UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended January 28, 1996
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 34-1-10952
DUTY FREE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 52-1292246
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
63 Copps Hill Road
Ridgefield, Connecticut 06877
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 431-6057
Securities registered pursuant to Section 12(b) of the Act:
Title of class: Common Stock, $.01 par value per share
Name of exchange on which registered: New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ]
No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in a 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 the voting stock held by non-affiliates of
the registrant based upon the closing price of $13.25 per share for the
registrant's common stock as reported by the New York Stock Exchange as
of March 29, 1996 was approximately $294,342,000.
Number of shares of Common Stock of the registrant outstanding as of
March 29, 1996: 27,268,397 shares.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE PART
- ----------------------------------- ---------
1996 ANNUAL REPORT TO STOCKHOLDERS I, II, IV
PROXY STATEMENT FOR THE 1996 ANNUAL
MEETING OF STOCKHOLDERS I, III
<PAGE>
PART I
ITEM 1. BUSINESS
General
The duty free industry is a multi-billion dollar world-wide
industry. Duty free merchandise generally consists of well-known brands
of luxury goods, such as liquor, perfumes and cosmetics, tobacco
products, gifts and other items which are often subject to high rates of
taxation when sold in domestic markets for domestic consumption. Duty
free merchandise sold in the United States includes imported liquor,
tobacco products and luxury goods, as well as domestic products, sold
free of federal duties, excise taxes and state and local sales taxes.
Such merchandise is also generally exempt, within certain allowances,
from import duties and taxes at the traveler's destination.
The duty free industry developed in the United States after World
War II as international travel increased. This increase encouraged the
development of a system which allows a traveler to buy merchandise free
of all duties and sales and excise taxes imposed on domestically
consumed goods. In general, travelers can save 20% to 60% on the
purchase of duty free merchandise in the United States, compared to the
retail price of the same merchandise in the country of their
destination. Most countries have allowances on the import of duty free
goods. Changes in the duty free allowances of foreign countries or in
the eligibility requirements for duty free purchases, as well as changes
in tax and duty rates imposed by foreign jurisdictions, affect sales of
duty free merchandise in United States duty free shops. As a result of
the generally high taxes and duties imposed in certain foreign
countries, it may be more economical for some travelers to exceed these
allowances and pay the import duties imposed by the country of their
destination.
Sales to the diplomatic community are based on reciprocal
agreements between countries, under which duty free purchasing
privileges are given to foreign diplomats serving in the host country.
In the United States, all orders placed by foreign diplomats for duty
free merchandise must be approved by both the Treasury and State
Departments to confirm the diplomat's eligibility for such purchases.
Duty Free International, Inc. (the "Company") operates in several
distinct markets of the duty free industry. The Company is the leading
operator of duty free stores along the United States/Canada and United
States/Mexico borders, one of the leading operators of duty free and
retail stores in international airports in the United States and Puerto
Rico, and is a prime concessionaire and supplier of merchandise to
international airlines' inflight duty free shops. The Company is also
the largest supplier of duty free merchandise to foreign diplomats in
the United States and is a major supplier of merchandise to merchant and
cruise ships from ports in the Northeast United States and Miami,
Florida.
ORGANIZATION AND OPERATIONS
The Company was formed as a Maryland corporation in 1983 to acquire
19 border stores and one airport store. Since its founding, the Company
has grown to be one of the world's largest chains of duty free stores
operating 166 stores and employing over 2,000 people serving locations
in the United States, Puerto Rico, the Caribbean and on international
airlines' inflight duty free shops. The Company has grown by expanding
into additional airport and United States border locations and by
business acquisitions.
<PAGE>
On April 24, 1992, the Company acquired by merger UETA, Inc. ("UETA
Merger") which is the leading operator of duty free stores on the United
States side of the United States/Mexico border. The 30 UETA duty free
stores give the Company a presence at 14 border crossings in the states
of Texas, Arizona and California. The UETA Merger included three duty
free stores at two Texas airports (San Antonio and McAllen) and off-
airport duty free locations in Orlando and Miami, Florida. UETA also
serves cruise and merchant ships in Miami, and serves diplomatic and
wholesale markets from a location in Miami. The acquisition was
accounted for as a pooling of interests with new shares of the Company's
common stock being exchanged for a 100% interest in UETA.
On May 1, 1994, the Company purchased Inflight Sales Group Limited
("Inflight"), and certain non-competition rights, for approximately
$73,300,000. Inflight is the leading concessionaire and supplier of on-
board duty free merchandise to international airlines and is a leading
supplier of amenity kits to international airlines for distribution to
first class and premium class travelers. Inflight currently operates
the on-board duty free concessions for 21 international airlines,
including Delta, Northwest and United Airlines. In addition, through its
exclusive arrangements with certain suppliers, Inflight sells duty free
merchandise to numerous other international airlines. Inflight has
warehouse, distribution and administrative facilities in New York,
Singapore, Hong Kong and the United Kingdom.
During the third quarter of fiscal 1995, the Company undertook a
restructuring plan to improve the Company's profitability. A pre-tax
charge to earnings of $7,571,000 was taken during the year ended January
29, 1995 as a result of restructuring. The implementation of the plan
reduced the Company's workforce by approximately 210 employees and a
total of 23 stores and business locations were closed in fiscal 1995 and
1996. Also, in the third quarter of fiscal 1995, the Company changed
its method of evaluating the recoverability of intangible assets. Under
the new method, fair values of intangible assets are determined based on
the discounted future operating cash flows of the related acquired
operations over the useful life of each intangible asset. Previously,
impairment was measured using undiscounted cash flows. Had the previous
policy remained in effect, there would have been no significant
impairment as of January 29, 1995. The change in accounting for
intangible assets resulted in a write-down of asset value, and a one-
time, pre-tax charge to earnings of $46,002,000 during the year ended
January 29, 1995. The fiscal year 1996 pre-tax amortization charge
associated with the assets written down would have been $3,500,000.
Although the write-down had no impact on the Company's cash position, it
does result in a more appropriate balance sheet valuation of the
remaining goodwill and other intangible assets. The Company took a
$38,935,000 ($1.43 per share) after-tax charge to earnings during the
year ended January 29, 1995 encompassing all costs associated with the
revaluation of its intangible assets, the store and business closures,
and workforce reductions.
The company is organized into four operating divisions: the Border
Division, the Airport Division, the Diplomatic and Wholesale Division
and the Inflight Division.
BORDER DIVISION
The Border Division operates the largest chain of duty free stores
along the United States/Canada and United States/Mexico borders. The
Division operates a total of 66 stores at 44 border crossings.
<PAGE>
UETA, Inc. ("UETA" or the "Southern Border Division") operates 30
duty free stores along the Mexican border in the states of Texas,
Arizona and California. The Southern Border Division provides
Mexican/American border traffic with access to luxury items such as
premium watches, fragrances and cosmetics, top quality liquor and
tobacco products, beer, wine, gourmet foods, designer jewelry and other
high quality gifts. UETA is the exclusive duty free distributor on the
United States side of the Mexican border for liquor brands produced by
United Distillers Group (Duty Free) Ltd. Due to the peso devaluation in
December 1994 and the resulting $41,319,000 decrease in sales during
fiscal 1996 when compared to fiscal 1995, UETA reduced its selling,
general and administrative expenses by approximately $5,000,000 during
fiscal 1996 when compared to fiscal 1995. The expense reductions
related primarily to lower employee and other operating expenses
resulting from employee terminations, a reduction in the number of hours
stores were open and reductions of advertising and promotion expenses.
In spite of the peso devaluation, UETA intends to continue to increase
customer awareness of the value of duty free shopping through marketing
and advertising, and to adjust product assortment in order to meet the
preferences of duty free shoppers. Economic factors, such as the value
of the Mexican peso versus the U.S. dollar and the Mexican economy have
had and may continue to have a significant effect on UETA's net sales
and earnings. (See Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1996 Annual Report
to Stockholders which is incorporated by reference to this document.)
AMMEX Tax and Duty Free Shops, Inc. and AMMEX Tax and Duty Free
Shops West, Inc. (collectively, "AMMEX" or the "Northern Border
Division") operate 36 duty free and retail stores along the Canadian
border in the states of New York, Vermont, Maine, Washington, Michigan,
Idaho, Montana, North Dakota and Minnesota. The duty free stores sell a
wide variety of quality, brand-name merchandise to individuals traveling
from the United States to Canada, a majority of whom are Canadians
returning home. Retail locations carry groceries, snacks, souvenirs and
gift items. AMMEX also operates currency exchanges and gas stations at
several high volume border locations. AMMEX's objectives have been to
attract a greater percentage of the eligible travelers crossing the
border into Canada and to sell more goods to each customer by
remodelling and expanding stores and through sales training,
merchandising, advertising and promotion. Ammex's comparable store
sales in fiscal 1996 (excluding sales of stores closed under the
restructuring plan and two stores purchased in July 1995) increased by
2.4% when compared to fiscal 1995. The improvement in sales trends from
fiscal 1995 (when there was a 22.1% decrease in sales from fiscal 1994)
was due primarily to the anniversary of the decrease in Canadian taxes
which occurred in the first quarter of fiscal 1995, and an increase in
average transaction spend amounts by customers resulting from Ammex's
marketing and promotion programs. The above was partially offset by the
continued negative trend in Canadian traffic across the United
States/Canada border during fiscal 1996. Economic factors, such as the
continuing economic recession in Canada, selected reductions in Canadian
domestic taxes, and the reduced value of the Canadian dollar versus the
U.S. dollar have had and may have a significant effect upon the Northern
Border Division's net sales and earnings.
AIRPORT DIVISION
Fenton Hill American, Limited (the "Airport Division") operates 100
duty free and retail stores in 14 international airports, and in the
Caribbean and South Florida markets. During fiscal 1996, the Airport
Division opened 16 new stores which included 12 new travel retail stores
at Denver International Airport, three new duty free stores at Boston's
<PAGE>
Logan International Airport and an additional duty free store at the San
Juan International Airport. The Airport Division's retail mix currently
includes duty free shops, which sell premium merchandise such as top-
quality liquor and tobacco products and exclusive fragrances and
cosmetics, and specialty stores such as The Athlete's Foot (branded
athletic-wear), Bodyography (natural personal care products), The Sports
Section (regional sports-theme shops), standard news and gift shops, and
bookstores. Additionally, the Airport Division has entered into equity
partnerships and strategic alliances at a number of international
airports which have resulted in the Airport Division being awarded 21
concessions. The Airport Division will attempt to increase the number
of equity partnerships and strategic alliances in the future.
The Airport Division also operates a number of stores not located
in airports. It serves cruise ship passengers and airport bound
customers through 12 shops located in Miami and Orlando, Florida. In
Washington, D.C., the Airport Division operates a retail luxury gift
store which serves the diplomatic community. The Division also operates
12 retail stores on the Caribbean islands of St. Thomas, Aruba, Bonaire,
Curacao and St. Maarten.
During the past several years, the Airport Division has grown
through acquisitions, obtaining new airport concessions and expanding
existing locations. With the potential for expansion of the Division's
current airport stores, as well as for development of other new
specialty retailing concepts, management believes that it will continue
to find opportunities for new airport locations and other airport retail
and duty free businesses. The Airport Division's sales volume and its
overall results of operations can be affected by factors relating to the
airline industry over which the Division has no control, including which
airlines operate at particular terminals, which routes are serviced by
those airlines, levels of airline passenger traffic, and economic and
other conditions affecting the airline industry in general.
DIPLOMATIC AND WHOLESALE DIVISION
The Diplomatic and Wholesale Division is the leading domestic
supplier of duty free merchandise to the foreign diplomatic community in
the United States, principally embassies, consulates and United Nations
missions in Washington, D.C. and New York City. Foreign diplomats with
official status and foreign military personnel in training throughout
the United States can order duty free merchandise directly from the
Division's salespersons or from its catalog. The Diplomatic and
Wholesale Division is also a supplier of merchandise to merchant and
cruise ships from ports in the northeastern United States and Miami.
The Diplomatic and Wholesale Division owns and operates a 110,000
square foot warehouse/distribution center in Glen Burnie, Maryland, and
a new 140,000 square foot warehouse/distribution center in South Miami,
Florida. The new warehouse and distribution center is well-situated to
serve cruise ship requirements from the port of Miami, as well as
supporting the Company's supply needs for its locations in the
Caribbean. During fiscal 1996, the Diplomatic and Wholesale Division
continued to de-emphasize low gross margin sales in order to provide
greater distribution capabilities to the Company's stores, thus
providing more resources for the Company's higher profit operations.
INFLIGHT DIVISION
The Inflight Division ("Inflight") is a leading concession operator
and supplier of on-board duty free merchandise to international airlines
through on-board concessions and wholesale programs, and is a major
supplier of international airlines' first class and premium class
<PAGE>
amenity kits. Currently, Inflight operates the on-board duty free
concessions for 21 airlines. The Division's concession programs fully
operate the on-board duty free concessions for airlines. Inflight
purchases products and manages every aspect of duty free sales on the
airlines' flights, including magazine and videotape promotions. With a
percentage of total sales paid in royalties to the airline, this program
provides airlines with a risk-free means of incrementally increasing
their earnings. The Division's wholesale program provides merchandise to
airlines which operate their on-board duty free programs on
international flights. The carrier runs all promotions, manages the
program and owns the inventory which is bought from Inflight. Inflight
has exclusive distribution agreements for certain geographic markets
with many well-recognized names in the luxury products industry,
including Chanel, Christian Dior, Hermes, Mont Blanc, Yves Saint
Laurent, Elizabeth Arden and Lancaster. Additionally, it maintains
warehouse and station locations throughout the U.S., Pacific Rim, Europe
and South America. During fiscal 1996, the Inflight Division was awarded
the contract to operate Air Canada's on-board duty free concession
program beginning March 1, 1996. In the future, Inflight will continue
to pursue other on-board duty free concession contracts with
international airlines not currently served by the Company. The Company
believes Inflight will be a significant contributor to its growth as air
travel and airline competition grows.
The Inflight Division's sales volume and results of operations can
be affected by factors relating to the airline industry over which the
Division has no control, including levels of international airline
passenger traffic, economic and other conditions affecting the airline
industry in general, and the value of foreign currencies versus the U.S.
dollar.
REGULATION
Duty free stores and operations are specifically authorized and
recognized as a separate class of bonded warehouse by the Duty Free
Sales Enterprises Act of 1988, which was enacted by the United States
Congress as part of the Omnibus Trade and Competitiveness Act of 1988.
Duty free merchandise is shipped by domestic and foreign suppliers
"in bond" (without taxes or duties) to bonded warehouses in the United
States. Bonded warehouses are subject to supervision by the United
States Customs Service ("Customs Service") and may only be used to store
merchandise which has not entered the domestic market. Because the
United States collects no taxes or duties on merchandise sold by duty
free stores and other duty free operations, all merchandise shipped from
a bonded warehouse to a duty free store or other duty free location
remains "under bond" and therefore subject to a high degree of
regulation by the Customs Service and by the Bureau of Alcohol, Tobacco
and Firearms (the "Bureau"), each of which are agencies of the United
States Department of the Treasury.
The Bureau also requires corporations to which it issues permits to
notify it in the event of a change in the officers or directors of the
corporate operator or if there is a change in the corporate operator's
ownership. The Bureau requires certain background information on any
stockholder who acquires 10% or more of the common stock of a corporate
operator and will not permit ownership by any such stockholder it deems
unacceptable. The Company therefore has established the right to
require the redemption or the prompt disposition, under certain
circumstances, of all or any portion of the shares of Common Stock owned
by a stockholder which totals to more than 9% of the outstanding Common
Stock.
<PAGE>
SUPPLIERS, DISTRIBUTION AND INVENTORY CONTROL
The Company purchases products from numerous vendors, including
manufacturers and distributors. As is typical throughout the duty free
industry, the Company does not have any significant long-term or
exclusive purchase commitments. Management believes that alternative
sources of supply are available for each category of merchandise
purchased by the Company.
Merchandise is generally shipped directly from vendors to the
bonded warehouses and distribution centers located in Glen Burnie,
Maryland, Laredo, Texas and Miami, Florida. However, certain
merchandise is shipped directly to the Company's regional bonded
warehouses and store locations. To control inventory levels, management
uses various automated replenishment systems. Frequent shipments are
then made to the Border, Airport, and Inflight Divisions' warehouses or
stores to assure full stocking levels. Merchandise is delivered daily
by truck to the diplomatic communities in Washington, D.C. and New York
City. The Company's trucks are also used to supply duty free
merchandise to merchant and passenger ships.
Duty free inventory is strictly controlled to comply with Customs
Service regulations. The Company must keep detailed records documenting
the receipt and sale of all duty free merchandise. Failure to maintain
such records may result in the payment of penalties and all taxes and
duties which would have been imposed on the domestic sale of such
merchandise. The Company's computerized inventory control system allows
it to identify product needs, to arrange for prompt reorders from
vendors, and to support compliance with Customs Service record-keeping
requirements. Slow moving products also can be identified and more
appropriate product mixes maintained. Historically, inventory shrinkage
has been minimal due to the Company's inventory system and procedures.
The Company rarely experiences problems with obsolescence, because most
inventory turns frequently and most products have a relatively long
shelf-life.
The Company's suppliers provide significant sales support in a
variety of ways, including in-store displays, gift-with-purchase items,
advertisements, brochures, printed shopping bags, staff training, signs
and sales personnel. In addition, some distributors and manufacturers
rent space in certain duty free stores for the display of transparencies
containing brand-name advertisements. Many suppliers also purchase
advertising space in the catalogs produced by the various divisions.
Some suppliers also rent space in the Company's warehouses and pay a fee
for processing shipments of their merchandise.
ECONOMIC CONDITIONS AND EXCHANGE RATES
The principal customers of the Company are residents of foreign
countries whose purchases of duty free merchandise may be affected by
trends in the economies of foreign countries and changes in the value of
the U.S. dollar relative to their own currencies. Any significant
increase in the value of the U.S. dollar relative to the currencies of
foreign countries, particularly Canada, Mexico and Japan, could have an
adverse impact on the number of travelers visiting the United States and
the dollar amount of duty free purchases made by them from the Company.
A significant increase in gasoline prices or a shortage of fuel may also
reduce the number of international travelers and thereby adversely
affect the Company's sales. In addition, the Company imports a
significant portion of its products from Western Europe and Canada at
prices negotiated either in U.S. dollars or foreign currencies. As a
result, the Company's costs are affected by fluctuations in the value of
<PAGE>
the U.S. dollar in relation to major Western European and Canadian
currencies. A decrease in the purchasing power of the U.S. dollar
relative to other currencies causes a corresponding increase in the
purchase price of products. The Company enters into foreign exchange
forward contracts as a hedge against a portion of its exposure to
currency fluctuations on commitments to purchase merchandise.
COMPETITION
The Airport Division can experience significant competition when
negotiating or bidding for new concession leases or renewal of existing
leases in those locations where the operating authority requires such
negotiating or bidding. Competitors bid for the exclusive right to
operate in a particular airport or, in the case of some larger airports,
in a particular airport terminal servicing one or more airlines. The
Company's lease and concession agreements for duty free stores at the
New York City airports are consistent with airport leases in the region
in that they are terminable by the lessor upon 30 days notice, and also
may be subject to re-bid at the end of the operator's lease at which
time sealed bids are submitted by prospective operators or negotiations
are undertaken with the authority. Most of Inflight's concession
contracts are subject to 30 to 120 day cancellation clauses cancelable
by the Company or the airline.
Approximately four other companies operate duty free stores in the
United States along the Canadian border, most of which have historically
remained within specific areas outside of the Company's geographic
regions. A small number of regional duty free companies operate along
the Mexican border and compete with the Company. Large discount chains
that are not duty free operators, such as Price Club and Sam's Club,
compete with the Company for customers crossing the United States/Mexico
border. Approximately 15 companies operate duty free stores at airports
in the United States. The largest such company is Duty Free Shoppers
Group, Ltd., a privately held company and the largest duty free operator
in the world. The Inflight Division has one major competitor which
operates international airlines' on-board duty free concessions. The
majority of international airlines operate their own on-board duty free
concessions. There are a large number of competitors offering wholesale
merchandise to international airlines. The principal competition for
diplomatic sales consists of purchases made directly from European
suppliers. There are no material competitors currently operating in the
principal ports served by the Diplomatic and Wholesale Division except
for Miami, Florida. There are significant competitors which can make
sales to the Company's passenger and merchant vessel customers when
those customers visit ports not served by the Company.
ITEM 2. PROPERTIES
The Border Division operates 66 duty free and retail gift stores at
44 border crossings. Five of the stores are owned and operated by
agents who receive commissions based on sales. The Company owns 38 of
its border stores and leases 23 border stores. The Airport Division
leases 100 store locations. The Company's leases for its stores at the
New York City airports are terminable by the lessor upon 30 days notice.
The leases at certain border and most airport locations provide for base
monthly rentals and typically require payment of additional rent based
on a percentage of sales. Inflight has relatively small warehouse,
distribution and administrative facilities in New York, Singapore, Hong
Kong and the United Kingdom.
<PAGE>
The Company owns a 110,000 square foot office/distribution center
near the Baltimore/Washington International Airport in Glen Burnie,
Maryland , leases a 145,000 square foot distribution center in Laredo,
Texas of which 70,000 square feet is subleased, and owns a 140,000
square foot administrative, warehouse and distribution facility in South
Miami, Florida. The Company also owns or leases other smaller regional
warehouse facilities. The Company owns its 33,000 square foot
headquarters in Ridgefield, Connecticut which is partially subleased.
The Company believes its facilities are adequate for current operations.
ITEM 3. LEGAL PROCEEDINGS
The United States Customs Service is investigating the operations
of a subsidiary's bonded warehouse in Seattle, Washington. The Customs
Service has thus far issued 16 notices of liquidated damages in the
aggregate amount of $712,000 relating to alleged violations of customs
rules governing the handling and sale of bonded merchandise.
Certain former stockholders of UETA, Inc. and certain stockholders
of Overseas Trading Corporation (1987) Limited, an affiliate of UETA,
Inc., commenced an action against the Company, certain of its directors
and officers and Goldman, Sachs & Co., which was the financial advisor
to UETA, in the Superior Court, New Castle County, Delaware. In their
complaint which was filed on or about December 19, 1994, plaintiffs
allege that the Company and its officers and directors made false and
misleading statements and omissions in connection with the Company's
issuance of its common stock in connection with its acquisition in April
1992 of UETA, Inc. and of certain assets of Overseas Trading Corporation
(1987) Limited, all in violation of state statutory and common law. The
relief sought includes unspecified amounts of actual and punitive
damages. The Company and its officers and directors intend to defend
this action vigorously. Certain of the plaintiffs in this action had
filed a similar complaint (on or about May 30, 1994) against the same
defendants in the Superior Court of the State of Arizona, Pima County.
This action was dismissed by court order on November 17, 1994, pursuant
to stipulation of the parties, without prejudice to the commencement by
those plaintiffs of an action in the courts of the State of Delaware.
Certain other former stockholders of UETA, Inc. commenced an action
against the Company and Goldman, Sachs & Co. in the District Court,
285th Judicial District, Bexar County, Texas. In their complaint which
was filed on or about June 14, 1994, these plaintiffs also allege that
the Company made false and misleading statements and omissions in
connection with the Company's acquisition of UETA, Inc. and the
Company's issuance of its common stock in connection therewith to these
plaintiffs. The relief sought includes unspecified amounts of actual
and punitive damages and rescission of the transaction and/or
rescissionary damages in an unspecified amount. After a hearing on
November 17, 1994 on the defendants' motion to dismiss the action, the
District Court abated and stayed this action pending the final
determination of the plaintiffs' claims against the defendants in
Delaware. On March 1, 1995, the Texas Court of Appeals, Fourth District
(San Antonio) denied the plaintiffs leave to file a petition for a writ
of mandamus seeking relief from the District Court's order, and on
October 17, 1995, the Supreme Court of Texas denied plaintiff's leave to
file a similar petition for a writ of mandamus. The plaintiffs have
since made a motion before the District Court requesting reconsideration
of its original order. In April 1995, the plaintiffs commenced an
action in the Superior Court, New Castle County, Delaware against the
Company, each of its directors and officers who were named as defendants
in the aforementioned Delaware action and Goldman, Sachs & Co. In their
complaint, the plaintiffs allege against the Company and its officers
<PAGE>
and directors essentially the same claims under state statutory and
common law as they have alleged in their Texas action. The relief
sought in this action includes an unspecified amount of damages,
including actual and/or recessionary damages and punitive damages. The
Company and its officers and directors intend to defend these actions
vigorously.
On July 8, 1994, the Company commenced an action against each of
the plaintiffs in the foregoing Arizona and Texas actions in the Court
of Chancery, New Castle County, Delaware for injunctive and declaratory
relief as well as damages based upon their commencement of the above-
referenced actions in the Arizona and Texas state courts, rather than in
the courts of the state of Delaware as stipulated in the agreements
executed in connection with the acquisition of UETA, Inc. The relief
sought by the Company in its complaint also includes a request for an
order enjoining each of the plaintiffs in the foregoing actions from
litigating any claims arising from the acquisition of UETA, Inc. in any
forum other than the courts of the state of Delaware. Motions to
dismiss the Company's complaint have been made by all the defendants
named in this action and the Company moved for summary judgement on
certain of its causes of action.
Currently, the legal proceedings described above are not expected
to have a material effect on the Company's financial condition, results
of operations, liquidity or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to the 1996 Annual Report to Stockholders,
page 14.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the 1996 Annual Report to Stockholders,
inside front cover.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Incorporated by reference to the 1996 Annual Report to Stockholders,
pages 10-14.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the 1996 Annual Report to Stockholders as
set forth in Part IV Item 14, and the supplementary data on the inside
front cover of such annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's Proxy Statement with respect
to its 1996 Annual Meeting of Stockholders, pages 2 - 5.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement with respect
to its 1996 Annual Meeting of Stockholders, pages 6 - 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Company's Proxy Statement with respect
to its 1996 Annual Meeting of Stockholders, pages 12 and 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement with respect
to its 1996 Annual Meeting of Stockholders, pages 7 and 8.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)
1. Financial Statements (Incorporated by reference to the 1996
Annual Report to Stockholders, pages 15-24 and 9):
- Consolidated Balance Sheets as of January 28, 1996 and
January 29, 1995.
- Consolidated Statements of Operations, Stockholders'
Equity, and Cash Flows for each of the years in the three-
year period ended January 28, 1996.
- Notes to the Consolidated Financial Statements.
- Independent Auditors' Report.
2. Financial Statement Schedules filed as part of this report:
- Independent Auditors' Report.
- Schedule II - Valuation and Qualifying Accounts for each of
the years in the three-year period ended January 28, 1996.
- All other schedules have been omitted because the required
information is not significant or is not applicable.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
3. Exhibits:
2.1 - Second Consent and Amendment, dated as of December 15, 1994,
among Duty Free International, Inc., the Sellers named therein
and the Additional Recipients named therein, amending the Stock
Purchase Agreement, dated as of March 24, 1994, as amended by
the Consent and Amendment, dated as of May 1, 1994, which were
both filed as Exhibits 2.1 and 2.2, respectively, to the
Company's Current Report on Form 8-K dated May 1, 1994. (10)
3.1 - Charter of the Company. (2)
3.2 - By-Laws of the Company as amended to October 18, 1993. (7)
4.1 - Senior Indenture between Duty Free International, Inc. and The
Chase Manhattan Bank, N.A., as trustee, dated as of January 15,
1994. (6)
4.2 - Form of 7% Note Due 2004. (6)
10.1 - Agreement by and between United Distillers Group (Duty Free)
Ltd. and Overseas Trading Corporation. (8)
10.2 - Agreement dated January 1, 1989 by and between United Distillers
Group (Duty Free) Ltd. and Samuel Meisel and Company, Inc. (1)
10.3 - Credit Agreement dated as of May 26, 1995 among Duty Free
International, Inc., the Banks signatory thereto and the Chase
Manhattan Bank, N.A. as agent. (3)
10.4 - 1989 Stock Option Plan for Duty Free International, Inc., and
related form of stock option agreement as amended and restated
effective February 11, 1993 (8) and May 20, 1994 (10)
(compensatory plan).
10.5 - Incentive Compensation Plan (1) (compensatory plan).
10.6 - Indemnity Agreement by and between Duty Free International, Inc.
and Jack Africk.(1)
10.7 - Stockholders Agreement dated as of April 24, 1992 among Duty
Free International, Inc., DFI Group Acquisition Corp., UETA,
Inc., Overseas Trading Corporation (1987) Limited, and each of
the persons and entities listed in Exhibit A thereto. (4)
10.8 - Escrow Agreement dated as of April 24, 1992 among Duty Free
International, Inc., the persons and entities listed in Exhibit
A thereto and The First National Bank of Maryland, as escrow
agent. (4)
10.9 - Agreement and Plans of Merger and Reorganization dated as of
March 16, 1992 by and among UETA, Inc., Overseas Trading
Corporation (1987) Limited, Capin's Duty-Free Warehouse, Inc.,
Duty Free International, Inc. and DFI Group Acquisition Corp.
(4)
12.1 - Ratios of Earnings to Fixed Charges. (3)
13.1 - 1996 Annual Report to Stockholders.(3)
<PAGE>
18.1 - Preferability letter regarding change in accounting
principle. (9)
21.1 - Subsidiaries.(3)
23.1 - Consent of KPMG Peat Marwick LLP.(3)
24.1 - Powers of Attorney for Jack Africk, David H. Bernstein, John A.
Couri, Carl Reimerdes and Susan H. Stackhouse. (3)
27.1 - Financial Data Schedule.(3)
Notes: (1) Previously filed as an Exhibit to the Registration
Statement of the Company on Form S-1, File No. 33-27842
declared effective May 11, 1989.
(2) Previously filed as an Exhibit to the Company's
Registration Statement on Form S-1, File No. 33-43071,
declared effective November 29, 1991.
(3) Filed herewith.
(4) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated April 24, 1992.
(5) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 20, 1992.
(6) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated January 15, 1994.
(7) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated December 27, 1993.
(8) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 27, 1993.
(9) Previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 31, 1994.
(10) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 20, 1995.
(b) Reports on Form 8-K:
(i) The Company did not file a Current Report on Form 8-K
during the quarter ended January 28, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, this
19th day of April, 1996.
DUTY FREE INTERNATIONAL, INC.
By: /s/ Alfred Carfora
---------------------------------
Alfred Carfora
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------- ----------------------- --------------
*
- -------------------
Jack Africk Director April 19, 1996
*
- -------------------
David H. Bernstein Director April 19, 1996
/s/ Alfred Carfora
- ------------------- Director, President and
Alfred Carfora Chief Executive Officer April 19, 1996
*
- -------------------
John A. Couri Director April 19, 1996
/s/ Gerald F. Egan Vice President of Finance,
- ------------------- Treasurer, Secretary and
Gerald F. Egan Chief Financial Officer ** April 19, 1996
*
- -------------------
Carl Reimerdes Director, Vice President April 19, 1996
*
- -------------------
Susan H. Stackhouse Director April 19, 1996
* By: /s/ Alfred Carfora
------------------------
Alfred Carfora
Attorney-in-fact
** Principal Financial and Accounting Officer
<PAGE>
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts for
the three-year period ended January 28, 1996.
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the consolidated financial
statements or notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Duty Free International, Inc.:
Under date of February 26, 1996, we reported on the consolidated balance
sheets of Duty Free International, Inc. and subsidiaries as of January
28, 1996 and January 29, 1995, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the years
in the three-year period ended January 28, 1996. In connection with our
audits of the aforementioned consolidated financial statements, we have
also audited the related financial statement schedule "Schedule II -
Valuation and Qualifying Accounts". The financial statement schedule is
the responsibility of the Company's management. Our responsibility is
to express an opinion on this financial statement schedule based on our
audits.
In our opinion, this financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set
forth therein.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 26, 1996
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Additions
----------------------
Charged to
Balance at Charged to other Balance
beginning costs and accounts- at end of
Description of period expenses describe Deductions(1) period
- ----------------- ---------- ---------- ---------- ------------- ---------
Year ended
January 28, 1996:
Allowance for
doubtful accounts $795,000 $618,000 $ 0 $(678,000) $735,000
---------- ---------- ---------- ------------- ---------
Year ended
January 29, 1995:
Allowance for
doubtful accounts $740,000 $462,000 $280,000(2) $(687,000) $795,000
---------- ---------- ---------- ------------- ---------
Year ended
January 31, 1994:
Allowance for
doubtful accounts $941,000 $240,000 $ 0 $(441,000) $740,000
---------- ---------- ---------- ------------- ---------
(1) Uncollectible accounts written off, net of recoveries.
