<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM TO
-------------------- --------------------
COMMISSION FILE NUMBER 0-24026
MAXWELL SHOE COMPANY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2599205
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
101 SPRAGUE STREET
PO BOX 37
HYDE PARK (BOSTON), MA 02137-0037
(Address of principal executive offices) (Zip code)
(617) 364-5090
(Registrant's telephone number, including area code)
NONE
------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock outstanding at September 10, 1998:
Class A 8,794,199
------------------
Class B 0
------------------
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
- -------
MAXWELL SHOE COMPANY INC.
BALANCE SHEETS
(Unaudited-In Thousands)
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current asset:
Cash and cash equivalents............................................ $ 10,507 $ 3,129
Accounts receivable.................................................. 39,194 28,594
Inventory, net....................................................... 25,838 20,141
Prepaid expenses..................................................... 571 251
Deferred income taxes................................................ 1,316 1,526
------------ ------------
Total current assets.................................................... 77,426 53,641
Property and equipment, net............................................. 5,380 1,393
Trademarks.............................................................. 4,858 5,133
Other assets............................................................ 14 12
------------ ------------
$ 87,678 $ 60,179
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 2,972 $ 2,197
Accrued expenses..................................................... 9,087 6,767
Deferred income taxes................................................ 226 111
Current portion of capital lease obligation.......................... 125 125
------------ ------------
Total current liabilities............................................... 12,410 9,200
Capital lease obligation................................................ 251 344
Stockholders' equity:
Preferred stock, par value $.01, 1,000 shares
authorized, none outstanding..................................... 0 0
Class A common stock, par value $.01, 20,000 shares authorized,
8,794 outstanding in 1998, (2,525 outstanding in 1997)........... 88 25
Class B common stock, par value $.01, 10,000 shares authorized,
none outstanding in 1998, (5,063 outstanding in 1997)............ 0 51
Additional paid-in capital........................................... 41,840 27,312
Retained earnings.................................................... 33,089 23,247
------------ ------------
Total stockholders' equity.............................................. 75,017 50,635
------------ ------------
$ 87,678 $ 60,179
============ ============
</TABLE>
2
<PAGE>
MAXWELL SHOE COMPANY INC.
STATEMENTS OF INCOME
(Unaudited-In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------------------ -------------------------------------
1998 1997 1998 1997
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 47,386 $ 36,833 $ 123,500 $ 96,671
Cost of sales................................ 34,330 26,660 89,683 70,076
----------- ----------- ------------ -----------
Gross profit................................. 13,056 10,173 33,817 26,595
Operating expenses:
Selling..................................... 2,827 2,260 7,852 6,070
General and administrative.................. 3,706 3,019 11,273 9,254
----------- ----------- ------------ -----------
6,533 5,279 19,125 15,324
----------- ----------- ------------ -----------
Operating income............................. 6,523 4,894 14,692 11,271
Other expenses (income)
Interest.................................... 6 27 27 54
Amortization of trademarks.................. 92 92 275 275
Other, net.................................. (274) (7) (368) (52)
----------- ----------- ------------ -----------
(176) 112 (66) 277
----------- ----------- ------------ -----------
Income before income taxes................... 6,699 4,782 14,758 10,994
Income taxes................................. 2,231 1,817 4,916 4,178
----------- ----------- ------------ -----------
Net income................................... $ 4,468 $ 2,965 $ 9,842 $ 6,816
=========== =========== ============ ===========
Net income per share
Basic....................................... $.51 $.39 $1.23 $.90
Diluted..................................... $.46 $.35 $1.08 $.80
Shares used to compute net
income per share:
Basic....................................... 8,791 7,588 8,025 7,588
Diluted..................................... 9,705 8,569 9,103 8,476
</TABLE>
3
<PAGE>
MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOW
(Unaudited-In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
--------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income.............................................................. $ 9,842 $ 6,816
Adjustments to reconcile net income to net cash
used by operating activities
Depreciation and amortization........................................ 850 489
Deferred income taxes................................................ 325 (159)
Doubtful accounts provision.......................................... 94 85
Changes in operating assets and liabilities:
Accounts receivable.............................................. (10,694) (12,292)
Inventory........................................................ (5,697) (14,257)
Prepaid expenses................................................. (320) 39
Other assets..................................................... (2) 0
Accounts payable................................................. 775 1,492
Accrued income taxes............................................. 42 333
Accrued expenses................................................. 2,278 1,918
------------ ------------
Net cash used by operating activities................................... (2,507) (15,536)
INVESTING ACTIVITIES
Purchases of property and equipment..................................... (4,562) (429)
------------ ------------
Net cash used by investing activities................................... (4,562) (429)
FINANCING ACTIVITIES
Proceeds from sale of common stock...................................... 13,239 0
Proceeds from exercise of stock option.................................. 1,301 0
Payments on capital lease obligations................................... (93) (112)
Net proceeds on bank borrowings......................................... 0 5,775
------------ ------------
Net cash provided by financing activities............................... 14,447 5,663
------------ ------------
Net increase (decrease) in cash and cash equivalents.................... 7,378 (10,302)
Cash and cash equivalents at beginning of year.......................... 3,129 10,393
------------ ------------
Cash and cash equivalents at end of quarter $ 10,507 $ 91
============ ============
Interest paid........................................................... $ 27 $ 54
============ ============
Income taxes paid....................................................... $ 4,478 $ 4,004
============ ============
</TABLE>
4
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
July 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Maxwell Shoe Company
Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, considered necessary for a fair
presentation have been included. The results of the interim periods
presented herein are not necessarily indicative of the results to be
expected for any other interim period or the full year. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's 10-K Annual Report for the fiscal
year ended October 31, 1997.
2. NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement 128 requirements.
Basic income per share is computed based on the weighted average number of
common shares outstanding during the period. Diluted income per share is
computed based on basic shares outstanding increased by incremental shares
assumed issued for dilutive common stock equivalents in the form of stock
options.
3. ACCOUNTINGS PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (FAS 130) and Statement No. 131, "Disclosure About Segments of an
Enterprise and Related Information" (FAS 131). FAS 130 establishes
standards for reporting and displaying comprehensive income and its
components. FAS 131 establishes standards for public companies to report
information about operating segments in financial statements, and
supersedes FAS 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirements to report information about major
customers. FAS 130 and FAS 131 are effective for the Company in fiscal
1999. The Company does not believe the adoption of these Statements will
have a material effect on the Company's financial statements.
5
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
July 31, 1998
4. PUBLIC STOCK OFFERING
On April 27, 1998, the Company completed a public stock offering of an
aggregate of 6,145,792 shares of Class A Common Stock at $17.50 per share.
Of the shares sold, 5,044,167 Class A shares were sold by members of the
Blum family and a trust for their benefit upon conversion of a like number
of Class B shares and exercise of stock options, and 300,000 Class A shares
were sold by the Company Chairman and CEO pursuant to the exercise of stock
options. The Company did not receive any proceeds from the sale of shares
by the selling stockholders. In addition, the Company sold 801,625 shares
of Class A Common Stock pursuant to the full exercise of an over-allotment
option granted by the Company to the underwriters. The Company received
$13.2 million from the exercise of the over-allotment option and $1.3
million from the exercise of stock options. The Company no longer has any
Class B shares outstanding. The Company expensed $.5 million of costs
related to the sale of shares by the selling stockholders pursuant to prior
contractual obligations of the Company.
The exercise of the CEO's options resulted in a tax benefit of $.9 million
for 1998. The benefit results from the realization of a portion of a
deferred tax asset previously recorded and fully reserved in connection
with the granting of the options in 1994. The Company's effective tax rate
for 1998 is anticipated to be 33%.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth net sales by product line or category of
business:
<TABLE>
<CAPTION>
Three Months Ended July 31,
---------------------------------------------
1998 1997
-------------------- --------------------
($ Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies........ $ 22.8 48.2% $ 19.2 52.2%
Jones New York Footwear.. 10.1 21.4 8.6 23.4
Sam & Libby.............. 5.3 11.1 3.8 10.3
Private Label Footwear... 7.4 15.6 4.7 12.8
Closeout................. 1.8 3.7 .5 1.3
------- -------- ------- --------
$ 47.4 100.0% $ 36.8 100.0%
======= ======== ======= ========
<CAPTION>
Nine Months Ended July 31,
---------------------------------------------
1998 1997
-------------------- --------------------
($ Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies........ $ 59.5 48.2% $ 52.1 53.8%
Jones New York Footwear.. 29.3 23.7 23.1 24.0
Sam & Libby.............. 12.7 10.2 10.0 10.3
Private Label Footwear... 18.5 15.0 10.0 10.3
Closeout................. 3.5 2.9 1.5 1.6
------- -------- ------- --------
$ 123.5 100.0% $ 96.7 100.0%
======= ======== ======= ========
</TABLE>
Three Months Ended July 31, 1998 Compared to Three Months Ended July 31, 1997
Net sales were $47.4 million for the three months ended July 31, 1998 compared
to $36.8 million for the same period in the prior year, an increase of 28.6%.
The net sales increase was due to an 18.9% increase in net sales of Mootsies
Tootsies footwear, a 17.0% increase in net sales of Jones New York footwear, a
39.2% increase in net sales of Sam & Libby footwear and a 57.3% increase in net
sales of private label footwear.
Gross profit in the third quarter of fiscal 1998 was $13.1 million compared to
$10.2 million in the third quarter of fiscal 1997, or 27.6% of net sales for
both quarters.
