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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/405
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1999 OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-26608
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CUTTER & BUCK INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1474587
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 FIRST AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
(Address of principal executive offices, including zip code)
(206) 622-4191
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class
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Common Stock, No Par Value
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K / /
The aggregate market value as of June 17, 1999 of the voting stock held by
non-affiliates of the registrant was approximately $156,146,141. As of such
date, there were 8,312,236 shares outstanding of the Registrants Common Stock,
no par value per share.
Documents incorporated by reference:
(1) Portions of the registrant's definitive 1999 Proxy Statement to be filed
with the Securities and Exchange Commission are incorporated by reference
into Part III hereof.
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PART I
ITEM 1. BUSINESS
OVERVIEW
We design and market distinctive upscale sportswear and outerwear under the
Cutter & Buck brand. We sell our products primarily through golf pro shops and
resorts, corporate sales accounts and better specialty stores. Our goal is to
become one of the most recognized and respected brands of sportswear and
outerwear in the world. Our products feature distinctive, comfortable designs
and rich detailing and predominantly utilize natural fiber textiles. We
merchandise our products as lifestyle collections targeted to men and women who
seek classic American styles inspired by golf and our Pacific Northwest
heritage. In addition to the growing national interest in the game of golf, we
benefit from the trend toward casual dress in the workplace. We have grown net
sales from $13.4 million in fiscal 1995 to $107.3 million in fiscal 1999 and net
income from $239,000 in fiscal 1995 to $8.0 million in fiscal 1999.
COMPANY STRENGTHS
We believe that the following strengths have contributed to our success and
provide us with a competitive advantage:
- DISTINCTIVE, QUALITY PRODUCTS Our garments feature comfort, high-quality
materials and manufacturing and original Cutter & Buck designs. We use
fine-gauge combed cotton, virgin wools and performance microfibers, with
unique trims, distinctive colors and special fabric finishes. Each season,
we source new fabrications from our worldwide sourcing partners and
introduce new collections unique to our industry.
- UPSCALE BRAND IDENTITY Cutter & Buck is a nationally recognized premium
lifestyle brand, built on quality products and strong imagery. Our
marketing themes revolve around golf, tennis, fly fishing and other
sporting pursuits appealing to many of our target customers. We reinforce
our upscale brand image at the store level with specialized fixturing that
presents our lines as distinctive collections.
- SELECTIVE DISTRIBUTION STRATEGY To protect the integrity of the Cutter &
Buck brand and ensure a high level of customer service, we predominantly
distribute our products through golf pro shops and resorts, corporate
sales accounts and better specialty stores, including our company-owned
retail store in Seattle, Washington. We believe that these channels
complement one another, since they target a similar consumer base and use
similar merchandising and pricing practices that generally feature Cutter
& Buck as a leading premium apparel brand.
- DEDICATED SALES FORCE As our account base and sales have grown, so has the
size and exclusivity of our sales force. As of June 15, 1999, we employ
112 salespeople who present seasonal collections to buyers, design
in-store fixturing and merchandising with store owners and service
accounts year round. We believe that our business is relationship-driven
and having our own sales force enables us to grow in partnership with our
accounts.
- STRONG OPERATIONAL SKILLS One of our competitive strengths is our ability
to manage a highly complex business. We create new collections twice a
year, source hundreds of individual products annually from a total of 35
factories in 13 different countries and sell to approximately 7,500
accounts worldwide. Our management team comprises apparel industry
veterans in design, merchandising, manufacturing, marketing, sales and
distribution. Our infrastructure has been carefully developed to meet the
needs of customers in every market we serve.
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GROWTH STRATEGY
We intend to enhance our reputation as a leading, premium sportswear and
outerwear brand in the men's and women's casual apparel market and to continue
our strong and profitable sales growth in all of our selected distribution
channels. Key elements of our growth strategy include:
- GOLF PRO SHOPS AND RESORTS We sell products to approximately 3,800 of the
estimated 15,000 golf pro shops in the United States. We intend to
continue our strategy of selectively growing the number of accounts we
serve by focusing on the approximately 5,200 golf courses that sell high
quality apparel and that have greens fees which are $30 per round or
higher. We also intend to grow our average order size per account as our
fixturing program extends to more shops, our women's line and other
product extensions become a larger part of our sales and our brand
recognition increases. With over 400 new golf courses being built every
year in the United States, we believe our core channel of distribution is
growing.
- CORPORATE ACCOUNTS Many corporations around the world choose Cutter & Buck
for their sportswear needs due to our strong brand recognition in golf pro
shops and resorts and in better specialty stores. These needs include
apparel for company outings, special awards and other non-traditional
marketing programs. Corporate sales represent the fastest growing area of
our business, and we intend to grow this segment by broadening our target
base of companies directly and through third party relationships with
promotional products companies. We service our corporate accounts with a
dedicated sales force, in-house embroidery expertise and a substantial
investment in our CLASSICS inventory to facilitate responsiveness to
customer requests.
- BETTER SPECIALTY STORES We currently sell our products to approximately
750 of the 3,500 better speciality store accounts that we believe are
suitable Cutter & Buck customers. We believe our penetration of this
channel is well below the brand's long-term potential. Due to our careful
distribution strategy, our products are desired by specialty stores
seeking to differentiate themselves from broadline department stores. To
service these customers, we have hired additional sales representatives
and have recently opened showrooms in apparel centers in Dallas, San
Antonio and Atlanta and expanded our New York showroom. We believe that we
will become an increasingly important resource to these stores as our
brand awareness grows and our women's line gains acceptance.
- INTERNATIONAL MARKETS International markets are receptive to American
lifestyle apparel brands. We believe we can emulate the success of our
domestic distribution strategy in Europe and in other foreign markets. We
service most of our international markets through distributors and
licensees. However, we have set up wholly-owned subsidiaries in Europe in
recognition of the potential of the European market and to better control
the growth of our distinctive U.S. lifestyle brand in this region.
- RETAIL We opened our flagship store in October 1998 in Seattle,
Washington. The 3,300 square foot store offers a compelling assortment of
our products to the upscale casual wear consumer in a relaxed, friendly
environment. The store showcases our men's, women's and footwear
collections as well as tournament-licensed Cutter & Buck merchandise from
the U. S. Open, PGA Championship and Ryder Cup. We believe that there are
opportunities for Cutter & Buck stores in a number of metropolitan markets
in the United States. Accordingly, we will seek to open a limited number
of additional stores in fiscal 2000 and beyond. While providing another
channel of distribution, our stores will also showcase the Cutter & Buck
brand to a wider audience.
- WOMEN'S WEAR AND NEW PRODUCT EXTENSIONS We introduced our women's wear
line in summer 1998. We believe that we can make women's wear an important
part of our growth strategy in all of our distribution channels. For fall
1999, we offered 290 women's FASHION style/colorways.
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In our fall 2000 line to be released in July 1999, we will offer 621
women's FASHION style/ colorways. To support this effort, we employ a
separate women's merchandise and design team and have established an
exclusive sales force to sell our women's apparel products to specialty
retail stores. In June 1999, we shipped our first men's and women's golf
shoes to golf pro shops and resorts. We believe that this category and
others, such as casual footwear, weekend luggage, small leather goods and
headwear represent product extensions that could augment our Cutter & Buck
lifestyle brand and lead to additional revenues within our existing
distribution channels.
Successful implementation of our business strategy requires us to manage our
growth. To manage growth effectively, we will need to continue to implement
changes in certain aspects of our business, enhance our information systems and
operations to respond to increased demand, attract and retain qualified
personnel, and develop, train and manage an increasing number of
management-level and other employees. Growth could place an increasing strain on
our management, financial, product design, marketing, distribution and other
resources, and we could experience operating difficulties. If we fail to manage
our growth effectively, our business, financial condition or operating results
could be materially harmed.
MARKET
According to industry estimates, net sales of apparel at retail were $177
billion in 1998, with $54.3 billion and $92.6 billion spent on men's and women's
apparel, respectively. Sportswear represents a growing portion of consumers'
wardrobes as a result of a trend toward greater acceptance of relaxed standards
of dress in the workplace. For example, we estimate that sales in our segment of
the men's apparel market grew 14.5% from 1996 to 1998 while the overall men's
apparel market increased 10.0% in the same period.
Our target consumers are sports-minded professional men and women who like
casual, high-quality and distinctively styled apparel that reflects an active
lifestyle. Since we believe that many of these busy professionals prefer to
spend their limited free time pursuing sports and recreational activities, we
have developed our distribution strategy to ensure that our products are
available in these locations, as well as selected traditional retail outlets.
PRODUCTS
We design industry-leading products in-house which feature high-quality
materials, such as fine-gauge combed cotton, virgin wools and performance
microfibers and are finished with unique trims, special fabric finishes and
washes and extra needlework. They are manufactured in factories selected for
their ability to ensure quality in the production process.
Our designs incorporate distinctive, clear colors and are merchandised as
color- and design-coordinated collections rather than isolated categories. We
offer two collections a year, spring and fall, composed of a FASHION line and a
complementary CLASSICS line. CLASSICS are predominantly solid-color garments
with multi-season appeal. We rely on the styling, detailing, color and quality
of our fabrics to distinguish our CLASSICS products from competitive products.
We generally price our CLASSICS at levels lower than our FASHION line, which
permits our customers to offer Cutter & Buck products at a range of price
points. Higher per-item volumes for CLASSICS products allow us to achieve
production efficiencies and lower costs. CLASSICS products are sold throughout
the year through all of our distribution channels. CLASSICS products represent a
majority of sales through the corporate channel.
Our FASHION products incorporate the latest innovations in color, fabric and
styling and tend to remain in the line for only one season. We develop
proprietary fabrications, artwork for our complex prints and distinctive trim
components in cooperation with experienced sources worldwide. FASHION products
currently represent a majority of sales in both the golf and specialty channels.
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We present each season's collections to our customers in several groups of
distinct, coordinated merchandise. These groups are available for delivery to
customers during sequential time periods, typically from May to October for fall
collections and from November to April for spring collections.
Customer-initiated product reorders can often extend the delivery period for a
season by up to three months. The product mix changes seasonally, including, for
example, more sweater styles in fall collections and more short-sleeve shirts in
spring collections. Our ability to offer merchandise collections is a strategic
advantage since our customers generally prefer to purchase compatible
assortments rather than assembling coordinated merchandise from various brands
that do not share common colors and themes.
A substantial percentage of our products that are shipped to the golf
distribution channel are embroidered with golf club names or logos. Sales to the
corporate channel also involve embroidery of corporate logos. In all cases, the
Cutter & Buck logo is also featured on the garment. We have established an
in-house embroidery operation to reduce costs, shorten delivery time and enhance
quality control of our embroidered products.
PRODUCT DEVELOPMENT AND SOURCING
Updated traditional sportswear and outerwear for men and women is an
established and growing category within the apparel field. Changes of color,
fabric and body shapes in this category tend to be gradual, thereby allowing our
product development team to evolve, rather than re-invent, the product lines
each season. This provides stability in the design environment and consistency
in our product offerings.
Our experienced product development team, comprising various executive
officers and our design staff, determines product strategy, color and fabric
selection and assortment of styles for each season's collections, which is
accomplished through a series of meetings occurring over a three- to four-month
period. Due to the length of our production and sales cycles, we generally
strive to complete the design process and place orders for product samples at
least 10 to 14 months prior to the first delivery of products to our customers.
The design staff is responsible for creating innovative products for our two
seasonal collections. During the design process, our manufacturing sources
develop new seasonal textiles in association with the design team. This enables
us to source a wide variety of textile and printed artwork designs, many of
which we acquire for our exclusive use. Our partnerships with our key suppliers
have enhanced our ability to develop distinctive and innovative apparel.
Currently, we source our production through factories in Asia, North and South
America and in Turkey and do not have formal long-term contracts with any of our
suppliers or agents.
Our in-house embroidery operation substantially reduces our reliance on
independent embroiderers. This operation reduces costs, shortens delivery time
and enhances quality control of our embroidered products. We currently contract
with eight independent domestic embroiderers during peak embroidery production
and shipping periods. Our in-house embroidery manufacturing operation handled
approximately 87% of the embroidered logo requirements of our golf pro shop and
corporate customers in fiscal 1999.
We could experience difficulty satisfying our production requirements if any
of our significant suppliers or manufacturers were to have an interruption of
business or were unable or unwilling to meet our production needs. We could also
experience delays in shifting production to other manufacturers or agents
because of the complex fabrication, unique trims and extensive detailing of our
products.
We have experienced production delays in the past, and production delays may
occur in the future. Delays in shipments, inconsistent garment quality and other
factors beyond our control could materially
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harm our relationships with our customers, our reputation in the industry and
our business, financial condition or operating results.
Our operations are also affected by economic, political, governmental and
labor conditions in the countries where our products are manufactured. Changes
in economic policies or political conditions in those countries could result in
disruption of trade, new or additional currency or exchange controls or the
imposition of other restrictions and could increase the prices we pay for our
products. Foreign and domestic suppliers of our garments are subject to
increased scrutiny and public sensitivity to ensure their compliance with
applicable laws, including laws affecting working conditions and pay. Recent
lawsuits have targeted both suppliers and companies that purchase goods from
foreign and domestic suppliers for manufacturers' failure to comply with those
laws. We are a defendant in two related cases involving production of our
products in Saipan. An adverse judgment in either of these cases or similar
cases that may be brought in the future, or changes in economic or political
conditions adverse to our interests, could harm our business, financial
condition or operating results.
Fashion trends can change rapidly, and our business is particularly
sensitive to such changes because we typically design and arrange for the
manufacture of our apparel substantially in advance of sales of our products to
consumers. With the introduction of our women's line in January 1998, we have
added a consumer base that is typically more sensitive to changes in fashion. We
cannot assure you that we will accurately anticipate shifts in fashion trends,
or in the popularity of golf, and adjust our merchandise mix to appeal to
changing consumer tastes in apparel in a timely manner. If we misjudge the
market for our products or are unsuccessful in responding to changes in fashion
trends or in market demand, we could experience insufficient or excess inventory
levels, missed market opportunities or higher markdowns, any of which could
substantially harm our business or our brand image. As our women's line becomes
a greater part of our business as a whole, fashion obsolescence becomes an even
greater risk for us.
DISTRIBUTION AND SALES
Our products are distributed in the United States primarily through three
channels: golf pro shops and resorts, corporate sales accounts and better
specialty stores. Each of these channels sells CLASSICS and FASHION products
from our seasonal collections. We believe that these channels are complementary,
since they have compatible merchandising and pricing practices and broaden the
awareness and reach of the Cutter & Buck brand among our target consumers, many
of whom tend to shop in more than one channel. For example, many of our
corporate sales leads come through corporate executives who have purchased our
products at golf pro shops and resorts.
DOMESTIC We sell to golf pro shops and resorts primarily through an
exclusive sales force. At the end of fiscal 1999, our exclusive golf sales force
was composed of 36 Cutter & Buck field sales representatives. We also employed
28 sales representatives who sell to major corporations, either directly or
through promotional products companies, and four additional sales
representatives who sell to better specialty stores, college bookstores and the
big and tall market. Each sales representative is responsible for serving
targeted accounts in a specific geographical territory through merchandise
consultation and training, and for meeting specific account growth and
average-order-size goals. Sales representatives present our collections each
season at national and regional trade shows and at customers' stores through
pictorial workbooks, looseleaf promotional materials and full sample lines. In
addition to their other responsibilities, these sales representatives implement
our merchandise fixturing program with suitable golf pro shops, resorts and
specialty stores.
INTERNATIONAL We have subsidiaries in the Netherlands, Germany and the
United Kingdom for the purpose of marketing and selling our products in Europe.
In addition, we have two to five year renewable contracts with international
distributors to sell our products in Australia, New Zealand, the Philippines,
Greece, Cyprus, the United Arab Emirates, Saudi Arabia, Bahrain, Qatar, Kuwait
and
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Oman. These distributors purchase our products at reduced cost for resale to
their respective retail customers. The products offered for distribution in
these territories are identical to the products offered in the United States and
these distributors often use our marketing technique of offering the products in
collections.
We also have licensees that have contracted for the right to manufacture and
market Cutter & Buck designs in specified international markets, including Hong
Kong, China and Canada. Cutter & Buck license agreements generally provide for
three-year terms and provide for royalties as a percentage of net sales. Most
agreements contain annual royalty minimums, and all agreements give us final
control over product design and quality. These licensing arrangements enable us
to broaden the geographic distribution and type of products bearing the Cutter &
Buck name in a cost-effective manner.
DISTRIBUTION CENTER
We established our in-house distribution center in May 1996, prior to which
we relied upon third party contract warehouse services. This change in operating
strategy was designed to improve efficiency, shorten order cycle time and
provide greater flexibility. Our distribution services are currently conducted
out of three separate facilities located in Seattle, Washington. Our existing
operations rely upon primarily manual systems and procedures. In order to manage
our planned growth and enhance the effectiveness of our distribution service, we
are planning to consolidate all of our current operations into a new facility in
the greater Seattle area. This relocation is planned for a seasonally slow
period in December 1999 to minimize disruption. The construction contracts
include penalties should the contractors fail to meet their completion
schedules. In conjunction with the move, we are installing a warehouse
management system and bar-code tracking software. With the implementation of
this system, our goal is to realize improved effectiveness in such areas as
inventory management, order fulfillment and cost control. We also believe that
the benefits of our investment in the new distribution center facility and
warehouse management system will enable us to provide better customer service
and support planned growth.
In addition to the possibility of experiencing construction delays,
technological difficulties and business disruption, we could lose employees as a
result of the relocation of our distribution facilities and experience delays in
product shipments. Any significant delay could require us to postpone the move
and the installment and implementation until after the end of our current fiscal
year so as not to interfere with planned product shipments in the fourth quarter
of fiscal 2000. Our inability to timely consolidate the embroidery and
distribution operations at our facilities and to implement the warehouse
management system could increase our expenses and harm our business, financial
condition or operating results.
RETAIL OPERATIONS
We opened our flagship store in October 1998 in Seattle, Washington and plan
to open a limited number of additional stores in selected urban areas across the
country. The Seattle store showcases the men's, women's and footwear collections
as well as tournament-licensed Cutter & Buck merchandise from the U.S. Open, PGA
Championship and Ryder Cup. We believe the store's environment evokes the casual
sporting atmosphere of an upscale golf clubhouse, complete with historic photos
and antique sporting equipment. Collections of business casual dress for men,
upscale weekend wear for women and golf wear for both are displayed on tables
and in wall units in the 3,300 square foot store. We believe that the store
offers a compelling assortment of our products to the upscale casual wear
consumer in a relaxed, friendly environment.
Our stores will provide opportunities for introducing the Cutter & Buck
brand to a wider audience not previously familiar with our full range of
products due to the relatively small size of most golf pro shops and specialty
stores. We believe that there are opportunities for Cutter & Buck stores in a
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number of large urban areas across the United States. Accordingly, we will seek
to open a limited number of additional stores in fiscal 2000 and beyond. We are
currently examining locations for additional stores throughout the United
States. We will seek store locations within premier malls and shopping centers
and also in close proximity to other upscale retailers who serve our target
customers. We anticipate our typical retail location will be approximately 4,000
square feet and will contain the same merchandise mix as our Seattle store.
There are many risks associated with our entry into retailing, including our
ability to find suitable locations for our stores on reasonable rental terms,
our ability to manage our relationships with specialty retailers who currently
sell our products, competition from other retailers, potential premises
liability and the risks associated with our entry into long-term leases. We have
limited experience in managing retail operations and will need to augment our
management team as appropriate. We will also need to substantially increase our
number of employees, which will result in an increased burden on our human
resources function and increased exposure to employment-related legal
liabilities. Our inability to successfully implement our retail strategy could
harm our business, financial condition or operating results.
MARKETING AND MERCHANDISING
We portray our brand image of an American sporting lifestyle by creating
seasonal merchandise collections that are theme- and color-related. Themes we
commonly use in marketing are golf, tennis, fly fishing and other sporting
activities which reinforce our image. We believe that, by featuring these sports
and leisure activities, our products will appeal not only to participants, but
also to those who identify with this type of lifestyle. Our name or logo is
generally featured prominently on our products and displays to reinforce the
Cutter & Buck brand in the mind of the consumer.
We currently advertise in national and regional trade magazines and produce
photographic renditions of our new product lines for national distribution to
existing wholesale customers. We also produce a catalog of our CLASSICS products
to be viewed by wholesale customers for in-stock reordering purposes. In
addition, we have an Internet home page on the World Wide Web at
http://www.cutterbuck.com, where we provide information and pictures of our
products and respond to inquiries from customers and consumers. We believe that
we can accelerate brand recognition through increased expenditures of targeted
magazine advertising and point-of-sale promotions, and we are planning increased
investment in direct consumer marketing campaigns, including print
advertisements in regional and national general interest publications.
Our merchandise is sold and shipped to customers in collection groups in
order to reinforce the overall conceptual strength of our product offerings. Our
distinctive in-store fixturing program showcases these collections and enhances
our brand image at the point of sale. The fixtures are designed to display
assorted elements of our collections and allow the consumer to easily assemble
and purchase coordinated outfits of shirts, pants, shorts, sweaters, sweatshirts
and outerwear. We also offer customers display mannequins, logo signage and
antique sporting props in order to complement the fixturing and create an
environment that enhances the Cutter & Buck brand image. In fiscal 1998, we
initiated our first concept shop partnership, an extension of our fixturing
program, which we offer to our higher-end, potentially best-performing golf pro
shops and resort customers on a very selective basis. As of April 30, 1999, we
had 26 concept shops. We expect to open an additional 32 concept shops by the
end of fiscal 2000. In a concept shop partnership, we team with customers that
meet a higher minimum order requirement who provide the square footage and
certain construction costs while we provide shop design, custom made display
cabinets and high quality fixtures to create a shop within a shop environment
dedicated exclusively to Cutter & Buck merchandise.
To address the special needs of pro shops, tournament organizers and
corporate customers we have developed an in-house embroidery service and also
work with independent embroiderers to embroider the customer's name or logo on
our garments. The customary placement of the Cutter & Buck logo on
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the sleeve, cuff, or on the back of the garment allows us to accommodate more
easily the desire of pro shops, tournaments and corporations to have their name
or logo embroidered on the garment's left chest.
INFORMATION SYSTEMS
In addition to the computer-aided design system used by the product
development team, we have a fully integrated, real-time management information
system that is specifically designed for the wholesale apparel industry. The
system includes important features such as manufacturing resource requirements
planning, production scheduling, detailed product tracking, standard costs
system planning and control, and detailed perpetual inventory systems. As
original purchases are tracked through various factory production phases by our
production personnel, sales are tracked by the Vice President of Merchandise and
Design in order to compare purchases against availability, thereby allowing us
to react quickly to changes and trends. We also have a remote-order entry system
for our sales force, on which they can daily monitor and reserve inventory of
every style. Customer service personnel receive this information daily and have
access to real-time inventory availability.
This comprehensive information system serves users in each of our operating
areas, and is also accessed by personal computers to create costing models,
specification sheets and embroidery layout sheets. The manufacturing module
integrates with the general ledger accounting and financial module. Our
information system also provides detailed product gross margin information that
assists us in managing product profitability. The system runs on IBM's RISC 6000
hardware with an AIX operating system, which allows for the fast processing of
critical information, and has the capability of serving a much greater number of
users as we grow. During fiscal 1999, we installed a multi-currency version of
the same real-time management systems at our wholly-owned subsidiary located in
the Netherlands. During fiscal 2000, we plan to implement a relational database
component to our management information system to allow us to create specialized
management reports.
In fiscal 2000, we plan to install a warehouse management system
specifically designed for the apparel industry. This system provides a wide
variety of modular applications that can be added as the needs of our
distribution center operations evolve. We plan to install the following system
components:
- A radio frequency hardware server to support bar coding to track the
real-time movement of inventory from receiving, order picking embroidery
production, order packing and order shipment,
- A cycle counting inventory management module,
- An automated customer return authorization and receiving control system,
and
- Automated tools to support our distribution center employee productivity
and accuracy. This system was designed for and runs on an IBM AS/400
platform.
In addition, in fiscal 2000, we plan to install an integrated retail
management and point of sale system. The purpose of this investment is to
provide daily information to control our planned investment in the testing of
additional Cutter & Buck owned retail stores. In order to meet Cutter & Buck's
retail management needs, we will be investing in a system that addresses sales
tracking and management, profitability, inventory management, merchandising and
financial controls and reporting.
Beginning in the year 2000, the date fields coded in some software products
and computer systems will need to accept four digit entries in order to
distinguish 21st century dates from 20th century dates. We may face exposure and
risk if the systems on which we depend to conduct our operations are not year
2000 compliant. We expect to complete both our internal and external year 2000
compliance assessment by October 1999. We do not believe that the cost of
preparing for year 2000 compliance will exceed $100,000 although we could face
additional expenses to fix any year 2000 problems if our estimates are
incorrect. In addition, utility companies, third party service providers and
others outside
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our control may not be year 2000 compliant. This could result in a systematic
failure beyond our control. Finally, our suppliers may face difficulties due to
the non-compliance of their systems or those of their third party providers.
This could result in our inability to obtain our products in a timely manner. If
we encounter difficulties obtaining our products, our business, financial
condition or operating results could be materially harmed.
ORDER BOOKING CYCLE AND BACKLOG
We receive our orders for a season over a 10-month period beginning when
samples are first shown to customers and continuing into the season. We begin to
take orders for our fall collections in January, generally for delivery between
May and October and for our spring collection in July, generally for delivery
between November and April. Our domestic backlog, which consists of open,
unfilled customer orders from the golf and specialty store distribution
channels, was approximately $22.1 million as of April 30, 1999. We expect to
fill between 90% and 95% of those orders. For various reasons endemic to the
apparel industry, including occasional sold out inventory positions, credit
issues and other customer-related issues, we typically do not expect to ship all
of our backlog. Backlog is generally shipped within nine months.
COMPETITION
The sportswear segment of the apparel industry is highly competitive.
Although our primary distribution channel, golf pro shops, is highly fragmented,
with no single brand representing more than 10% of the market, we encounter
substantial competition from Ashworth, Izod Club and Polo/Ralph Lauren. In
addition, we face substantial competition in our other channels, other similar
apparel companies and distributors of promotional products and apparel and,
specifically in the corporate distribution channel, from Gear for Sport. We
believe that our ability to compete effectively is based primarily on product
differentiation, product quality, production flexibility and distribution
capabilities, all of which enhance our brand. Many of our competitors are
significantly larger and more diversified than we are and have substantially
greater resources available for developing and marketing their products. In
addition, our competitors may be able to enter the emerging e-commerce
marketplace more quickly or more efficiently than us. We cannot assure you that
we will be able to maintain our growth rate or to increase our market share in
our distribution channels at the expense of existing competitors and other
apparel manufacturers choosing to enter those markets.
TRADEMARKS
Cutter & Buck and the Cutter & Buck pennant logo are our trademarks and are
registered for use on apparel and other products in over 30 countries, including
the United States. We also have applied for registration in a number of other
countries. Our name and logo are regarded as valuable assets and critical to
marketing our products. Leading brands in the apparel industry have historically
been subject to competition from imitators that infringe the trademarks and
trade dress of the brand. Although we have not been materially harmed from
infringement of our trademarks or trade dress, we have experienced some
instances of such infringement and have taken actions to protect our rights.
EMPLOYEES
As of April 30, 1999 we had 429 full time and 64 part time employees, of
whom 37 were primarily engaged in administration and finance, 87 in sales, 12 in
production, 17 in design, 25 in customer service, 4 in marketing, 18 in
embroidery development, 15 in retail, 161 in embroidery operations and 117 in
distribution. None of our employees is a member of a union. We consider our
relations with our employees to be excellent.
At our wholly-owned subsidiaries we employed 23 employees as of April 30,
1999, six of whom were in finance and administration, seven in sales, five in
customer service and five in operations.
10
<PAGE>
ITEM 2. PROPERTIES
We lease our principal executive offices, which are located in Seattle,
Washington, under a lease that covers 20,558 square feet and expires in October
2001. We also lease for our warehousing and embroidery operation in Seattle,
Washington approximately 58,920 square feet of space under a lease that expires
April 2001 and an additional 15,000 square feet under a lease that expires in
December 1999. We have entered into a lease of 170,500 square feet for a new
distribution center and embroidery production facility in Renton, Washington,
the term of which will commence in November 1999 and expire in November 2006.
Our lease of retail store space in Lake Oswego, Oregon, a suburb of Portland,
covers 2,925 square feet and expires September 1999. We lease additional office
space and use contract warehouse facilities for our European distribution. We
lease approximately 923 square feet of space for a showroom in Dallas, Texas
under a lease that expires May 2000 as well as approximately 2,963 square feet
of space for a showroom in New York, New York under a lease that expires April
2003. We also lease a small apartment in New York, New York. The Company opened
its first retail store in Seattle, Washington, under a lease of 3,346 square
feet at Pacific Place, which will expire in October 2003.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
We have been named as a defendant in two lawsuits related to our sourcing of
garments manufactured in Saipan. The first, Does v. The Gap, Inc., et al., was
filed in Federal District Court in Los Angeles on behalf of an alleged class of
garment factory workers located in Saipan, and generally alleges that the
defendants have conspired to control unlawful "sweatshop" conditions
constituting peonage and involuntary servitude. The plaintiffs in this action
generally seek an order enjoining defendants from continuing to manufacture
garments under the alleged "sweatshop" conditions, establishment of a monitoring
program and imposition of an asset freeze or constructive trust, and punitive as
well as treble, special and compensatory damages in unspecified amounts. The
second, UNITE v. The Gap, Inc., et al., was filed in Superior Court in San
Francisco, California, by a union and three public interest groups, and
generally alleges that the defendants engaged in various unlawful business acts
and practices. The plaintiffs in this action generally seek an order restraining
the defendants from engaging in the allegedly unfair business acts and
practices, requiring a corrective advertising campaign or monitoring program,
imposition of an asset freeze or constructive trust, payment of restitution and
disgorgement of profits from engaging in the allegedly unlawful business acts
and practices in unspecified amounts. In the federal action, all of the
defendants including Cutter & Buck have filed motions to transfer the venue of
that case to Saipan. That motion is noted for consideration on July 12, 1999.
The retailer or buyer defendants including Cutter & Buck have responded to
written interrogatories concerning witnesses and documents that relate to the
Saipan garment business. The retailer or buyer defendants including Cutter &
Buck also have submitted a motion to dismiss all of the causes of action in the
federal action, other than the claim for false imprisonment, on the grounds that
the allegations of the complaint fail to state a claim upon which relief can be
granted. In addition, the defendants in the state action including Cutter & Buck
have filed a demurrer (motion to dismiss the claims asserted in that lawsuit).
The hearing on that motion is scheduled for August 6, 1999. Although we intend
to vigorously defend ourself, these lawsuits are subject to many uncertainties
and we are not able to make a determination of the ultimate exposure with
respect to these matters. As a result, there can be no assurance that these
lawsuits will not materially harm our business, financial condition or operating
results.
We are also a party to routine litigation incidental to our business.
Management believes the ultimate resolution of these routine matters will not
materially harm our business, financial condition or operating results.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded on the Nasdaq National Market under the symbol
"CBUK." The following table sets forth, for the periods indicated, the high and
low closing sale prices of the common stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1998
First Quarter - May 1, 1997 through July 31............................. $ 12.25 $ 7.67
Second Quarter - Aug. 1 through Oct. 31................................. 14.33 11.25
Third Quarter - Nov. 1 through Jan. 31.................................. 13.88 11.50
Fourth Quarter - Feb. 1 through Apr. 30, 1998........................... 18.67 12.79
FISCAL 1999
First Quarter - May 1, 1998 through July 31............................. $ 20.83 $ 13.79
Second Quarter - Aug. 1 through Oct. 31................................. 19.00 12.50
Third Quarter - Nov. 1 through Jan. 31.................................. 24.83 16.75
Fourth Quarter - Feb. 1 through Apr. 30, 1999........................... 22.79 16.33
FISCAL 2000
First Quarter (through June 17, 1999)................................... $ 21.33 $ 16.71
</TABLE>
The last reported sale price of the common stock on the Nasdaq National
Market on June 17, 1999 was $20.625 per share. As of that date, there were
approximately 184 shareholders of record of the common stock.
We have never declared or paid any cash dividend on our common stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any cash dividends in the foreseeable future.
Our common stock has experienced, and is likely to experience in the future,
significant price and volume fluctuations which could adversely affect the
market price of our common stock without regard to our operating performance. In
addition, we believe that factors such as quarterly fluctuations in our
financial results, announcements by other designers and marketers of men's and
women's sportswear, and changes in the overall economy or the condition of the
financial markets could cause the price of our common stock to fluctuate
substantially.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The tables that follow present portions of our consolidated financial
statements and are not complete. You should read the following selected
financial information in conjunction with our consolidated financial statements
and related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this report. The
consolidated statements of income data for each of the three years in the period
ended April 30, 1999 and the consolidated balance sheets data as of April 30,
1998 and 1999 are derived from our audited consolidated financial statements
which are included elsewhere in this report. The consolidated statements of
income data for each of the two years in the period ended April 30, 1996 and the
consolidated balance sheets data as of April 30, 1995, 1996 and 1997 are derived
from audited consolidated financial statements that are not included in this
prospectus. Historical results are not necessarily an indication of future
results.
<TABLE>
<CAPTION>
-----------------------------------------------------
FISCAL YEAR ENDED APRIL 30,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net sales........................................... $ 13,435 $ 21,645 $ 46,593 $ 70,104 $ 107,286
Cost of sales....................................... 8,760 13,664 28,054 40,642 61,058
--------- --------- --------- --------- ---------
Gross profit........................................ 4,675 7,981 18,539 29,462 46,228
Operating expenses:
Design and production............................. 747 1,045 1,256 2,120 2,915
Selling and shipping.............................. 2,446 3,858 8,774 13,129 22,333
General and administrative........................ 1,364 2,042 3,513 5,710 8,471
--------- --------- --------- --------- ---------
Total operating expenses........................ 4,557 6,945 13,543 20,959 33,719
--------- --------- --------- --------- ---------
Operating income.................................... 118 1,036 4,996 8,503 12,509
Other income (expense):
Factor commission and interest expense, net of
interest income................................. (376) (237) (197) (135) (393)
License and royalty income, net of other
expense......................................... 497 457 409 212 400
--------- --------- --------- --------- ---------
Total other income.............................. 121 220 212 77 7
--------- --------- --------- --------- ---------
Income before income taxes.......................... 239 1,256 5,208 8,580 12,516
Income taxes........................................ -- 260 1,610 2,920 4,508
--------- --------- --------- --------- ---------
Net income.......................................... $ 239 $ 996 $ 3,598 $ 5,660 $ 8,008
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic earnings per share............................ 0.09 0.21 0.55 0.72 0.98
Diluted earnings per share.......................... 0.08 0.19 0.51 0.68 0.94
Shares used in computation of:
Basic earnings per share.......................... 2,670 4,848 6,581 7,852 8,212
Diluted earnings per share........................ 3,051 5,215 7,004 8,294 8,562
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------
APRIL 30,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
IN THOUSANDS
CONSOLIDATED BALANCE SHEETS DATA:
Cash........................................................ $ 499 $ 2,010 $ 7,442 $ 7,590 $ 4,760
Working capital............................................. 3,209 12,488 29,811 34,391 44,911
Total assets................................................ 5,693 17,170 38,960 48,144 80,589
Short-term debt(1).......................................... 24 114 141 681 12,305
Long-term debt.............................................. 98 -- 523 627 5,907
Total shareholders' equity.................................. 3,566 14,023 32,187 38,621 48,908
</TABLE>
(1) As of April 30, 1999, includes borrowings of $9,500 under our revolving line
of credit.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS SECTION TOGETHER WITH "SELECTED FINANCIAL DATA" AND OUR
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE
IN THIS REPORT. IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HERE, THIS
REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
FORWARD-LOOKING STATEMENTS TYPICALLY ARE IDENTIFIED BY THE USE OF SUCH TERMS AS
"MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE," "ESTIMATE," "PLAN" AND SIMILAR
WORDS, ALTHOUGH SOME FORWARD-LOOKING STATEMENTS ARE EXPRESSED DIFFERENTLY. YOU
SHOULD BE AWARE THAT OUR ACTUAL GROWTH AND RESULTS COULD DIFFER MATERIALLY FROM
THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS,
WHICH INCLUDE, AMONG OTHERS, THE FOLLOWING:
- VOLATILITY OF THE APPAREL INDUSTRY;
- UNEXPECTED CHANGES IN FASHION TRENDS;
- PRIOR SEASON INVENTORIES;
- COMPETITION;
- DEPENDENCE ON KEY PERSONNEL;
- RELIANCE ON CONTRACTORS AND FOREIGN SOURCING;
- IMPORT RESTRICTIONS; AND
- OTHER FACTORS REFERENCED IN THIS REPORT.