(2) Allowance for doubtful accounts recorded in connection with the
acquisition of Inflight Sales Group Limited on May 1, 1994.
</TABLE>
<PAGE>
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Sequential
Exhibit Page
No. Description of Exhibit Number
- ------- ---------------------------------------------- ----------
2.1 - Second Consent and Amendment, dated as of
December 15, 1994, among Duty Free
International, Inc., the Sellers named
therein and the Additional Recipients named
therein, amending the Stock Purchase
Agreement, dated as of March 24, 1994, as
amended by the Consent and Amendment, dated
as of May 1, 1994, which were both filed as
Exhibits 2.1 and 2.2, respectively, to the
Company's Current Report on Form 8-K dated
May 1, 1994. (10)
3.1 - Charter of the Company. (2)
3.2 - By-Laws of the Company as amended to October
18, 1993. (7)
4.1 - Senior Indenture between Duty Free
International, Inc. and The Chase Manhattan
Bank, N.A., as trustee, dated as of January
15, 1994. (6)
4.2 - Form of 7% Note Due 2004. (6)
10.1 - Agreement by and between United Distillers
Group (Duty Free) Ltd. and Overseas Trading
Corporation. (8)
10.2 - Agreement dated January 1, 1989 by and between
United Distillers Group (Duty Free) Ltd. and
Samuel Meisel and Company, Inc. (1)
10.3 - Credit Agreement dated as of May 26, 1995
among Duty Free International, Inc., the
Banks signatory thereto and the Chase
Manhattan Bank, N.A. as agent. (3)
10.4 - 1989 Stock Option Plan for Duty Free
International, Inc., and related form of stock
option agreement as amended and restated
effective February 11, 1993 (8) and May 20,
1994 (10) (compensatory plan).
10.5 - Incentive Compensation Plan (1)
(compensatory plan).
10.6 - Indemnity Agreement by and between Duty Free
International, Inc. and Jack Africk.(1)
<PAGE>
10.7 - Stockholders Agreement dated as of April 24,
1992 among Duty Free International, Inc., DFI
Group Acquisition Corp., UETA, Inc., Overseas
Trading Corporation (1987) Limited, and each
of the persons and entities listed in Exhibit
A thereto. (4)
10.8 - Escrow Agreement dated as of April 24, 1992
among Duty Free International, Inc., the
persons and entities listed in Exhibit A
thereto and The First National Bank of
Maryland, as escrow agent. (4)
10.9 - Agreement and Plans of Merger and
Reorganization dated as of March 16, 1992 by
and among UETA, Inc., Overseas Trading
Corporation (1987) Limited, Capin's Duty-Free
Warehouse, Inc., Duty Free International, Inc.
and DFI Group Acquisition Corp. (4)
12.1 - Ratios of Earnings to Fixed Charges. (3)
13.1 - 1996 Annual Report to Stockholders. (3)
18.1 - Preferability letter regarding change in
accounting principle. (9)
21.1 - Subsidiaries. (3)
23.1 - Consent of KPMG Peat Marwick LLP. (3)
24.1 - Powers of Attorney for Jack Africk, David H.
Bernstein, John A. Couri, Carl Reimerdes and
Susan H. Stackhouse. (3)
27.1 - Financial Data Schedule. (3)
Notes: (1) Previously filed as an Exhibit to the Registration
Statement of the Company on Form S-1, File No. 33-27842
declared effective May 11, 1989.
(2) Previously filed as an Exhibit to the Company's
Registration Statement on Form S-1, File No. 33-43071,
declared effective November 29, 1991.
(3) Filed herewith.
(4) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated April 24, 1992.
(5) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 20, 1992.
(6) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated January 15, 1994.
(7) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated December 27, 1993.
<PAGE>
(8) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 27, 1993.
(9) Previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 31, 1994.
(10) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 20, 1995.
<PAGE>
CREDIT AGREEMENT
dated as of
May 26, 1995
among
DUTY FREE INTERNATIONAL, INC.
the Banks signatory hereto
and
THE CHASE MANHATTAN BANK, N.A.
as Agent
<PAGE>
Table of Contents
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS
Section 1.01. Definitions .................................... 1
Section 1.02. Accounting Terms ............................... 14
ARTICLE 2. THE CREDIT
Section 2.01. The Revolving Credit Loans ..................... 15
Section 2.02. Letters of Credit .............................. 15
Section 2.03. The Term Loans ................................. 19
Section 2.04. The Notes ...................................... 19
Section 2.05. Purpose ........................................ 19
Section 2.06. Borrowing Procedures ........................... 20
Section 2.07. Prepayments; Conversions; Repayment ............ 20
Section 2.08. Interest Periods: Renewals ..................... 21
Section 2.09. Changes of Commitments ......................... 21
Section 2.10. Certain Notices ................................ 21
Section 2.11. Minimum Amounts ................................ 22
Section 2.12. Interest ....................................... 22
Section 2.13. Fees ........................................... 23
Section 2.14. Payments Generally ............................. 23
ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC.
Section 3.01. Additional Costs ............................... 24
Section 3.02. Limitation of Types of Loans ................... 25
Section 3.03. Illegality ..................................... 26
Section 3.04. Certain Conversions pursuant to
Sections 3.01 and 3.03 ........................ 26
Section 3.05. Certain Compensation ........................... 27
Section 3.06. Indemnification for Taxes ...................... 28
Section 3.07. Mitigation; Substitution ....................... 29
ARTICLE 4. CONDITIONS PRECEDENT
Section 4.01. Initial Conditions Precedent ................... 30
Section 4.02. Subsequent Loans or Letters of Credit .......... 31
Section 4.03. Deemed Representations ......................... 31
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
Section 5.01. Incorporation, Good Standing and
Due Qualification .............................. 32
Section 5.02. Corporate Power and Authority; No Conflicts .... 32
Section 5.03. Legally Enforceable Agreements ................. 32
Section 5.04. Litigation ..................................... 33
Section 5.05. Financial Statements; SEC Filings .............. 33
Section 5.06. Taxes .......................................... 33
Section 5.07. ERISA .......................................... 34
Section 5.08. Subsidiaries and Ownership of Stock ............ 34
Section 5.09. Credit Arrangements ............................ 34
Section 5.10. No Default on Outstanding Judgments or Orders .. 34
Section 5.11. Governmental Regulation ........................ 34
Section 5.12. Environmental Matters .......................... 35
Section 5.13. Full Disclosure ................................ 35
ARTICLE 6. AFFIRMATIVE COVENANTS
Section 6.01. Reporting Requirements ......................... 35
Section 6.02. Payment of Obligations ......................... 38
Section 6.03. Maintenance of Property; Insurance ............. 38
Section 6.04. Conduct of Business and Maintenance of Existence 39
Section 6.05. Compliance with Laws ........................... 39
Section 6.06. Inspection of Property, Books and Records ...... 39
Section 6.07. Maintenance of Ownership of Subsidiaries ....... 40
<PAGE>
ARTICLE 7. NEGATIVE COVENANTS
Section 7.01. Debt ........................................... 40
Section 7.02. Restricted Payments ............................ 41
Section 7.03. Investments .................................... 41
Section 7.04. Negative Pledge ................................ 41
Section 7.05. Consolidations, Mergers and Sales of Assets .... 42
Section 7.06. Transactions with Affiliates ................... 43
ARTICLE 8. FINANCIAL COVENANTS
Section 8.01. EBIT to Interest Expense Ratio ................. 43
Section 8.02. Minimum Consolidated Tangible Net Worth ........ 43
Section 8.03. Maximum Total Debt to Net Worth Ratio .......... 43
ARTICLE 9. EVENTS OF DEFAULT
Section 9.01. Events of Default .............................. 43
Section 9.02. Remedies ....................................... 45
ARTICLE 10. THE AGENT; RELATIONS AMONG BANKS AND BORROWER
Section 10.01. Appointment, Powers and Immunities of Agent .... 46
Section 10.02. Reliance by Agent .............................. 46
Section 10.03. Defaults ....................................... 47
Section 10.04. Rights of Agent as a Bank ...................... 47
Section 10.05. Indemnification of Agent ....................... 47
Section 10.06. Documents ...................................... 48
Section 10.07. Non-Reliance on Agent and Other Banks .......... 48
Section 10.08. Failure of Agent to Act ........................ 49
Section 10.09. Resignation of Agent ........................... 49
Section 10.10. Amendments Concerning Agency Function .......... 49
Section 10.11. Liability of Agent ............................. 50
Section 10.12. Transfer of Agency Function .................... 50
Section 10.13. Non-Receipt of Funds by the Agent .............. 50
Section 10.14. Withholding Taxes .............................. 50
Section 10.15. Several Obligations and Rights of Banks ........ 51
Section 10.16. Pro-Rata Treatment of Loans, Etc ............... 51
Section 10.17. Sharing of Payments Among Banks ................ 51
ARTICLE 11. MISCELLANEOUS
Section 11.01. Amendments and Waivers ......................... 52
Section 11.02. Usury .......................................... 52
Section 11.03. Expenses; Indemnification ...................... 52
Section 11.04. Survival ....................................... 53
Section 11.05. Assignments; Participations .................... 54
Section 11.06. Notices ........................................ 54
Section 11.07. Setoff ......................................... 55
Section 11.08. Jurisdiction; Immunities ....................... 55
Section 11.09. Judgment Currency .............................. 56
Section 11.10. Confidentiality ................................ 56
Section 11.11. Table of Contents: Headings .................... 56
Section 11.12. Severability ................................... 57
Section 11.13. Counterparts ................................... 57
Section 11.14. Integration .................................... 57
Section 11.15. Governing Law .................................. 57
<PAGE>
EXHIBITS
Exhibit A-1 Form of Promissory Note
Exhibit B Authorization Letter
Exhibit C Form of Letter of Credit Application and Agreement
Exhibit D Opinion of Counsel for the Borrower
SCHEDULES
Schedule I Insurance
Schedule II Material Subsidiaries of the Borrower
Schedule III Credit Arrangements
Schedule IV Litigation
Schedule V Environmental Matters
Schedule VI Investments
<PAGE>
CREDIT AGREEMENT dated as of May 26, 1995 among DUTY FREE
INTERNATIONAL, INC., a corporation organized under the laws of the State
of Maryland (the "Borrower"), each of the banks which is a signatory
hereto (individually a "Bank" and collectively the "Banks") and THE
CHASE MANHATTAN BANK, N.A., a national banking association organized
under the laws of the United States of America, as agent for the Banks
(in such capacity, together with its successors in such capacity, the
"Agent").
The Borrower desires that the Banks extend credit as provided
herein, and the Banks are prepared to extend such credit. Accordingly,
the Borrower, the Banks and the Agent agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.01. Definitions.
As used in this Agreement the following terms have the following
meanings (terms defined in the singular to have a correlative meaning
when used in the plural and vice versa);
"Additional Costs" shall have the meaning set forth in Section
3.01(a).
"Acquisition" means any acquisition permitted under Section 7.05
provided the Borrower shall provide to the Agent a certification of its
chief financial officer at the time of a proposed Acquisition as to
whether a Loan shall be used to finance the proposed Acquisition.
"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Borrower (a
"Controlling Person") or (ii) any Person (other than the Borrower or a
Subsidiary) which is controlled by or is under common control with a
Controlling Person. As used herein, the term "control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means The Chase Manhattan Bank, N.A. or any successor
thereto pursuant to Section 10.09.
"Aggregate Positive Consolidated Net Income" means the aggregate
amount of consolidated net income for each fiscal quarter commencing on
or after January 29, 1995 and ending on or prior to the date as of which
Aggregate Positive Consolidated Net Income is determined (with no
deduction for consolidated net losses for any such fiscal quarter).
"Agreement" means this Credit Agreement, as amended or supplemented
from time to time. References to Articles, Sections, Exhibits,
Schedules and the like refer to the Articles, Sections, Exhibits,
Schedules and the like of this Agreement unless otherwise indicated.
"Alternative Currency" means Sterling, Deutsche Marks, French
Francs, or Swiss Francs or any other currency freely transferable into
Dollars in which the Banks may, from time to time, in their sole
discretion agree to denominate Loans or Letters of Credit.
"Alternative Currency Equivalent" means with respect to an amount
of Dollars on any date in relation to any specific Alternative Currency,
the amount of such Alternative Currency that may be purchased with such
amount of Dollars at the Spot Exchange Rate with respect to Dollars on
such date.
<PAGE>
"Alternative Currency Loan" means any Loan denominated in an
Alternative Currency.
"Authorization Letter" means the letter agreement executed by the
Borrower in the form of Exhibit B.
"Banking Day" means any day on which commercial banks are not
authorized or required to close in either the State of Connecticut or
New York City and whenever such day relates to a Eurocurrency Loan or
notice with respect to any Eurocurrency Loan, a day on which dealings in
Dollar deposits are also carried out in the London interbank market.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or
Multiemployer Plan and which is maintained or otherwise contributed to
by any member of the ERISA Group.
"Borrower" means Duty Free International, Inc. a Maryland
corporation, and its successors and assigns.
"Borrowing" means a Loan or group of Loans of a single type as to
which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower in accordance
with Section 2.06.
"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with generally
accepted accounting principles.
"Closing Date" means the date of the first Borrowing or issuance of
a Letter of Credit under this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" means with respect to each Bank, the obligation of
such Bank to make Loans and/or to participate in the issuance of Letters
of Credit under this Agreement in the aggregate principal amount
following, as such amount may be reduced or otherwise modified from time
to time:
<TABLE>
<S> <C>
The Chase Manhattan Bank, N.A.: $25,000,000.
Chemical Bank: $15,000,000.
Fleet Bank, N.A.: $15,000,000.
ABN AMRO Bank N.V. (New York Branch): $12,500,000.
Societe Generale (New York Branch): $ 7,500,000.
- ------------------------------------- ------------
Total: $75,000,000.
</TABLE>
"Consolidated EBIT" means, for any Person during the period being
measured, the sum of (a) consolidated net income of such Person and its
Consolidated Subsidiaries for such period, plus (b) to the extent
deducted in determining such consolidated net income, the sum of (i)
Consolidated Interest Expense and (ii) consolidated income tax
provisions of such Person and its Consolidated Subsidiaries for such
period, and plus in the case of the Borrower only, (iii) $7,571,000
restructuring costs incurred by the Borrower and (iv) $46,000,000 with
respect to the revaluation of intangible assets, minus (c) to the extent
included in determining such consolidated net income the sum of (i) any
gains or plus any losses with respect to foreign currency exchange, and
(ii) consolidated interest income.
<PAGE>
"Consolidated EBITDA" means, for any Person during the period being
measured, the sum of Consolidated EBIT of such Person and its
Consolidated Subsidiaries for such period, plus to the extent deducted
in determining such Consolidated EBIT, consolidated depreciation and
amortization expense for such period.
"Consolidated Pro-Forma EBITDA" means, at the date of measurement,
for the Borrower and any Person at such time the target of an
Acquisition, the Consolidated EBITDA of the Borrower, plus the
Consolidated EBITDA of such Person determined on a pro-forma basis in
accordance with generally accepted accounting principles.
"Consolidated Total Funded Debt" means at any date the consolidated
total Funded Debt of the Borrower and its Consolidated Subsidiaries.
"Consolidated Interest Expense" means, for any period, the interest
expense of the Borrower and its Consolidated Subsidiaries determined on
a consolidated basis for such period.
"Consolidated Net Worth" means at any date the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries
as of such date.
"Consolidated Subsidiary" means, as to any Person, any Subsidiary
whose accounts are or are required to be consolidated with the accounts
of such Person in accordance with generally accepted accounting
principles.
"Consolidated Tangible Net Worth" means at any date Consolidated
Net Worth less the consolidated Intangible Assets of the Borrower and
its Consolidated Subsidiaries, all determined as of such date in
accordance with generally accepted accounting principles. For the
purposes of this definition "Intangible Assets" means the amount (to the
extent reflected in determining such Consolidated Net Worth) of (i) all
write-ups (other than write-ups of assets of a going concern business
made within twelve months after the acquisition of such business) in the
book value of any asset owned by the Borrower or a Consolidated
Subsidiary and (ii) any excess of cost over net assets of Subsidiaries
acquired, less accumulated amortization, and (iii) other intangible
assets less accumulated amortization, all determined in accordance with
generally accepted accounting principles.
"Conversion Date" means May 26, 1998; provided that if such date is
not a Banking Day, the Conversion Date shall be the next succeeding
Banking Day (or if such next succeeding Banking Day falls in the next
calendar month, the next preceding Banking Day).
"Debt" means, with respect to any Person at any date, without
duplication: (a) all obligations of such Person for borrowed money, (b)
all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (c) all obligations of such Person to pay the
deferred purchase price of property or services, except trade or other
accounts payable arising in the ordinary course of business, (d) all
obligations of such Person as lessee which are capitalized in accordance
with generally accepted accounting principles, (e) all obligations of
such Person to reimburse or prepay any bank or other Person in respect
of amounts paid under a letter of credit, banker's acceptance or similar
instrument, whether drawn or undrawn, (f) all Debt of others secured on
a non-recourse basis by a Lien on any asset of such Person, whether or
not such Debt is assumed by such Person, up to an amount equal to the
lesser of the amount of the Debt or the book value of the asset subject
<PAGE>
to the Lien, and (g) all Debt of others Guaranteed by such Person, but
excluding for purposes of this definition customs, surety and similar
performance bonds.
"Default" means any event which constitutes an Event of Default or
which with the giving of notice or lapse of time, or both, would become
an Event of Default.
"Default Rate" means, with respect to an amount of any Loan not
paid when due, a rate per annum equal to the Variable rate plus 2%.
"Denomination Date" means in relation to any Borrowing in an
Alternative Currency, the date that is three Banking Days prior to the
date such Borrowing is made.
"Deutsche Marks" and the sign "DM" means lawful money of Germany.
"Dollars" and the sign "$" mean lawful money of the United States
of America.
"Dollar Equivalent" means, with respect to an amount of any
Alternative Currency on any date, the amount of Dollars that may be
purchased with such amount of such Alternative Currency at the Spot
Exchange Rate with respect to such Alternative Currency on such date.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances,
rules, judgments, orders, decrees, injunctions, permits, licenses, and
other governmental restrictions relating to the environment, the effect
of the environment on human health or to emissions, discharges or
releases of Hazardous Substances into the environment, including without
limitation, ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Substances or the clean up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor statute including any
rules and regulations promulgated thereunder.
"ERISA Group" means the Borrower, any Subsidiary and all members of
a controlled group of corporations and all trades or businesses (whether
or not incorporated) under common control which, together with the
Borrower or any Subsidiary, are treated as a single employer under
Section 414(c) of the Code.
"Eurocurrency Loan" means any Loan when and to the extent the
interest rate therefor is determined on the basis of the definition
"Fixed Base Rate."
"Event of Default" has the meaning given such term in Section 9.01.
"Facility Documents" means this Agreement and the Notes.
"Federal Funds Rate" means, for any day, the rate per annum
(expressed on a 365/366 day basis of calculation, if the rate on
Variable Rate Loans is so calculated) equal to the weighted average of
the rates on overnight federal funds transactions as published by the
Federal Reserve Bank of New York for such day (or for any day that is
not a Banking Day, for the immediately preceding Banking Day).
<PAGE>
"Fixed Base Rate" means with respect to any Interest Period for a
Eurocurrency Loan, the rate per annum (rounded upwards if necessary to
the nearest 1/16 of 1%) equal to the average of the respective rates
quoted at approximately 11:00 a.m. London time by the principal London
branch of the Reference Banks two Banking Days prior to the first day of
such Interest Period for the offering to leading banks in the London
interbank market of Dollar deposits or deposits in an Alternative
Currency, as the case may be, in immediately available funds, for a
period, and in an amount, comparable to the Interest Period and
principal amount of the Eurocurrency Loan which shall be made by the
Banks and outstanding during such Interest Period.
"Fixed Rate" means, for any Eurocurrency Loan for any Interest
Period therefor, a rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined by the Agent to be equal to the quotient
of (i) the Fixed Base Rate for such Loan for such Interest Period,
divided by (ii) one minus the Reserve Requirement for such Loan for such
Interest Period.
"French Francs" and the sign "FF" means lawful money of France.
"Funded Debt" means all Debt for money borrowed.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise,
of such Person (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt or other obligation (whether
arising by virtue of partnership arrangements, unless recourse is
limited to partnership assets, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided that the
term Guarantee shall not include (w) guarantees by the Borrower of Debt
of a Subsidiary permitted by this Agreement, (x) endorsements for
collection or deposit in the ordinary course of business (y) customs,
surety or similar performance bonds, or (z) guarantees of obligations of
any Person in which Borrower, directly or indirectly, holds any equity
interest under leases (other than capital leases), concessions,
franchise or similar agreements given by the Borrower or any Subsidiary
in the ordinary course of business. The term "Guarantee" used as a verb
has a corresponding meaning.
"Hazardous Substances" means any hazardous substances as so defined
under the Comprehensive Environmental Response, Compensation and
Liability Act, as the same may be amended and any petroleum or petroleum
byproducts.
"Interest Margin" means (i) prior to the Conversion Date the
following based on the Borrower's Ratings:
<TABLE>
<S> <C> <C> <C>
- ------------ ---------- ----------- ---------
Ratings > BBB/Baa2 > BBB-/Baa3 < BB+/Ba1
- ------------ ---------- ----------- ---------
Basis Points
over the
Fixed Rate: 45 b.p. 60 b.p. 75 b.p.
- ------------ ---------- ----------- ---------
/TABLE
<PAGE>
and (ii) on and subsequent to the Conversion Date the following based on
the Borrower's Ratings:
<TABLE>
<S> <C> <C> <C>
- ------------ ---------- ----------- ---------
Ratings > BBB/Baa2 > BBB-/Baa3 < BB+/Ba1
- ------------ ---------- ----------- ---------
Basis Points
over the
Fixed Rate 57.5 b.p. 72.5 b.p. 87.5 b.p.
- ------------ ---------- ----------- ---------
</TABLE>
The above Ratings will be determined at the time of any Borrowing
in Dollars, or on the Denomination Date in the case of any Borrowing in
an Alternative Currency or a conversion or renewal of an Alternative
Currency Loan.
"Interest Period" means:
(a) with respect to any Eurocurrency Loan, the period commencing on
the date such Loan is made, converted from another type of Loan or
renewed, as the case may be, and ending, as the Borrower may select
pursuant to Section 2.08 on the numerically corresponding day in the
first, second, third, or sixth calendar month thereafter, provided that
each such Interest Period which commences on the last Banking Day of a
calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall
end on the last Banking Day of the appropriate calendar month; provided
that no such Interest Period shall extend beyond the Termination Date;
and
(b) with respect to Variable Rate Loans, the period commencing on
the date such Variable Rate Loan is made and ending on the last day of
the fiscal quarter of the Borrower during which such Loan is made, or if
earlier, the Termination Date.
"Investments" means any investment in any Person, whether by means
of share purchase, capital contribution, loan, time deposit or
otherwise, but excluding ordinary receivables arising in the ordinary
course of business.
"Lending Office" means, for each Bank and for each type of Loan,
the lending office of such Bank (or of an affiliate of such Bank)
designated as such for such type of Loan on its signature page hereof or
such other office of such Bank (or of an affiliate of such Bank) as such
Bank may from time to time specify to the Agent and the Borrower as the
office by which its Loans of such type are to be made and maintained.
"Letter of Credit" means any standby letter of credit issued
hereunder.
"Letter of Credit Commission" means the following based on the
Borrower's Rating:
<TABLE>
<S> <C> <C> <C>
- ------------ ---------- ----------- ---------
Ratings > BBB/Baa2 > BBB-/Baa3 < BB+/Ba1
- ------------ ---------- ----------- ---------
Basis Points 50 b.p. 60 b.p. 75 b.p.
- ------------ ---------- ----------- ---------
</TABLE>
<PAGE>
The above Ratings will be determined at the time of request by
Borrower for issuance of a Letter of Credit.
"Letter of Credit Usage" means as at any date of determination, the
sum of (i) the maximum aggregate amount which is or at any time
thereafter may become available (including any amounts drawn but not yet
honored) under all Letters of Credit then outstanding under this
facility and (ii) the aggregate amount of all drawings under Letters of
Credit under this facility honored by the Agent and not theretofore
reimbursed by the Borrower. In determining Letter of Credit Usage, all
Letters of Credit denominated in an Alternative Currency shall be
converted to the Dollar Equivalent as of the end of the immediately
preceding fiscal quarter of the Borrower or, if issued subsequent
thereto, as of the date of issuance.
"Lien" means with respect to any asset, any mortgage, deed of
trust, lien (statutory or otherwise), pledge, charge, security interest
or encumbrance of any kind, or any other type of preferential
arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement,
the Borrower or any Subsidiary shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or
other title retention agreement relating to such asset.
"Loan" or "Loans" means any loan made by a Bank pursuant to
Sections 2.01 and 2.03.
"Long-Term Debt" means the $115,000,000 aggregate principal amount
of Senior Securities issued to the public by the Borrower pursuant to an
Indenture dated January 15, 1994, and maturing January 15, 2004.
"Material Debt" means Debt (other than the Notes) of the Borrower
and/or one or more of its Subsidiaries, arising in one or more related
or unrelated transactions, in an aggregate principal amount exceeding
$1,000,000.
"Material Lien" means any Lien securing an obligation in an amount
in excess of $500,000.
"Material Subsidiaries" means at any time with respect to the
Borrower, Subsidiaries, designated by the Borrower, which together with
the Borrower hold in the aggregate not less than seventy-five (75%) of
the net assets of the Borrower and its Subsidiaries on a consolidated
basis. The Material Subsidiaries as of the Closing Date are listed on
Schedule II hereto.
"Material Plan" means at any time a Plan or Plans having an
aggregate amount of Unfunded Liabilities in excess of $500,000.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions, including for these purposes any Person which ceased to
be a member of the ERISA Group during such five year period.
"Note" means a promissory note of the Borrower in the form of
Exhibit A-1 hereto evidencing the Loans made by a Bank hereunder.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
<PAGE>
"Permitted Liens" means liens:
(i) in the case of real properties, easements, restrictions,
exceptions, reservations or defects which, in the aggregate,
do not interfere materially with the continued use of such
properties for the purposes for which they are used and do
not affect materially the value thereof;
(ii) liens, if contested in good faith by appropriate proceedings
and appropriate reserves are maintained with respect thereto
in accordance with generally accepted accounting principles;
(iii) pledges or deposits to secure obligations under worker's
compensation laws, unemployment insurance or similar
legislation or to secure performance in connection with bids,
tenders and contracts (other than contracts for the payment
of borrowed money) to which the Borrower or any of its
Subsidiaries is a party;
(iv) deposits to secure public or statutory obligations of the
Borrower or any of its Subsidiaries;
(v) materialmen's, mechanics', carriers', worker's,
warehouseman's or other like liens arising in the ordinary
course of business, or deposits of cash or United States
obligations to obtain the release of such liens;
(vi) deposits to secure surety, customs or performance bonds;
(vii) existing leases by the Borrower or its Subsidiaries of real
and personal property; and
(viii) liens for taxes or other governmental charges not yet due and
payable.
"Permitted Long-Term Debt" means Debt of the Borrower or any of its
Subsidiaries with respect to (a) the principal and interest payable
under mortgages with terms of greater than or equal to fifteen (15)
years and providing for principal amortization on a substantially level
basis and in an initial principal amount not greater than $5,000,000 and
(b) the principal component of rental payments with respect to not more
than $5,000,000 of Capitalized Leases.
"Permitted Short-Term Debt" means Debt of the Borrower or any of
its Subsidiaries having a maturity, at the time such Debt is incurred,
of not more than one year from the date such Debt is incurred.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"Plan" means at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code
and either (i) is maintained, or contributed to, by any member of the
ERISA Group for employees of any member of the ERISA Group or (ii) has
at any time within the preceding five years been maintained, or
contributed to, by any Person which was at such time a member of the
ERISA Group for employees of any Person which was at such time a member
of the ERISA Group.
<PAGE>
"Prime Rate" means that rate of interest from time to time
announced by the Agent at its principal office as its prime commercial
lending rate.
"Principal Office" means the principal office of the Agent,
presently located at One Chase Manhattan Plaza, New York, New York
10081.
"Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Code.
"Ratings" means the ratings given to the Borrower's Long-Term Debt
by Standard & Poor's Ratings Group and Moody's Investors Service, Inc.;
provided that for the purposes herein if the rating of both agencies are
not the same grade (i) the higher of the two ratings shall be used if
there is only one grade difference between the two; (ii) the average of
the two ratings shall be used if there are two grades difference between
the two; and (iii) the lower of the two ratings shall be used if there
are more than two grades difference between the two ratings; provided
that if at any time the agency having the higher rating upgrades the
Borrower's rating so that there are two or more grades difference
between the two ratings there shall be no adjustment to the Interest
Margin in effect prior to such upgrade.
"Reference Banks" means the Agent and Chemical Bank.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from
time to time.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from
time to time.
"Regulatory Change" means, with respect to any Bank, any change
after the date of this Agreement in federal, state, municipal or foreign
laws or regulations (including Regulation D) or the adoption or making
after such date of any interpretations, directives or requests applying
to a class of banks including such Bank of or under any federal, state,
municipal or foreign laws or regulations (whether or not having the
force of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA as to which events the PBGC by regulation has not
waived the requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event, provided that a failure
to meet the minimum funding standard of Section 412 of the Code or
Section 302 of ERISA shall be a Reportable Event regardless of any
waivers given under Section 412(d) of the Code.
"Required Banks" means, at any time while no Loans are
outstanding, Banks having at least fifty-one percent (51%) of the
aggregate amount of the Commitments and, at any time while Loans are
outstanding, Banks holding at least fifty-one (51%) of the aggregate
principal amount of the Loans.
"Reserve Requirement" means, for any Eurocurrency Loan for any
Interest Period therefor, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation D
<PAGE>
by member banks of the Federal Reserve System in New York City with
deposits exceeding $1,000,000,000 against, in the case of Eurocurrency
Loans "Eurocurrency liabilities" (as such term is used in Regulation D).
Without limiting the effect of the foregoing, the Reserve Requirement
shall reflect any other reserves required to be maintained by such
member banks by reason of any Regulatory Change with respect to (i) any
category of liabilities that include deposits which are utilized in the
determination of the Fixed Rate (as defined herein) or (ii) any category
of extensions of credit or other assets which include Eurocurrency Rate
Loans.
"Restricted Payment" means (i) any dividend or other distribution
on any shares of the Borrower's capital stock (except dividends payable
solely in shares of its capital stock) or (ii) any payment on account of
the purchase, redemption, retirement or acquisition of (a) any shares of
the Borrower's capital stock or (b) any option, warrant or other right
to acquire shares of the Borrower's capital stock or (iii) any
prepayment of the principal amount of any Long-Term Debt outstanding on
the date hereof (excluding the Debt incurred hereunder).
"Revolving Credit Loans" means Loans made by the Banks pursuant to
Section 2.01 hereof.
"Spot Exchange Rate" means, on any day, (a) with respect to any
Alternative Currency, the spot rate on a wholesale rate basis at which
Dollars are offered on such day as determined by the Agent and (b) with
respect to Dollars in relation to any specified Alternative Currency,
the spot rate on a wholesale rate basis at which such specified
Alternative Currency is offered on such day as determined by the Agent.
For purposes of determining the Spot Exchange Rate in connection with an
Alternative Currency Borrowing, such Spot Exchange Rate shall be
determined as of the Denomination Date for such Borrowing with respect
to transactions in the applicable Alternative Currency that will settle
on the date of such Borrowing.
"Sterling" and the sign "sign of British pound" means lawful money
of the United Kingdom.
"Subsidiary" means, as to any Person, any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for
the election of directors or other persons performing similar functions
are at the time owned directly or indirectly by such Person.
"Swiss Franc" and the sign "SF" means lawful money of Switzerland.