Selling, general and administrative expenses increased $1.2 million during the
third quarter of fiscal 1998 due to increased selling commissions and shipping
expenses related to the increased net sales volume and start up costs of new
warehouse facilities. As a percent of net sales, SG&A. expense for the third
quarter of fiscal 1998 was 13.8% compared to 14.3% in the same period in 1997.
Other income was $176,000 for the three months ended July 31, 1998 compared to
other expense of $112,000 for the same period in the prior year. In 1998, the
other income was comprised of interest income, royalty income realized, and gain
on foreign exchange.
The Company has accrued an anticipated effective annual income tax rate of 33%
for fiscal year 1998, compared to 38% for fiscal year 1997. The anticipated
effective tax rate for 1998 and the third fiscal
7
<PAGE>
quarter tax rate reflects a $.9 million tax benefit from the exercise of 300,000
stock options by the Company's Chairman and CEO. The benefit results from the
realization of a portion of a deferred tax asset previously recorded and fully
reserved in connection with the granting of the options in 1994.
Nine Months Ended July 31, 1998 Compared to Nine Months ended July 31, 1997
Net sales were $123.5 million for the nine months ended July 31, 1998 compared
to $96.7 million for the same period in the prior year, an increase of 27.8%.
The net sales increase was due to a 85.7% increase in net sales of private label
footwear, a 14.4% increase in net sales of Mootsies Tootsies footwear, a 26.2%
increase in net sales of Jones New York footwear and a 28.0% increase in net
sales of Sam & Libby footwear.
Gross profit in the first nine months of fiscal 1998 was $33.8 million as
compared to $26.6 million in the first nine months of fiscal 1997, or 27.4% of
net sales as compared to 27.5% for the same period in 1997.
Selling, general and administrative expenses increased $3.8 million during the
first nine months of fiscal 1998 due to increased selling commissions and
advertising expenses as a result of the higher net sales in the first nine
months of fiscal 1998 compared to the same period in fiscal 1997. Distribution
expenses increased due to both volume increases and start up expenses of the new
warehouse facility in Brockton, Massachusetts.
The Company has accrued an anticipated effective annual income tax rate of 33%
for fiscal year 1998, compared to 38% for fiscal year 1997. The anticipated
effective tax rate for 1998 and the third fiscal quarter tax rate reflects a $.9
million tax benefit from the exercise of 300,000 stock options by the Company's
Chairman and CEO. The benefit results from the realization of a portion of a
deferred tax asset previously recorded and fully reserved in connection with the
granting of the options in 1994.
At July 31, 1998 and 1997, the Company had unfilled customer orders (backlog) of
$66.3 million and $52.9 million respectively, an increase of 25.3%. The backlog
at a particular time is affected by a number of factors, including seasonality
and the scheduling of manufacturing and shipment of products. Orders generally
may be canceled by customers without financial penalty. Accordingly, a
comparison of backlog from period to period is not necessarily meaningful and
may not be indicative of eventual actual shipments to customers. The Company
expects that substantially all of its backlog at July 31, 1998 will be shipped
within nine months from such date.
Liquidity and Capital Resources
The Company has relied upon internally generated cash flows from operations, and
financing activities from the proceeds of the sale of stock, stock options, and
borrowings under its revolving credit facility to finance its operations and
expansion. Net cash used by operating activities totaled approximately $2.5
million in the nine month period ended July 31, 1998, as compared to net cash
used of $15.5 million for the same period in 1997. The decrease in cash used by
operations in the first nine months of fiscal 1998 was caused by the decrease in
inventory levels and smaller increases in accounts receivable balances compared
to the same period in the prior year. Net cash used by investing activities was
the purchase of the new warehouse conveyor, warehouse inventory management
system and the Company's enterprise computer system. Net cash provided from
financing activities consisted of $13.2 million from the sale of stock and $1.3
million from the exercise of stock options. Working capital was $65.0 million
at July 31, 1998 as compared to $44.4 million at October 31, 1997. The increase
is due primarily to the increase in cash from the sale of stock and exercise of
stock options. Working capital may vary from time to time as a result of
seasonal requirements, the timing of early factory shipments and the Company's
in-stock position, which requires increased inventories, and the timing of
accounts receivable collections.
8
<PAGE>
As of July 31, 1998, the Company had a $25.0 million revolving credit facility,
renewable under certain conditions annually, which is secured by substantially
all of the assets of the Company. A portion of the revolving credit facility can
be utilized to issue letters of credit to guarantee payment of the Company's
purchases of footwear manufactured overseas. Amounts available under the
revolving credit facility are based on eligible accounts receivable, inventory,
and a portion of the open letters of credit. As of July 31, 1998, total
outstanding letters of credit were $16.7 million and $8.3 million was available
for future borrowings. On September 2, 1998, the Company and BankBoston, N.A.
established a $35.0 million discretionary demand credit facility in favor of the
Company, replacing the existing revolving credit facility. At the Company's
discretion, interest rates for the new facility will be either the Bank's Base
Rate (prime) or Adjusted Eurodollar Rate plus one percent (1.0%). This demand
line of credit will cover the aggregate amount of demand loans outstanding plus
the letter of credit exposure amount.
Capital expenditures were $4.6 million for the nine months ended July 31, 1998.
The Company is in the process of installing a computerized warehouse inventory
management system in its Brockton, Massachusetts facility, as well as new
hardware and software for the Company's computer needs. The estimated total
cost of capital expenditures for these projects in fiscal 1998 is $6.0 million.
The Company is dependent upon complex computer systems for certain phases of its
operations, including sales, distribution and delivery. Since many of the
Company's older computer software programs recognize only the last two digits of
the year in any date (e.g., "97" for "1997"), some software may fail to operate
properly in 1999 or 2000 if the software is not reprogrammed or replaced (the
"Year 2000 Problem"). The Company believes that many of its customers also have
Year 2000 Problems which could adversely affect the Company. One area in which
customers' Year 2000 Problems could adversely impact the Company and its
operations relates to electronically received orders for the Company's products
through Electronic Data Interchange (EDI). In the event some customers are not
Year 2000 compliant, the Company's contingency plan includes utilization of
existing manual order receiving capabilities. The Company currently receives
approximately 15-20% of orders for its products in this manner. The Company
intends to spend up to $3.0 million in fiscal 1998 (which is included in the
$6.0 million expenditure referred to above) to upgrade its computer systems and
address the Year 2000 Problem and currently expects its computer systems to be
substantially Year 2000 compliant by May 1999. The Company plans to fund this
expenditure with current cash resources or equipment financing arrangements. It
is not possible at present to quantify the financial effect of the Year 2000
Problem if it is not timely resolved. However, the Company presently believes
that the cost of fixing the Year 2000 Problem will not have a material effect on
the Company's financial condition or results of operations.
The Company regularly enters into forward exchange contracts in anticipation of
future purchases of inventory denominated in foreign currency, principally the
Spanish peseta. As of the date of this report, future inventory purchases
required sufficient foreign currency to meet these commitments.
The Company anticipates that it will be able to satisfy its cash requirements
for the remainder of fiscal 1998, including its expected growth, with current
cash resources and cash flow from operations.
Certain statements contained in this Form 10-Q regard matters that are not
historical facts and are forward looking statements (as such term is defined in
the rules promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act")). Because such forward looking statements include risks and
uncertainties, actual results may differ materially from those expressed in or
implied by such forward looking statements. Factors that could cause actual
results to differ materially include, but are not limited to: changing consumer
preference, competition from other footwear manufacturers or retailers, loss of
key employees, general economic conditions and adverse factors impacting the
retail footwear industry, and the inability by the Company to source its
products due to political or economic factors or the imposition of trade or duty
restrictions. The Company undertakes no obligation to release publicly the
results of any revisions to these forward looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
- ------
None.
ITEM 2: CHANGES IN SECURITIES.
- -------
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
- ------
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------
None
ITEM 5: OTHER INFORMATION.
- -------
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
- ------
(a) Exhibits
Exhibit 10.38 Demand Credit Facility between the Registrant and
Bank Boston, N.A. dated September 2, 1998.
(b) Report on Form 8-K
The Company filed a report on Form 8-K dated May 4, 1998 regarding
the Company is no longer controlled by Maxwell V. Blum or any member
of the Blum family as a result of the consummation of the common
stock public offering noted elsewhere in this Form 10-Q.
SIGNATURES
----------
Pursuant to the requirements 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.
Maxwell Shoe Company Inc.
Date: September 10, 1998 By: /s/ Richard J. Bakos
-----------------------------------
Richard J. Bakos
Vice President, Finance and
Chief Financial Officer
10
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
-------------- ----------- ----
10.38 Demand Credit Facility between the Registrant and 11
BankBoston, N.A., dated September 2, 1998
<PAGE>
September 2, 1998
Maxwell Shoe Company Inc.
101 Sprague Street
Hyde Park, Massachusetts 02136
RE: Demand Credit Facility
----------------------
Ladies and Gentlemen:
The purpose of this letter is to set forth our mutual understanding
concerning a discretionary demand credit facility to be established in favor of
Maxwell Shoe Company Inc., a Delaware corporation (the "BORROWER"), by
--------
BankBoston, N.A. (the "BANK") in a maximum principal amount of $35,000,000
----
(hereinafter, the "MAXIMUM CREDIT AMOUNT"). Capitalized terms used and not
---------------------
otherwise defined herein are defined in SCHEDULE A hereto.
