rights and benefits to which the holder of this Note is
entitled.
<PAGE> 2
1. SUBORDINATION.
2.
THE INDEBTEDNESS EVIDENCED BY THIS NOTE, AND THE PAYMENT OF THE PRINCIPAL
HEREOF, AND ANY INTEREST HEREON, IS WHOLLY SUBORDINATED, JUNIOR AND SUBJECT IN
RIGHT OF PAYMENT, TO THE EXTENT AND IN THE MANNER PROVIDED IN AN INTERCREDITOR
AGREEMENT OF EVEN DATE HEREWITH AMONG THE COMPANY, SWIB AND BANKBOSTON, N.A., AS
ADMINISTRATIVE AGENT ON BEHALF OF THE LENDERS UNDER THE AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT, DATED JULY 27, 1998, BETWEEN THE COMPANY, THE
ADMINISTRATIVE AGENT, THE LENDERS PARTY THERETO AND CERTAIN SUBSIDIARIES OF THE
COMPANY AS BORROWERS, AND CERTAIN SUBSIDIARIES OF THE COMPANY AND THE BORROWERS
AS GUARANTORS (THE "INTERCREDITOR AGREEMENT").
1. SECURITY.
2.
Payment of this Note is secured by a security interest in certain property
of the Company and its subsidiaries (the "Collateral") pursuant to the Security
Documents, as defined in the Purchase Agreement.
1. CONVERSION.
2.
(a) GENERAL. This Note shall be subject to optional conversion as set forth
below:
(b)
(i) CONVERSION AT OPTION OF HOLDER. The holder of this Note has the right, at
its option, at any time prior to 5:00 p.m., Boston, Massachusetts time, on
July 27, 2003, to convert the outstanding principal amount of this Note into
fully-paid and non-assessable shares of Common Stock, $.10 par value per share,
of the Company ("Common Stock"), at the rate of one share of Common Stock for
each $4.00 of the principal amount hereof surrendered for conversion, subject to
adjustment as set forth herein (the "Conversion Price"). In order to exercise
this conversion privilege, the holder of this Note shall surrender this Note to
the Company during usual business hours at the Company's principal executive
office, accompanied by written notice in form satisfactory to the Company that
the holder elects to convert the principal amount of this Note or a portion
hereof specified in such notice. Such notice shall also state the name or names
(with address) in which the certificate or certificates for shares of Common
Stock which shall be issuable on such conversion shall be issued.
(ii)
(iii) CONVERSION AT OPTION OF THE COMPANY. So long as no default shall have
occurred and be continuing, the entire outstanding principal amount of this Note
may be converted, at the option of the Company, into fully-paid and
non-assessable shares of Common Stock, at a price per share equal to the average
per share closing price of the
2
<PAGE> 3
Company's Common Stock on the New York Stock Exchange ("NYSE") or other
exchange on which the Common Stock is then trading for a period of twenty (20)
consecutive trading days ending on the third day immediately prior to the
conversion, in the event that the Company receives gross proceeds of thirty
million dollars ($30,000,000) or more from the sale of equity securities of the
Company after the date hereof, including gross proceeds from the sale of any
equity securities to the Purchaser, other than pursuant to conversion of this
Note. The entire outstanding principal amount of this Note may also be
converted, at the option of the Company, into fully-paid and non-assessable
shares of Common Stock at the then effective Conversion Price in the event that
the per share closing price of the Company's Common Stock on the NYSE or other
exchange on which the Common Stock is then trading is above the then effective
Conversion Price for a period of twenty (20) consecutive trading days. The
Company shall cause notice of conversion to be mailed to the registered holder
of this Note, at such holder's address appearing in the Note Register (as
defined in Section 7(a)), at least three (3) days prior to the date fixed for
conversion of this Note. On or before the date fixed for conversion, the holder
shall surrender this Note at the place designated in such notice, together with
a statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock which shall be issuable on such
conversion shall be issued.
(iv)
(v) LIMITATION ON OWNERSHIP BY SWIB. Notwithstanding any other provision of
this Note, so long as SWIB is the holder of this Note, the Company may not
convert the Note into a number of shares of Common Stock, which when added to
other shares of Common Stock then owned by SWIB, would result in SWIB owning
more than 19.9% of the Company's then outstanding Common Stock. The principal
amount of this Note not converted into Common Stock due to the limitations set
forth in the immediately preceding sentence shall simultaneously be converted
into a to-be-established series of Nonconvertible Preference Stock of the
Company which shall be subject to the Intercreditor Agreement and shall (i) have
an annual dividend rate of 15% per annum, payable, to the extent of funds
legally available therefor, on June 30 and December 31, (ii) have no voting
rights, except as required by law, (iii) be redeemable at the option of the
Company at any time after July 27, 2003 at a price equal to the principal amount
of the Note converted into such Preference Stock plus accrued but unpaid
dividends, and (iv) otherwise contain terms consistent with the Note (including,
without limitation, that such Preference Stock will be secured by the Collateral
and registered under the Securities Act, as defined below), to the extent
permissible under applicable laws.
(vi)
(c) SURRENDER OF NOTE AND DELIVERY OF CERTIFICATES. When surrendered for
conversion, this Note shall, unless the shares issuable on conversion are to be
issued in the same name as the name in which this Note is then registered, be
duly endorsed by, or accompanied by instruments of transfer in form satisfactory
to the Company duly executed by, the holder or his or its duly authorized
attorney. As promptly as practicable after the surrender of this Note for
conversion and the receipt of the notice specified above, the Company shall
deliver or cause to be delivered at its principal
3
<PAGE> 4
executive office to the holder, or on the holder's written order, a certificate
or certificates for the number of full shares issuable upon the conversion of
this Note, or portion hereof, in accordance with the provisions hereof. Such
conversion shall be deemed to have been made at the time this Note shall have
been surrendered for conversion and the notice specified above shall have been
received by the Company at its principal executive office in the case of
conversion pursuant to Section 3(a)(i) or by the registered holder at such
holder's address appearing in the Note Register in the case of conversion
pursuant to Section 3(a)(ii) (the "Conversion Date"), and the holder in whose
name any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become on the Conversion
Date the holder of record of the shares represented thereby. If less than the
entire outstanding principal amount of this Note is being converted (in the case
of conversion pursuant to Section 3(a)(i)), a new Note shall promptly be
delivered to the holder for the unconverted principal balance and shall be of
like tenor as to all terms as the Note surrendered.