"Temporary Cash Investments" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial
paper rated at A-1 or higher by Standard & Poor's Corporation or P-1 or
higher by Moody's Investors Service, Inc., (iii) time deposits with,
including certificates of deposit issued by, (x) any office located in
the United States of (A) any bank or trust company which is organized
under the laws of the United States or any state thereof and has
capital, surplus and undivided profits aggregating at least $100,000,000
or (B) any Bank or (y) in the case of Investments made by a Subsidiary
of the Borrower whose principal place of business is located outside the
United States, any office located outside the United States of (A) any
bank or trust company the long-term unsecured senior debt of which is
rated AA or higher by Standard & Poor's Corporation or Aa or higher by
Moody's Investors Service, Inc., (B) any Bank or (C) with respect to
<PAGE>
revenues generated by such Subsidiary in the jurisdiction of its
principal place of business, any correspondent bank or trust company
also located in such jurisdiction and designated as one of its
correspondent financial institutions in such jurisdiction by any Bank,
(iv) direct obligations of any state or municipality in the United
States rated A/a or better by Standard & Poors Ratings Group or Moody's
Investors Service, respectively, (v) money market funds which invest
only in securities described in clauses (i), (ii), (iii) and (iv) above,
and (vi) repurchase agreements with respect to securities described in
clause (i) above entered into with an office of a bank or trust company
meeting the criteria specified in clause (iii) above; provided in each
case that such Investment matures within three years from the date of
acquisition thereof by the Borrower or a Subsidiary.
"Termination Date" means the last day of Borrower's first fiscal
quarter in the year 2000; provided that if such date is not a Banking
Day, the Termination Date shall be the next succeeding Banking Day (or,
if such next succeeding Banking Day falls in the next calendar month,
the next preceding Banking Day).
"Term Loans" means the Revolving Credit Loans converted to term
loans pursuant to Section 2.02 hereof.
"Unfunded Liabilities" means with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the
assumptions prescribed by the PBGC for purposes of Section 4044 of
ERISA, exceeds (ii) the fair market value of all Plan assets allocable
to such liabilities under Title IV of ERISA (excluding any accrued but
unpaid contributions), but only to the extent that such excess
represents a potential liability of any member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Unused Commitment" means with respect to each Bank, such Bank's
Commitment less the sum of such Bank's pro-rata share of outstanding
Letters of Credit and Loans.
"Variable Rate" means, for any day, the higher of (a) the Federal
Funds Rate for such day plus 1/2 of 1% or (b) the Prime Rate for such
day.
"Variable Rate Loan" means any Loan when and to the extent the
interest rate for such Loan is determined in relation to the Variable
Rate.
"Wholly-Owned Consolidated Subsidiary" means any Consolidated
Subsidiary all of the shares of capital stock or other ownership
interests of which (except directors' qualifying shares) are at the time
directly or indirectly owned by the Borrower.
Section 1.02. Accounting Terms.
Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered hereunder
shall be prepared in accordance with generally accepted accounting
principles as in effect from time to time, applied on a consistent basis
(except for changes concurred in by the Borrower's independent public
accountants) with the most recent audited consolidated financial
statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks; provided that, if the Borrower notifies the Agent that the
<PAGE>
Borrower wishes to amend any covenant in Article 8 to eliminate the
effect of any change in generally accepted accounting principles on the
operation of such covenant (or if the Agent notifies the Borrower that
the Required Banks wish to amend Article 8 for such purpose), then the
Borrower's compliance with such covenant shall be determined on the
basis of generally accepted accounting principles in effect immediately
before the relevant change in generally accepted accounting principles
became effective, until either such notice is withdrawn or such covenant
is amended in a manner satisfactory to the Required Banks.
ARTICLE 2. THE CREDIT.
Section 2.01. The Revolving Credit Loans.
(a) Subject to the terms and conditions of this Agreement, each of
the Banks severally and not jointly agrees to make loans ("Loans") to
the Borrower from time to time from and including the date hereof to and
including the Conversion Date, in an aggregate principal amount up to
but not exceeding at any one time $50,000,000 (less the Letter of Credit
Usage, if any, in excess of $25,000,000). Each Borrowing under this
Section shall be made by the Banks ratably in accordance with their
Commitments. A conversion under Section 2.07 or a renewal under Section
2.08 shall not constitute a Borrowing Request and Loans of multiple
types requested on the same day shall not constitute separate Borrowing
Requests. The Revolving Credit Loans may be outstanding as Variable
Rate Loans and/or, Eurocurrency Loans (each a "type" of Loan).
Eurocurrency Loans may be denominated in Dollars or in one or more
Alternative Currencies and all Variable Rate Loans shall be denominated
only in Dollars. Subject to the terms hereof, the Borrower may borrow,
pay or prepay and reborrow Revolving Credit Loans hereunder prior to the
Conversion Date. Each type of Loan of each Bank shall be made and
maintained at such Bank's Lending Office for such type of Loans.
(b) Any Eurocurrency Loan may be made in the Alternative Currency
specified in the applicable Borrowing Request given pursuant to Section
2.06 in an amount equal to the Alternative Currency Equivalent of the
Dollar amount specified in such Borrowing Request, as determined by the
Agent as of the Denomination Date for such Borrowing (which
determination shall be conclusive absent manifest error). For purposes
of determining the amount outstanding under any Bank's Commitment, each
Alternative Currency Loan shall be the Dollar Equivalent for such Loan
as of the Denomination Date.
Section 2.02. Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, in
addition to requesting that the Banks make the Loans, the Borrower may
request, in accordance with the provisions of this Section 2.02(a), that
the Agent issue Letters of Credit for the account of the Borrower;
provided that (i) the Borrower shall not request that the Agent issue
any Letter of Credit if, after giving effect thereto, the outstanding
Loans together with the outstanding Letters of Credit Usage of the
Borrower would exceed the Commitments and, (ii) in no event shall the
Agent issue (x) any Letter of Credit having an expiration date later
than the tenth Banking Day prior to the Conversion Date or, (y) any
Letter of Credit having an expiration date more than one year after its
date of issuance, except those used to fund payment of insurance
premiums which, by their terms, are renewed automatically. The issuance
of any Letter of Credit in accordance with the provisions of this
Section 2.02 shall require the satisfaction of the applicable conditions
set forth in Article 4. All Letters of Credit shall be denominated in
Dollars or an Alternative Currency.
<PAGE>
Immediately upon the issuance of each Letter of Credit, each Bank
shall be deemed to, and hereby agrees to, have irrevocably agreed to
participate with the Agent in such Letter of Credit and any drawing
thereunder in an amount equal to such Bank's pro-rata participation,
based upon its proportionate share of the total Commitment, or the
maximum amount which is or at any time may become available to be drawn
thereunder.
Each Letter of Credit may provide that the Agent may (but shall not
be required to) pay all or any part of the maximum amount which may at
any time be available for drawing thereunder to the beneficiary thereof
upon the occurrence of an Event of Default and the acceleration of the
maturity of the Loans. If payment is not due to the beneficiary of an
outstanding Letter of Credit, upon the occurrence of an Event of Default
and acceleration of the maturity of the Loans, the Borrower shall
deposit funds in an account or fund a cash collateral account with the
Agent to secure payment to the beneficiary under such Letter of Credit.
Any funds so deposited or standing to the credit of such account shall
be paid to the beneficiary of such Letter of Credit if conditions to
such payment are satisfied or returned to the Agent for distribution to
the Banks (or, if all Loans shall have been paid in full in cash in the
applicable currency, to the Borrower) if no payment to the beneficiary
has been made and the final date available for drawings under the Letter
of Credit has passed. Each payment or deposit of funds by the Agent as
provided in this paragraph shall be treated for all purposes of this
Agreement as a drawing duly honored by the Agent under the related
Letter of Credit.
(b) Whenever the Borrower desires the issuance of a Letter of
Credit, it shall deliver to the Agent at the Principal Office a written
notice no later than 1:00 p.m. (New York City time) at least five
Banking Days prior to the proposed date of issuance. Such notice shall
consist of the form of application and agreement for such letter of
credit to be issued customarily used by the Agent, a copy of which is
attached as Exhibit C, as such documents may be amended from time to
time. In the event of any conflict between the terms and provisions of
this Agreement and those of any application and agreement, the terms and
conditions of this Agreement shall control. Promptly after receipt of a
notice of issuance of a Letter of Credit, the Agent shall notify each
Bank of the proposed issuance and the amount of each such other Bank's
respective participation therein, determined in accordance with Section
2.02(a).
(c) In the event of any request for drawing under any Letter of
Credit by the beneficiary thereof, the Agent shall give telephonic
notice (promptly confirmed in writing) to the Borrower (x) confirming
receipt of such request and (y) of the date on or before which the Agent
intends to honor such drawing, and the Borrower shall reimburse the
Agent on the day on which such drawing is honored in an amount in
Dollars in same day funds equal to the amount of such drawing if such
drawing is in Dollars or the Dollar Equivalent thereof if the drawing is
in an Alternative Currency; provided that, anything contained in this
Agreement to the contrary notwithstanding, (i) unless the Borrower shall
have notified the Agent prior to 11:00 a.m. (New York City time) on the
first Banking Day after such drawing that the Borrower intends to
reimburse the Agent for the amount of such drawing with funds other than
the proceeds of Variable Rate Loans, the Borrower shall be deemed to
have timely given a notice of borrowing pursuant to Section 2.01
requesting the Banks to make Variable Rate Loans on the date on which
such drawing is honored in an amount equal to the amount of such drawing
or the Dollar Equivalent for any such drawing not denominated in
<PAGE>
Dollars, and (ii) subsequent to satisfaction or waiver of the conditions
specified in Article 4, the Banks shall make Variable Rate Loans on the
date of such drawing, the proceeds of which shall be applied directly to
reimburse the Agent for the amount of such drawing; and provided,
further, that if for any reason, proceeds of Variable Rate Loans are not
received by the Agent on such date in an amount equal to the amount of
such drawing, the Borrower shall reimburse the Agent on the Banking Day
immediately following the date of such drawing, in an amount in same day
funds equal to the excess of the amount of such drawing over the amount
of such Variable Rate Loans, if any, which are so received, plus accrued
interest on such amount at the rate set forth in Section 2.02(e)(i).
(d) In the event the Borrower shall fail to reimburse the Agent as
provided in Section 2.02(c) in an amount equal to the amount of any
drawing honored by the Agent under a Letter of Credit issued by it, the
Agent shall promptly notify each Bank of the unreimbursed amount or the
Dollar Equivalent thereof, as applicable, of such drawing and of such
Bank's pro-rata participation therein. Each Bank shall make available
to the Agent an amount equal to its pro-rata participation in same day
funds, at the office of the Agent specified in such notice, immediately
upon demand of the Agent. In the event that any Bank fails to make
available to the Agent the amount of such Bank's participation in such
Letter of Credit as provided in this Section 2.02(d), the Agent shall be
entitled to recover such amount on demand from such Bank together with
interest at the customary rate set by the Agent for the correction of
errors among Banks for three Banking Days and thereafter at the Variable
Rate. The Agent shall distribute to each other Bank which has paid all
amounts payable by it under this Section 2.02(d) with respect to any
Letter of Credit issued by the Agent such other Bank's pro-rata share of
all payments received by the Agent from the Borrower's reimbursement of
drawings honored by the Agent under such Letter of Credit when such
payments are received.
(e) The Borrower agrees to pay the following amount to the Agent
with respect to each Letter of Credit issued by it for the account of
the Borrower:
(i) with respect to drawings made under any Letter of Credit,
interest, payable on demand, on the amount paid by the
Agent in respect of each such drawing from the date of
the drawing through the date such amount is reimbursed by
the Borrower (including any such reimbursement out of the
proceeds of Variable Rate Loans pursuant to Section
2.02(c)) at a rate per annum equal to the Variable Rate
plus two percent (2%) per annum;
(ii) with respect to the issuance of any Letter of Credit an
amount equal to one-eighth percent (1/8%) of the
principal amount of such Letter of Credit if denominated
in Dollars and of the Dollar Equivalent of the principal
amount if denominated in an Alternative Currency shall be
paid to the Agent at the time of issuance; and
(iii) with respect to each amendment, transfer or drawing under
each Letter of Credit, the Agent's usual and customary
documentary and processing charges shall be paid to the
Agent.
The Borrower also agrees to pay the Agent, for distribution to the
Banks in respect of all Letters of Credit outstanding from time to time,
an amount determined by multiplying (Y) the applicable Letter of Credit
<PAGE>
Commission charged per annum multiplied by the number of days elapsed
during the immediately preceding fiscal quarter divided by 365/366 days,
by (Z) the average Letter of Credit Usage during the immediately
preceding fiscal quarter both determined as of the last day of each
fiscal quarter of the Borrower. Such amount shall be payable in arrears
on the last day of each April, July, October and January. Such amounts
received by the Agent for the account of the Banks shall be promptly
paid to the Banks in accordance with their pro-rata participation. If
any Letter of Credit is fully drawn upon or otherwise terminated each
Bank agrees to refund to the Borrower its share of any letter of credit
fees paid in advance by the Borrower for the amount so drawn or
terminated on any such Letter of Credit and with respect to any period
(determined on a pro-rata basis for actual days elapsed) from and after
the date on which such Letter of Credit is so drawn upon or otherwise
terminated. Any refund owing by a Bank to the Borrower pursuant to the
preceding sentence may be effected by a reduction in the amount of any
letter of credit fees next payable by the Borrower to such Bank,
provided, that in the event that no further letter of credit fees shall
become payable hereunder against which such refund can be credited, then
such Bank shall promptly pay to the Borrower directly the amount of such
refund.
(f) The obligations of the Borrower to reimburse the Agent for
drawings made under the Letters of Credit issued by it for the Borrower
and the obligations of the Banks under Section 2.02(d) shall be
unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the Agent including, without
limitation, any defense based upon the failure of any drawing under any
Letter of Credit to comply strictly with the terms and conditions of
such Letter of Credit, provided, however, that the Borrower shall not be
obligated to reimburse the Agent for any wrongful payment made by the
Agent under a Letter of Credit as a result of acts or omissions
constituting gross negligence or willful misconduct on the part of the
Agent.
(g) Immediately upon satisfaction of the "Initial Conditions
Precedent" set forth in Section 4.01 of this Agreement, the letters of
credit described on Schedule III hereto and marked "to be placed under
credit facility" shall be deemed to be reissued and outstanding under
this Agreement.
Section 2.03. The Term Loans.
(a) On the Conversion Date all outstanding Revolving Credit Loans
shall be converted to Term Loans in an aggregate principal amount equal
to the aggregate principal amount of the Revolving Credit Loans
outstanding on such date. The Term Loans may be outstanding as Variable
Rate Loans and/or Eurocurrency Loans. After the Conversion Date all
Term Loans shall remain denominated in the currency in which they were
denominated on the Conversion Date until the Termination Date.
(b) The Term Loans shall be due and payable on the Termination
Date.
Section 2.04. The Notes.
The Loans of each Bank shall be evidenced by promissory notes in
favor of such Bank in the form of Exhibit A-1, dated the date of this
Agreement, duly completed and executed by the Borrower. Each Bank
shall, and is hereby authorized by the Borrower to, endorse on the
<PAGE>
schedule attached to each Note held by such Bank, or otherwise record in
such Bank's internal records, an appropriate notation evidencing the
date, amount and currency of each Loan evidenced by such Note, and each
payment or prepayment of principal; provided that the failure of any
Bank to make such notation or any error therein shall not affect the
obligations of the Borrower to repay the Loans made by such Bank.
Section 2.05. Purpose.
The Borrower shall use the proceeds of the Loans for working
capital, to finance future acquisitions, and for general corporate
purposes of the Borrower. Such proceeds shall not be used for the
purpose, whether immediate, incidental or ultimate, of buying or
carrying "margin stock" in violation of Regulation U. The Borrower
shall request issuance of Letters of Credit only for the purpose of
supporting performance, payment deposit or surety obligations of the
Borrower or any Subsidiary, in any case if required by law or
governmental rule or regulation or if in accordance with the custom or
practice in the industry of the Borrower.
Section 2.06. Borrowing Procedures.
The Borrower shall give the Agent notice (a "Borrowing Request") of
each Borrowing to be made under Section 2.01 as provided in Section
2.10. Not later than 2:00 p.m. New York City time on the date of such
Borrowing, each Bank shall through its Applicable Lending Office,
subject to the conditions of this Agreement, make the amount of the Loan
to be made by it on such day in the currency in which such Loan is to be
made available to the Agent, at the Principal Office in the case of
Dollar denominated Loans and to an office to be designated by the Agent
in the case of an Alternative Currency Loan, and in immediately
available funds for the account of the Borrower. The amount so received
by the Agent shall, subject to the conditions of this Agreement, be made
available to the Borrower, in immediately available funds, by the Agent
crediting an account of the Borrower designated by the Borrower and in
the case of Dollar denominated Loans maintained with the Agent at the
Principal Office.
Section 2.07. Prepayments; Conversions; Repayment.
(a) Subject to the terms of this Agreement the Borrower shall have
the right to make prepayments of principal, or to convert one type of
Loan into another type of Loan, at any time or from time to time;
provided that: (i) the Borrower shall give the Agent notice of each
such prepayment or conversion as provided in Section 2.10; and (ii)
Eurocurrency Loans may be prepaid or converted only on the last day of
the applicable Interest Period for such Loans.
(b) If at any time the amount of the Revolving Credit Loans
outstanding hereunder plus the Letter of Credit Usage exceeds the
Commitments, the Borrower shall immediately: (i) repay the Loans in an
amount equal to such excess, or, (ii) if the Loans cannot be prepaid as
to eliminate the excess due to the amount of outstanding Letters of
Credit, the Borrower shall deposit with the Agent sufficient cash
collateral to cover such excess. For the purposes of this clause (b)
the amount outstanding under any Alternative Currency Loan at any time
shall be the Dollar Equivalent thereof as of the Denomination Date.
<PAGE>
(c) The principal amount of the Term Loans shall be repaid in
quarterly installments, payable on the last Business Day of each fiscal
quarter of the Borrower commencing on the Conversion Date and ending on
the Termination Date in seven equal payments each in a principal amount
equal to one-eighth (1/8) of the principal amount outstanding on the
Conversion Date, and a final payment equal to the remaining principal
amount to be paid on the Termination Date.
Section 2.08. Interest Periods: Renewals.
(a) In the case of each Eurocurrency Loan the Borrower shall
select an Interest Period of any duration in accordance with the
definition of Interest Period in Section 1.01, subject to the following
limitations: (i) no Interest Period with respect to a Eurocurrency Loan
may extend beyond the Termination Date; (ii) notwithstanding clause (i)
above, no Interest Period shall have a duration less than one month, and
if any such proposed Interest Period would otherwise be for a shorter
period, such Interest Period shall not be available; (iii) if an
Interest Period for a Eurocurrency Loan would end on a day which is not
a Banking Day, such Interest Period shall be extended to the next
Banking Day, unless such Banking Day would fall in the next calendar
month in which event such Interest Period shall end on the immediately
preceding Banking Day; and (iv) only six Interest Periods of each Bank
may be outstanding at any one time.
(b) Upon notice to the Agent as provided in Section 2.10, the
Borrower may renew any Eurocurrency Loan on the last day of the Interest
Period therefor as the same type of Loan with an Interest Period of the
same or different duration in accordance with the limitations provided
above. If the Borrower shall fail to give notice to the Agent of such a
renewal, (a) in the case of a Eurocurrency Loan denominated in Dollars
such Eurocurrency Loan shall automatically become a Variable Rate Loan
on the last day of the current Interest Period and (b) in the case of a
Eurocurrency Loan denominated in an Alternative Currency, such
Eurocurrency Loan shall automatically become a Eurocurrency Loan
denominated in the same Alternative Currency having an Interest Period
of one month.
Section 2.09. Changes of Commitments.
The Borrower shall have the right to reduce or terminate the amount
of unused Commitments at any time or from time to time, provided that:
(a) the Borrower shall give notice of each such reduction or termination
to the Agent as provided in Section 2.10; and (b) each partial reduction
shall be in an aggregate amount at least equal to $5,000,000. The
Commitments once reduced or terminated may not be reinstated.
Section 2.10. Certain Notices.
Borrowing Requests issued by the Borrower to the Agent with respect
to each Borrowing pursuant to Section 2.06, and each notice of
prepayment or conversion pursuant to Section 2.07, and each notice of
renewal pursuant to Section 2.08(b), and each notice of reduction or
termination of the Commitments pursuant to Section 2.09 shall be
irrevocable and shall be effective only if received by the Agent not
later than 11:00 a.m. New York City time, and (a) in the case of
Borrowings and prepayments of, conversions into and, in the case of
Eurocurrency Loans, renewals of, (i) Variable Rate Loans, given on the
day of such Borrowing; or (ii) Eurocurrency Loans, given three Banking
Days prior thereto; and (b) in the case of reductions or termination of
the Commitments, given two Banking Days prior thereto. Each such notice
<PAGE>
shall specify the Loans to be borrowed, prepaid, converted or renewed
and the currency and the amount (subject to Section 2.11) and type of
the Loans to be borrowed, or converted, or prepaid or renewed (and, in
the case of a conversion, the type of Loans to result from such
conversion and, in the case of a Eurocurrency Loan, the Interest Period
therefor) and the date of the Borrowing or prepayment, or conversion or
renewal (which shall be a Banking Day). Each such notice of reduction
or termination shall specify the amount of the Commitments to be reduced
or terminated. The Agent shall promptly notify the Banks of the
contents of each such notice.
Section 2.11. Minimum Amounts.
Except for Borrowings which exhaust the full remaining amount of
the Commitments, prepayments or conversions which result in the
prepayment or conversion of all Loans of a particular type or
conversions made pursuant to Section 3.04, each Borrowing, prepayment,
conversion and renewal of principal of Revolving Credit Loans of a
particular type shall be, (i) in the case of a Variable Rate Loan in an
amount at least equal to $500,000 in the aggregate for all Banks and
(ii) in the case of a Eurocurrency Loan in an amount at least equal to
$2,000,000, or the Dollar Equivalent thereof, in the aggregate for all
Banks. Borrowings, prepayments, conversions or renewals of or into
Loans of different types or, in the case of Eurocurrency Loans, having
different Interest Periods at the same time hereunder shall be deemed
separate Borrowings, prepayments, conversions and renewals for the
purposes of the foregoing minimum amounts, one for each type of Interest
Period.
Section 2.12. Interest.
(a) Interest shall accrue on the outstanding and unpaid principal
amount of each Loan for the period from and including the date of such
Loan to but excluding the date such Loan is due, at the following rates
per annum: (i) for a Variable Rate Loan, at a variable rate per annum
equal to the Variable Rate; and (ii) for a Eurocurrency Loan, at a fixed
rate equal to the Fixed Rate plus the applicable Interest Margin. If
any principal amount shall not be paid when due (at stated maturity, by
acceleration or otherwise), interest shall accrue on such amount from
and including such due date to but excluding the date such amount is
paid in full at the Default Rate.
(b) The interest rate on each Variable Rate Loan shall change when
the Variable Rate changes. Interest on Eurocurrency Loans shall be
calculated on the basis of a year of 360 days for the actual number of
days elapsed. Interest on the Variable Rate Loans shall be calculated
on the basis of a year of 365/366 days for the actual member of days
elapsed. Promptly after the determination of any interest rate provided
for herein or any change therein, the Agent shall notify the applicable
Borrowers and the Banks.
(c) Accrued interest shall be due and payable in arrears upon any
payment of principal or any conversion or renewal of a Loan and (i) for
each Variable Rate Loan, on the last day of each April, July, October
and January, commencing the first such date after such Loan; and (ii)
for each Eurocurrency Loan on the last day of the Interest Period with
respect thereto and in the case of Eurocurrency Loans having an Interest
Period longer than three months, at the end of each three month period;
provided that interest accruing at the Default Rate shall be due and
payable from time to time on demand of the Agent.
<PAGE>
Section 2.13. Fees.
The Borrower shall pay to the Agent for the account of each Bank a
commitment fee on the daily average Unused Commitment of such Bank for
the period from and including May 26, 1995 to the earlier of the date
the Commitments are terminated or the Conversion Date based on the
Ratings as follows:
<TABLE>
<S> <C> <C> <C>
- ------------------ ---------- ----------- ---------
Ratings > BBB/Baa2 > BBB-/Baa3 < BB+/Ba1
- ------------------ ---------- ----------- ---------
Percentage of
Unused Commitment: .15% .20% .25%
- ------------------ ---------- ----------- ---------
</TABLE>
The accrued commitment fee shall be calculated on the basis of the
number of days elapsed divided by 360 and be due and payable in arrears
upon any reduction or termination of the Commitments, on the last
Business Day of each April, July, October and January commencing on the
first such date after the Closing Date, and on the Conversion Date.
Section 2.14. Payments Generally.
All payments under this Agreement or the Notes shall be made in
immediately available funds. In the case of Loans denominated in
Dollars payment shall be made in Dollars not later than 1:00 p.m. New
York City time on the relevant dates specified above at the Principal
Office for the account of the applicable Lending Office of each Bank.
In the case of Loans denominated in an Alternative Currency payment
shall be made in such Alternative Currency on the relevant payment date
not later than 1:00 p.m. at the Lending Office designated by the Agent
for the account of the applicable Lending Office of each Bank. Each
such payment made after such time on such due date is to be deemed to
have been made on the next succeeding Banking Day. The Agent, or any
Bank for whose account any such payment is to be made, may (but shall
not be obligated to) debit the amount of any such payment which is not
made by such time to any ordinary deposit account of the Borrower with
the Agent or such Bank, as the case may be, and any Bank so doing shall
promptly notify the Agent and the Borrower. The Borrower shall, at the
time of making each payment under this Agreement or any Notes, specify
to the Agent the principal or other amount payable by the Borrower under
this Agreement or the Notes to which such payment is to be applied (and
in the event that it fails to so specify, or if a Default or Event of
Default has occurred and is continuing, the Agent shall apply such
payment to first to unpaid fees, then to accrued interest and finally to
principal (subject to Section 10.16). If the due date of any payment
under this Agreement or any Notes would otherwise fall on a day which is
not a Banking Day, such date shall be extended to the next succeeding
Banking Day and interest shall be payable for any principal so extended
for the period of such extension. Each payment received by the Agent
hereunder or under any Note for the account of a Bank shall be paid
promptly to such Bank, in immediately available funds, for the account
of such Bank's Lending Office.
ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC.
Section 3.01. Additional Costs.
(a) The Borrower shall pay directly to each Bank from time to time
on demand such amounts as such Bank may determine to be necessary to
<PAGE>
compensate it for any costs which such Bank determines are attributable
to its making or maintaining any Eurocurrency Loans under this Agreement
or its Notes or its obligation to make any such Loans hereunder, or any
reduction in any amount receivable by such Bank hereunder in respect of
any such Loans or such obligation (such increases in costs and
reductions in amounts receivable being herein called "Additional
Costs"), resulting from any Regulatory Change which: (i) changes the
basis of taxation of any amounts payable to such Bank under this
Agreement or its Notes in respect of any of such Loans (other than taxes
imposed on the overall net income of such Bank or of its Lending Office
for any of such Loans by the jurisdiction in which such Bank has its
principal office or such Lending Office); or (ii) imposes or modifies
any reserve, special deposit, deposit insurance or assessment, minimum
capital, capital ratio or similar requirements relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including any of such Loans or any deposits
referred to in the definition of "Fixed Base Rate" in Section 1.01); or
(iii) imposes any other condition affecting this Agreement or its Notes
(or any of such extensions of credit or liabilities). Each Bank will
notify the Borrower of any event occurring after the date of this
Agreement which will entitle such Bank to compensation pursuant to this
Section 3.01(a) as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation. Such notice will
set forth in reasonable detail the calculation of any Additional Costs
due hereunder. If any Bank requests compensation from the Borrower
under this Section 3.01(a), or under Section 3.01(c), the Borrower may,
by notice to such Bank (with a copy to the Agent), require that such
Bank's Loans of the type with respect to which such compensation is
requested be converted in accordance with Section 3.04.
(b) Without limiting the effect of the foregoing provisions of
this Section 3.01, in the event that, by reason of any Regulatory
Change, any Bank either (i) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of
deposits or other liabilities of such Bank which includes deposits by
reference to which the interest rate on Eurocurrency Loans is determined
as provided in this Agreement or a category of extensions of credit or
other assets of such Bank which includes Eurocurrency Loans or (ii)
becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so elects by
notice to the Borrower (with a copy to the Agent), the obligation of
such Bank to make or renew, and to convert Loans of any other type into,
Loans of such type hereunder shall be suspended until the date such
Regulatory Change ceases to be in effect (and all Loans of such type
held by such Bank then outstanding shall be converted in accordance with
Section 3.04).
(c) Without limiting the effect of the foregoing provisions of
this Section 3.01 (but without duplication), the Borrower shall pay
directly to each Bank from time to time on request such amounts as such
Bank may determine to have become necessary after the date hereof to
compensate such Bank for any costs which it determines are attributable
to the maintenance by it pursuant to any law or regulation of any
jurisdiction or any interpretation, directive or request (whether or not
having the force of law and whether in effect on the date of this
Agreement or thereafter) of any court of governmental or monetary
authority of capital in respect of its Loans hereunder or its obligation
to make Loans hereunder (such compensation to include, without
limitation, an amount equal to any reduction in return on assets or
equity of such Bank to a level below that which it could have achieved
but for such law, regulation, interpretation, directive or request).
Each Bank will notify the Agent if a such Bank is entitled to
<PAGE>
compensation pursuant to this Section 3.01(c) as promptly as practicable
after it determines to request such compensation, and the Agent will
notify the Borrower. Such notice will set forth in reasonable detail
the calculation of any amounts due hereunder.
(d) Determinations and allocations by a Bank for purposes of this
Section 3.01 of the effect of any Regulatory Change pursuant to
subsections (a) or (b), or of the effect of capital maintained pursuant
to subsection (c), on its costs of making or maintaining Loans or its
obligation to make Loans, or on amounts receivable by, or the rate of
return to, it in respect of Loans or such obligation, and of the
additional amounts required to compensate such Bank under this Section
3.01, shall be conclusive, provided that such determinations and
allocations are made on a reasonable basis.
Section 3.02. Limitation of Types of Loans.
Anything herein to the contrary notwithstanding, if:
(a) the Agent determines (which determination shall be conclusive)
that quotations of interest rates for the relevant deposits referred to
in the definition of "Fixed Base Rate" in Section 1.01 are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for any type of
Eurocurrency Loans as provided in this Agreement; or
(b) the Required Banks determine (which determination shall be
conclusive) and notify the Agent that the relevant rates of interest
referred to in the definition of "Fixed Base Rate" in Section 1.01 upon
the basis of which the rate of interest for any type of Eurocurrency
Loans is to be determined do not adequately cover the cost to the Banks
of making or maintaining such Loans; then the Agent shall give the
Borrower and each Bank prompt notice thereof, and so long as such
condition remains in effect, the Banks shall be under no obligation to
make or renew Loans of such type or to convert Loans of any other type
into Loans of such type and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Loans of the
affected type, either prepay such Loans or convert such Loans into
another type of Loans in accordance with Section 2.07.
Section 3.03. Illegality.
Notwithstanding any other provision in this Agreement, in the event
that it becomes unlawful for any Bank or its Lending Office to (a) honor
its obligation or make, renew Eurocurrency Loans hereunder or convert
Loans of any type into Loans of such type, or (b) maintain Eurocurrency
Loans hereunder or (c) in the case of a Borrowing denominated in an
Alternative Currency, there shall have occurred a change in national or
international financial, political or economic conditions (including the
imposition of or any change in exchange controls) or any currency
exchange rates would make it impracticable for any Bank to make Loans
denominated in such Alternative Currency, then such Bank shall promptly
notify the Borrower thereof (with a copy to the Agent) and such Bank's
obligation to make, renew Eurocurrency Loans and to convert other types
of Loans into Loans of such type or to make Loans denominated in such
Alternative Currency hereunder shall be suspended until such time as
such Bank may again make, renew, offer or convert and maintain such
affected Loans and such Bank's outstanding Eurocurrency Loans, or Loans
denominated in an Alternative Currency, as the case may be, shall be
converted in accordance with Section 3.04.
<PAGE>
Section 3.04. Certain Conversions pursuant to Sections 3.01
and 3.03.