----------
1. DEMAND LINE OF CREDIT.
---------------------
1.1 DEMAND LINE OF CREDIT. Subject to the terms and conditions contained
---------------------
in this Agreement, the Bank has established in favor of the Borrower a demand
line of credit (the "LINE OF CREDIT") under which the Bank may make
--------------
discretionary advances (the "DEMAND LOANS") in such amounts as may be requested
------------
by the Borrower, provided that the sum of (a) the aggregate amount of Demand
--------
Loans outstanding hereunder (after giving effect to all amounts requested) plus
----
(b) the LC Exposure Amount, shall at no time exceed the Maximum Credit Amount.
The Line of Credit shall expire on the Expiration Date, unless sooner terminated
at the sole discretion of the Bank. The Demand Loans shall be evidenced by the
Borrower's demand promissory note in the form attached as EXHIBIT 1 hereto (the
---------
"DEMAND NOTE"), payable to the order of the Bank, which Demand Note is hereby
-----------
incorporated herein by reference and made a part hereof.
THE PARTIES ACKNOWLEDGE AND AGREE THAT DEMAND LOANS UNDER THE LINE OF CREDIT
WILL BE MADE, AND THE LINE OF CREDIT MAY BE TERMINATED OR REDUCED AT ANY TIME,
BY THE BANK IN ITS SOLE DISCRETION AND THAT THE BANK MAY MAKE DEMAND FOR
REPAYMENT OF THE DEMAND LOANS AT ANY TIME IN ITS SOLE DISCRETION. WITHOUT
LIMITING IN ANY WAY THE BANK'S DISCRETION REGARDING THE DEMAND LOANS OR THE LINE
OF CREDIT, THE BORROWER ACKNOWLEDGES AND AGREES THAT THE AGREEMENTS SET FORTH IN
THIS AGREEMENT ARE MADE SOLELY AS AN INDUCEMENT TO THE BANK TO ESTABLISH THE
LINE OF CREDIT HEREUNDER AND SHALL NOT IN ANY WAY RESTRICT OR COMPROMISE THE
BANK'S DISCRETIONARY RIGHTS TO
<PAGE>
DEMAND PAYMENT UNDER THE DEMAND NOTE. YOU HEREBY FURTHER ACKNOWLEDGE AND AGREE
THAT THE AGREEMENTS CONTAINED HEREIN ARE CONDITIONS PRECEDENT TO THE
ESTABLISHMENT OF THE LINE OF CREDIT AND THE MAKING OF THE DEMAND LOANS, AND THAT
SUCH AGREEMENTS SHALL NOT BE DEEMED FOR ANY REASON TO BE ALL INCLUSIVE OR TO
APPLY TO OR GOVERN EVENTS OR CIRCUMSTANCES WHICH MAY OCCUR, OR CONCERNS WHICH
MAY ARISE, AFTER THE DATE HEREOF.
The occurrence of a breach of any covenant of the Borrower herein, or the
determination by the Bank that any representation or warranty now or hereafter
made by the Borrower to the Bank was not true or accurate in any material
respect when given, shall not be a prerequisite to the Bank's making demand or
requiring payment of Demand Loans or refusing to make Demand Loans. The Bank
agrees to notify the Borrower promptly following any reduction or termination of
the Line of Credit.
1.2. DEMAND LOAN ACCOUNT. The Bank shall record in an account on its
-------------------
books (the "DEMAND LOAN ACCOUNT") in accordance with customary accounting
-------------------
practices (a) all Demand Loans, (b) all payments made by the Borrower on account
of Demand Loans and other amounts payable by the Borrower hereunder, and (c) all
interest, fees, charges and expenses payable by the Borrower hereunder. At the
option of the Bank, prior to the Expiration Date, all payments of interest on
the Demand Note and all LC Draw Obligations shall be charged directly to the
Demand Loan Account. The debit balance of the Demand Loan Account shall reflect
the amount of the Borrower's obligations to the Bank from time to time in
respect of Demand Loans and other amounts payable by the Borrower hereunder. At
least once each month the Bank may render a statement of account showing as of
its date the debit balance of the Demand Loan Account which, unless within 30
days of such date notice to the contrary is received by the Bank from the
Borrower, shall be deemed true and correct absent demonstrable error.
1.3. LOAN DISBURSEMENTS. The proceeds of Demand Loans made by the Bank
------------------
shall be deposited by the Bank in immediately available funds in the Borrower's
primary operating account with the Bank.
2. INTEREST.
--------
2.1. INTEREST RATES.
--------------
(a) At the Borrower's option, subject to the terms hereof, each Demand
Loan (or one or more portions thereof) shall bear interest from the date
advanced until payment in full at (a) the Base Rate or (b) the Adjusted
Eurodollar Rate plus one percent (1.0%).
----
(b) Interest on Demand Loans bearing interest based upon the Base Rate
("BASE RATE LOANS") shall be due and payable, without setoff, deduction or
- -----------------
counterclaim, quarterly in arrears on the last day of each calendar quarter,
beginning June 30, 1998, and ON DEMAND. The rate on Base Rate Loans shall
change on the date of any change in the applicable Base Rate.
-2-
<PAGE>
(c) Interest on Demand Loans bearing interest based upon the Adjusted
Eurodollar Rate ("EURODOLLAR LOANS") shall be due and payable, without setoff,
----------------
deduction or counterclaim, in arrears, on the last day of the related Interest
Period, and ON DEMAND; provided, however, in the case of any Demand Loan having
an Interest Period longer than three (3) months, such interest shall be due and
payable every three (3) months after the beginning thereof and ON DEMAND.
(d) Interest on Eurodollar Loans shall be computed on the basis of the
actual number of days elapsed over a 360-day year and interest on Base Rate
Loans and fees and expenses hereunder shall be computed on the basis of the
actual number of days elapsed over a 365-day year. Except as otherwise provided
in the definition of the term "Interest Period" with respect to the Eurodollar
Loans, if any payment hereunder or under the Demand Note shall be due and
payable on a day which is not a Business Day, such payment shall be deemed due
on the next following Business Day and interest shall be payable at the
applicable rate specified herein through such extension period.
2.2. DEFAULT RATE. To the extent permitted by law, interest on overdue
------------
principal, interest and other amounts due under the Demand Note or this
Agreement shall be payable on demand at a rate per annum equal to 2% above the
otherwise applicable interest rate.
3. REQUESTS FOR DEMAND LOANS; TYPES OF DEMAND LOANS.
------------------------------------------------
(a) Except as otherwise provided in the Cash Management Agreement,
requests by the Borrower for Demand Loans shall be made in a manner satisfactory
to the Bank. Each such request shall be made by the Borrower no later than (a)
11:00 A.M. (Boston time) on the proposed date of any Base Rate Loan and (b) 1:00
P.M. (Boston time) on the third Business Day prior to the proposed date of any
Eurodollar Loan. Each such request shall specify (i) the principal amount
thereof, (ii) the proposed date thereof, (iii) if such Demand Loan is an
Eurodollar Loan, the Interest Period thereof and (iv) whether a Base Rate Loan
or a Eurodollar Loan. Each such request shall be irrevocable and binding on the
Borrower and shall obligate the Borrower to accept (if the Bank, in its sole
discretion, agrees to honor a request for a Demand Loan) the Demand Loan so
requested on the proposed date. Each Eurodollar Loan requested shall be in a
minimum amount of $1,000,000; provided, that at no time shall there be more than
five separate Interest Periods applicable to outstanding Eurodollar Loans. The
Borrower may elect from time to time to convert any outstanding Demand Loan to a
Base Rate Loan or Eurodollar Loan, as the case may be, provided that (i) with
--------
respect to any such conversion of Eurodollar Loans to Base Rate Loans, the
Borrower shall provide the Bank with notice in the form requested by the Bank by
11:00 A.M. (Boston time) on the date of such proposed conversion; (ii) with
respect to any such conversion of Base Rate Loans to Eurodollar Loans, the
Borrower shall provide such notice by 1:00 P.M. (Boston Time) at least two (2)
Business Days prior to the date of such proposed conversion; (iii) with respect
to any such conversion of a Eurodollar Loan into Base Rate Loan, such conversion
shall only be made on the last day of the related Interests Period; (iv) no Base
Rate Loans may be converted into Eurodollar Loans after the earlier of demand on
the Demand Note or the Expiration Date; and (v) any conversion of less
-3-
<PAGE>
than all of the outstanding Base Rate Loans into Eurodollar Loans shall be in a
minimum aggregate principal amount of $1,000,000.
(b) The Borrower may continue any Eurodollar Loan as such upon the
expiration of the related Interest Period by providing the Bank with two (2)
Business Days' written notice thereof in the form requested by the Bank;
provided that no Eurodollar Loans may be continued after demand on the Demand
- --------
Note or the Expiration Date. Base Rate Loans shall be deemed to continue as
such until Bank's receipt of an appropriate notice requesting conversion thereof
to Eurodollar Loans.
4. PAYMENTS AND PREPAYMENTS OF PRINCIPAL.
-------------------------------------
4.1. PREPAYMENTS, ETC. The principal amount of the Demand Note may be
----------------
prepaid, in whole or in part, at any time without premium or penalty, other than
any payments due in accordance with SECTION 4.3 in respect of Eurodollar Loans
so prepaid. Amounts so prepaid under the Demand Note may be borrowed and
reborrowed from time to time, subject to the Bank's sole discretion. In the
event the outstanding principal amount of Demand Loans plus the Letter of Credit
Exposure exceeds the Maximum Credit Amount, the Borrower shall immediately pay
such excess amount in cash to the Bank to be credited to the Demand Loan
Account, together with any payments due in accordance with SECTION 4.3.