ALL REFERENCES TO FISCAL YEARS ARE REFERENCES TO OUR FISCAL YEAR ENDED APRIL 30.
OVERVIEW
Cutter & Buck is a lifestyle brand with broad demographic appeal, targeted
to men and women who seek updated classic American styles inspired by golf and
our Pacific Northwest heritage. We sell our distinctive sportswear and outerwear
products primarily through golf pro shops and resorts, corporate sales accounts
and better specialty stores. In fiscal 1999, net sales to golf pro shops and
resorts represented 53.6% of our net sales, corporate accounts represented 30.5%
of our net sales, specialty retail represented 10.0% of our net sales and other
distribution channels, including company-owned retail, represented 5.9% of our
net sales.
We have grown sales in our three primary channels of distribution over the
last five years through an increase in the number of accounts and an increase in
the average annual net sales per account. The increase in the number of accounts
is primarily due to the growth in the size of our direct sales force. We have
increased average annual net sales per account by offering more product styles
and increasing the average annual net sales per style. We believe the increased
purchasing levels by our customers also reflect strong cooperative working
relationships in the area of fixturing and merchandising our coordinated product
line, and growing consumer recognition of our brand. We recognize our revenue at
the time the product is shipped to the account, and there is no right to return
other than for defective products.
As our sales volume has increased, we have continued to invest in management
and systems, to strengthen our sales and marketing effort and to negotiate
improved cost arrangements with our suppliers through economies of scale. We
have also expanded our customer support, embroidery services and distribution
center operations. While these actions have resulted in an increase in operating
expenses as a percentage of net sales for the most recent fiscal year, we have
also continued to experience improvements in gross margin.
The Company introduced a women's line of apparel in summer 1998. We sell our
women's line through our existing channels of distribution and expect to make
women's wear an increasingly
16
<PAGE>
important part of our business in each of our distribution channels. We opened
our flagship store in October 1998 in Seattle, Washington and will seek to open
a limited number of additional stores in selected metropolitan markets during
fiscal 2000 and beyond.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain
consolidated statements of income data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
-------------------------------
FISCAL YEAR ENDED APRIL 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net sales....................................................... 100.0% 100.0% 100.0%
Cost of sales................................................... 60.2 58.0 56.9
--------- --------- ---------
Gross profit.................................................... 39.8 42.0 43.1
Operating expenses:
Design and production......................................... 2.7 3.0 2.7
Selling and shipping.......................................... 18.8 18.7 20.8
General and administrative.................................... 7.6 8.2 7.9
--------- --------- ---------
Total operating expenses.................................... 29.1 29.9 31.4
--------- --------- ---------
Operating income................................................ 10.7 12.1 11.7
Other income (expense):
Factor commission and interest expense, net of interest
income...................................................... (0.4) (0.2) (0.4)
License and royalty income, net of other expense.............. 0.9 0.3 0.4
--------- --------- ---------
Total other income.......................................... 0.5 0.1 0.0
--------- --------- ---------
Income before income taxes...................................... 11.2 12.2 11.7
Income taxes.................................................... (3.5) (4.1) (4.2)
--------- --------- ---------
Net income...................................................... 7.7% 8.1% 7.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED APRIL 30, 1999 COMPARED TO THE YEAR ENDED APRIL 30, 1998
NET SALES During fiscal 1999, total net sales increased $37.2 million, or
53.1%, to $107.3 million. The detail of net sales by distribution channel is as
follows:
<TABLE>
<CAPTION>
----------------------------------------------
FISCAL YEAR ENDED
APRIL 30,
-------------------- INCREASE PERCENT
1998 1999 (DECREASE) CHANGE
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
IN MILLIONS, EXCEPT PERCENT CHANGE
Golf........................................................ $ 36.4 $ 57.5 $ 21.1 58.0%
Corporate................................................... 17.2 32.7 15.5 90.1
Specialty stores............................................ 9.3 10.8 1.5 16.1
Other....................................................... 7.2 6.3 (0.9) (12.5)
--------- --------- -----
$ 70.1 $ 107.3 $ 37.2 53.1%
--------- --------- -----
--------- --------- -----
</TABLE>
The $21.1 million increase in net sales to the golf distribution channel in
fiscal 1999 represented approximately 56.7% of the total increase in net sales
for the year. This growth in net sales to the golf distribution channel is
primarily attributable to an increase in the number of golf pro shops purchasing
Cutter & Buck products, an increase in the average annual net sales per golf pro
shop and increasing brand awareness. Approximately 3,800 golf pro shops
purchased our products in fiscal 1999 compared to approximately 3,000 golf pro
shops in fiscal 1998. We believe that the golf distribution channel comprises
approximately 15,000 U.S. golf pro shops of which we are presently targeting
approximately the top 5,200. The increase in the number of our golf pro shop
customers is primarily due to the
17
<PAGE>
growth in the size of our golf pro shop sales force that exclusively sell Cutter
& Buck products. The increase in average annual net sales per golf pro shop for
fiscal 1999 compared to fiscal 1998 is the result of offering more product
styles, including women's styles, in-store fixturing programs and increased
brand recognition among consumers. Net sales through our European subsidiaries,
which are included in the golf distribution channel figures, increased $1.9
million, or approximately 41.3%, to $6.5 million in fiscal 1999.
Net sales through the corporate distribution channel increased $15.5
million, or approximately 90.1%, to $32.7 million in fiscal 1999 from $17.2
million in fiscal 1998. The increase in fiscal 1999 represented approximately
41.7% of the total increase in net sales for the year. This increase is
primarily attributable to the increased size and effectiveness of our exclusive
sales force, the increase in our styles and inventory levels of our CLASSICS
products, improved relationships with a greater number of promotional products
companies that resell Cutter & Buck apparel to large corporate accounts and our
growing brand strength.
Specialty store sales increased $1.5 million or approximately 16.1% to $10.8
million in fiscal 1999 representing approximately 10.1% of our net sales in
fiscal 1999, a decrease from 13.3% in fiscal 1998. Sales to other distribution
channels, including liquidation, company-owned retail and international
distributors, declined from $7.2 million or 10.3% of net sales in fiscal 1998 to
$6.3 million or 5.9% of net sales in fiscal 1999. We anticipate continued sales
growth in each of our three primary distribution channels in fiscal 2000, with
the corporate sales channel expected to achieve the largest increase in net
sales.
Net sales per channel comprise gross sales per channel less product returns
per channel less a charge for price adjustments, allowances and non-physical
credits allocated per channel proportional to sales volume each month.
COST OF SALES In fiscal 1999, our cost of sales was 56.9% of net sales,
compared to 58.0% in fiscal 1998. The decrease during fiscal 1999 was primarily
due to economies of scale. Higher production volumes have given us increased
negotiating leverage to purchase product at lower unit costs and the ability to
expand our international sourcing. The reduction in the cost of sales percentage
resulting from economies of scale was partially offset by costs resulting from
expansion of our in-house embroidery capacity during the first half of fiscal
1999.
DESIGN AND PRODUCTION EXPENSES Design and production expenses increased by
$0.8 million, or 37.5%, to $2.9 million in fiscal 1999 from $2.1 million in
fiscal 1998 and decreased as a percentage of net sales to 2.7% in 1999 from 3.0%
in 1998. The dollar increase in these expenses was primarily attributable to
increased management and staffing costs associated with the addition of a
women's line and the golf shoe product extension, increased embroidery design
costs for the golf and corporate distribution channels and increased expenses
associated with our efforts to further diversify and monitor production
sourcing. These increases were more than offset by the benefits of economies of
scale which resulted in an overall reduction in design and production costs as a
percentage of sales in fiscal 1999 compared to fiscal 1998.
SELLING AND SHIPPING EXPENSES Selling and shipping expenses increased by
$9.2 million, or 70.1%, to $22.3 million in fiscal 1999 from $13.1 million in
fiscal 1998, and increased as a percentage of net sales to 20.8% in fiscal 1999
from 18.7% in fiscal 1998. The increase was primarily attributable to increased
salaries and commissions, management and marketing expenses and additional
direct overhead costs of the warehouse operation associated with increased sales
volumes and higher levels of inventory. The store level operating expenses
associated with the new company-owned retail store in Seattle, Washington also
contributed to increased selling and handling expenses during fiscal 1999.
We increased the size of our sales force for the corporate distribution
channel to 28 sales representatives at the end of fiscal 1999 from 27 at the end
of fiscal 1998. We also strengthened our
18
<PAGE>
domestic golf sales force by increasing the percentage of employee
representatives selling Cutter & Buck products exclusively as opposed to
independent, multi-line sales representatives. In fiscal 1999, we increased the
percentage of exclusive representatives within the golf sales force to 86% from
73% in fiscal 1998. The number of sales representatives in the golf distribution
channel increased to 36 at the end of fiscal 1999 from 33 at the end of fiscal
1998. In fiscal 1999 we also added a total of four sales managers to our
corporate and golf distribution channels. During fiscal 1999, we had three
regional sales representatives working in the specialty store channel and one
sales representative exclusively dedicated to the big and tall market. Due to
the addition of a women's line and the increase in our sales force for our golf
and corporate channels, we have increased the number of samples produced for use
by our sales force and in our corporate showrooms. At April 30, 1999 we had
capitalized $1.7 million of cost of samples that relate primarily to the Fall
1999 and Spring 2000 lines. The cost of these samples will be amortized as
selling expenses during the six months of each selling season. Selling seasons
begin on May 1 and November 1 of each year.
During fiscal 1999, we purchased and installed $1.7 million of in-store and
concept shop fixturing to enhance collection merchandising in approximately 380
of our customers' locations, reaching a total of approximately 1,060 golf pro
shops and specialty stores by the end of fiscal 1999. In fiscal 1998, we
purchased and installed $1.2 million of in-store fixturing. We expect to
purchase and install an additional $1.3 million of in-store fixturing and
concept shops in fiscal 2000. Customer eligibility for the fixturing program is
based on minimum order commitments for Cutter & Buck products. The investment in
these fixtures is amortized as a marketing expense over a three year period.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased by $2.8 million, or 48.4%, to $8.5 million in fiscal 1999 from $5.7
million in fiscal 1998, and decreased as a percentage of net sales to 7.9% in
fiscal 1999 from 8.2% in fiscal 1998. The dollar increase during fiscal 1999 was
primarily due to increased management, staffing and facilities in support of our
growth. The increased general and administrative expenses in fiscal 1999 also
reflected increased investments in systems, technical support and professional
fees required by expanded operations and planned future growth. Since these
expenses grew at a slower rate than the growth in sales, general and
administrative expenses decreased as a percentage of net sales.
OPERATING INCOME As a result of the above items, operating income increased
by $4.0 million, or 47.1%, to $12.5 million in fiscal 1999 from $8.5 million in
fiscal year 1998, and decreased as a percentage of net sales to 11.7% in fiscal
1999 from 12.1% in fiscal 1998.
FACTOR COMMISSION AND INTEREST EXPENSE, NET OF INTEREST INCOME Factor
commission and interest expense, net of interest income, increased by
approximately $0.3 million to $0.4 million in fiscal 1999 from $0.1 million in
fiscal 1998, and increased as a percentage of net sales to 0.4% in fiscal 1999
from 0.2% in fiscal 1998. The increase is primarily due to interest expense
resulting from increased borrowing under bank lines of credit. Factoring during
fiscal 1999 was limited to the big and tall business and to our European
operation. We expect to discontinue factoring our big and tall business during
fiscal 2000.
LICENSE AND ROYALTY INCOME, NET OF OTHER EXPENSE License and royalty
income, net of other expense, increased by $0.2 million, or 88.7%, to $0.4
million, representing 0.4% of net sales in fiscal 1999, from $0.2 million and
0.3% of net sales in fiscal 1998. This category also includes gains and losses
from foreign currency transactions which resulted in a net transaction gain of
$19,000 in fiscal 1999 compared to a net transaction loss of $75,000 in fiscal
1998. The increase in license and royalty income in fiscal 1999 was primarily
attributable to contractual increases in minimum royalties with licensees.
INCOME TAXES We recorded $4.5 million of income tax expense in fiscal 1999.
Income taxes for fiscal 1999 are at an effective rate of 36% compared to 34% for
fiscal 1998.
19
<PAGE>
YEAR ENDED APRIL 30, 1998 COMPARED TO THE YEAR ENDED APRIL 30, 1997
NET SALES During fiscal 1998, net sales increased by $23.5 million, or
50.4%, to $70.1 million. The detail of net sales by distribution channel is as
follows:
<TABLE>
<CAPTION>
----------------------------------------------
FISCAL YEAR ENDED
APRIL 30,
-------------------- INCREASE PERCENT
1997 1998 (DECREASE) CHANGE
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
IN MILLIONS, EXCEPT PERCENT CHANGE
Golf......................................................... $ 27.7 $ 36.4 $ 8.7 31.4%
Corporate.................................................... 9.2 17.2 8.0 87.0
Specialty stores............................................. 5.7 9.3 3.6 63.2
Other........................................................ 4.0 7.2 3.2 80.0
--------- --------- -----
$ 46.6 $ 70.1 $ 23.5 50.4%
--------- --------- -----
--------- --------- -----
</TABLE>
The expansion of sales to the golf distribution channel had a significant
impact on our overall net sales growth and made up approximately 37.0% of the
total increase in net sales for the year. Net sales through our European
subsidiaries that are included in the golf distribution channel increased $1.8
million, or approximately 64.3%, to $4.6 million in fiscal 1998. Sales through
the corporate distribution channel also contributed significantly to our overall
net sales growth, making up approximately 34.0% of the total increase in net
sales for fiscal 1998. The growth in the corporate distribution channel in
fiscal 1998 was primarily due to the increased size of the sales force dedicated
to this distribution channel. Specialty store sales represented approximately
13.3% of total net sales in fiscal 1998 compared to 12.2% in fiscal 1997. Our
sales to other distribution channels were 10.3% of net sales in 1998, up from
8.6% of net sales in 1997.
COST OF SALES In fiscal 1998, cost of sales was 58.0% of net sales,
compared to 60.2% in fiscal 1997. The decrease during fiscal 1998 was primarily
due to economies of scale. Higher production volumes have given us increased
negotiating leverage to purchase products at lower unit costs and the ability to
expand our international sourcing. Gross profit margin improvement in fiscal
1998 also reflected cost of sales reductions due to the utilization of an
in-house embroidery operation, which decreased unit costs of embroidery
production, and due to reduced expediting costs associated with a more effective
production scheduling. In 1998, the off-price liquidation market for apparel
experienced an oversupply while at the same time the number of large companies
dealing in liquidation apparel decreased. The combination of these factors
reduced the expected wholesale selling price of our out-of-season fashion
merchandise. The increase in inventory during fiscal year 1998 was concentrated
in the higher-risk single-season FASHION category rather than the more
predictable multi-season CLASSICS category. As a result we increased our
inventory reserve by approximately $0.4 million in fiscal 1998.
DESIGN AND PRODUCTION EXPENSES Design and production expenses increased by
$0.9 million, or 68.8%, to $2.1 million in fiscal 1998 from $1.3 million in
fiscal 1997 and increased as a percentage of net sales to 3.0% in fiscal 1998
from 2.7% in fiscal 1997. The dollar increase in these expenses is primarily
attributable to increased management and staffing costs associated with
expansion of the Cutter & Buck product line and increased embroidery design
costs for the golf distribution and corporate distribution channels. The
increase in design and production costs as a percentage of net sales in fiscal
1998 compared to fiscal 1997 is primarily attributable to an increased
investment in management, staffing and systems to support the addition of a
women's line as well as increased expenses associated with efforts to further
diversify our production sourcing.
SELLING AND SHIPPING EXPENSES Selling and shipping expenses increased by
$4.4 million, or 49.6%, to $13.1 million in fiscal 1998 from $8.8 million in
fiscal 1997, representing 18.7% of net sales in fiscal 1998 compared to 18.8% in
fiscal 1997. The dollar amount increase was primarily attributable to increased
salaries and commissions, management and marketing expenses and additional
direct
20
<PAGE>
overhead costs of the warehouse operation associated with increased sales
volumes and higher levels of inventory.
We increased the size of our sales force for the corporate channel to 27
sales representatives at the end of fiscal 1998 from 19 at the end of fiscal
1997. We also strengthened our domestic golf sales force by increasing the
percentage of employee representatives selling Cutter & Buck products
exclusively as opposed to independent, multi-line sales representatives. In
fiscal 1998, we increased the percentage of exclusive representatives within the
golf sales force to 73% from 63% in fiscal 1997. The number of sales
representatives in the golf distribution channel increased to 33 at the end of
fiscal 1998 from 32 at the end of fiscal 1997. At the beginning of fiscal 1998,
we reorganized our sales force for the specialty store channel. As of the end of
fiscal 1998, we had three regional sales representatives working in this channel
and one sales representative exclusively dedicated to the big and tall market,
all under the direction of a national sales manager for the specialty store
channel.
During fiscal 1998, we purchased and installed $1.2 million of in-store
fixturing to enhance collection merchandising in 218 of our customers'
locations, reaching a total of 680 golf pro shops and specialty stores by the
end of fiscal 1998.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased by $2.2 million, or 62.5%, to $5.7 million in fiscal 1998 from $3.5
million in fiscal 1997 and increased as a percentage of net sales to 8.2% in
fiscal 1998 from 7.6% in fiscal 1997. The dollar amount increase during fiscal
1998 was primarily due to increased management, staffing and facilities in
support of our growth. The increased general and administrative expenses in
fiscal 1998 also reflected increased investment in systems and in professional
fees required by expanded operations and expected future growth. Finally, due to
the increase in accounts receivable balances as of April 30, 1998 as well as
amounts greater than 120 days, we reported an increased provision for bad debt
expense of $465,000 during fiscal 1998 as compared to the fiscal 1997 amount.
These additional investments and costs resulted in a moderate increase in
general and administrative expenses as a percentage of net sales for fiscal
1998.
OPERATING INCOME As a result of the above items, operating income increased
by $3.5 million, or 70.2%, to $8.5 million in fiscal 1998 from $5.0 million in
fiscal 1997 and increased as a percentage of net sales to 12.1% in fiscal 1998
from 10.7% in fiscal 1997.
FACTOR COMMISSION AND INTEREST EXPENSE, NET OF INTEREST INCOME Factor
commissions and interest expense, net of interest income decreased by $0.1
million, or 31.5%, to $0.1 million in fiscal 1998 from $0.2 million in fiscal
1997, and decreased as a percentage of net sales to 0.2% in fiscal 1998 from
0.4% of net sales in fiscal 1997. The reduction in the dollar amount is
primarily due to interest earned on invested cash and limiting factoring
services in the United States to the specialty store channel.
LICENSE AND ROYALTY INCOME, NET OF OTHER EXPENSE License and royalty
income, net of other expense decreased by $0.2 million, or 48.2%, to $0.2
million, representing 0.3% of net sales in fiscal 1998, from $0.4 million and
0.9% of net sales in fiscal 1997. The decline in license and royalty income in
fiscal 1998 reflects our decision to directly market big and tall merchandise
and terminate our license for this category in June 1997 and our shift towards
direct international sales and exclusive distributor relationships and away from
licensing relationships. This category also includes gains and losses from
foreign currency transactions which resulted in net exchange losses of $75,000
in fiscal 1998 and $4,000 in fiscal 1997.
INCOME TAXES We recorded $2.9 million of income tax expense in fiscal 1998
and $1.6 million in fiscal 1997. Income taxes for fiscal 1998 are at an
effective rate of 34%. In fiscal 1997, income taxes were lower than the
statutory rates primarily due to the utilization of net operating loss
carryforwards, the benefit of which had been previously reserved.
21
<PAGE>
QUARTERLY RESULTS AND SEASONALITY
Historically, we have generally experienced our lowest level of net sales in
the first and third quarters of our fiscal year, ending July 31 and January 31,
respectively. Correspondingly, our highest level of net sales are achieved in
the second and fourth quarters, ending October 31 and April 30, respectively.
This seasonality has resulted primarily from the timing of shipments to golf pro
shops and better specialty stores in the second and fourth quarters. We
recognize our revenue at the time the product is shipped to our customers. Other
factors contributing to the variability of our quarterly results include
seasonal fluctuations in consumer demand, the timing and amount of orders from
key customers, the timing and magnitude of sales of seasonal remainder
merchandise and availability of product. This pattern of sales creates seasonal
profitability and working capital financing and liquidity issues, as we
generally must finance higher levels of inventory during the first and third
quarters when net sales are lowest. As a result, our operating results may fall
below market analysts' expectations in some future quarters, which could
materially harm the market price of our common stock.
The following tables set forth certain unaudited financial data, including
percentages of net sales, for the eight quarters ended April 30, 1999.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
FISCAL 1998 QUARTER ENDED FISCAL 1999 QUARTER ENDED
---------------------------------------------- ----------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
IN THOUSANDS 1997 1997 1998 1998 1998 1998 1999 1999
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF INCOME DATA:
Net sales.............. $ 12,378 $ 17,349 $ 14,151 $ 26,226 $ 17,763 $ 25,993 $ 23,148 $ 40,382
Cost of sales.......... 7,418 10,204 8,199 14,821 10,151 15,054 13,256 22,597
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Gross profit........... 4,960 7,145 5,952 11,405 7,612 10,939 9,892 17,785
Operating expense:
Design and
production......... 418 605 583 514 602 859 706 748
Selling and
shipping........... 2,685 3,196 2,945 4,303 4,024 5,296 5,398 7,615
General and
administrative..... 1,139 1,558 1,435 1,578 1,826 2,238 2,276 2,131
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Total operating
expenses....... 4,242 5,359 4,963 6,395 6,452 8,393 8,380 10,494
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Operating income....... 718 1,786 989 5,010 1,160 2,546 1,512 7,291
Other income (expense):
Factor commission and
interest expense,
net of interest
income............. (11) (41) (42) (41) 0 (46) (84) (263)
License and royalty
income, net of
other expense...... 13 15 76 108 81 94 91 134
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Total other
income
(expense)...... 2 (26) 34 67 81 48 7 (129)
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Income before income
taxes................ 720 1,760 1,023 5,077 1,241 2,594 1,519 7,162
Income taxes........... (245) (600) (350) (1,725) (447) (930) (550) (2,581)
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Net income............. $ 475 $ 1,160 $ 673 $ 3,352 $ 794 $ 1,664 $ 969 $ 4,581
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
FISCAL 1998 QUARTER ENDED FISCAL 1999 QUARTER ENDED
---------------------------------------------- ----------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1997 1997 1998 1998 1998 1998 1999 1999
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET
SALES
CONSOLIDATED STATEMENTS
OF INCOME DATA:
Net sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......... 59.9 58.8 57.9 56.5 57.1 57.9 57.3 56.0
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Gross profit........... 40.1 41.2 42.1 43.5 42.9 42.1 42.7 44.0
Operating expenses:
Design and
production......... 3.4 3.5 4.1 2.0 3.4 3.3 3.0 1.8
Selling and
shipping........... 21.7 18.4 20.8 16.4 22.7 20.4 23.3 18.8
General and
administrative..... 9.2 9.0 10.2 6.0 10.3 8.6 9.8 5.3
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Total operating
expenses....... 34.3 30.9 35.1 24.4 36.4 32.3 36.1 25.9
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Operating income....... 5.8 10.3 7.0 19.1 6.5 9.8 6.6 18.1
Other income (expense):
Factor commission and
interest expense,
net of interest
income............. (0.1) (0.2) (0.3) (0.1) 0.0 (0.2) (0.4) (0.7)
License and royalty
income, net of
other expense...... 0.1 0.1 0.5 0.4 0.5 0.4 0.4 0.3
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Total other
income
(expense)...... 0.0 (0.1) 0.2 0.3 0.5 0.2 0.0 (0.4)
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Income before income
taxes................ 5.8 10.2 7.2 19.4 7.0 10.0 6.6 17.7
Income taxes........... (2.0) (3.5) (2.4) (6.6) (2.5) (3.6) (2.4) (6.4)
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
Net income............. 3.8% 6.7% 4.8% 12.8% 4.5% 6.4% 4.2% 11.3%
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
--------- ----------- ----------- --------- --------- ----------- ----------- ---------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Our primary need for funds is to finance working capital and to fund
increased investment in our in-store fixturing program and other capital
expenditures. Increased working capital requirements during the three years
ended April 30, 1999 related to increasing accounts receivable and inventory
levels associated with growth in sales volume. To date, working capital has been
funded primarily by profitable operations and by a combination of increased
accounts payable, accounts receivable financing through a factor, bank
borrowing, the private sale of preferred stock and the public sale of common
stock.
Net cash used in operating activities in fiscal 1999 was $14.7 million. This
resulted primarily from increases in inventory and accounts receivable of $15.5
million and $12.6 million, respectively, which were partially offset by
profitable operations, depreciation and amortization, increases in accounts
payable and accrued liabilities and income taxes payable totaling $16.2 million.
During fiscal 1999, we purposely increased our inventory levels of CLASSICS
merchandise to support the growing on-demand requirements of the corporate
distribution channel and reorder requirements of the golf distribution channel.
Growth of CLASSICS inventory during fiscal 1999 accounted for approximately
$10.8 million, or 70.0%, of the total inventory increase of $15.5 million. We
expect to continue to build inventory levels
23
<PAGE>
through December 1999 as part of our year 2000 contingency plans before
beginning to work levels down during the last four months of fiscal 2000. We had
net cash provided by operations in fiscal 1998 of $2.1 million which was
achieved primarily by profitable operations, depreciation and amortization,
increases in accounts payable and accrued liabilities and income taxes payable
which were partially offset by an increase in accounts receivable. Inventory
growth during fiscal 1998 was just 6.1% while sales increased by 50.5%.
Net cash used in investing activities was $6.7 million in fiscal 1999 and
was substantially the result of an increased investment in furniture and
equipment of $6.6 million. In fiscal 1999, net cash provided by financing
activities was $18.6 million, resulting primarily from borrowings from banks
totaling $17.0 million and the issuance of common stock in connection with the
exercise of outstanding options and purchases pursuant to the employee stock
purchase plan resulting in proceeds to us of $1.8 million.
We made capital expenditures and lease purchases of $7.2 million, $3.1
million and $2.5 million in fiscal 1999, 1998 and 1997, respectively. In fiscal
1999, expenditures for capital assets included $1.7 million for in-store
fixtures, $1.2 million for warehouse and embroidery equipment, $1.9 million for
computer hardware and software, $0.6 million for equipment and leasehold
improvements associated with a company-owned retail specialty store, $0.8
million for leasehold improvements and a total of $1.0 million for other
furniture and equipment. In fiscal 1998, expenditures for capital assets
included $1.2 million for in-store fixtures, $0.5 million for warehouse and
embroidery equipment, $0.7 million for upgrades to computer hardware and
software, $0.4 million for leasehold improvements and a total of $0.3 million
for other furniture and equipment. In fiscal 1997, expenditures for capital
assets included $1.0 million for in-store fixtures, $0.9 million for warehouse
and embroidery equipment and a total of $0.6 million for other furniture and
equipment.
Capital expenditures of $10.0 million are planned for fiscal 2000, including
amounts for in-store fixtures and concept shops; other marketing programs
including fixturing for a merchandise tent to support the golf tournament
business, a trade show booth and showroom improvements; a warehouse management
system, related equipment and leasehold improvements for a new distribution
center; equipment and leasehold improvements associated with company-owned
retail specialty stores; computer hardware, software, and furniture and office
equipment; and embroidery equipment.
We are a party to a loan agreement with Washington Mutual Bank d/b/a Western
Bank for a $40 million line of credit. Western Bank has included Bank of America
National Trust and Savings Association d/b/a Seafirst Bank in the arrangement as
a co-lender. The revolving line of credit is to be used for general corporate
purposes, without limitation, repayment of any other advances, reimbursement of
draws under letters of credit, equipment and leasehold improvements and other
corporate purposes and provides for a $25 million sublimit for direct advances.
Interest on borrowings is charged and payable monthly at either a floating rate
or the LIBOR rate plus 2%, each as defined in the loan agreement, at our
election. The line of credit is collateralized by a security interest in our
inventory, accounts receivable, furniture and equipment, contract rights, money
and other property, rents and profit including insurance proceeds, books,
records, trade secrets and other formulae and general intangibles. The loan
agreement contains certain restrictive covenants covering minimum working
capital and tangible net worth, as well as a maximum debt to equity ratio and a
limitation on capital expenditures.
Under our factoring agreement with Republic Business Credit Corporation,
Republic acts as the sole factor in the United States for our accounts
receivable. The factoring agreement provides that we can sell qualified accounts
receivable to Republic and Republic will pay us an amount equal to the gross
amount of our accounts receivable from customers reduced by certain offsets,
including, among other things, discounts and returns and a .95% commission
payable to Republic. Western Bank and Republic have entered into an
intercreditor agreement allocating between them priority as to our assets in
which both financial institutions have a security interest. The intercreditor
agreement between Western Bank and Republic prohibits us from taking advances
under the factoring agreement. Subject
24
<PAGE>
to its credit review procedures, Republic may decline to accept the credit risk
on certain accounts receivable. The factoring agreement continues in force from
year to year and may be terminated by Republic on any anniversary of its
effective date (April 7) or by us at any time, provided that in each case the
terminating party gives 60 days prior written notice.
Our Dutch subsidiary, Cutter & Buck (Europe) B.V., is a party to a loan
agreement with Cooperatieve Rabobank "Huizen" B.A., or Rabobank, for a $3.4
million line of credit. The line of credit with Rabobank is to be used for
international letters of credit and working capital advances. Interest on
borrowings is charged and payable quarterly at a variable rate (4.45% at April
30, 1999). The line of credit is secured by our subsidiaries' inventory in
Europe, an irrevocable standby letter of credit issued by Western Bank of $3.8
million and subordination of $2.7 million of intercompany debt.
Commencing in fiscal 1997, we have directly managed the accounts receivable
credit and collection functions associated with our sales to the golf, corporate
and international distribution channels and have used Republic's accounts
receivable management exclusively for a portion of our sales to the specialty
store channel. We expect to terminate our factoring relationship with Republic
during fiscal 2000 and plan to continue to primarily use the Western Bank line
of credit to fund our anticipated working capital needs.
As of April 30, 1999, we had working capital lines of credit of
approximately $43.4 million and had outstanding loans in the amount of $12.1
million against the Western Bank and Rabobank lines of credit. In addition, we
had open letters of credit in the aggregate amount of $19.3 million at April 30,
1999.
We believe that cash on hand and cash generated from operations, as well as
the ability to borrow under bank lines of credit will be sufficient to meet our
cash requirements in fiscal 2000. However, our capital needs will depend on many
factors, including our growth rate, the need to finance increased production and
inventory levels, the success of our various sales and marketing programs and
various other factors. Depending upon our growth and working capital needs, we
may require additional financing in the future through debt or equity offerings,
which may or may not be available or may be dilutive. Our ability to obtain
additional financing will depend on our operations, financial condition and
business prospects, as well as conditions then prevailing in the relevant
capital markets.
We extend credit to our customers based on an assessment of their financial
circumstances, generally without requiring collateral. Our business is seasonal
and we offer customers discounts for placing pre-season orders and extended
payment terms for taking delivery before the peak shipping season. These
extended payment terms increase our exposure to the risk of uncollectible
receivables. Some of our customers have experienced financial difficulties in
the past, and future financial difficulties of customers could materially harm
our business.
EURO TRANSITION
We currently have sales in all of the participating countries of the
European Economic and Monetary Union, or EMU, which have adopted the Euro as a
currency. We expect some of the non-participating European Union countries where
we have sales, such as the United Kingdom, to eventually join the EMU. Currently
the Euro is used solely for non-cash transactions. We were Euro compliant within
our accounting and business systems by December 1998 and expect to be compliant
within our other business operations prior to the introduction of the Euro bills
and coins in 2002. Currently, most of our customers have not requested dual
billing; however, we have put procedures and systems into place to perform dual
billing. We do not currently expect to experience any significant operational
disruptions or to incur any significant costs related to the phased introduction
of the Euro, including any currency risk, which could materially harm our
liquidity or capital resources.
25
<PAGE>
FOREIGN CURRENCY EXCHANGE RISK
From time to time, we use derivative financial instruments to reduce our
exposure to changes in foreign exchange rates in connection with the operations
of our European subsidiaries. While these instruments are subject to risk of
loss from changes in exchange rates, those losses would generally be offset by
gains on the related exposure. We do not use derivative financial instruments
for speculative or trading purposes. We reduce the risks associated with changes
in foreign currency rates by entering into forward contracts and purchase
options to hedge accounts receivable denominated in non-Euro currencies and to
hedge expected payments for product purchases not denominated in Euro. Gains and
losses on contracts which hedge specific foreign currency denominated
commitments are recognized in the period in which the transaction is completed.
In fiscal 1999 we incurred a net foreign exchange transaction gain of $19,000
compared to a net transaction loss of $75,000 during fiscal 1998.
The fair value of foreign exchange forward contracts is based on quoted
market prices. At April 30, 1999 we held forward contracts to deliver
approximately $714,000 in foreign currencies with maturities of up to 120 days.
At April 30, 1999 the fair value of the forward contracts exceeded the cost by
approximately $41,000. To the extent we have assets and liabilities denominated
in foreign currencies that are not hedged, we are subject to foreign currency
transaction gains and losses.
YEAR 2000
We recognize the need to ensure that our systems, applications and hardware
will recognize and process transactions for the year 2000 and beyond. We have
developed and are implementing a company-wide plan which includes identifying
all significant issues related to the impact of year 2000 on our internal
systems, testing these systems and addressing deficiencies before October 31,
1999. We expect to successfully implement the systems and programming changes
necessary to address year 2000 issues with respect to our internal systems and
believe that the total cost of such actions will not exceed $100,000. We
estimate we are approximately 90% complete with this effort and all costs
incurred to date have been expensed. Due to the nature of our business, our
operations generally do not include significant systems relying on embedded
technology such as microcontrollers which are difficult to evaluate and repair.
We have a fully integrated, real-time management information system
specifically designed for the apparel industry. The system runs on IBM's RISC
6000 hardware with an AIX operating system. We have received assurances from the
vendors for these systems that they are year 2000 compliant. We are completing
testing programs for both systems to verify compliance and will complete this
testing by the end of June 1999. In the event these systems fail the testing
program, our existing information technology staff will arrange for the
assistance of outside professionals to remedy the deficiencies. Although we are
not presently aware of any material operational issues or costs associated with
preparing our internal systems for the year 2000, there can be no assurance that
there will not be a delay in, or increased costs associated with, the
implementation of the necessary systems and changes to address all year 2000
issues.