(d)
(e) ADJUSTMENT OF CONVERSION PRICE.
(f)
(i) In case the Company shall:
(ii)
(A) declare a dividend of its Common Stock on its Common Stock,
(A) subdivide outstanding Common Stock into a larger number of shares of
Common Stock by reclassification, stock split or otherwise, or
(A) combine outstanding Common Stock into a smaller number of shares of
Common Stock by reclassification or otherwise, the number of shares of
Common Stock issuable upon conversion of this Note immediately prior to
any such event shall be adjusted proportionately so that thereafter the
holder of this Note shall be entitled to receive upon conversion of this
Note the number of shares of Common Stock which such holder would have
owned after the happening of any of the events described above had this
Note been converted immediately prior to the happening of such event,
provided that the Conversion Price shall in no event be reduced to less
than the par value of the shares issuable upon conversion. An adjustment
made pursuant to this Section 3(c) shall become effective immediately
after the record date in the case of a dividend and shall become
effective immediately after the effective date in the case of a
subdivision or combination.
(i) If, prior to maturity of this Note, the Company shall at any time
consolidate or merge with another corporation (other than a merger or
consolidation in
4
<PAGE> 5
which the Company is the surviving corporation), the registered holder hereof
will thereafter be entitled to receive, upon the conversion hereof, the
securities or property to which a holder of the number of shares of Common Stock
then deliverable upon the conversion hereof would have been entitled upon such
consolidation or merger, and the Company shall take such steps in connection
with such consolidation or merger as may be necessary to ensure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to any securities or property thereafter deliverable upon the
conversion of this Note.
(ii)
(b) NOTICE. In case the Company proposes to take any action referred to in
Section 3(c) above, or to effect the liquidation, dissolution or winding up of
the Company, then the Company shall cause notice thereof to be mailed to the
registered holder of this Note, at such holder's address appearing in the Note
Register, at least twenty (20) days prior to the date on which the transfer
books of the Company shall close or a record be taken for such stock dividend or
the date when such reclassification, liquidation, dissolution or winding up
shall be effective, as the case may be.
(c)
(d) STATEMENT OF ADJUSTMENT. Whenever the Conversion Price shall be adjusted as
provided in Section 3(c) above, the Company shall forthwith file at each office
designated for the conversion of this Note, a statement, signed by the Chairman
of the Board, the President, any Vice President, the Treasurer or Secretary of
the Company, showing in reasonable detail the facts requiring such adjustment
and the Conversion Price that will be effective after such adjustment. The
Company shall also cause a notice setting forth any such adjustment to be sent
by mail, first class, postage prepaid, to the record holder of this Note at his
or its address appearing on the Note Register. Where appropriate, such notice
may be given in advance and may be included as part of a notice required to be
mailed under the provisions of Section 3(d) hereof.
(e)
(f) FRACTIONAL SHARES. No fractional shares of Common Stock shall be issuable
upon conversion of this Note, but a payment in cash will be made in respect of
any fraction of a share which would otherwise be issuable upon the surrender of
this Note, or portion hereof, for conversion. Such payment shall be based on the
fair market value of the Common Stock at the time of conversion of this Note, as
determined in good faith by the Board of Directors.
(g)
(h) ACCRUED INTEREST. Upon the conversion of this Note, the Company shall be
required to pay accrued but unpaid interest on the amount so converted up to the
Conversion Date.
(i)
(j) SECURITIES ACT OF 1933. Upon conversion of this Note, if the Common Stock
issuable upon conversion of this Note is not then registered under the
Securities Act of 1933, as amended (the "Securities Act"), the registered holder
may be required to execute and deliver to the Company an instrument, in form
satisfactory to the Company, representing that the shares issuable upon
conversion hereof are being
5
<PAGE> 6
acquired for investment and not with a view to distribution within the meaning
of the Securities Act.
1. REDEMPTION.
2.
(a) Subject to the Intercreditor Agreement, this Note may, at the option of
the Company, be called for redemption, in whole or in part at any time or from
time to time without premium or penalty at one hundred percent (100%) of the
principal amount so redeemed, plus accrued and unpaid interest on such redeemed
principal amount to the date fixed for redemption. The Company shall give at
least thirty (30) days prior written notice of redemption to the registered
owner at his or its address as shown in the Note Register, and the notice of
redemption shall specify the date and place designated for redemption.
(a) Subject to the Intercreditor Agreement, the entire unpaid principal amount
of the Note, may be called for redemption at the option of the holder of this
Note, after September 1, 2000, at one hundred percent (100%) of the principal
amount of the Note then outstanding plus accrued and unpaid interest on such
principal amount to the date fixed for redemption. The holder shall give at
least thirty (30) days prior written notice of redemption to the Company, and
the notice shall specify the date designated for redemption which shall take
place at the Company's principal offices.
(b)
(c) On or after the redemption date fixed in the notice of redemption, no
further interest shall accrue on the principal amount so redeemed, and this Note
(to the extent so redeemed) shall cease to be convertible as set forth in
Section 3. Payment of the redemption price shall be made to the registered
holder of this Note upon presentation and surrender of this Note accompanied by
a duly executed instrument of transfer in blank, at the principal executive
office of the Company. In the event of a partial redemption, this Note shall be
presented to the Company for endorsement of the amount of payment and date paid
as a condition precedent to such payment.
(d)
2. DEFAULT.
3.
Subject to the Intercreditor Agreement, the entire unpaid principal of
this Note and the interest then accrued on this Note shall become and be
immediately due and payable upon written demand of the holder of this Note,
without any other notice or demand of any kind or any presentment or protest, if
any one of the following events shall occur and be continuing at the time of
such demand, whether voluntarily or involuntarily, or, without limitation,
occurring or brought about by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any governmental body (each, an "Event of Default"):
(a) If default shall (i) be made in the payment of any installment of
principal or interest on this Note, (ii) occur under the Note Purchase
Agreement,
6
<PAGE> 7
(b) (iii) occur under the Security Documents, or (iv) occur under the Company's
senior credit facility and if any such default shall remain unremedied for the
longer of (aa) the applicable grace period set forth in the Intercreditor
Agreement or (bb) one hundred twenty (120) days after written notice of such
default in the case of an event described in clause (ii), (iii) or (iv) has been
delivered by the Holder to the Company during which period of default in the
payment of interest the rate of interest on the unpaid principal amount of this
Note shall increase to 16.5% per annum and decrease to 15% upon the payment of
such interest.