If the Loans of any Bank of a particular type (Loans of such type
being herein called "Affected Type" or "Affected Loans") are to be
converted pursuant to Section 3.01 or 3.03, such Bank's Affected Loans
shall be automatically converted into Variable Rate Loans (and in the
case of Loans denominated in an Alternative Currency, to Variable Rate
Loans denominated in Dollars in the Dollar Equivalent amount on the last
day(s) of the then current Interest Period(s) for the Affected Loans or,
in the case of a conversion required by Section 3.01(b) or 3.03, on such
earlier date as such Bank may specify to the Borrower with a copy to the
Agent) and, unless and until such Bank gives notice as provided below
that the circumstances specified in Section 3.01 or 3.03 which give rise
to such conversion no longer exist:
(a) to the extent that such Bank's Affected Loans have been
converted to Variable Rate Loans, all payments and prepayments of
principal which would otherwise be applied to such Bank's Affected Loans
shall be applied instead to its Variable Rate Loans; and
(b) all Loans which would otherwise be made or renewed by such
Bank as Loans of the Affected Type shall be made instead as Variable
Rate Loans and all Loans of such Bank which would otherwise be converted
into Loans of the Affected Type shall be converted instead into (or
shall remain as) Variable Rate Loans; and
(c) if Loans of other Banks of the Affected Type are subsequently
converted into Loans of another type (other than Variable Rate Loans),
such Bank's Variable Rate Loans shall be automatically converted on the
conversion date into Loans of such other type to the extent necessary so
that, after giving effect thereto, all Loans held by such Bank and the
Banks whose Loans are so converted are held pro-rata (as to principal
amounts, types and Interest Periods) in accordance with their respective
Commitments.
If such Bank gives notice to the Borrower (with a copy to the
Agent) that the circumstances specified in Section 3.01 or 3.03 which
gave rise to the conversion of such Bank's Affected Loans pursuant to
this Section 3.04 no longer exist (which such Bank agrees to do promptly
upon such circumstances ceasing to exist) at a time when Loans of the
Affected Type are outstanding, such Bank's Variable Rate Loans shall be
automatically converted, on the first day(s) of the next succeeding
Interest Period(s) for such outstanding Loans of the Affected Type to
the extent necessary so that, after giving effect thereto, all Loans
held by the Banks holding Loans of the Affected Type and by such Bank
are held pro- rata (as to principal amounts, types and Interest Periods)
in accordance with their respective Commitments.
Section 3.05. Certain Compensation.
The Borrower shall pay to the Agent for the account of each Bank,
upon the request of such Bank through the Agent, such amount or amounts
as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense which such Bank determines
is attributable to:
(a) any payment, prepayment, conversion or renewal of a
Eurocurrency Loan made by such Bank on a date other than the last day of
an Interest Period for such Loan (whether by reason of acceleration or
otherwise); or
<PAGE>
(b) any failure by the Borrower to borrow, convert into or renew a
Eurocurrency Loan to be made, converted into or renewed by such Bank on
the date specified therefor in the relevant notice under Section 2.07,
2.08 or 2.09, as the case may be.
Without limiting the foregoing, such compensation shall include any
losses arising from converting Loans denominated in an Alternative
Currency to the Dollar Equivalent based on the Spot Exchange Rate on the
day of payment, prepayment, conversion or renewal. A determination of
any Bank as to the amounts payable pursuant to this Section 3.05 shall
be conclusive absent manifest error. Any claim for compensation under
clause (a) above arising as a result of the operation of any other
provision of this Article 3 shall not include compensation for lost
anticipated profits.
Section 3.06. Indemnification for Taxes.
(a) All payments hereunder and under any of the Facility Documents
(including, without limitation, payments on account of principal and
interest and fees) shall be made by the Borrower without deduction or
withholding for or on account of any present or future tax, duty, levy,
impost, assessment or other governmental charge imposed by any
jurisdiction ("Taxes"). If the Borrower is required by law to make any
deduction or withholding of any Taxes from any payment due hereunder or
under any of the Facility Documents, then the amount payable will be
increased to such amount which, after deduction from such increased
amount of all Taxes required to be withheld or deducted therefrom, will
not be less than the amount due and payable hereunder had no such
deduction or withholding been required. Notwithstanding the foregoing,
Taxes shall not include, and no such additional amounts shall be payable
in respect of:
(i) any tax imposed on the overall net income of the Lending
Office of any Bank in respect of which the relevant payment
is made by the jurisdiction in which such Bank is organized,
in which its Lending Office is located or in which it is
managed and controlled; or
(ii) any such deduction or withholding which would not have been
required to be so deducted or withheld if the Bank had been
entitled to an exemption from tax withholding and failed to
properly qualify for such exemption.
(b) If any additional amounts shall become payable pursuant to
Section 3.06(a), the Borrower and the Bank concerned will discuss in
good faith with a view to determining whether any means (not being
detrimental in the opinion of the Bank to any of the Bank's interests)
exist or may be implemented by which such amounts may lawfully be
mitigated or reduced, (or the Bank be compensated in some other way) so
as to leave the Bank in the same position in which it would have been
had such Taxes not been payable.
(c) If the Borrower makes any payment hereunder in respect of
which it is required by law to make any deduction or withholding of any
Taxes, it shall pay the full amount to be deducted or withheld to the
relevant taxation or other authority within the time allowed for such
payment under applicable law and shall deliver to the Banks as soon as
practicable after it has made such payment to the applicable authority a
receipt issued by such authority or a statement of the Borrower
confirming the payment to such authority of all amounts so required to
be deducted or withheld from such payment.
<PAGE>
(d) Without prejudice to the provisions of paragraph (a) of this
Section 3.06, if any Bank, or the Agent on its behalf, is required by
law to make any payment on account of Taxes (other than those referred
to in clause (a) above) on or in relation to any sum received or
receivable hereunder or under any of the Facility Documents by such
Bank, or the Agent on its behalf, or any liability for such Taxes in
respect of any such payment is imposed, levied or assessed against any
Bank or the Agent on its behalf, the Borrower will promptly indemnify
such person against such tax payment or liability, including any such
Tax of any Bank arising by virtue of payments under this Section
3.06(d), computed in a manner consistent with Section 3.06(a). A
certificate as to the amount of such payment by such Bank, or the Agent
on its behalf, absent manifest error, shall be final, conclusive and
binding for all purposes.
Section 3.07. Mitigation; Substitution.
(a) Each Bank agrees that to the extent Sections 3.01 3.02(b),
3.03 or 3.06 would be applicable to any of its Loans, it will use
reasonable efforts to notify the Borrower of such event or condition and
to the extent not inconsistent with its internal policies, will use its
reasonable efforts to make, fund or maintain the Affected Loans through
another lending office of such Bank if, as a result thereof, the
additional moneys which would otherwise be required to be paid, or the
reduction of amounts receivable by such Bank thereunder in respect of
such Loans would be materially reduced, or any inability to perform
would cease to exist, or the increased costs which would otherwise be
required to be paid in respect of such Loans would be materially
reduced, or the taxes or other amounts otherwise payable would be
materially reduced, and if, as determined by such Bank, in its sole
discretion, the making, funding or maintaining of such Loans through
such other lending office would not otherwise materially adversely
affect such Loans or such Bank.
(b) If (i) the obligation of any Bank to make Eurocurrency or
Alternate Currency Loans has been suspended pursuant to Section 3.02 or
3.03 or (ii) any Bank has demanded compensation under Section 3.01 or
3.06, the Borrower shall have the right, with the assistance of the
Agent, to seek a substitute financial institution satisfactory to the
Borrower and the Agent (which may be one or more of the Banks) to
purchase the Notes and the pro rata share of outstanding Letters of
Credit of such Bank for cash without recourse to such Bank and assume
the Commitment of such Bank whereupon such Bank shall so assign the
Note, its interest in such outstanding Letters of Credit and its
Commitment to such substitute financial institution.
ARTICLE 4. CONDITIONS PRECEDENT
Section 4.01. Initial Conditions Precedent.
The obligations of the Banks to make Loans pursuant to the initial
Borrowing Request or to issue Letters of Credit on the Closing Date are
subject to satisfaction of the following conditions precedent:
(a) this Agreement in form and substance satisfactory to the Agent
and its counsel shall have been duly executed and delivered to the Agent
by the Borrower and each of the Banks;
(b) the Notes in form and substance satisfactory to the Agent and
its counsel shall have been duly executed and delivered to the Agent by
the Borrower and each Bank shall have received the original executed
Note payable to it or a facsimile thereof;
<PAGE>
(c) that on the date of such Loans or the issuance of such Letters
of Credit the following statements shall be true:
(i) the representations and warranties contained in Article 5
are true and correct in all material respects on and as
of the date of such Loans as though made on and as of
such date unless they expressly relate to an earlier
date; and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such Loans or issuance
of such Letter of Credit;
(d) the Authorization Letter in form and substance satisfactory to
the Agent and its counsel shall have been duly executed and delivered to
the Agent by the Borrower and a copy thereof shall have been delivered
to each Bank;
(e) a certificate of the Secretary or Assistant Secretary of the
Borrower, dated the Closing Date, attesting to all corporate action
taken by the Borrower, including resolutions of its Board of Directors
authorizing the execution, delivery and performance of the Facility
Documents and each other document to be delivered pursuant to this
Agreement and certifying the names and true signatures of the officers
of the Borrower authorized to sign the Facility Documents and the other
documents to be delivered by the Borrower under this Agreement shall
have been delivered to the Agent and a copy thereof shall have been
delivered to each Bank;
(f) a certificate of the Borrower executed by a duly authorized
officer of the Borrower, dated the Closing Date, stating that the
representations and warranties in Article 5 are true and correct on such
date in all material respects as though made on and as of such date
(unless they relate expressly to an earlier date) and that no event has
occurred and is continuing which constitutes a Default or Event of
Default shall have been delivered to the Agent and a copy thereof shall
have been delivered to each Bank;
(g) a favorable opinion of counsel for the Borrower, dated the
Closing Date, in substantially the form of Exhibit D shall have been
delivered to the Agent and a copy thereof shall have been delivered to
each Bank; and
(h) The Borrower shall have Ratings of BBB-/Ba2 or better.
Section 4.02. Subsequent Loans or Letters of Credit.
The obligations of the Banks to make Loans pursuant to any
subsequent Borrowing Request or to issue any Letter of Credit after the
Closing Date shall be subject to satisfaction of the following
conditions precedent (provided that the condition in paragraph (b) below
shall not apply to issuances of Letters of Credit:
(a) from and after the Closing Date no material adverse change
which would be reasonably likely to result in a Default or an Event of
Default shall have occurred in the business, financial position or
results of operation of the Borrower and its Consolidated Subsidiaries,
taken as a whole;
(b) The ratio of consolidated Funded Debt of the Borrower plus the
amount of the Borrowing and any Funded Debt intended to be assumed and
not repaid in conjunction with an Acquisition, to the Borrower's
<PAGE>
Consolidated EBITDA, or in the event the proceeds of a Loan are to be
applied in whole or in part for an Acquisition, the Borrower's
Consolidated Pro-Forma EBITDA, as applicable, for the four immediately
preceding fiscal quarters shall not be greater than 3.25 to 1.00; and
(c) the statements in Section 4.01(c) above, shall be true and
correct as of such date; and
Section 4.03. Deemed Representations.
Each Borrowing Request hereunder and acceptance by the Borrower of
the proceeds of such Borrowing or Borrowings and each request for
issuance of a Letter of Credit shall constitute a representation and
warranty by the Borrower that the applicable conditions contained in
Section 4.02 have been satisfied both on the date of such notice and,
unless the Borrower otherwise notifies the Agent prior to such
Borrowing, as of the date of such Borrowing or issuance of a Letter of
Credit.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
Section 5.01. Incorporation, Good Standing and Due
Qualification.
Each of the Borrower and its Material Subsidiaries is duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its assets and to transact the business in which it is
now engaged, and is duly qualified as a foreign corporation and in good
standing under the laws of each other jurisdiction in which such
qualification is required except where failure to be so qualified would
not have a reasonable likelihood of having a material adverse effect on
the financial condition, operations, properties or business of the
Borrower and its Subsidiaries taken as a whole or the ability of the
Borrower to perform its obligations under the Facility Documents.
Section 5.02. Corporate Power and Authority; No Conflicts.
The execution, delivery and performance by the Borrower of the
Facility Documents have been duly authorized by all necessary corporate
action and do not and will not: (a) require any consent or approval of
its stockholders; (b) contravene its charter or by-laws; (c) violate any
provision of, or require any filing (except for the filing of this
Agreement with the Securities and Exchange Commission and the New York
Stock Exchange), registration, consent or approval under, any law, rule,
regulation (including, without limitation, Regulation U), order, writ,
judgment, injunction, decree, determination or award presently in effect
having applicability to the Borrower or any of its Material Subsidiaries
or affiliates; (d) result in a breach of or constitute a default or
require any consent (except for those consents which have been obtained)
under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower is a party or by which it or
its properties may be bound; (e) or result in, or require, the creation
or imposition of any Lien, upon or with respect to any of the properties
now owned or hereafter acquired by the Borrower or any of its Material
Subsidiaries; or (f) cause the Borrower (or any Material Subsidiary or
affiliate, as the case may be) to be in default under any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award or any such indenture, agreement, lease or instrument; which in
<PAGE>
the case of a violation, breach, creation of Lien or default or failure
to make or obtain such filing, registration, consent or approval, as
contemplated by clause (c) through (f) above, could be reasonably
expected to have a material adverse effect on the Borrower.
Section 5.03. Legally Enforceable Agreements.
Each Facility Document is, or when delivered under this Agreement
will be, a legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms except as
may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditor's rights generally and subject to the application of
equitable principles and the availability of equitable remedies.
Section 5.04. Litigation.
Except as disclosed on Schedule IV hereto, there are no actions,
suits or proceedings pending or, to the knowledge of the Borrower,
threatened, against or affecting the Borrower or any of its Subsidiaries
before any court, governmental agency or arbitrator, which, in any one
case or in the aggregate, would have a reasonable likelihood of having a
material adverse affect on the financial condition, operations,
properties or business of the Borrower or its Subsidiaries as taken as a
whole or the ability of the Borrower to perform its obligation under the
Facility Documents.
Section 5.05. Financial Statements; SEC Filings.
The consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as at January 29, 1995, and the related consolidated
statements of income and statements of cash flows and changes in
stockholders' equity of the Borrower and its Consolidated Subsidiaries
for the fiscal year then ended, and the accompanying footnotes, together
with the opinion thereon, of KPMG Peat Marwick, independent certified
public accountants, a copy of which has been furnished to each of the
Banks, fairly present in all material respects the financial condition
of the Borrower and its Consolidated Subsidiaries as at such dates and
the results of the operations of the Borrower and its Consolidated
Subsidiaries for the periods covered by such statements, all in
accordance with generally accepted accounting principles. Since January
29, 1995, there has been no material adverse change in the business,
financial position or results of operations of the Borrower and its
Subsidiaries taken as a whole. The Borrower has timely made all filings
required of it with the Securities and Exchange Commission.
Section 5.06. Taxes.
The Borrower and its Material Subsidiaries have filed all United
States Federal income tax returns and all other material tax returns
required to be filed and have paid all taxes, assessments and
governmental charges and levies shown thereon to be due, including
interest and penalties, except for those which are being contested in
good faith and by appropriate proceedings diligently conducted. The
federal income tax liability of the Borrower and its Subsidiaries has
been audited by the Internal Revenue Service and has been finally
determined and satisfied for all taxable years up to and including the
taxable year ended January 31, 1992. The charges, accruals and reserves
on the books of the Borrower and its Subsidiaries with respect to taxes
or other governmental charges are adequate in the opinion of the
Borrower.
<PAGE>
Section 5.07. ERISA.
Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each
Plan and is in compliance in all material respects with the presently
applicable provisions of ERISA and the Code with respect to each Plan.
No member of the ERISA Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Code in respect of any Plan,
(ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or
could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the PBGC for premiums
under Section 4007 of ERISA.
Section 5.08. Subsidiaries and Ownership of Stock.
Schedule II is a complete and accurate list of Material
Subsidiaries of the Borrower as of the date hereof, showing the
jurisdiction of incorporation or organization of each Material
Subsidiary and showing the percentage of the Borrower's ownership of the
outstanding stock or other equity interest of each such Material
Subsidiary. Except as set forth on Schedule II, all of the outstanding
capital stock or other equity interest of each such Material Subsidiary
has been validly issued, is fully paid and nonassessable and is owned,
directly or indirectly, by the Borrower free and clear of all Liens.
Section 5.09. Credit Arrangements.
As of January 29, 1995, Schedule III is a complete and correct list
of all Debt of the Borrower and its Subsidiaries outstanding pursuant to
which the Borrower or its Subsidiaries are or may be in any manner,
directly or contingently obligated in an amount equal to or greater than
$1,000,000 and all Liens existing securing Debt outstanding. Except as
set forth on Schedule III, there has been no material change in the
amount of Debt outstanding of the Borrower and its Subsidiaries since
January 29, 1995.
Section 5.10. No Default on Outstanding Judgments or Orders.
Each of the Borrower and its Subsidiaries has satisfied all
material judgments and neither the Borrower nor any of its Subsidiaries
is in default with respect to any material judgment, writ, injunction or
decree of any court, arbitrator or federal, state, municipal or other
governmental authority, commission, board, bureau, agency or
instrumentality, domestic or foreign.
Section 5.11. Governmental Regulation.
Neither the Borrower nor any of its Subsidiaries is a "holding
company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, or an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or an "investment advisor"
within the meaning of the Investment Advisors Act of 1940, as amended.
Section 5.12. Environmental Matters.
Except as disclosed in Schedule V, the Borrower and its
Subsidiaries are in compliance with all applicable Environmental Laws
and neither the Borrower nor its Subsidiaries has any fixed or
<PAGE>
contingent liability under any Environmental Law applicable to the
business, operations or properties of the Borrower and it Subsidiaries
(for purposes of this Section "liabilities" shall include, without
limitation, liabilities for any capital or operating expenditures
required for clean-up or closure of properties presently or previously
owned, any capital or operating expenditure required to achieve or
maintain compliance with environmental protection standards imposed by
law or as a condition of any license, permit or contract, any related
constraints on operating activities, including any losses or expenses
relating to periodic or permanent shutdown of any facility or reduction
in the level of or change in the nature of operations conducted thereat,
any costs or liabilities in connection with off-site disposal of wastes
or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses),
except in each case where the amount of the liabilities associated with
such noncompliance and the amount of such fixed or contingent
liabilities would not have a reasonable likelihood of having a material
adverse effect on the financial condition, operations, properties or
business of the Borrower and its Subsidiaries taken as a whole or the
ability of the Borrower to perform its obligations under the Facility
Documents.
Section 5.13. Full Disclosure.
All information heretofore furnished by the Borrower or any of its
Subsidiaries to the Agent or any Bank for purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
such information hereafter furnished by the Borrower to the Agent or any
Bank will be, true and accurate in all material respects on the date as
of which such information is stated or certified and in light of the
circumstances in which such statements or certifications are made.
ARTICLE 6. AFFIRMATIVE COVENANTS
So long as any of the Notes shall not have been paid in full, any
amounts shall be owing hereunder by the Borrower, or any Bank shall have
any Commitment under this Agreement, the Borrower shall comply with the
following covenants:
Section 6.01. Reporting Requirements.
The Borrower shall furnish directly to each of the Banks:
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as of the end of such
fiscal year and the related consolidated and consolidating statements of
income by division and consolidated statements of cash flows and changes
in stockholders' equity of the Borrower and its Consolidated
Subsidiaries for such fiscal year, all in reasonable detail and stating
in comparative form the respective consolidated and consolidating
figures for the corresponding date and period in the prior fiscal year
and (i) in the case of the consolidated statements, all reported on in a
manner acceptable to the Securities and Exchange Commission by KPMG Peat
Marwick or other independent public accountants of nationally recognized
standing, and (ii) in the case of consolidating statements, all
certified as to fairness in all material respects of presentation,
generally accepted accounting principles and consistency by the chief
financial officer of the Borrower.
<PAGE>
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the
Borrower, a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such quarter and the related
consolidated and consolidating statements of income by division and
consolidated statements of cash flows and changes in stockholders'
equity for such quarter and for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, all in
reasonable detail and stating in comparative form the respective
consolidated figures for the corresponding quarter and the corresponding
period in the previous fiscal year, and certified by the chief financial
officer of the Borrower (subject to year end adjustments and the
omission of notes permitted by the applicable regulations of the
Securities and Exchange Commission to be excluded from quarterly reports
filed on Form 10-Q) as to fairness, in all material respects, of
presentation, generally accepted accounting principles and consistency;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of
the chief financial officer of the Borrower (i) setting forth in
reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Sections 7.02(ii),
8.01, 8.02 and 8.03 on the date of such financial statements, and (ii)
stating whether any Default exists on the date of such certificate and,
if any Default then exists, setting forth the details thereof and the
action which the Borrower is taking or proposes to take with respect
thereto;
(d) within ten days after any officer of the Borrower obtains
knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer of the Borrower setting forth
the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(e) promptly upon the mailing thereof to the shareholders of the
Borrower, copies of all financial statements, reports and proxy
statements so mailed;
(f) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K,
10-Q and 8-K (or their equivalents) which the Borrower shall have filed
with the Securities and Exchange Commission;
(g) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the Plan administrator of any Plan has given or is
required to give notice of any such reportable event given or required
to be given to the PBGC, a copy of such notice; (ii) receives notice of
complete or partial withdrawal liability under Title IV of ERISA or
notice that any Multiemployer Plan is in reorganization, is insolvent or
has been terminated, a copy of such notice; (iii) receives notice from
the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in
respect of, or appoint a trustee to administer any Plan, a copy of such
notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Code, a copy of such application; (v) gives notice of
intent to terminate any Plan under Section 4041(c) of ERISA, a copy of
such notice and other information filed with the PBGC; (vi) gives notice
<PAGE>
of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of
such notice; or (vii) fails to make any payment or contribution to any
Plan or Multiemployer Plan or in respect of any Benefit Arrangement or
makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a
bond or other security, a certificate of the chief financial officer of
the Borrower setting forth details as to such occurrence and action, if
any, which any member of the ERISA Group is required or proposes to
take;
(h) promptly after the commencement thereof, notice of all
actions, suits, and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting the Borrower or any of its Subsidiaries
which have a reasonable likelihood of a material adverse effect on the
financial condition, properties, or operations of the Borrower or its
Subsidiaries taken as a whole;
(i) If, at any time, the Borrower shall become aware or have
reasonable cause to believe that Hazardous Substances or solid wastes
have been released or have otherwise come to be located on, in or
affecting any real property owned or leased by the Borrower or any
Subsidiary or that any liability arising out of the violation of any
Environmental Laws has arisen, including liability for off-site
environmental conditions, or that a notice has been received from any
governmental body or other party seeking any information or alleging any
violation of any Environmental Laws or alleging any liability with
regard to any real property owned or leased by the Borrower or any
Subsidiaries or off-site environmental conditions, in each case, which
Borrower determines now or hereafter may materially impair the
Borrower's ability to meet its obligations under the Facility Documents,
the Borrower shall promptly give notice of that event to the Agent.
(j) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries as
the Agent or any Bank may from time to time reasonably request.
(k) notification of any change in the Ratings.
Section 6.02. Payment of Obligations.
The Borrower will pay and discharge, and will cause each Material
Subsidiary to pay and discharge, at or before maturity or in accordance
with the Borrower's customary trade practices, all their respective
material obligations and liabilities, including, without limitation, tax
liabilities, except where the same may be disputed or contested in good
faith by appropriate proceedings, and will maintain, and will cause each
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
Section 6.03. Maintenance of Property; Insurance.
(a) The Borrower will maintain, and will cause each Subsidiary to
maintain, all property useful and necessary in its business in good
working order and condition, ordinary wear and tear excepted, if the
failure to so maintain could be reasonably, expected to have a material
adverse effect on the financial condition, operations, properties or
business of the Borrower and its Subsidiaries taken as a whole or the
ability of the Borrower to perform its obligations under the Facility
Documents.
<PAGE>
(b) The Borrower will, and will cause each of its Subsidiaries to,
maintain (either in the name of the Borrower or in such Subsidiary's own
name) with financially sound and responsible insurance companies,
insurance on all their respective properties in at least such amounts
and against at least such risks (and with such risk retention) as are
(i) insured against under the policies of insurance of the Borrower and
its Subsidiaries set forth on Schedule I hereto and (ii) usually insured
against in the same general area by companies of established repute
engaged in the same or a similar business; and will furnish to the
Banks, upon request from the Agent, information presented in reasonable
detail as to the insurance so carried.
Section 6.04. Conduct of Business and Maintenance of Existence.
The Borrower will continue, and will cause each Material Subsidiary
to continue, to engage in business of the same general type as now
conducted by the Borrower and its Subsidiaries, and will preserve, renew
and keep in full force and effect, and will cause each Subsidiary to
preserve, renew and keep in full force and effect their respective
corporate existence and their respective rights, privileges and
franchises necessary or desirable in the normal conduct of business;
provided that nothing in this Section 6.04 shall prohibit (i) the
merger, consolidation or liquidation of a Subsidiary with or into
another Person if the corporation surviving such consolidation or merger
is a Wholly-Owned Subsidiary or the merger of a Subsidiary into the
Borrower if, in each case, after giving effect thereto, no Default shall
have occurred and be continuing, (ii) the termination of the corporate
existence of any Subsidiary (other than a Material Subsidiary) if such
termination does not result in a Default or an Event of Default and the
Borrower in good faith determines that such termination is in the best
interest of the Borrower or (iii) a consolidation, merger or sale
permitted by Section 7.05 below.
Section 6.05. Compliance with Laws.
The Borrower will comply, and cause each Subsidiary to comply, in
all material respects with all applicable laws, ordinances, rules,
regulations and requirements of governmental authorities (including,
without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (a) where the Borrower's compliance
therewith is contested in good faith by appropriate proceedings and
appropriate reserves are maintained in accordance with generally
accepted accounting principles or (b) where failure to comply with such
law, ordinance, rules, regulation or requirement would not have a
material adverse effect on the financial condition of the Borrower and
its Subsidiaries taken as a whole.
Section 6.06. Inspection of Property, Books and Records.
The Borrower will keep, and will cause each Subsidiary to keep,
proper books of record and account in which materially full, true and
correct entries shall be made of all dealings and transactions in
relation to its business and activities; and will permit, and will cause
each Subsidiary to permit, representatives of any Bank to visit and
inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records and to discuss
their respective affairs, finances and accounts with their respective
officers, employees and independent public accountant (provided the
Borrower shall have the right to be present at any meeting with its
independent public accountants), all at such reasonable times, upon
reasonable notice and as often as may reasonably be desired such
<PAGE>
inspections to be at the Bank's cost and expense for inspections prior
to occurrence of a Default or an Event of Default and at the Borrower's
expense for inspections subsequent to occurrence of a Default or an
Event of Default.
Section 6.07. Maintenance of Ownership of Subsidiaries.
Except as otherwise permitted pursuant to Sections 6.04 or 7.05,
the Borrower will at all times maintain direct or indirect legal and
beneficial ownership of the percentage of outstanding shares of each
class of capital stock set forth on Schedule II of each of its
Subsidiaries.
ARTICLE 7. NEGATIVE COVENANTS.
So long as any of the Notes shall not have been paid in full, any
amounts shall be owing hereunder by any Borrower, or any Bank shall have
any Commitment under this Agreement, the Borrower shall not, and will
not permit any Subsidiary to:
Section 7.01. Debt.
Incur or at any time be liable with respect to any Debt except:
(a) Debt outstanding under this Agreement and the Notes;
(b) Debt outstanding on the date of this Agreement and identified
on Schedule III and any renewal or refinancing of such Debt;
(c) Permitted Short-Term Debt in an amount not to exceed at any
time $10,000,000.
(d) Debt subordinated to the Debt hereunder, in amounts and on
terms and conditions satisfactory to the Required Banks;
(e) Permitted Long-term Debt.
(f) renewals or replacements of Letters of Credit outstanding on
the date one year prior to the Conversion Date or issued subsequent to
such date other than in replacement or renewal of Letters of Credit
outstanding on such date, plus additional letters of credit (issued
other than pursuant to this Agreement) having an aggregate face amount
not greater than $5,000,000, provided that such renewal, replacement or
additional letters of credit must have an expiration date later than the
date which is ten days prior to the Conversion Date;
(g) inter-company Debt among the Borrower and its Subsidiaries;
and
(h) Debt secured by a Lien expressly permitted by Section 7.04(d)
not to exceed at any time $2,000,000.
Section 7.02. Restricted Payments.
Declare or make any Restricted Payment provided however that so
long as no Default or Event of Default has occurred or will arise
therefrom, the Borrower shall be permitted to make Restricted Payments
of (i) dividends or (ii) any other Restricted Payments in an aggregate
amount not to exceed $15,000,000 during the term of this facility.
Nothing in this Section 7.02 shall prohibit the payment of any dividend
or distribution within 60 days after the declaration was not prohibited
by this Section 7.02.
<PAGE>
Section 7.03. Investments.
Make or acquire any Investment in any Person other than:
(a) Investments outstanding as of January 29, 1995 and, of which
are set forth on Schedule VI hereto;
(b) Temporary Cash Investments;
(c) Investments made in another Person pursuant to a merger or
asset acquisition made in compliance with subsection (i) of the proviso
in Section 7.05;
(d) Investments in joint ventures up to an aggregate investment of
$5,000,000;
(e) Investments in the form of capitalization of wholly-owned
Subsidiaries;
(f) loans to employees up to an aggregate maximum amount of
$1,000,000 at any time; and
(h) other Investments up to an aggregate maximum amount of
$5,000,000 at any time.
The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without adjustments
for increases or decreases in value, write-ups, write-downs or write-
offs with respect to such Investment.
Section 7.04. Negative Pledge.
Create, assume or suffer to exist any Lien on any asset now owned
or hereafter acquired by it, except:
(a) Liens existing on the date of this Agreement securing Debt
outstanding on the date of this Agreement and identified on Schedule
III;
(b) Permitted Liens; and
(c) any Lien existing on any asset of any Person at the time such
Person becomes a Subsidiary and not created in contemplation of such
event;
(d) any Lien on any asset securing Debt incurred or assumed for
the purpose of financing all or any part of the cost of acquiring or
constructing such asset; provided that such Lien attaches to such asset
concurrently with or within 90 days after the acquisition or
construction thereof and such Lien shall not exceed the fair market
value of such asset;
(e) any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into the Borrower or a
Subsidiary and not created in contemplation of such event; and
(f) any Lien existing on any asset prior to the acquisition
thereof by the Borrower or a Subsidiary and not created in contemplation
of such acquisition;
<PAGE>
Section 7.05. Consolidations, Mergers and Sales of Assets.
a) consolidate or merge with or into any other Person or (b) sell,
lease or otherwise transfer, directly or indirectly in one transaction
or a series of related transactions, all or any substantial part of the
assets of the Borrower and its Subsidiaries, taken as a whole, to any
other Person; provided that (i) the Borrower or a Subsidiary may acquire
the assets of, or equity interests in, another Person which is in the
same, or a similar, business as the Borrower; (ii) the Borrower or a
Subsidiary may enter into a merger with another Person which is in the
same, or a similar, business as the Borrower, provided the entity
surviving the merger is the Borrower or a Subsidiary of the Borrower,
(iii) the Borrower may sell inventory in the ordinary course of
business; and (iv) the Borrower may sell or otherwise transfer
additional assets, including the stock of other equity interests in a
Subsidiary, having an aggregate net cost basis determined in accordance
with generally accepted accounting principles for all sales from the
Closing Date through the date of measurement not to exceed $10,000,000
during the fiscal year ending January 28, 1996, with such maximum
aggregate sales price increasing by $2,500,000 during each fiscal year
thereafter, provided further that in the cases of clause (i), (ii) and
(iv) above immediately after giving effect to any such transaction, no
Default shall have resulted.
Section 7.06. Transactions with Affiliates.
Directly or indirectly, pay any funds to or for the account of,
make any investment (whether by acquisition of stock or indebtedness, by
loan, advance, transfer of property, guarantee or other agreement to
pay, purchase or service, directly or indirectly, any Debt, or
otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect any transaction
in connection with any joint enterprise or other joint arrangement with,
any Affiliate unless any such transaction is entered into in the
ordinary course of business and on terms and conditions at least as
favorable to the Borrower or such Subsidiary as the terms and conditions
which would apply in a similar transaction with a Person not an
Affiliate, and provided such transaction would otherwise be permitted by
this Agreement; provided, however, that the foregoing provisions of this
Section 7.06 shall not prohibit the Borrower from declaring or paying
any lawful dividend so long as, after giving effect thereto, no Default
shall have occurred and be continuing.
ARTICLE 8. FINANCIAL COVENANTS.
So long as any of the Notes shall not have been paid in full, any
amounts shall be owing hereunder by any Borrower, or any Bank shall have
any Commitment under this Agreement the Borrower covenants that:
Section 8.01. EBIT to Interest Expense Ratio.
The Borrower's ratio of Consolidated EBIT for the preceding four
fiscal quarters to Consolidated Interest Expense for such period shall
not be less than 2.50 to 1.00 at the end of each fiscal quarter
including the fiscal quarter ending October 1995; and shall not be less
than 3.00 to 1.00 at the end of each fiscal quarter thereafter, such
ratio to be tested at end of each fiscal quarter.