4.2. PAYMENTS. On demand, or if no demand is made prior to the Expiration
--------
Date, on the Expiration Date, the Borrower shall repay, without set-off,
deduction or counterclaim, all outstanding principal under the Demand Note,
together with all unpaid interest thereon and all fees and other amounts due
hereunder
4.3. PAYMENTS BEFORE END OF INTEREST PERIOD. The Borrower agrees to
--------------------------------------
indemnify and hold the Bank harmless from and against any loss, cost or expense
(including interest or fees payable to Banks of funds obtained by it in order to
maintain any Eurodollar Loans less reinvestment income, and in any event
----
excluding loss of anticipated profits) it may sustain as a consequence of (a)
the Borrower's failure to pay the principal amount of any Eurodollar Loan as and
when due (whether at the Expiration Date, by reason of demand or otherwise) or
the payment of any Eurodollar Loan on a date that is not the last day of the
Interest Period applicable thereto, (b) default by the Borrower in making a
borrowing or conversion after the Borrower has given a notice relating thereto,
or (c) the making of any payment of a Eurodollar Loan or the making of any
conversion of any such Eurodollar Loan to a Base Rate Loan on a day that is not
the last day of the applicable Interest Period with respect thereto, including
interest or fees payable to Banks of funds obtained in order to maintain any
such Eurodollar Loans. The Borrower shall pay such amount within 15 days after
presentation by the Bank of a statement setting forth the amount and the Bank's
calculation thereof pursuant hereto, which statement shall be deemed true and
correct absent demonstrable error.
-4-
<PAGE>
5. LETTERS OF CREDIT
-----------------
5.1. ISSUANCE OF LETTERS OF CREDIT. Subject to all the terms and
-----------------------------
conditions of this Agreement, from time to time prior to the earlier of the
Expiration Date or demand hereunder, the Bank may, in its sole discretion, issue
for the account of the Borrower one or more irrevocable documentary or stand-by
letters of credit (the "LETTERS OF CREDIT"). The sum of (a) the LC Exposure
-----------------
Amount plus (b) the aggregate amount of Demand Loans outstanding shall at no
----
time exceed the Maximum Credit Amount. The occurrence of a breach of any
covenant of the Borrower herein, or the determination by the Bank that any
representation or warranty now or hereafter made by the Borrower to Bank was not
true or accurate in any material respect when given, shall not be a prerequisite
to the Bank's refusing to issue any Letter of Credit hereunder or to demand
payment hereunder.
5.2 CONDITIONS TO ISSUANCE OF LETTERS OF CREDIT; ETC.
------------------------------------------------
(a) In its sole discretion, the Bank may, from time to time, agree to
issue, extend or renew any Letter of Credit subject to the following conditions:
(i) Such Letter of Credit may provide for payment in U.S. Dollars
or other currencies as requested by the Borrower and shall
expire by its terms no later than the earlier to occur of (A)
five (5) Business Days prior to the Expiration Date and (B) one
year from the date of its issuance (which expiration date may
be extended in the sole discretion of the Bank for additional
one year periods ending prior to the date referred to in clause
(A), above);
(ii) The form and terms of each Letter of Credit shall be acceptable
to the Bank; and
(iii) Each Letter of Credit shall be issued to support obligations of
the Borrower incurred in the ordinary course of its business.
(b) Whenever the Borrower desires to have a Letter of Credit issued,
extended or renewed, the Borrower will furnish to the Bank a written application
(on the Bank's customary form) therefor which shall (A) be received by the Bank
not less than three Business Days prior to the proposed date of issuance,
extension or renewal in the case of a stand-by Letter of Credit, and one
Business Day prior to the proposed date of issuance, extension or renewal, in
the case of a documentary Letter of Credit (unless Borrower furnishes such
request to the Bank through the Bank's "trade key services" procedures in which
event such request shall be received by the Bank on the same Business Day) and
(B) specify (1) such proposed date (which must be a Business Day), (2) the
expiration date of such Letter of Credit, (3) the name and address of the
beneficiary of the Letter of Credit, (4) the amount of such Letter of Credit,
and (5) the purpose and proposed form of such Letter of Credit. Each Letter of
Credit shall be subject to the Uniform Customs Act and, to the extent not
inconsistent therewith, the laws of the Commonwealth of Massachusetts. In
-5-
<PAGE>
the event and to the extent that any provision of such application shall be
inconsistent with any provision of this Agreement, then the provisions of this
Agreement shall govern.
5.3. LC DRAW OBLIGATIONS OF THE BORROWER. In order to induce the Bank to
-----------------------------------
issue, extend and renew each Letter of Credit (which the Bank may do in each
instance in its sole discretion), the Borrower hereby agrees to reimburse or pay
to the Bank:
(a) except as otherwise expressly provided in clause (b), after notice
from the Bank that any draft presented under such Letter of Credit has been
honored by the Bank (i) the amount paid by the Bank under or with respect to
such Letter of Credit, plus interest accrued thereon as provided below, and (ii)
the amount of any taxes, fees, charges or other reasonable costs and expenses
incurred by the Bank in connection with any payment made by the Bank under or
with respect to such Letter of Credit; and
(b) on the Expiration Date or earlier, if demand is made by the Bank, an
amount equal to the LC Exposure Amount, which amount shall be held by the Bank
as cash collateral for all existing unpaid and potential LC Draw Obligations.
Interest shall accrue on any and all amounts remaining unpaid by the Borrower
under this Section 5.3 at any time from the date a draft under a Letter of
Credit is honored until the date the LC Draw Obligation is paid by the Borrower
at the rate of interest specified in Section 2.2 and shall be payable to the
Bank on demand.
5.4. DEMAND LOANS TO SATISFY LC DRAW OBLIGATIONS. Unless the Borrower has
-------------------------------------------
previously satisfied an LC Draw Obligation as demanded, the Bank, in its sole
discretion, may make a Demand Loan which is a Base Rate Loan, and the Borrower
shall be deemed to have elected to satisfy such LC Draw Obligation arising under
Section 5.3 above by borrowing a Demand Loan which is a Base Rate Loan in the
amount thereof and applying the proceeds thereto.
5.5. REFUNDED AMOUNTS. Unless the Borrower has otherwise failed to
----------------
satisfy its obligations hereunder upon demand, the Bank shall reimburse the
Borrower upon the expiration of each Letter of Credit with respect to which the
Borrower has satisfied an LC Draw Obligation pursuant to the cash collateral
requirement of Section 5.3(b), an amount equal to the difference between the
amount of such cash collateral delivered to the Bank for such Letter of Credit,
less the amounts of such cash collateral used to pay LC Draw Obligations and
taxes, fees, charges and other reasonable costs and expenses of the Bank in
connection therewith.
5.6. BORROWER'S OBLIGATIONS ABSOLUTE. The Borrower assumes all risks in
-------------------------------
connection with the Letters of Credit. The Borrower's obligations with respect
to Letters of Credit under this Agreement shall be absolute and unconditional
under any and all circumstances or any condition precedent whatsoever or any
setoff, counterclaim or defense to payment which the Borrower may have or have
had against the Bank or any beneficiary of a Letter of Credit. The Borrower
also agrees that the Bank shall not be responsible for, and the Borrower's LC
Draw Obligations shall not be affected by, among other things, (i) the validity,
genuineness or
-6-
<PAGE>
enforceability of documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged, or (ii) any dispute between or among the
Borrower, the beneficiary of any Letter of Credit or any financing institution
or other party to which any Letter of Credit may be transferred or any claims or
defenses whatsoever of the Borrower against the beneficiary of any Letter of
Credit or any such transferee. The Bank shall not be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Letter of Credit.
The Borrower agrees that any action taken or omitted by the Bank under or in
connection with each Letter of Credit and the related drafts and documents, if
done in good faith and in the absence of gross negligence and willful
misconduct, shall be binding upon the Borrower and shall not subject the Bank to
any liability to the Borrower. The Bank shall be entitled to rely, and shall be
fully protected in relying upon, any Letter of Credit, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, telegram, telecopy,
telex or teletype message, statement, order or other document believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person and upon advice and statements of legal counsel, independent accountants
and other experts selected by the Bank.
5.7. LETTER OF CREDIT FEE. In order to induce the Bank to issue, extend
--------------------
and renew each Letter of Credit, the Borrower hereby agrees to pay a fee (in
each case, a "LETTER OF CREDIT FEE") to the Bank, for each day on the undrawn
--------------------
amount under such Letter of Credit on such day at a rate per annum equal to the
standard set forth on the Letter of Credit Fee Schedule attached hereto and made
a part hereof. In addition, the Borrower shall pay to the Bank any and all
standard charges customarily made by the Bank in connection with such issuance,
extension or renewal.