(c)
(d) If the Company (i) makes a composition or an assignment for the benefit of
creditors or trust mortgage, (ii) applies for, consents to, acquiesces in, files
a petition seeking or admits (by answer, default or otherwise) the material
allegations of a petition filed against it seeking the appointment of a trustee,
receiver or liquidator, in bankruptcy or otherwise, of itself or of all or a
substantial portion of its assets, or a reorganization, arrangement with
creditors or other remedy, relief or adjudication available to or against a
bankrupt, insolvent or debtor under any bankruptcy or insolvency law or any law
affecting the rights of creditors generally, or (iii) admits in writing its
inability to pay its debts generally as they become due; or
(e)
(f) If an order for relief shall have been entered by a bankruptcy court or if
a decree, order or judgment shall have been entered adjudging the Company
insolvent, or appointing a receiver, liquidator, custodian or trustee, in
bankruptcy or otherwise, for it or for all or a substantial portion of its
assets, or approving the winding-up or liquidation of its affairs on the grounds
of insolvency or nonpayment of debts.
(g)
2. REGISTRATION UNDER THE SECURITIES ACT.
3.
4. If this Note and the shares of Common Stock issuable upon conversion of
this Note have not been registered under the Securities Act on or before
November 24, 1998, the rate of interest on the unpaid principal amount of this
Note shall increase commencing on November 25, 1998 at the annual rate of 0.5%
per 30 day period up to a maximum of 16.5% until such registration statements
are declared effective and decrease to 15% when such registration statements are
declared effective.
5.
6. NOTE REGISTER.
7.
(a) The Company shall keep at its principal executive office a register
(herein sometimes referred to as the "Note Register"), in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), the Company shall provide for the registration and
transfer of this Note.
(b)
(c) Whenever this Note shall be surrendered at the principal executive office
of the Company for transfer or exchange, accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company duly executed by the
holder hereof or his
7
<PAGE> 8
or its attorney duly authorized in writing, the Company shall execute and
deliver in exchange therefor a new Note or Notes, as may be requested by such
holder, in the same aggregate unpaid principal amount and payable on the same
date as the principal amount of the Note or Notes so surrendered; each such new
Note shall be dated as of the date to which interest has been paid on the unpaid
principal amount of the Note or Notes so surrendered and shall be in such
principal amount and registered in such name or names as such holder may
designate in writing.
(d)
(e) Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Note and of indemnity by SWIB
or indemnity otherwise reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Note (in case of mutilation) the Company
will make and deliver in lieu of this Note a new Note of like tenor and unpaid
principal amount and dated as of the date to which interest has been paid on the
unpaid principal amount of this Note in lieu of which such new Note is made and
delivered.
(f)
8. NO VOTING RIGHTS.
9.
10. The holder of this Note shall have no voting rights with respect to the
shares of Common Stock into which this Note may be converted unless and until
this Note is converted into shares of Common Stock.
1. GENERAL.
2.
(a) SUCCESSORS AND ASSIGNS. This Note, and the obligations and rights of the
Company hereunder, shall be binding upon and inure to the benefit of the
Company, the holder of this Note, and their respective heirs, successors and
assigns.
(a) RECOURSE. Recourse under this Note shall be to the Collateral and the
Company only and in no event to the officers, directors or stockholders of the
Company.
(b)
(c) CURRENCY. All payments shall be made in such coin or currency of the
United States of America as at the time of payment shall be legal tender therein
for the payment of public and private debts.
(d)
(e) NOTICES. All notices, requests, consents and demands shall be made in
writing and shall be mailed postage prepaid, telecopied (which is confirmed) or
delivered by hand, to the Company or to the holder hereof at their respective
addresses set forth below or to such other address as may be furnished in
writing to the other party hereto:
(f)
(g) If to the holder: State of Wisconsin Investment Board
(h) 121 East Wilson Street
(i) Madison, WI 53707-7842
8
<PAGE> 9
(j) Attention: Investment Director, Small
(k) Cap Stocks
(l) Facsimile: (608) 266-2436
(m)
(n) If to the Company: CML Group, Inc.
(o) 524 Main Street
(p) Acton, MA 01720
(q) Attention: President
(r) Facsimile: (978) 264-4073
(s)
(t) SATURDAYS, SUNDAYS, HOLIDAYS. If any date that may at any time be
specified in this Note as a date for the making of any payment of principal or
interest under this Note shall fall on Saturday, Sunday or on a day which in the
city of Boston, Massachusetts shall be a legal holiday, then the date for the
making of that payment shall be the next subsequent day which is not a Saturday,
Sunday or legal holiday.
(u)
(v) GOVERNING LAW. This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the
Commonwealth of Massachusetts.
(w)
IN WITNESS WHEREOF, this Note has been executed and delivered as a sealed
instrument on the date first above written by the duly authorized representative
of the Company.
CML GROUP, INC.
By: _______________________
John A.C. Pound
President
ATTEST: __________________________
Glenn E. Davis
Secretary
9
<PAGE> 1
CML GROUP, INC.
524 MAIN STREET
ACTON, MASSACHUSETTS 01720
August 10, 1998
VIA TELECOPIER
- --------------
603-569-8082
Mr. G. Robert Tod
P. O. Box 860
Wolfeboro, NH 03894
Dear Bob:
In connection with your termination of employment, set forth below are
the benefits which CML Group, Inc. agrees to pay you in return for the execution
of a copy of this letter with the release it includes.
Your termination of employment with CML Group, Inc. (the "Company") is
effective as of June 30, 1998. In connection with your termination, the Company
will provide the following:
1. As severance, you will receive $240,000 payable as follows: to
be paid $20,000/mo. - 9 months - August 98 - April 99 and $60,000 - May 1, 99.