<PAGE>
Section 8.02. Minimum Consolidated Tangible Net Worth.
The Borrower shall maintain at all times Consolidated Tangible Net
Worth at the end of each fiscal quarter of not less than $94,263,300,
plus an amount equal to sixty percent (60%) of Aggregate Positive
Consolidated Net Income for each full fiscal quarter subsequent to
January 29, 1995 to the measurement date.
Section 8.03. Maximum Total Debt to Net Worth Ratio.
The Borrower's ratio of consolidated total Debt to the sum of
consolidated total Debt plus Consolidated Net Worth shall not at any
time be greater than 0.50 to 1.00.
ARTICLE 9. EVENTS OF DEFAULT.
Section 9.01. Events of Default.
Any of the following events shall be an "Event of Default":
(a) the Borrower shall: (i) fail to make any payment of principal
of any Note as and when due and payable; and (ii) fail to make any
payment of interest on any Note or any fee or other amount due hereunder
within three days of when due and payable; and
(b) any representation or warranty made or deemed made by the
Borrower in this Agreement or in any other Facility Document or which is
contained in any certificate, document, opinion, financial or other
written statement furnished at any time under or in connection with any
Facility Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made;
(c) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in Sections 6.01(i), 7.01 to 7.06
inclusive, and Sections 8.01, 8.02 and 8.03.
(d) the Borrower shall fail to perform or observe any term,
covenant or agreement on its part to be performed or observed (other
than the obligations specifically referred to elsewhere in this Section
9.01) in any Facility Document and such failure shall continue for 30
consecutive days after written notice thereof has been given to the
Borrower by the Agent at the request of the Required Banks.
(e) the Borrower or any Subsidiary shall fail to make any payment
in respect of any Material Debt when due or within any applicable grace
period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt;
(g) the Borrower or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property,
or shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as
they become due, or shall take any corporate action to authorize any of
the foregoing;
<PAGE>
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property,
and such involuntary case or other proceeding shall remain undismissed
and unstayed for a period of 60 days; or an order for relief shall be
entered against the Borrower or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $500,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of
the foregoing; or the PBGC shall institute proceedings under Title IV of
ERISA to terminate, to impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the
meaning of Section 4219 (c) (5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause aggregate annual payments
(including contributions and amortized withdrawal liability payments) to
all Multiemployer Plans to increase by more than $500,000; or
(j) a judgment or order, other than a customs' assessment or a
sales or excise tax assessment, for the payment of money in excess of
$2,500,000 or final, non-reviewable customs' assessment or a sales or
excise tax assessment in excess of $5,000,000 in the aggregate shall be
rendered against the Borrower or any Subsidiary and such judgment, order
or assessments shall continue unsatisfied and unstayed for a period of
30 days.
Section 9.02. Remedies.
If any Event of Default shall occur and be continuing, the Agent
shall, upon request of the Required Banks, by notice to the Borrower,
(a) declare the Commitments to be terminated, whereupon the same shall
forthwith terminate, and (b) declare the outstanding principal of the
Notes, all interest thereon and all other amounts payable under this
Agreement and the Notes to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
the Borrowers; provided that, in the case of an Event of Default
referred to in Section 9.01(g) or 9.01(h) above, the Commitments shall
be immediately terminated, and the Notes, all interest thereon and all
other amounts payable under this Agreement shall be immediately due and
payable without notice, presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
ARTICLE 10. THE AGENT; RELATIONS AMONG BANKS AND BORROWER.
Section 10.01. Appointment, Powers and Immunities of Agent.
Each Bank hereby irrevocably appoints and authorizes the Agent to
act as its agent hereunder and under any other Facility Document with
such powers as are specifically delegated to the Agent by the terms of
<PAGE>
this Agreement and any other Facility Document, together with such other
powers as are reasonably incidental thereto. The Agent shall have no
duties or responsibilities except those expressly set forth in this
Agreement and any other Facility Document, and shall not by reason of
this Agreement be a trustee for any Bank. The Agent shall not be
responsible to the Banks for any recitals, statements, representations
or warranties made by the Borrower or any officer or official of any
Borrower or any other Person contained in this Agreement or the other
Facility Document, or in any certificate or other document or instrument
referred to or provided for in, or received by any of them under, this
Agreement or any other Facility Document, or for the value, legality,
validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Facility Document or any other document or
instrument referred to or provided for herein or therein, for the
perfection or priority of any collateral security for the Loans, if any
or for any failure by the Borrower to perform any of its obligations
hereunder or thereunder. The Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or
securities received by it or its authorized agents, for the negligence
or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any
action taken or omitted to be taken by it or them hereunder or under any
other Facility Document or in connection herewith or therewith, except
for its or their own gross negligence or willful misconduct or action
not authorized under this Agreement or by the Required Banks which is in
violation of law and results in a liability of the Banks to the
Borrower. The Borrower shall pay any fee agreed to by the Borrower and
the Agent with respect to the Agent's services hereunder.
Section 10.02. Reliance by Agent.
The Agent shall be entitled to rely upon any certification, notice
or other communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be genuine and correct and to have
been signed or sent by or on behalf of the proper Person or Persons, and
upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent. The Agent may deem and treat each
Bank as the holder of the Loans made by it for all purposes hereof
unless and until a notice of the assignment or transfer thereof
satisfactory to the Agent signed by such Bank shall have been furnished
to the Agent but the Agent shall not be required to deal with any Person
who has acquired a participation in any Loan from a Bank. As to any
matters not expressly provided for by this Agreement or any other
Facility Document, the Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Banks, and such instructions of the
Required Banks and any action taken or failure to act pursuant thereto
shall be binding on all of the Banks and any other holder of all or any
portion of any Loan.
Section 10.03. Defaults.
The Agent shall not be deemed to have knowledge of the occurrence
of a Default or Event of Default (other than the non-payment of
principal of or interest on the Loans to the extent the same is required
to be paid to the Agent for the account of the Banks) unless the Agent
has received notice from a Bank or the Borrower specifying such Default
or Event of Default and stating that such notice is a "Notice of
Default." In the event that the Agent receives such a notice of the
occurrence of a Default or Event of Default, the Agent shall give prompt
<PAGE>
notice thereof to the Banks (and shall give each Bank prompt notice of
each such non-payment). The Agent shall (subject to Section 10.08) take
such action with respect to such Default or Event of Default which is
continuing as shall be directed by the Required Banks; provided that,
unless and until the Agent shall have received such directions, the
Agent may take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable
in the best interest of the Banks; and provided further that the Agent
shall not be required to take any such action which it determines to be
contrary to law.
Section 10.04. Rights of Agent as a Bank.
With respect to its Commitment and the Loans made by it, the Agent
in its capacity as a Bank hereunder shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though
it were not acting as the Agent, and the term "Bank" or "Banks" shall,
unless the context otherwise indicates, include the Agent in its
capacity as a Bank. The Agent and its affiliates may (without having to
account therefor to any Bank) accept deposits from, lend money to (on a
secured or unsecured basis), and generally engage in any kind of
banking, trust or other business with, the Borrower (and any of its
affiliates) as if it were not acting as the Agent, and the Agent may
accept fees and other consideration from the Borrower for services in
connection with this Agreement or otherwise without having to account
for the same to the Banks.
Section 10.05. Indemnification of Agent.
The Banks agree to indemnify the Agent (to the extent not
reimbursed under Section 11.03 or under the applicable provisions of any
other Facility Document, but without limiting the obligations of the
Borrower under Section 11.03 or such provisions), ratably in accordance
with the aggregate unpaid principal amount of the Loans made by the
Banks (without giving effect to any participations, in all or any
portion of such Loans, sold by them to any other Person) (or, if no
Loans are at the time outstanding, ratably in accordance with their
respective Commitments), for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to or
arising out of this Agreement, any other Facility Document or any other
documents contemplated by or referred to herein or the transactions
contemplated hereby or thereby (including, without limitation, the costs
and expenses which any Borrower is obligated to pay under Section 11.03
or under the applicable provisions of any other Facility Document but
excluding, unless a Default or Event of Default has occurred, normal
administrative costs and expenses incident to the performance of its
agency duties hereunder) or the enforcement of any of the terms hereof
or thereof or of any such other documents or instruments; provided that
no Bank shall be liable for any of the foregoing to the extent they
arise from the gross negligence or willful misconduct of the Agent or
actions of the Agent not authorized under this Agreement or by the
Required Banks which are in violation of law and result in a liability
of the Banks to the Borrower of the party to be indemnified.
Section 10.06. Documents.
The Agent will forward to each Bank, promptly after the Agent's
receipt thereof, a copy of each report, notice or other document
required by this Agreement or any other Facility Document to be
delivered to the Agent for such Bank.
<PAGE>
Section 10.07. Non-Reliance on Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance on
the Agent or any other Bank, and based on such documents and information
as it has deemed appropriate, made its own credit analysis of the
Borrower and its Subsidiaries and decision to enter into this Agreement
and that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any
other Facility Document. The Agent shall not be required to keep itself
informed as to the performance or observance by the Borrower or its
Subsidiaries of this Agreement or any other Facility Document or any
other document referred to or provided for herein or therein or to
inspect the properties or books of the Borrower or any Subsidiary.
Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder,
the Agent shall not have any duty or responsibility to provide any Bank
with any credit or other information concerning the affairs, financial
condition or business of the Borrower or any Subsidiary (or any of their
affiliates) which may come into the possession of the Agent or any of
its affiliates. The Agent shall not be required to file this Agreement,
any other Facility Document or any document or instrument referred to
herein or therein, for record or give notice of this Agreement, any
other Facility Document or any document or instrument referred to herein
or therein, to anyone.
Section 10.08. Failure of Agent to Act.
Except for action expressly required of the Agent hereunder, the
Agent shall in all cases be fully justified in failing or refusing to
act hereunder unless it shall have received further assurances (which
may include cash collateral to the extent permitted by law) of the
indemnification obligations of the Banks under Section 10.05 in respect
of any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action.
Section 10.09. Resignation of Agent.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by giving thirty (30)
days prior written notice thereof to the Banks and the Borrower;
provided that the Borrower and the other Banks shall be promptly
notified thereof. Upon any such resignation, the Required Banks shall
have the right to appoint, with the consent of the Borrower, which
consent shall not be unreasonably withheld, a successor Agent, which
shall be a commercial bank organized or licensed under the laws of the
United States of America or of any state thereof, with an office in New
York, New York and having a combined capital and surplus of at least
$100,000,000. If no successor Agent shall have been so appointed by the
Required Banks, and shall have accepted such appointment, within 30 days
after the retiring Agent gives notice of resignation, then the retiring
Agent may, on behalf of the Banks and with the consent of the Borrower,
which consent shall not be unreasonably withheld, appoint a successor
Agent, which shall be a commercial bank organized or licensed under the
laws of the United States of America or of any state thereof, with an
office in New York, New York, and having a combined capital and surplus
of at least $100,000,000. The Required Banks or the retiring Agent, as
the case may be, shall upon the appointment of a successor Agent
promptly so notify the Borrower and the other Banks. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent,
<PAGE>
such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and
the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of
this Article 10 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
the Agent.
Section 10.10. Amendments Concerning Agency Function.
The Agent shall not be bound by any waiver, amendment, supplement
or modification of this Agreement or any other Facility Document which
affects its duties hereunder or thereunder unless it shall have given
its prior consent thereto.
Section 10.11. Liability of Agent.
The Agent shall not have any liabilities or responsibilities to the
Borrower on account of the failure of any Bank to perform its
obligations hereunder or to any Bank on account of the failure of the
Borrower to perform its obligations hereunder or under any other
Facility Document. This Section 10.11 shall not be construed to relieve
the Agent of any liability it may have as a Bank when acting in its
capacity as a Bank hereunder.
Section 10.12. Transfer of Agency Function.
Without the consent of the Borrower or any Bank, the Agent may at
any time or from time to time transfer its functions as Agent hereunder
to any of its offices wherever located, provided that the Agent shall
promptly notify the Borrower and the Banks thereof.
Section 10.13. Non-Receipt of Funds by the Agent.
Unless the Agent shall have been notified by a Bank or the Borrower
(either one as appropriate being the "Payor") prior to the date on which
such Bank is to make payment hereunder to the Agent of the proceeds of a
Loan or the Borrower is to make payment to the Agent, as the case may be
(either such payment being a "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the
Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but
shall not be required to), make the amount thereof available to the
intended recipient on such date and, if the Payor has not in fact made
the Required Payment to the Agent, the recipient of such payment (and,
if such recipient is the Borrower and the Payor Bank fails to pay the
amount thereof to the Agent forthwith upon demand, the Borrower) shall,
on demand, repay to the Agent the amount made available to it together
with interest thereon for the period from the date such amount was so
made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to the average daily Federal Funds Rate
for such period.
Section 10.14. Withholding Taxes.
Each Bank represents that it is entitled to receive any payments to
be made to it hereunder without the withholding of any tax and will
furnish to the Agent and the Borrower such forms, certifications,
statements and other documents as the Agent may request from time to
time to evidence such Bank's exemption from the withholding of any tax
imposed by any jurisdiction or to enable the Agent to comply with any
<PAGE>
applicable laws or regulations relating thereto. Without limiting the
effect of the foregoing, if any Bank is not created or organized under
the laws of the United States of America or any state thereof, in the
event that the payment of interest by any Borrower is treated for U.S.
income tax purposes as derived in whole or in part from sources from
within the U.S., such Bank will furnish to the Agent and the Borrower
Form 4224 or Form 1001 of the Internal Revenue Service, or such other
forms, certifications, statements or documents, duly executed and
completed by such Bank as evidence of such Bank's exemption from the
withholding of U.S. tax with respect thereto. The Agent shall not be
obligated to make any payments hereunder to such Bank in respect of any
Loan or such Bank's Commitment until such Bank shall have furnished to
the Agent the requested form, certification, statement or document.
Section 10.15. Several Obligations and Rights of Banks.
The failure of any Bank to make any Loan to be made by it on the
date specified therefor shall not relieve any other Bank of its
obligation to make its Loan on such date, but no Bank shall be
responsible for the failure of any other Bank to make a Loan to be made
by such other Bank. The amounts payable at any time hereunder to each
Bank shall be a separate and independent debt, and each Bank shall be
entitled to protect and enforce its rights arising out of this
Agreement, and it shall not be necessary for any other Bank to be joined
as an additional party in any proceeding for such purpose.
Section 10.16. Pro-Rata Treatment of Loans, Etc.
Except to the extent otherwise provided: (a) each Borrowing under
Article 2 shall be made from the Banks, each reduction or termination of
the amount of the Commitments under Section 2.09 shall be applied to the
Commitments of the Banks, and each payment of commitment fee accruing
under Section 2.13 shall be made for the account of the Banks, pro-rata
according to the amounts of their respective unused Commitments; (b)
each conversion under Section 2.07 of Loans of a particular type (but
not conversions provided for by Section 3.04), shall be made pro-rata
among the Banks holding Loans of such type according to the respective
principal amounts of such Loans by such Banks; (c) each prepayment and
payment of principal of or interest on Loans of a particular type and a
particular Interest Period shall be made to the Agent for the account of
the Banks holding Loans of such type and Interest Period pro-rata in
accordance with the respective unpaid principal amounts of such Loans of
such Interest Period held by such Banks.
Section 10.17. Sharing of Payments Among Banks.
If a Bank shall obtain payment of any principal of or interest on
any Loan made by it through the exercise of any right of setoff,
banker's lien, counterclaim, or by any other means, it shall promptly
purchase from the other Banks participations in (or, if and to the
extent specified by such Bank, direct interests in) the Loans made by
the other Banks in such amounts, and make such other adjustments from
time to time as shall be equitable to the end that all the Banks shall
share the benefit of such payment (net of any expenses which may be
incurred by such Bank in obtaining or preserving such benefit) pro-rata
in accordance with the unpaid principal and interest on the Loans held
by each of them. To such end the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or
otherwise) if such payment is rescinded or must otherwise be restored.
The Borrower agrees that any Bank so purchasing a participation (or
direct interest) in the Loans made by other Banks may exercise all
<PAGE>
rights of setoff, banker's lien, counterclaim or similar rights with
respect to such participation (or direct interest). Nothing contained
herein shall require any Bank to exercise any such right or shall affect
the right of any Bank to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness of the
Borrower.
ARTICLE 11. MISCELLANEOUS.
Section 11.01. Amendments and Waivers.
No amendment or waiver of any provision of this Agreement nor
consent to any departure by the Borrower therefrom, shall in any event
be effective unless the same shall be in writing and signed by the
Required Banks, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
Notwithstanding the foregoing, no amendment, waiver or consent shall,
unless in writing and signed by all the Banks, do any of the following:
(a) increase the Commitments of the Banks or subject the Banks to any
additional obligations, (b) reduce the principal amount of, or interest
on, any Loan or any fees or other amounts payable under any Facility
Documents, (c) postpone any date fixed for any payment of principal of,
or interest on, any Loans or any fees or other amounts payable under any
Facility Documents, (d) change the percentage of the Commitments or of
the aggregate unpaid principal amount of Loans, or the number of Banks
which shall be required for the Banks or any of them to take any action
under any Facility Documents, or (e) amend this Section 11.01; provided
further that no amendment, waiver or consent shall, unless in writing
and signed by the Agent in addition to the Banks required hereinabove to
take such action, affect the rights or duties of the Agent under any
Facility Documents. No failure on the part of the Agent or any Bank to
exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof or preclude any other or further exercise thereof or
the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
Section 11.02. Usury.
Anything herein to the contrary notwithstanding, the obligations of
the Borrower and its Subsidiaries under this Agreement and the Notes
shall be subject to the limitation that payments of interest shall not
be required to the extent that receipt thereof would be contrary to
provisions of law applicable to a Bank limiting rates of interest which
may be charged or collected by such Bank.
Section 11.03. Expenses; Indemnification.
(a) The Borrower shall reimburse (i) the Agent on demand for all
reasonable out-of-pocket costs, expenses, and charges (including,
without limitation, reasonable fees and charges of external legal
counsel for the Agent and costs allocated by its internal legal
department, provided the Agent shall give Borrower prior notice of its
intent to use its internal legal department) incurred by the Agent in
connection with the preparation, performance, or administration of this
Agreement or the Notes or any amendment or modification to this
Agreement on the Notes and (ii) the Agent and the Banks on demand for
all costs, expenses, and charges (including, without limitation,
reasonable fees and expenses of counsel) in connection with the
enforcement of this Agreement, whether incurred prior to, or subsequent
to the commencement of any bankruptcy or insolvency proceeding.
<PAGE>
(b) The Borrower agrees to indemnify the Agent and each Bank and
their respective directors, officers, employees and agents from, and
hold each of them harmless against, any and all losses, liabilities,
claims, damages or expenses incurred by any of them arising out of or by
reason of any investigation or litigation or other proceedings
(including any threatened investigation or litigation or other
proceedings) arising out of this Agreement or any actual or proposed use
by the Borrower or any Subsidiary of the proceeds of the Loans,
including without limitation, the reasonable fees and disbursements of
counsel incurred in connection with any such investigation or litigation
or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence,
willful misconduct, or intentional breach of obligations under this
Agreement of the Person to be indemnified).
(c) The Borrower agrees to indemnify, hold harmless and defend the
Agent and each Bank and any current or former officer, director,
employee, shareholder or agent of the Agent and each Bank or any of them
from any and all claims, losses, damages, response costs, clean-up costs
and expenses arising out of or in any way relating to the existence of
Hazardous Substances over, beneath, in or upon any real property owned
or leased by the Borrower or any Subsidiary or a breach of the
representations, warranties, covenants and agreements set forth in this
Agreement, or any violation of any Environmental Laws or any allegations
arising out of any violation of any Environmental Laws, including, but
not limited to: (a) claims of third parties (including, but not limited
to, agencies) for damages, penalties, response costs, clean-up costs,
injunctive or other relief; (b) costs and expenses of removal and
restoration, including reasonable fees of attorneys and experts, and
costs of reporting the existence of Hazardous Substances to any
governmental body, and (c) any and all expenses or obligations incurred
at, before and after any trial or appeal therefrom whether or not
taxable as costs, including, without limitation, witness fees deposition
costs, copying and telephone charges, other expenses and reasonable
attorneys' fees, all of which shall be paid by the Borrower when
incurred.
Section 11.04. Survival.
The obligations of the Borrower under Sections 3.01, 3.05 and 11.03
shall survive the repayment of the Loans and the termination of the
Commitments.
Section 11.05. Assignments; Participations.
This Agreement shall be binding upon, and shall inure to the
benefit of, the Borrower, the Agent, the Banks and their respective
successors and assigns, except that the Borrower may not assign or
transfer its rights or obligations hereunder. Each Bank may assign all
(but not less than all) of any Loan or its Commitment to another bank or
other entity with the consent of the Borrower, which consent shall not
be unreasonably withheld, in which event the assignee shall have, to the
extent of such assignment (unless otherwise provided therein), the same
rights, benefits and obligations as it would have if it were a Bank
hereunder. Upon notice to the Agent, but without consent of any Person,
each Bank may pledge all or any part of any Loan to a Federal Reserve
Bank in support of borrowings made by such Bank from such Federal
Reserve Bank. Each Bank may sell participations in, all or any part of
any Loan or its Commitment to another bank or other entity, in which
event, the participant shall have no rights under the Facility Documents
and all amounts payable by the Borrower under Article 3 shall be
<PAGE>
determined as if such Bank had not sold such participation. Such Bank
shall deliver a notice to the Borrower and the Agent of any such
participation which shall set forth the participant and the amount of
such participation. The agreement executed by such Bank in favor of the
participant shall not give the participant the right to require such
Bank to take or omit to take any action hereunder except action directly
relating to (i) the extension of a payment date with respect to any
portion of the principal of or interest on any amount outstanding
hereunder allocated to such participant, (ii) the reduction of the
principal amount outstanding hereunder or (iii) the reduction of the
rate of interest payable on such amount or any amount of fees payable
hereunder to a rate or amount, as the case may be, below that which the
participant is entitled to receive under its agreement with such Bank.
Subject to obtaining the prior consent of the Borrower, which consent
shall not be unreasonably withheld, such Bank may furnish any
information concerning the Borrower in the possession of such Bank from
time to time to assignees and participants (including prospective
assignees and participants); provided that such Bank shall require any
such prospective assignee or such participant (prospective or otherwise)
to agree in writing to maintain the confidentiality of such information.
Section 11.06. Notices.
Unless the party to be notified otherwise notifies the other party
in writing as provided in this Section, and except as otherwise provided
in this Agreement, notices shall be given to the Agent by telephone,
confirmed by telex, telecopy, facsimile or other writing, and to the
Banks and to the Borrower by mail, telex or facsimile addressed to such
party at its address on the signature page of this Agreement. Notices
shall be effective: (a) if given by certified mail return receipt
requested, 72 hours after deposit in the mails with first class postage
prepaid, addressed as aforesaid; and (b) if given by telex or facsimile,
when the telex or facsimile is transmitted and confirmed to the telex or
facsimile number as aforesaid; provided that notices to the Agent and
the Banks shall be effective upon receipt.
Section 11.07. Setoff.
The Borrower agrees that, in addition to (and without limitation
of) any right of setoff, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final) held
by it for the account of the Borrower at any of such Bank's offices, in
Dollars or in any other currency, against any amount payable by the
Borrower to such Bank under this Agreement or such Bank's Note which is
not paid when due (regardless of whether such balances are then due to
the Borrower), in which case it shall promptly notify the Borrower and
the Agent thereof; provided that such Bank's failure to give such notice
shall not affect the validity thereof. Payments by the Borrower
hereunder shall be made without setoff or counterclaim.
Section 11.08. Jurisdiction; Immunities.
(a) The Borrower hereby irrevocably submits to the jurisdiction of
any New York State or United States Federal Court sitting in the
Southern District of the State of New York over any action or proceeding
arising out of or relating to this Agreement or the Notes, and the
Borrower hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such New York State
or Federal court. The Borrower irrevocably consents to the service of
any and all process in any such action or proceeding by the mailing of
<PAGE>
copies of such process to the Borrower at its address specified on the
signature pages hereof. The Borrower agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner
provided by law. The Borrower further waives any objection to venue in
such state and any objection to an action or proceeding in such state on
the basis of forum non conveniens. The Borrower further agrees that any
action or proceeding brought against the Agent shall be brought only in
the State of New York or United States Federal court sitting in the
Southern District of the State of New York.
(b) The Borrower, the Agent and the Banks waive any right they may
have to jury trial.
(c) Nothing in this Section 11.08 shall affect the right of the
Agent or any Bank to serve legal process in any other manner permitted
by law or affect the right of the Agent or any Bank to bring any action
or proceeding against the Borrower or any of its property in the courts
of any other jurisdictions.
(d) To the extent that the Borrower has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process
(whether from service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to
itself or its property, the Borrower hereby irrevocably waives such
immunity in respect of its obligations under this Agreement and the
Notes.
Section 11.09. Judgment Currency.
If for the purpose of obtaining judgment in any court it is
necessary to convert a sum due from the Borrower hereunder or under any
of the Notes in Dollars into another currency, the parties hereto agree,
to the fullest extent that they may effectively do so, that the
Alternative Currency Equivalent determined on the Banking Day preceding
that on which final judgment is given shall be used. The obligations of
the Borrower in respect of any sum due to any Bank or the Agent
hereunder or under any Note shall, notwithstanding any judgment in a
currency other than Dollars, be discharged only to the extent that on
the Banking Day following receipt by such Bank or the Agent (as the case
may be) of any sum adjudged to be so due in such other currency such
Bank or the Agent (as the case may be) may in accordance with normal
banking procedures purchase Dollars with such other currency; if the
amount of Dollars so purchased is less than the sum originally due to
such Bank or the Agent, as the case may be, in Dollars, the Borrower
agrees, to the fullest extent that it may effectively do so, as a
separate obligation and notwithstanding any such judgment, to indemnify
such Bank or the Agent, as the case may be, against such deficiency, and
if the amount of Dollars so purchased exceeds (a) the sum originally due
to any Bank or the Agent, as the case may be, and (b) any amounts shared
with other Banks as a result of allocations of such excess as a
disproportionate payment to such Bank under Section 10.17, such Bank or
the Agent, as the case may be, agrees to remit such excess to the
Borrower.
Section 11.10. Confidentiality.
The Agent and the Banks agree, and will cause their respective
employees and agents, to maintain and not to use (except for use in
order to monitor, protect or enforce its rights under any of the
Facility Documents) the confidentiality of any information concerning
the business or financial affairs of the Borrower provided by the
<PAGE>
Borrower pursuant to this Agreement; provided that the Agent and the
Banks shall not be required to treat as confidential any information
regarding the Borrower's business or financial affairs (i) to the extent
disclosure is required by any applicable governmental law, rule,
regulation, decree, order or similar requirement, or requested by a bank
examiner or other similar regulatory officer in the performance of
his/her duties, (ii) to the extent such information is already in the
public domain, (iii) to the extent the Agent or a Bank, as applicable,
learned of the information other than by a disclosure by Borrower or a
Person not known to be bound by a duty of confidentiality with respect
to such information.
Section 11.11. Table of Contents: Headings.
Any table of contents and the headings and captions hereunder are
for convenience only and shall not affect the interpretation or
construction of this Agreement.
Section 11.12. Severability.
The provisions of this Agreement are intended to be severable. If
for any reason any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the
validity or enforceability thereof in any other jurisdiction or the
remaining provisions hereof in any jurisdiction.
Section 11.13. Counterparts.
This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument,
and any party hereto may execute this Agreement by signing any such
counterpart.
Section 11.14. Integration.
The Facility Documents set forth the entire agreement among the
parties hereto relating to the transactions contemplated thereby and
supersede any prior oral or written statements or agreements with
respect to such transactions.
Section 11.15. Governing Law.
This Agreement shall be governed by, and interpreted and construed
in accordance with, the law of the State of New York, without regard to
any conflicts of law rules that might apply the laws of any other
jurisdiction.
[The remainder of this page is intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
DUTY FREE INTERNATIONAL, INC.
By /s/Gerald F. Egan
-----------------------------
Name: Gerald F. Egan
Title: Vice President-Finance
AGENT:
THE CHASE MANHATTAN BANK, N.A.
By /s/Susan M. Timmerman
-----------------------------
Name: Susan M. Timmerman
Title: Vice President
BANKS:
THE CHASE MANHATTAN BANK, N.A.
By /s/Susan M. Timmerman
-----------------------------
Name: Susan M. Timmerman
Title: Vice President
CHEMICAL BANK
By /s/Joseph F. Sachs
-----------------------------
Name: Joseph F. Sachs
Title: Vice President
FLEET BANK, N.A.
By /s/
-----------------------------
Name:
Title:
<PAGE>
ABN AMRO Bank, N.V.
New York Branch
By /s/John W. Deegan
-----------------------------
Name: John W. Deegan
Title: Vice President
By /s/David W. Stack
-----------------------------
Name: David W. Stack
Title: Assistant Vice
President
SOCIETE GENERALE
New York Branch
By /s/Cynthia Colucci
-----------------------------
Name: Cynthia Colucci
Title: Vice President
<PAGE>
<TABLE><CAPTION> Exhibit 12.1
------------
DUTY FREE INTERNATIONAL, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Year Ended January
--------------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
Earnings (loss) before income taxes $25,389 ($31,149) $43,082 $49,786 $48,765
Adjustments:
Interest expense on borrowed funds 8,658 8,878 1,495 1,044 5,657
Interest portion of rental expense
(deemed to be one-third of rental expense) 9,591 8,620 7,990 7,842 7,201
Amortization of deferred financing costs 185 185 31 25 153
Undistributed earnings of less than
50% owned investees (270) (100) (214) (170) (89)
--------- -------- -------- -------- --------
Earnings available for fixed charges/(Deficit) 43,553 (13,566) 52,384 58,527 61,687
--------- -------- -------- -------- --------
Fixed Charges:
Interest expense on borrowed funds 8,658 8,878 1,495 1,044 5,657
Interest capitalized - 309 - - -
Interest portion of rental expense 9,591 8,620 7,990 7,842 7,201
Amortization of deferred financing costs 185 185 31 25 153
--------- -------- -------- -------- --------
18,434 17,992 9,516 8,911 13,011
--------- -------- -------- -------- --------
Earnings to cover fixed charges/(Deficit) $25,119 ($31,558) $42,868 $49,616 $48,676
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Ratio of earnings to fixed charges 2.36 N/A(1) 5.50 6.57 4.74
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
(1) Earnings available for fixed charges needed to bring the ratio to 1.00 was $17,992.