6. CHANGED CIRCUMSTANCES.
---------------------
6.1. EURODOLLAR LOANS. In the event that:
----------------
(a) on any date on which the Adjusted Eurodollar Rate would otherwise
be set, the Bank shall have determined in good faith (which
determination shall be final and conclusive) that adequate and
fair means do not exist for ascertaining the Interbank Offered
Rate in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations of the Bank in respect
of its Eurodollar Loans are then being conducted, or
(b) at any time the Bank shall have determined in good faith (which
determination shall be final and conclusive) that:
(i) the making or continuation of, or conversion of any Base
Rate Loan to, a Eurodollar Loan has been made
impracticable or unlawful by (1) the occurrence of a
contingency that materially and adversely affects the
interbank eurodollar market by reference to which the Bank
determined an applicable Adjusted Eurodollar Rate or where
the eurodollar and foreign currency and exchange
-7-
<PAGE>
operations in respect of the Bank's Eurodollar Loans are
then being conducted or (2) compliance by the Bank in good
faith with any future applicable law or governmental
regulation, guideline or order or interpretation or change
thereof by any governmental authority charged with the
interpretation or administration thereof or with any
request or directive of any such governmental authority
(whether or not having the force of law); or
(ii) the Adjusted Eurodollar Rate shall no longer represent the
effective cost to the Bank for U.S. dollar deposits in the
interbank market for eurodollar deposits where the
eurodollar and foreign currency and exchange operations in
respect of the Bank's Eurodollar Loans are then being
conducted;
then, and in any such event, the Bank shall so notify the Borrower. Until the
Bank notifies the Borrower that the circumstances giving rise to such notice no
longer apply, the obligation of the Banks to allow selection by the Borrower of
Eurodollar Loans shall be suspended. If at the time the Bank so notifies the
Borrower, the Borrower has previously given the Bank a request for a Eurodollar
Loan or has notified the Bank of the Borrower's intention to convert Base Rate
Loans to one or more Eurodollar Loans but such Demand Loans have not yet gone
into effect, such notification shall be deemed to be void and the Borrower may
choose not to borrow such Demand Loans or to borrow, convert or continue such
Loans as Base Rate Loans. Upon such date as the Bank shall specify in such
notice, the Borrower shall prepay all outstanding Eurodollar Loans, together
with interest thereon (but with no obligation to pay any amounts required to be
paid pursuant to Section 5.3(b)). In the event that the Bank determines at any
time following the giving of notice pursuant to this clause that the Bank may
lawfully make Eurodollar Loans, the Bank shall give notice to the Borrower of
such determination, whereupon the Borrower's right to request Eurodollar Loans
shall be restored.
6.2. ALL CREDIT EXTENSIONS. (i) If any change the date hereof in any
---------------------
existing or any new law, regulation, treaty or official directive or the
interpretation or application thereof by any court or by any governmental
authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other governmental authority
(whether or not having the force of law):
(A) subjects the Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by
the Borrower or otherwise with respect to the transactions
contemplated hereby (except for taxes on the overall net income
of the Bank imposed by the United States of America or any
political subdivision thereof or the jurisdiction in which the
Bank is organized or in which it maintains its principal office
or in which it maintains the Demand Loans), or
(B) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets
held by, or deposits in
-8-
<PAGE>
or for the account of, or Eurodollar Loans or Letters of Credit
issued by the Bank (other than such requirements as are already
included in the determination of the Adjusted Eurodollar Rate),
or
(C) imposes upon the Bank any other adverse condition with respect to
the Eurodollar Loans or the Letters of Credit or otherwise with
respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to the Bank,
reduce the income receivable by the Bank or impose any expense with respect to
any Demand Loan or Letter of Credit (in each case without duplication of amounts
described in Section 6.1), the Bank shall so notify the Borrower. The Borrower
agrees to pay to the Bank the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, 15 days after presentation by the Bank of a statement in
the amount and setting forth the Bank's calculation thereof, in sufficient
detail to permit the Borrower to verify the calculation thereof, which statement
shall be deemed true and correct absent demonstrable error.
7. CAPITAL ADEQUACY.
----------------
The Bank shall notify the Borrower if the Bank determines that (a) the
adoption of or change in any law, rule, regulation or guideline regarding
capital requirements for banks or bank holding companies, or any change in the
interpretation or application thereof by any governmental authority charged with
the administration thereof, in any case, after the date hereof, or (b) any
change in the manner or nature of compliance by the Bank or its parent bank
holding company with any guideline, request or directive of any such entity
regarding capital adequacy (whether or not having the force of law), has the
effect of reducing the return on the Bank's or such holding company's capital as
a consequence of such agreement to make Demand Loans or issue Letters of Credit
hereunder to a level below that which the Bank or such holding company could
have achieved but for such adoption, change or compliance (taking into
consideration the Bank or such holding company's then existing policies with
respect to capital adequacy) by any amount deemed by the Bank to be material.
The Borrower agrees to pay to the Bank the amount of such reduction of return of
capital as and when such reduction is determined, within fifteen (15) days after
presentation by the Bank of a statement in the amount and setting forth the
Bank's calculation thereof, in sufficient detail to permit the Borrower to
verify such calculation, which statement shall be deemed true and correct absent
demonstrable error. In determining such amount, the Bank may use any reasonable
averaging and attribution methods used by such Person in similar circumstances.
The Bank shall not be entitled to compensation under this Section 7 attributable
to any period prior to 90 days before the Bank delivers notice to the Borrower
as to such determination.
8. ACCOUNTS.
--------
The Borrower agrees to maintain its primary operating and disbursement
accounts with the Bank. The Borrower shall further maintain with the Bank all
accounts required pursuant to
-9-
<PAGE>
the Cash Management Agreements. The Borrower authorizes the Bank to charge to
any deposit account(s) which the Borrower maintains with the Bank, the
principal, interest, fees, charges, and expenses provided for in this Agreement,
any Letter of Credit or the Demand Note.
9. USE OF PROCEEDS.
---------------
The proceeds of the Demand Loans shall be used for working capital purposes
and general corporate purposes; provided, however, the Borrower agrees that it
-------- -------
will not, without the prior written consent of the Bank, use proceeds of the
Demand Loans in excess of $5,000,000 to fund all or any part of the purchase
price for an acquisition of any other Person or its assets. The Letters of
Credit shall be used for letter of credit requirements of the Borrower.
10. REPRESENTATIONS AND WARRANTIES.
------------------------------
To induce the Bank to enter into this Agreement, the Borrower represents
and warrants as follows, which representations and warranties shall survive the
delivery of the Demand Note, the making of all Demand Loans and the issuance of
all Letters of Credit:
10.1. ORGANIZATION AND QUALIFICATION. The Borrower (i) is a corporation
------------------------------
duly formed, validly existing and in good standing under the laws of the State
of Delaware, (ii) has all requisite corporate power to own its property and
conduct its business as now conducted and as presently contemplated, (iii) is
duly qualified and in good standing as a foreign corporation, and duly
authorized to do business, in each jurisdiction where the nature of its
properties or business requires such qualification, except where the failure to
so qualify will not have a material adverse effect on the Borrower's assets,
business, prospects or condition, financial or otherwise (hereinafter, a
"MATERIAL ADVERSE EFFECT") and (iv) except as set forth in the Borrower's
- ------------------------
Periodic Reports, has no subsidiaries.
10.2. AUTHORIZATION, COMPLIANCE. The execution, delivery and performance
-------------------------
of this Agreement and the Demand Note (collectively, as hereafter amended and
modified from time to time, the "Loan Documents") and the transactions
--------------
contemplated by this Agreement and the other Loan Documents are within the
corporate power and authority of the Borrower and have been authorized by all
necessary corporate proceedings, and do not and will not (i) require any consent
or approval of the stockholders of the Borrower, (ii) violate the charter
documents or by-laws of the Borrower, (iii) violate any law, rule, order or
regulation applicable to the Borrower, (iv) contravene any provision of, or
constitute (with due notice or lapse of time or both), a default under, any
other agreement, instrument, order or undertaking binding on the Borrower, or
(v) result in the creation or imposition of any lien or encumbrance on any of
the properties, assets or rights of the Borrower, except to the extent that any
such violation, contravention, default or result described in clauses (iii),
(iv) and (v) above does not, individually or in the aggregate, have a Material
Adverse Effect.
10.3. CONSENTS, VALIDITY. The execution, delivery and performance by the
------------------
Borrower of the Loan Documents and the transactions contemplated therein do not
require any approval or consent of, or filing or registration with, any
governmental or other agency or authority or any
-10-
<PAGE>
other party. The Loan Documents are the legal, valid and binding obligations of
the Borrower, enforceable in accordance with their respective terms.
10.4. FINANCIAL STATEMENTS. The Borrower has furnished the Bank the
--------------------
Borrower's financial statements included in the Periodic Reports filed to date.
All such financial statements were prepared in accordance with GAAP applied on a
consistent basis throughout the periods specified and present fairly the
financial position of the Borrower as of such dates and the results of
operations for the periods then ended. There are no liabilities, contingent or
otherwise, not disclosed in such financial statements that involve a material
amount. Since the date of the most recent Periodic Report filed by the
Borrower, there have been no changes in the assets, liabilities, financial
condition, business or prospects of the Borrower, other than changes in the
ordinary course of business or changes which have not, in the aggregate, had a
Material Adverse Effect.
10.5. TAXES. The Borrower has filed all federal, state and other material
-----
tax returns required to be filed, and has paid or made adequate provision for
the payment of all material federal, state and other taxes, charges and
assessments shown thereon to be due except where the failure to pay the same is
being contested in good faith with adequate reserves provided therefor on the
books of the Borrower.