2. In addition, the Company will immediately take steps to (a)
notify the Trustee of said so-called Rabbi Trust established in connection with
the terms of the Retirement Income and Survivor Security Program (" Retirement
Income Program") that the Retirement Income Program established for your benefit
has been modified and amended to provide for immediate distribution to you of
the policies currently held in said Trust for the purpose of providing all of
your benefits under the Retirement Income Program; provided that if this cannot
be accomplished for any reason then said Retirement Income Program shall be
amended and modified to provide that the Trustee shall be directed by the
Company to surrender any policies insuring your life which are owned by said
Trust and promptly distribute to you the cash value of such policies which are
received by the Trustee on such surrender, and has (b) issued to you 38,310
shares of common stock of the Company to which you are entitled under the
Company's Incentive Deferred Compensation Plan. These distributions will
constitute
<PAGE> 2
Mr. G. Robert Tod
August 1, 1998
Page 2
full payment and satisfaction of the Company's obligations to you under the
Retirement Income Program and of all other retirement or severance obligations
to you, other than as stated in this letter and other than retirement benefits
provided under the terms of any qualified retirement plan under Section 401 of
the Internal Revenue Code.
3. You and the Company agree to take steps promptly to surrender
the three split-dollar insurance policies listed in APPENDIX A hereto in
exchange for their respective cash surrender values (cumulatively "Insurance
Proceeds") and further agree to distribute $_____________ of the Insurance
Proceeds to the Company (being the amount equal to the aggregate cumulative
premiums paid by the Company to the extent not previously withdrawn) and the
balance of the Insurance Proceeds to you. In addition, the Company agrees to
distribute to you the three salary deferral policies listed on APPENDIX B hereto
in such manner as the insurer may require.
4. In addition, you will be permitted to continue your use of the
leased automobile which you currently use, subject to your reimbursement of the
Company at the rate of $200 per month, until the distributions under Sections 2
and 3 are completed. After the end of the month in which such distributions are
completed, until December 31, 1998, you will be permitted to continue such
automobile use, subject to reimbursement to the Company of all its expenses in
maintaining said automobile as set forth in a written statement provided by the
Company.
5. Effective as of your termination of employment you are
eligible for (i) continuation of your medical benefits under the Company's
health plans to the extent and on the terms required by Section 4980B of the
Internal Revenue Code, as amended, ("COBRA"), (ii) such use of an office at the
Company as President and Chief Executive Officer shall determine from time to
time, and (iii) the benefits of the discount policy for employees in effect for
employees of Nordic Track and Smith & Hawken, from time to time, until July 31,
1999.
In consideration of the Company's undertakings, you agree as follows:
1. You hereby fully, forever, irrevocably and unconditionally
release the Company, its officers, directors, stockholders, corporate
affiliates, attorneys, agents and employees from any and all claims of every
kind and nature which you ever had or now have against the Company, its
officers, directors, stockholders, corporate affiliates, attorneys, agents and
employees, including, but not limited to, all claims arising out of your
employment, all employment discrimination claims under Title VII of the Civil
Rights Act of 1964, 42 U.S.C. Section 2999e Et Seq., the Americans With
Disabilities Act,
<PAGE> 3
Mr. G. Robert Tod
August 1, 1998
Page 3
42 U.S.C. Section 12191 Et Seq., the Age Discrimination in Employment Act, 29
U.S.C. Section 621 Et Seq., and Massachusetts Fair Employment Practices Act,
M.G. L. c.151B, Section 1 Et Seq., wrongful discharge claims or other common law
claims.
2. You agree that, during the two year period beginning on the
date of your execution of a copy of this letter, you will not, without the prior
specific consent of the Company, in any capacity, either separately, jointly, or
in association with others, directly or indirectly, encourage, solicit,
initiate, engage or participate in discussions or negotiations with any person
or entity concerning any merger, consolidation, purchase of material assets,
tender offer, accumulation of shares of the Company's capital stock, proxy
solicitation or other business combination involving the Company, any subsidiary
of the Company or any division of the Company or any such subsidiary; PROVIDED,
HOWEVER, that nothing herein shall prevent you from bringing to the attention of
the Company any unsolicited offer or proposal relating to the foregoing.
3. You agree that, as a condition for these payments to you, you
will not make any false, disparaging or derogatory statements in public or
private regarding the Company or any of its directors, officers, employees,
agents, or representatives or the Company's business affairs and financial
condition; and the Company agrees that it will not make any false, disparaging
or derogatory statements in public or private regarding you.
4. You will not, directly or indirectly, during the two year
period beginning on the date of your execution of this letter, recruit, solicit
or hire any key employee of the Company, or induce or attempt to induce any key
employee of the Company to terminate his or her employment with, or otherwise
cease his or her relationship with, the Company.
5. You expressly agree that breach of your agreement to the
provisions in Paragraphs 2, 3 and 4 would result in irreparable injuries to the
Company, that the remedy at law for any such breach would be inadequate and that
upon breach of either of these provisions, the Company, in addition to all other
available remedies, shall be entitled as a matter of right to injunctive relief
in any court of competent jurisdiction without the necessity of proving the
actual damage to the Company.
This agreement will be governed by the laws of the Commonwealth of
Massachusetts and is binding upon and shall inure to the benefit of the parties
and their respective agents, assigns, heirs, executors, successors and
administrators.
<PAGE> 4
Mr. G. Robert Tod
August 1, 1998
Page 4
This letter contains and constitutes the entire understanding and
agreement between you and the Company with respect to severance and supersedes
and cancels all previous oral and written negotiations, agreements, commitments
and writings in connection with your severance. To the extent permitted by law,
you agree that the contents of our discussions and negotiations resulting in
this letter and agreement, shall be maintained as confidential by you, your
agents and representatives, and any dispute resolved by this document shall also
remain confidential, and none of the above shall be disclosed except to the
extent required by federal or state law or as otherwise agreed to in writing by
the authorized agent of each party.
You hereby acknowledge you have been given twenty-one (21) days to
consider this agreement and that the Company advised you to consult with any
attorney of your choosing prior to signing this agreement. You may revoke this
agreement for a period of seven (7) days after its execution, and the agreement
will not be effective or enforceable until the expiration of this seven (7) day
revocation period.
Very truly yours,
CML Group, Inc.
By /s/ John A.C. Pound
------------------------------------
John A.C. Pound, President and
Chief Executive Officer
I agree to all the terms of this letter.