We are in the process of identifying and working with our significant
suppliers, customers and financial institutions to ensure that those parties
have appropriate plans to remedy year 2000 issues when their systems may affect
our systems or otherwise impact operations. We have received assurances from the
majority of our significant suppliers, but cannot definitively determine that
all major suppliers will reach a year 2000-ready status that will ensure no
disruption of business. Although we have no reason to conclude that any specific
supplier represents a risk, the most reasonably likely worst-case scenario would
entail production disruption due to the inability of a number of our suppliers
to obtain raw materials or components, or encounter transportation or
communications problems affecting delivery of products to us. We are unable to
quantify such a scenario, but it could potentially materially harm our results
of our operations, liquidity or financial position. Our contingency plans for
suppliers and systems, which are still being developed, include increasing
inventory levels before January 1, 2000.
26
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of its short-term borrowings.
The Company's short-term debt bears interest at variable rates. The variable
rates may fluctuate over time based on economic changes in the environment, and
the Company could be subject to increased interest payments if market interest
rates fluctuate. The Company does not expect any change in the interest rates to
have a material adverse effect on the Company's results of operations. The
Company does not use derivative financial instruments to manage interest rate
risk.
FOREIGN CURRENCY RISK
The Company operates subsidiaries in the United Kingdom and the Netherlands.
The Company's business and financial condition is, therefore, sensitive to
currency exchange rates or any other restrictions imposed on their currencies.
The Company employs foreign exchange hedging strategies for certain currencies
to help mitigate the effect of currency fluctuations. The Company does not enter
into derivatives for trading purposes. To date, the foreign currency exchange
rates have not significantly impacted the Company's profitability.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CUTTER & BUCK INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... 29
Consolidated Balance Sheets................................................................................ 30
Consolidated Statements of Income.......................................................................... 31
Consolidated Statements of Shareholders' Equity............................................................ 32
Consolidated Statements of Cash Flows...................................................................... 33
Notes to Consolidated Financial Statements................................................................. 34
</TABLE>
28
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cutter & Buck Inc.
We have audited the accompanying consolidated balance sheets of Cutter &
Buck Inc. as of April 30, 1999 and 1998, and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended April 30, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion of these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material reports, the consolidated financial position of Cutter & Buck
Inc. at April 30, 1999 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
April 30, 1999, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Seattle, Washington
June 15, 1999
29
<PAGE>
CUTTER & BUCK INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------
APRIL 30,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 7,589,731 $ 4,760,259
Accounts receivable, net of allowances for doubtful accounts and returns of
$1,187,813 in 1998 and $1,726,191 in 1999................................... 20,216,721 32,518,666
Inventories................................................................... 13,247,892 28,620,774
Deferred income taxes......................................................... 730,850 1,496,945
Prepaid expenses and other current assets..................................... 1,502,634 3,288,538
----------- -----------
Total current assets........................................................ 43,287,828 70,685,182
Furniture and equipment, net.................................................... 4,568,515 9,478,174
Deferred income taxes........................................................... 51,695 127,715
Other assets.................................................................... 236,329 297,708
----------- -----------
Total assets................................................................ $48,144,367 $80,588,779
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings......................................................... $ 486,913 $12,084,704
Accounts payable.............................................................. 5,110,405 6,807,324
Accrued liabilities........................................................... 1,606,994 3,635,341
Income taxes payable.......................................................... 1,498,720 3,025,968
Current portion of capital lease obligations.................................. 194,040 220,546
----------- -----------
Total current liabilities................................................... 8,897,072 25,773,883
Capital lease obligations....................................................... 626,682 907,260
Long-term debt.................................................................. -- 5,000,000
Commitments
Shareholders' equity:
Preferred stock, no par value, 6,000,000 shares authorized; none issued and
outstanding................................................................. -- --
Common stock, no par value: 25,000,000 shares authorized; 7,876,194 issued and
outstanding in 1998 and 8,312,236 in 1999................................... 30,577,648 32,998,010
Deferred compensation......................................................... -- (107,340)
Retained earnings............................................................. 8,168,003 16,175,865
Accumulated other comprehensive loss.......................................... (125,038) (158,899)
----------- -----------
Total shareholders' equity.................................................. 38,620,613 48,907,636
----------- -----------
Total liabilities and shareholders' equity.................................. $48,144,367 $80,588,779
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
30
<PAGE>
CUTTER & BUCK INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
--------------------------------------
YEAR ENDED APRIL 30,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net sales....................................................................... $46,592,758 $70,104,015 $107,285,920
Cost of sales................................................................... 28,053,845 40,642,031 61,057,635
----------- ----------- ------------
Gross profit.................................................................... 18,538,913 29,461,984 46,228,285
Operating expenses:
Design and production......................................................... 1,256,247 2,119,831 2,914,613
Selling and shipping.......................................................... 8,773,380 13,128,725 22,333,870
General and administrative.................................................... 3,512,824 5,710,430 8,471,133
----------- ----------- ------------
Total operating expenses.................................................... 13,542,451 20,958,986 33,719,616
----------- ----------- ------------
Operating income................................................................ 4,996,462 8,502,998 12,508,669
Other income (expense):
Factor commission and interest expense, net of interest income of $212,968 in
1997, $359,565 in 1998 and $245,314 in 1999................................. (196,973) (134,579) (393,291)
License and royalty income, net of other expense.............................. 408,728 211,649 400,284
----------- ----------- ------------
Total other income.......................................................... 211,755 77,070 6,993
----------- ----------- ------------
Income before income taxes...................................................... 5,208,217 8,580,068 12,515,662
----------- ----------- ------------
Income taxes.................................................................... 1,610,600 2,920,000 4,507,800
----------- ----------- ------------
Net income...................................................................... $ 3,597,617 $ 5,660,068 $ 8,007,862
----------- ----------- ------------
----------- ----------- ------------
Basic earnings per share........................................................ $ 0.55 $ 0.72 $ 0.98
----------- ----------- ------------
Diluted earnings per share...................................................... $ 0.51 $ 0.68 $ 0.94
----------- ----------- ------------
</TABLE>
See accompanying notes.
31
<PAGE>
CUTTER & BUCK INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
--------------------------------------------------------------------
NOTE
COMMON STOCK RECEIVABLE
------------------------- FROM DEFERRED RETAINED
SHARES AMOUNT SHAREHOLDER COMPENSATION EARNINGS
----------- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1996.............................. 5,500,074 $ 15,156,702 $ (44,520) -- $(1,089,682)
Sale of common stock, net of offering expenses of
$1,434,356......................................... 2,181,460 14,563,021 -- -- --
Stock issued under employee stock purchase plan...... 4,194 12,549 -- -- --
Exercise of stock options............................ 8,718 18,519 -- -- --
Exercise of stock warrants........................... 40,150 -- -- -- --
Repayment of note receivable......................... -- -- 44,520 -- --
Net income........................................... -- -- -- -- 3,597,617
Foreign currency translation......................... -- -- -- -- --
Comprehensive income.................................
----------- ------------ ------------ -------------- -----------
Balance, April 30, 1997.............................. 7,734,596 29,750,791 -- -- 2,507,935
Stock issued under employee stock purchase plan...... 8,806 68,464 -- -- --
Exercise of stock options............................ 132,792 359,908 -- -- --
Tax benefit on exercise of stock options............. -- 398,485 -- -- --
Net income........................................... -- -- -- -- 5,660,068
Foreign currency translation......................... -- -- -- -- --
Comprehensive income.................................
----------- ------------ ------------ -------------- -----------
Balance, April 30, 1998.............................. 7,876,194 30,577,648 -- -- 8,168,003
Stock issued under employee stock purchase plan...... 11,221 149,233 -- -- --
Exercise of stock options............................ 296,245 950,116 -- -- --
Exercise of stock warrants........................... 118,378 662,920 -- -- --
Deferred compensation relating to restricted stock
grants............................................. 10,198 171,744 -- (171,744) --
Amortization of deferred compensation................ -- -- -- 64,404 --
Tax benefit on exercise of stock options............. -- 486,349 -- -- --
Net income........................................... -- -- -- -- 8,007,862
Foreign currency translation......................... -- -- -- -- --
Comprehensive income.................................
----------- ------------ ------------ -------------- -----------
Balance, April 30, 1999.............................. 8,312,236 $ 32,998,010 $ -- $ (107,340) $16,175,865
----------- ------------ ------------ -------------- -----------
----------- ------------ ------------ -------------- -----------
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS TOTAL
--------------- ------------
<S> <C> <C>
Balance, April 30, 1996.............................. $ -- $ 14,022,500
Sale of common stock, net of offering expenses of
$1,434,356......................................... -- 14,563,021
Stock issued under employee stock purchase plan...... -- 12,549
Exercise of stock options............................ -- 18,519
Exercise of stock warrants........................... -- --
Repayment of note receivable......................... -- 44,520
Net income........................................... -- 3,597,617
Foreign currency translation......................... (71,417) (71,417)
------------
Comprehensive income................................. 3,526,200
--------------- ------------
Balance, April 30, 1997.............................. (71,417) 32,187,309
Stock issued under employee stock purchase plan...... -- 68,464
Exercise of stock options............................ -- 359,908
Tax benefit on exercise of stock options............. -- 398,485
Net income........................................... -- 5,660,068
Foreign currency translation......................... (53,621) (53,621)
------------
Comprehensive income................................. 5,606,447
--------------- ------------
Balance, April 30, 1998.............................. (125,038) 38,620,613
Stock issued under employee stock purchase plan...... -- 149,233
Exercise of stock options............................ -- 950,116
Exercise of stock warrants........................... -- 662,920
Deferred compensation relating to restricted stock
grants............................................. -- --
Amortization of deferred compensation................ -- 64,404
Tax benefit on exercise of stock options............. -- 486,349
Net income........................................... -- 8,007,862
Foreign currency translation......................... (33,861) (33,861)
------------
Comprehensive income................................. 7,974,001
--------------- ------------
Balance, April 30, 1999.............................. $ (158,899) $ 48,907,636
--------------- ------------
--------------- ------------
</TABLE>
See accompanying notes.
32
<PAGE>
CUTTER & BUCK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------
YEAR ENDED APRIL 30,
-----------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Operating activities:
Net income............................................ $3,597,617 $5,660,068 $ 8,007,862
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 1,057,348 1,385,616 2,306,276
Deferred income taxes............................... (104,000) (498,545) (842,115)
Amortization of deferred compensation............... -- -- 64,404
Changes in assets and liabilities:
Receivables, net.................................. (7,329,046) (5,986,276) (12,639,245)
Inventories....................................... (7,795,977) (758,482) (15,547,970)
Prepaid expenses and other current assets......... (328,011) (188,265) (1,870,703)
Accounts payable and accrued liabilities.......... 2,588,827 1,495,273 3,823,477
Income taxes payable.............................. 487,632 1,009,573 2,013,597
---------- ---------- -----------
Net cash provided by (used in) operating activities... (7,825,610) 2,118,962 (14,684,417)
Investing activities:
Purchase of furniture and equipment................... (1,716,583) (2,746,776) (6,624,987)
Decrease (increase) in trademarks, patents and
marketing rights.................................... 83,671 (97,107) (62,518)
---------- ---------- -----------
Net cash used in investing activities................. (1,632,912) (2,843,883) (6,687,505)
Financing activities:
Net proceeds (repayments) from short term
borrowings.......................................... (114,119) 486,913 11,953,708
Proceeds from long term debt.......................... 5,000,000
Principal payments under capital lease obligations.... (125,432) (177,392) (261,766)
Net increase in advances from factor.................. 562,551 188,663 185,619
Proceeds from note receivable from shareholder........ 44,520 -- --
Issuance of common stock.............................. 14,594,089 428,372 1,762,269
---------- ---------- -----------
Net cash provided by financing activities............. 14,961,609 926,556 18,639,830
Effects of foreign exchange rate changes on cash...... (71,417) (53,621) (97,380)
---------- ---------- -----------
Net increase (decrease) in cash....................... 5,431,670 148,014 (2,829,472)
Cash, beginning of year............................... 2,010,047 7,441,717 7,589,731
---------- ---------- -----------
Cash, end of year..................................... $7,441,717 $7,589,731 $ 4,760,259
---------- ---------- -----------
---------- ---------- -----------
Supplemental information:
Cash paid during the year for interest................ $ 176,191 $ 199,187 $ 308,277
---------- ---------- -----------
---------- ---------- -----------
Cash paid during the year for income taxes............ $ 991,500 $2,409,500 $ 3,245,000
---------- ---------- -----------
---------- ---------- -----------
Noncash financing and investing activities:
Equipment acquired with capital leases.............. $ 788,524 $ 335,022 $ 568,850
---------- ---------- -----------
---------- ---------- -----------
Deferred compensation for issuance of restricted
stock............................................. $ -- $ -- $ 171,744
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
33
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF THE BUSINESS Cutter & Buck Inc. (the "Company") designs,
sources and markets men's and women's sportswear and outerwear apparel. The
Company's trade customers are principally golf pro shops and resorts, corporate
sales accounts and better specialty stores.
In 1996, the Company formed two wholly owned subsidiaries, Cutter & Buck
(UK) Ltd. and Cutter & Buck (Europe) B.V., for the purpose of direct marketing,
sales and distribution of Cutter & Buck sportswear and outerwear in Europe. In
1999, the Company formed another wholly owned subsidiary, Cutter & Buck GmbH to
perform the same function.
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries
from the date of formation. All significant intercompany accounts and
transactions have been eliminated.
INVENTORIES Inventories, which are predominantly finished goods, are valued
at the lower of cost or market, with cost determined under the first-in,
first-out method. A detailed analysis of inventory is performed on a quarterly
basis to identify unsold out-of-season fashion merchandise. The net realizable
value of the out-of-season merchandise is estimated based upon disposition plans
and historical experience. A valuation allowance is established to reduce the
carrying amount of out-of-season merchandise to its net realizable value.
SAMPLES The Company capitalizes the costs of merchandise samples that
relate to goods to be sold in future selling seasons. These samples are
amortized on a straight-line basis over the respective selling seasons of six
months. The amortization of samples is charged to selling expenses over the
revenue-generating period.
FURNITURE AND EQUIPMENT Furniture and equipment is carried at cost.
Depreciation is provided on a straight-line basis over estimated useful lives of
five years. Furniture and equipment acquired under capital leases is amortized
on a straight-line basis over the lesser of the lease term or the estimated
economic useful life of the asset. Store fixtures are depreciated on a
straight-line basis over three years.
ADVERTISING Advertising costs are expensed as incurred. Advertising expense
was $800,000, $1,256,000 and $2,507,000 for the years ended April 30, 1997, 1998
and 1999 respectively.
INCOME TAXES The Company accounts for income taxes using the liability
method, whereby deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's capital
lease obligations and long-term debt is estimated based on the current rates
offered to the Company for debt of the same remaining maturities. The carrying
amount of these financial instruments at April 30, 1998 and 1999 approximated
fair value.
CONCENTRATIONS OF CREDIT RISK The Company sells its products to approved
customers on an open account basis, subject to established credit limits, cash
in advance or cash on delivery terms. The Company is subject to credit risk on
the majority of its receivables. These receivables are geographically disbursed
throughout the United States, Europe and selected foreign countries where formal
distributor agreements exist.
34
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REVENUE RECOGNITION Revenue is recognized at the time the product is
shipped to the customer. There is no right to return for customers, other than
for defective products. Allowances for these estimated sales returns are
provided when the related revenue is recorded.
FOREIGN CURRENCY TRANSLATION Assets and liabilities denominated in foreign
currencies are translated to U.S. dollars at the exchange rate on the balance
sheet date. Revenues, costs and expenses are translated at the average rates of
exchange prevailing during the year. Translation adjustments resulting from this
process are a component of comprehensive income.
STOCK-BASED COMPENSATION The Company has elected to apply the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation". Accordingly, the
Company has elected to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Compensation expense for stock options is measured as the excess, if any, of the
market price of the Company's common stock at the date of grant over the stock
option exercise price. Under the Company's plans, stock options are generally
granted at fair market value.
EARNINGS PER SHARE Basic earnings per share is based on the weighted
average number of common shares outstanding. Diluted earnings per share is based
on the weighted average number of common shares and equivalents outstanding.
Common share equivalents included in the computation represent shares issuable
upon assumed exercise of outstanding stock options and warrants except when the
effect of their inclusion would be antidilutive.
COMPREHENSIVE INCOME On May 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 established new rules for the
reporting and display of comprehensive income or loss and its components.
Statement 130 also requires presentation of accumulated other comprehensive
income or loss separately in shareholders' equity. The adoption of this
Statement had no impact on the Company's net income or shareholders' equity.
Statement 130 requires unrealized gains or losses on the Company's foreign
currency translation adjustments to be included in comprehensive income.
SEGMENT AND GEOGRAPHIC INFORMATION On May 1, 1998, the Company adopted SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS 131 established interim and annual reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas and major customers. The Company has one reportable segment,
the design, sourcing and marketing of sportswear and outerwear apparel. The
information for this segment is the information used by the Company's chief
operating decision-maker to evaluate operating performance. International sales
represented approximately 6.0%, 6.5% and 6.1% of net sales for the years ended
April 30, 1997, 1998 and 1999 respectively. No foreign country or geographic
area accounted for more than 10% of net sales in any of the periods presented.
Long-term assets of international operations represent approximately 7.4%, 13.0%
and 14.6% of the Company's long-term assets for fiscal 1997, 1998 and 1999,
respectively.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts
35
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
RECLASSIFICATIONS Certain amounts from the prior year financial statements
have been reclassified to conform to the current year presentation.
DERIVATIVES AND HEDGING
The Company from time to time, uses derivative financial instruments to
reduce its exposure to changes in foreign exchange rates in connection with the
operations of its European subsidiary. While these instruments are subject to
risk of loss from changes in exchange rates, those losses would generally be
offset by gains on the related exposure. The Company does not use derivative
financial instruments for speculative or trading purposes. The Company reduces
the risks associated with changes in foreign currency rates by entering into
forward contracts and purchase options to hedge accounts receivable denominated
in non-euro currencies and to hedge expected payments for product purchases not
denominated in euro. Gains and losses on contracts which hedge specific foreign
currency denominated commitments are recognized in the period in which the
transaction is completed.
The fair value of foreign exchange forward contracts is based on quoted
market prices. At April 30, 1998 and 1999 the Company held forward contracts to
deliver $217,841 and $714,416, respectively in foreign currencies with
maturities of up to 120 days. The fair value of forward exchange contracts
approximated cost at April 30, 1998. At April 30, 1999 the fair value of the
forward contracts exceeded the cost by $41,315. To the extent the Company has
assets and liabilities denominated in foreign currencies that are not hedged,
the Company is subject to foreign currency transaction gains and losses.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company plans to adopt
SFAS 133 on May 1, 2001, as required. The Company limits its use of derivative
financial instruments to the management of foreign currency risks. The Company
is currently evaluating the impact of SFAS 133 on its financial statements.
NOTE 2. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
<TABLE>
<CAPTION>
----------------------
APRIL 30,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Prepaid expenses................................................................ $1,082,914 $1,580,557
Samples......................................................................... 419,720 1,707,981
---------- ----------
$1,502,634 $3,288,538
---------- ----------
---------- ----------
</TABLE>
36
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACCOUNTS RECEIVABLE
Pursuant to the terms of factoring agreements, the Company assigns a portion
of its qualifying accounts receivable to factors on a preapproved, nonrecourse
or recourse basis. The factors' charges totaled $160,643, $194,945, $162,401 for
the years ended April 30, 1997, 1998 and 1999 and include a commission on net
sales and interest on advances at prime, plus 1 1/2% (9.25% at April 30, 1999).
The Company is permitted to receive advances from the European factor against
uncollected amounts factored. Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
------------------------
APRIL 30,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Unmatured receivables
Nonrecourse................................................................... $ 2,622,705 $ 1,341,146
With recourse................................................................. 1,945,238 2,431,260
Matured receivables............................................................. 290,112 203,545
Advances........................................................................ (751,214) (936,833)
----------- -----------
Due from factor............................................................... 4,106,841 3,039,118
Nonfactored receivables......................................................... 17,297,693 31,205,739
Allowance for doubtful accounts and reserve for sales returns and allowance..... (1,187,813) (1,726,191)
----------- -----------
$20,216,721 $32,518,666
----------- -----------
----------- -----------
</TABLE>
NOTE 4. FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
----------------------
APRIL 30,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Leasehold improvements............................................. $ 585,906 $1,856,577
Equipment.......................................................... 3,074,654 6,196,722
Store fixtures..................................................... 2,466,500 4,200,903
Furniture and other fixtures....................................... 759,073 1,822,147
---------- ----------
6,886,133 14,076,349
Less accumulated depreciation and amortization..................... (2,317,618) (4,598,175)
---------- ----------
$4,568,515 $9,478,174
---------- ----------
---------- ----------
</TABLE>
The total cost of leased equipment capitalized at April 30, 1998 and 1999
was $1,123,546 and $1,692,396, respectively, with related accumulated
amortization of $325,387 and $620,923, respectively.
NOTE 5. DEBT
In April 1999, the Company entered into a loan agreement with Washington
Mutual Bank d/b/ a Western Bank ("Western Bank") for a $40 million line of
credit, replacing the Company's previous line of credit. Western Bank has
included Bank of America National Trust and Savings Association d/b/ a Seafirst
Bank in the arrangement as co-lender. The revolving line of credit is to be used
for general corporate purposes, without limitation, repayment of any other
advances, reimbursement of draws
37
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. DEBT (CONTINUED)
under letters of credit, equipment and leasehold improvements and other
corporate purposes and provides for a $25 million sublimit for direct advances.
Interest on borrowings is charged and payable monthly at either a floating rate
or the LIBOR rate plus 2%, each as defined in the loan agreement, at the
borrower's election (7.75% at April 30, 1999). The line of credit is
collateralized by a security interest in the Company's inventory, accounts
receivable, furniture and equipment, contract rights and general intangibles and
expires on August 1, 2000. The loan agreement contains certain restrictive
covenants covering minimum working capital and tangible net worth, as well as a
maximum debt-to-equity ratio. The Company was in compliance with these covenants
at April 30, 1999. Western Bank and Republic Business Credit Corporation have
entered into an intercreditor agreement allocating between them priority as to
the Company's assets in which both financial institutions have a security
interest. At April 30, 1999, letters of credit outstanding against this line of
credit totaled $18,773,683 and working capital advances were $9.5 million.
During fiscal 1999, the Company's Dutch subsidiary entered into a loan
agreement with Cooperatieve Rabobank "Huizen" B.A. ("Rabobank") for a $3.4
million line of credit. The line of credit with Rabobank is to be used for
international letters of credit and working capital advances. Interest on
borrowings is charged and payable quarterly at a variable rate (4.45% at April
30, 1999). The line of credit is secured by the Company's European inventory, an
irrevocable standby letter of credit issued by Western Bank of $3.8 million and
subordination of $2.7 million of intercompany debt. At April 30, 1999, letters
of credit outstanding against this line of credit totaled $533,358 and working
capital advances totaled $2,584,704.
The Company also has a $5 million term credit facility with Western Bank. As
of April 30, 1999 $5 million had been advanced against the term credit facility.
The term loan bears interest at a fixed rate of 6.6% with interest payable
monthly and annual principal payments of $714,286 due in August of years 2000
through 2004. The final principal payment of $1,428,570 is due in August 2005.
The term loan is also collateralized by a security interest in the Company's
inventory, accounts receivable, furniture and equipment, and contract rights.
NOTE 6. INCOME TAXES
The foreign and domestic components of income before income taxes were as
follows:
<TABLE>
<CAPTION>
-----------------------------------
YEAR ENDED APRIL 30,
-----------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Domestic........................................................................ $5,086,697 $8,794,780 $12,726,877
Foreign......................................................................... 121,520 (214,712) (211,215)
---------- ---------- -----------
$5,208,217 $8,580,068 $12,515,662
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
38
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. INCOME TAXES (CONTINUED)
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED APRIL 30,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Current tax provision:
Federal....................................................................... $1,514,600 $3,318,545 $5,201,306
State......................................................................... 200,000 100,000 148,609
---------- ---------- ----------
1,714,600 3,418,545 5,349,915
Deferred federal tax benefit.................................................... (104,000) (498,545) (842,115)
---------- ---------- ----------
$1,610,600 $2,920,000 $4,507,800
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The provision for income taxes differs from the amount of tax determined by
applying the federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED APRIL 30,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Tax provision at federal statutory tax rate..................................... $1,770,749 $2,917,223 $4,380,482
Foreign loss not benefited...................................................... -- 73,002 73,925
Nondeductable expenses.......................................................... 18,862 17,834 53,726
Decrease in valuation allowance................................................. (440,278) -- --
State income taxes, net of federal benefit...................................... 132,000 66,000 96,596
Other........................................................................... 129,267 (154,059) (96,929)
---------- ---------- ----------
$1,610,600 $2,920,000 $4,507,800
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company recorded compensation expense in 1998 and 1999 for income tax
purposes of approximately $1.1 million and $1.4 million respectively, resulting
from the exercise of nonqualified stock options and disqualifying dispositions
of Common Stock received through the exercise of incentive stock options. The
resulting tax benefit of $398,485 and $486,349 respectively, is included in
shareholders' equity.
39
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. INCOME TAXES (CONTINUED)
The 1997 tax provision is recorded net of the benefit of utilizing a net
operating loss carryforward of approximately $1,139,000. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
--------------------
APRIL 30,
--------------------
1998 1999
-------- ----------
<S> <C> <C>
Deferred income tax assets:
Reserve for doubtful accounts................................................. $337,339 $ 529,402
Reserve for inventory obsolescence............................................ 140,290 326,071
Unicap........................................................................ 195,897 563,664
Depreciation and amortization................................................. 51,695 127,715
Other......................................................................... 61,249 109,196
-------- ----------
Total deferred income tax assets................................................ 786,470 1,656,048
Deferred income tax liabilities:
Prepaid expenses................................................................ -- (31,388)
Other........................................................................... (3,925) --
-------- ----------
Total deferred income tax liabilities........................................... (3,925) (31,388)
-------- ----------
Net deferred taxes.............................................................. $782,545 $1,624,660
-------- ----------
-------- ----------
</TABLE>
NOTE 7. COMMITMENTS
The Company leases its office facilities, two retail stores and a warehouse
and embroidery production facility under operating leases. Total rent expense
amounted to $472,823 in 1997, $684,270 in 1998 and $1,325,647 in 1999.
Future minimum payments, by year and in the aggregate, under capital leases
and noncancelable operating leases with initial or remaining terms of one year
or more consisted of the following at April 30, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CAPITAL OPERATING
YEAR ENDING APRIL 30, LEASES LEASES
- -------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
2000............................................................................ $ 433,490 $ 796,137
2001............................................................................ 422,144 460,861
2002............................................................................ 265,300 285,977
2003............................................................................ 198,224 226,332
2004............................................................................ 40,248 11,088
---------- ----------
Total minimum lease payments.................................................... 1,359,406 $1,780,395
----------
----------
Less amount representing interest............................................... (231,600)
----------
Present value of net minimum lease payments..................................... 1,127,806
Less: current portion........................................................... (220,546)
----------
$ 907,260
----------
----------
</TABLE>
40
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. SHAREHOLDERS' EQUITY
PREFERRED STOCK The Company has authorized 6,000,000 shares of preferred
stock, no par value. There was no preferred stock outstanding at April 30, 1998
and 1999.
COMMON STOCK On November 1, 1996 the Company sold 1,993,960 shares of its
Common Stock in a secondary offering at $7.33 per share. Pursuant to the
exercise of the underwriters' over-allotment option, the Company sold an
additional 187,500 shares of Common Stock at $7.33 per share on December 3,
1996. Proceeds to the Company, net of underwriting discounts and commissions and
offering expenses totaling $1,434,356, amounted to $14,563,021.
COMMON STOCK WARRANTS In connection with the Company's initial public
offering, the Company issued warrants to the underwriters of the offering to
purchase 197,296 shares of Common Stock at an exercise price of $5.60. In April
1997, 78,918 of these warrants were exercised in a cashless transaction, and
40,150 shares of Common Stock were issued. The remaining warrants to purchase
118,378 shares were exercised in May 1998 with proceeds to the Company totaling
$662,920.
STOCK OPTION PLANS The Company has four stock option plans that provide for
the granting of options to employees, officers and directors of the Company to
purchase up to 1,312,969 shares of Common Stock. Options granted under the 1991
plan provide for 50% vesting on the first anniversary from the date of grant and
25% vesting on each of the second and third anniversaries. Options granted under
the 1995 employee plan generally provide for vesting over a four-year period
with vesting at 25% each year. Options granted under the 1995 director plan
become exercisable six months after the date of grant. Options granted under the
1997 plan generally provide for vesting over a five-year period with vesting at
20% each year. Options under the plans expire after 10 years and have been
granted at fair value on the date of grant.
The weighted average fair value of stock options granted in 1997, 1998 and
1999 was $5.13, $10.59 and $9.05 repectively. The fair value of stock options
used to calculate pro forma net income and net income per share disclosures was
determined using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1997, 1998 and 1999, respectively: risk-free
interest rate of 6.2%, 6.1% and 5.3%; volatility of 68%, 68% and 70%; expected
life of 4.5 years, 4 years and 5 years; and no future dividends.
The weighted average fair value of shares granted under the Employee Stock
Purchase Plan in 1998 and 1999 was $2.02 and $3.21 respectively. The fair value
of shares granted under the Employee Stock Purchase Plan used to calculate pro
forma net income and net income per share disclosures was determined using the
Black-Sholes option-pricing model with the following weighted average
assumptions for 1997, 1998 and 1999 respectively: risk free interest rate of
6.8%, 6.2% and 5.0%; volatility of 68%, 68% and 70%; expected life of 6 months
and no future dividends. Had compensation cost for the stock option and Employee
Stock Purchase plans been recognized based on the fair value
41
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
at the date of grant for options and stock, awarded under the plans, pro forma
amounts of the Company's net income and net income per share would have been as
follows:
<TABLE>
<CAPTION>
----------------------------------
APRIL 30,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net income...................................................................... $3,597,617 $5,660,068 $8,007,862
Pro forma compensation expense under SFAS No. 123............................... (186,822) (572,927) (865,636)
---------- ---------- ----------
Pro forma net income under SFAS No. 123......................................... $3,410,795 $5,087,141 $7,142,226
---------- ---------- ----------
---------- ---------- ----------
Pro forma diluted earnings per share............................................ $ 0.49 $ 0.61 $ 0.83
</TABLE>
Under SFAS No. 123, compensation expense representing the fair value of the
option grant is recognized over the vesting period. The initial impact on pro
forma net income may not be representative of compensation expense in future
years, when the effect of the amortization of multiple awards would be reflected
in earnings.
A summary of the Company stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
APRIL 30,
----------------------------------------------------------------------
1997 1998 1999
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year.................. 610,983 $ 3.39 658,137 $ 3.86 774,342 $ 6.94
Granted..................................... 55,872 8.70 261,372 12.57 218,622 14.59
Exercised................................... (8,718) 2.13 (132,792) 2.71 (296,245) 2.14
Canceled.................................... -- -- (12,375) 7.17 (4,312) 13.64
--------- --------- ---------
Balance, end of year........................ 658,137 $ 3.86 774,342 $ 6.94 692,407 $ 10.91
--------- --------- ---------
--------- --------- ---------
Exercisable at end of year.................. 369,475 $ 2.49 405,400 $ 3.40 254,522 $ 7.49
--------- ----- --------- ----------- --------- -----------
</TABLE>
The following information is provided for options outstanding and
exercisable at April 30, 1999:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
OUTSTANDING
------------------------------------------- EXERCISABLE
WEIGHTED AVERAGE --------------------------
-------------------------------- WEIGHTED
REMAINING EXERCISE AVERAGE
RANGE OF EXERCISE PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS EXERCISE PRICE
- --------------------------------- --------- ----------------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1.44-$3.16..................... 67,031 4.8 $ 1.62 67,030 $ 1.62
4.75- 7.17..................... 124,101 6.9 7.03 95,248 6.99
8.09- 9.09..................... 43,311 7.8 8.60 22,311 8.63
10.00-13.71..................... 240,842 8.3 12.55 56,061 12.77
13.79-16.83..................... 217,122 9.2 14.63 13,872 16.17
--------- ---------
692,407 254,522
--------- ---------
--------- ---------
</TABLE>
42
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
At April 30, 1999, 183,788 shares were available for future grant and
876,195 shares were reserved for future issuance.
RESTRICTED STOCK PLAN In August 1998, the Company adopted a Stock Bonus
Plan which permits eligible employees receiving cash bonuses to elect to receive
shares of Restricted Stock of the Company in lieu of all or a portion of their
cash bonus. Up to 37,500 shares of Restricted Stock can be issued under the
Stock Bonus Plan and no more than 11,250 shares of Restricted Stock can be
issued to any one participant in any one year. Eligible employees are awarded
the Restricted Stock at a 15% discount from market price. As of April 30, 1999,
11,221 shares had been issued under the Stock Bonus Plan and 26,279 shares were
reserved for future issuance. The Company has recorded deferred compensation of
$171,744 in 1999. This amount is being amortized over the vesting period, 25%
every six months. Compensation expense relating to restricted stock awards was
$64,404 in 1999.
SHAREHOLDER RIGHTS PLAN In November 1998, the Board of Directors adopted a
Shareholder Rights Plan "Rights Plan" designed to protect shareholders from
certain takeover tactics. Under the Rights Plan, the Board of Directors declared
and distributed to our shareholders a dividend of one right, each referred to as
a Right, for each outstanding share of common stock. The Rights are not
exercisable or transferable separately from shares of common stock until the
earlier of : (1) 10 days following a public announcement that a person or group
has acquired, or obtained the right to acquire, beneficial ownership of a
designated percentage of the outstanding shares of the common stock and (2) 10
business days following the commencement or announcement of an intention to make
a tender or exchange offer that would result in an acquiring person or group
beneficially owning a designated percentage of outstanding shares of common
stock, unless the Board of Directors sets a later date, referred to as the
Distribution Date. The Board of Directors has the option to redeem the Rights at
a nominal cost or prevent the Rights from being triggered by designating offers
for all outstanding common stock as a permitted offer. The Company may redeem
the Rights during the initial 180 days after a triggering event generally only
by a majority of directors who are directors before any person or group obtains
or acquires the right to acquire a designated percentage of outstanding shares
of common stock. Prior to the Distribution Date, the Company is able to amend or
supplement the Rights Plan without the consent of any of the holders of the
Rights. Following the Distribution Date, the Rights Plan could be amended to
cure any ambiguity, to correct or supplement any inconsistent provision or any
other provision so long as such amendment or supplement would not adversely
affect the holders of the Rights, other than an acquiring person or group. The
Rights expire on November 20, 2008 unless earlier redeemed by the Company.
Each Right, other than those Rights held by an acquiring person or group,
when exercisable, would entitle its holders to purchase one one-hundredth of a
share of class A junior preferred stock, subject to adjustment or, in certain
instances, other securities of the Company. In certain circumstances, if the
Company, in a merger or consolidation, is not the surviving entity or disposes
of more than 50% of the company's assets or earnings power, the Rights would
entitle their holders, other than an acquiring person or group, to purchase the
highest priority voting shares in the surviving entity or its affiliates having
a market value of two times the exercise price of the Rights.
EMPLOYEE STOCK PURCHASE PLAN In December 1995, the Company adopted an
Employee Stock Purchase Plan which allows eligible employees to buy Company
stock at a 15% discount from market price utilizing payroll deductions. As of
April 30, 1999, 24,221 shares had been issued under the plan and 350,779 shares
have been reserved for future issuance.
43
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK SPLIT On May 28, 1999, the Company's Board of Directors approved a
3-for-2 stock split of the shares of common stock, to be effected in the form of
a share dividend on shares of common stock outstanding on June 4, 1999. The
distribution of shares was made on June 15, 1999. Accordingly, the accompanying
consolidated financial statements have been restated to reflect the stock split.