10.6. LITIGATION. There is no litigation, arbitration, proceeding or
----------
investigation pending, or, to the Borrower's knowledge, threatened, against or
affecting the Borrower that, if adversely determined, would reasonably be likely
(a) to result in a judgment not fully covered by insurance, where the uncovered
portion thereof could have a Material Adverse Effect, or a forfeiture of all or
any material part of the Borrower's property, or (b) otherwise to have a
Material Adverse Effect.
10.7. COMPLIANCE WITH LAWS AND AGREEMENTS. The Borrower is not in (i)
-----------------------------------
violation of any provision of law (including without limitation all laws
relating to injury to, or protection of, human health or the environment and the
Employee Retirement Income Security Act of 1974, as amended), or any order,
judgment or decree of any court or other agency of government, the violation of
which would reasonably be likely to have a Material Adverse Effect, or (ii)
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument to which it is
a party, which default could have a Material Adverse Effect.
10.8. MARGIN STOCK. The Borrower does not own nor does it have any
------------
present intention of acquiring, and no portion of any Demand Loan is to be used
for the "purpose of purchasing or carrying", any "margin stock" or "margin
security" as such terms are used in Regulations U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R. 221 and 224, as amended.
11. COVENANTS.
---------
The Borrower covenants and agrees that, until the Line of Credit is
terminated and so long as any Demand Loan or Letter of Credit remains
outstanding:
-11-
<PAGE>
11.1. FINANCIAL REPORTING. The Borrower will furnish to the Bank:
-------------------
(a) as soon as available, but in any event within 120 days after each
fiscal year-end, the balance sheet of the Borrower as at the end of, and related
statements of income, changes in retained earnings and cash flow for, such year,
prepared in accordance with GAAP, and audited and certified by the Accountants
on an unqualified basis;
(b) as soon as available, but in any event within 45 days after the end of
each fiscal quarter, the balance sheet of the Borrower as at the end of, and
related statements of income for the portion of the fiscal year then ended and
the fiscal quarter then ended, prepared by the Borrower and certified by the
Borrower's chief financial officer in accordance with GAAP;
(c) within 60 days after the beginning of each fiscal year, pro forma
projections for the Borrower for such fiscal year, prepared on a monthly basis,
including projected balance sheets, income statements, cash flow statements and
such other statements as the Bank may reasonably request and in form and
substance satisfactory to the Bank, all prepared on a basis consistent with the
audited financial statements required by Section 11.1(a);
(d) from time to time, such other financial data and information about the
Borrower and its assets, as the Bank may reasonably request; and
(e) promptly upon the distribution or filing of same, registration
statements, prospectives and amendments and supplements thereto and copies of
all Periodic Reports, and all reports and other significant communications
distributed to the Borrower's shareholders or filed with the S.E.C.
11.2. INDEBTEDNESS; ENCUMBRANCES. The Borrower will not create, incur,
--------------------------
assume or suffer to exist (a) any direct or contingent indebtedness except: (i)
existing indebtedness as of the date hereof, (ii) indebtedness to the Bank,
(iii) ordinary course endorsements, (iv) purchase money indebtedness, (v)
capital leases and (vi) other indebtedness (in addition to (i)-(v)) at any one
time outstanding not in excess of $1,000,000 or (b) any mortgage, pledge,
security interest, lien or other charge or encumbrance, including the lien or
retained security title of a conditional vendor upon or with respect to any of
its property or assets ("ENCUMBRANCES"), or assign or otherwise convey any right
------------
to receive income, except: (i) Encumbrances in favor of the Bank; (ii)
Encumbrances for taxes, fees, assessments and other governmental charges which
are not yet delinquent; (iii) subordinate landlords' and lessors' liens in
respect of rent not in default or liens in respect of pledges or deposits under
worker's compensation, unemployment insurance, social security laws or similar
legislation (other than ERISA) or in connection with appeal and similar bonds
incidental to litigation; (iv) mechanics', laborers' and materialmen's and
similar liens, if the obligations secured by such liens are not then delinquent;
(v) liens securing the performance of bids, tenders, contracts (other than for
the payment of money); (vi) statutory obligations incidental to the conduct of
its business and that do not in the aggregate materially detract from the value
of the Borrower's property or materially impair the use thereof; and (vii)
Encumbrances securing purchase money indebtedness, provided that the obligations
secured thereby do not
-12-
<PAGE>
exceed the lesser of cost or fair market value of the property covered thereby
and each such Encumbrance is at all times limited solely to the item or items of
property so acquired.
11.3. MAINTENANCE AND INSURANCE. The Borrower will comply with all laws
-------------------------
and maintain and keep its properties in good repair, working order and
condition, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto so that its business may be
properly and advantageously conducted at all times. The Borrower at all times
will maintain insurance, in such amounts (including, without limitation, so-
called "all-perils" coverage at replacement value, "broad form" liability
coverage and business interruption insurance and, as to motor vehicles,
collision insurance), against such hazards and liabilities and for such purposes
as the Bank shall determine is reasonable to insure the value of its assets and
as is customary in the industry for companies of established reputation engaged
in the same or similar businesses and owning or operating similar properties
(the Bank having approved the Borrower's current insurance coverage). The Bank
shall be named as additional insured and shall be given 30 days' advance notice
of any cancellation or material change in form of insurance.
11.4. NEGATIVE PLEDGES, ETC. Without the Bank's prior written consent,
---------------------
the Borrower will not enter into any agreement (excluding this Agreement)
prohibiting (a) the Borrower from amending or otherwise modifying this
Agreement, or (b) the creation or assumption of any Encumbrance upon the
properties, revenues or assets of the Borrower, whether now owned or hereafter
acquired.
11.5. OTHER COVENANTS. Without the Bank's prior written consent, the
---------------
Borrower will not (a) make any dividend or distribution to the Borrower's
shareholders, (b) dissolve, liquidate, merge or consolidate with any other
Person or (c) sell, lease or otherwise dispose of assets or properties, other
than (i) in the ordinary course of business and (ii) sales of assets or
properties having a fair market value (as determined in good faith by the
Borrower) of less than $3,000,000 in each instance. The Borrower shall,
promptly upon the Bank's request, execute and deliver such further instruments
and take such further action as may reasonably be requested by the Bank from
time to time to effect the purposes of the Loan Documents.
12. CERTAIN REMEDIES AFTER DEMAND; ETC.
----------------------------------
In the event the Borrower shall fail to pay all of the amounts owed to the
Bank under this Agreement and the Demand Note on or before the earlier to occur
of demand by the Bank or the Expiration Date, or in the event of the filing of
any bankruptcy proceeding by or against the Borrower under the Federal
Bankruptcy Code, (a) the Line of Credit shall terminate and the Bank may
exercise any and all rights it has under any of the Loan Documents, or at law or
in equity, and proceed to protect the Bank's rights by any action at law, in
equity or other appropriate proceedings and (b) the Borrower shall, on written
demand by the Bank, deliver to the Bank cash collateral in an amount equal to
the LC Exposure Amount. After the entire LC Exposure Amount shall have been
satisfied and all other direct or indirect obligations of the Borrower to the
Bank hereunder shall have been paid in full, the balance, if any, of such cash
collateral shall be returned to the Borrower.
-13-
<PAGE>
13. GENERAL.
-------
No failure or delay by the Bank in exercising any right, power or privilege
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein and in the Demand Note are cumulative and not
exclusive of any rights or remedies otherwise provided by agreement or law.
Neither this Agreement nor the Demand Note nor any provision hereof or thereof
may be amended, waived, discharged or terminated except by a written instrument
signed by the Bank and, in the case of amendments, by the Borrower. THIS
AGREEMENT AND THE DEMAND NOTE SHALL BE DEEMED TO BE CONTRACTS MADE UNDER SEAL
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS
PROVISIONS CONTAINED THEREIN). This Agreement shall be binding upon and inure
to the benefit of the Borrower and the Bank and their respective successors and
assigns, including any holder of the Loan Documents; provided that the Borrower
--------
may not assign or transfer its rights or obligations hereunder. This Agreement
may be signed in any number of counterparts with the same effect as if the
signatures hereto were upon the same instrument.
14. WAIVER OF JURY TRIAL.
--------------------
EACH OF THE BORROWER AND THE BANK AGREES THAT NEITHER IT NOR ANY ASSIGNEE
OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING,
COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT,
ANY NOTE OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OR THE RELATIONSHIP BETWEEN
THE BORROWER OR THE BANK, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY
OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO,
AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR
THE BORROWER HAS AGREED WITH OR REPRESENTED TO ANY OTHER THAT THE PROVISIONS OF
THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
15. CONSENT TO JURISDICTION.
-----------------------
THE BORROWER HEREBY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS AND THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MASSACHUSETTS, AS WELL AS TO THE JURISDICTION OF ALL COURTS FROM
WHICH AN APPEAL MAY BE TAKEN OR OTHER REVIEW SOUGHT FROM THE AFORESAID COURTS,
FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ANY OF
THE BORROWER'S OBLIGATIONS UNDER OR WITH RESPECT TO THE DEMAND NOTE OR ANY OTHER
LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, AND EXPRESSLY
WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS.
-14-
<PAGE>
16. NOTICES.
-------
Unless otherwise specified herein, all notices hereunder to any party
hereto shall be in writing and shall be deemed to have been given when (a)
delivered by hand, (b) three days after mailing by certified mail, return
receipt requested, or (c) immediately after delivery, by telex, answerback
received or electronic facsimile transmission, or to the telegraph company or
overnight courier; in each case addressed to such party at its address indicated
below:
(a) If to the Borrower:
Maxwell Shoe Company Inc.