/s/ G. Robert Tod
- -------------------------
G. Robert Tod
Dated: August 18, 1998
<PAGE> 1
Kathleen Tierney Employment Agreement
First Amendment
Whereas, the undersigned, being all the parties to the Kathleen Tierney
Employment Agreement previously executed in 1998 (the "Agreement"), wish to
amend the terms of said Agreement; and
Whereas, the amendment is intended to align the definition of a Sale
set forth in Section 3.4 of the Agreement with such definition as set forth in
the employment agreements of certain other key employees of Smith & Hawken which
were executed a short time after the execution of the Agreement at a time when
such definition had been further clarified.
Now, Therefore, the said undersigned, being all the parties to the
Agreement, hereby amend the first paragraph of Section 3.4 of the Agreement to
read as follows:
"In the event that, during the Employment Period (or within 90 days
thereafter if Employee is terminated without Cause under Section 4.3), CML sells
the Company if either (i) CML ceases to own at least 50% of the equity of the
Company (except as a result of CML's "spinoff" of the Company into a separate
publicly traded corporation where the shareholders of the Company and CML
immediately after the spinoff are substantially the same), or (ii) all or
substantially all of the assets of the Company are no longer owned by the
Company (each hereinafter referred to as a "Sale"), the Company agrees to pay
the Employee a bonus ("Sale Bonus") calculated as a percentage of the "Net
Consideration" received in connection with the Sale. The Sale Bonus shall be
calculated as follows:"
Executed as of the effective date of the Agreement.
CML GROUP, INC. SMITH & HAWKEN, LTD.
By: /s/ John A.C. Pound By: /s/ Kathy Tierney
-------------------------- ------------------------------
John A.C. Pound Kathleen Tierney
Title: Chairman Title: CEP/President
8/14/98 Employee
/s/ Kathy Tierney
----------------------------------
Kathleen Tierney
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this ______ day of
____________, is entered into by CML Group, Inc., a corporation with its
principal place of business at 524 Main Street, Acton, MA (the "CML"), Facsimile
Number 978-263-2178, Smith & Hawken, Ltd., a wholly-owned subsidiary of CML,
with its principal place of business at 117 E. Strawberry Drive, Mill Valley, CA
(the "Company") Facsimile Number _______________, and David McCreight, residing
at ____________________________, CA ______ (the "Employee"), Facsimile Number
_________________.
The Company desires to continue to employ the Employee, and the
Employee desires to continue to be employed by the Company. In consideration of
the mutual covenants and promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, the parties agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to continue to employ the
Employee, and the Employee hereby accepts continued employment with the Company,
upon the terms set forth in this Agreement, commencing on April 1, 1998 (the
"Commencement Date") and continuing hereunder until a termination in accordance
with the provisions of Section 4 (the "Employment Period").
2. TITLE; CAPACITY.
3 2.1 The Employee shall serve as Senior Vice President and General
Merchandise Manager of the Company and be subject to the supervision of the
President and Chief Executive Officer of the Company. He shall have such
authority as is consistent with his service as Senior Vice President and General
Merchandise Manager.
4 The Employee hereby agrees to continue employment with the Company and
serve as Senior Vice President and General Merchandise Manager and perform the
duties and responsibilities of such positions and such other duties and
responsibilities, consistent with his position as Senior Vice President and
General Merchandise Manager of the Company, as the President and Chief Executive
Officer of the Company shall from time to time reasonably assign to him.
5 2.2 The Employee shall continue to be based at the Company's
headquarters in Mill Valley, California, or such other place or places within
the San Francisco metropolitan area in which the headquarters is located,
without his prior consent. The Employee agrees to devote his entire business
time, attention and energies to the business and interests of the Company during
the Employment Period.
1
<PAGE> 2
6. COMPENSATION AND BENEFITS.
7 3.1 SALARY. Effective April 1, 1998, the Company shall pay the
Employee, in monthly installments, an annual base salary of $200,000 during the
Employment Period ("Annual Base Salary"). Such salary shall be reviewed annually
by the Board of Directors of CML (the "Board") at the beginning of each fiscal
year of the Company, beginning with the fiscal year commencing August 1, 1999.
8 3.2 BONUSES. Set forth in Sections 3.2 and 3.3.2 are the terms of
the cash and option bonuses for which the Employee is eligible, based on (i) an
objective formula, and (ii) discretionary criteria, which may be awarded to the
Employee for the Company's fiscal year ending July 31, 1998 (the "98 Bonuses").
In addition, the Company, CML, and the Employee shall work together, in good
faith, beginning as soon as practicable after the Company's financial goals for
the fiscal year ending July 31, 1999 have been determined, to establish the
terms of bonuses, based on concepts set forth on SCHEDULE A (to be completed by
the parties as soon as practicable), for which the Employee will be eligible,
based on the performance of the Employee and the Company, during the Company's
fiscal year ending July 31, 1999 (the "99 Bonuses"). The terms of the 99 Bonuses
will be set forth in a written instrument signed by all parties to this
Agreement.
9 3.2.1 FORMULA BONUS. The Company shall pay the Employee a
cash bonus for the Company's fiscal year ending July 31, 1998 ("FY 98"), if the
Employee is employed on July 31, 1998, equal to the largest amount for which he
qualifies under the provisions of the attached SCHEDULE B. "EBIT" as used in
this Agreement, and in any Schedules to this Agreement, means the Company's
Earnings Before Interest and Taxes as determined in accordance with generally
accepted accounting principles by the Company's independent accountants;
provided that in determining EBIT the bonuses that would otherwise have been
payable to the Employee and to Kathleen Tierney and Kevin Shahan under the bonus
program set forth on SCHEDULE C, which is no longer in effect, shall be included
as a compensation expense in determining FY 98 EBIT and not the bonuses payable
under Sections 3.2.1 and 3.2.2.
10 3.2.2 DISCRETIONARY BONUS. The Company may, in the sole
discretion of the Board, pay the Employee a discretionary bonus of up to 12.5%
of Annual Base Salary. In determining the amount of the discretionary bonus, if
any, to be paid under this provision, the Board will consider those factors it
deems appropriate, including, without limitation, the extent of Employee's
attainment of those operational and organizational goals set forth in SCHEDULE D
annexed hereto
11 3.2.3 BONUS PAYMENT. Employee must be employed by the
Company on July 31, 1998 in order to receive any bonus and any bonus will be
paid
2
<PAGE> 3
within 30 days following the completion of the FY 98 audit by the Company's
independent accountants.