/TABLE
<PAGE>
[COVER PAGE]
Duty Free International
Leader in The Duty Free and Travel Retailing Industry
Annual Report Year Ended January 1996
[THREE PICTURES OF MERCHANDISE SOLD BY THE COMPANY (WATCH, MEN'S FRAGRANCE,
GOURMET FOOD)
<PAGE>
<TABLE>
<CAPTION>
Duty Free International, Inc. and Subsidiaries
Selected Consolidated Financial Data- 10 Years
(Dollars in thousands, except per share amounts and percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal year ended January 1996 1995 (1) 1994 1993 (2) 1992 (3) 1991 1990 1989 1988(4) 1987(4)
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings Statement Data:
Net Sales $515,058 $501,761 $376,436 $361,823 $346,635 $262,962 $258,944 $229,687 $141,978 $29,925
Net sales increase percent 2.7% 33.3 % 4.0 % 4.4% 31.8% 1.6% 12.7% 61.8% N/A N/A
Gross profit 218,885 200,374 147,740 146,425 138,749 93,820 83,512 62,788 39,706 14,146
Gross profit - percent
of net sales 42.5% 39.9 % 39.2 % 40.5% 40.0% 35.7% 32.3% 27.3% 28.0 47.3%
Selling, general and
administrative expenses 192,913 177,895 113,365 101,401 95,406 67,194 59,985 45,121 31,492 11,053
Selling, general and
administrative
expenses - percent
of net sales 37.5% 35.5 % 30.1 % 28.0% 27.5% 25.6% 23.2% 19.6% 22.2% 36.9%
Restructuring expenses 7,571 - - - - - - - - -
Revaluation of intangible
assets 42,002 - - - - - - - - -
Operating income (loss) 30,346 (26,722) 39,535 49,647 47,577 29,715 26,221 19,984 9,528 3,748
Operating income (loss) -
percent of net sales 5.9% (5.3)% 10.5 % 13.7% 13.7% 11.3% 10.1% 8.7% 6.7% 12.5%
Operating income (loss) -
percent change N/A N/A (20.4)% 4.4% 60.1% 13.3% 31.2% 109.7% N/A N/A
Earnings (loss) before income
taxes 25,389 (31,149) 43,082 49,786 48,765 32,542 26,200 19,301 8,815 3,362
Effective income tax rate 37.0% (20.4)% 36.4 % 39.0% 35.7% 31.6% 33.3% 32.1% 43.3% 47.6%
Net earnings (loss) 15,996 (24,802) 27,393 30,373 31,364 22,268 17,483 13,101 5,001 1,762
Net earnings (loss) -
percent of net sales 3.1% (4.9)% 7.3 % 8.4% 9.0% 8.5% 6.8% 5.7% 3.5% 5.9%
Earnings (loss) per share $0.59 $(0.91) $1.01 $1.08 $1.19 $0.85 $0.78 $0.71 $0.30 $0.17
Weighted average number
of shares outstanding 27,251 27,224 27,204 28,142 26,462 26,314 22,385 18,562 16,556 10,126
Dividends per common share $0.20 $ 0.20 $0.20 $0.15 - - - $0.025 - -
Return on stockholders' equity 7.7% (11.5)% 12.5 % 14.3% 17.7% 17.6% 22.3% 37.5% 28.0% 31.4%
Fiscal year ended January 1996 1995 (1) 1994 1993 (2) 1992 (3) 1991 1990 1989 1988(4) 1987(4)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $121,291 $113,996 $204,118 $ 90,630 $119,353 $103,209 $ 98,844 $ 29,348 $ 21,121 $5,647
Current ratio 3.2 2.7 7.0 3.3 3.9 3.1 3.3 1.5 1.4 2.3
Total assets 390,708 387,142 387,600 255,819 269,911 200,557 173,153 103,867 83,689 21,616
Long-term obligations 122,238 118,891 121,821 9,629 11,797 14,054 14,253 8,379 7,257 10,443
Stockholders - equity 212,482 201,151 231,861 207,343 216,447 137,875 115,830 41,183 28,737 6,954
Number of shares
outstanding 27,270 27,244 27,238 27,122 28,429 26,269 26,262 18,512 18,512 12,000
Percent of total debt to
total capitalization 36.2% 37.1 % 34.2 % 4.1% 5.2% 13.7% 15.7% 23.8% 35.8% 57.0%
Book value per share $7.79 $7.38 $8.51 $7.64 $7.61 $5.25 $4.41 $2.22 $1.55 $0.58
(1) Inflight Sales Group Limited was purchased on May 1, 1994.
(2) Expenses incurred in effecting the merger of UETA, Inc. and Duty
Free International were $4,389,000, or $0.16 per share, which were
charged to the financial results in fiscal 1993.
(3) The Company acquired 16 duty free stores and related businesses
along the Western United States/Canada border on February 1, 1991.
(4) UETA was formed in May 1987. The financial information for fiscal
1988 includes partial year results for UETA and fiscal 1987 does not
include UETA.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
First Second Third Fourth Year
- ----------------------------------------------------------------------------------------
Fiscal 1996:
Net sales $109,348 $130,359 $145,181 $130,170 $515,058
Gross profit 46,161 56,341 62,098 54,285 218,885
Restructuring expenses - - - - 0
Revaluation of intangible assets - - - - 0
Net earnings 1,466 4,516 5,719 4,295 15,996
Earnings per share $0.05 $0.17 $0.21 $0.16 $0.59
Fiscal 1995:
Net sales $83,243 $137,241 $144,856 $136,421 $501,761
Gross profit 30,448 55,872 58,747 55,307 200,374
Restructuring expenses - - 7,571 - 7,571
Revaluation of intangible assets - - 46,002 - 46,002
Net earnings (loss) 2,170 4,053 (34,538) 3,513 (24,802)
Earnings (loss) per share $0.08 $0.15 $(1.27) $0.13 $(0.91)
</TABLE>
Company Profile
Founded in 1983, Duty Free International, Inc. is the leading operator
of duty free and retail stores along the United States' Canadian and
Mexican borders, and in international airports throughout the United
States. DFI is also the primary concessionaire and supplier of
merchandise to international airlines' inflight duty free shops.
Additionally, DFI is the largest supplier of duty free merchandise to
U.S.-based foreign diplomats and a major supplier to merchant and cruise
ships from ports in the Northeast United States and Miami. Headquartered
in Ridgefield, Connecticut, Duty Free International employs more than
2,000 people and has been publicly-held since 1989.
Duty Free Locations
[PICTURE OF MAP OF UNITED STATES WITH DOTS REPRESENTING STORE LOCATIONS]
International Locations
Caribbean, Hong Kong, Puerto Rico, Singapore, United Kingdom
[PICTURE OF ALFRED CARFORA, PRESIDENT AND CHIEF EXECUTIVE OFFICER]
Letter to Shareholders:
Building on our successful performance last year, we are excited
about our prospects for increasing sales and profitability across our
Company. In keeping with our vision to become a billion dollar company,
we will pursue growth opportunities both internally and through
acquisitions.
The past fiscal year was one of great accomplishment for our
Company. Despite the challenges posed by external factors, such as the
devaluation of the Mexican peso, we remained focused on achieving sales
growth and exceeded earnings expectations. We continued to de-emphasize
the low gross margin sales in the Diplomatic and Wholesale Division in
order to provide greater distribution capabilities to our stores.
<PAGE>
Operating Results
For the fiscal year, sales increased 3% to $515,058,000 from
$501,761,000 in the prior fiscal year. Net earnings increased 13%, for
the fiscal year ended January 28, 1996, to $15,996,000, or $.59 per
share, as compared with $14,133,000, or $.52 per share, excluding the
after-tax effects of fiscal 1995's restructuring plan and intangible
asset revaluations.
For the fourth quarter ended January 28, 1996, net sales were
$130,170,000, a decrease from $136,421,000 in the fourth quarter a year
ago. This decrease was due primarily to the decline in Southern Border
sales resulting from the year-ago devaluation of the Mexican peso versus
the U.S. dollar. Net earnings for the quarter, however, increased 22% to
$4,295,000, or $.16 per share, from $3,513,000, or $.13 per share, for
the same period last year.
As of January 28, 1996, total assets were $390,708,000, working
capital totaled $121,291,000, and total stockholders' equity was
$212,482,000. Total debt to total capitalization at fiscal year-end was
36.2%.
The Year in Review
Our year of accomplishment began with many opportunities. The
Airport Division opened 16 new stores, the Northern Border Division
acquired two new locations, and our Inflight Division was awarded a new
concession contract. An extensive cost reduction program was initiated
in the Southern Border Division in addition to our continued redefining
of the Diplomatic and Wholesale Division. Also during the year, we
completed negotiations for a fully-committed $75,000,000 revolving line
of credit and letter of credit facility.
The year began with our Airport Division opening 12 new travel
retail stores at Denver's International Airport, as well as two new duty
free stores at Boston's Logan International Airport. In anticipation of
lower sales expectations resulting from the devalued peso, we thoroughly
reviewed our Southern Border operations and immediately enacted a cost
reduction program.
During the second quarter, Northern Border Division's comparable
store sales turned positive. We added two stores to our Northern Border
chain, one at the Blue Water Bridge in Port Huron and one at the
International Bridge in Sault St. Marie, both in Michigan. The Airport
Division opened an additional duty free shop at the San Juan
International Airport. The Company completed negotiations for a
fully-committed $75,000,000 revolving line of credit and letter of
credit facility to serve our domestic and international cash management
needs.
In the third quarter, Northern Border sales continued to improve,
our Airport Division opened its third store in Boston, and earnings
growth continued to accelerate.
The highlight of our fourth quarter came from our Inflight
Division, which was awarded the contract to operate Air Canada's
on-board duty free concession program. With this contract, beginning
March 1, 1996, we estimate initial on-board revenues of $11,000,000. In
addition, our Airport Division opened a temporary duty free shop in the
new Delta Flight Center at John F. Kennedy International Airport and
look forward to the opening of a 5,000 square foot permanent facility by
June 1996.
<PAGE>
In September, we promoted John Edmondson to the position of
Executive Vice President and Chief Operating Officer, further
strengthening Duty Free International's executive team. In his
management of Southern and Northern Border operations, John demonstrated
himself to be a very competent and creative executive, and I look
forward to his increased influence in the management of our Company.
Looking Ahead
Building on our successful performance last year, we are excited
about our prospects for increasing sales and profitability across our
Company.
We anticipate meaningful contribution from our new 5,000 square
foot duty free shop in the Delta Flight Center once it becomes fully
operational in fiscal 1997. In our Inflight Division, we will continue
to negotiate for additional onboard duty free concession programs.
We expect Northern and Southern Border sales to improve over the
course of the new year due to the economic and currency stability in the
Canadian and Mexican markets.
As sales from each of our divisions increase, our Company will
enjoy even greater growth in profit by continuing to leverage off of a
relatively fixed-cost base.
Confident in our future, the Board of Directors has increased the
Company's dividend by 20%.
In keeping with our vision to become a billion dollar company, we
will pursue growth opportunities both internally and through
acquisitions.
We remain steadfast in our commitment to increase shareholder
value, and are grateful to our shareholders, employees, customers and
vendors for their continued support.
Sincerely,
Alfred Carfora
President and Chief Executive Officer
March 22, 1996
[PICTURE OF WATCH]
At-A-Glance
HQ:, LOCATIONS:, MARKETS:
Airport Division:
Fenton Hill American Ltd.
British Airways Building John F. Kennedy International Airport New York,
New York - 100 duty free and retail stores
14 international airports in the United States and Caribbean
[GRAPH - PERCENT OF FISCAL 1996 CONSOLIDATED NET SALES]
Inflight Division:
Inflight Duty Free Shop, Inc.
Ridgefield, Connecticut
64 international airline fleets
<PAGE>
21 onboard duty free concessions; 60 wholesale accounts from 48
operations bases in Europe, the Pacific Rim, South America and the
United States; 39 amenity kit supplier accounts
[GRAPH - PERCENT OF FISCAL 1996 CONSOLIDATED NET SALES]
Border South Division:
UETA, Inc.
San Antonio, Texas
30 duty free stores
14 border crossings in Arizona, California and Texas
[GRAPH - PERCENT OF FISCAL 1996 CONSOLIDATED NET SALES]
Border North Division:
AMMEX Tax and Duty Free Shops
Ridgefield, Connecticut
36 duty free and retail stores
30 border crossings in Idaho, Maine, Michigan, Minnesota, Montana, New
York, North Dakota, Vermont and Washington
[GRAPH - PERCENT OF FISCAL 1996 CONSOLIDATED NET SALES]
Diplomatic and Wholesale Division:
Samuel Meisel & Company, Inc.,
Carisam International Corporation
Glen Burnie, Maryland
Two Company-wide distribution centers, four ports
Embassies and consulates through-out the United States, primarily in New
York and Washington, D.C. Merchant and cruise ship ports in Baltimore,
Miami, New York and Philadelphia
[GRAPH - PERCENT OF FISCAL 1996 CONSOLIDATED NET SALES]
[PICTURE OF PEN]
Leader in The Duty Free and Travel Retailing Industry
Our intention is to maintain and further our position in the travel
industry and to be recognized by customers and competitors alike as the
leader in duty free and travel retailing. Our goal is as simple as ever:
to be a billion dollar company that consistently achieves superior
financial returns.
Airport Division
Continuing its tradition of steady sales growth and expansion, the
Airport Division, which operates under the name Fenton Hill American
Limited, contributed handsomely to the past year's performance. Total
sales for the Division increased 10 percent over fiscal 1995 sales to
$102.5 million, which accounted for 20 percent of overall sales.
Fenton Hill's consistent performance is the direct result of our
portfolio approach to airport retailing. This approach, which combines a
variety of retailing concepts, is compelling for airport management and
customers alike. The Fenton Hill retail mix continues to include duty
<PAGE>
free shops; specialty stores such as The Athlete's Foot (branded
athletic-wear), Bodyography (natural personal care products) and The
Sports Section (regional sports-theme shops); standard news and gift
shops; and book stores.
By all standards, our equity partnerships and strategic alliances
at a number of international airports have been an unqualified success.
We have now been awarded 21 concessions through our joint venture
partnerships, and look forward to increasing this number in the future.
Inflight Division
Acquired in the second quarter of fiscal 1995, Inflight has
consistently delivered outstanding performance. This past year was no
exception. During fiscal 1996, sales increased 41 percent to $171.3
million, which accounted for fully 33 percent of consolidated sales.
The Division's stellar performance derives from its three distinct
business units. These are the manufacture and marketing of amenity kits
for international airline's first class and premium class passengers;
wholesale supply of merchandise for airlines' duty free programs on
international flights; and an on-board concession program through which
Inflight fully operates airline's on-board duty free concessions.
With warehouse and station locations throughout the United States, South
America, Europe and the Pacific Rim, Inflight has exclusive distribution
agreements with many of its vendors.
Going forward, we expect enhanced performance as we further
consolidate Inflight's operations into our own and expand the reach of
this high-performance division.
[NEW PAGE - PICTURE OF STORE, PERFUME, BOTTLE OF LIQUOR]
Our experience with UETA over the past year clearly demonstrates that we
have a strong and valuable franchise, even under difficult
circumstances. As we move past the peso devaluation, we look forward to
benefiting from this Division's full-strength contribution
to our overall business.
Border South Division
Impacted by the devaluation of the peso at the end of fiscal 1995,
Southern Border Division sales decreased to $103.3 million this year.
Largely as a result of cost reduction programs implemented early on, the
Division contributed significantly to Company-wide profits. UETA's sales
declines lessened steadily over the course of the year and the Division
generated 20 percent of fiscal 1996 consolidated sales.
Through a variety of duty free operations, UETA provides
Mexican/American border traffic with access to luxury items such as
premium watches, fragrances and cosmetics, top-quality liquor and
tobacco products, beer, wine, gourmet foods, designer jewelry and other
high quality gifts.
Our experience with UETA over the past year clearly demonstrates
that we have a strong and valuable franchise, even under difficult
circumstances. As we move past the peso devaluation, we look forward to
benefiting from this Division's full-strength contribution to our
overall business.
<PAGE>
Border North Division
Having turned positive in the second quarter, sales for our
Northern Border Division increased six percent to $77.7 million and
accounted for 15 percent of consolidated sales for fiscal 1996. Our
continued emphasis on suggestive selling techniques increased the
average transaction spend by 10 percent during the past year, despite a
leveling off of cross-border traffic.
We look forward to deriving meaningful contributions from our two
new shops in Michigan acquired in July 1995. As with our other AMMEX
duty free shops, these offer luxury items such as premium fragrances and
cosmetics, top-quality liquor and tobacco products, beer, wine, gourmet
foods, and high-quality gifts such as designer jewelry, scarves and
leather goods. Certain Northern Border retail locations also offer
groceries, snacks, souvenirs and affordable gift items. Currency
exchanges and gas stations are operated at several high-volume
crossings.
Diplomatic and Wholesale Division
Our continued de-emphasis of this Division's low gross margin
wholesale business resulted in a 12 percent decline in sales to $60.2
million, which represented 12 percent of fiscal 1996 consolidated sales.
Even with this concentrated refocusing, the Diplomatic and Wholesale
Division continues to be the leading domestic supplier of duty free
luxury items, including gifts, fragrances, cosmetics, designer jewelry,
premium brand liquor and tobacco and gourmet foods to U.S.-based foreign
diplomats and a major supplier to international merchant and passenger
ships.
Like its Northern and Southern Border counterparts, the Diplomatic
and Wholesale Division has benefited from rigorous cost reduction
efforts over the past year. These, combined with continued redirection
of the Division's resources to its higher profit operations, translate
into enhanced performance opportunities going forward.
Report of Management
To Our Shareholders:
The management of Duty Free International, Inc. has prepared the
financial statements and related information contained in this Annual
Report. The Company's financial statements have been prepared in
conformity with generally accepted accounting principles and using
estimates, where appropriate, based on the judgments of management.
Management is responsible for the integrity and objectivity of the
financial statements and other financial information included in this
report. To meet this responsibility, management maintains a system of
internal accounting procedures and controls to provide reasonable
assurance that assets are safeguarded and that transactions are properly
executed and recorded by qualified personnel. The system of procedures
and controls is regularly reviewed by officers, key employees of the
Company and the Company's Internal Audit department.
The Audit Committee of the Board of Directors is composed solely of
outside directors. The Committee meets periodically and, when
appropriate, separately, with representatives of the independent
auditors, personnel from the Company's Internal Audit department and
officers of the Company to review their activities. The independent
auditors have full and free access to the Audit Committee and meet with
it to discuss auditing, financial reporting and other matters.
<PAGE>
The Audit Committee recommends, and the Board of Directors
appoints, the independent auditors.
Alfred Carfora Gerald F. Egan
President and Vice President Finance and
Chief Executive Officer Chief Financial Officer
Independent Auditors' Report
The Board of Directors and Shareholders
Duty Free International, Inc.:
We have audited the accompanying consolidated balance sheets of
Duty Free International, Inc. and subsidiaries as of January 28, 1996
and January 29, 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in
the three-year period ended January 28, 1996. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Duty Free International, Inc. and subsidiaries as of January 28, 1996
and January 29, 1995 and the results of their operations and their cash
flows for each of the years in the three-year period ended January 28,
1996, in conformity with generally accepted accounting principles.
As discussed in the accompanying notes to the consolidated
financial statements, the Company changed its method of evaluating the
recoverability of intangible assets. Because the change in accounting
principle is inseparable from the change in estimate, it has been
accounted for as a change in estimate in the year ended January 29,
1995.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 26, 1996
Results of Operations
Duty Free International, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
Fiscal 1996 Compared with 1995
Net earnings were $15,996,000, or $0.59 per share, for the year
ended January 28, 1996, an increase of $1,863,000, or 13.2%, from
$14,133,000, or $0.52 per share, for the year ended January 29, 1995
before restructuring and revaluation charges. A total pre-tax charge to
earnings of $53,573,000 ($38,935,000 after tax) was taken in the year
ended January 29, 1995. This charge included $7,571,000 for
restructuring expenses and a write-down of intangible asset value of
$46,002,000 resulting from a change to a fair value method of evaluating
the recoverability of intangible assets (a more detailed explanation of
both charges is provided below). The increase in net earnings from the
prior year, excluding the restructuring and revaluation charges in the
prior year, reflects the successful execution of the Company's cost
containment programs as well as sales increases by the Inflight, Airport
and Northern Border Divisions. The Inflight Division's net earnings
increased significantly for the year when compared to the prior year due
to sales increases resulting from increases in the number of travelers
on-board international flights served by the Company and an increase in
the average amount of duty free merchandise purchased from the Company
by travelers on-board international airlines. The Inflight Division's
gross profit percentage increased for the year when compared to the
prior year due primarily to a significant increase, in absolute dollars
and as a percentage of the Division's total sales, in duty free sales
made on-board international airlines, which generally have higher profit
margins than sales of amenity kits and wholesale sales to airlines. The
Inflight Division's financial results for the year ended January 29,
1995 included only three quarters, because Inflight was purchased on May
1, 1994. The Northern Border Division's net earnings for the year
increased significantly from the prior year due primarily to expense
reductions resulting from the restructuring plan implemented in fiscal
1995, a decrease in amortization expense resulting from the intangible
asset revaluation in fiscal 1995, and the Company's continued efforts to
increase the average amount of duty free merchandise purchased from the
Company by customers. The above was partially offset by the continued
negative trend in traffic across the United States/Canada border during
the current year. The Airport Division's net earnings increased
significantly due primarily to an increase in sales resulting from an
increase in foreign travelers shopping at the Company's airport
locations, new store openings, the closing of unprofitable locations
under the restructuring plan, and a decrease in amortization expense
resulting from the intangible asset revaluation. During the third and
fourth quarters, the Airport Division's sales and net earnings were
adversely impacted by the severe hurricanes on the Caribbean islands of
St. Thomas and St. Maarten. Management anticipates a return to normal
sales levels at these islands early in fiscal 1997. The Company believes
that the effects of the hurricanes will not be material to its financial
position and results of operations and that reserves charged to the
fiscal 1996 results of operations are adequate to cover any potential
losses.
The increases in net earnings for the Inflight, Northern Border and
Airport Divisions were partially offset by a substantial decrease in the
Southern Border Division's sales and net earnings resulting from the
significant devaluation of the Mexican peso versus the U.S. dollar in
December 1994. The drop in the value of the peso destabilized the
Mexican economy and increased the costs of the Company's products for
Mexican customers. The Southern Border Division reduced its selling,
general and administrative expenses by approximately $5,000,000 during
the current year when compared to the prior year. However, these expense
reductions were more than offset by a $41,319,000 decrease in the
Southern Border Division's net sales. The expense reductions related
primarily to lower employee and other operating expenses resulting from
<PAGE>
employee terminations, a decrease in the number of hours stores were
open, and reductions of advertising and promotional expenses. The
decrease in advertising and promotional expenses is not expected to
impact sales due to the significant reduction in the number of customers
in the Southern Border market resulting from the peso devaluation. The
Division's sales decline was 22% in the fourth quarter of fiscal 1996
versus declines of 37%, 34% and 23% in the first three quarters of 1996
versus the same periods in fiscal 1995. The Company expects the Southern
Border Division to achieve sales gains in the early part of fiscal 1997,
due to the anniversary of the peso devaluation which occurred in
December 1994, provided there is continued stabilization in the value of
the peso versus the U.S. dollar.
Below are explanations of significant variances from the prior year
by income statement line item.
Net Sales
The following table sets forth, for the fiscal periods indicated,
the net sales and the percentage of total net sales for each of the
Company's divisions and the period to period change in such sales (in
thousands, except for percentages):
<TABLE>
<S> <C> <C> <C> <C>
Fiscal Year Ended Increase/(Decrease)
Divisional ------------------------------------ Fiscal
Net Sales January 28, 1996 January 29, 1995 1996 vs. 1995
- ----------------------------------------------------------------------
Border:
Southern $103,283 20.0% $144,602 28.8% $(41,319) (28.6)%
Northern 77,710 15.1 73,631 14.7 4,079 5.5 %
Inflight 171,268 33.3 121,890 24.3 49,378 40.5%
Airport 102,548 19.9 92,887 18.5 9,661 10.4%
Diplomatic and
Wholesale 60,249 11.7 68,751 13.7 (8,502) (12.4)
- ---------------------------------------------------------------
$515,058 100.0% $501,761 100.0% $ 13,297 2.7%
- ---------------------------------------------------------------
</TABLE>
The significant decrease in the Southern Border Division's sales
was due to the devaluation of the Mexican peso versus the U.S. dollar in
December 1994 which destabilized the Mexican economy and increased the
costs of the Company's products for Mexican customers. The Inflight
Division's sales increased by 9.5% during the last three quarters of
fiscal 1996 when compared to the same period in the prior year (Inflight
was purchased at the beginning of the second quarter in fiscal 1995).
This increase was due primarily to an increase in the number of foreign
travelers on-board international flights served by the Company and an
increase in the average amount of duty free merchandise purchased from
the Company by travelers on-board international airlines during the
current fiscal year. The Northern Border Division's comparable store
sales (excluding sales of stores closed under the restructuring plan and
two stores purchased in July 1995) increased by 2.4% for the current
year when compared to the prior year. The improvement in sales trends
for the Northern Border Division from fiscal 1995 (when there was a
22.1% decrease in sales from fiscal 1994) is due primarily to the
anniversary of the decrease in Canadian tobacco taxes which occurred in
the first quarter of fiscal 1995, and increases in average transaction
spend amounts by customers resulting from the Division's marketing and
promotion programs. The above was partially offset by the continued
negative trend in Canadian traffic across the United States/Canada
border during fiscal 1996. The Airport Division's sales increase was due
<PAGE>
primarily to an increase in the number of foreign travelers shopping at
the Company's airport locations during the current year, and store
openings at the new Denver International Airport, Boston's Logan
International Airport and San Juan International Airport in Puerto Rico
during fiscal 1996. The above was partially offset by sales decreases
due to store closings under the Company's restructuring plan and the
effects of the severe hurricanes at the Company's St. Thomas and St.
Maarten locations. The Diplomatic and Wholesale Division's sales,
excluding locations sold in fiscal 1996 as part of the Company's
restructuring plan and a business purchased in the latter part of fiscal
1995, decreased by 23.3% during fiscal 1996 when compared to fiscal 1995
due primarily to the Company continuing to deemphasize what would have
been relatively low gross margin sales in this Division. Net sales of
all the stores and businesses closed or sold under the restructuring
plan were $4,757,000 and $13,931,000 for fiscal 1996 and fiscal 1995,
respectively.
Cost of Sales and Gross Profit
Gross profit, as a percentage of net sales, increased to 42.5%
during fiscal 1996 from 39.9% during fiscal 1995. The increase was due
primarily to increases in the Inflight, Airport and Northern Border
Divisions' net sales and gross profit margins, and significant decreases
in the Southern Border and Diplomatic and Wholesale Divisions' net
sales. The Inflight, Airport and Northern Border Divisions have
significantly higher gross profit margins than the Southern Border and
Diplomatic and Wholesale Divisions. The Inflight Division's gross profit
percentage increased during the current year when compared to the prior
year due primarily to a significant increase, in absolute dollars and as
percentage of the Division's total sales, in duty free sales made
on-board international airlines, which generally have higher gross
profit margins than amenity kit and wholesale sales to airlines.
The restructuring plan, implemented in fiscal 1995, did not and
will not have a material effect on the Company's gross profit.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of
net sales, increased to 37.5% in fiscal 1996 from 35.5% in fiscal 1995.
The increase was due primarily to the following factors:
* A significant increase in the Inflight Division's net sales in the
current year, as a percentage of the Company's total sales, when
compared to the prior year (Inflight was purchased May 1, 1994).
The Inflight Division has selling, general and administrative
expenses, as a percentage of net sales, higher than the Company
average due primarily to commission expenses paid to airlines.
* An increase in the Airport Division's net sales in the current
year, as a percentage of the Company's total sales, when compared
to the prior year. The Airport Division's operating expenses, as a
percentage of net sales, are higher than the Company's other
divisions due to rents based on sales and other variable expenses.
* Significant decreases in the Southern Border Division's net sales
in the current year versus the prior year. The Southern Border
Division has selling, general and administrative expenses, as a
percentage of net sales, significantly lower than the Company
average. The Company reduced the Southern Border Division's
selling, general and administrative expenses by approximately
$5,000,000 during fiscal 1996 when compared to the prior year.
However, these expense reductions were more than offset by
a $41,319,000 decrease in the Division's net sales during fiscal
<PAGE>
1996 when compared to fiscal 1995. The expense reductions related
primarily to lower employee and other operating expenses resulting
from employee terminations, a reduction in the number of hours
stores are open, and reductions of advertising and promotion
expenses. The decrease in advertising and promotion expenses is
not expected to impact sales in view of the significant reduction
in the number of customers in the Southern Border market.
The restructuring plan and the revaluation of intangible assets in
the third quarter of fiscal 1995 reduced the Company's selling, general
and administrative expenses by approximately $10,400,000 during fiscal
1996 when compared to fiscal 1995.
Interest Income
Interest income decreased by $960,000 during fiscal 1996 when
compared to fiscal 1995. The decrease was due primarily to a decrease in
funds available for investment during the first part of the current year
when compared to the prior year resulting from the purchase of Inflight
in fiscal 1995 for approximately $73,300,000, and more of the Company's
investment portfolio being in tax-exempt municipal bonds during the
current year which have lower pre-tax yields than taxable bonds.
Income Taxes
Income taxes, as a percentage of earnings before income taxes, were
37.0% for both fiscal 1996 and fiscal 1995 when the charges and tax
benefits from the intangible revaluation and restructuring are excluded
from the results for fiscal 1995.
Restructuring Expenses
During the third quarter of fiscal 1995, management undertook a
restructuring plan which included the closing or sale of 23 stores and
business locations, and the consolidation of administrative and
warehouse operations. As of January 28, 1996, all of the stores and
business locations have been closed or sold. The Company closed 14
unprofitable or marginally profitable stores at secondary crossings
along the United States/Canada border in fiscal 1995. The closings were
prompted by the Company's experience with declining sales on the
northern border during the summer of 1994. Initially, the Company had
believed that its Northern Border Division sales had been adversely
affected in fiscal 1993 and 1994 by cyclical factors such as unusually
inclement weather and the Canadian economic recession, as well as the
reduced purchasing power of the Canadian dollar. Its experience during
1994's important summer sales season, with further significant
reductions in sales following the Canadian government's precipitous and
dramatic reduction in tobacco taxes in February 1994, led it to conclude
that the changes in sales on the Northern Border were to be of a more
long-term nature. Seven unprofitable Airport Division retail locations
were closed in fiscal 1996, which included all five of the Company's
stores in Toronto, Canada and two other smaller specialty stores at
airports in Bangor, Maine and Burlington, Vermont. These stores were
closed due to projected sales levels not being sufficient to cover fixed
operating costs. Two wholesale operations in Seattle, Washington and
Carson, California were sold in fiscal 1996 due to the Company
deemphasizing wholesale sales, and the Company's ability to service
wholesale customers from other locations. The Company also eliminated
regional manager positions in the Northern Border Division, and
consolidated other warehouse and administrative operations into the
Company's new 140,000 square foot distribution and administrative center
in Miami, Florida. The restructuring plan reduced the Company's store
and administrative workforce by approximately 210 people.
<PAGE>
A pre-tax charge to earnings of $7,571,000 was taken during fiscal
1995 as a result of the restructuring. There were no material
adjustments to restructuring expenses during fiscal 1996. Restructuring
costs included the following (in thousands):
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
Termination of property leases $1,262
Abandonment of leasehold improvements
and other fixed assets 1,026
Severance and other related payments 3,559
Cumulative currency translation adjustments
related to foreign operations closed 615
Write-down of inventory below cost 503
Other 606
- -----------------------------------------------------------------------
$7,571
- -----------------------------------------------------------------------
</TABLE>
The following methods were used to calculate the restructuring
charges:
* Termination of property leases - based on amounts due under
terminated lease agreements and agreements with lessors.
* Abandonment of leasehold improvements and other fixed assets - net
book value of leasehold improvements and other fixed assets that
cannot be transferred to other stores/locations or sold. The
Company does not expect to receive any material proceeds from sales
of the leasehold improvements and other fixed assets.
* Severance and other related payments - based on severance and
other agreements with employees. Severance amounts were based on
years of service and paid over the number of pay weeks owed the
employee. Severance payments also include health insurance costs
for terminated employees, which were based on the number of
employees terminated and the average cost per employee for health
insurance coverage for one year, less premiums to be paid
by terminated employees.
* Cumulative currency translation adjustments related to foreign
operations closed - relates to the Company's Toronto airport
operations. Based on January 29, 1995 U.S. dollar/Canadian dollar
exchange rate. These operations were closed in February 1995.
* Write-down of inventory below cost - estimate of expected sales
below cost for close-out sales.
The Company will pay approximately $5,427,000 in cash relating to
the restructuring. Approximately $2,144,000 of the restructuring costs
related to non-cash write-offs of recorded assets. The Company has paid
approximately $3,117,000 during fiscal 1996 and fiscal 1995 relating to
restructuring obligations which consisted of $2,024,000 for employee
severance and other arrangements, $870,000 to terminate property leases
and rent for closed stores, and $223,000 for other miscellaneous
expenses. As of January 28, 1996, remaining payments of approximately
$2,310,000 are expected to be paid for obligations incurred pursuant to
the restructuring plan.
<PAGE>
Net sales of the stores closed and businesses sold under the
restructuring plan were $4,757,000, $13,931,000 and $15,233,000 for
fiscal 1996, 1995 and 1994, respectively. Operating losses of the
stores closed and businesses sold under the restructuring plan were
$137,000, $2,508,000 and $1,022,000 for fiscal 1996, 1995 and 1994,
respectively.
Revaluation of Intangible Assets
In the third quarter of fiscal 1995, the Company changed its method
of evaluating the recoverability of intangible assets. Under the new
method, fair values of intangible assets are determined based on the
estimated discounted future operating cash flows of the related acquired
operations over the life of each intangible asset. Previously,
impairment was measured using undiscounted cash flows. The new method is
preferable in the circumstances, because it results in a more
appropriate balance sheet valuation of intangible assets. The projected
financial results of each operation are based on management's best
estimate of expected future operating cash flows. Discount rates take
into account the risk associated with each operation, based on the type
of business, geographic location and other matters, in relation to risk
free investments. Discount rates are reviewed on a periodic basis by
the Company's independent auditors, as part of their annual audit, to
determine their appropriateness. Management reviews the valuation and
amortization of all its intangible assets on an ongoing basis. During
the third quarter of fiscal 1995, management determined that cash flow
from certain acquired businesses would be below the expectations set by
management when the business acquisitions were completed. Accordingly,
under its new policy, the Company reduced the carrying amount of its
intangible assets by $46,002,000 during fiscal 1995. Because the change
in accounting principle was inseparable from the change in estimate, it
was accounted for as a change in estimate. Had the previous method
remained in effect, there would have been no significant impairment at
January 29, 1995.Below is a more detailed explanation of the material
asset revaluation write-downs during fiscal 1995.