NOTE 9. EMPLOYEE BENEFITS
Effective January 1, 1995, the Company implemented a salary deferral 401(k)
plan for substantially all of its employees. The plan allows employees to
contribute a percentage of their pretax earnings annually, subject to
limitations imposed by the Internal Revenue Service. The plan also allows the
Company to contribute an amount at its discretion. To date, the Company has made
no contributions to the plan.
NOTE 10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED APRIL 30,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per share--net income................ $3,597,617 $5,660,068 $8,007,862
---------- ---------- ----------
---------- ---------- ----------
Denominator:
Denominator for basic earnings per share--weighted average common shares...... 6,581,454 7,851,564 8,212,468
Effect of dilutive securities stock options..................................... 422,255 441,986 349,764
---------- ---------- ----------
Denominator for diluted earnings per share.................................... 7,003,709 8,293,550 8,562,232
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per share........................................................ $ 0.55 $ 0.72 $ 0.98
Diluted earnings per share...................................................... $ 0.51 $ 0.68 $ 0.94
</TABLE>
NOTE 11. LITIGATION
The Company has been named as a defendant in two lawsuits related to its
sourcing of garments manufactured in Saipan. The first, Does v. The Gap, Inc.,
et al. was filed in the Federal District Court in Los Angeles on behalf of an
alleged class of garment factory workers located in Saipan, and generally
alleges that the defendants have conspired to control unlawful "sweatshop"
conditions constituting peonage and involuntary servitude. The plaintiffs in
this action generally seek an order enjoining defendants from continuing to
manufacture garments under the alleged "sweatshop" conditions, establishment of
a monitoring program and imposition of an asset freeze or constructive trust,
and punitive as well as treble, special and compensatory damages in unspecified
amounts. The second, UNITE v. The Gap, Inc. et al., was filed in the Superior
Court in San Francisco, California, by a union and three public interest groups,
and generally alleges that the defendants engaged in various unlawful business
acts and practices. The plaintiffs in this action generally seek an order
restraining the defendants from engaging in the allegedly unfair business acts
and practices, requiring a corrective
44
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. LITIGATION (CONTINUED)
advertising compaign or monitoring program, imposition of an asset freeze or
constructive trust, payment of restitution and disgorgement of profits from
engaging in the allegedly unlawful business acts and practices in unspecified
amounts. In the federal action, all of the defendants including the Company have
filed motions to transfer the venue of that case to Saipan. The motion is noted
for consideration on July 12, 1999. The retailer or buyer defendants including
the Company have responded to written interrogatories concerning witnesses and
documents that relate to the Saipan garment business. The retailer or buyer
defendants including the Company also have submitted a motion to dismiss all of
the causes of action in the federal action, other than the claim for false
imprisonment, on the grounds that the allegations of the complaint fail to state
a claim upon which relief can be granted. In addition, the defendants, including
the Company, in the state action have filed a demurrer (motion to dismiss the
claims asserted in that lawsuit). The hearing on that motion is scheduled for
August 6, 1999. Although the Company intends to vigorously defend itself, these
lawsuits are subject to many uncertainties and management of the Company is not
able to make a determination of the ultimate exposure with respect to these
matters. As a result, there can be no assurance that these lawsuits will not
have a material adverse effect on the Company's financial position or results of
operations.
The Company is also a party to routine litigation incidental to its
business. Management believes the ultimate resolution of these routine matters
will not have a material adverse effect on its financial position and results of
operations.
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial results by quarter for the fiscal years ended April 30, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
-------------------------------------------
FISCAL QUARTER ENDED
-------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30
------- ---------- ---------- --------
<S> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT SHARE AMOUNTS
1998
Net sales........................................................... $12,378 $17,349 $14,151 $ 26,226
Gross profit........................................................ 4,960 7,145 5,952 11,405
Net income.......................................................... 475 1,160 673 3,352
Diluted earnings per share.......................................... $ 0.06 $ 0.14 $ 0.08 $ .40
1999
Net sales........................................................... $17,763 $25,993 $23,148 $ 40,382
Gross profit........................................................ 7,612 10,939 9,892 17,785
Net income.......................................................... 794 1,664 969 4,581
Diluted earnings per share.......................................... $ 0.09 $ 0.20 $ 0.11 $ 0.53
</TABLE>
45
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
46
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Cutter & Buck are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME AGE POSITION
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Harvey N. Jones(1) 48 Chairman and Chief Executive Officer
Martin J. Marks 50 President, Chief Operating Officer, Treasurer, Secretary
and Director
Jim C. McGehee 49 Vice President of Sales
Patricia A. Nugent 44 Vice President of Merchandise and Design
Jon P. Runkel 42 Vice President of Production
Philip C. Davis 41 Vice President of Operations
Philip B. Jones 46 Vice President of International/Managing Director of
Cutter & Buck (Europe) B.V.
Stephen S. Lowber 48 Vice President and Chief Financial Officer
Jeffrey S. Buchman 51 Vice President of Marketing and Communications
Ernest J. Pyle 44 Vice President and Chief Information Officer
Michael S. Brownfield(1)(3) 59 Director
Frances M. Conley(1)(2)(3) 56 Director
Larry C. Mounger(2)(3) 61 Director
James C. Towne(2) 56 Director
</TABLE>
- ------------------------
(1) Member of the Nominating Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
HARVEY N. JONES has been Chief Executive Officer and a director of Cutter &
Buck since its inception in January 1990 and has been Chairman of the Board of
Directors since 1997.
MARTIN J. MARKS, President, Chief Operating Officer, Treasurer, Secretary
and a director of Cutter & Buck, joined Cutter & Buck as Chief Financial Officer
in January 1991. Prior to being named President in 1997, he held the position of
Senior Vice President. Mr. Marks has a bachelor's degree in business
administration from Portland State University.
JIM C. MCGEHEE, Vice President of Sales, joined Cutter & Buck in February
1990. Mr. McGehee has a bachelor's degree in business (marketing) from Auburn
University.
PATRICIA A. NUGENT, Vice President of Merchandise and Design, joined Cutter
& Buck in December 1993 and served as Vice President of Production from April
1994 to April 1996. Beginning her career at Roffe/Demetre, she has experience
merchandising, designing, sourcing and in the technical aspects of apparel with
leading brands in men's and women's sportswear, activewear (golf, tennis,
running and skiing), outerwear and accessories. Ms. Nugent has a bachelor's
degree in Clothing and Textile Design from the University of Washington and a
design certificate from the Modeschule der StadtWien in Vienna, Austria.
JON P. RUNKEL, Vice President of Production, joined Cutter & Buck in April
1995 and served as Operations Manager from April 1995 to April 1996. From
October 1994 to April 1995, he was a production manager of Organik Technologies,
Inc., an apparel manufacturer, producing contract work for such names as
Patagonia, Eddie Bauer, Timberland and Jantzen, and from March 1993 to September
1994, he was a consultant on operations and production for Susan Barry Designs,
a women's line.
47
<PAGE>
PHILIP C. DAVIS, Vice President of Operations, joined Cutter & Buck in
January 1997. From 1987 to 1996, he held various positions at Stusser Electric,
an electrical parts distribution company, including president from 1994 to 1996.
Mr. Davis has a bachelor's degree in economics from Stanford University.
PHILIP B. JONES, Vice President of International / Managing Director of
Cutter & Buck (Europe) B.V., joined Cutter & Buck in July 1997. From 1989 to
June 1997, Mr. Jones was an independent international trade consultant serving
certain major U.S. companies. Mr. Jones holds a bachelor's degree in East Asian
studies from Harvard University.
STEPHEN S. LOWBER, Vice President and Chief Financial Officer, joined Cutter
& Buck in September 1997. From April 1992 to June 1997, Mr. Lowber was Chief
Financial Officer of LUXAR Corporation, a medical devices manufacturing company.
Mr. Lowber has a bachelor's degree in accounting from Western Washington
University and a master's degree in business administration from Seattle
University, and he is a certified public accountant.
JEFFREY S. BUCHMAN, Vice President of Marketing & Communications, joined
Cutter & Buck in July 1998. From 1974 to June 1998, Mr. Buchman was a faculty
member at The Fashion Institute of Technology, most recently serving as the
Chairman of the Advertising and Marketing Communications Department. From 1986
to 1998, he also served as the president of The Telefashion Group, a provider of
marketing and communications consulting services. Mr. Buchman has a bachelor's
degree in English from the State University of New York at Buffalo and a
master's degree in communications management from Brooklyn College.
ERNEST J. PYLE, Vice President and Chief Information Officer, joined Cutter
& Buck in July 1998. From November 1995 to June 1998, Mr. Pyle held various
positions with System Software Associates, Inc., an enterprise resource planning
solutions provider, most recently serving as Vice President, North America. From
April 1992 to November 1995, he was owner of SSA Northwest, an independent
affiliate of Systems Software Associates, Inc. Mr. Pyle attended the University
of Washington and has an associate's degree in computer science from Peterson
Technical College.
MICHAEL S. BROWNFIELD has been a director of Cutter & Buck since May 1995.
He is a private investor and has a bachelor's degree in chemistry from the
University of Oregon. Mr. Brownfield is the Chairman of Accurate Molded
Plastics, a private manufacturer of tooling and injection-molded plastics, and
also serves on the boards of directors of Heartsmart, Inc., a private biomedical
company, Northwest Cascade, Inc., a private construction company, Kitsap
Entertainment Corporation, a private restaurant franchisee, and Global Tel
Resources, Inc., a private telecommunications company.
FRANCES M. CONLEY has been a director of Cutter & Buck since July 1990.
Since 1982, she has been a shareholder, director and principal of Roanoke
Capital, Ltd., the general partner of Roanoke Investors' Limited Partnership, a
venture capital limited partnership. She has a bachelor's degree in music from
Emmanuel College and a master's degree in business administration from the
Harvard Graduate School of Business Administration. Ms. Conley is a director of
Recreation Equipment Inc., a private national retailer of outdoor gear and
clothing.
LARRY C. MOUNGER has been a director of Cutter & Buck since July 1990. Since
1997, he has been Chairman and Chief Executive Officer of Sunrise Clothing,
Inc., a screen printing company. From January 1993 to October 1995, he served as
President, Chief Executive Officer and a director of Sun Sportswear, Inc., a
publicly held garment screenprinter. He has a bachelor's degree in business
administration and a juris doctor degree from the University of Washington.
JAMES C. TOWNE has been a director of Cutter & Buck since 1997. Mr. Towne
has been Chairman of Greenfield Development Corporation, a remediation and
development company since 1995. From 1982 to 1995, he was President, CEO or
Chairman of various companies, including Osteo Sciences Corporation, Photon
Kinetics, Inc., MCV Corporation, Metheus Corporation and Microsoft Corporation.
Mr. Towne also serves on the board of directors of Tully's Coffee Co., a private
specialty
48
<PAGE>
coffee retailer. He has a bachelor's degree in economics and a master's degree
in business administration from Stanford University.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the information contained in the "Executive Compensation" section of our Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after the close of our fiscal year.
49
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the information contained in the "Security Ownership of Certain Beneficial
Owners and Management" section of our Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the close of our fiscal
year.
50
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the information contained in the "Certain Relationships and Related
Transactions" section of our Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after the close of our fiscal year.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this report:
1. Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors Report
Consolidated Balance Sheets as of April 30, 1998 and 1999
Consolidated Statements of Income for the years ended April 30, 1997,
1998 and 1999
Consolidated Statements of Shareholders' Equity for the years ended April
30, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended April 30, 1997,
1998 and 1999
Notes to Consolidated Financial Statements
2. Financial Statement Schedules--see index on page 28 of this Report.
All other financial statement schedules not listed are omitted because
either they are not applicable or not required, or the required
information is included in the consolidated financial statements.
3. Exhibits
Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
3.1 Restated Articles of Incorporation (3.1) (1)
3.2 Bylaws (filed herewith)
4.1 Specimen Common Stock Certificate (4.1)(1)
10.3 Lease dated May 22, 1994 between First and Cedar Associates and Jones/Rodolfo Corporation d/b/a Cutter &
Buck (10.3) (1)
10.4 Indenture of Lease dated August 10, 1993 between Lakeplace Associates and Jones/Rodolfo Corporation
(10.4) (1)
10.5 Factoring Agreement dated March 1, 1995 between Republic Factors Corp. and Jones/Rodolfo Corporation
(10.5) (1)
10.6 Form of Registration Rights Agreement between Cutter & Buck Inc. and Roanoke Investors' Limited
Partnership, Needham Capital SBIC, L.P. and Needham Emerging Growth Partners, L.P. (10.6) (1)
10.9 1991 Stock Option Plan (10.9) (1)
10.10 1995 Nonemployee Director Stock Incentive Plan (10.10) (1)
10.11 1995 Employee Stock Option Plan (10.11) (1)
10.12 1995 Employee Stock Purchase Plan (incorporated by reference to the Registrant's Registration Statement
on Form S-8 (File No. 33-80783))
10.13 Form of Representatives' Warrant (10.13) (1)
10.14 Amended and Restated Loan Agreement April 28, 1999 between Cutter & Buck Inc. and Washington Mutual Bank
d/b/a Western Bank, and supporting documents (filed herewith)
10.15 1997 Stock Incentive Plan (incorporated by reference to the Registrant's Registration Statement on Form
S-8 (File No. 333-43145))
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
10.16 Stock Bonus Plan (10.16)(2)
10.17 Lease dated August 11, 1998 between Pine Street Development LLC and Cutter and Buck Inc. (10.17)(2)
10.18 Lease dated April 15, 1998 between Whitmac Company and Cutter and Buck Inc. (10.18)(2)
10.19 Industrial Lease dated May 27, 1999 between Cutter & Buck Inc. and Zelman Renton, LLC (filed herewith)
10.20 Change in Control Agreement dated March 15, 1999 between Cutter & Buck Inc. and Harvey N. Jones (filed
herewith)
10.21 Change in Control Agreement dated March 15, 1999 between Cutter & Buck Inc. and Martin J. Marks (filed
herewith)
23.1 Consent of Ernst & Young LLP, Independent Auditors (filed herewith)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
- ------------------------
(1) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the Registrant's Registration Statement on Form SB-2 (File
No. 33-94540-LA)
(2) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the Registrant's Form 10-Q for the quarter ended October 31,
1998.
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter ended April
30, 1999.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
CUTTER & BUCK INC.
(Registrant)
By: /s/ HARVEY N. JONES
-----------------------------------------
Harvey N. Jones, Chairman and Chief
June 21, 1999 Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
Chairman, Chief Executive
/s/ HARVEY N. JONES Officer and Director
- ------------------------------ (Principal Executive June 21, 1999
Harvey N. Jones Officer)
/s/ MARTIN J. MARKS President, Chief Operating
- ------------------------------ Officer, Treasurer, June 21, 1999
Martin J. Marks Secretary and Director
Vice President and Chief
/s/ STEPHEN S. LOWBER Financial Officer
- ------------------------------ (Principal Financial and June 21, 1999
Stephen S. Lowber Accounting Officer)
/s/ MICHAEL S. BROWNFIELD
- ------------------------------ Director June 21, 1999
Michael S. Brownfield
/s/ FRANCES M. CONLEY
- ------------------------------ Director June 21, 1999
Frances M. Conley
/s/ LARRY C. MOUNGER
- ------------------------------ Director June 21, 1999
Larry C. Mounger
/s/ JAMES C. TOWNE
- ------------------------------ Director June 21, 1999
James C. Towne
</TABLE>
54
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
- -------------
<S> <C> <C>
Schedule II.. Valuation and Qualifying Accounts
</TABLE>
55
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
CUTTER & BUCK INC.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
<S> <C> <C> <C> <C> <C>
ADDITIONS
--------------------------------
<CAPTION>
CHARGED TO
BALANCE AT REVENUE, CHARGED TO BALANCE AT
BEGINNING COSTS OTHER ACCOUNTS DEDUCTIONS END
DESCRIPTION OF PERIOD OR EXPENSES --DESCRIBE --DESCRIBE OF PERIOD
- ----------------------------------- ------------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended April 30, 1999
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts..................... $ 654,731 $ 447,460 -- $ 284,717(A) $ 817,474
Reserve for sales returns and
allowances................... $ 533,082 $ 3,782,784 -- $3,407,149(B) $ 908,717
Reserve for inventory
obsolescence................. $ 499,453 $ 873,736 -- $ 295,436(C) $ 1,077,753
Year Ended April 30, 1998
Reserves and allowances deducted
from asset accounts:...........
Allowance for doubtful
accounts..................... $ 142,669 $ 518,277 -- $ 6,215(A) $ 654,731
Reserve for sales returns and
allowances................... $ 285,892 $ 2,106,839 -- $1,859,649(B) $ 533,082
Reserve for inventory
obsolescence................. $ 97,785 $ 556,588 -- $ 154,920(C) $ 499,453
Year Ended April 30, 1997
Reserves and allowances deducted
from asset accounts:...........
Allowance for doubtful
accounts..................... $ 212,314 $ 52,877 -- $ 122,522(A) $ 142,669
Reserve for sales returns and
allowances................... $ 106,573 $ 1,264,437 -- $1,085,118(B) $ 285,892
Reserve for inventory
obsolescence................. $ 201,521 -- -- $ 103,736(C) $ 97,785
</TABLE>
- ------------------------
(A) Deductions consist of write-offs of uncollectable accounts, net of
recoveries.
(B) Deductions consist of losses on sales retures and other credits allowed.
(C) Deductions consist of inventory sold at a loss.
56
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BYLAWS
OF
CUTTER & BUCK INC.
(As amended and restated on September 26, 1997)
ARTICLE I
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the corporation shall be located in the state of
Washington at such place as may be fixed from time to time by the board of
directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office. Any change in the registered agent or registered office shall be
effective upon filing such change with the office of the Secretary of State of
the state of Washington.
ARTICLE II
SHAREHOLDERS' MEETINGS
Section 1. ANNUAL MEETINGS. The annual meeting of the shareholders of
the corporation shall be held at the registered office of the corporation, or
such other place as may be designated by the notice of the meeting, during the
month of September each year, for the purpose of election of directors and for
such other business as may properly come before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders of the
corporation may be called at any time by the president, or by a majority of the
board of directors, or by the holders of at least twenty-five percent (25%) of
all the votes entitled to be cast on any issue proposed to be considered at a
proposed special meeting; provided that upon qualification of the corporation
as a "public company" under the Washington Business Corporation Act, the
percentage of votes required to call a special meeting shall be thirty percent
(30%). No business shall be transacted at any special meeting of shareholders
except as is specified in the notice calling for said meeting. The board of
directors may designate any place as the place of any special meeting called by
the president or the board of directors, and special meetings called at the
request of shareholders shall be held at such place as may be determined by the
board of directors and placed in the notice of such meetings.
Section 3. NOTICE OF MEETINGS. Written notice of annual or special
meetings of shareholders stating the place, day, and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given by the Secretary or persons authorized to call the
meeting to each shareholder of record entitled to vote at the meeting. In the
case of an annual meeting, such notice shall be given not less than ten (10)
nor more than sixty (60) days prior to the date of the meeting, except that
notice of an annual meeting to act on (i) an amendment to the Articles of
Incorporation, (ii) a plan of merger or share exchange, (iii) a proposed sale,
lease, exchange or other disposition of substantially all of the assets of the
corporation other than in the usual or regular course of business, or (iv) the
dissolution of the corporation shall be given no fewer than twenty (20) days
nor more than sixty (60) days before the meeting date. In the case of a
special
<PAGE>
meeting, such notice shall be given not less than fifty-five (55) nor more than
sixty (60) days prior to the date of the meeting. Notice may be transmitted by
mail, private carrier or personal delivery; telegraph or teletype; or
telephone, wire or wireless equipment which transmits a facsimile of the
notice. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the shareholder at the shareholder's
address as it appears on the stock transfer books of the corporation.
Section 4. WAIVER OF NOTICE. Notice of the time, place, and purpose of
any meeting may be waived in writing (either before or after such meeting) and
will be waived by any shareholder by the shareholder's attendance at the
meeting in person or by proxy, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting.
Any shareholder so waiving shall be bound by the proceedings of any such
meeting in all respects as if due notice thereof had been given.
Section 5. QUORUM AND ADJOURNED MEETINGS. A majority of the outstanding
shares of the corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders. A majority of the
shares represented at a meeting, even if less than a quorum, may adjourn the
meeting from time to time without further notice. At such reconvened meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business at such meeting and at any adjournment of such meeting
(unless a new record date is or must be set for the adjourned meeting),
notwithstanding the withdrawal of enough shareholders from either meeting to
leave less than a quorum.
Section 6. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by the shareholder's
duly authorized attorney in fact. Such proxy shall be filed with the secretary
of the corporation before or at the time of the meeting. No proxy shall be
valid after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
Section 7. VOTING RECORD. After fixing a record date for a shareholders'
meeting, the corporation shall prepare an alphabetical list of the names of all
shareholders on the record date who are entitled to notice of the shareholders'
meeting. The list shall be arranged by voting group, and within each voting
group by class or series of shares, and show the address of and number of
shares held by each shareholder. A shareholder, shareholder's agent, or a
shareholder's attorney may inspect the shareholder's list, beginning ten days
prior to the shareholders' meeting and continuing through the meeting, at the
corporation's principal office or at a place identified in the meeting notice
in the city where the meeting will be held during regular business hours and at
the shareholder's expense. The shareholders' list shall be kept open for
inspection during such meeting or any adjournment.
Section 8. VOTING OF SHARES. Except as otherwise provided in the
Articles of Incorporation or in these Bylaws, every shareholder of record shall
have the right at every shareholders' meeting to one vote for every share
standing in the shareholder's name on the books of the corporation. If a
quorum exists, action on a matter, other than election of directors, is
approved by a voting group of
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shareholders if the votes cast within the voting group favoring the action
exceed the votes cast within the voting group opposing the action, unless the
Articles of Incorporation or the Washington Business Corporation Act require a
greater number of affirmative votes.
Section 9. RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend, the board
of directors may fix in advance a record date for any such determination of
shareholders, such date to be not more than seventy (70) days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the day before the date on which
notice of the meeting is mailed or the date on which the resolution of the
board of directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to
any adjournment thereof, unless the board of directors fixes a new record date,
which it must do if the meeting is adjourned more than one hundred twenty (120)
days after the date fixed for the original meeting.
Section 10. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the corporation. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of shareholders (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any shareholder of the corporation (i) who is a shareholder of record
on the date of the giving of the notice provided for in this Section 10 and on
the record date for the determination of shareholders entitled to vote at the
annual meeting, and (ii) who timely complies with the notice procedures and
form of notice set forth in this Section 10.
To be timely, a shareholder's notice must be given to the Secretary of the
corporation and must be delivered to or mailed and received at the principal
executive offices of the corporation not less than sixty (60) days nor more
than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; PROVIDED, HOWEVER, that in the event
that the annual meeting is called for a date that is not within thirty (30)
days before or after the anniversary date, or no annual meeting was held in the
immediately preceding year, notice by the shareholder in order to be timely
must be so received no later than the close of business on the tenth (10th) day
following the day on which the notice of the annual meeting date was mailed to
shareholders or other public disclosure of the annual meeting date was made,
whichever first occurs.
To be in proper form, a shareholder's notice must be in written form and
must set forth (a) as to each person whom the shareholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
corporation which are owned beneficially or of record by the person, and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules
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<PAGE>
and regulations promulgated thereunder, and (b) as to the shareholder giving
the notice (i) the name and record address of the shareholder, (ii) the class
or series and number of shares of capital stock of the corporation which are
owned beneficially or by record by the shareholder, (iii) a description of all
arrangements or understandings between the shareholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by the shareholder, (iv) a
representation that the shareholder intends to appear in person or by proxy at
the meeting to nominate the person named in its notice, and (v) any other
information relating to the shareholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of
the Exchange Act and the rules and regulations promulgated thereunder. The
notice must be accompanied by a written consent of each proposed nominee to be
named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the corporation
unless nominated in accordance with the procedures set forth in this Section
10. If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and the defective nomination shall be
disregarded.
Section 11. BUSINESS AT ANNUAL MEETINGS. No business may be transacted
at an annual meeting of shareholders, other than business that is either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof),
or (c) otherwise properly brought before the annual meeting by any shareholder
of the corporation (i) who is a shareholder of record on the date of the giving
of the notice provided for in this Section 11 and on the record date for the
determination of shareholders of record on the date for the determination of
shareholders entitled to vote at the annual meeting, and (ii) who timely
complies with the notice procedures and form of notice set forth in this
Section 11.
To be timely, a shareholder's notice must be given to the Secretary of the
corporation and must be delivered to or mailed and received at the principal
executive offices of the corporation not less than sixty (60) days nor more
than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; PROVIDED, HOWEVER, that in the event
that the annual meeting is called for a date that is not within thirty (30)
days before or after the anniversary date, or no annual meeting was held in the
immediately preceding year, notice by the shareholder in order to be timely
must be so received no later than the close of business on the tenth (10th) day
following the day on which the notice of the annual meeting date was mailed to
shareholders or other public disclosure of the annual meeting date was made,
whichever first occurs.
To be in proper form, a shareholder's notice must be in written form and
must set forth as to each matter the shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting the business at the
annual meeting, (ii) the name and record address of the shareholder, (iii) the
class or series and number of shares of capital stock of the corporation which
are owned beneficially or of record by each shareholder, (iv) a description of
all arrangements or understandings between the
4
<PAGE>
shareholder and any other person or persons (including their names) in
connection with the proposal of the business, and (v) a representation that the
shareholder intends to appear in person or by proxy at the annual meeting to
bring such business before the meeting.
No business shall be conducted at the annual meeting of shareholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 11; PROVIDED, HOWEVER, that, once the
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 11 shall be deemed to preclude
discussion by any shareholder of any such business. If the Chairman of the
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the business was not properly brought before the
meeting and the business shall not be transacted.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the corporation shall
be managed under the direction of, the board of directors except as otherwise
provided by the laws of the state of Washington or in the Articles of
Incorporation.
Section 2. NUMBER. The number of directors of the corporation shall be
six (6). The number of directors can be increased or decreased from time to
time by the vote of the directors or shareholders to amend this Section 2,
provided that the number of directors shall be not less than one, and provided
further that no decrease shall shorten the term of any incumbent director.
Section 3. TENURE AND QUALIFICATIONS. The directors shall be classified
with respect to the time for which they shall severally hold office by dividing
them into three classes, each consisting of one third of the whole number of
the board of directors, and all directors shall hold office until their
successors are elected and qualified, or until their earlier death, resignation
or removal. At the first meeting held for election of the board of directors
pursuant to such classification, directors of the first class shall be elected
for a term of one year; directors of the second class shall be elected for a
term of two years; directors of the third class shall be elected for a term of
three years; and at each annual election thereafter, successors to the
directors whose terms shall expire that year shall be elected to hold office
for a term of three years, so that the term of office of one class of directors
shall expire in each year. Directors need not be residents of the state of
Washington or shareholders of the corporation.
Section 4. VACANCIES. Vacancies in the board of directors, including
vacancies resulting from an increase in the number of directors, may be filled
by the shareholders, the board of directors, or a majority of the remaining
directors if they do not constitute a quorum.
Section 5. RESIGNATION. Any director may resign at any time by
delivering written notice to the board of directors, its chairperson, the
president or the secretary of the corporation. A
5
<PAGE>
resignation shall be effective when the notice is delivered unless the notice
specifies a later effective date.
Section 6. REMOVAL OF DIRECTORS. Any director or the entire board of
directors may be removed for "Cause," as hereinafter defined, by the holders of
a majority of the stock issued and outstanding and entitled to vote at a
special shareholders' meeting called for the purpose of removing the
director(s); provided, however, that the directors elected by a particular
class of shareholders may be removed only by the vote of the holders of a
majority of the shares of such class. For purposes of this Section 7, "Cause"
means:
(a) willful and continued material failure, refusal or inability to
perform one's duties to the corporation or the willful engaging in gross
misconduct materially and demonstrably damaging to the corporation; or
(b) conviction for any crime involving moral turpitude or any other
illegal act that materially and adversely reflects upon the business, affairs
or reputation of the corporation or on one's ability to perform one's duties to
the corporation.
Section 8. MEETINGS.
(a) The annual meeting of the board of directors shall be held
immediately after the annual shareholders' meeting at the same place as the
annual shareholders' meeting or at such other place and at such time as may be
determined by the directors. No notice of the annual meeting of the board of
directors shall be necessary.
(b) Special meetings may be called at any time and place upon the
call of the president, secretary, or any director. Notice of the time and
place of each special meeting shall be given by the secretary or the persons
calling the meeting, by mail, private carrier, radio, telegraph, telegram,
facsimile transmission, personal communication by telephone or otherwise at
least two (2) days in advance of the time of the meeting. The purpose of the
meeting need not be given in the notice. Notice of any special meeting may be
waived in writing or by telegram (either before or after such meeting) and will
be waived by any director by attendance thereat.
(c) Regular meetings of the board of directors shall be held at such
place and on such day and hour as shall from time to time be fixed by
resolution of the board of directors. No notice of regular meetings of the
board of directors shall be necessary.
(d) At any meeting of the board of directors, any business may be
transacted, and the board may exercise all of its powers.
Section 9. QUORUM AND VOTING.
(a) A majority of the directors shall constitute a quorum, but a
lesser number may adjourn any meeting from time to time until a quorum is
obtained, and no further notice thereof need be given.
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<PAGE>
(b) If a quorum is present when a vote is taken, the affirmative
vote of a majority of the directors present at the meeting is the act of the
board of directors.
Section 10. COMPENSATION. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 11. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless:
(a) The director objects at the beginning of the meeting, or
promptly upon the director's arrival, to holding it or transacting business at
the meeting;
(b) The director's dissent or abstention from the action taken is
entered in the minutes of the meeting; or
(c) The director delivers written notice of the director's dissent
or abstention to the presiding officer of the meeting before its adjournment or
to the corporation within a reasonable time after adjournment of the meeting.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
Section 12. COMMITTEES. The board of directors, by resolution adopted by
a majority of the full board of directors, may designate one or more committees
from among its members, each of which must have two or more members and, to the
extent provided in such resolution, shall have and may exercise all the
authority of the board of directors, except that no such committee shall have
the authority to: authorize or approve a distribution except according to a
general formula or method prescribed by the board of directors; approve or
propose to shareholders action that the Washington Business Corporation Act
requires to be approved by shareholders; fill vacancies on the board of
directors or on any of its committees; amend any Articles of Incorporation
requiring shareholder approval; adopt, amend or repeal Bylaws; approve a plan
of merger requiring shareholder approval; or authorize or approve the issuance
or sale or contract for sale of shares, or determine the designation and
relative rights, preferences and limitations of a class or series of shares,
except that the board of directors may authorize a committee, or a senior
executive officer of the corporation, to do so within limits specifically
prescribed by the board of directors.
ARTICLE IV
SPECIAL MEASURES FOR CORPORATE ACTION
Section 1. ACTIONS BY WRITTEN CONSENT. Any corporate action required or
permitted by the Articles of Incorporation, Bylaws, or the laws under which the
corporation is formed, to be voted upon or approved at a duly called meeting of
the directors, committee of directors, or shareholders
7
<PAGE>
may be accomplished without a meeting if one or more unanimous written consents
of the respective directors or shareholders, setting forth the actions so
taken, shall be signed, either before or after the action taken, by all the
directors, committee members, or shareholders, as the case may be. Action
taken by unanimous written consent is effective when the last director or
committee member signs the consent, unless the consent specifies a later
effective date. Action taken by unanimous written consent of the shareholders
is effective when all consents are in possession of the corporation, unless the
consent specifies a later effective date.
Section 2. MEETINGS BY CONFERENCE TELEPHONE. Members of the board of
directors, members of a committee of directors, or shareholders may participate
in their respective meetings by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time; participation in a meeting by
such means shall constitute presence in person at such meeting.
ARTICLE V
OFFICERS
Section 1. OFFICERS DESIGNATED. The officers of the corporation shall be
a chairman, a president, one or more vice presidents, a secretary and a
treasurer, each of whom shall be elected by the board of directors. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the board of directors. Any two or more offices may be held by
the same person.
The board of directors may, in its discretion, elect a chairperson and one
or more vice-chairpersons of the board of directors; and, if a chairperson has
been elected, the chairperson shall, when present, preside at all meetings of
the board of directors and the shareholders and shall have such other powers as
the board may prescribe.
Section 2. ELECTION, QUALIFICATION AND TERM OF OFFICE. Each of the
officers shall be elected by the board of directors. None of said officers
need be a director. The officers shall be elected by the board of directors at
each annual meeting of the board of directors. Except as hereinafter provided,
each of said officers shall hold office from the date of his or her election
until the next annual meeting of the board of directors and until his or her
successor shall have been duly elected and qualified.
Section 3. POWERS AND DUTIES.
(a) CHAIRMAN. The chairman shall be the chief executive officer of
the corporation and, subject to the direction and control of the board of
directors, shall have general supervision and control over its property,
business, and affairs. The chairman may sign any and all documents, deeds,
mortgages, bonds, contracts, or other instruments which the board of directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or by these
bylaws to some other officer or agent of the corporation or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties
8
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incident to such office and such other duties as may be prescribed by the board
of directors from time to time.
(b) PRESIDENT. In the absence of the chairman or in the event of
the chairman's death, inability or refusal to act, the president shall perform
the duties of the chairman and when so acting shall have all the powers of and
be subject to all the restrictions upon the chairman. The president shall
perform such other duties as from time to time may be assigned by the chairman
or by the board of directors.
(c) VICE PRESIDENT. In the absence of the chairman and the
president, or in the event of their death, inability or refusal to act, the
vice president, or the vice presidents in the order designated at the time of
their election or in the absence of any designation, then in the order of their
election, shall perform the duties of the chairman and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
chairman. Any vice president shall perform such other duties as from time to
time may be assigned by the chairman, the president, or by the board of
directors.
(d) SECRETARY. The secretary shall: (1) keep the minutes of the
shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; (2) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (3) be
custodian of the corporate records and of the seal of the corporation and affix
the seal of the corporation to all documents as may be required; (4) keep a
register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder; (5) sign with the chairman, the
president, or a vice president, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the board of
directors; (6) have general charge of the stock transfer books of the
corporation; and (7) in general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him or
her by the chairman, the president or by the board of directors.
(e) TREASURER. Subject to the direction and control of the board of
directors, the treasurer shall have the custody, control, and disposition of
the funds and securities of the corporation and shall account for the same;
and, at the expiration of his or her term of office, he or she shall turn over
to his or her successor all property of the corporation in his or her
possession.
Section 4. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
secretaries, when authorized by the board of directors, may sign with the
chairman, the president, or a vice president, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the board of directors. The assistant treasurers shall, respectively, if
required by the board of directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the board of directors
shall determine. The assistant secretaries and assistant treasurers, in
general, shall perform such duties as shall be assigned to them by the
secretary or the treasurer, respectively, or by the chairman, the president or
the board of directors.
Section 5. REMOVAL. The board of directors shall have the right to
remove any officer whenever in its judgment the best interests of the
corporation will be served thereby.
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Section 6. VACANCIES. The board of directors shall fill any office which
becomes vacant with a successor who shall hold office for the unexpired term
and until his or her successor shall have been duly elected and qualified.
Section 7. SALARIES. The salaries of all officers of the corporation
shall be fixed by the board of directors.
ARTICLE VI
SHARE CERTIFICATES
Section 1. ISSUANCE, FORM AND EXECUTION OF CERTIFICATES. No shares of
the corporation shall be issued unless authorized by the board. Such
authorization shall include the maximum number of shares to be issued, the
consideration to be received for each share, the value of noncash
consideration, and a statement that the board has determined that such
consideration is adequate. Certificates for shares of the corporation shall be
in such form as is consistent with the provisions of the Washington Business
Corporation Act and shall state:
(a) The name of the corporation and that the corporation is
organized under the laws of this state;
(b) The name of the person to whom issued; and
(c) The number and class of shares and the designation of the
series, if any, which such certificate represents. They shall be signed by two
officers of the corporation, and the seal of the corporation may be affixed
thereto. Certificates may be issued for fractional shares. No certificate
shall be issued for any share until the consideration established for its
issuance has been paid.