12 3.3 OPTIONS.
13 3.3.1 IMMEDIATE OPTION GRANT. Upon execution of this
Agreement, Employee will be granted an option to purchase 75,000 shares of
common stock of CML with an exercise price equal to the closing price of CML's
common stock on the New York Stock Exchange (the "Fair Market Value") on the
date of grant. Such option will vest as to 50% of the shares covered thereby on
the date of grant, an additional 25% on April 1, 1999, if he is then still
employed by the Company, and the remaining 25% on April 1, 2000, if he is then
still employed by the Company. The option shall be subject to such other
provisions as are set forth in the stock option agreements attached hereto as
APPENDIX I.
14 3.3.2 PERFORMANCE OPTION.
15 (a) FORMULA GRANT. After completion of the audit
of CML's financial statements for FY 98, the Company will grant to the Employee
an option to purchase the largest number of shares of common stock of CML for
which he qualifies in accordance with the provisions of the attached SCHEDULE E,
provided that he is then employed by the Company.
16 (b) DISCRETIONARY GRANT. After the end of FY 98,
the Company may, in the sole discretion of the Board, grant Employee an option
to purchase up to an additional 25,000 shares of CML common stock. In
determining whether to grant any such additional options, the Board will
consider those factors it deems appropriate, including, without limitation, the
extent of Employee's attainment of those operational and organizational goals
set forth on the attached SCHEDULE D.
17 (c) GRANT PROCESS. Options to be granted to the
Employee pursuant to this Section 3.3.2. shall be granted promptly after
completion of the FY 98 audit by the Company's independent accountants. Such
options will be exercisable at Fair Market Value on the date of grant and will
vest as to 50% of the shares covered thereby on the date of grant, an additional
25% on July 31, 1999, if the Employee is then still employed by the Company and
the remaining 25% on July 31, 2000, if the Employee is then still employed by
the Company. The option will be subject to such other provisions as are set
forth in the stock option agreements attached hereto as APPENDIX I. To the
extent consistent with the law, the Company will grant options intended to
qualify as incentive stock options to the Employee under this Section 3.
18 3.4 SALE BONUS. In the event that, during the Employment Period
(or within 90 days thereafter if Employee is terminated without Cause under
Section 4.3), CML sells the Company, either (i) CML ceases to own at least 50%
of the equity of
3
<PAGE> 4
the Company (except as a result of CML's "spinoff" of the Company into a
separate publicly traded corporation where the shareholders of the Company and
CML immediately after the spinoff are substantially the same) or (ii) all or
substantially all of the assets of the Company are no longer owned by the
Company (each hereinafter referred to as a "Sale"), the Company agrees to pay
the Employee a bonus ("Sale Bonus") calculated as a percentage of the "Net
Consideration" received in connection with the Sale. The Sale Bonus shall be
calculated as follows:
(a) If the Net Consideration is $50 Million or less, the
Sale Bonus is Zero ($0).
(b) If the Net Consideration is greater than $50 Million
but less than or equal to $70 Million the Sale Bonus
shall equal three-eighths of one percent (3/8%) of
the amount by which the Net Consideration exceeds $50
Million.
(c) If the Net Consideration is greater than $70 Million,
the Sale Bonus shall be equal to (i) $75,000, plus
(ii) five-eighths of one percent (5/8%) of the amount
by which the Net Consideration exceeds $70 Million.
The Sale Bonus will be paid in twelve (12) equal monthly installments over the
12-month period following receipt of the Net Consideration, PROVIDED, HOWEVER,
that in the event the Employee's employment with the Company is terminated for
death or disability pursuant to Section 4.2, or the Employee is terminated
without Cause under Section 4.3, the balance of the Sale Bonus shall be paid to
the Employee in a lump-sum at the time of such termination.
The term "Net Consideration" means the fair market value on the date of
the consummation of the Sale of all consideration in the form of cash or
securities received by CML or the Company in connection with the Sale, less (i)
all fees and expenses incurred in connection with the Sale, and (ii) any
liabilities of the Company not assumed in the Sale and any expenses incurred in
the settlement of such liabilities. If any portion of the Net Consideration is
other than cash, then for the purpose of computing any Sale Bonus payable to the
Employee, the Net Consideration shall be valued as follows: (i) publicly traded
securities shall be valued at the average of their closing prices (as reported
in the Wall Street Journal) for the twenty (20) trading days prior to the
consummation of the Sale; (ii) any other consideration such as straight or
convertible debt securities or obligations, or installment sale notes,
unmarketable securities or other securities shall be valued at the fair market
value thereof as determined in good faith by CML. In the event of any
acquisition of Company assets,
4
<PAGE> 5
the face amount of debt assumed by the acquiring party shall be valued at the
time of the sale and included as part of the Net Consideration. Any Sale Bonus
calculated on amounts paid into escrow will be payable at the time or times such
amounts are released from such escrow. If the payment of any portion of the Net
Consideration is contingent on any future event, that portion of the Net
Consideration will be calculated and payable if and when such contingent payment
is made.
3.5 BENEFITS. The Employee shall be entitled to participate in all
other benefit programs that the Company provides to its employees, if any, to
the extent that Employee's position, tenure, salary, age, health and other
qualifications make him eligible to participate.
3.6 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, PROVIDED, HOWEVER, that the
amount available for such travel, entertainment and other expenses may be fixed
in advance by the Board, consistent with past practice.
1. EMPLOYMENT TERMINATION. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:
2 4.1 At the election of the Board, for Cause, immediately upon
written notice by the Board to the Employee. For the purposes of this Section
4.1, Cause for termination shall be deemed to exist upon (a) a good faith
finding by the Board of a material failure of the Employee to perform his
assigned duties for the Company, which will not be based solely on the Company's
failure to meet its budget, (a "Material Failure"), dishonesty, gross negligence
or misconduct, or (b) the conviction of the Employee of, or the entry of a
pleading of guilty or nolo contendere by the Employee to, any crime involving
moral turpitude or any felony; provided that any termination based on a Material
Failure can only occur after the Employee has received a written notice
identifying such Material Failure (whether or not such Material Failure existed
prior to the notice but was not the subject of a notice) and giving him at least
thirty (30) days within which to correct such Material Failure (the "Warning")
and such correction has not occurred within such thirty (30) days period, and;
provided further that only one Warning will be required under this Agreement and
thereafter, even if correction occurred after the Warning, the Employee may be
terminated without any further
5
<PAGE> 6
Warning, if the Board determines that any previously identified Material Failure
has recurred after such 30-day period.