101 Sprague Street
Hyde Park, MA 02137
Attention: Richard J. Bakos
Telecopier No.: (617) 364-9058
and with a copy to:
Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attention: Brian D. Kilb, Esq.
Telecopier No.: (213) 229-7520
(b) If to the Bank:
BankBoston, N.A.
100 Federal Street
Mail Stop: 01-07-07
Boston, Massachusetts 02110
Attention: Jeffrey R. Westling, Director
Telecopier No.: (617) 434-4426
with a copy to:
James I. Rubens, Esq.
Edwards & Angell, LLP
101 Federal Street, 23rd Floor
Boston, Massachusetts 02110
Telecopier No.: (617) 439-4170
or to any other address specified by such party in writing.
-15-
<PAGE>
If the foregoing correctly sets forth your understanding as to the matters
contained herein, please sign and return the enclosed counterpart of this
Agreement to the Bank.
BANKBOSTON, N.A.
By: /s/ Barbara D. Searle, Vice President
--------------------------------------
Barbara D. Searle, Vice President
ACCEPTED AND AGREED
TO AS OF September 2, 1998
MAXWELL SHOE COMPANY INC.
By: /s/ Mark Cocozza, President
----------------------------
Mark Cocozza, President
-16-
<PAGE>
SCHEDULE A
----------
DEFINITIONS
-----------
Accountants: Ernst & Young LLP, Arthur Andersen & Co., LLP or other
-----------
independent certified public accountants of nationally-recognized standing.
Adjusted Eurodollar Rate: As applied to any Interest Period, the rate per
------------------------
annum determined pursuant to the following formula:
AER = [ IOR ]*
--------------
[1.00 - RP]
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
*The amount in brackets shall be rounded upwards, if necessary, to the next
higher 1/100th of 1%.
Where:
The "Interbank Offered Rates" applicable to any Eurodollar Loan for
-----------------------
any Interest Period means the rate of interest (rounded upward, if
necessary, to the nearest 1/16th of 1%) determined by the Bank to be the
prevailing rate per annum at which deposits in U.S. dollars are offered to
the Bank by first-class banks in the interbank eurodollar market where the
eurodollar and foreign currency and exchange operations in respect of its
Eurodollar Loans are then being conducted on or about 10:00 a.m. (Boston
time) two (2) Business Days before the first day of such Interest Period in
an amount approximately equal to the principal amount of the Eurodollar
Loan to which such Interest Period is to apply for a period of time
approximately equal to such Interest Period; and
The "Reserve Percentage" applicable to any Interest Period means the
------------------
aggregate of the rates (expressed as a decimal) applicable to the Bank
during such Interest Period under regulations issued from time to time by
the Board of Governors of the Federal Reserve System (or other governmental
authority having jurisdiction with respect thereto) for determining the
maximum reserve requirement (including, without limitation, any basic,
supplemental, emergency or marginal reserve requirement) of the Bank with
respect to "Eurocurrency liabilities" as that term is defined under such
regulations.
The Adjusted Eurodollar Rate shall be adjusted automatically as of the
effective date of any change in the Reserve Percentage.
-17-
<PAGE>
Base Rate: The higher of (i) the annual rate of interest announced from
---------
time to time by the Bank at its head office as its Base Rate, and (ii) the
Federal Funds Effective Rate plus 1/2 of 1% per annum. The Base Rate is not
necessarily intended to be the lowest rate of interest determined by the Bank in
connection with extensions of credit.
Base Rate Loan: Any Demand Loan bearing interest calculated by reference
--------------
to the Base Rate.
Borrower: See the Preamble.
--------
Business Day: (i) For all purposes other than as covered by clause (ii)
------------
below, any day, other than a Saturday, Sunday or legal holiday, on which banks
in Boston, Massachusetts are open for the transaction of a substantial part of
their commercial banking business; and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day that is a Business Day described in clause (i) and
that is also a day for trading by and between banks in U.S. Dollar deposits in
the relevant interbank eurodollar market.
Cash Management Agreement: Any Cash Management Master Agreement entered
-------------------------
into between the Bank and the Borrower from time to time, as from time to time
in effect, including all schedules and addenda attached thereto, relating to
cash management, sweep account or similar services provided by the Bank to the
Borrower allowing for daily advances and repayments in connection with the
Borrower's daily operations and working capital requirements.
Code: The Internal Revenue Code of 1986 and the rules and regulations
----
promulgated thereunder, collectively, as the same may from time to time be
supplemented or amended and remain in effect.
Demand Loan: See Section 1.1
-----------
Demand Loan Account: See Section 1.2
-------------------
Demand Note: See Section 1.1
-----------
Encumbrances: See Section 11.2.
------------
Environmental Laws: Any and all applicable federal, state and local
------------------
environmental, health or safety statutes, laws, regulations, rules, ordinances,
policies and rules or common law (whether now existing or hereafter enacted or
promulgated), of all governmental agencies, bureaus or departments which may now
or hereafter have jurisdiction over the Borrower or any of its Subsidiaries and
all applicable judicial and administrative and regulatory decrees, judgments and
orders, including common law rulings and determinations, relating to the effect
of the environment on human health and safety or injury to, or the protection
of, the environment, including, without limitation, all requirements pertaining
to reporting, licensing, permitting, investigation, remediation and removal of
emissions, discharges, releases or threatened releases of
-18-
<PAGE>
Hazardous Materials, pollutants or contaminants whether solid, liquid or gaseous
in nature, into the environment or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of such
Hazardous Materials, pollutants or contaminant. Without limiting the generality
of the foregoing, the term shall encompass each of the following statutes and
regulations promulgated thereunder, and amendments and successors to such
statutes and regulations, as enacted and promulgated from time to time: (a) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
(42 U.S.C. (S)(S)9601 et seq.); (b) the Resource Conservation and Recovery Act
-------
of 1976 (42 U.S.C. (S)(S)6901 et seq. ); (c) the Hazardous Materials
-------
Transportation Act (49 U.S.C. (S)(S)1801 et seq.); (d) the Toxic Substances
-------
Control Act (15 U.S.C. (S)(S)2601 et seq.); (e) the Clean Water Act (33 U.S.C.
-------
(S)(S)1251 et seq.); (f) the Clean Air Act (42 U.S.C. (S)(S)7401 et seq.); (g)
------- -------
the Safe Drinking Water Act (42 U.S.C. (S)300 et seq.); (h) the National
-------
Environmental Policy Act of 1969 (42 U.S.C. (S)(S)4321); (i) the Superfund
Amendment and Reauthorization Act of 1986 (codified in 42 U.S.C.); and (j) Title
III of the Superfund Amendment and Reauthorization Act (42 U.S.C. (S)(S)11001 et
--
seq.) and any state or local laws of similar substance and effect.
- ----
ERISA: The Employee Retirement Income Security Act of 1974 and the rules
-----
and regulations thereunder, collectively, as the same may from time to time be
supplemented or amended and remain in effect.
Eurodollar Loan: Any Demand Loan bearing interest at a rate calculated by
---------------
reference to the Adjusted Eurodollar Rate.
Expiration Date: April 30, 1999, subject to renewal for one or more
---------------
additional one-year periods at the Bank's sole discretion, unless sooner
terminated by demand by the Bank in the Bank's sole discretion.
Federal Funds Effective Rate: For any day, a fluctuating interest rate per
----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the Bank
from three Federal funds brokers of recognized standing selected by the Bank.
GAAP: For all purposes of this agreement, GAAP shall mean the generally
----
accepted accounting principles in effect from time to time, applied on a
consistent basis with past financial statements (except for changes with which
the Accountants concur).
Guaranty or Guarantees: All guarantee(s), endorsement(s) (other than
----------------------
endorsements of instruments for collection in the ordinary course of business)
or other contingent or surety obligation(s) of the Borrower with respect to
obligations of others, whether or not reflected on the Borrower's balance sheet,
including any obligation to furnish funds, directly or indirectly (whether by
virtue of partnership arrangements, by agreement to keep-well or otherwise),
through the purchase of goods, supplies or services, or by way of stock
purchase, capital contribution,
-19-
<PAGE>
advance or loan, or to enter into a contract for any of the foregoing, for the
purpose of payment of obligations of any other person or entity.
Hazardous Material: Any substance (a) the presence of which requires or
------------------
may hereafter require notification, investigation or remediation under any
Environmental Law; (b) which is or becomes defined as a "hazardous waste",
"hazardous material", "hazardous material or oil" or "hazardous substance" or
"controlled industrial waste" or "pollutant" or "contaminant" or "chemical
substance or mixture" under any present or future Environmental Law or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. (S)(S)9601 et
--
seq.) and any applicable local statutes and the regulations promulgated
- ---
thereunder; (c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of the United States, any state of the United States,
or any political subdivision thereof to the extent any of the foregoing has or
had jurisdiction over the Borrower; or (d) without limitation, which contains
gasoline, diesel fuel or other petroleum products, asbestos or polychlorinated
biphenyls.