Section 2. TRANSFERS. Shares may be transferred by delivery of the
certificate therefor, accompanied either by an assignment in writing on the
back of the certificate, written assignment separate from certificate, or
written power of attorney to assign and transfer the same, signed by the record
holder of the certificate. The board of directors may, by resolution, provide
that beneficial owners of shares shall be deemed holders of record for certain
specified purposes. Except as otherwise specifically provided in these Bylaws,
no shares shall be transferred on the books of the corporation until the
outstanding certificate therefor has been surrendered to the corporation.
Section 3. LOSS OR DESTRUCTION OF CERTIFICATES. In case of loss or
destruction of any certificate of shares, another may be issued in its place
upon proof of such loss or destruction and upon the giving of a satisfactory
indemnity bond to the corporation. A new certificate may be issued without
requiring any bond when in the judgment of the board of directors it is proper
to do so.
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ARTICLE VII
BOOKS AND RECORDS
Section 1. BOOKS OF ACCOUNT, MINUTES AND SHARE REGISTER. The corporation
shall keep as permanent records minutes of all meetings of its shareholders and
board of directors, a record of all actions taken by the shareholders or board
of directors without a meeting, and a record of all actions taken by a
committee of the board of directors exercising the authority of the board of
directors on behalf of the corporation. The corporation shall maintain
appropriate accounting records. The corporation or its agent shall maintain a
record of its shareholders, in a form that permits preparation of a list of the
names and addresses of all shareholders, in alphabetical order by class of
shares showing the number and class of shares held by each. The corporation
shall keep a copy of the following records at its principal office: the
Articles or Restated Articles of Incorporation and all amendments to them
currently in effect; the Bylaws or Restated Bylaws and all amendments to them
currently in effect; the minutes of all shareholders' meetings, and records of
all actions taken by shareholders without a meeting, for the past three years;
its financial statements for the past three years, including balance sheets
showing in reasonable detail the financial condition of the corporation as of
the close of each fiscal year, and an income statement showing the results of
its operations during each fiscal year prepared on the basis of generally
accepted accounting principles or, if not, prepared on a basis explained
therein; all written communications to shareholders generally within the past
three years; a list of the names and business addresses of its current
directors and officers; and its most recent annual report delivered to the
Secretary of State of the state of Washington.
Section 2. COPIES OF RESOLUTIONS. Any person dealing with the
corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the board of directors or shareholders, when certified
by the president or secretary.
ARTICLE VIII
AMENDMENT OF BYLAWS
The board of directors shall have the power to adopt, amend or repeal the
bylaws or adopt new bylaws. Nothing herein shall deny the concurrent power of
the shareholders to adopt, alter, amend or repeal the bylaws.
11
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AMENDED AND RESTATED LOAN AGREEMENT
By and Among
WASHINGTON MUTUAL BANK doing business as WESTERN BANK
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION doing business as
SEAFIRST BANK
The Several Lenders from Time to Time Parties Hereto
as the Lenders
and
WASHINGTON MUTUAL BANK doing business as WESTERN BANK
as the Letter of Credit Issuer
and
CUTTER & BUCK INC.
as the Borrower
and
WASHINGTON MUTUAL BANK doing business as WESTERN BANK
as the Administrative Agent to the Lenders and the Letter of Credit Issuer
Dated as of April 28, 1999
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS AND ACCOUNTING TERMS........................................ 1
Section 1.1 Certain Defined Terms......................................... 1
Section 1.2 Computation of Time Periods................................... 8
Section 1.3 Accounting Terms.............................................. 9
ARTICLE II AMOUNTS AND TERMS OF THE BORROWINGS.................................... 9
Section 2.1 The Facilities................................................ 9
Section 2.2 The Borrowings................................................ 10
Section 2.3 Making the Borrowings......................................... 14
Section 2.4 Interest Rates; Late Charges.................................. 16
Section 2.5 Repayment..................................................... 17
Section 2.6 Fees.......................................................... 18
Section 2.7 Prepayments................................................... 18
Section 2.8 Payments and Computations..................................... 18
Section 2.9 Increased Costs............................................... 19
Section 2.10 Illegality.................................................... 20
Section 2.11 Prepayment Indemnity; Fee..................................... 20
Section 2.12 Evidence of Debt.............................................. 21
Section 2.13 Collateral.................................................... 22
Section 2.14 Use of Proceeds............................................... 22
ARTICLE III CONDITIONS OF BORROWING............................................... 22
Section 3.1 Conditions Precedent to Effective Date........................ 22
Section 3.2 Conditions Precedent to Each Borrowing........................ 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES......................................... 24
Section 4.1 Organization.................................................. 24
Section 4.2 Authorization................................................. 24
Section 4.3 Financial Information......................................... 24
Section 4.4 Legal Effect.................................................. 25
Section 4.5 Properties.................................................... 25
Section 4.6 Hazardous Substances.......................................... 25
Section 4.7 Litigation and Claims......................................... 25
Section 4.8 Taxes......................................................... 25
Section 4.9 Lien Priority................................................. 25
Section 4.10 Binding Effect................................................ 26
Section 4.11 Commercial Purposes........................................... 26
Section 4.12 Employee Benefit Plans........................................ 26
Section 4.13 Location of The Borrower's Offices and Records................ 26
Section 4.14 Information................................................... 26
Section 4.15 Survival of Representations and Warranties.................... 26
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ARTICLE V COVENANTS OF THE BORROWER............................................... 27
Section 5.1 Affirmative Covenants......................................... 27
Section 5.2 Negative Covenants............................................ 30
Section 5.3 Financial Covenants........................................... 31
ARTICLE VI EVENTS OF DEFAULT...................................................... 32
Section 6.1 Events of Default............................................. 32
Section 6.2 Remedies...................................................... 34
Section 6.3 Adjustments; Right of Set-Off................................. 34
Section 6.4 Cumulative Remedies........................................... 35
Section 6.5 Application of Payments....................................... 35
ARTICLE VII THE ADMINISTRATIVE AGENT.............................................. 35
Section 7.1 Appointment................................................... 35
Section 7.2 Delegation of Duties.......................................... 36
Section 7.3 Exculpatory Provisions........................................ 36
Section 7.4 Reliance by Administrative Agent.............................. 36
Section 7.5 Notice of Default............................................. 36
Section 7.6 Non-Reliance on Administrative Agent and Other Lenders........ 37
Section 7.7 Indemnification............................................... 37
Section 7.8 Administrative Agent in Its Individual Capacity............... 38
Section 7.9 Successor Administrative Agent................................ 38
ARTICLE VIII MISCELLANEOUS........................................................ 38
Section 8.1 Amendments.................................................... 38
Section 8.2 Notices....................................................... 39
Section 8.3 No Waiver; Remedies........................................... 39
Section 8.4 Costs and Expenses; Indemnification........................... 39
Section 8.5 Binding Effect; Successors and Assigns; Participations
and Assignments............................................... 40
Section 8.6 Execution in Counterparts..................................... 42
Section 8.7 Governing Law................................................. 43
Section 8.8 Mediation/Arbitration Provisions.............................. 43
Section 8.9 Severability.................................................. 44
Section 8.10 Entire Agreement.............................................. 45
Section 8.11 Descriptive Headings.......................................... 45
Section 8.12 Gender and Number............................................. 45
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EXHIBIT A-1 FORM OF REVOLVING FACILITY NOTE
EXHIBIT A-2 FORM OF TERM FACILITY NOTE
EXHIBIT B FORM OF NOTICE OF BORROWING
EXHIBIT C FORM OF ASSIGNMENT AND ACCEPTACE
EXHIBIT D COMMITMENT AMOUNTS
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AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (this "Agreement") dated as
of April 28, 1999 is made by and among CUTTER & BUCK INC., a Washington
corporation (the "Borrower"), WASHINGTON MUTUAL BANK doing business as
WESTERN BANK ("Western Bank"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION doing business as SEAFIRST BANK ("Seafirst"), the several banks
and other financial institutions from time to time parties to this Agreement
(including Western Bank and Seafirst in their respective capacities as
lenders, the "Lenders"), Western Bank, as issuer of letters of credit (the
"Letter of Credit Issuer") and as issuer of credit cards (the "Credit Card
Issuer"), and Western Bank, as administrative agent for the Lenders, the
Letter of Credit Issuer and the Credit Card Issuer (in such capacity, the
"Administrative Agent"), and amends and restates in their entirety (a) the
Amended and Restated Loan Agreement dated as of July 21, 1998 between the
Borrower and Western Bank, which loan agreement amended and restated the Loan
Agreement dated as of January 28, 1997 between the Borrower and Western Bank,
and (b) the Promissory Note dated July 21, 1998 made by the Borrower to the
order of Western Bank, which promissory note amended and restated the
Promissory Note dated as of January 28, 1997 made by the Borrower to the
order of Western Bank (collectively, the "Original Loan Agreements").
RECITALS
The Borrower and Western Bank are parties to the Original Loan
Agreements pursuant to which the Western Bank agreed to make advances to the
Borrower and issue letters of credit for the Borrower's account from time to
time. The Original Loan Agreements are secured by the Amended and Restated
Security Agreement dated July 31, 1998 between the Borrower and Western Bank
(the "Original Security Agreement").
The Borrower and Western Bank have agreed, among other things, to
increase the amount of the loan commitment under the Original Loan Agreements
and to allow Western Bank to assign a portion of its rights and obligations
in this Agreement to Seafirst and, from time to time, to one or more other
banks, financial institutions or other entities. Concurrently with the
execution and delivery of this Agreement, the Borrower and the Lenders are
entering into an Amended and Restated Security Agreement, which amends and
restates the Original Security Agreement.
Accordingly, the parties agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
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<PAGE>
"ADVANCE" means an advance to the Borrower pursuant to Article II, and
refers to a Floating Rate Advance or a Fixed Rate Advance (each of which
shall be a "TYPE" of Advance). Revolving Facility Advances may be borrowed
as Floating Rate Advances or LIBOR Rate Advances. Term Facility Advances may
be borrowed as Floating Rate Advances, LIBOR Rate Advances or Term Rate
Advances.
"AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 20% or more of
the voting interests of such Person or (b) direct or cause the direction of
the management and policies of such Person, whether by contract or otherwise.
"AUTHORIZED OFFICER" means the President, any Senior Vice-President or
the Chief Financial Officer or Controller of the Borrower.
"BORROWER" means Cutter & Buck Inc., a Washington corporation.
"BORROWING" means a borrowing consisting of (a) the making of an
Advance, (b) the issuance of a Letter of Credit or (c) the funding of risk
participations pursuant to Section 2.2(b)(iii) or 2.2(c)(ii).
"BORROWING REQUEST" means a request made by the Borrower to the
Administrative Agent for (a) a Borrowing or (b) the conversion or
continuation of an Advance pursuant to the terms of this Agreement and shall,
if requested by the Administrative Agent, be in the form of a Notice of
Borrowing attached as Exhibit B.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in Seattle, Washington and, if the applicable Business
Day relates to any LIBOR Rate Advances, on which dealings are carried on in
the London interbank market.
"COLLATERAL" means the collateral described in the Security Agreement
or any other Loan Document at any time now or hereafter in effect between the
Borrower and the Administrative Agent, acting on behalf and for the benefit
of each of the Lenders, the Letter of Credit Issuer and the Credit Card
Issuer, including all items of real and personal property in which the
Administrative Agent holds a Lien to secure the credit facilities provided in
this Agreement.
"COMMERCIAL LETTERS OF CREDIT" means irrevocable commercial letters of
credit issued pursuant to Section 2.2(b) from time to time by the Letter of
Credit Issuer or one of its correspondents for the account of the Borrower.
"COMMITMENT" means, with respect to each Lender, the dollar amount
constituting a portion of the Revolving Commitment set forth opposite such
Lender's name on Exhibit D hereof, including any recalculation thereof
resulting from an assignment of any portion of its rights and obligations
under this Agreement pursuant to Section 8.5(c).
2
<PAGE>
"COMMITMENT PERCENTAGE" means, as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the Revolving
Commitment.
"CREDIT CARDS" means one or more Business Visa Cards issued pursuant
to Section 2.2(c) for the account of the Borrower.
"CREDIT CARD PARTICIPANT" means as to any Credit Card, each Lender
other than the Letter of Credit Issuer and Seafirst.
"CREDIT CARD ISSUER" means Washington Mutual Bank doing business as
Western Bank.
"DEFAULT" has the meaning specified in the definition of "Event of
Default."
"DEFAULT RATE" has the meaning specified in Section 2.4(b).
"DOLLARS", "DOLLARS" or the symbol "$" means lawful money of the
United States of America denominated in United States dollars.
"EBITDA" means, for any period, the net income or net loss of Borrower
and its subsidiaries computed on a consolidated basis in accordance with GAAP
(but excluding extraordinary gains or losses), after restoring amounts
deducted for, without duplication, (a) interest expense, (b) taxes based upon
net income and (c) depreciation and amortization.
"EFFECTIVE DATE" means April 28, 1999.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EVENT OF DEFAULT" means any of the events specified in Section 6.1,
provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening
of any further condition, event or act, and "DEFAULT" shall mean any of such
events, whether or not any such requirement has been satisfied.
"FACTORING AGREEMENT" means the Factoring Agreement dated as of March
1, 1995 between the Borrower and Republic Factors Corporation, and any
renewal extension or modification thereof.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, 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 on
the next succeeding Business Day by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for the day of such transactions received by the
Administrative Agent from three federal funds brokers of recognized standing
selected by it.
"FIXED RATE" means a LIBOR Rate or a Term Rate.
"FIXED RATE ADVANCE" means a LIBOR Rate Advance or a Term Rate Advance.
3
<PAGE>
"FLOATING RATE" means, with respect to any Floating Rate Advance, the
interest rate per annum reported as the Prime Rate in the Money Rates section
of the Wall Street Journal. If the Wall Street Journal ceases reporting the
Prime Rate as currently reported, the Floating Rate shall be another
reasonably comparable rate selected by the Lender.
"FLOATING RATE ADVANCE" means an Advance which bears interest at a
rate determined by reference to the Floating Rate as provided in Section
2.4(a)(i).
"FUNDED DEBT" means, as of any date of determination, (a) the
Indebtedness of the Borrower under this Agreement other than Indebtedness
under the Revolving Facility, plus (b) any other Indebtedness of the Borrower
or its subsidiaries that (i) has a stated maturity date in excess of one year
from the date of the creation of such Indebtedness or (ii) has a stated
maturity date of one year or less from the date of creation of such
Indebtedness but is renewable or extendable at the option of the Borrower.
"GAAP" means generally accepted accounting principles in the United
States.
"INDEBTEDNESS" means, with respect to any Person: (i) all items of
indebtedness or liability which would be included in determining total
liabilities as shown on the liability side of a balance sheet as of the date
as of which indebtedness is determined; (ii) indebtedness secured by any Lien
on property carried on the asset side of the balance sheet of such Person
whether or not such indebtedness shall have been assumed; (iii) any other
indebtedness or liability for borrowed money or for the deferred purchase
price of property or services for which such Person is directly or
contingently liable as obligor, guarantor, or otherwise, or in respect of
which such Person otherwise assures a creditor against loss; and (iv) any
other obligations of such Person under leases which shall have been or,
pursuant to GAAP, should be recorded as capital leases.
"INTERCREDITOR AGREEMENT" means the Assignment of Monies Due Under
Factoring Agreement and Intercreditor Agreement dated as of February 20, 1997
among Republic Factors Corporation, the Borrower and the Lender, and all
amendments and modifications thereto.
"INTEREST PERIOD" means, for each Fixed Rate Advance, the period
beginning on the date of such Advance and ending on the last day of the
period selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be (a) in the case of a LIBOR
Rate Advance, one, two, three or six months, and (b) in the case of a Term
Rate Advance, one, two, three, four or five years, in each case as selected
by the Borrower in its applicable Borrowing Request; provided, however, that:
(i) no Interest Period shall end after the Termination Date,
in the case of a Revolving Facility Advance, or after the Maturity Date, in
the case of a Term Facility Advance; and
(ii) if the last day of such Interest Period would otherwise
occur on a day which is not a Business Day, such last day shall be extended
to the next succeeding Business Day, EXCEPT if such Interest Period is for a
LIBOR Rate Advance and such extension would cause such last day
4
<PAGE>
to occur in a new calendar month, then such last day shall occur on the next
preceding Business Day.
"LETTER OF CREDIT" means any letter of credit issued by the Letter of
Credit Issuer or one of its correspondents for the account of the Borrower in
accordance with the provisions of Section 2.2(b), which letter of credit
shall be: (i) in the case of a Commercial Letter of Credit, issued in
connection with the purchase of inventory by the Borrower and, in the case of
a Standby Letter of Credit, issued for such other purposes, if any, for which
the Borrower has historically obtained letters of credit or for such other
purposes as are acceptable to the Lender; (ii) denominated in United States
Dollars, and (iii) otherwise in such form as may be approved from time to
time by the Letter of Credit Issuer.
"LETTER OF CREDIT AGREEMENTS" means, collectively, the Continuing
Agreement for Commercial Letters of Credit dated as of January 29, 1997 from
the Borrower to the Letter of Credit Issuer and the Continuing Agreement for
Standby Letters of Credit dated as of January 29, 1997 from the Borrower to
the Letter of Credit Issuer.
"LETTER OF CREDIT ISSUER" means Washington Mutual Bank doing business
as Western Bank.
"LETTER OF CREDIT PARTICIPANT" means as to any Letter of Credit, each
Lender other than the Letter of Credit Issuer.
"LIBOR RATE" means, with respect to any LIBOR Rate Advance for any
Interest Period, an interest rate per annum (rounded upward to the next 1/100
of 1%) reported as the London Interbank Offered Rate in the Money Rates
section of the Wall Street Journal published on the Business Day next
preceding the date such LIBOR Rate Advance is made (which rate may be
reported as of an earlier date) for maturities equal to the requested
Interest Period. Unless and until the Wall Street Journal publishes such
rate for two-month periods, the LIBOR Rate for two-month Interest Periods
shall be the average of the one-month and the three-month London Interbank
Offered Rates as reported in the Wall Street Journal on the relevant day. If
the Wall Street Journal ceases reporting London Interbank Offered Rates
comparable to those currently reported, the LIBOR Rate shall be another
reasonably comparable rate selected by the Lender.
"LIBOR RATE ADVANCE" means an Advance which bears interest at a rate
determined by reference to the LIBOR Rate as provided in Section 2.4(a)(ii).
"LIEN" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease
in the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction).
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letter of Credit
Agreements, the Security Documents, the Intercreditor Agreement and all other
documents, instruments and agreements related thereto, including all
documentation delivered pursuant to Section 2.2(b)(ii).
"MATURITY DATE" means, with respect to each Term Facility Advance,
August 1, 2005.
5
<PAGE>
"NOTES" means the Revolving Facility Note and the Term Facility Note.
"NOTICE OF BORROWING" means a written notice in the form of Exhibit B.
"OUTSTANDING" means, as of any date of determination, (a) with respect
to Letters of Credit, all Letters of Credit issued pursuant to Section
2.2(b), with respect to which the full amount available to be drawn
thereunder has not been drawn and which have not expired at their stated
expiration dates or otherwise in accordance with their terms or been
surrendered to the Letter of Credit Issuer for cancellation, or (b) with
respect to Advances, the principal amount thereof remaining unpaid and owing
by the Borrower.
"PERMITTED LIENS" means (a) Liens securing Indebtedness owed by the
Borrower to the Lenders, (b) Liens for taxes, assessments or similar charges
either not yet due or being contested in good faith, (c) Liens of material
men, mechanics, warehousemen or carriers, or other like Liens arising in the
ordinary course of business and securing obligations which are not yet
delinquent, (d) purchase money Liens or purchase money security interests
upon or in any property acquired or held by the Borrower in the ordinary
course of business to secure Indebtedness outstanding on the Effective Date
or permitted to be incurred under Section 5.2(a), (e) Liens which, as of the
Effective Date, have been disclosed to and approved by the Lender in writing,
(f) Liens which in the aggregate constitute an immaterial and insignificant
monetary amount with respect to the net value of the Borrower's assets, (g)
Liens granted pursuant to the Factoring Agreement and (h) Liens granted
pursuant to capital leases.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture or other entity, or any governmental authority or entity.
"REQUIRED LENDERS" means, at any date, the Lenders having an aggregate
Commitment Percentage equal to 100% of the Commitment.
"REVOLVING COMMITMENT" has the meaning specified in Section 2.1.
"REVOLVING FACILITY" has the meaning specified in Section 2.1(a).
"REVOLVING FACILITY ADVANCES" means Advances by the Lenders to the
Borrower under the Revolving Facility as Floating Rate Advances or LIBOR Rate
Advances.
"REVOLVING FACILITY NOTE" means the promissory note payable to the
order of each of the Lenders, in substantially the form of Exhibit A-1, in
the amount of such Lender's Commitment Percentage, evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from Borrowings under
the Revolving Facility.
"SECURITY AGREEMENT" means the Amended and Restated Security Agreement
dated the Effective Date between the Borrower and the Administrative Agent,
as secured party on behalf of the Lenders, the Letter of Credit Issuer and
the Credit Card Issuer.
6
<PAGE>
"SECURITY DOCUMENTS" means the Security Agreement and all other
documents, instruments and agreements (a) under which any Person grants a
security interest to the Administrative Agent on behalf and for the benefit
of the Lenders, the Letter of Credit Issuer and the Credit Card Issuer for
the purpose of securing the obligations of the Borrower contained in this
Agreement and the other Loan Documents, or (b) which relate to the perfection
of such a security interest.
"STANDBY LETTERS OF CREDIT" means irrevocable standby letters of
credit issued pursuant to Section 2.2(b) from time to time by the Letter of
Credit Issuer or one of its correspondents for the account of the Borrower.
"TANGIBLE NET WORTH" means the sum of common stock, additional paid in
capital and retained earnings of the Borrower and its subsidiaries calculated
on a consolidated basis in accordance with GAAP.
"TERM COMMITMENT" has the meaning specified in Section 2.1.
"TERM FACILITY" has the meaning specified in Section 2.1(b).
"TERM FACILITY ADVANCES" means Advances by the Term Lender to the
Borrower under the Term Facility as Floating Rate Advances, LIBOR Rate
Advances or Term Rate Advances.
"TERM FACILITY NOTE" means the promissory note payable to the order of
the Term Lender, in substantially the form of Exhibit A-2 evidencing the
aggregate Indebtedness of the Borrower to the Term Lender resulting from
Borrowings under the Term Facility.
"TERM LENDER" means Washington Mutual Bank doing business as Western
Bank.
"TERM RATE" means, with respect to any Term Rate Advance, for any
Interest Period, an interest rate per annum (rounded upward to the next 1/100
of 1%) equal to the yield adjusted to constant maturity on U.S. Treasury
securities as reported by the Federal Reserve Bank of San Francisco based on
composites of quotations by five leading U.S. government securities dealers
to the Federal Reserve Bank of New York for maturities equal to the requested
Interest Period. Unless and until the Federal Reserve Bank reports yields
adjusted to constant maturity on U.S. Treasury securities with maturities of
four years, the Term Rate applicable to any Interest Period of four years
shall be determined by straight-line interpolation between the yield on U.S.
Treasury securities with maturities of two years and three years. If the
Federal Reserve Bank ceases reporting the U.S. Treasury yields adjusted to
constant maturities, the Term Rate shall be another reasonably comparable
rate selected by the Lender.
"TERM RATE ADVANCE" means an Advance which bears interest at a rate
determined by reference to the Term Rate as provided in Section 2.4(a)(iii).
"TERMINATION DATE" means August 1, 2000, unless earlier terminated
pursuant to Section 6.2.
"TYPE" has the meaning specified in the definition of "Advance".
7
<PAGE>
"UCC" means the Uniform Commercial Code as enacted in the state of
Washington (presently Revised Code of Washington title 62A).
"UNUSED REVOLVING FACILITY ADVANCE SUBLIMIT" means, as of any date of
determination, an amount equal to $25,000,000 minus the sum of: (a) the
aggregate principal amount of all Revolving Advances Outstanding and (b) the
aggregate principal amount of Revolving Advances for which a Borrowing
Request has been made pursuant to Section 2.2(a) but which have not been
disbursed as of the date of determination.
"UNUSED REVOLVING FACILITY COMMITMENT" means, as of any date of
determination, an amount equal to the Revolving Commitment minus the sum of:
(a) the aggregate principal amount of all Revolving Facility Advances
Outstanding, (b) the aggregate amount available to be drawn under all Letters
of Credit Outstanding and the aggregate amount drawn under Letters of Credit
for which the Letter of Credit Issuer has not been reimbursed or which has
not been converted into a Floating Rate Advance, as provided in Section
2.2(b)(iii), (c) the aggregate principal or stated amounts of Revolving
Facility Advances and Letters of Credit for which a Borrowing Request has
been made pursuant to Section 2.2(a) but which have not been disbursed or
issued as of the date of determination and (d) the Credit Card sublimit of
$250,000.
"UNUSED SLC SUBLIMIT" means, as of any date of determination, an
amount equal to $4,500,000 minus the sum of (a) the aggregate amount
available to be drawn under all Standby Letters of Credit Outstanding and the
aggregate amount drawn under Standby Letters of Credit for which the Letter
of Credit Issuer has not been reimbursed or which has not been converted into
a Floating Rate Advance, as provided in Section 2.2(b)(iii) and (b) the
aggregate stated amounts of Standby Letters of Credit for which a Borrowing
Request has been made pursuant to Section 2.3(a) but which have not been
issued as of the date of determination.
"UNUSED TERM FACILITY COMMITMENT" means, as of any date of
determination, an amount equal to the Term Commitment minus the sum of (a)
the aggregate principal amount of all Term Facility Advances Outstanding and
(b) the aggregate principal amount of Term Facility Advances for which a
Borrowing Request has been made pursuant to Section 2.3(a) but which have not
been issued as of the date of determination.
"WORKING CAPITAL" means current consolidated assets of the Borrower
and its subsidiaries minus current consolidated liabilities of the Borrower
and its subsidiaries, as defined according to GAAP.
Section 1.2 COMPUTATION OF TIME PERIODS. In this Agreement, in the
computation of periods of time from a specified date to a later specified
date: (a) the word "from" means "from and including," (b) the words "to" and
"until" each means "to but excluding"; and (c) the word "through" means
"through and including."
8
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Section 1.3 ACCOUNTING TERMS. All accounting terms not specifically
defined in this Agreement shall be construed, and all accounting procedures
shall be performed, in accordance with GAAP applicable as of the date of this
Agreement, consistently applied.
ARTICLE II
AMOUNTS AND TERMS OF THE BORROWINGS
Section 2.1 THE FACILITIES.
(a) Subject to the terms and conditions of this Agreement,
each Lender severally agrees to make available to the Borrower for working
capital and general corporate purposes its Commitment Percentage of a
revolving credit facility and (the "Revolving Facility") in the maximum
amount of $40,000,000 (the "Revolving Commitment") consisting of (i) Floating
Rate Advances and LIBOR Advances, (ii) Standby Letters of Credit, (iii)
Commercial Letters of Credit and (iv) Credit Cards; provided, however, that:
(i) The aggregate principal amount of Advances under
the Revolving Facility at any time Outstanding may not exceed $25,000,000;
(ii) The aggregate stated amount of Standby Letters of
Credit at any time Outstanding may not exceed $4,500,000;
(iii) The aggregate credit limit of all Credit Cards
issued to the Borrower may not exceed $250,000;
(iv) The Letter of Credit Issuer shall be obligated to
issue Commercial Letters of Credit in an aggregate stated amount equal to,
but not to exceed, the full amount of the Unused Revolving Facility
Commitment; and
(v) The Letter of Credit Issuer shall be obligated to
issue Standby Letters of Credit in an aggregate stated amount equal to, but
not to exceed, the full amount of the Unused SLC Sublimit.
(b) Subject to the terms and conditions of this Agreement,
the Term Lender shall make available to the Borrower for financing equipment
and leasehold improvements a line of credit (the "Term Facility") in the
maximum amount of $5,000,000 (the "Term Commitment") consisting of Floating
Rate Advances, LIBOR Rate Advances and Term Rate Advances. The Term Facility
and the Revolving Facility are sometimes collectively referred to herein as
the "Facilities".
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Section 2.2 THE BORROWINGS.
(a) ADVANCES UNDER THE FACILITIES.
(i) In the case of Revolving Facility Advances, each
Lender agrees, on the terms and conditions set forth below, to make its pro
rata share of Advances to the Borrower from time to time on any Business Day
during the period from the Effective Date to the Termination Date in an
aggregate amount not to exceed such Lender's Commitment Percentage of the
lesser of the Unused Revolving Facility Advances Sublimit and the Unused
Revolving Facility Commitment. Within the limits of the Unused Revolving
Facility Advances Sublimit, the Borrower may request an Advance under the
Revolving Facility on any Business Day and may prepay such Advance pursuant
to Section 2.7 and re-borrow under the Revolving Facility pursuant to this
Section 2.2(a).
(ii) In the case of a Term Facility Advance, the Term
Lender agrees, on the terms and conditions set forth below, to make Advances
to the Borrower from time to time on any Business Day during the period from
the Effective Date to the Termination Date in an amount not to exceed the
Unused Term Facility Commitment. Any Borrowing under the Term Facility that
is repaid pursuant to Section 2.5(b) or prepaid pursuant to Section 2.7 may
not be reborrowed.
(iii) Each request for an Advance shall be in an amount
not less than $500,000, or an integral multiple of $100,000 in excess
thereof. At no time may LIBOR Rate Advances bearing more than four different
LIBOR Rates be Outstanding.
(b) ISSUANCE OF LETTERS OF CREDIT UNDER THE REVOLVING
FACILITY.
(i) The Letter of Credit Issuer agrees that it shall,
on the terms and conditions set forth below, provide Standby Letters of
Credit for the account of the Borrower; provided, however, that no Standby
Letter of Credit shall be issued if the stated amount thereof exceeds the
lesser of the Unused Revolving Facility Commitment or the Unused SLC
Sublimit. No Standby Letter of Credit shall have an expiration date that is
ninety (90) days after the Termination Date. A Standby Letter of Credit may
provide for a single draw or a number of partial draws, as specified by the
Borrower.
(ii) The Letter of Credit Issuer agrees that it shall,
on the terms and conditions set forth below, provide Commercial Letters of
Credit for the account of the Borrower; provided, however, that no Commercial
Letter of Credit shall be issued if the stated amount thereof exceeds the
Unused Revolving Facility Commitment. No Commercial Letter of Credit shall
have an expiration date that is ninety (90) days after the Termination Date.
A Commercial Letter of Credit may provide for a single draw or a number of
partial draws, as specified by the Borrower.
(iii) The Letter of Credit Issuer hereby grants to each
Letter of Credit Participant, and, to induce the Letter of Credit Issuer to
issue Letters of Credit hereunder, each Letter of Credit Participant hereby
accepts and purchases from the Letter of Credit Issuer, on the
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terms and conditions set forth below, for such Letter of Credit Participant's
own account and risk, an undivided interest equal to such Letter of Credit
Participant's Commitment Percentage in the Letter of Credit Issuer's
obligations and rights under each Letter of Credit issued by the Letter of
Credit Issuer hereunder and the amount of each draft paid by the Letter of
Credit Issuer thereunder. Each Letter of Credit Participant unconditionally
agrees with the Letter of Credit Issuer that, if a draft is paid under any
Letter of Credit issued by the Letter of Credit Issuer for which the Letter
of Credit Issuer is not reimbursed in full by the Borrower in accordance with
the terms of this Agreement, such Letter of Credit Participant shall, upon
demand by the Letter of Credit Issuer, pay to the Administrative Agent for
the account of the Letter of Credit Issuer an amount equal to such Letter of
Credit Participant's Commitment Percentage of the amount of such draft, or
any part thereof, which is not so reimbursed. Any amount so paid shall be a
Borrowing hereunder.
(iv) If any amount required to be paid by any Letter
of Credit Participant to the Letter of Credit Issuer pursuant to Section
2.2(b)(iii), in respect of any unreimbursed portion of any payment made by
the Letter of Credit Issuer under any Letter of Credit, is paid to the
Administrative Agent for the account of the Letter of Credit Issuer within
three Business Days after the date such payment is due, such Letter of Credit
Participant shall, upon demand by the Letter of Credit Issuer, pay to the
Administrative Agent for the account of the Letter of Credit Issuer an amount
equal to the product of (a) such amount, times (b) the Federal Funds
Effective Rate, during the period from and including the date such payment is
required to the date on which such payment is immediately available to the
Administrative Agent for the account of the Letter of Credit Issuer, times
(c) a fraction the numerator of which is the number of days that elapse
during such period and the denominator of which is 360. If any such amount
required to be paid by any Letter of Credit Participant pursuant to Section
2.2(b)(iii) is not in fact made available to the Administrative Agent for the
account of the Letter of Credit Issuer by such Letter of Credit Participant
within three Business Days after the date such payment is due, the Letter of
Credit Issuer shall be entitled to recover from such Letter of Credit
Participant, on demand, such amount with interest thereon calculated from
such due date at the rate per annum applicable to Floating Rate Advances
hereunder. A certificate of any Letter of Credit Issuer submitted to any
Letter of Credit Participant with respect to any amounts owing under this
Section 2.2(b) shall be conclusive in the absence of manifest error.
(v) Whenever, at any time after the Letter of Credit
Issuer has made payment under any Letter of Credit issued by the Letter of
Credit Issuer and has received from any Letter of Credit Participant its PRO
RATA share of such payment in accordance with Section 2.2(b)(iii), the Letter
of Credit Issuer receives any payment related to such Letter of Credit
(whether directly from the Borrower or otherwise), or any payment of interest
on account thereof, the Letter of Credit Issuer will distribute to such
Letter of Credit Participant its PRO RATA share thereof; PROVIDED, HOWEVER,
that in the event that any such payment received by the Letter of Credit
Issuer shall be required to be returned by the Letter of Credit Issuer, such
Letter of Credit Participant shall return to the Letter of Credit Issuer the
portion thereof previously distributed by the Letter of Credit Issuer to it.
(vi) No Letter of Credit shall be issued unless it is
issued in accordance with the Letter of Credit Issuer's customary
requirements, standards, fees and procedures and as
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set forth in the Letter of Credit Agreements and the Letter of Credit
Issuer's other customary letter of credit documentation requirements, nor if
it is for a purpose not described in the definition of "Letter of Credit" in
Section 1.1.
(vii) The Borrower shall reimburse the Letter of Credit
Issuer for any draw on any Letter of Credit by making payment thereof to the
Lender by 3:00 P.M. (Seattle time) on the date on which such draw is paid or,
if any draw is to be made pursuant to a time draft, by 3:00 P.M. (Seattle
time) at least one Business Day prior to the maturity of such time draft.
Unless reimbursement is made by 3:00 P.M. (Seattle time) on any such date,
the Borrower shall be conclusively deemed to have made a Borrowing Request
requesting a Floating Rate Advance under the Facilities to be made on such
date in an amount equal to the amount of such draw. Such a deemed Borrowing
Request will be honored only if it would have been honored if actually made
by the Borrower.
(viii) The obligations of the Borrower to reimburse the
Letter of Credit Issuer for drawings made under each Letter of Credit shall
be unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances, including without
limitation (it being understood that any such payment by the Borrower shall
be without prejudice to, and shall not constitute a waiver of, any rights the
Borrower might have or might acquire against the beneficiary of the Letter of
Credit as a result of the payment by the Letter of Credit Issuer of any draft
or the reimbursement by the Borrower thereof): (A) the existence of any
claim, setoff, defense or other right which the Borrower may have at any time
against a beneficiary of any Letter of Credit or against the Letter of Credit
Issuer, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction; (B) any lack of validity or
enforceability of any Letter of Credit or any other Loan Document, (C) any
draft, demand, certificate or other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(D) any interruption, error or delay in transmission or delivery by facsimile
or any other method, (E) payment by the Letter of Credit Issuer of any Letter
of Credit against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Letter of Credit; (F)
any other circumstances or happening whatsoever, which is similar to any of
the foregoing; or (G) the fact that any Default or Event of Default shall
have occurred and be continuing.