3 4.2 Thirty days after the death or disability of the Employee. As
used in this Agreement, the term "disability" shall mean the inability of the
Employee, due to a physical or mental disability, for a period of ninety (90)
days, whether or not consecutive, during any 360-day period to perform the
services contemplated under this Agreement. A determination of disability shall
be made by a physician satisfactory to both the Employee and the Company,
PROVIDED THAT if the Employee and the Company do not agree on a physician, the
Employee and the Company shall each select a physician and these two together
shall select a third physician, whose determination as to disability shall be
binding on all parties;
4 4.3 At the election of the Company, without Cause, or, at the
election of the Employee, upon written notice to the other parties to this
Agreement.
5. EFFECT OF TERMINATION.
6 5.1 TERMINATION FOR CAUSE OR UPON EMPLOYEE'S ELECTION TO
TERMINATE. In the event the Employee's employment is terminated for cause
pursuant to Section 4.1 or at the Employee's election under Section 4.3, the
Company shall pay to the Employee the compensation and benefits otherwise
payable to him under Section 3 through the last day of his actual employment by
the Company including any payment due to Employee under the terms of any Formula
Bonus provision in effect for the fiscal year of the Company ended prior to the
Employee's last day of employment.
7 5.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of disability pursuant to Section
4.2, the Company shall pay to the estate of the Employee or to the Employee, as
the case may be, the compensation which would otherwise be payable to the
Employee up to the end of the month in which the termination of his employment
because of death or disability occurs and any payment due to Employee under the
terms of any Formula Bonus provision in effect for the fiscal year of the
Company ended prior to the Employee's last day of employment.
8 5.3 TERMINATION OTHER THAN FOR CAUSE, OR UPON DEATH OR DISABILITY.
If the Employee's employment is terminated by the Company other than on account
of Cause, Death or Disability, then the Employee will receive: (i) all
compensation and benefits payable to him under Section 3 of this Agreement,
through the end of the month in which his employment terminates, (ii) monthly
payments of 1/12 of his Annual Base Salary at the rate he is being paid at the
time of such termination, for fifteen (15) months following the end of the month
in which or with which such termination occurs, (iii) a fraction of any bonus he
would have received after the end of
6
<PAGE> 7
the fiscal year in which such termination occurs, under any formula bonus
program in which he is participating at the time of such termination, determined
by multiplying the amount he would have received by a fraction, the numerator of
which is the number of full or partial months of the fiscal year in which he was
employed and the denominator of which is 12, and (iv) any payment due to
Employee under the terms of any Formula Bonus provision in effect for the fiscal
year of the Company ended prior to the Employee's last day of employment.
9 5.4 SURVIVAL. The provisions of Sections 3.4, 5, 6 and 7 shall
survive the termination of this Agreement.
10. NON-SOLICITATION.
11 (a) During the Employment Period, and for a period of fifteen (15)
months after the termination thereof, the Employee will not directly or
indirectly:
12 (i) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
13 (ii) solicit, divert or take away, or attempt to divert or
to take away, the Company's relationship with vendors or suppliers, or with
customers with which the Company has a contract, which were contacted, solicited
or served by the Employee while employed by the Company.
14 (b) If any restriction set forth in this Section 6 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
15 (c) The restrictions contained in this Section 6 are necessary for
the protection of the business and goodwill of the Company and are considered by
the Employee to be reasonable for such purpose. The Employee agrees that any
breach of this Section 6 may cause the Company substantial and irrevocable
damage and therefore, in the event of any such breach, in addition to such other
remedies which may be available, the Company shall have the right to seek
specific performance and injunctive relief.
16. PROPRIETARY INFORMATION AND DEVELOPMENTS.
17 7.1 PROPRIETARY INFORMATION.
18 (a) Employee agrees that all information and know-how,
whether or not in writing, of a private, secret or confidential nature
concerning the Company's business or financial affairs (collectively,
"Proprietary Information") is and shall be the exclusive property of the
Company. By way of illustration, but not
7
<PAGE> 8
limitation, Proprietary Information may include inventions, products, processes,
methods, techniques, formulas, compositions, compounds, projects, developments,
plans, research data, clinical data, financial data, personnel data, computer
programs, and customer and supplier lists. Except as required by law, Employee
will not disclose any Proprietary Information to others outside the Company or,
use the same, for any unauthorized purposes without written approval by an
officer of CML, either during or after his employment, unless and until such
Proprietary Information has become public knowledge without fault by the
Employee.
19 (b) Employee agrees that all files, letters, memoranda,
reports, records, data, sketches, drawings, laboratory notebooks, program
listings, or other written, photographic, or other tangible material containing
Proprietary Information, whether created by the Employee or others, which shall
come into his custody or possession, shall be and are the exclusive property of
the Company to be used by the Employee only in the performance of his duties for
the Company.
20 (c) Employee agrees that his obligation not to disclose
or use information, know-how and records of the types set forth in paragraphs
(a) and (b) above, also extends to such types of information, know-how, records
and tangible property of customers of the Company or suppliers to the Company or
other third parties who may have disclosed or entrusted the same to the Company
or to the Employee in the course of the Company's business unless such
information, know-how, records or tangible property is in the public domain.
7.2 DEVELOPMENTS.
(a) Employee will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries, methods, developments,
software, and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by the Employee or under his direction or
jointly with others during his employment by the Company, whether or not during
normal working hours or on the premises of the Company (all of which are
collectively referred to in this Agreement as "Developments").
(b) Employee agrees to assign and does hereby assign to
the Company (or any person or entity designated by the Company) all his right,
title and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this Section 7(b)
shall not apply to Developments which do not relate to the present or planned
business or research and development of the Company and which are made and
conceived by the Employee not during normal working hours, not on the Company's
premises and not using the Company's tools, devices, equipment or Proprietary
Information.