Interest Period: With respect to each Eurodollar Loan, the period
---------------
commencing on the date of the making or continuation of or conversion to such
Eurodollar Loan and ending one, two, three or six months thereafter, as the
Borrower may elect in request made pursuant to Section 3(a) or (b); provided
that:
(i) any Interest Period (other than an Interest Period determined
pursuant to clause (iv) below) that would otherwise end on a day
that is not a Business Day shall be extended to the next succeeding
Business Day unless, in the case of Eurodollar Loans, such Business
Day falls in the next calendar month, in which case such Interest
Period shall end on the immediately preceding Business Day;
(ii) if the Borrower shall fail to give notice as provided in Section
3(b), the Borrower shall be deemed to have requested a conversion of
the affected Eurodollar Loan to a Base Rate Loan on the last day of
the then current Interest Period with respect thereto;
(iii) any Interest Period relating to a Eurodollar Loan that begins on the
last Business Day of a calendar month (or on a day for which there
is not numerically corresponding day in the calendar month at the
end of such Interest Period) shall, subject to clause (iv) below,
end on the last Business Day of a calendar month;
(iv) any Interest Period related to a Eurodollar Loan that would
otherwise end after the Expiration Date shall end on the Expiration
Date; and
(v) notwithstanding clause (iv) above, no Interest Period relating to a
Eurodollar Loan shall have a duration of less than one month.
-20-
<PAGE>
LC Draw Obligation: The Borrower's obligation to reimburse the Bank on
------------------
account of any drawing under any Letter of Credit as provided in Section 5.3.
LC Exposure Amount: At any time, the sum of (i) the aggregate undrawn face
------------------
amount of all Letters of Credit outstanding at such time, and (ii) the aggregate
amount of all drawings under Letters of Credit for which the Bank shall not have
been reimbursed by the Borrower as provided in Section 5.3.
Bank: See the Preamble.
----
Letter of Credit: See Section 5.1.
----------------
Letter of Credit Documents: See Section 5.7.
--------------------------
Line of Credit: See Section 1.1.
--------------
Letter of Credit Fee: See Section 2.8(i).
--------------------
Letter of Credit Fee Schedule: A schedule attached hereto, as the same may
-----------------------------
be amended, modified or supplemented from time to time by the Bank and the
Borrower.
Loan Documents: Collectively, this Agreement, the Note, the Letters of
--------------
Credit, and any and all other agreements, instruments, certificates or reports
executed by the Borrower in connection with this Agreement, as amended from time
to time.
Loans: Collectively, the Demand Loans.
-----
Margin Stock: See Section 10.8.
------------
Obligations: Any and all obligations of the Borrower or any of its
-----------
Subsidiaries to the Bank or any Bank of every kind and description, direct or
indirect, absolute or contingent, primary or secondary, due or to become due,
now existing or hereafter arising, arising under this Agreement, the Demand
Note, the Letters of Credit, or any of the other Loan Documents.
PBGC: The Pension Benefit Guaranty Corporation or any entity succeeding to
----
any or all of its functions under ERISA
Periodic Reports: All regular and periodic reports filed or required to be
----------------
filed by the Borrower within the S.E.C. or any securities exchange, including,
without limitation, reports on Form 10K, Form 10Q or Form 8K).
Person: Any individual, corporation, limited liability company,
------
partnership, joint venture, trust or unincorporated organization or any
government or any agency or political subdivision thereof.
-21-
<PAGE>
Plan: At any time, an employee pension or other benefit plan that is
----
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (a) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group or (b) if such Plan is established or maintained pursuant
to a collective bargaining agreement or any other arrangement under which more
than one employer makes contributions and to which the Borrower or any member of
the Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding five Plan years made contributions.
S.E.C.: The U.S. Securities and Exchange Commission.
------
Subsidiary: (a) Any corporation, association, joint stock company,
----------
business trust or other similar organization of which 50% or more of the
ordinary voting power for the election of a majority of the members of the board
of directors or other governing body of such entity is held or controlled by the
Borrower or a Subsidiary of the Borrower; or (b) any other such organization the
management of which is directly or indirectly controlled by the Borrower or a
Subsidiary of the Borrower through the exercise of voting power or otherwise.
-22-
<PAGE>
LETTER OF CREDIT FEE SCHEDULE
-----------------------------
The following prices will be charged to the Borrower for all letters of
credit issued by the Bank for beneficiaries in India, Italy, Panama and United
States. These letters of credit will continued to be advised and negotiated by
an overseas bank as designated by the beneficiary.
<TABLE>
<S> <C>
Issuance Waived
Amendments Waived
Negotiation 1/10% (min. $40.00)
Telex Advice $15.00
Cancellation/Unitilized $50.00
Discrepancy processing $60.00 per drawing
Funds Transfer $25.00 per transfer
</TABLE>
-23-
<PAGE>
EXHIBIT A
---------
DEMAND PROMISSORY NOTE
----------------------
$35,000,000 Boston, Massachusetts
September ____, 1998
FOR VALUE RECEIVED, MAXWELL SHOE COMPANY INC., a Delaware corporation
(the "Borrower"), hereby promises to pay to BANKBOSTON, N.A. (the "Bank"), or
-------- ----
order, ON DEMAND or, if no demand is made, on the Expiration Date (as defined in
the Demand Loan Agreement referred below), the principal amount of $35,000,000
or, if less, the aggregate unpaid principal amount of advances made by the Bank
to the Borrower pursuant to the letter agreement dated as of the date hereof by
and between the Borrower and the Bank (as amended or extended from time to time,
the "Demand Loan Agreement"), together with interest thereon at the rate or
---------------------
rates provided in the Demand Loan Agreement, payable in arrears, without set-
off, deduction or counterclaim, ON DEMAND or, if no demand is made, on the dates
specified in the Demand Loan Agreement, and at the maturity of this Note,
whether by payment or prepayment, demand or otherwise.
Overdue principal (whether at maturity, by reason of acceleration or
otherwise) and, to the extent permitted by applicable law, overdue interest and
fees or any other amounts payable under the Demand Loan Agreement due to the
Borrower's failure to pay the same in full shall bear interest from and
including the due date thereof until paid, at a rate per annum equal to 2% above
the rate of interest otherwise applicable thereto, which interest shall be
compounded daily and payable on demand. The foregoing shall in no way affect
the Bank's right to exercise any of its rights or remedies, including those
provided in the Demand Loan Agreement arising upon such failure to pay or
otherwise.
All payments under this Note shall be made at the head office of the
Bank at 100 Federal Street, Boston, Massachusetts 02110 (or at such other place
as the Bank may designate from time to time in writing) in lawful money of the
United States of America in federal or other immediately available funds.
The Borrower may prepay this Note in whole or in part at any time upon
the terms provided in the Demand Loan Agreement. Amounts so paid and other
amounts may be borrowed and reborrowed by the Borrowers hereunder from time to
time as provided in the Demand Loan Agreement.
This Note is the "Demand Note" referred to in, and is entitled to the
benefits of, the Demand Loan Agreement and other agreements and instruments
evidencing and/or securing the indebtedness hereunder (the "Demand Loan
-----------
Documents"), which Demand Loan Documents are
- ---------
-24-
<PAGE>
hereby incorporated herein by reference; but neither this reference to the
Demand Loan Documents nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal of
and interest on this Note as herein provided.
The Borrower hereby waives presentment, demand, notice of dishonor,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note.
All agreements between the Borrower and the Bank are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness or otherwise, shall the amount paid
or agreed to be paid for the use or forbearance of the indebtedness evidenced
hereby exceed the maximum amount which the Bank is permitted to receive under
applicable law. If, from any circumstances whatsoever, fulfillment of any
provision hereof or of the Demand Loan Agreement, at the time performance of
such provision shall be due, shall involve exceeding such amount, then the
obligation to be fulfilled shall automatically be reduced to the limit of such
validity and if, from any circumstances the Bank should ever receive as interest
an amount which would exceed such maximum amount, such amount which would be
excessive interest shall be applied to the reduction of the principal balance
evidenced hereby and not to the payment of interest. As used herein, the term
"applicable law" shall mean the law in effect as of the date hereof, provided,
--------
however, that in the event there is a change in the law which results in a
- -------
higher permissible rate of interest, then this Note shall be governed by such
new law as of its effective date. This provision shall control every other
provision of all agreements between the Borrower and the Bank.
If this Note shall not be paid when due and shall be placed by the
holder hereof in the hands of any attorney for collection, through legal
proceedings or otherwise, the Borrower will pay reasonable attorneys' fees to
the holder hereof (including without limitation any allocation costs of the
Bank's in-house counsel) together with reasonable costs and expenses of
collection, including, without limitation, any such attorneys' fees, costs and
expenses relating to any proceedings with respect to the bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation of
the Borrower or any party to any instrument or agreement securing this Note, all
is provided in the Demand Loan Agreement.
-25-
<PAGE>
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
WITNESS: MAXWELL SHOE COMPANY INC.
By:
- ------------------------------ ------------------------------
-26-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 10,507
<SECURITIES> 0
<RECEIVABLES> 39,955
<ALLOWANCES> 761
<INVENTORY> 25,838
<CURRENT-ASSETS> 77,426
<PP&E> 7,605
<DEPRECIATION> 2,225
<TOTAL-ASSETS> 87,678
<CURRENT-LIABILITIES> 12,410
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 74,929
<TOTAL-LIABILITY-AND-EQUITY> 87,678
<SALES> 123,500
<TOTAL-REVENUES> 123,500
<CGS> 89,683
<TOTAL-COSTS> 89,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 94
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 14,758
<INCOME-TAX> 4,916
<INCOME-CONTINUING> 9,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,842
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.08
</TABLE>