(ix) In connection with the Letters of Credit to be
issued under the Revolving Facility, the Borrower may submit communications
(a "Faxed Document") to Letter of Credit Issuer by facsimile transmission.
With respect to such facsimile transmission, the Borrower agrees as follows:
(A) Each such Faxed Document shall be deemed
an original document and shall be effective for all purposes as if it were an
original. The Borrower shall retain the original of any Faxed Document and
shall deliver it to the Letter of Credit Issuer on request.
(B) If the Borrower sends the Letter of Credit
Issuer a manually signed confirmation of a Faxed Document, the Letter of
Credit Issuer shall have no duty to compare it to the previously received
Faxed Document nor shall it have any liability or duty to
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compare it to the previously received Faxed Document nor shall it have any
liability or duty to act should the contents of the confirmation differ
therefrom. Any manually signed confirmation of a Faxed Document must be
conspicuously marked "previously transmitted by facsimile," and the Letter of
Credit Issuer shall not be liable for the issuance of duplicate Letters of
Credit or amendments thereto that result from the Letter of Credit Issuer's
receipt of confirmations not so marked.
(C) The Borrower shall have sole
responsibility for the security of using facsimile transmissions and for any
authorized or unauthorized Faxed Document received by the Letter of Credit
Issuer, purportedly on behalf of the Borrower.
(D) The Borrower agrees to indemnify and hold
harmless the Letter of Credit Issuer from each and every claim, demand,
liability, loss, cost or expense (including attorneys' fees and expenses)
which may arise or be created by the Letter of Credit Issuer's acceptance of
telecommunication instructions in connection with any Letter of Credit,
including facsimile instructions in connection with any waiver of
discrepancies.
(x) The Borrower will promptly examine each Letter of
Credit issued hereunder, any amendments thereto and all information,
documents and instruments delivered to the Borrower from time to time by the
Letter of Credit Issuer or any of its correspondents. The Borrower shall
notify the Letter of Credit Issuer within five Business Days after receipt of
any of the foregoing if the Borrower claims that the Letter of Credit Issuer
has failed to comply with the Borrower's instructions or the Letter of Credit
Issuer's obligations with respect to such Letter of Credit or has wrongfully
honored or dishonored any presentation under the Letter of Credit or if the
Borrower claims any other irregularity. If the Borrower does not so notify
the Letter of Credit Issuer within such time period, the Borrower shall be
conclusively deemed to have waived, and therefore be precluded from
asserting, such claims.
(c) ISSUANCE OF CREDIT CARDS UNDER THE REVOLVING FACILITY.
(i) The Credit Card Issuer shall provide the Borrower
with one or more Credit Cards with an aggregate credit limit of $250,000
during the period from the Effective Date through the Termination Date. The
Borrower agrees to execute the Credit Card Issuer's standard business card
agreement and any other documents the Credit Card Issuer may request in
connection with the provision of such Credit Cards.
(ii) The Credit Card Issuer hereby grants to each
Credit Card Participant, and, to induce the Credit Card Issuer to issue
Credit Cards hereunder, each Credit Card Participant hereby accepts and
purchases for the Credit Card Issuer, on the terms and conditions set forth
below, for such Credit Card Participant's own account and risk, an undivided
interest equal to such Credit Card Participant's Commitment Percentage in the
Credit Card Issuer's obligations and rights under each Credit Card issued by
the Credit Card Issuer hereunder and the amount of each draft paid by the
Credit Card Issuer thereunder. Each Credit Card Participant unconditionally
agrees with the Credit Card Issuer that, if any amounts are disbursed under
any Credit Card issued by the Credit Card Issuer for which the Credit Card
Issuer is not reimbursed in full by the Borrower in accordance with the terms
of this Agreement, such Credit
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Card Participant shall, upon demand by the Credit Card Issuer, pay to the
Administrative Agent for the account of the Credit Card Issuer an amount
equal to such Credit Card Participant's Commitment Percentage of the amount
of such disbursement, or any part thereof, which is not so reimbursed.
(iii) If any amount required to be paid by any Credit
Card Participant to the Credit Card Issuer pursuant to Section 2.2(c)(ii), in
respect of any unreimbursed portion of any disbursement made by the Credit
Card Issuer under any Credit Card, is paid to the Administrative Agent for
the account of the Credit Card Issuer within three Business Days after the
date such payment is due, such Credit Card Participant shall, upon demand by
the Credit Card Issuer, pay to the Administrative Agent for the account of
the Credit Card Issuer an amount equal to the product of (a) such amount,
times (b) the Federal Funds Effective Rate, during the period from and
including the date such payment is required to the date on which such payment
is immediately available to the Administrative Agent for the account of the
Credit Card Issuer, times (c) a fraction the numerator of which is the number
of days that elapse during such period and the denominator of which is 360.
If any such amount required to be paid by any Credit Card Participant
pursuant to Section 2.2(c)(ii) is not in fact made available to the
Administrative Agent for the account of the Credit Card Issuer by such Credit
Card Participant within three Business Days after the date such payment is
due, the Credit Card Issuer shall be entitled to recover from such Credit
Card Participant, on demand, such amount with interest thereon calculated
from such due date at the rate per annum applicable to Floating Rate Advances
hereunder. A certificate of any Credit Card Issuer submitted to any Credit
Card Participant with respect to any amounts owing under this Section 2.2(c)
shall be conclusive in the absence of manifest error.
(iv) Whenever, at any time after the Credit Card
Issuer has made a disbursement under any Credit Card issued by the Credit
Card Issuer and has received from any Credit Card Participant its PRO RATA
share of such disbursement in accordance with Section 2.2(c)(ii), the Credit
Card Issuer receives any payment related to such Credit Card (whether
directly from the Borrower or otherwise), or any payment of interest on
account thereof, the Credit Issuer will distribute to such Credit Card
Participant its PRO RATA share thereof; PROVIDED, HOWEVER, that in the event
that any such payment received by the Credit Card Issuer shall be required to
be returned by the Credit Card Issuer, such Credit Card Participant shall
return to the Credit Card Issuer the portion thereof previously distributed
by the Credit Card Issuer to it.
(v) If the balance owing on any Credit Card issued to
the Borrower under this Section 2.2(c) is more than 60 days past due, the
Administrative Agent may terminate such Credit Card.
Section 2.3 MAKING THE BORROWINGS.
(a) PROCEDURE FOR BORROWINGS.
(i) BORROWING REQUESTS. Each Borrowing Request for
an Advance shall be made by the Borrower to the Administrative Agent (A) in
the case of Floating Rate Advances, not later than 9:00 A.M. (Seattle time)
on the day of the proposed Borrowing; and (B)
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in the case of Fixed Rate Advances, not later than 9:00 A.M. on the third
Business Day prior to the date of the proposed Borrowing. Each Borrowing
Request (A) for the issuance of a Letter of Credit shall be made by the
Borrower to the Letter of Credit Issuer not later than 9:00 A.M. (Seattle
time) on the date of the proposed Borrowing, and (B) for the issuance of a
Credit Card shall be made by the Borrower to the Credit Card Issuer not later
than 9:00 A.M. on the date of the proposed issuance of a Credit Card. Each
Borrowing Request shall be made by an Authorized Officer of the Borrower by
telephone or, if requested by the Administrative Agent, the Letter of Credit
Issuer or the Credit Card Issuer, by telecopy or personal delivery, in
writing, in substantially the form of Exhibit B hereto, fully and accurately
specifying the information required therein. Upon receipt by the
Administrative Agent of a Borrowing Request from the Borrower requesting
either a Floating Rate Advance or a Fixed Rate Advance under the Revolving
Facility, the Administrative Agent shall promptly notify each Lender thereof.
Thereafter, each Lender shall make the amount of its pro rata share of each
Revolving Facility Advance available to the Administrative Agent for the
account of the Borrower at the office of the Administrative Agent specified
in Section 8.2 prior to 1:00 P.M. (Seattle time), on the date of the proposed
Borrowing in funds immediately available to the Administrative Agent. Such
Revolving Facility Advance shall then be made available to the Borrower by
the Administrative Agent.
(ii) AVAILABILITY OF BORROWINGS. The Administrative
Agent shall make Borrowings available to the Borrower as follows:
(A) In the case of a Borrowing consisting of
Advances, the Administrative Agent will make such funds available to the
Borrower in immediately available funds to the account of the Borrower at
Washington Mutual Bank doing business as Western Bank, Account No.
201-02386601, or such other account of the Borrower as may be approved by the
Lender.
(B) In the case of a Borrowing consisting of
the issuance of a Letter of Credit, the Letter of Credit Issuer shall deliver
the Letter of Credit to the beneficiary thereof on the date specified in the
applicable Borrowing Request.
(C) Unless the Administrative Agent shall have
been notified in writing by any Lender prior to a Borrowing of a Revolving
Facility Advance that such Lender will not make the amount that would
constitute such Lender's Commitment Percentage of such Revolving Facility
Advance available to the Administrative Agent, the Administrative Agent may
assume that such Lender is making such amount available to the Administrative
Agent, and the Administrative Agent may, in reliance upon such assumption,
make available to the Borrower a corresponding amount. If such amount is not
made available to the Administrative Agent by the required time on the date
of the Borrowing, such Lender shall pay to the Administrative Agent, on
demand, such amount with interest thereon at a rate equal to the daily
average Federal Funds Effective Rate for the period until such Lender makes
such amount immediately available to the Administrative Agent. A certificate
of the Administrative Agent submitted to any Lender with respect to any
amounts owing under this Section 2.3(a)(ii)(C) shall be conclusive in the
absence of manifest error. If such Lender's Commitment Percentage of such
Revolving Facility Advance is not made available to the Administrative Agent
by such Lender
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within three Business Days of the date of such Borrowing, the Administrative
Agent shall also be entitled to recover such amount with interest thereon at
the rate per annum applicable to Floating Rate Advances hereunder, on demand,
from the Borrower.
(b) Conversion and Continuation of Advances. The Borrower
may, pursuant to a Borrowing Request (A) received by the Administrative Agent
not later than 9:00 A.M. (Seattle time) on the last day of any applicable
Interest Period for a Fixed Rate Advance, elect to convert such Fixed Rate
Advance to a Floating Rate Advance; (B) received by the Administrative Agent
not later than 9:00 A.M. (Seattle time) on the third Business Day prior to
the day the conversion is to take effect, elect to convert any Floating Rate
Advance to a Fixed Rate Advance; and (C) received by the Administrative Agent
not later than 9:00 A.M. (Seattle time) on the third Business Day prior to
the last day of any applicable Interest Period for a Fixed Rate Advance,
elect to convert or continue such Fixed Rate Advance at the same or another
Fixed Rate. Each Borrowing Request shall be made by an Authorized Officer of
the Borrower by telephone or, if requested by the Administrative Agent, by
telecopy or personal delivery, in writing, in substantially the form of
Exhibit B hereto, fully and accurately specifying the information required
therein.
(c) UNAVAILABILITY OF FIXED RATES. Notwithstanding any
election of a Fixed Rate Advance for an Interest Period pursuant to Section
2.3(a) or (b) above, if:
(i) on or prior to the determination of the
applicable interest rate for such Advance, the Administrative Agent
determines (which determination shall be conclusive and binding) that
quotations of interest rates are not being provided in the relevant market in
the relevant amount, for an Interest Period; or
(ii) on or prior to the first day of an Interest
Period, the Administrative Agent determines (which determination shall be
conclusive and binding) that, as a result of conditions in or generally
affecting the relevant market, the rates of interest on the basis of which
the applicable Fixed Rate is to be computed do not accurately reflect the
cost to the Lenders of making or maintaining such Advance for such Interest
Period;
then the Administrative Agent shall give the Borrower prompt notice thereof
by telephone and the election by the Borrower of a Fixed Rate Advance for
such Interest Period shall not be effective, and such Advance shall be made
as a Floating Rate Advance.
Section 2.4 INTEREST RATES; LATE CHARGES.
(a) ADVANCES. The Borrower shall pay interest on the unpaid
principal amount of each Advance from the date of such Advance until such
principal amount is paid in full, at the following rates:
(i) FLOATING RATE ADVANCES. Except to the extent the
Borrower has made an effective election of a Fixed Rate with respect to such
Advance pursuant to Section 2.3(a) or (b), at a rate per annum equal at all
times to the Floating Rate in effect from time to time, payable monthly on
the first day of each month while such Advance is Outstanding.
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(ii) LIBOR RATE ADVANCES. If the Borrower has made an
effective election of a LIBOR Rate with respect to such Advance, at a rate
per annum equal at all times during each Interest Period for such Advance to
the sum of the LIBOR Rate for the applicable Interest Period plus two percent
(2%) per annum, payable on the last day of each such Interest Period;
provided, that if the Interest Period is longer than three months, interest
shall be payable on the last day of each three-month period during such
Interest Period and on the last day of such Interest Period.
(iii) TERM RATE ADVANCES. If the Borrower has made an
effective election of a Term Rate with respect to such Advance, at a rate per
annum equal at all times during each Interest Period for such Advance to the
sum of the Term Rate for the applicable Interest Period plus two percent (2%)
per annum, payable on the first day of each month.
(b) DEFAULT RATE. Any amount owing by the Borrower under
this Agreement or any other Loan Document which is not paid when due (whether
at stated maturity, by acceleration or otherwise) shall bear interest, from
the date on which such amount is due until such amount is paid in full,
payable on demand, at a rate per year equal at all times to the greater of
(i) the Floating Rate plus three percent (3%) and (ii) with respect to any
Fixed Rate Advance, the Fixed Rate then in effect plus three percent (3%).
(c) LATE CHARGE. If any payment due hereunder in respect of
any Borrowing Outstanding is ten (10) days or more late, the Borrower shall
be charged two percent (2%) of such payment or $25.00, whichever is greater;
provided that no such amount shall be charged on or after the date on which
the Administrative Agent has declared all amounts owing hereunder to be due
and payable as provided in Section 6.2.
Section 2.5 REPAYMENT.
(a) BORROWINGS UNDER THE REVOLVING FACILITY. The Borrower
shall repay the outstanding principal amount of each Revolving Facility
Advance made by the Lenders on the Termination Date, together with all
accrued and unpaid interest thereon. The Borrower shall reimburse the Letter
of Credit Issuer for all draws on each Letter of Credit as provided in
Section 2.2(b)(vii).
(b) BORROWINGS UNDER THE TERM FACILITY. The Borrower shall
repay the aggregate principal amount of all Term Facility Advances that are
Outstanding on August 1, 1999 (the "1999 Principal Amount") in installments
equal to 1/7 of the 1999 Principal Amount on each August 1, 2000, August 1,
2001, August 1, 2002, August 1, 2003 and August 1, 2004 and in a final
installment equal to the unpaid balance of the 1999 Principal Amount on the
Maturity Date, together with all accrued and unpaid interest thereon.
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Section 2.6 FEES.
(a) REVOLVING FACILITY FEES.
(i) UPFRONT FACILITY FEE. On the Effective Date, the
Borrower shall pay to the Administrative Agent for the account of the
Administrative Agent a facility fee equal to $10,000.00.
(ii) UNUSED COMMITMENT FEE. On each September 30,
December 31, March 31 and June 30, commencing June 30, 1999, the Borrower
shall pay to the Administrative Agent for the benefit of the Lenders an
unused commitment fee equal to 3/16% per annum of the amount equal to (A)
$40,000,000 minus (B) the average of the aggregate principal and stated
amounts of Advances and Letters of Credit Outstanding on the last day of each
month in the fiscal quarter then ended.
(b) TERM FACILITY FEES. On the date of each Term Facility
Advance, the Borrower shall pay to the Term Lender a facility fee equal to
1/2% of the principal amount of such Term Facility Advance.
(c) LETTER OF CREDIT FEES. The fees and charges for the
issuance, payment and administration of Letters of Credit are set forth in
the Letter of Credit Agreements.
Section 2.7 PREPAYMENTS. If the Borrower desires to prepay any
Advances, the Borrower shall give the Administrative Agent the same number of
Business Days' written notice required in Section 2.3(a) for a Borrowing
Request given with respect to Advances, specifying the proposed date and
aggregate principal amount of the prepayment and the Interest Period or
Interest Periods (if any) relating to such Advances. If notice of prepayment
is given, the Borrower shall prepay the Advances comprising the same
Borrowing in whole or in part with (A) accrued interest to the date of such
prepayment on the amount prepaid and (B) in the case of Fixed Rate Advances,
any amounts required to be paid pursuant to Section 2.11.
Section 2.8 PAYMENTS AND COMPUTATIONS.
(a) The Borrower shall make each payment hereunder and under
the Note not later than 11:00 A.M. (Seattle time) on the day when due in U.S.
Dollars to the Administrative Agent at 1201 Third Avenue, Suite 1000,
Seattle, Washington 98101, or at such other location designated by notice
from the Administrative Agent pursuant to the notice provision of this
Agreement, in immediately available funds.
(b) All computations of interest and all fees pursuant to
Section 2.6 shall be made by the Administrative Agent on the basis of a year
of 360 days, in each case for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such
interest or fees are payable. Each determination by the Administrative Agent
of an interest rate or an increased cost or of illegality hereunder shall be
presumptive evidence thereof and binding for all purposes if made reasonably
and in good faith.
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(c) Whenever any payment hereunder or under the Notes shall
be stated to be due (or an Interest Period shall be stated to end) on a day
other than a Business Day, such payment shall be made (and such Interest
Period shall end) on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest
or fees, as the case may be; provided, however, if such extension would cause
payment of interest based on a LIBOR Rate to be made (or an Interest Period
for a Fixed Rate Advance to end) in the next following calendar month, such
payment shall be made (and such Interest Period shall end) on the next
preceding Business Day.
Section 2.9 INCREASED COSTS.
(a) If, due to either (i) the introduction after the date of
this Agreement of or any change after the date of this Agreement (including
any change by way of imposition or increase of reserve requirements or
assessments other than those referred to in the definition of LIBOR Rate) in
or in the interpretation of any law or regulation or (ii) the compliance with
any guideline or request issued or made after the date of this Agreement from
or by any central bank or other governmental authority (whether or not having
the force of law), in each case above, other than those referred to in
Section 2.9(b), there shall be any increase in the cost to any Lender of
agreeing to make or maintain, or of making or maintaining, Fixed Rate
Advances or there shall be any increase in the cost to the Letter of Credit
Issuer of agreeing to issue or maintain, or of issuing or maintaining any
Letter of Credit, then the Borrower shall from time to time, upon demand by
such Lender or the Letter of Credit Issuer, as the case may be, pay to such
Lender or Letter of Credit Issuer additional amounts sufficient to reimburse
such Lender or the Letter of Credit Issuer for all such increased costs. A
certificate as to the amount of such increased cost, submitted to the
Borrower by such Lender or the Letter of Credit Issuer, as the case may be,
shall be presumptive evidence of such increased cost and binding for all
purposes, if made reasonably and in good faith.
(b) If either (i) the introduction after the date of this
Agreement of, or the application after the date of this Agreement as a result
of phase-in or transitional rules of, or any change after the date of this
Agreement in or in the interpretation of, any law or regulation or (ii)
compliance by a Lender, the Letter of Credit Issuer or the Credit Card Issuer
with any guideline or request issued or made after the date of this Agreement
or deemed applicable after the date hereof as a result of phase-in or
transitional rules from or by any central bank or other governmental
authority (whether or not having the force of law) affects or would affect
the amount of capital required or expected to be maintained by such Lender,
the Letter of Credit Issuer or the Credit Card Issuer and such Lender, Letter
of Credit Issuer or Credit Card Issuer determine(s) that the amount of such
capital is increased by or based upon the existence of the Revolving
Commitment or its Commitment Percentage of the Revolving Commitment (or by or
based upon the making of Fixed Rate Advances or the issuance of or obligation
to issue or purchase risk participations in Letters of Credit or Credit
Cards), then, upon demand by such Lender, the Letter of Credit Issuer or the
Credit Card Issuer, the Borrower shall immediately pay to the Lender, the
Letter of Credit Issuer or the Credit Card Issuer, from time to time as
specified by the Lender, the Letter of Credit Issuer or the Credit Card
Issuer, additional amounts sufficient to compensate such Lender, the Letter
of Credit Issuer or the Credit Card Issuer in the light of such
circumstances, to the extent that such Lender, the Letter of Credit Issuer or
the Credit Card
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Issuer reasonably determine(s) such increase in capital to be allocable to
the maintenance of the Revolving Commitment or its Commitment Percentage of
the Revolving Commitment (or the making of Fixed Rate Advances or the
issuance and maintenance of or obligation to issue Letters of Credit or
Credit Cards). A certificate as to such amounts submitted to the Borrower by
a Lender, the Letter of Credit Issuer or the Credit Card Issuer, shall, if
made reasonably and in good faith, be presumptive evidence of such amounts
and binding for all purposes.
Section 2.10 ILLEGALITY. Notwithstanding any other provision of this
Agreement, if the introduction of or any change in or in the interpretation
of any law or regulation shall make it unlawful, or any central bank or other
governmental authority shall assert that it is unlawful, for a Lender to
perform its obligations hereunder to make Fixed Rate Advances or to purchase
risk participations in any Letter of Credit or Credit Card, to continue to
fund or maintain such Advances hereunder, for the Letter of Credit Issuer to
issue or maintain Letters of Credit or for the Credit Card Issuer to issue or
maintain Credit Cards, such Lenders, the Letter of Credit Issuer or the
Credit Card Issuer may, by notice to the Borrower, suspend the right of the
Borrower to elect such Fixed Rate Advances or to request Letters of Credit to
be issued, as the case may be, and, if necessary in the reasonable opinion of
such Lender to comply with such law or regulation, Borrower shall prepay all
such Fixed Rate Advances at the latest time permitted by the applicable law
or regulation. The Borrower shall not be obligated to pay any amount
pursuant to Section 2.11 in respect of such prepayment.
Section 2.11 PREPAYMENT INDEMNITY; FEE. If (i) due to payments made
by the Borrower pursuant to Section 2.7 or due to acceleration of the
maturity of the Notes pursuant to Section 6.2 or due to any other reason
attributable to the Borrower (but not due to any prepayment pursuant to
Section 2.10), a Lender receives payments of principal of a Fixed Rate
Advance other than on the last day of an Interest Period relating to such
Advance, or (ii) the Borrower fails to prepay any Fixed Rate Advance pursuant
to a notice of prepayment given pursuant to Section 2.7, the Borrower shall,
upon demand by a Lender, pay to the Administrative Agent on behalf of such
Lender the following:
(a) LIBOR RATE ADVANCES. In the case of prepayment of LIBOR
Rate Advances, the Borrower shall pay any amounts required to compensate the
Lender for any additional losses, costs or expenses which it may reasonably
incur as a result of such payment or failure to prepay, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by the Lender to fund or
maintain such Advances.
(b) TERM RATE ADVANCES. In the case of prepayment of Term
Rate Advances (but subject to the provisions of paragraph (v) below), the
Borrower shall pay a prepayment fee calculated separately for each Prepaid
Installment:
(i) The Term Lender shall first determine the amount
of interest which would have accrued each month on the Prepaid Installment
had it remained outstanding until the applicable Original Payment Date, using
the applicable Term Rate.
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(ii) The Term Lender shall then subtract from each
monthly interest amount determined in paragraph (i) above, the amount of
interest which would accrue on that Prepaid Installment if the Prepaid
Installment were reinvested from the date of prepayment through the Original
Payment Date at the Treasury Rate.
(iii) If the remainder determined in paragraph (ii)
with respect to the Prepaid Installment is greater than zero, the Term Lender
shall discount the monthly differences to the date of prepayment by the
Treasury Rate. The sum of the discounted monthly differences for the Prepaid
Installment shall be the amount of the prepayment fee due hereunder with
respect to the Prepaid Installment.
(iv) The following definitions will apply to the
calculation of the prepayment fee for purposes of this Section 2.11(b):
(A) "ORIGINAL PAYMENT DATES" means the dates
on which principal of a Term Rate Advance would have been paid if there had
been no prepayment.
(B) "PREPAID INSTALLMENT" means the amount of
the prepaid principal of a Term Rate Advance which would have been paid on a
single Original Payment Date.
(C) "TREASURY RATE" means the interest rate
yield for U.S. Treasury securities which the Lender determines could be
obtained by reinvesting a specified Prepaid Installment in such securities
from the date of prepayment through the Original Payment Date. The Treasury
Rate may be based on information from either the Telerate or Reuters
information services, the Wall Street Journal or other information sources
the Lender deems appropriate.
Notwithstanding the foregoing provisions of this Section 2.11(b), the
Borrower may prepay the principal of Term Rate Advances, without liability
for any prepayment fee that would otherwise be payable under this Section
2.11(b), in an amount of up to 10% of the aggregate principal amount of all
Term Rate Advances made by the Term Lender to the Borrower from time to time
under the Term Facility (including any Term Rate Advances that have
previously been prepaid or repaid pursuant to the terms of this Agreement).
Any prepayment in excess of such amount shall be subject to payment of a
prepayment fee in accordance with this Section 2.11(b).
Section 2.12 EVIDENCE OF DEBT. The Advances made by the Lenders to
the Borrower, and the obligations of the Borrower to both reimburse the
Letter of Credit Issuer for draws on Letters of Credit and reimburse the
Credit Card Issuer for disbursements made under Credit Cards, shall be
evidenced by a Note payable to the order of each Lender in a principal amount
equal to such Lender's Commitment Percentage of the Revolving Commitment.
Each Lender may maintain in accordance with its usual practice an account or
accounts evidencing the Indebtedness of the Borrower resulting from Advances
and payments made from time to time hereunder. In any legal action or
proceeding in respect of this Agreement or the Notes, the entries made in
such account or accounts shall be presumptive evidence of the existence and
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amounts of the obligations of the Borrower therein recorded, if made
reasonably and in good faith.
Section 2.13 COLLATERAL. As security for the obligation of the
Borrower to repay Advances, to pay the principal of and interest on the Notes
and the other Indebtedness of the Borrower under this Agreement and to
reimburse the Letter of Credit Issuer for draws on any Letter of Credit and
the Credit Card Issuer for disbursements made under any Credit Card, and for
the performance by the Borrower of its other obligations hereunder and under
all the other Loan Documents, the Borrower shall grant to the Administrative
Agent, on behalf and for the benefit of each Lender, the Letter of Credit
Issuer and the Credit Card Issuer, an attached, fully perfected,
first-priority security interest in the Collateral, subject to the terms of
the Security Agreement and the Factoring Agreement.
Section 2.14 USE OF PROCEEDS. Proceeds of the Revolving Facility
Advances and disbursements made under Credit Cards shall be used for general
corporate purposes of the Borrower, including, without limitation, for
repayment of any other Advances and reimbursement of draws under Letters of
Credit. Proceeds of the Term Facility Advances may be used to finance the
Borrower's equipment and leasehold improvements.
ARTICLE III
CONDITIONS OF BORROWING
Section 3.1 CONDITIONS PRECEDENT TO EFFECTIVE DATE. The occurrence
of the Effective Date is subject to the condition precedent that the
Administrative Agent shall have received in form and substance satisfactory
to the Administrative Agent and all duly executed by the parties thereto:
(a) The respective Revolving Facility Notes made payable to
each Lender and the Term Facility Note payable to the Term Lender.
(b) An Amended and Restated Security Agreement.
(c) An Amendment to the Intercreditor Agreement relating to
the execution and delivery of this Agreement.
(d) A copy of the Articles of Incorporation of the Borrower
certified by the Secretary of State of the state of its incorporation, and a
copy of the Bylaws of the Borrower certified by its secretary.
(e) Certified copies of the resolutions of the Board of
Directors of the Borrower approving the Borrowings contemplated hereby and
authorizing the execution of the Loan Documents, and of all documents
evidencing other necessary corporate action and governmental approvals, if
any, with respect to the Loan Documents.
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(f) A certificate of the Secretary or an Assistant Secretary
of the Borrower certifying the names and true signatures of the officers of
the Borrower authorized to sign the Loan Documents and the other documents to
be delivered hereunder.
(g) Evidence satisfactory to the Administrative Agent that
security interests created by the Security Agreement in the Collateral have
been duly perfected by the taking of all such acts as may be necessary or
advisable to create an attached, fully perfected, first-priority security
interest (subject to no liens other than Permitted Liens) to secure all
obligations of the Borrower to the Lenders under this Agreement and the other
Loan Documents.
(h) Certificates of good standing of a recent date for the
Borrower from the Secretary of State of the state of its incorporation.
(i) A completed Year 2000 Questionnaire
(j) The facility fee due pursuant to Section 2.6(a)(i).
(k) Such other documents or instruments as the
Administrative Agent may reasonably request.
Section 3.2 CONDITIONS PRECEDENT TO EACH BORROWING. The obligation
of the Lenders to make, continue or convert Revolving Facility Advances, or
the obligation of the Term Lender to continue or convert Term Facility
Advances, or the obligation of the Letter of Credit Issuer to issue Letters
of Credit or the Credit Card Issuer to issue Credit Cards, shall be subject
to the following further conditions precedent:
(a) On the date of a Borrowing pursuant to Section 2.3(a) or
the continuation or conversion of an Advance pursuant to Section 2.3(b),
before and immediately after giving effect thereto, the following statements
shall be true and correct, and the making by the Borrower of the applicable
Borrowing Request shall constitute its representation and warranty that on
and as of the date of such Borrowing, conversion or continuation, before and
immediately after giving effect thereto, the following statements are true
and correct:
(i) The representations and warranties contained in
Article IV of this Agreement are correct in all material respects as though
made on and as of such date, unless such representations and warranties are
expressly stated to be made as of an earlier date;
(ii) After giving effect to (A) a requested Borrowing,
conversion or continuation of a Revolving Facility Advance, neither the
Unused Revolving Facility Advance Sublimit nor the Unused Revolving Facility
Commitment is less than zero; (B) a requested Borrowing of a Letter of
Credit, the Unused Revolving Facility Commitment is not less than zero; and
(C) a requested Borrowing consisting of a Standby Letter of Credit, neither
the Unused Revolving Facility Commitment nor the Unused SLC Sublimit is less
than zero;
(iii) No event has occurred and is continuing, or would
result from such Borrowing, conversion or continuation, which constitutes an
Event of Default or Default;
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(iv) The most recent financial statements of the
Borrower delivered pursuant to Section 5.1(c)(i) present fairly the financial
position and results of operations of the Borrower as of the date of, and for
the periods presented in, such financial statements, and since the date of
such financial statements there has not been any material adverse change in
the financial condition or operations of the Borrower; and
(v) The Borrower is in compliance with all covenants
contained in Article V of this Agreement.
(b) If requested by the Administrative Agent, the Borrower
shall have delivered to the Administrative Agent a Notice of Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows:
Section 4.1 ORGANIZATION. The Borrower is a corporation which is
duly organized, validly existing, and in good standing under the laws of the
State of Washington. The Borrower has the full power and authority to own
its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. The Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its businesses
or financial condition.
Section 4.2 AUTHORIZATION. The execution, delivery, and performance
of this Agreement and all other Loan Documents by the Borrower, to the extent
to be executed, delivered or performed by the Borrower, have been duly
authorized by all necessary action by the Borrower; do not require the
consent or approval of any other person, regulatory authority or governmental
body; and do not conflict with, result in a violation of, or constitute a
default under (a) any provision of its articles of incorporation or bylaws,
or any agreement or other instrument binding upon the Borrower or (b) any
law, governmental regulation, court decree, or order applicable to the
Borrower.
Section 4.3 FINANCIAL INFORMATION. Each financial statement of the
Borrower supplied to the Administrative Agent truly and completely disclosed
the Borrower's financial condition as of the date of the statement, and there
has been no material adverse change in the Borrower's financial condition
subsequent to the date of the most recent financial statement supplied to the
Administrative Agent. The Borrower has no material contingent obligations
except as disclosed in such financial statements.
Section 4.4 LEGAL EFFECT. This Agreement constitutes, and any
instrument or agreement required hereunder to be given by the Borrower when
delivered will constitute, legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance
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with their respective terms, subject to applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally and to general principles
of equity (whether considered in a proceeding at law or in equity).
Section 4.5 PROPERTIES. Except for Permitted Liens, capital leases
and real property leases, the Borrower owns and has good title to all of the
Borrower's properties free and clear of all Liens, and has not executed any
security documents or financing statements relating to such properties. All
of the Borrower's properties are titled in the Borrower's legal name, and the
Borrower has not used, or filed a financing statement under, any other name
for at least the last five (5) years.
Section 4.6 HAZARDOUS SUBSTANCES. The Borrower's use of its
properties comply in all material respects with all applicable laws and
regulations relating to the environment, including without limitation, all
laws and regulations relating to pollution and environmental control.
Section 4.7 LITIGATION AND CLAIMS. No litigation, claim,
investigation, administrative proceeding or similar action (including those
for unpaid taxes) against the Borrower is pending or threatened, and no other
event has occurred which may materially adversely affect the Borrower's
financial condition or properties, except for (a) litigation, claims, or
other events, if any, that have been disclosed to and acknowledged by each of
the Lenders in writing and (b) threatened or pending claims which, if
adversely determined against the Borrower, would not either individually or
in the aggregate exceed $150,000.
Section 4.8 TAXES. To the best of the Borrower's knowledge, all tax
returns and reports of the Borrower that are or were required to be filed,
have been filed, and all taxes, assessments and other governmental charges
have been paid in full, except those presently being or to be contested by
the Borrower in good faith in the ordinary course of business and for which
adequate reserves have been provided.
Section 4.9 LIEN PRIORITY. Unless otherwise previously disclosed to
each of the Lenders in writing and except for Permitted Liens, the Borrower
has not entered into or granted any Lien, or permitted the filing or
attachment of any Lien on or affecting any of the Collateral that would be
prior or that may in any way be superior to the Administrative Agent's Lien
and rights, on behalf of the Lenders, in and to such Collateral.
Section 4.10 BINDING EFFECT. This Agreement and all of the other
Loan Documents are binding upon the Borrower as well as upon the Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally and to
general principles of equity (whether considered in a proceeding at law or in
equity).
Section 4.11 COMMERCIAL PURPOSES. The Borrower intends to use the
proceeds of all Advances solely for business or commercial related purposes,
and intends to use the proceeds of the Term Facility Advances for purposes of
financing equipment and leasehold improvements.
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Section 4.12 EMPLOYEE BENEFIT PLANS. Each employee benefit plan as
to which the Borrower may have any liability complies in all material
respects with all applicable requirements of law and regulations, and (a) no
Reportable Event or Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (b) the Borrower has not withdrawn from any
such plan or initiated steps to do so, (c) no steps have been taken to
terminate any such plan, and (d) there are no unfunded liabilities other than
those previously disclosed to the Lenders in writing.
Section 4.13 LOCATION OF THE BORROWER'S OFFICES AND RECORDS. The
Borrower's place of business, or the Borrower's chief executive office, if
the Borrower has more than one place of business, is located at 2701 First
Avenue, Suite 500, Seattle, Washington 98121. Unless the Borrower has
designated otherwise in writing, this location is also the office or offices
where the Borrower keeps its records concerning the Collateral.
Section 4.14 INFORMATION. All information furnished by the Borrower
to either the Administrative Agent or the Lenders for the purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all information hereafter furnished by or on behalf of the Borrower to either
the Administrative Agent or the Lenders will be, true and accurate in every
material respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by omitting
to state any material fact necessary to make such information not misleading.