The Company acquired various duty free and related businesses along
the United States/Canada border from November 1990 through June 1993,
which included the purchase of 16 duty free stores and related
businesses along the United States/Canada border on February 1, 1991,
and other smaller acquisitions. Subsequent to the acquisitions, the
financial results of these operations, and the Northern Border Division
as a whole, have been significantly below the expectations set by
management when the acquisitions were completed due primarily to reduced
travel across the United States/Canada border, and substantial price
reductions on tobacco products in the Canadian domestic market as a
result of a decrease in Canadian taxes on tobacco products in fiscal
1995. Management determined that travel across the United States/Canada
border would not increase substantially from current levels, due
primarily to the fact that travel across the border did not increase as
the Canadian economy improved in fiscal 1995, and reduced Canadian
tobacco prices and taxes would continue to have a negative effect on
duty free operations along the border. The projected results for the
businesses acquired along the United States/Canada border based on a
five percent long-term growth rate from estimated fiscal 1995 financial
results over 30 years, using a 20% discount rate (the same discount rate
used by the Company and its appraisers when acquiring the businesses),
resulted in a significant decrease in the fair value and carrying amount
of intangible assets related to these acquisitions. Accordingly, the
Company reduced the carrying amount of its Northern Border intangible
assets by $30,839,000 during fiscal 1995.
<PAGE>
On May 7, 1993, the Company acquired a 75 percent interest in Bared
Jewelers of the Virgin Islands ("Bared Jewelers"). Bared Jewelers
operates three stores in the primary shopping area of St. Thomas,
U.S.V.I. Since the acquisition, the operations of Bared Jewelers have
not achieved the sales and earnings projections prepared at the time of
the acquisition due primarily to a decrease in the number of cruise ship
travelers to St. Thomas. Management has determined that the number of
cruise ship travelers to St. Thomas would not increase significantly
from current levels, because of an increase in the number of ports in
the Caribbean and throughout the world serviced by the cruise ship
industry. The projected results for the operations acquired in the Bared
Jewelers acquisition based on a five percent long-term growth rate from
estimated fiscal 1995 financial results over the length of the related
leases, using a 15% discount rate (the same discount rate used by the
Company and its appraisers when acquiring Bared Jewelers), resulted in a
significant decrease in the fair value and carrying amount of intangible
assets related to this acquisition. Accordingly, the Company reduced the
carrying amount of its Bared Jewelers intangible assets by $7,813,000
during fiscal 1995.
The remaining $7,350,000 write-down of intangible assets during
fiscal 1995 related to five Airport and Diplomatic and Wholesale
Division acquisitions. These write-downs were a result of the Company
adopting the discounted cash flow method for evaluating the
recoverability of intangible assets, the Company revising cash flow
projections for these businesses due to the Company deemphasizing
wholesale sales in fiscal 1995, and projected results for smaller
Airport Division acquisitions being below the expectations set by
management when the acquisitions were completed. The discount rates used
were between 15% and 20% and were the same rates used by the Company and
its appraisers when acquiring the businesses.
The intangible asset revaluation write-down during fiscal 1995 by
type of intangible asset and division is as follows (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
Diplomatic
Northern and
Border Airport Wholesale
Division Division Division Total
- -----------------------------------------------------------------------
Excess of cost over net assets
of subsidiaries acquired $ 7,880 $ 3,734 $3,229 $14,843
Non-competition agreements 13,201 835 - 14,036
Purchase options 2,238 1,200 - 3,438
Operating rights/leaseholds 7,354 4,939 - 12,293
Other 166 1,226 - 1,392
- -----------------------------------------------------------------------
$30,839 $11,934 $3,229 $46,002
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
</TABLE>
The $46,002,000 reduction of the carrying amount of intangible
assets reduced amortization expense by approximately $3,500,000 in
fiscal 1996. The write-downs will not require any cash payments in the
future.
As part of its ongoing review, management reviewed the valuation
and amortization of all its intangible assets and determined there was
no impairment of intangible asset values as of January 28, 1996.
<PAGE>
Fiscal 1995 Compared with 1994
Net Earnings
A total pre-tax charge to earnings of $53,573,000, $38,935,000
after tax, was taken in the year ended January 29, 1995, encompassing
all costs associated with both the restructuring plan and the intangible
asset revaluations described above. Net earnings for the year ended
January 29, 1995, excluding the after tax affects of the restructuring
plan and the intangible asset revaluations, were $14,133,000, or $0.52
per share, a decrease of $13,260,000, or 48% from net earnings of
$27,393,000, or $1.01 per share, for the year ended January 31, 1994.
The decrease was due primarily to a significant decrease in the Northern
Border Division's net sales and earnings, and interest expense resulting
from the issuance of the $115,000,000 7% senior notes on January 25,
1994.
Net Sales
The following tables set forth, for the fiscal years indicated, the
net sales and the percentage of total net sales for each of the
Company's four divisions and the period to period change in such sales
(in thousands, except for percentages):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended Increase/(Decrease)
Divisional ------------------------------------ Fiscal
Net Sales January 29, 1995 January 31, 1994 1995 vs. 1994
- -----------------------------------------------------------------------
Border:
Southern $144,602 28.8% $126,583 33.6% $ 18,019 14.2 %
Northern 73,631 14.7 94,569 25.1 (20,938)(22.1)%
Airport 92,887 18.5 76,887 20.5 16,000 20.8 %
Diplomatic and
Wholesale 68,751 13.7 78,397 20.8 (9,646)(12.3)%
Inflight 121,890 24.3 - N/A 121,890 N/A
- -----------------------------------------------------------------------
$501,761 100.0% $376,436 100.0% $125,325 33.3 %
- -----------------------------------------------------------------------
</TABLE>
The Company's net sales, excluding the Inflight Division's net
sales, were $379,871,000 for fiscal 1995, an increase of $3,435,000, or
0.9% from fiscal 1994. Southern Border Division net sales increased by
14.2% due primarily to the continued expansion of the Mexican economy
during most of fiscal 1995, the Company's advertising campaign within
Mexico, which management believes continued to increase the awareness of
the value of duty free shopping among the mass market, and the
development of new merchandising programs by the Company. In December
1994, the Mexican government devalued the peso resulting in a
significant drop in the value of the peso versus the U.S. dollar. The
devaluation significantly reduced the Southern Border Division's net
sales during the last ten days of December and all of January. Northern
Border Division net sales decreased by 22.1% during fiscal 1995 when
compared to the prior fiscal year. Management believes the decrease was
due primarily to reduced travel across the United States/Canada border
and the lower value of the Canadian dollar when compared to last year.
In addition, substantial price reductions on tobacco products in the
Canadian domestic market, due to a decrease in Canadian taxes on tobacco
products, have resulted in a significant decrease in tobacco product
sales by the Northern Border Division, and reductions in selling prices
and gross margins. Airport Division net sales increased by 20.8%, due
primarily to new duty free and retail locations at O'Hare International
Airport (Chicago), which opened in October 1993, new stores on the
<PAGE>
Caribbean islands of Aruba, St. Maarten, Bonaire and Curacao, which
opened in January 1994 and the first quarter of fiscal 1995, and the
Bared Jewelers acquisition on May 7, 1993. Diplomatic and Wholesale
Division net sales decreased by 12.3% during fiscal 1995 when compared
to the prior fiscal year. As management continued to focus on improving
the Company's financial performance and cash flow, it deemphasized what
would have been relatively low gross margin sales in this division and,
accordingly, reduced the working capital investment needed to support
those sales. The Company purchased Inflight, and established its
Inflight Division, on May 1, 1994. The Inflight Division had
net sales of $121,890,000 for the nine months ended January 29, 1995.
Cost of Sales and Gross Profit
Gross profit, as a percentage of net sales, was 39.9% for fiscal
1995 compared to 39.2% for fiscal 1994. The increase was due primarily
to the Inflight Division having higher gross profit margins than the
Company's average gross profit margin and a decrease in the Diplomatic
and Wholesale Division's low gross margin wholesale sales. The above was
partially offset by the Northern Border Division reducing tobacco prices
in fiscal 1995 and a significant decrease in the Northern Border
Division's sales, which generally have gross profit margins higher than
the Company's average gross profit margin.
Advertising, Storage and Other Operating Income
Advertising, storage and other operating income decreased by
$788,000 from fiscal 1994. The decrease was due primarily to the
businesses purchased in the Bared Jewelers acquisitions having one-time
advertising programs with vendors during fiscal 1994.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of
net sales, increased to 35.5% during fiscal 1995 from 30.1% during
fiscal 1994. The increase was due primarily to the following factors:
* The Inflight Division having selling, general and administrative
expenses, as a percentage of net sales, higher than the Company
average due primarily to commission expenses paid to airlines and
the amortization of intangible assets related to the purchase.
* An increase in Airport Division sales which generally has higher
operating costs, as a percentage of net sales, than the Company's
other divisions.
* A significant decrease in Northern Border Division sales without a
proportionate decrease in relatively fixed operating costs.
Other Income (Expense)
Other income decreased by $7,974,000 from fiscal 1994 due primarily
to an increase in interest expense resulting from the issuance of the
$115,000,000 7% senior notes on January 25, 1994. Approximately
$71,400,000 (net of cash acquired) of the proceeds from the issuance of
the senior notes was used to purchase Inflight during fiscal 1995.
<PAGE>
Income Taxes
Income taxes, excluding the tax benefits from the intangible asset
revaluations and restructuring described above, as a percentage of
earnings before income taxes, were virtually unchanged when compared to
fiscal 1994 (37.0% in fiscal 1995 compared to 36.4% in fiscal 1994). The
revaluation of intangible assets and the restructuring reserves resulted
in $10,627,000 of deferred tax assets as of January 29, 1995.
Management has determined, based on the Company's history of prior
operating earnings and projected future operating earnings, that taxable
income of the Company in the future will more likely than not be
sufficient to fully recognize these deferred tax assets.
Regulation and Economic Factors Affecting
the Duty Free Industry
The Company's sales and gross profit margins are affected by
factors specifically related to the duty free industry. Most countries
have allowances on the import of duty free goods. Decreases in the duty
free allowances of foreign countries or stricter eligibility
requirements for duty free purchases, as well as decreases in tax and
duty rates imposed by foreign jurisdictions (particularly in Canada and
Mexico) could have a negative effect on the Company's sales and gross
profit margins. Conversely, increases could have a positive effect on
the Company's sales and gross profit.
The principal customers of the Company are residents of foreign
countries whose purchases of duty free merchandise may be affected by
trends in the economies of foreign countries and changes in the value of
the U.S. dollar relative to their own currencies. Any significant
increase in the value of the U.S. dollar relative to the currencies of
foreign countries, particularly Canada, Mexico and Japan, could have an
adverse impact on the number of travelers visiting the United States and
the dollar amount of duty free purchases made by them from the Company.
A significant increase in gasoline prices or a shortage of fuel may also
reduce the number of international travelers and thereby adversely
affect the Company's sales. In addition, the Company imports a
significant portion of its products from Western Europe and Canada at
prices negotiated either in U.S. dollars or foreign currencies. As a
result, the Company's costs are affected by fluctuations in the value of
the U.S. dollar in relation to major Western European and Canadian
currencies. A decrease in the purchasing power of the U.S. dollar
relative to other currencies causes a corresponding increase in the
purchase price of products. The Company enters into foreign exchange
forward contracts as a hedge against a portion of its exposure to
currency fluctuations on commitments to purchase merchandise.
Accounting for Stock-Based Compensation
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which is effective for fiscal years beginning after
December 15, 1995 and for transactions occurring after December 15,
1995. The Statement defines a fair value based method of accounting for
an employee stock option or similar equity instruments. Under the fair
value method, compensation cost is measured at the grant date based on
the value of the award and is recognized over the service period, which
is usually the vesting period. The Statement allows an entity to
continue to measure compensation costs for stock options or similar
equity instruments using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the intrinsic value based method, compensation costs
are the excess, if any, of the quoted market price of the stock at the
<PAGE>
grant date or other measurement date over the amount an employee must
pay to acquire the stock. Entities electing to continue with the
accounting in Opinion 25 must make pro forma disclosure of net income
and earnings per share as if the fair value based method of accounting
had been applied. The Company has elected to continue to measure
compensation costs for stock options or similar equity instruments using
the intrinsic value based method of accounting prescribed by APB Opinion
No. 25 with pro forma disclosure of net income and earnings per share as
if the fair value based method of accounting had been applied.
The Company will adopt the disclosure requirements of Statement No. 123
in fiscal 1997.
Liquidity and Capital Resources
On May 26, 1995, the Company signed a fully committed $75,000,000
revolving line of credit and letter of credit facility expiring in May
1998. Borrowings under the agreement bear interest at a rate selected by
the Company based on the prime rate, federal funds rate or the London
Interbank Offered Rate. The credit facility contains covenants which
require, among other things, maintenance of minimum tangible net worth,
as defined, and certain financial ratios. There were no borrowings under
the facility as of January 28, 1996. Currently, the Company has no plans
to make any borrowings under the facility.
In March 1995, Standard and Poor's downgraded its rating of the
Company's $115,000,000 senior notes from BBB to BBB-, and in July 1995,
Moody's Investor Services downgraded its rating of the Company's
$115,000,000 senior notes from Ba1 to Ba2, primarily in response to the
devaluation of the Mexican peso. The downgrades will not affect the
Company's current borrowing costs under the senior notes, and the
Company's senior notes remain investment grade according to Standard and
Poor's. However, the downgrades will increase the costs of any
borrowings pursuant to the provisions of the $75,000,000 revolving line
of credit and letter of credit facility.
The Company's primary liquidity and capital requirements for fiscal
1997 will be working capital needs, primarily inventory and receivables,
purchases of property and equipment, dividend payments and debt
payments. During fiscal 1997, the Company expects to spend approximately
$10,000,000 on capital expenditures, make approximately $6,600,000 of
dividend payments and make approximately $2,000,000 of debt payments.
The restructuring plan and the intangible asset revaluations did not
have a material effect on the Company's liquidity and capital resources
during fiscal 1996 and are not expected to have a material effect in the
future. Working capital was $121,291,000 as of January 28, 1996, an
increase of $7,295,000 from $113,996,000 as of January 29, 1995. The
Company believes its existing funds, cash provided by operations and
available borrowings will be sufficient to meet its current liquidity
and capital requirements.
Stock Prices and Dividends
The Company's common stock trades on the New York Stock Exchange
under the ticker symbol "DFI." The approximate number of holders of
record of shares of common stock, excluding the number of beneficial
owners whose securities are held in street name, was 362 as of February
28, 1996.
<PAGE>
The following table sets forth the high and low reported sales
prices for the common stock as reported by the New York Stock Exchange:
<TABLE>
<S> <C> <C>
High Low
- ------------------------------------------------------------------------
Fiscal 1996:
First quarter $ 8-7/8 $ 7
Second quarter 10-5/8 7-3/8
Third quarter 15-3/4 9
Fourth quarter 16-3/4 13-1/8
Fiscal 1995:
First quarter $18-3/8 $13-5/8
Second quarter 15-1/2 9
Third quarter 13-1/2 9-1/4
Fourth quarter 13-1/2 8-1/4
</TABLE>
Cash dividends declared were approximately $5,450,000, or $0.20 per
share, and $5,445,000, or $0.20 per share, for the years ended January
28, 1996 and January 29, 1995. Cash dividends were paid quarterly at
$0.05 per share during fiscal 1996 and 1995. During the fourth quarter
of fiscal 1996, the Company's Board of Directors increased the Company's
quarterly dividend by 20% to $0.06 per share, beginning with the
quarterly dividend to be paid in May 1996 for the first quarter of
fiscal 1997.
<TABLE><CAPTION>
Duty Free International, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
<S> <C> <C> <C>
January 28, January 29, January 31,
Fiscal year ended 1996 1995 1994
- -------------------------------------------------------------------------------------
Net sales $515,058 $501,761 $376,436
Cost of sales 296,173 301,387 228,696
- -------------------------------------------------------------------------------------
Gross profit 218,885 200,374 147,740
Advertising, storage and other operating income 4,374 4,372 5,160
- -------------------------------------------------------------------------------------
223,259 204,746 152,900
Selling, general and administrative expenses 192,913 177,895 113,365
Restructuring expenses (note 2) - 7,571 -
Revaluation of intangible assets (note 3) - 46,002 -
- -------------------------------------------------------------------------------------
Operating income (loss) 30,346 (26,722) 39,535
- -------------------------------------------------------------------------------------
Other income (expense):
Interest income 2,659 3,619 2,481
Interest expense (8,658) (8,878) (1,495)
Gain (loss) on foreign currency transactions (487) (556) 654
Other, net 1,529 1,388 1,907
- -------------------------------------------------------------------------------------
(4,957) (4,427) 3,547
- -------------------------------------------------------------------------------------
Earnings (loss) before income taxes 25,389 (31,149) 43,082
Income tax expense (benefit) (note 8) 9,393 (6,347) 15,689
- -------------------------------------------------------------------------------------
Net earnings (loss) $ 15,996 $(24,802) $ 27,393
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Earnings (loss) per share $0.59 $(0.91) $1.01
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
/TABLE
<PAGE>
<TABLE><CAPTION>
Duty Free International, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<S> <C> <C>
January 28, January 29,
1996 1995
- -----------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 34,252 $ 31,353
Short-term investments, at cost (note 15) 12,747 13,086
Receivables:
Trade receivables, less allowance for doubtful
accounts of $735 in 1996 and $795 in 1995 20,106 20,183
Other 9,877 11,400
- -----------------------------------------------------------------------------------------------------
29,983 31,583
- -----------------------------------------------------------------------------------------------------
Merchandise inventories 90,472 95,112
Prepaid expenses and other current assets 9,825 9,962
- -----------------------------------------------------------------------------------------------------
Total current assets 177,279 181,096
Long-term investments, at cost (note 15) 10,550 9,653
Property and equipment, net (note 6) 92,413 82,533
Excess of cost over net assets of subsidiaries acquired, less accumulated
amortization of $4,442 in 1996 and $2,178 in 1995 (notes 3 and 5) 65,731 64,682
Other intangible assets, less accumulated amortization
of $8,538 in 1996 and $5,999 in 1995 (note 3) 24,246 25,571
Other assets, net 20,489 23,607
- -----------------------------------------------------------------------------------------------------
$390,708 $387,142
- -----------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt (note 7) $ 2,053 $ 2,611
Accounts payable 25,193 30,964
Accrued restructuring expenses (note 2) 1,539 3,941
Other current liabilities (note 11) 27,203 29,584
- -----------------------------------------------------------------------------------------------------
Total current liabilities 55,988 67,100
Long-term debt, excluding current maturities (note 7) 118,418 115,798
Other liabilities 3,820 3,093
- -----------------------------------------------------------------------------------------------------
Total liabilities 178,226 185,991
- -----------------------------------------------------------------------------------------------------
Stockholders' equity (notes 13 and 17):
Common stock, par value $.01 per share.
Authorized 75,000,000 shares; 27,270,124 issued and outstanding
shares in 1996 and 27,243,550 shares in 1995 273 272
Additional paid-in capital 80,302 80,121
Foreign currency translation adjustments - (603)
Retained earnings 131,907 121,361
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 212,482 201,151
- -----------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 4, 10, 14 and 18)
- -----------------------------------------------------------------------------------------------------
$390,708 $387,142
- -----------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE><CAPTION>
Duty Free International, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Foreign
Common stock Additional currency Total
--------------- paid-in translation Retained stockholders'
Shares Amount capital adjustments earnings equity
- ------------------------------------------------------------------------------------------
Balance at January 31, 1993 27,122 $271 $77,744 $(306) $129,634 $207,343
Acquisition of Bared Jewelers 112 1 2,519 - - 2,520
Dividends ($0.20 per share) - - - - (5,419) (5,419)
Exercise of common stock options 4 - 37 - - 37
Other - - - - - 21
Change in foreign currency
translation adjustments - - - (34) - (34)
Net earnings - - - - 27,393 27,393
- -------------------------------------------------------------------------------------------
Balance at January 31, 1994 27,238 272 80,321 (340) 151,608 231,861
Dividends ($0.20 per share) - - - - (5,445) (5,445)
Exercise of common stock options 34 - 236 - - 236
Common stock purchased and retired (28) - (436) - - (436)
Change in foreign currency
translation adjustments - - - (263) - (263)
Net loss - - - - (24,802) (24,802)
- --------------------------------------------------------------------------------------------
Balance at January 29, 1995 27,244 272 80,121 (603) 121,361 201,151
Dividends ($0.20 per share) - - - - (5,450) (5,450)
Exercise of common stock options 26 1 181 - - 182
Change in foreign currency
translation adjustments - - - 603 - 603
Net earnings - - - - 15,996 15,996
- --------------------------------------------------------------------------------------------
Balance at January 28, 1996 27,270 $273 $80,302 $ - $131,907 $212,482
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE><CAPTION>
Duty Free International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<S> <C> <C> <C>
January 28, January 29, January 31,
Fiscal year ended 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings (loss) $ 15,996 $(24,802) $ 27,393
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization of property and equipment 8,236 6,642 5,003
Other amortization 5,741 8,008 5,447
Provision for (benefit of) deferred income taxes 2,892 (13,222) 331
Revaluation and write-off of assets - 48,405 -
Changes in operating assets and liabilities, net of effects of
acquisitions accounted for by the purchase method:
Accounts receivable 1,203 4,147 (1,555)
Notes receivable - - (1,000)
Merchandise inventories 5,967 10,015 (4,046)
Prepaid expenses and other current assets 254 991 (878)
Deposits (1,810) - -
Accounts payable (5,768) (3,012) (8,117)
Income taxes payable - (2,863) (3,049)
Accrued restructuring expenses (2,276) 4,586 -
Other current liabilities (1,390) 3,820 (1,796)
Other (135) (777) 120
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 28,910 41,938 17,853
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investments 34,470 50,103 23,418
Purchases of investments (35,152) (32,225) (23,125)
Additions to property and equipment (11,710) (31,230) (13,352)
Acquisitions of businesses, accounted for by
the purchase method, net of cash acquired (5,050) (74,991) (21,898)
Investments in and advances to affiliates (420) (3,363) (1,254)
Other 188 1,819 (2,701)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (17,674) (89,887) (38,912)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings and notes payable - - 115,118
Payment of long-term borrowings and notes payable (3,760) (14,464) (5,655)
Dividends paid (5,450) (5,445) (5,435)
Purchase of common stock - (436) -
Other 873 (22) 952
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (8,337) (20,367) 104,980
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,899 (68,316) 83,921
Cash and cash equivalents at beginning of year 31,353 99,669 15,748
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 34,252 $ 31,353 $ 99,669
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
Duty Free International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
January 28,1996, January 29, 1995 and January 31, 1994
(1) Summary of Significant Accounting Policies and Other Matters
Business - Duty Free International, Inc. and its subsidiaries (the
Company) are engaged principally in the sale of tax and duty free
merchandise, such as spirits, tobacco, perfume and gift items.
Principles of consolidation - The consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiaries
and affiliates in which the Company has a majority interest or
control. All significant intercompany balances and transactions have
been eliminated in consolidation.
Fiscal Year - During the year ended January 29, 1995, the Company
adopted a 4-5-4 week fiscal calendar with its fiscal year ending on
the last Sunday of January. The fiscal years ended January 28, 1996,
January 29, 1995 and January 31, 1994 are referred to hereafter as
1996, 1995 and 1994, respectively.
Cash equivalents - For purposes of the statements of cash flows, the
Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Investments in debt and equity securities - The Company's
investments in debt and equity securities, except for investments
accounted for under the equity method and investments in
consolidated subsidiaries, are classified in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Upon purchase,
management considers the maturity and other characteristics of each
investment and its asset-liability management policies and
classifies each investment appropriately; such classifications are
reassessed at each reporting date.
Fair values of financial instruments - Information regarding fair
values of foreign exchange forward contracts, long-term debt, and
investments in debt securities is set forth in notes 4, 7 and 15 to
the financial statements. Fair values of other financial
instruments, such as receivables and payables, approximates carrying
values.
Merchandise inventories - Merchandise inventories are stated at the
lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
Property and equipment - Property and equipment are stated at cost.
Depreciation and amortization are calculated using the straight-line
method over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the
lease terms or estimated useful lives of the assets. Maintenance and
repairs are charged to expense as incurred.
Intangible assets - The Company accounts for intangible assets at
the lower of amortized cost or fair value. The Company changed its
method of evaluating the recoverability of intangible assets during
fiscal 1995. Under the new method, fair value of intangible assets
is determined based on the estimated discounted future operating
cash flows of the related acquired operations over the life of each
intangible asset. Previously, impairment was measured using
undiscounted cash flows. The new method results in a more
<PAGE>
appropriate balance sheet valuation of intangible assets. Because
the change in accounting principle is inseparable from the change in
estimate, it has been accounted for as a change in estimate. The
projected financial results of each operation are based on
management's best estimate of expected future operating results.
Discount rates take into account the risk associated with each
operation, based on the type of business, geographic location, and
other matters. Management reviews the valuation and amortization of
its intangible assets on an ongoing basis. See note 3 regarding the
revaluation of intangible assets during fiscal 1995.
The excess of cost over net assets of subsidiaries acquired is
amortized over 30 years using the straight-line method. Other
intangible assets consist principally of operating rights and
non-competition agreements. The operating rights are being
amortized over 3 to 25 years; the non-competition agreements are
being amortized over the terms of such agreements (5 to 15 years)
and other intangible assets are being amortized over the estimated
useful lives of the related assets (5 to 30 years) using the
straight-line method.
Advertising expense - The Company expenses advertising costs the
first time advertising takes place. The Company did not have any
deferred advertising costs as of January 28, 1996 and January 29,
1995. Advertising expense was approximately $3,000,000, $4,000,000
and $3,500,000 during fiscal 1996, 1995 and 1994, respectively.
Foreign currency transactions - Exchange gains and losses from
transactions of domestic operations in foreign currencies
and commissions earned from the Company's currency exchange
activities are included in other income. The functional currency
for certain of the Company's foreign retail operations was
the local currency. The translation of the foreign currencies into
U.S. dollars was performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue
and expense accounts using average rates of exchange prevailing
during the year. Adjustments resulting from such translation were
included as a separate component of stockholders' equity.
Income taxes - Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized
based on the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Earnings per share - Earnings per share are based on the weighted
average number of shares of common stock outstanding during each
year. The numbers of shares used in the computations were
27,251,000, 27,224,000 and 27,204,000 for fiscal 1996, 1995 and
1994, respectively. Common shares issuable upon exercise of stock
options are excluded from the computation because their effect is
not material.
Foreign Exchange Forward Contracts - The value of foreign exchange
forward contracts, taken as hedges of existing assets or
liabilities, are included in the carrying amounts of those assets or
liabilities and are ultimately recognized in income as part of those
<PAGE>
carrying amounts. Gains and losses related to qualifying hedges of
firm commitments or anticipated transactions are deferred and are
recognized in income or as adjustments of carrying amounts when the
hedged transactions occur.
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
Reclassifications - Certain amounts for fiscal 1995 and 1994 have
been reclassified to conform to the presentation for fiscal 1996.
(2) Restructuring Expenses
During the third quarter of fiscal 1995, management undertook a
restructuring plan which included the closing or sale of 23 stores and
business locations, and the consolidation of administrative and
warehouse operations. As of January 28, 1996, all of the stores and
business locations have been closed or sold. The Company closed 14
unprofitable or marginally profitable stores at secondary crossings
along the United States/Canada border in fiscal 1995. The closings were
prompted by the Company's experience with declining sales on the
northern border during the summer of 1994. Initially, the Company had
believed that its Northern Border Division sales had been adversely
affected in fiscal 1993 and 1994 by cyclical factors such as unusually
inclement weather and the Canadian economic recession, as well as the
reduced purchasing power of the Canadian dollar. Its experience during
1994's important summer sales season with further significant reductions
in sales, following the Canadian government's precipitous and dramatic
reduction in tobacco taxes in February 1994, led it to conclude that the
changes in sales on the Northern Border were to be of a more long-term
nature. Seven unprofitable Airport Division retail locations were closed
in fiscal 1996, which included all five of the Company's stores in
Toronto, Canada and two other smaller specialty stores at airports in
Bangor, Maine and Burlington, Vermont. These stores were closed due to
projected sales levels not being sufficient to cover fixed operating
costs. Two wholesale operations in Seattle, Washington and Carson,
California were sold in fiscal 1996 due to the Company deemphasizing
wholesale sales, and the Company's ability to service wholesale
customers from other locations. The Company also eliminated regional
manager positions in the Northern Border Division, and consolidated
other warehouse and administrative operations into the Company's new
140,000 square foot distribution and administrative center in Miami,
Florida. The restructuring plan reduced the Company's store and
administrative workforce by approximately 210 people.
<PAGE>
A pre-tax charge to earnings of $7,571,000 was taken during fiscal
1995 as a result of the restructuring. There were no material
adjustments to restructuring expenses during fiscal 1996. Restructuring
costs included the following (in thousands):
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
Termination of property leases $1,262
Abandonment of leasehold improvements
and other fixed assets 1,026
Severance and other related payments 3,559
Cumulative currency translation adjustments
related to foreign operations closed 615
Write-down of inventory below cost 503
Other 606
- ------------------------------------------------------------------------
$7,571
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
The following methods were used to calculate the
restructuring charges:
* Termination of property leases - based on amounts due under
terminated lease agreements and agreements with lessors.
* Abandonment of leasehold improvements and other fixed
assets - net book value of leasehold improvements and other fixed
assets that cannot be transferred to other stores/locations or
sold. The Company does not expect to receive any material proceeds
from sales of the leasehold improvements and other fixed assets.
* Severance and other related payments - based on severance and other
agreements with employees. Severance amounts were based on years of
service and paid over the number of pay weeks owed the employees.
Severance payments also include health insurance costs for
terminated employees, which were based on the number of employees
terminated and the average cost per employee for health insurance
coverage for one year, less premiums to be paid by terminated
employees.
* Cumulative currency translation adjustments related to foreign
operations closed - relates to the Company's Toronto airport
operations. Based on January 29, 1995, U.S. dollar/Canadian dollar
exchange rate. These operations were closed in February 1995.
* Write-down of inventory below cost - estimate of expected sales
below cost for close-out sales.
The Company will pay approximately $5,427,000 in cash relating to
the restructuring. Approximately $2,144,000 of the restructuring costs
related to non-cash write-offs of recorded assets. The Company has paid
approximately $3,117,000 during fiscal 1996 and fiscal 1995 relating to
restructuring obligations which consisted of $2,024,000 for employee
severance and other arrangements, $870,000 to terminate property leases
and rent for closed stores, and $223,000 for other miscellaneous
expenses. As of January 28, 1996, remaining payments of approximately
$2,310,000 are expected to be paid for obligations incurred pursuant to
the restructuring plan.
<PAGE>
Net sales of the stores closed and businesses sold under the
restructuring plan were $4,757,000, $13,931,000 and $15,233,000 for
fiscal 1996, 1995 and 1994, respectively. Operating losses of the
stores closed and businesses sold under the restructuring plan were
$137,000, $2,508,000 and $1,022,000 for fiscal 1996, 1995 and 1994,
respectively.
(3) Revaluation of Intangible Assets
In the third quarter of fiscal 1995, the Company changed its method
of evaluating the recoverability of intangible assets. Under the new
method, fair values of intangible assets are determined based on the
estimated discounted future operating cash flows of the related acquired
operations over the life of each intangible asset. Previously,
impairment was measured using undiscounted cash flows. The new method is
preferable in the circumstances, because it results in a more
appropriate balance sheet valuation of intangible assets. The projected
financial results of each operation are based on management's best
estimate of expected future operating cash flows. Discount rates take
into account the risk associated with each operation, based on the type
of business, geographic location, and other matters, in relation to risk
free investments. Discount rates are reviewed on a periodic basis by
the Company's independent auditors, as part of their annual audit, to
determine their appropriateness. Management reviews the valuation and
amortization of all its intangible assets on an ongoing basis. During
the third quarter of fiscal 1995, management determined that cash flow
from certain acquired businesses would be below the expectations set by
management when the business acquisitions were completed. Accordingly,
under its new policy, the Company reduced the carrying amount of its
intangible assets by $46,002,000 during fiscal 1995. Because the change
in accounting principle was inseparable from the change in estimate, it
was accounted for as a change in estimate. Had the previous method
remained in effect, there would have been no significant impairment at
January 29, 1995. Below is a more detailed explanation of the material
asset revaluation write-downs during fiscal 1995.