8
<PAGE> 9
(c) Employee agrees to cooperate fully with the Company,
both during and after his employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights and patents (both in the
United States and foreign countries) relating to Developments. Employee shall
sign all papers, including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignment of priority
rights, and powers of attorney, which the Company may reasonably deem necessary
or desirable in order to protect its rights and interests in any Development.
7.3 OTHER AGREEMENTS. Employee hereby represents that he is not
bound by the terms of any agreement with any previous employer (other than any
other company which was a subsidiary of CML) or other party to refrain from
using or disclosing any trade secret or confidential or proprietary information
in the course of his employment with the Company or to refrain from competing,
directly or indirectly, with the business of such previous employer or any other
party. Employee further represents that his performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information, knowledge or data
acquired by him in confidence or in trust prior to his employment with the
Company.
1. NOTICES. All notices required or permitted under this Agreement shall
be in writing and shall be deemed effective upon (a) personal delivery, or (b)
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other parties at the addresses shown above, or
at such other address or addresses as any party shall designate to the others in
accordance with this Section 8, or (c) sending by facsimile to the other parties
at the facsimile numbers shown above, or at such other number or numbers as any
party shall designate to the others in accordance with this Section 8.
2. PRONOUNS. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
3. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
4. AMENDMENT. This Agreement may be amended or modified only by a written
instrument executed by both the Company, CML and the Employee.
5. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
9
<PAGE> 10
6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company or CML may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
7. MISCELLANEOUS.
8 a. No delay or omission by the Company, CML or Employee in
exercising any right under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by the Company, CML or Employee on
any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.
9 b. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
10 c. In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
CML GROUP, INC. SMITH & HAWKEN, LTD.
By:_________________________ By:________________________________
Title:_______________________ Title:_____________________________
EMPLOYEE
-----------------------------------
David McCreight
10
<PAGE> 11
SCHEDULE B
FY 98 Formula Bonus
FY 98 EBIT
<TABLE>
<CAPTION>
Equal To or FY 98
Greater Than Less Than Formula Bonus
------------ --------- -------------
<S> <C> <C>
$ 0 $3,200,000 $20,000
$3,200,000 $3,730,000 $28,575
$3,730,000 $4,200,000 $50,000
$4,200,000 $75,000
</TABLE>
11
<PAGE> 12
SCHEDULE D
FY 98 Operational and Organizational Goals
1. Lower Company Returns in FY'98 from 8.52% of gross sales in FY'97.
2. Assort Catalogs and Stores with seasonally appropriate and quality
merchandise that is unique and priced competitively.
3. Develop a liquidation strategy for each channel.
4. Develop a Visual Merchandising Strategy: including Organization and
Process for Execution of strategy.
5. Develop a Merchandising and Inventory Planning Team that is positioned
for major revenue growth in the next 2 years.
12
<PAGE> 13
SCHEDULE E
FY 98 Performance Options - Formula Grant
FY 98 EBIT
<TABLE>
<CAPTION>
Equal To or FY 98
Greater Than Less Than Formula Option For:
------------ --------- -------------------
<S> <C> <C>
$ 0 $3,730,000 10,000 shares
$3,730,000 $4,200,000 20,000 shares
$4,200,000 33,333 shares
</TABLE>
13
<PAGE> 1
Exhibit 21
----------
CML GROUP, INC.
SUBSIDIARIES OF CML GROUP, INC.*
Jurisdiction
Name of Subsidiary of Incorporation
------------------ ----------------
OBW, Inc. Massachusetts
OCR, Inc. Delaware
OTNC, Inc. California
NordicTrack, Inc.+ Minnesota
NordicTrack GmbH+ Germany
NordicTrack (U.K.) Limited+ United Kingdom
Nordic Advantage, Inc. Minnesota
Nordic Advantage of Ontario, Inc. Canada
WFH Group, Inc. Delaware
BFPI, Inc. Massachusetts
CML International (FSC), Ltd. U.S. Virgin Islands
Smith & Hawken, Ltd.++ Delaware
- ----------------------
* Direct and indirect wholly-owned subsidiaries
+ Does business as NordicTrack
++ Does business as Smith & Hawken
<PAGE> 1
Exhibit 23
----------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-89564, No. 33-34998, No. 33-48864, No. 33-45073, No. 33-58952, No. 33-65385,
No. 33-65387 and No. 33-55660 of CML Group, Inc. and its subsidiaries each on
Form S-8, and Registration Statements No. 33-40936, No. 33-40224, No. 33-58054
and 333-01629 of CML Group, Inc. and its subsidiaries each on Form S-3, of our
report dated September 28, 1998 except for Note 1, the second paragraph of
Note 7 and the tenth paragraph of Note 10 as to which the dates are November 5,
October 14 and November 2, 1998, respectively (which expresses an unqualified
opinion and includes explanatory paragraphs relating to substantial doubt about
the Company's ability to continue as a going concern and the filing under
Chapter 11 of the United States Bankruptcy Code of the Company's NordicTrack
operations), appearing in this Annual Report on Form 10-K of CML Group, Inc.
and its subsidiaries for the year ended July 31, 1998.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CML GROUP, INC. FOR THE TWELVE MONTHS ENDED
JULY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 1,851,000
<SECURITIES> 0
<RECEIVABLES> 9,405,000
<ALLOWANCES> 2,115,000
<INVENTORY> 24,753,000
<CURRENT-ASSETS> 37,648,000
<PP&E> 75,419,000
<DEPRECIATION> 43,474,000
<TOTAL-ASSETS> 94,332,000
<CURRENT-LIABILITIES> 150,563,000
<BONDS> 0
0
0
<COMMON> 6,493,000
<OTHER-SE> (73,151,000)
<TOTAL-LIABILITY-AND-EQUITY> 94,332,000
<SALES> 274,360,000
<TOTAL-REVENUES> 274,360,000
<CGS> 161,875,000
<TOTAL-COSTS> 161,875,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,026,000
<INTEREST-EXPENSE> 11,074,000
<INCOME-PRETAX> (95,962,000)
<INCOME-TAX> 31,416,000
<INCOME-CONTINUING> (127,378,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (127,378,000)
<EPS-PRIMARY> (2.54)
<EPS-DILUTED> (2.54)
</TABLE>