Section 4.15 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Borrower understands and agrees that the Lenders, without independent
investigation, are relying upon the above representations and warranties in
extending the Facilities to the Borrower. The Borrower further agrees that
the foregoing representations and warranties shall be continuing in nature
and shall remain in full force and effect until such time as the Borrower's
Indebtedness under this Agreement shall be paid in full, or until this
Agreement shall be terminated in the manner provided above, whichever is the
last to occur.
ARTICLE V
COVENANTS OF THE BORROWER
Section 5.1 AFFIRMATIVE COVENANTS. So long as the Notes or other
amounts payable by the Borrower hereunder shall remain unpaid, or the Lenders
shall have any Revolving Commitment hereunder, or the Term Lender shall have
any Term Commitments hereunder, or the Term Lender Shall have any Term
Commitment hereunder, or any Letter of Credit remains Outstanding, the
Borrower covenants and agrees that it will:
(a) LITIGATION. Promptly inform the Administrative Agent in
writing of (i) all material adverse changes in the Borrower's financial
condition, and (ii) all existing and all threatened litigation, claims,
investigations, administrative proceedings or similar actions affecting the
Borrower which could materially affect the financial condition of the
Borrower.
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(b) FINANCIAL RECORDS. Maintain its books and records in
accordance with GAAP, applied on a consistent basis, and permit the
Administrative Agent or any Lender to examine and audit the Borrower's books
and records at all reasonable times upon reasonable prior notice from the
Administrative Agent or any such Lender to the Borrower.
(c) REPORTING REQUIREMENTS.
(i) FINANCIAL STATEMENTS. Furnish the Administrative
Agent with, as soon as available, but in no event later than ninety (90) days
after the end of each fiscal year, the consolidated balance sheet and
consolidated statement of income and retained earnings of the Borrower and
its subsidiaries for the year ended, audited by a certified public accountant
reasonably satisfactory to the Administrative Agent, and, as soon as
available, but in no event later than forty five (45) days after the end of
each fiscal quarter, the consolidated balance sheet and consolidated
statement of income and retained earnings of the Borrower and its
subsidiaries for the period ended, prepared and certified as correct to the
best knowledge and belief by the Borrower's chief financial officer or other
officer or person acceptable to the Administrative Agent. All financial
reports required to be provided under this Agreement (A) shall be prepared in
accordance with GAAP, applied on a consistent basis, (B) certified by the
Borrower as being true and correct and (C) accompanied by a certificate of
the Borrower's chief financial officer demonstrating compliance with the
financial covenants set forth in Section 5.3.
(ii) AGING AND LISTING OF ACCOUNTS RECEIVABLE.
Deliver to the Administrative Agent within thirty (30) days after the end of
each quarter, a summary of the Borrower's accounts and contracts receivable
aging as of the last day of the quarter, which shall be net of any
adjustments made at the end of that quarter, all in a form acceptable to the
Administrative Agent.
(iii) INVENTORY REPORT. Deliver to the Administrative
Agent within thirty (30) days after the end of each quarter inventory reports
detailing location, amounts of raw materials and finished goods on a
quarterly basis, prepared in form acceptable to the Administrative Agent.
(iv) INSURANCE REPORTS. Furnish to the Administrative
Agent, upon request of the Administrative Agent, reports on each existing
insurance policy showing such information as the Administrative Agent may
reasonably request, including without limitation the following: (A) the name
of the insurer; (B) the risks insured; (C) the amount of the policy; (D) the
properties insured; (E) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values; and (F) the expiration date of the policy.
(v) ADDITIONAL INFORMATION. Furnish such additional
information and statements, lists of assets and liabilities, agings of
receivables and payables, inventory schedules, budgets, forecasts, tax
returns, and other reports with respect to the Borrower's financial condition
and business operations as the Administrative Agent may reasonably request
from time to time.
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(d) INSURANCE. Maintain fire and other risk insurance,
public liability insurance, and such other Insurance as the Administrative
Agent on behalf of the Lenders may require with respect to the Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies reasonably acceptable to the Administrative Agent. The Borrower,
upon request of the Administrative Agent, will deliver to the Administrative
Agent from time to time the policies or certificates of insurance in form
satisfactory to the Administrative Agent, including stipulations that
coverages will not be cancelled or diminished without at least ten (10) days'
prior written notice to the Administrative Agent. Each insurance policy also
shall include an endorsement providing that coverage in favor of the
Administrative Agent on behalf of the Lenders will not be impaired in any way
by any act, omission or default of the Borrower or any other Person. In
connection with all policies covering the Collateral, the Borrower will
provide the Administrative Agent with such loss payable or other endorsements
as the Administrative Agent may require.
(e) OTHER AGREEMENTS. Comply with all terms and conditions
of all other agreements, whether now or hereafter existing, between the
Borrower and any other party and notify the Administrative Agent immediately
in writing of any default in connection with any other such agreements that
would likely have a material adverse effect on the Borrower's business or
financial condition.
(f) LOAN PROCEEDS. Use all proceeds of the Advances solely
for the Borrower's business operations, unless specifically consented to the
contrary by the Required Lenders in writing.
(g) TAXES, CHARGES AND LIENS. Pay and discharge when due
all of its Indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every kind and
nature, imposed upon the Borrower or its properties, income, or profits,
prior to the date on which penalties, would attach, and all lawful claims
that, if unpaid, might become a lien or charge upon any of the Borrower's
properties, income, or profits; provided however, the Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy, lien or
claim so long as (i) the legality of the same shall be contested in good
faith by appropriate proceedings, and (ii) the Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with GAAP. The
Borrower, upon demand of the Administrative Agent, will furnish to the
Administrative Agent evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to the Administrative Agent at any time a written
statement of any assessments, taxes, charges, levies, liens and claims
against the Borrower's properties, income, or profits.
(h) PERFORMANCE. Perform and comply with all terms,
conditions, and provisions set forth in this Agreement and in the other Loan
Documents in a timely manner, and promptly notify the Administrative Agent if
the Borrower learns of the occurrence of any event which constitutes an Event
of Default under this Agreement or under any of the other Loan Documents.
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(i) OPERATIONS. Maintain executive and management personnel
with substantially the same qualifications and experience as the present
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in material compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and other
laws applicable to the Borrower's employee benefit plans.
(j) INSPECTION. Permit employees or agents of the
Administrative Agent at any reasonable time to inspect any and all Collateral
and the Borrower's other properties and to examine or audit the Borrower's
books, accounts, and records (including detailed aging reports of accounts
and contracts receivable) and to make copies and memoranda of the Borrower's
books, accounts, and records. If the Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such records) in
the possession of a third party, the Borrower, upon request of the
Administrative Agent, shall notify such party to permit the Administrative
Agent free access to such records at all reasonable times and to provide the
Administrative Agent with copies of any records it may request, all at the
Borrower's expense.
(k) COMPLIANCE CERTIFICATE. Upon request of the
Administrative Agent, provide the Administrative Agent at least annually with
a certificate executed by the Borrower's chief financial officer, or other
officer or person acceptable to the Administrative Agent, certifying that the
representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as of
the date of the certificate, no Event of Default exists under this Agreement.
(l) ENVIRONMENTAL COMPLIANCE AND REPORTS. Comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances.
(m) ADDITIONAL ASSURANCES. Make, execute and deliver to the
Administrative Agent such promissory notes, mortgages, deeds of trust,
security agreements, financing statements, instruments, documents and other
agreements as the Administrative Agent or its attorneys may reasonably
request to evidence and secure the Borrowings and to perfect all Liens in the
Collateral.
(n) YEAR 2000.
(i) The Borrower represents, warrants and covenants
that it has, or will have by a date that is acceptable to the Lenders: (a)
undertaken a detail inventory, review, and assessment of all areas within its
business and operations that could be adversely affected by the failure of
the Borrower to be Year 2000 compliant on a timely basis, (b) developed a
detailed plan and timeline and committed adequate resources for becoming Year
2000 compliant on a timely basis, and (c) implemented that plan in accordance
with that timetable in all material respects. The Borrower covenants and
agrees that the Borrower shall from time to time upon the Lenders' request
furnish periodic updates to the Lenders regarding the Borrower's progress on
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its Year 2000 compliance efforts, and provide copies to the Lenders of any
internal and third-party assessments of the Borrower's Year 2000 compliance
efforts. The Borrower covenants to be and reasonably anticipates that it
will be Year 2000 compliant on timely basis.
(ii) The Borrower has made (or will make, by a date
acceptable to the Lenders) written inquiry (or, if acceptable to the Lenders,
oral inquiry) of each of its key suppliers and vendors as to whether such
persons will be Year 2000 compliant in all material respects on a timely
basis. Based on the results of that inquiry and consideration of the
Borrower's key supplier and vendor base, and to the best of the Borrower's
knowledge only, the Borrower believes that the Year 2000 will not have a
material adverse change in the business, properties, condition (financial or
otherwise), or prospects of the Borrower, or the Borrower's ability to repay
the indebtedness under this Agreement.
(iii) "Year 2000 compliant" means, with regard to any
entity, that all software, embedded microchips, and other processing
capabilities utilized by, and material to the business operations or
financial condition of, such entity are able to interpret and manipulate data
on and involving all calendar dates correctly and without causing any
abnormal ending scenario, including in relation to dates in and after the
Year 2000.
Section 5.2 NEGATIVE COVENANTS. So long as the Notes or other
amount payable by the Borrower hereunder shall remain unpaid or the Lenders
shall have any Commitment hereunder or any Letter of Credit remains
Outstanding, the Borrower covenants and agrees that it will not:
(a) INDEBTEDNESS AND LIENS. (i) Except for trade debt
incurred in the normal course of business and Indebtedness to the Lenders,
the Letter of Credit Issuer and the Credit Card Issuer contemplated by this
Agreement, create, incur or assume Indebtedness, other than capital leases,
(ii) except for Permitted Liens, grant or permit to exist any Lien on any of
the Borrower's assets, or (iii) sell with recourse any of the Borrower's
accounts, except to the Lenders or pursuant to the Factoring Agreement.
(b) CONTINUITY OF OPERATIONS. (i) Engage in any business
activities substantially different than those in which the Borrower is
presently engaged, (ii) cease operations, liquidate, merge, transfer, acquire
or consolidate with any other entity, other than mergers, transfers,
acquisitions or consolidations in which the consideration has a fair market
value of less than $3,500,000.00 and the Borrower is the acquiring or
surviving entity, or (iii) change its name, dissolve or transfer or sell
Collateral or other assets out of the ordinary course of business except (A)
sales of accounts receivable pursuant to the Factoring Agreement, (B)
transfers, sales or dispositions of Collateral that is obsolete or worn out
property disposed of in the ordinary course of business and (C) other asset
dispositions provided that such other asset dispositions do not exceed
$200,000.00 in the aggregate for any fiscal year.
(c) LOANS, ACQUISITIONS AND GUARANTIES. (i) Loan, invest in
or advance money or assets, or purchase, create or acquire any interest in
any other enterprise or entity, except (A) commercial bank demand deposits
and time deposits maturing within one year, (B) marketable general
obligations of the United States or a state or marketable obligations fully
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guaranteed by the United States, (C) short-term commercial paper with the
highest rating of a generally recognized rating service, (D) loans and
advances to employees in the ordinary course of business related to expenses
incurred in the ordinary course of employment not to exceed $500,000
outstanding at any time, (E) bankers' acceptances, repurchase agreements, or
other investments reasonably acceptable to the Administrative Agent and (F)
loans or advances to, or investments in wholly owned subsidiaries in an
amount not to exceed $5,000,000.00 or (ii) incur any obligation as surety or
guarantor other than in the ordinary course of business.
Section 5.3 FINANCIAL COVENANTS. So long as the Notes or any other
amount payable by the Borrower hereunder shall remain unpaid, or the Lenders
shall have any Commitment hereunder, or the Term Lender shall have any Term
Commitment hereunder, or any Letter of Credit remains Outstanding, the
Borrower covenants and agrees that unless it receives the prior written
consent of the Required Lenders, it will:
(a) TANGIBLE NET WORTH. Not permit Tangible Net Worth to be
less than $45,000,000.00, as of the Effective Date and the last day of each
fiscal quarter occurring prior to April 30, 2000, or less than $51,000,000.00
as of April 30, 2000 and the last day of each fiscal quarter thereafter.
(b) WORKING CAPITAL. Not permit Working Capital to be less
than $40,000,000.00, as of the Effective Date and the last day of each fiscal
quarter occurring prior to April 30, 2000, or less than $46,000,000.00 as of
April 30, 2000 and the last day of each fiscal quarter thereafter.
(c) NET WORTH RATIO. Not permit the ratio of (i)
consolidated liabilities of the Borrower and its subsidiaries (defined in
accordance with GAAP) plus consolidated liabilities in respect of outstanding
letters of credit (which include Outstanding Letters of Credit) to (ii)
Tangible Net Worth to exceed 1.15 to 1.00 as of the Effective Date and the
last day of each fiscal quarter occurring prior to January 31, 2000, or to
exceed 1.25 to 1.00 as of January 31, 2000, or to exceed 1.20 to 1.00 as of
April 30, 2000 and the last day of each fiscal quarter occurring prior to
July 31, 2000, or to exceed 1.15 to 1.00 as of July 31, 2000.
(d) FUNDED DEBT TO EBITDA. Not permit, as of the Effective
Date and the last day of each fiscal quarter thereafter, the ratio of (i) the
daily average principal amount of Funded Debt outstanding during the four
consecutive fiscal quarters ending on such date to (ii) EBITDA for the four
consecutive fiscal quarters ending on such date to exceed 2.0 to 1.00.
(e) CAPITAL EXPENDITURES. Not permit capital expenditures
made during in any one fiscal year to exceed the sum of $11,000,000.00;
provided, however, that capital expenditures shall not, on a cumulative
basis, exceed: (i) $4,000,000.00 at any time during the fiscal quarter ended
July 31, 1999; $7,000,000.00 at any time during the fiscal quarter ended
October 30, 1999; $9,000,000.00 at any time during the fiscal quarter ended
January 31, 2000; $11,000,000.00 at any time during the fiscal quarter ended
April 30, 2000; and $5,000,000.00 at any time during the fiscal quarter ended
July 31, 2000.
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ARTICLE VI
EVENTS OF DEFAULT
Section 6.1 EVENTS OF DEFAULT. The following events shall
constitute events of default hereunder ("Events of Default"):
(a) DEFAULT ON INDEBTEDNESS. Failure of the Borrower (i) to
pay when due any principal of or interest on the Advances, (ii) to reimburse
the Letter of Credit Issuer when due for any drawing on any Letter of Credit,
(iii) to reimburse the Credit Card Issuer when due for any disbursement under
any Credit Card or (iv) to pay when due any other amount due hereunder or
under any of the other Loan Documents and, in the case of a failure described
in the foregoing clause (iv), the continuance thereof for a period of five
(5) days.
(b) OTHER DEFAULTS. Failure of the Borrower to comply with
or to perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the other Loan Documents, or failure
of the Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between the Lenders
and/or the Administrative Agent and the Borrower.
(c) DEFAULT IN FAVOR OF THIRD PARTIES. Default of the
Borrower under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of the Borrower's property or the
Borrower's ability to repay the Borrowings or perform its obligations under
this Agreement or any of the other Loan Documents.
(d) FALSE STATEMENTS. Any warranty, representation or
statement made or furnished to the Lenders, the Letter of Credit Issuer, the
Credit Card Issuer and/or the Administrative Agent by or on behalf of the
Borrower under this Agreement or the other Loan Documents is false or
misleading in any material respect at the time made or furnished, or becomes
false or misleading at any time thereafter.
(e) DEFECTIVE COLLATERALIZATION. This Agreement or any of
the other Loan Documents ceases to be in full force and effect (including
failure of the Security Agreement or any other Loan Document to create a
valid and perfected Lien in the Collateral) at any time and for any reason.
(f) INSOLVENCY. The dissolution or termination of the
Borrower's existence as a going business, the insolvency of the Borrower, the
appointment of a receiver for any part of the Borrower's property, any
assignment for the benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws by or
against the Borrower.
(g) CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of
foreclosure or forfeiture proceedings, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of the Borrower
or by any governmental agency, including a
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garnishment, attachment, or levy on or of any of the Borrower's deposit
accounts, provided, however, that the foregoing shall not constitute an Event
of Default if there is a good faith dispute by the Borrower as to the
validity or reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding (other than any such proceeding instituted by the
Administrative Agent), the Borrower gives the Administrative Agent written
notice of such creditor or forfeiture proceeding and the Borrower establishes
reserves or a surety bond for such creditor or forfeiture proceeding
reasonably satisfactory to the Administrative Agent.
(h) YEAR 2000. (x) Any of the Borrower's representations
and warranties regarding Year 2000 shall cease to be true in any material
respect (whether or not true when made) and, as a result, the Lender
reasonably believes that the Borrower's financial condition or its ability to
pay its debts as they become due will thereby be materially impaired, (y) the
Borrower fails to comply with any of its Year 2000 covenants, or (z) the
Borrower fails to be Year 2000 compliant (as defined in Section 5.1(n)) in
any material respect on a timely basis.
(i) ADVERSE CHANGE. A material adverse change occurs in the
Borrower's financial condition.
Provided, however, that none of the foregoing events (other than those
referred to in paragraph (a)) shall constitute an Event of Default hereunder
if (i) it is curable and if the Borrower has not been given a notice of a
similar default within the preceding twelve (12) months and (ii) the
Borrower, after receiving written notice from the Administrative Agent
demanding cure of such default, (A) cures the default within fifteen (15)
days or (B) if the cure requires more than fifteen (15) days, immediately
initiates steps which the Required Lenders deem in their sole discretion to
be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
Section 6.2 REMEDIES. If an Event of Default shall have occurred
and be continuing, the Administrative Agent may, by notice to the Borrower,
(a) declare the obligation of the Lenders to make Advances, the obligation of
the Letter of Credit Issuer to issue Letters of Credit and the obligation of
the Credit Card Issuer to issue a Credit Card to be terminated, whereupon the
same shall forthwith terminate, and (b) declare (i) the Notes and all
interest thereon, (ii) an amount equal to the stated amount of each
Outstanding Letter of Credit (notwithstanding that the obligation of the
Borrower to reimburse any draws under any such Letter of Credit may be
contingent or not matured), (iii) and an amount equal to the aggregate amount
of disbursements made under any issued Credit Cards, and (iv) all other
amounts payable under this Agreement and the other Loan Documents to be
immediately due and payable, whereupon the Notes, all such interest, all such
amounts payable with respect to Outstanding Letters of Credit and issued
Credit Cards and all such other amounts shall become and be immediately due
and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Borrower; provided,
however, that if an Event of Default under Section 6.01(f) shall occur, (A)
the obligation of the Lenders to make Advances, the obligation of the Letter
of Credit Issuer to issue Letters of Credit and the obligation of the Credit
Card Issuer to issue Credit Cards shall automatically be terminated and (B)
the Notes, all interest thereon, an amount equal to the stated amount of each
Outstanding Letter of Credit
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(notwithstanding that the obligation of the Borrower to reimburse any draws
under any such Letter of Credit may be contingent or not matured), an amount
equal to the aggregate amount of disbursements made under any issued Credit
Cards and all other amounts payable under this Agreement and the other Loan
Documents shall automatically become and be immediately due and payable,
without presentment, demand, protest or any notice of any kind, all of which
are hereby expressly waived by the Borrower.
Section 6.3 ADJUSTMENTS; RIGHT OF SET-OFF.
(a) If any Lender (a "Benefited Lender") shall at any time
receive any payment of all or part of its Revolving Facility Advance owing to
it, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 6.1(f) and (g), or
otherwise), in a greater proportion than any such payment to or Collateral
received by any other Lender, if any, in respect of each such other Lender's
Revolving Facility Advances owing to each such other Lender, or interest
thereon, such Benefited Lender shall purchase for cash from the other Lenders
a participating interest in such portion of each such other Lender's
Revolving Facility Advance owing to each such other Lender, or shall provide
such other Lenders with the benefits of any such Collateral, or the proceeds
thereof, as shall be necessary to cause such Benefited Lender to share the
excess payment or benefits of such Collateral or proceeds ratably with each
of the Lenders; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such Benefited Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest.
(b) Upon the declaration of the Notes, or the obligations of
the Borrower with respect to reimbursement of drawings under Outstanding
Letters of Credit or to reimbursement of disbursements under issued Credit
Cards, as due and payable pursuant to the provisions of Section 6.2, each
Lender is hereby authorized on behalf of the Lenders at any time and from
time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or
final) at any time held and other Indebtedness at any time owing by said
Lender to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing under this
Agreement and the other Loan Documents irrespective of whether or not such
Lender shall have made any demand. The rights of the Lenders under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Lenders may have.
Section 6.4 CUMULATIVE REMEDIES. If an Event of Default shall occur
and be continuing, the Administrative Agent on behalf of the Lenders may
proceed to enforce the Loan Documents by exercising such remedies as are
available thereunder or in respect thereof under applicable law, whether for
specific performance of any covenant or other agreement contained in the Loan
Documents or in aid of the exercise of any power granted in the Loan
Documents. No remedy conferred in this Agreement or the other Loan Documents
is intended to be exclusive of any other remedy, and each and every such
remedy shall be cumulative and shall be in addition to every other remedy
conferred herein or therein or now or hereafter existing at law, in equity,
by statute or otherwise.
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Section 6.5 APPLICATION OF PAYMENTS. After the occurrence and
during the continuance of an Event of Default, the Administrative Agent on
behalf of the Lenders shall apply all funds received in respect of amounts
owing under this Agreement and the other Loan Documents in such order as the
Required Lenders may determine in their sole discretion notwithstanding any
instruction from the Borrower.
ARTICLE VII
THE ADMINISTRATIVE AGENT
Section 7.1 APPOINTMENT. Each Lender hereby irrevocably designates
and appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are
expressly delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as
are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Administrative Agent shall not have
any duties or responsibilities, except those expressly set forth herein, or
any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
Section 7.2 DELEGATION OF DUTIES. The Administrative Agent may
execute any of its duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents
or attorneys-in-fact selected by it with reasonable care.
Section 7.3 EXCULPATORY PROVISIONS. Neither the Administrative
Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall be (i) liable to any of the Lenders for
any action lawfully taken or omitted to be taken by it or such Person under
or in connection with this Agreement or any other Loan Document (except for
its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any representative
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for
in, or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement
or any other Loan Document or for any failure of the Borrower to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of the Borrower.
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Section 7.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying,
upon any writing, resolution, notice, consent, certificate, affidavit, letter
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent shall be fully justified in
taking any action or in failing or refusing to take any action under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders
of the obligations owing by the Borrower hereunder.
Section 7.5 NOTICE OF DEFAULT. The Administrative Agent shall not
be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default hereunder unless the Administrative Agent has received
notice from a Lender or the Borrower referring to this Agreement, describing
such Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice,
the Administrative Agent shall give notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders;
provided that unless and until the Administrative Agent shall have received
such directions, and the Administrative Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to
such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
Section 7.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS.
Each Lender expressly acknowledges that neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no act
by the Administrative Agent hereinafter taken, including any review of the
affairs of the Borrower, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Lender. Each Lender represents
to the Administrative Agent that it has, independently and without reliance
upon the Administrative Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and made
its own decision to make Advances hereunder and enter into this Agreement.
Each Lender also represents that it will, independently and without reliance
upon the Administrative Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit analysis, appraisals and decisions in taking or not
taking action under this Agreement and the other Loan Documents, and to make
such investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of
the Borrower. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects
or creditworthiness of the Borrower which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
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Section 7.7 INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Commitment Percentages in effect on the
date on which indemnification is sought (or, if indemnification is sought
after the date upon which the Commitments shall have terminated and the
aggregate Advances Outstanding shall have been reduced to zero, ratably in
accordance with their Commitment Percentages immediately prior to such date),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the amounts owing hereunder) be imposed on,
incurred by or asserted against the Administrative Agent in any way relating
to or arising out of, the Commitments, this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby or any action taken or
omitted by the Administrative Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the Administrative Agent's gross negligence or willful misconduct. The
agreements in this Article VII shall survive the payment of the Loans and all
other amounts payable hereunder.
Section 7.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The
Administrative Agent and its Affiliates may make loans to, accept deposits
from and generally engage in any kind of business with the Borrower as though
the Administrative Agent were not the Administrative Agent hereunder and
under the other Loan Documents. With respect to the Advances made by it, the
Administrative Agent shall have the same rights and powers under this
Agreement and the other Loan Documents as any Lender and may exercise the
same as though it were not the Administrative Agent, and the terms "Lender",
"Term Lender", and "Lenders" shall include the Administrative Agent in its
individual capacity.
Section 7.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative
Agent may resign as Administrative Agent upon 30 days' notice to the Lenders.
If the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall
appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall be approved by the Borrower, whereupon such successor
agent shall succeed to the rights, powers and duties of the Administrative
Agent, and the term "Administrative Agent" shall mean such successor agent
effective upon such appointment and approval, and the former Administrative
Agent's rights, powers and duties as Administrative Agent shall be
terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Agreement. After
any retiring Administrative Agent's resignation as Administrative Agent, the
provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under
this Agreement and the other Loan Documents.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1 AMENDMENTS. An amendment, modification or waiver of any
provision of this Agreement or the other Loan Documents, or a consent to any
departure by the Borrower therefrom, including, without limitation, any
amendment, modification or waiver reducing the amount of principal of an
Outstanding Advance, extending the Termination Date or reducing the stated
amount of any interest, fee or other amount payable to any Lender under this
Agreement, or any amendment, modification or waiver of any provision of this
Section 8.1, or any amendment reducing the percentage specified in the
definition of "Required Lenders", or any consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement and the other Loan Documents, shall be effective against the
Lenders if, but only if, it shall be in writing and approved and signed by
the Required Lenders, and then such a waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
PROVIDED, HOWEVER, that: (a) any amendment, modification or waiver of any
provision of Article VII must be approved by written consent of the
Administrative Agent and the Required Lenders; (b) any amendment,
modification or waiver of any provision of Section 2.2(b) must be approved by
written consent of the Letter of Credit Issuer and the Required Lenders; and
(c) any amendment, modification or waiver of any provision of Section 2.2(c)
must be approved by written consent of the Credit Card Issuer and the
Required Lenders.
Section 8.2 NOTICES. Except as otherwise specifically provided in
this Agreement, all notices and other communications provided for hereunder
shall be in writing (including telecopier) and mailed, telecopied or
otherwise transmitted or delivered, if to the Borrower, at:
Cutter & Buck Inc.
2701 First Avenue, Suite 500
Seattle, WA 98121
Attention: Steve Lowber, Chief Financial Officer
Telecopy: (206) 448-0589
Telephone (206) 622-4191
if to a Lender, the Administrative Agent, the Letter of Credit Issuer or the
Credit Card Issuer, at the address as set forth under its name on the
signature page of this Agreement; or, as to any party, at such other address
as shall be designated by such party in a written notice to the other party
or parties. All such notices and communications shall, (i) if mailed, be
effective three (3) Business Days following deposit in the United States
mail, postage prepaid; (ii) if delivered by air courier, be effective the
first Business Day following transmittal to the air courier and (iii) if
telecopied, be effective when telecopied and electronic confirmation of
transmission is received, except that notices and communications to the
Administrative Agent, the Letter of Credit Issuer or the Credit Card Issuer
pursuant to Article II shall not be effective until received by the
Administrative Agent, the Letter of Credit Issuer or the Credit Card Issuer,
as the case may be. A notice received by the Administrative Agent, the
Letter of Credit Issuer or the Credit Card Issuer by telephone pursuant to a
provision of this Agreement providing for telephone notice shall be effective
if such party believes
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in good faith that it was given by an Authorized Officer of the Borrower and
acts pursuant thereto, notwithstanding the absence of written confirmation.
Section 8.3 NO WAIVER; REMEDIES. No failure on the part of the
Administrative Agent to exercise, and no delay in exercising, on behalf of
the Lenders, any right hereunder or under any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder or under any other Loan Document preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided herein and in the other Loan Documents are cumulative and not
exclusive of any remedies provided by law.
Section 8.4 COSTS AND EXPENSES; INDEMNIFICATION.
(a) COSTS OF PREPARATION AND ADMINISTRATION OF LOAN
DOCUMENTS. The Borrower agrees to pay on demand the reasonable fees and
out-of-pocket expenses of counsel for the Administrative Agent in connection
with the preparation, execution and delivery of this Agreement and the other
Loan Documents. In addition, the Borrower shall pay any and all stamp and
other taxes, recording fees, escrow fees, title insurance premiums, fees for
searches of public records, and all other out-of-pocket costs and expenses
payable in connection with the execution and delivery of this Agreement and
the other Loan Documents and the administration thereof, and shall save the
Administrative Agent and the Lenders harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay such taxes, fees, costs and expenses.
(b) COSTS OF LITIGATION. In the event of any Default or
Event of Default under this Agreement, or in the event that any dispute
arises (whether or not such dispute is with the Borrower) relating to the
interpretation, enforcement or performance of this Agreement or any of the
other Loan Documents, the Administrative Agent, the Lenders, the Letter of
Credit Issuer and the Credit Card Issuer shall be entitled to collect from
the Borrower on demand all fees and expenses incurred in connection
therewith, including but not limited to fees of attorneys, accountants,
appraisers, environmental inspectors, consultants, expert witnesses,
arbitrators, mediators and court reporters, subject, in circumstances other
than a bankruptcy or insolvency proceeding, to applicable law providing that
the prevailing party is entitled to be awarded its reasonable costs and
attorneys' fees. Without limiting the generality of the foregoing, the
Borrower shall pay all such costs and expenses incurred in connection with:
(i) arbitration or other alternative dispute resolution proceedings, trial
court actions and appeals; (ii) bankruptcy or other insolvency proceedings of
the Borrower, any guarantor or other party liable for any of the obligations
under this Agreement or any of the other Loan Documents, or any party having
any interest in any security for any of those obligations; (iii) judicial or
nonjudicial foreclosure on, or appointment of a receiver for, any property
securing the obligations of the Borrower; (iv) post-judgment collection
proceedings; (v) all claims, counterclaims, cross-claims and defenses
asserted in any of the foregoing whether or not they arise out of or are
related to this Agreement or any other Loan Document; (vi) all preparation
for any of the foregoing; and (vii) all settlement negotiations with respect
to any of the foregoing.
(c) INDEMNIFICATION. The Borrower agrees to indemnify and
hold each of the Administrative Agent, the Lenders, the Letter of Credit
Issuer and the Credit Card Issuer and
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their respective officers, directors, employees and agents (collectively,
"Indemnified Parties" and, individually, a "Indemnified Party") free and
harmless from and against any and all actions, causes of action, suits,
losses, costs, liabilities, damages and expenses (regardless of whether such
Indemnified Party is a party to the action for which indemnification
hereunder is sought), including without limitation reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities") incurred by any of the
Indemnified Parties as a result of, or arising out of, or relating to, any
Letter of Credit or any transaction financed or to be financed in whole or in
part out of the proceeds of any thereof or otherwise involving any thereof,
except for any such Indemnified Liabilities arising on account of the
relevant Indemnified Party's negligence or misconduct.
Section 8.5 BINDING EFFECT; SUCCESSORS AND ASSIGNS; PARTICIPATIONS
AND ASSIGNMENTS.
(a) This Agreement shall be binding upon and inure to the
benefit of the Borrower, the Lenders, the Letter of Credit Issuer, the Credit
Card Issuer, the Administrative Agent and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its
rights or obligations under this Agreement without the prior written consent
of each Lender.
(b) Any Lender may, in the ordinary course of its business
and in accordance with applicable law, with the consent of the Borrower (such
consent not to be unreasonably withheld), at any time sell to one or more
banks or other entities ("Participants") participating interests in such
Lender's Commitment. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, and the
Borrower, the Administrative Agent, the Letter of Credit Issuer and the
Credit Card Issuer shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. In no event shall any Participant
under any such participation have any right to approve any amendment or
waiver of any provision of any Loan Document, or any consent to any departure
by any party of this Agreement therefrom, except to the extent that such
amendment, waiver or consent would reduce the principal of, or interest on,
any Advance or any fees payable hereunder, or postpone the Termination Date,
in each case to the extent subject to such participation. The Borrower
agrees that each Participant shall be entitled to the benefits of Sections
2.9, 2.11 and 8.3(c) with respect to its participation in the Commitment and
the Advances Outstanding from time to time as if it was a Lender; provided
that, no Participant shall be entitled to receive any greater amount pursuant
to any such section than the transferor Lender would have been entitled to
receive in respect of the amount of the participation transferred by such
transferor Lender to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its business
and in accordance with applicable law, with the consent of the Borrower (such
consent not to be unreasonably withheld), at any time and from time to time
assign to any Lender or any Affiliate thereof or, with the consent of the
Borrower, the Letter of Credit Issuer, the Credit Card Issuer and the
Administrative Agent (which in each case shall not be unreasonably withheld),
to any other Person (collectively, "Purchasing Lenders") all or any part of
its rights and obligations under this Agreement and the other Loan Documents
pursuant to an Assignment and Acceptance,
40
<PAGE>
substantially in the form of Exhibit C, executed by such Purchasing Lender
that is not then a Lender or an Affiliate thereof, by the Borrower, the
Administrative Agent, the Letter of Credit Issuer and the Credit Card Issuer)
and delivered to the Administrative Agent for its acceptance and recording in
the Register (as defined below); provided, that, except in the case of an
assignment of all of a Lender's rights and obligations under this Agreement,
(x) the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment shall equal at least $5,000,000 and (y)
after giving effect to each such assignment, the amount of the remaining
Commitment of the assigning Lender shall equal at least $2,000,000 (or, in
each case, such lesser amount as the Borrower may consent to). Upon such
execution, delivery, acceptance and recording, from and after the effective
date determined pursuant to such Assignment and Acceptance, (x) the
Purchasing Lender thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder with a Commitment Percentage as set forth therein, and
(y) the transferor Lender thereunder shall to the extent provided in such
Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an transferor Lender's rights and obligations under
this Agreement, such transferor Lender shall cease to be a party hereto).
Such Assignment and Acceptance shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of Commitment Percentages
arising from the purchase by such Purchasing Lender of all or a portion of
the rights and obligations of such transferor Lender.
(d) The Administrative Agent, on behalf of the Borrower,
shall maintain at the address of the Administrative Agent referred to in
Section 8.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of the names and addresses of
the Lenders and the Commitment Percentage of, and principal amount of the
Advances owing to, and risk participations in Letters of Credit or Credit
Cards purchased by, each Lender from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Lenders shall treat each Person
whose name is recorded in the Register as the percentage owner of an Advance,
risk participation or other obligation hereunder as the owner thereof for all
purposes of this Agreement and the other Loan Documents, notwithstanding any
notice to the contrary. The Register shall be available for inspection by
the Borrower, the Letter of Credit Issuer, the Credit Card Issuer or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by a transferor Lender and a Purchasing Lender (and, in the case of
a Purchasing Lender that is not then a Lender or an Affiliate thereof, by the
Borrower, the Administrative Agent, the Letter of Credit Issuer and the
Credit Card Issuer), the Administrative Agent shall (i) promptly accept such
Assignment and Acceptance and (ii) on the effective date determined pursuant
thereto record the information contained therein in the Register and give
notice of such acceptance and recordation to the Lenders, the Letter of
Credit Issuer, the Credit Card Issuer and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any
Participant or Purchasing Lender (each, a "Transferee") and any prospective
Transferee any and all financial
41
<PAGE>
information in such Lender's possession concerning the Borrower and its
Affiliates which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such
Lender by or on behalf of the Borrower in connection with such Lender's
credit evaluation of the Borrower and its Affiliates prior to becoming a
party to this Agreement.
(g) Nothing herein shall prohibit any Lender from pledging
or assigning all or any portion of its Advance and its risk participation in
any Letter of Credit or Credit Card to any Federal Reserve Bank in accordance
with applicable law.