The Company acquired various duty free and related businesses along
the United States/Canada border from November 1990 through June 1993,
which included the purchase of 16 duty free stores and related
businesses along the United States/Canada border on February 1, 1991,
and other smaller acquisitions. Subsequent to the acquisitions, the
financial results of these operations, and the Northern Border Division
as a whole, have been significantly below the expectations set by
management when the acquisitions were completed due primarily to reduced
travel across the United States/Canada border, and substantial price
reductions on tobacco products in the Canadian domestic market as a
result of a decrease in Canadian taxes on tobacco products in fiscal
1995. Management determined that travel across the United States/Canada
border would not increase substantially from current levels, due
primarily to the fact that travel across the border did not increase as
the Canadian economy improved in fiscal 1995, and reduced Canadian
tobacco prices and taxes would continue to have a negative effect on
duty free operations along the border. The projected results for the
businesses acquired along the United States/Canada border based on a
five percent long-term growth rate from estimated fiscal 1995 financial
results over 30 years, using a 20% discount rate (the same discount rate
used by the Company and its appraisers when acquiring the businesses),
resulted in a significant decrease in the fair value and carrying amount
of intangible assets related to these acquisitions. Accordingly, the
Company reduced the carrying amount of its Northern Border Division's
intangible assets by $30,839,000 during fiscal 1995.
<PAGE>
On May 7, 1993, the Company acquired a 75 percent interest in Bared
Jewelers of the Virgin Islands ("Bared Jewelers"). Bared Jewelers
operates three stores in the primary shopping area of St. Thomas,
U.S.V.I. Since the acquisition, the operations of Bared Jewelers have
not achieved the sales and earnings projections prepared at the time of
the acquisition due primarily to a decrease in the number of cruise ship
travelers to St. Thomas. Management has determined that the number of
cruise ship travelers to St. Thomas would not increase significantly
from current levels, because of an increase in the number of ports in
the Caribbean and throughout the world serviced by the cruise ship
industry. The projected results for the operations acquired in the Bared
Jewelers acquisition based on a five percent long-term growth rate from
estimated fiscal 1995 financial results over the length of the related
leases, using a 15% discount rate (the same discount rate used by the
Company and its appraisers when acquiring Bared Jewelers), resulted in a
significant decrease in the fair value and carrying amount of intangible
assets related to this acquisition. Accordingly, the Company reduced the
carrying amount of its Bared Jewelers intangible assets by $7,813,000
during fiscal 1995.
The remaining $7,350,000 write-down of intangible assets during
fiscal 1995 related to five Airport and Diplomatic and Wholesale
Division acquisitions. These write-downs were a result of the Company
adopting the discounted cash flow method for evaluating the
recoverability of intangible assets, the Company revising cash flow
projections for these businesses due to the Company deemphasizing
wholesale sales in fiscal 1995, and projected results for smaller
Airport Division acquisitions being below the expectations set by
management when the acquisitions were completed. The discount rates used
were between 15% and 20% and were the same rates used by the Company and
its appraisers when acquiring the businesses.
The intangible asset revaluation write-down during fiscal 1995 by
type of intangible asset and division is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Diplomatic
Northern and
Border Airport Wholesale
Division Division Division Total
- -----------------------------------------------------------------------
Excess of cost over
net assets of
subsidiaries acquired $ 7,880 $ 3,734 $3,229 $14,843
Non-competition
agreements 13,201 835 - 14,036
Purchase options 2,238 1,200 - 3,438
Operating rights/leaseholds 7,354 4,939 - 12,293
Other 166 1,226 - 1,392
- -----------------------------------------------------------------------
$30,839 $11,934 $3,229 $46,002
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
</TABLE>
The $46,002,000 reduction of the carrying amount of intangible
assets reduced amortization expense by approximately $3,500,000 in
fiscal 1996. The write-downs will not require any cash payments in the
future.
<PAGE>
As part of its ongoing review, management reviewed the valuation
and amortization of all its intangible assets and determined there was
no impairment of intangible asset values as of January 28, 1996.
(4) Foreign Exchange Forward Contracts
The only financial derivatives used by the Company are foreign
exchange forward contracts. The Company enters into foreign exchange
forward contracts to minimize the currency exchange risk associated with
purchasing merchandise in currencies other than the United States
dollar. The amount of foreign currency purchased by foreign exchange
forward contracts is based on anticipated levels of merchandise required
to support expected sales levels. Currency rates are monitored against a
corporate target which has been used by management in developing
business plans. All currency techniques employed by the Company must be
approved by the Company's Board of Directors and management. The
Company's foreign exchange forward contracts are held for purposes other
than trading. The Company does not engage in foreign currency
speculation.
Merchandise purchases hedged by foreign exchange forward contracts
are valued by using the exchange rate of the applicable foreign exchange
forward contract and recognized as part of cost of goods sold when the
merchandise is sold. The Company had approximately $23,523,000 of
outstanding foreign exchange forward contracts outstanding at January
28, 1996 to purchase British pounds, French francs, Swiss francs and
Deutsche marks. The contracts outstanding at January 28, 1996 mature at
various dates in fiscal 1997. The fair values of these contracts were
$23,127,000 at January 28, 1996. Fair values were estimated by obtaining
quotes from banks assuming all contracts were purchased on January 28,
1996.
(5) Acquisitions
On May 1, 1994, the Company purchased Inflight Sales Group Limited
(Inflight), and certain non-competition rights, for approximately
$73,300,000. The purchase price exceeded the fair value of the net
assets acquired by approximately $65,000,000. Inflight is the leading
concessionaire and supplier of on-board duty free merchandise to
international airlines. The acquisition was accounted for by using the
purchase method and, accordingly, the purchase price has been allocated
to the related acquired assets and assumed liabilities based on their
respective fair values. The consolidated statement of earnings for the
year ended January 29, 1995 includes the results of operations of
Inflight from its acquisition date.
The pro forma results of operations for the year ended January 29,
1995, as if the Inflight acquisition had occurred on February 1, 1994,
are not presented because the results would not be materially different
from the actual results for the year. The pro forma results of
operations that follow summarize, on an unaudited pro forma basis,
results of the Company's consolidated operations for the year ended
January 31, 1994 assuming the Inflight acquisition had occurred on
February 1, 1993 (in thousands).
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
Fiscal year ended January 31, 1994
- ------------------------------------------------------------------------
Net sales $481,244,000
Operating income $ 39,184,000
Earnings before income taxes $ 37,004,000
Net earnings $ 22,986,000
Earnings per share $0.84
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
Supplemental information regarding acquisitions required for the
statements of cash flows is as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------
Fair value of assets acquired $ 9,833 $117,236 $ 32,150
Common stock issued - - (2,520)
Cash paid (5,050) (74,991) (21,898)
- ------------------------------------------------------------------------
Liabilities assumed $ 4,783 $ 42,245 $ 7,732
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
(6) Property and Equipment
Property and equipment are summarized as follows
(in thousands):
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------
Land $ 19,234 $ 18,117
Buildings 49,491 42,978
Leasehold improvements 20,217 17,721
Furniture and fixtures 16,409 15,315
Equipment and vehicles 27,766 23,265
- ------------------------------------------------------------------------
133,117 117,396
Less accumulated depreciation
and amortization 40,704 34,863
- ------------------------------------------------------------------------
Net property and equipment $ 92,413 $ 82,533
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
(7) Long-Term Debt
Long-term debt consists of the following (in thousands, except for
percentage amounts):
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------
7% senior bonds payable, 7.06% effective rate,
due January 15, 2004, $115,000 face amount,
less unamortized discount of $366 and $412 $114,634 $114,588
Other 5,837 3,821
- ------------------------------------------------------------------------
120,471 118,409
Less current maturities 2,053 2,611
- ------------------------------------------------------------------------
Long-term debt, excluding current maturities $118,418 $115,798
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
The approximate annual maturities of long-term debt are as
follows (in thousands):
<S> <C>
- ------------------------------------------------------------------------
1997 $ 2,053
1998 1,000
1999 1,000
2000 1,000
2001 784
2004 114,634
- ------------------------------------------------------------------------
$120,471
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
The fair value of long-term debt, including current maturities, was
$115,650,000 and $107,321,000 as of January 28, 1996 and January 29,
1995, respectively. The fair value of long-term debt, including current
maturities, was estimated based on quoted market values.
The Company paid interest on short-term and long-term borrowings of
approximately $8,658,000, $9,277,000 and $1,457,000 during fiscal 1996,
1995 and 1994, respectively.
<PAGE>
(8) Income Taxes
Income tax expense (benefit) consists of the following (in
thousands):
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------
Current Deferred Total
- ------------------------------------------------------------------------
1996:
Federal $ 4,280 $ 2,568 $ 6,848
State 815 489 1,304
Foreign 1,406 (165) 1,241
- ------------------------------------------------------------------------
$ 6,501 $ 2,892 $ 9,393
- ------------------------------------------------------------------------
1995:
Federal $ 5,065 $(10,083) $ (5,018)
State 1,100 (2,116) (1,016)
Foreign 710 (1,023) (313)
- ------------------------------------------------------------------------
$ 6,875 $(13,222) $ (6,347)
- ------------------------------------------------------------------------
1994:
Federal $ 13,598 $ 319 $ 13,917
State 1,760 12 1,772
- ------------------------------------------------------------------------
$ 15,358 $ 331 $ 15,689
- ------------------------------------------------------------------------
</TABLE>
The income tax expense (benefit) is reconciled to the amount
computed by applying the Federal corporate tax rates to earnings (loss)
before income taxes as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------
Income tax (benefit) at
statutory rates $ 8,886 $ (10,902) $ 15,079
Revaluation of intangible assets - 6,144 -
State income taxes, net of
federal tax benefit 848 (660) 1,152
Tax exempt income (384) (450) (296)
Other, net 43 (479) (246)
- ------------------------------------------------------------------------
$9,393 $ (6,347) $ 15,689
- ------------------------------------------------------------------------
</TABLE>
The consolidated earnings before income taxes, by domestic and
foreign sources, was $16,425,000 and $8,964,000, respectively, for
fiscal 1996. The consolidated earnings (loss) before income taxes, by
domestic and foreign sources was a loss of ($38,583,000) and income of
$7,434,000, respectively, for fiscal 1995. Prior to fiscal 1995, foreign
source income was not material to the Company.
<PAGE>
At January 28, 1996, the net current and net non-current deferred
income tax assets were $3,129,000 and $8,609,000, respectively. At
January 29, 1995, the net current and net non-current deferred income
tax assets were $4,800,000 and $9,830,000, respectively. Such amounts
are included in "prepaid expenses and other current assets" and "other
assets, net", respectively, on the consolidated balance sheets as of
January 28, 1996 and January 29, 1995. There was no valuation allowance
relating to deferred income tax assets at January 28, 1996 and January
29, 1995. Management has determined, based on the Company's history of
prior operating earnings and its expectations for the future, that
taxable income of the Company will more likely than not be sufficient to
fully recognize these deferred tax assets.
At January 28, 1996, the Company had net operating loss
carryforwards of approximately $2,000,000, expiring in 2010, to offset
future taxable income of a subsidiary. Management has determined, based
on projected earnings of the subsidiary, that the taxable income of the
subsidiary will more likely than not be sufficient to fully utilize
these net operating loss carryforwards.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities consist of the following (in thousands):
<TABLE><S> <C> <C>
- ------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------
Deferred tax assets:
Restructure liability $ 1,908 $ 2,524
Intangible amortization 8,500 8,103
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 1,473 1,746
Net operating loss carryforwards 750 2,475
Other 1,701 2,222
- -----------------------------------------------------------------------
Gross deferred tax assets 14,332 17,070
- ----------------------------------------------------------------------
Deferred tax liabilities:
Inventories, to conform UETA's accounting
method from LIFO to FIFO (1,168) (1,168)
Depreciation and capitalized interest (98) (190)
Other (1,328) (1,082)
- -----------------------------------------------------------------------
Gross deferred tax liabilities (2,594) (2,440)
- -----------------------------------------------------------------------
Net deferred tax asset $11,738 $ 14,630
- -----------------------------------------------------------------------
</TABLE>
The Company paid income taxes of approximately $5,120,000,
$9,370,000 and $18,405,000 during fiscal 1996, 1995 and 1994,
respectively.
(9) Retirement Savings Plan
The Company has a retirement savings plan covering substantially
all nonunion employees meeting minimum service requirements set forth in
the plan. Annual contributions made to the plan by the Company are at
the discretion of the Board of Directors, subject to certain
limitations, as defined in the plan. The retirement savings plan
includes a 401(k) deferred compensation plan covering substantially all
nonunion employees. Employees are permitted within limitations imposed
by tax law to make pre-tax contributions to the plan pursuant to salary
reduction agreements. The Company is required to make matching
<PAGE>
contributions to the plan based on a percentage of employee
contributions to the 401(k) deferred compensation plan. Retirement
savings plan costs amounted to approximately $976,000, $945,000 and
$865,000 for fiscal 1996, 1995 and 1994, respectively.
(10) Operating Leases
The Company and its subsidiaries are obligated under noncancellable
operating leases for warehouse, store and office facilities at various
locations. Certain of the leases provide for renewals for various
periods and most leases require the Company to pay all operating
expenses and additional rent based upon sales. Leases at several airport
locations are terminable by the lessor upon thirty days notice.
Approximate future minimum rentals, under non-cancellable operating
leases, with initial or remaining terms of one year or more are as
follows (in thousands):
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
1997 $14,601
1998 13,452
1999 12,790
2000 10,916
2001 6,098
Thereafter 7,807
- ------------------------------------------------------------------------
$65,664
- ------------------------------------------------------------------------
</TABLE>
Rental expense consists of the following (in thousands):
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------
Minimum rentals $15,044 $14,961 $13,652
Additional rentals based on sales 13,575 10,755 10,176
Other 155 144 142
- ------------------------------------------------------------------------
$28,774 $25,860 $23,970
- ------------------------------------------------------------------------
</TABLE>
(11) Other Current Liabilities
Other current liabilities consist of the following (in thousands):
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------
Airline and other commissions $ 2,844 $ 4,855
Incentive compensation plan 3,000 2,650
Other 21,359 22,079
- ------------------------------------------------------------------------
$ 27,203 $ 29,584
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
(12) Business Segments
The Company's principal business is the retail sale of tax and duty
free merchandise, such as spirits, tobacco, perfume and gift items. The
Company also wholesales these products. In the financial information by
business segment shown below, operating income represents net sales less
cost of sales and an allocation of certain selling, general and
administrative expenses as determined by management. There are no
identifiable assets used exclusively in the wholesale operation and the
amounts allocable thereto would not be significant. Accordingly,
segment information for identifiable assets, depreciation and capital
expenditures is not presented.
Segment information is as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------
Total revenue:
Retail operations $454,467 $430,182 $312,738
Wholesale operations 60,591 71,579 63,698
- ------------------------------------------------------------------------
$515,058 $501,761 $376,436
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Operating income:
Retail operations $ 26,949 $ 22,988 $ 32,565
Wholesale operations 3,397 3,863 6,970
Restructuring expenses - (7,571) -
Revaluation of intangible assets - (46,002) -
Other income (expense) (4,957) (4,427) 3,547
- ------------------------------------------------------------------------
Earnings (loss) before income taxes $ 25,389 $(31,149) $ 43,082
- ------------------------------------------------------------------------
</TABLE>
(13) Stock Option Plan
An aggregate of 4,640,000 shares of common stock were reserved for
issuance pursuant to nonqualified stock options. Approximately 2,314,000
shares were available for grant at January 28, 1996. At January 28,
1996, 1,200,185 options were exercisable under the plans. Options are
exercisable, in increments from the grant date, for ten years from the
date of the grant.
A summary of changes in outstanding stock options is as follows:
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------
Balance at beginning of year 2,204,521 935,765 795,524
Granted
($9.875 - $27.375 per share) 37,000 1,376,050 174,500
Canceled
($8.75 - $52.75 per share) (122,486) (73,728) (30,707)
Exercised
($6.875 - $22.875 per share) (26,574) (33,566) (3,552)
- ------------------------------------------------------------------------
Balance at end of year 2,092,461 2,204,521 935,765
- ------------------------------------------------------------------------
/TABLE
<PAGE>
(14) Legal Proceedings
Several former stockholders of UETA, Inc. have commenced actions
against the Company and certain of its officers and directors alleging,
among other things, that the defendants made misleading statements and
omissions about the Company's business in connection with its
acquisition of UETA, Inc. The relief sought includes an unspecified
amount of damages. The Company and its officers and directors believe
they have meritorious defenses to the allegations made against them and
intend to defend the suits vigorously.
The Company is a party to several other unrelated pending legal
proceedings and claims. Although the outcome of such proceedings and
claims cannot be determined with certainty, the Company believes that
the final outcomes should not have a material adverse effect on its
consolidated financial position, results of operations or cash flows.
(15) Investment in Debt Securities
Management reviewed the classification of its security portfolio as
of January 28, 1996 and January 29, 1995 and determined that all
securities are "held-to-maturity securities." The fair values of the
Company's investments in debt securities are as follows (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
January 28, Gross Gross January 28,
1996 Unrealized Unrealized 1996
Carrying Holding Holding Fair
Amount Gains (Losses) Value
- -----------------------------------------------------------------------------------------
Securities maturing
within one year:
Corporate debt securities $ 5,705 $33 $(31) $ 5,707
Debt securities issued by
states of the United States
and political subdivisions
of the states 6,662 59 (22) 6,699
Debt securities issued by
the U.S. Treasury and
other U.S. government
corporations and agencies 380 - (2) 378
- -----------------------------------------------------------------------------------------
Total short-term investments 12,747 92 (55) 12,784
- -----------------------------------------------------------------------------------------
Securities maturing after
one through four years:
Debt securities issued by
states of the United States
and political subdivisions
of the states 10,550 - (20) 10,530
- ------------------------------------------------------------------------------------------
Total investments $23,297 $92 $(75) $23,314
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------------------
January 29, Gross Gross January 29,
1995 Unrealized Unrealized 1995
Carrying Holding Holding Fair
Amount Gains (Losses) Value
- -------------------------------------------------------------------------------------------
Securities maturing
within one year:
Corporate debt securities $ 3,861 $ 3 $ (60) $ 3,804
Debt securities issued by
states of the United States
and political subdivisions
of the states 8,659 26 (42) 8,643
Debt securities issued
by the U.S. Treasury
and other U.S.
government corporations 566 - (3) 563
- -------------------------------------------------------------------------------------------
Total short-term investments 13,086 29 (105) 13,010
- -------------------------------------------------------------------------------------------
Securities maturing after
one through five years:
Corporate debt securities 5,655 - (79) 5,576
Debt securities issued by
states of the United States
and political subdivisions
of the states 3,618 - (56) 3,562
Debt securities issued by
the U.S. Treasury and
other U.S. government
corporations and agencies 380 - (18) 362
- -------------------------------------------------------------------------------------------
Total long-term investments 9,653 - (153) 9,500
- --------------------------------------------------------------------------------------------
Total investments $22,739 $29 $(258) $22,510
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
Fair values were based on quoted market prices. The Company did not
sell any investment securities during fiscal 1996 and 1995.
(16) Accounting for Stock-Based Compensation
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation,"which is effective for fiscal years beginning after
December 15, 1995 and for transactions occurring after December 15,
1995. The Statement defines a fair value based method of accounting for
an employee stock option or similar equity instruments. Under the fair
value method, compensation cost is measured at the grant date based on
the value of the award and is recognized over the service period, which
is usually the vesting period. The Statement allows an entity to
continue to measure compensation costs for stock options or similar
equity instruments using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees. "Under the intrinsic value based method, compensation costs
are the excess, if any, of the quoted market price of the stock at the
grant date or other measurement date over the amount an employee must
pay to acquire the stock. Entities electing to continue with the
accounting in Opinion 25 must make pro forma disclosure of net income
and earnings per share as if the fair value based method of accounting
had been applied. The Company has elected to continue to measure
compensation costs for stock options or similar equity instruments using
<PAGE>
the intrinsic value based method of accounting prescribed by APB Opinion
No. 25 with pro forma disclosure of net income and earnings per share as
if the fair value based method of accounting had been applied. The
Company will adopt the disclosure requirements of Statement No. 123 in
fiscal 1997.
(17) Dividends
During the fourth quarter of fiscal 1996, the Company's Board of
Directors increased the Company's quarterly dividend by 20% to $0.06 per
share, beginning with the quarterly dividend to be paid in May 1996 for
the first quarter of fiscal 1997.
(18) Line of Credit and Letter of Credit Facility
On May 26, 1995, the Company signed a fully committed $75,000,000
revolving line of credit and letter of credit facility expiring in May
1998. Borrowings under the agreement bear interest at a rate selected by
the Company based on the prime rate, federal funds rate or the London
Interbank Offered Rate. The credit facility contains covenants which
require, among other things, maintenance of minimum tangible net worth,
as defined, and certain financial ratios. There were no borrowings under
the facility as of January 28, 1996. Currently, the Company has no plans
to make any borrowings under the facility.
Jack Africk (1)(2)(3)(4)
David H. Bernstein (1)(2)
Chairman of the Executive Committee
Former Chairman of the Board
Alfred Carfora (1)(2)
President and Chief Executive Officer
John A. Couri (1)(2) (5)
Consultant,
Former Chairman of the Board
Heribert Diehl (1)(3)(4)
Managing Director,
Gebr. Heinemann
John Edmondson
Executive Vice President and
Chief Operating Officer
Gerald F. Egan
Vice President Finance,
Chief Financial Officer,
Treasurer and Secretary
Carl Reimerdes (1)(2)(5)
Vice President
Susan H. Stackhouse (1)(4)
President,
Fenton Hill Florida, Inc.
(1) Member of Board of Directors
(2) Member of Executive Committee
(3) Member of Audit Committee
(4) Member of Compensation Committee
(5) Member of Nominating Committee
<PAGE>
Corporate Data
Corporate Headquarters
63 Copps Hill Road
Ridgefield, Connecticut 06877
Tel. no. (203) 431-6057
Fax no. (203) 438-1356
Principal Subsidiaries
AMMEX Tax and
Duty Free Shops, Inc.
Executive Vice President:
Steven D. Zurcher
63 Copps Hill Road
Ridgefield, Connecticut 06877
Fenton Hill American, Limited
President: Carl Reimerdes
Building 59
JFK International Airport
Jamaica, New York 11430
Tel. no. (718) 656-3000
Samuel Meisel and Company, Inc.
President: Robert T. Weitz
6691 Baymeadow Drive
Glen Burnie, Maryland 21060
Tel. no. (410) 787-1414
UETA, Inc.
President: Ramon Bosquez
3407 N.E. Parkway
San Antonio, Texas 78212
Tel. no. (210) 828-8382
Inflight Duty Free Shop, Inc.
President: Peter Cathey
63 Copps Hill Road
Ridgefield, Connecticut 06877
Tel. no. (203) 894-2050
Annual Meeting
Shareholders are cordially invited to attend the Company's Annual
Meeting which will be held at 10:00 a.m., May 23, 1996, at the Hyatt
Regency Hotel, 300 Light Street, Baltimore, Maryland.
Form 10-K
Shareholders may obtain a copy of the Company's annual report filed with
the Securities and Exchange Commission (Form 10-K) free of charge by
writing to:
Dyan C. Cutro
Vice President Investor Relations
645 Madison Avenue, 6th Floor
New York, New York 10022
Tel. no. (212) 754-5900
<PAGE>
Stock Exchange Listing
New York Stock Exchange
Ticker Symbol: DFI
Shareholder Inquiries
Questions involving financial information about the Company should be
addressed to:
Dyan C. Cutro
Vice President Investor Relations
645 Madison Avenue, 6th Floor
New York, New York 10022
Tel. no. (212) 754-5900
Transfer Agent and Registrar
Chemical Mellon Shareholder Services
450 West 33rd Street - 15th Floor
New York, New York 10001
Legal Counsel
Morgan, Lewis and Bockius
101 Park Avenue
New York, New York 10178
Independent Auditors
KPMG Peat Marwick LLP
111 South Calvert Street
Baltimore, Maryland 21202
Printed on recycled paper.
Exhibit 21.1
--------------
DUTY FREE INTERNATIONAL, INC.
SIGNIFICANT SUBSIDIARIES AND
JURISDICTIONS OF INCORPORATION
- ----------------------------------------------------------------------
Jurisdiction of
Incorporation
--------------
Duty Free International, Inc. Maryland
Samuel Meisel and Company, Inc. Maryland
Ammex Tax & Duty Free Shops, Inc. Delaware
Ammex Warehouse Company, Inc. New York
Fenton Hill America, Ltd. Maryland
Ammex Tax & Duty Free Shops West, Inc. Maryland
UETA, Inc. Delaware
UETA of Texas, Inc. Delaware
DFI Inflight, Inc. Delaware
Inflight Duty Free Shops, Inc. New York
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Duty Free International, Inc.
We consent to incorporation by reference in the Registration Statement
(Form S-8, No. 33-31123) of Duty Free International, Inc. of our reports
dated February 26, 1996 with respect to the consolidated financial
statements of Duty Free International, Inc. and subsidiaries as of
January 28, 1996 and January 29, 1995 and for each of the years in the
three-year period ended January 28, 1996 and related financial statement
schedule which reports appear or are incorporated by reference in the
January 28, 1996 Annual Report on Form 10-K filed by Duty Free
International, Inc.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
April 24, 1996
<PAGE>
Exhibit 24.1
------------
POWER OF ATTORNEY
--------------------------------
KNOW ALL MEN BY THESE PRESENTS, that Jack Africk constitutes
and appoints each of Alfred Carfora and John A. Couri with full power of
substitution, or either one of them, acting severally, the true and lawful
agents and attorneys-in-fact (the "Attorneys") of the undersigned, with
full power and authority in said Attorneys, to sign in my name and on my
behalf as a Director and Officer of Duty Free International, Inc. (the
"Company"), an Annual Report on Form 10-K, and any and all Amendments
thereto, to be filed with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934, as amended. I hereby ratify and
confirm all acts taken by such agents and attorneys-in-fact, pursuant to
the authority herein conferred.
/s/ Jack Africk
------------------------
Jack Africk
STATE OF Florida
------------
ss
CITY/COUNTY OF Palm Beach
----------------
I HEREBY CERTIFY that on this 8th day of April, 1996, before
me, the subscriber, personally appeared Jack Africk who made oath in due
form of law that the matters and facts stated herein are true to the best
of his knowledge, information and belief.
/s/ Melton Elliott
------------------------
Notary Public
My Commission Expires: 8-23-99
--------------
<PAGE>
POWER OF ATTORNEY
--------------------------------
KNOW ALL MEN BY THESE PRESENTS, that David H. Bernstein
constitutes and appoints each of Alfred Carfora and John A. Couri with
full power of substitution, or either one of them, acting severally, the
true and lawful agents and attorneys-in-fact (the "Attorneys") of the
undersigned, with full power and authority in said Attorneys, to sign in
my name and on my behalf as a Director and Officer of Duty Free
International, Inc. (the "Company"), an Annual Report on Form 10-K, and
any and all Amendments thereto, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended. I hereby ratify and confirm all acts taken by such agents and
attorneys-in-fact, pursuant to the authority herein conferred.
/s/ David H. Bernstein
----------------------
David H. Bernstein
STATE OF Maryland
----------------
ss
CITY/COUNTY OF Anne Arundel
--------------------
I HEREBY CERTIFY that on this 1st day of April, 1996, before
me, the subscriber, personally appeared David H. Bernstein who made oath
in due form of law that the matters and facts stated herein are true to
the best of his knowledge, information and belief.
/s/ Gregory George King
----------------------
Notary Public
My Commission Expires: 10/3/98
-----------------
<PAGE>
POWER OF ATTORNEY
--------------------------------
KNOW ALL MEN BY THESE PRESENTS, that John A. Couri constitutes
and appoints each of David H. Bernstein and Alfred Carfora with full power
of substitution, or either one of them, acting severally, the true and
lawful agents and attorneys-in-fact (the "Attorneys") of the undersigned,
with full power and authority in said Attorneys, to sign in my name and on
my behalf as a Director and Officer of Duty Free International, Inc. (the
"Company"), an Annual Report on Form 10-K, and any and all Amendments
thereto, to be filed with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934, as amended. I hereby ratify and
confirm all acts taken by such agents and attorneys-in-fact, pursuant to
the authority herein conferred.
/s/ John A. Couri
------------------------
John A. Couri
STATE OF Connecticut
------------------------
ss Ridgefield
---------------------
CITY/COUNTY OF Fairfield
-------------------
I HEREBY CERTIFY that on this 4th day of April, 1996, before
me, the subscriber, personally appeared John A. Couri who made oath in due
form of law that the matters and facts stated herein are true to the best
of his knowledge, information and belief.
/s/ Judity A. Land
--------------------------
Notary Public
My Commission Expires: 6/30/96
---------------
<PAGE>
POWER OF ATTORNEY
------------------------------
KNOW ALL MEN BY THESE PRESENTS, that Carl Reimerdes
constitutes and appoints each of Alfred Carfora and John A. Couri with
full power of substitution, or either one of them, acting severally, the
true and lawful agents and attorneys-in-fact (the "Attorneys") of the
undersigned, with full power and authority in said Attorneys, to sign in
my name and on my behalf as a Director and Officer of Duty Free
International, Inc. (the "Company"), an Annual Report on Form 10-K, and
any and all Amendments thereto, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended. I hereby ratify and confirm all acts taken by such agents and
attorneys-in-fact, pursuant to the authority herein conferred.
/s/ Carl Reimderdes
------------------------
Carl Reimerdes
STATE OF New York
---------------------
ss
CITY/COUNTY OF Queens
---------------
I HEREBY CERTIFY that on this 3rd day of April, 1996, before
me, the subscriber, personally appeared Carl Reimerdes who made oath in
due form of law that the matters and facts stated herein are true to the
best of his knowledge, information and belief.
/s/ Lois L. Kouroumousis
------------------------------
Notary Public
My Commission Expires: 1-31-98
---------
<PAGE>
POWER OF ATTORNEY
----------------------------
KNOW ALL MEN BY THESE PRESENTS, that Susan H. Stackhouse
constitutes and appoints each of Alfred Carfora and John A. Couri with
full power of substitution, or either one of them, acting severally, the
true and lawful agents and attorneys-in-fact (the "Attorneys") of the
undersigned, with full power and authority in said Attorneys, to sign in
my name and on my behalf as a Director and Officer of Duty Free
International, Inc. (the "Company"), an Annual Report on Form 10-K, and
any and all Amendments thereto, to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended. I hereby ratify and confirm all acts taken by such agents and
attorneys-in-fact, pursuant to the authority herein conferred.
/s/ Susan H. Stackhouse
------------------------
Susan H. Stackhouse
STATE OF Florida
-----------------
ss
CITY/COUNTY OF Hillsborough
-------------
I HEREBY CERTIFY that on this 2nd day of April, 1996, before
me, the subscriber, personally appeared Susan H. Stackhouse who made oath
in due form of law that the matters and facts stated herein are true to
the best of his knowledge, information and belief.
/s/ Spring M. Ciccarillo
-------------------------
Notary Public
My Commission Expires: 3/9/97
------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000820756
<NAME> DUTY FREE INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-END> JAN-28-1996
<CASH> 34,252
<SECURITIES> 12,747
<RECEIVABLES> 20,841
<ALLOWANCES> 735
<INVENTORY> 90,472
<CURRENT-ASSETS> 177,279
<PP&E> 133,117
<DEPRECIATION> 40,704
<TOTAL-ASSETS> 390,708
<CURRENT-LIABILITIES> 55,988
<BONDS> 118,418
0
0
<COMMON> 273
<OTHER-SE> 212,209
<TOTAL-LIABILITY-AND-EQUITY> 390,708
<SALES> 515,058
<TOTAL-REVENUES> 519,432
<CGS> 296,173
<TOTAL-COSTS> 296,173
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 618
<INTEREST-EXPENSE> 8,658
<INCOME-PRETAX> 25,389
<INCOME-TAX> 9,393
<INCOME-CONTINUING> 15,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,996
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