Section 8.6 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
Section 8.7 GOVERNING LAW. All of the Loan Documents shall be
governed by and construed in accordance with the laws of the state of
Washington, without regard to the choice of law provisions or principles of
Washington law, except to the extent that the Uniform Commercial Code as
enacted in the state of Washington provides that the validity or perfection
of any security interests in, or remedies in respect of, any particular
Collateral are governed by the laws of a jurisdiction other than the state of
Washington (the "Governing Laws"). Except as otherwise provided in this
Agreement or any of the other Loan Documents and unless inconsistent with any
provision of the Governing Laws that cannot be waived, the Uniform Customs
and Practice for Documentary Credits of the International Chamber of Commerce
("UCP") as in effect from time to time are fully incorporated herein and
shall apply to all Letters of Credit issued hereunder.
Section 8.8 MEDIATION/ARBITRATION PROVISIONS.
(a) POLICY -- MEDIATION. The parties hope there will be no
disputes arising out of their relationship. To that end, each commits to
cooperate in good faith and to deal fairly in performing its duties under
this Agreement in order to accomplish their mutual objectives and avoid
disputes. But, if a dispute arises, the parties agree to resolve all disputes
by the following alternate dispute resolution process: (i) the parties will
seek a fair and prompt negotiated resolution but if this is not successful,
(ii) all disputes shall be resolved by binding arbitration, provided that
during this process, (iii) at the request of either party made not later than
seventy-five (75) days after the initial arbitration demand, the parties will
attempt to resolve any dispute by nonbinding mediation (but without delaying
the arbitration hearing date). The parties recognize that negotiation or
mediation may not be appropriate to resolve some disputes and agree that
either party may proceed with arbitration without negotiating or mediating.
The parties confirm that by agreeing to this alternate dispute resolution
process, they intend to give up their right to have any dispute decided in
court by a judge or jury.
(b) BINDING ARBITRATION. Any claim between the parties
arising out of or relating to this Agreement shall be determined by
arbitration in Seattle commenced in accordance with RCW 7.04.060; provided
that the total award by a single arbitrator (as opposed
42
<PAGE>
to a majority of three arbitrators) shall not exceed $250,000, including
interest, attorneys' fees and costs. If either party demands a total award
greater than $250,000, there shall be three (3) neutral arbitrators. If the
parties cannot agree on the identity of the arbitrator(s) within ten (10)
days of the arbitration demand, the arbitrator(s) shall be selected by the
American Arbitration Association (AAA) office in Seattle FROM ITS LARGE,
COMPLEX CASE PANEL (OR HAVE SIMILAR PROFESSIONAL CREDENTIALS). Each
arbitrator shall be an attorney with at least fifteen (15) years' experience
in banking or commercial law and shall reside in the Seattle metropolitan
area. Whether a claim is covered by this Agreement shall be determined by the
arbitrator(s). All statutes of limitations which would otherwise be
applicable shall apply to any arbitration hereunder.
(c) PROCEDURES. The arbitration shall be conducted in
accordance with the AAA Commercial Arbitration Rules, in effect on the date
hereof, as modified by this Agreement. Submission of dispositive motions
shall be at the discretion of arbitrator(s). As may be shown to be necessary
to ensure a fair hearing, the arbitrator(s) may authorize appropriate
discovery; and may enter pre-hearing orders regarding (without limitation)
scheduling, interrogatories, document exchange, depositions, witness and
exhibit disclosure and issues to be heard. The arbitrator(s) shall not be
bound by the rules of evidence or of civil procedure, but may consider such
writings and oral presentations as reasonable business people would use in
the conduct of their day-to-day affairs, and may require the parties to
submit some or all of their case by written declaration or such other manner
of presentations as the arbitrator(s) may determine to be appropriate.
(d) HEARING -- LAW -- APPEAL LIMITED. The arbitrator(s)
shall take such steps as may be necessary to hold a private hearing within
one hundred twenty (120) days of the initial demand for arbitration and to
conclude the hearing within three (3) days; and the arbitrator(s)' written
decision shall be made not later than fourteen (14) calendar days after the
hearing. The parties have included these time limits in order to expedite
the proceeding, but they are not jurisdictional, and the arbitrator(s) may
for good cause afford or permit reasonable extensions or delays, which shall
not affect the validity of the award. The written decision shall contain a
brief statement of the claim(s) determined and the award made on each claim.
In making the decision and award, the arbitrator(s) shall apply applicable
substantive law. Absent fraud, collusion or willful misconduct by an
arbitrator, the award shall be final, and judgment may be entered in any
court having jurisdiction thereof. The arbitrator(s) may award injunctive
relief or any other remedy available from a judge, including the joinder of
parties or consolidation of this arbitration with any other involving common
issues of law or fact or which may promote judicial economy, and may award
attorneys' fees and costs to the prevailing party but shall not have the
power to award punitive or exemplary damages. The decision and award of the
arbitrators need not be unanimous; rather, the decision and award of two
arbitrators shall be final.
(e) PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. In
addition to any actions taken under the preceding subparagraphs: (i) the
Administrative Agent on behalf of the Lenders may exercise all rights and
remedies available under law with respect to any collateral, deposits and
accounts, including but not limited to: offset, self-help, sale or other
disposition of collateral, attachment, injunction, appointment of a receiver,
judicial foreclosure and deficiency
43
<PAGE>
judgment or foreclosure by power of sale; (ii) by exercising any such rights
and remedies under (i) the Administrative Agent shall not waive the
provisions of paragraphs (a) through (d) above; (iii) any issues of law or
fact which arise in connection with the exercise by the Administrative Agent
on behalf of the Lenders of any rights and remedies available to the Lenders
may at the Administrative Agent's election be determined by arbitration in
accordance with paragraphs (a) through (d) above; and (iv) notwithstanding
any other provision of this Agreement, so long as an arbitration demand has
not been filed or served with respect to a claim, either party may elect to
assert such claim in the small claims department of the appropriate district
court under RCW Ch. 12.40.
Section 8.9 SEVERABILITY. Any provision of the Loan Documents that
is prohibited or unenforceable in any jurisdiction shall be ineffective to
the extent of such prohibition or unenforceability in such jurisdiction
without invalidating the remaining provisions hereof or affecting the
validity or enforceability of such provision in any other jurisdiction. To
the extent permitted by applicable law, the parties waive any provision of
law which renders any provision of any other Loan Documents prohibited or
unenforceable in any respect.
Section 8.10 ENTIRE AGREEMENT. This Agreement and the other Loan
Documents constitute the final and complete expression of the parties with
respect to the transactions contemplated by this Agreement and replace and
supersede all prior discussions, negotiations and understandings with respect
thereto. Neither this Agreement nor any term hereof nor of the other Loan
Documents may be changed, waived, discharged or terminated except as provided
herein.
Section 8.11 DESCRIPTIVE HEADINGS. The descriptive headings of the
various provisions of this Agreement are for convenience of reference only,
do not constitute a part hereof, and shall not affect the meaning or
construction of any provision hereof.
Section 8.12 GENDER AND NUMBER. Whenever appropriate to the meaning
of this Agreement or the other Loan Documents, use of the singular shall be
deemed to refer to the plural, the use of the plural to the singular, and
pronouns of certain gender to either or both the other genders.
The parties have duly executed and delivered this Agreement as of the
date first written above.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
BORROWER: CUTTER & BUCK INC.
By: /s/ Steve Lowber
-----------------------------------
Its: CFO
------------------------------
44
<PAGE>
ADMINISTRATIVE
AGENT, LETTER OF
CREDIT ISSUER AND
CREDIT CARD ISSUER: WASHINGTON MUTUAL BANK
doing business as WESTERN BANK
By: /s/ Todd Leber
-----------------------------------
Its: Vice President
------------------------------
Address for Notices:
1201 Third Avenue, Suite 1000
Seattle, Washington 98101
Attention: Todd Leber
Telecopy: (206) 554-2696
LENDERS: WASHINGTON MUTUAL BANK
doing business as WESTERN BANK
By: /s/ Todd Leber
-----------------------------------
Its: Vice President
------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION doing
business as SEAFIRST BANK
By: /s/ Robert M. Ingren
-----------------------------------
Its: Vice President
------------------------------
TERM LENDER: WASHINGTON MUTUAL BANK
doing business as WESTERN BANK
By: /s/ Todd Leber
-----------------------------------
Its: Vice President
------------------------------
45
<PAGE>
EXHIBIT A-1
AMENDED AND RESTATED REVOLVING CREDIT FACILITY NOTE
Seattle, Washington
, 1999
--------------
For value received, CUTTER & BUCK INC. (the "Borrower") promises to
pay to the order of [NAME OF LENDER] (the "Lender") the unpaid principal
amount of all Borrowings made by the Lender to the Borrower under the
Revolving Facility pursuant to that certain Amended and Restated Loan
Agreement dated as of April 28, 1999 (as the same may be amended and modified
from time to time, the "Loan Agreement") by and among the Borrower, the
Lender, the several lenders also party thereto (the "Lenders"), WASHINGTON
MUTUAL BANK doing business as WESTERN BANK, as letter of credit issuer and as
credit card issuer, and WASHINGTON MUTUAL BANK doing business as WESTERN
BANK, as administrative agent to the Lenders (in such capacity, the
"Administrative Agent"), on the dates and in the amounts provided in the Loan
Agreement. The Borrower promises to pay interest on the unpaid principal
amount of all Borrowings under the Revolving Facility on the dates and at the
rate or rates provided for in the Loan Agreement. Interest on any overdue
principal of and, to the extent permitted by law, overdue interest on the
principal amount hereof shall bear interest at the Default Rate, as provided
for in the Loan Agreement. All such payments of principal of and interest on
any Borrowing shall be made as provided in the Loan Agreement.
All Borrowings and the Interest Periods and the interest rates from
time to time applicable thereto, and all payments of the principal thereof
shall be recorded by the Lender in accordance with its usual practices;
provided, that the failure of the Lender to make any such recordation shall
not affect the obligations of the Borrower hereunder or under the Loan
Agreement.
The Borrower hereby waives diligence, presentment, demand, protest
and, except for notices required to be given pursuant to the Loan Agreement,
notice of any kind whatsoever. The non-exercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
This Note amends and restates in its entirety and, as so amended and
restated, continues the Facility A Promissory Note dated July 31, 1998 made
by the Borrower to the order of WASHINGTON MUTUAL BANK doing business as
WESTERN BANK. This Note is one of the Notes referred to in the Loan
Agreement. Capitalized terms used in this Note without definition have the
meanings assigned to them in the Loan Agreement. Reference is made to the
Loan Agreement for provisions for the optional prepayment and the repayment
hereof and the acceleration of the maturity hereof. This Note is governed by
the laws of the State of Washington.
The Loan Agreement, among other things, amends and restates in their
entirety and, as so amended and restated, continues (a) the Loan Agreement
dated as of July 31, 1998 between the Borrower and WASHINGTON MUTUAL BANK
doing business as WESTERN BANK and (b) the Promissory Note dated July 31,
1998 made by the Borrower to the order of WASHINGTON
EXHIBIT A-1
-1-
<PAGE>
MUTUAL BANK doing business as WESTERN BANK (the "Original Loan Agreements").
The indebtedness of the Borrower evidenced by this Note includes the
indebtedness of the Borrower resulting from Borrowings made by the Lender to
the Borrower from time to time pursuant to the Loan Agreement and the
indebtedness of the Borrower resulting from loans previously made by
WASHINGTON MUTUAL BANK doing business as WESTERN BANK to the Borrower under
the Original Loan Agreements.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LEND MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
CUTTER & BUCK INC.
By
------------------------------------
Its
-------------------------------
EXHIBIT A-1
-2-
<PAGE>
EXHIBIT A-2
AMENDED AND RESTATED TERM CREDIT FACILITY NOTE
Seattle, Washington
April 28, 1999
For value received, CUTTER & BUCK INC. (the "Borrower") promises to
pay to the order of WASHINGTON MUTUAL BANK doing business as WESTERN BANK
(the "Term Lender") the unpaid principal amount of all Borrowings made by the
Term Lender to the Borrower under the Term Facility pursuant to that certain
Amended and Restated Loan Agreement dated as of April 28, 1999 (as the same
may be amended and modified from time to time, the "Loan Agreement") by and
among the Borrower, the Lender, the several lenders also party thereto (the
"Lenders"), WASHINGTON MUTUAL BANK doing business as WESTERN BANK, as letter
of credit issuer and as credit card issuer, and WASHINGTON MUTUAL BANK doing
business as WESTERN BANK, as administrative agent to the Lenders (in such
capacity, the "Administrative Agent"), on the dates and in the amounts
provided in the Loan Agreement. The Borrower promises to pay interest on the
unpaid principal amount of all Borrowings under the Term Facility on the
dates and at the rate or rates provided for in the Loan Agreement. Interest
on any overdue principal of and, to the extent permitted by law, overdue
interest on the principal amount hereof shall bear interest at the Default
Rate, as provided for in the Loan Agreement. All such payments of principal
of and interest on any Borrowing shall be made as provided in the Loan
Agreement.
All Borrowings and the Interest Periods and the interest rates from
time to time applicable thereto, and all payments of the principal thereof
shall be recorded by the Term Lender in accordance with its usual practices;
provided, that the failure of the Term Lender to make any such recordation
shall not affect the obligations of the Borrower hereunder or under the Loan
Agreement.
The Borrower hereby waives diligence, presentment, demand, protest
and, except for notices required to be given pursuant to the Loan Agreement,
notice of any kind whatsoever. The nonexercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
This Note amends and restates in its entirety and, as so amended and
restated, continues the Facility B Promissory Note dated July 31, 1998 made
by the Borrower to the order of WASHINGTON MUTUAL BANK doing business as
WESTERN BANK. This Note is one of the Notes referred to in the Loan
Agreement. Capitalized terms used in this Note without definition have the
meanings assigned to them in the Loan Agreement. Reference is made to the
Loan Agreement for provisions for the optional prepayment and the repayment
hereof and the acceleration of the maturity hereof. This Note is governed by
the laws of the State of Washington.
The Loan Agreement, among other things, amends and restates in their
entirety and, as so amended and restated, continues (a) the Loan Agreement
dated as of July 31, 1998 between the Borrower and WASHINGTON MUTUAL BANK
doing business as WESTERN BANK and (b)
EXHIBIT A-2
-1-
<PAGE>
the Promissory Note dated July 31, 1998 made by the Borrower to the order of
WASHINGTON MUTUAL BANK doing business as WESTERN BANK (the "Original Loan
Agreements"). The indebtedness of the Borrower evidenced by this Note
includes the indebtedness of the Borrower resulting from Borrowings made by
the Lender to the Borrower from time to time pursuant to the Loan Agreement
and the indebtedness of the Borrower resulting from loans previously made by
WASHINGTON MUTUAL BANK doing business as WESTERN BANK to the Borrower under
the Original Loan Agreements.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LEND MONEY, EXTEND CREDIT, OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
CUTTER & BUCK INC.
By /s/ Steve Lowber
------------------------------------
Its CFO
-------------------------------
EXHIBIT A-2
-2-
<PAGE>
EXHIBIT B
NOTICE OF BORROWING
Washington Mutual Bank doing business as
Western Bank, as Administrative Agent
1201 Third Avenue, Suite 1000
Seattle, Washington 98101
Attention: , 199
------------------------------- ----------------- --
The undersigned CUTTER & BUCK INC. (the Borrower") refers to the
Amended and Restated Loan Agreement dated as of April 28, 1999 (the "Loan
Agreement") (capitalized terms used herein and not otherwise defined have the
meanings given to them in the Loan Agreement), by and among the Borrower,
WASHINGTON MUTUAL BANK doing business as WESTERN BANK, BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION doing business as SEAFIRST BANK, and
the several banks and other financial institutions from time to time parties
thereto (collectively, the "Lenders"), WASHINGTON MUTUAL BANK doing business
as WESTERN BANK, as letter of credit issuer and credit card issuer, and
WASHINGTON MUTUAL BANK doing business as WESTERN BANK, as administrative
agent to the Lenders. The Borrower hereby gives you notice, irrevocably,
pursuant to Section 2.3(a) or (b) of the Loan Agreement, as the case may be,
that the undersigned hereby requests an Advance or the issuance of a Letter
of Credit or the issuance of a Credit Card, or the continuation or conversion
of an Advance Outstanding under the Loan Agreement, and in that connection
sets forth below the information relating to such Borrowing (the "Proposed
Borrowing") or conversion or continuation as required by Section 2.3(a) or
(b) of the Loan Agreement, as the case may be:
ADVANCES. If the Proposed Borrowing consists of an Advance:
1. The Business Day of the Proposed Borrowing is ___________ 19__.
2. The Proposed Borrowing is a [Revolving Facility Advance]
[Term Facility Advance].*
3. The Type of Advance comprising the Proposed Borrowing is a
[Floating Rate Advance] [LIBOR Rate Advance] [Term Rate Advance].
4. The amount of the Proposed Borrowing is $_______________.
5. The Interest Period for the Proposed Borrowing is
_________________.
LETTER OF CREDIT. If the Proposed Borrowing consists of the issuance
of a Letter of Credit:
- ---------------
*Only available for Term Facility Advances.
EXHIBIT B
-1-
<PAGE>
1. The Business Day on which the Letter of Credit is to be issued
is _________, 19__.
2. The Letter of Credit is a [Commercial Letter of Credit]
[Standby Letter of Credit].
3. The stated amount and expiration date of the Letter of Credit
are $___________, and 19__.
4. The name and address of the beneficiary of the Letter of Credit
are:
----------------------------------------
----------------------------------------
----------------------------------------
5. Other terms of the Letter of Credit will be as set forth in the
Application relating thereto.
CONVERSION/CONTINUATION. If the Borrower elects to continue or
convert an Advance:
1. The Business Day of the proposed conversion/continuation is
__________, 19____.
2. The Advance being converted or continued is a [Revolving
Facility Advance] [Term Facility Advance].
3. The Advance being converted or continued currently is a [Floating
Rate Advance] [LIBOR Rate Advance] [Term Rate Advance].*
4. The Advance will be converted to or continued as a [Floating
Rate Advance] [Fixed Rate Advance].
5. The amount of the Advance being converted or continued is
$_______________.
6. The Interest Period for the continued or converted Advance is
_________________.
CERTIFICATIONS. The undersigned hereby certifies that the following
statements are true on the date hereof, and will be true on the date of the
Proposed Borrowing or on the date of the proposed conversion or continuation,
as the case may be, before and immediately after giving effect thereto:
(A) The representations and warranties contained in Article IV of
the Loan Agreement are correct as though made on and as of such dates, unless
such representations and warranties are expressly stated to be made as of an
earlier date;
- ---------------
*Only available for Term Facility Advances.
EXHIBIT B
-2-
<PAGE>
(B) The most recent financial statements of the Borrower delivered
pursuant to Section 5.1(c)(i) of the Loan Agreement present fairly the
financial position and results of operations of the Borrower as of the date
of and for the periods presented in such financial statements, and since the
date of such financial statements delivered by the Borrower pursuant to
Section 5.1(c)(i) there has not been any material adverse change in the
financial condition or operations of the Borrower;
(C) The Borrower is in full compliance with all covenants contained
in Article V of the Loan Agreement.
(D) No event has occurred and is continuing, or would result from
such Proposed Borrowing or proposed conversion or continuation, which
constitutes an Event of Default or a Default under the Loan Agreement; and
(E) After giving effect to the Proposed Borrowing or the proposed
continuation or conversion of an Advance, none of the Unused Revolving
Facility Commitment, the Unused Term Facility Commitment, the Unused
Revolving Facility Advance Sublimit or the Unused SLC Sublimit will be less
than zero.
Very truly yours,
CUTTER & BUCK INC.
By:
-----------------------------------
Its:
------------------------------
EXHIBIT B
-3-
<PAGE>
EXHIBIT C
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Amended and Restated Loan Agreement dated as
of April 28, 1999 (as the same may be further amended, supplemented or
otherwise modified from time to time, the "Loan Agreement"), by and among
Cutter & Buck Inc. (the "BORROWER"), WASHINGTON MUTUAL BANK doing business as
WESTERN BANK, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION doing
business as SEAFIRST BANK, and the several banks and other financial
institutions from time to time parties thereto (collectively, the "Lenders"),
WASHINGTON MUTUAL BANK doing business as WESTERN BANK, as letter of credit
issuer and credit card issuer, and WASHINGTON MUTUAL BANK doing business as
WESTERN BANK, as administrative agent to the Lenders (in such capacity, the
"ADMINISTRATIVE AGENT"). Unless otherwise defined herein, terms defined in
the Loan Agreement and used herein shall have the meanings given to them in
the Loan Agreement.
__________ (the "ASSIGNOR") and __________ (the "ASSIGNEE") agree as
follows:
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby
irrevocably purchases and assumes from the Assignor without
recourse to the Assignor, as of the Effective Date (as defined
below), an interest (the "ASSIGNED INTEREST"), as specified on
SCHEDULE 1, in and to the Assignor's rights and obligations under
the Loan Agreement with respect to the revolving facility
contained in the Loan Agreement as are set forth on SCHEDULE 1
(individually, an "ASSIGNED FACILITY"; collectively, the "ASSIGNED
FACILITIES"), in a principal amount for each Assigned Facility as
set forth on SCHEDULE 1.
2. The Assignor (a) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Agreement
or with respect to the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan
Agreement, the other Loan Documents or any other instrument or
document furnished pursuant thereto, other than that the Assignor
has not created any adverse claim upon the interest being assigned
by it hereunder and that such interest is free and clear of any
such adverse claim; and (b) makes no representation or warranty
and assumes no responsibility with respect to the financial
condition of the Borrower, any of its Affiliates or any other
obligor or the performance or observance by the Borrower, any of
its Affiliates or any other obligor of any of their respective
obligations under the Loan Agreement or any of the other Loan
Documents or any other instrument or document furnished pursuant
hereto or thereto.
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance;
(b) confirms that it has received a copy of the
EXHIBIT C
-1-
<PAGE>
Loan Agreement, together with copies of the financial
statements delivered pursuant to Section 5.1(c) thereof and
such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to
enter into this Assignment and Acceptance; (c) agrees that it
will, independently and without reliance upon the Assignor, the
Administrative Agent, the Letter of Credit Issuer or the Credit
Card Issuer, or any other Lender and based on such documents
and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not
taking action under the Loan Agreement, the other Loan
Documents or any other instrument or document furnished
pursuant hereto or thereto; (d) appoints and authorizes the
Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under the Loan
Agreement, the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto as are delegated
to the Administrative Agent by the terms thereof, together with
such powers as are incidental thereto; and (e) agrees that it
will be bound by the provisions of the Loan Agreement and will
perform in accordance with its terms all the obligations which
by the terms of the Loan Agreement are required to be performed
by it as a Lender.
4. The effective date of this Assignment and Acceptance shall be
__________ _____, ________ (the "EFFECTIVE DATE"). Following the
execution of this Assignment and Acceptance, it will be delivered
to the Administrative Agent for acceptance by it and recording by
the Administrative Agent pursuant to the Loan Agreement, effective
as of the Effective Date (which shall not, unless otherwise agreed
to by the Administrative Agent, be earlier than five Business Days
after the date of such acceptance and recording by the
Administrative Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Administrative Agent shall make all payments in respect
of the Assigned Interest (including payments of principal,
interest, fees and other amounts) to the Assignee whether such
amounts have accrued prior to the Effective Date or accrue
subsequent to the Effective Date. The Assignor and the Assignee
shall make all appropriate adjustments in payments by the
Administrative Agent for periods prior to the Effective Date or
with respect to the making of this assignment directly between
themselves.
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Loan Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a
Lender thereunder and under the other Loan Documents and shall be
bound by the provisions thereof and (b) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan
Agreement.
7. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of Washington.
EXHIBIT C
-2-
<PAGE>
8. This Assignment and Acceptance may be executed by one or more of
the parties to this Assignment and Acceptance on any number of
separate counterparts (including by facsimile transmission), and
all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their
respective duly authorized officers on Schedule 1 hereto.
EXHIBIT C
-3-
<PAGE>
SCHEDULE I
TO ASSIGNMENT AND ACCEPTANCE
RELATING TO THE AMENDED AND RESTATED LOAN AGREEMENT,
DATED AS OF APRIL 28, 1999
AMONG
CUTTER & BUCK INC.,
THE LENDERS NAMED THEREIN
AND
WASHINGTON MUTUAL BANK DOING BUSINESS AS WESTERN BANK,
AS AGENT FOR THE LENDERS
(IN SUCH CAPACITY, THE "ADMINISTRATIVE AGENT")
- --------------------------------------------------------------------------------
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
<TABLE>
<CAPTION>
Credit Principal
Facility Assigned Amount Assigned Commitment Percentage Assigned(1)
- ----------------- --------------- ---------------------------------
<S> <C> <C>
$ . %
</TABLE>
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By By
--------------------------------- ----------------------------------
Name: Name:
Title: Title:
- ---------------
(1) Calculate the Commitment Percentage that is assigned to at least 15
decimal places and show as a percentage of the aggregate commitments of all
Lenders.
Schedule I
-1-
<PAGE>
Accepted for Recordation in the Consent To:(2)
Register:
Washington Mutual Bank doing Cutter & Buck, Inc.
business as Western Bank, as
Administrative Agent
By By
--------------------------------- ----------------------------------
Name: Name:
Title: Title:
Washington Mutual Bank doing business
as Western Bank, as Administrative
Agent, Letter of Credit Issuer and
Credit Card Issuer
By
----------------------------------
Name:
Title:
- ---------------
(2) If required.
Schedule I
-2-
<PAGE>
EXHIBIT D
COMMITMENTS
<TABLE>
<CAPTION>
LENDER COMMITMENT
------ ----------
<S> <C>
Washington Mutual Bank $30,000,000.00
doing business as Western
Bank
Bank of America National $10,000,000.00
Trust and Savings Association
doing business as Seafirst Bank
</TABLE>
EXHIBIT D
-1-
<PAGE>
INDUSTRIAL LEASE
[SINGLE TENANT - TRIPLE NET]
This INDUSTRIAL LEASE ("Lease") is entered into as of the 27 day of
May, 1999, by and between ZELMAN RENTON, LLC, a Delaware limited liability
company ("Landlord"), and CUTTER & BUCK, INC., a Washington corporation
("Tenant").
1. BASIC LEASE TERMS. For purposes of this Lease, the following
terms have the following definitions and meanings:
(a) LANDLORD'S ADDRESS (For Notices):
c/o Zelman Development Co., 707 Wilshire Blvd., Suite 3036,
----------------------------------------------------------------
Los Angeles, CA 90017 Attention: Paul Casey
----------------------------------------------------------------
or such other place as Landlord may from time to time designate
by notice to Tenant.
(b) TENANT'S ADDRESS (For Notices):
Cutter & Buck, Inc., 2701 First Avenue, Suite 500, Seattle,
Washington 98121
Attention: Vice President-Operations
WITH A COPY TO: Cutter & Buck, Inc., 2701 First Avenue, Suite
500, Seattle, Washington 98121
Attention: Chief Financial Officer
or such other place as Tenant may from time to time designate
by notice to Landlord.
(c) DEVELOPMENT: The parcel(s) of real property commonly
known as Oakesdale Business Campus and located in the City of Renton (the
"City"), County of King (the "County"), State of Washington ("State"), as
shown on the site plan attached hereto as Exhibit "A-I".
(d) PREMISES: That certain building (the "Building") located
at 4001 Oakesdale Avenue SW, which Building will contain approximately
170,500 square feet. The Premises are more particularly depicted on the Site
Plan shown on Exhibit "A-I" and the base specifications and plans for the
Building are more particularly described on Exhibit "A-II."
(e) TENANT'S PERCENTAGE: The square footage of the Building
as compared to the square footage of all buildings in the Development. The
square footage of the Building will be determined as described on Exhibit "B".
(f) TERM: Seven (7) Lease Years and No Months.
(g) ESTIMATED COMMENCEMENT DATE: November 1, 1999.
(h) ESTIMATED EXPIRATION DATE: October 31, 2006.
(i) COMMENCEMENT DATE: The date on which the Term of this
Lease will commence as determined in accordance with the provisions of
Exhibit "C".
(j) INITIAL MONTHLY BASE RENT: $.3325 per square foot of the
Building per month, plus an additional $.65 per square foot of office space
within the Building per month, subject to adjustment as described on Exhibit
"B" and as otherwise provided in this Lease. By way of example, if the
Building contains 170,500 square feet, of which 6,000 square feet comprise
office space, the Initial Monthly Base Rent shall be equal to the sum of (A)
$.3325 X 170,500 (i.e., $56,691.25) plus (B) $.65 X 6,000 (i.e., $3,900.00),
for a total Initial Monthly Base Rent of $60,591.25.
(k) SECURITY DEPOSIT: None.
(l) TENANT IMPROVEMENTS: All tenant improvements installed
or to be installed by Landlord or Tenant within the Premises to prepare the
Premises for occupancy pursuant to the terms of the Work Letter Agreement
attached hereto as Exhibit "C".
(m) PERMITTED USE: Labeling, distribution, light
manufacturing and warehousing of non-Hazardous Materials and related office
uses and no other use without the express written consent of Landlord, which
consent Landlord may withhold in its reasonable discretion.
(n) BROKER(S): Kidder, Mathews & Segner
(o) GUARANTOR(S): None
(p) INTEREST RATE: Ten percent (10%) per annum.
(q) PARKING: Not less than One Hundred Fifty (150)
unreserved, in-common spaces within 80 feet of the Building as provided in
Paragraph 32 hereof.
(r) EXHIBITS: A-I through H, inclusive, which Exhibits are
attached to this Lease and incorporated herein by this reference.
(s) ADDENDUM PARAGRAPHS: 41 through 44, inclusive, which
Addendum Paragraphs are attached to this Lease and incorporated herein by
this reference.
<PAGE>
This Paragraph 1 represents a summary of the basic terms and
definitions of this Lease. In the event of any inconsistency between the
terms contained in this Paragraph 1 and any specific provision of this Lease,
the terms of the more specific provision shall prevail.
2. PREMISES AND COMMON AREAS.
(a) PREMISES. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the Premises as improved or to be improved with
the Tenant Improvements described in the Work Letter Agreement, a copy of
which is attached hereto as Exhibit "C".
(b) MUTUAL COVENANTS. Landlord and Tenant agree that the
letting and hiring of the Premises is upon and subject to the terms,
covenants and conditions contained in this Lease and each party covenants as
a material part of the consideration for this Lease to keep and perform their
respective obligations under this Lease.
(c) TENANT'S USE OF COMMON AREAS. During the Term of this
Lease, Tenant shall have the nonexclusive right to use in common with
Landlord and all persons, firms and corporations conducting business in the
Development and their respective customers, guests, licensees, invitees,
subtenants, employees and agents (collectively, "Development Occupants"),
subject to the terms of this Lease, the Rules and Regulations referenced in
Paragraph 28 below and all covenants, conditions and restrictions now or
hereafter affecting the Development (provided Tenant's use of the Premises as
contemplated herein is not materially and adversely impacted), the following
common areas of the Development (collectively, the "Common Areas"): the
parking facilities of the Development which serve the Building, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, and similar areas and facilities situated within
the Development and appurtenant to the Building which are not reserved for
the exclusive use of any Development Occupants. If Landlord hereafter grants
reserved parking to any other Development Occupants, then Tenant may demand
that Landlord grant to Tenant substantially similar reserved parking rights
for the Premises and any other space leased by Tenant pursuant to this Lease.
(d) LANDLORD'S RESERVATION OF RIGHTS. Provided Tenant's use
of and access to the Premises is not interfered with in an unreasonable
manner, Landlord reserves for itself and for all other owner(s) and
operator(s) of the Common Areas and the balance of the Development, the right
from time to time to: (i) make changes to the design and layout of the
Development, including, without limitation, changes to buildings, driveways,
entrances, loading and unloading areas, direction of traffic, landscaped
areas and walkways, parking spaces and parking areas; and (ii) use or close
temporarily the Common Areas, and/or other portions of the Development while
engaged in making improvements, repairs or alterations to the Building, the
Development, or any portion thereof.
3. TERM. The term of this Lease ("Term") will be for the period
designated in Subparagraph 1(f), commencing on the Commencement Date, and
ending on the last day of the month in which the expiration of such period
occurs, including any extensions of the Term pursuant to any provision of
this Lease or written agreement of the parties. Notwithstanding the
foregoing, if the Commencement Date falls on any day other than the first day
of a calendar month then the Term of this Lease will be measured from the
first day of the month following the month in which the Commencement Date
occurs. Each consecutive twelve (12) month period of the Term of this Lease,
commencing on the Commencement Date, will be referred to herein as a "Lease
Year". Landlord's Notice of Lease Term Dates ("Notice"), in the form of
Exhibit "D" attached hereto, will confirm the Commencement Date and the date
upon which the Term of this Lease shall end, and will be delivered to Tenant
after Landlord delivers possession of the Premises to Tenant and a punch-list
has been prepared.
4. POSSESSION.
(a) DELIVERY OF POSSESSION. Landlord agrees to deliver
possession of the Premises to Tenant in accordance with the terms of the Work
Letter Agreement attached hereto as Exhibit "C". Notwithstanding the
foregoing and except as provided in Subparagraph 4(c) below, Landlord will
not be obligated to deliver possession of the Premises to Tenant until
Landlord has received from Tenant all of the following: (i) a copy of this
Lease fully executed by Tenant; (ii) the first installment of Monthly Base
Rent (subject to the provisions of Paragraph 42 of the Addendum attached
hereto); (iii) executed copies of policies of insurance or certificates
thereof as required under Paragraph 19 of this Lease; (iv) copies of all
governmental permits and authorizations, if any, required in connection with
Tenant's operation of its business within the Premises; and (v) if Tenant is
a corporation or partnership, such evidence of due formation, valid existence
and authority as Landlord may reasonably require, which may include, without
limitation, a certificate of good standing, certificate of secretary,
articles of incorporation, statement of partnership, or other similar
documentation.
(b) CONDITION OF PREMISES. Thirty (30) days following the
Commencement Date and in accordance with the Work Letter Agreement attached
hereto as Exhibit "C", Landlord and Tenant will jointly conduct a
walk-through inspection of the Premises and will jointly prepare a punch-list
("Punch-List") of items required to be installed by Landlord under the Work
Letter Agreement which require finishing or correction. The Punch-List will
not include any items of damage to the Premises caused by Tenant's move-in or
early entry, if permitted, which damage will be corrected or repaired by
Landlord, at Tenant's expense or, at Landlord's election, by Tenant, at
Tenant's expense. Other than latent defects of which Landlord is notified
within one (1) year after the Commencement Date, Landlord's obligations under
Paragraph 14 of this Lease, and the items specified in the Punch-List, by
taking possession of the Premises, Tenant will be deemed to have accepted the
Premises in its condition on the date of delivery of possession, subject to
all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use and occupancy of the Premises
and to have acknowledged that the Tenant Improvements have been installed as
required by the Work Letter Agreement and that there are no additional items
needing work or repair by Landlord. Landlord will cause all items in the
Punch-List to be repaired or corrected within thirty (30) days following the
preparation of the Punch-List or as soon as practicable after the preparation
of the Punch-List. Tenant acknowledges that neither Landlord nor any agent
of Landlord has made any representation or warranty with respect to the
Premises, the Development or any portions thereof or with respect to the
suitability of same for the conduct of Tenant's business.
(c) EARLY ENTRY. Landlord agrees to provide Tenant with at
least forty-five (45) days' prior written notice of the date ("Shell Delivery
Date") on which the Building shell will be substantially complete. Tenant
may elect to enter upon the Premises commencing on the Shell Delivery Date in
order to install communications cable, fixtures and racking and the like, at
Tenant's sole cost and expense (collectively, "Tenant's Work"). Any such
entry by Tenant for the purpose of Tenant's Work will be subject to the
following conditions: (i) Tenant, together with its employees, agents,
independent contractors, suppliers and any other personnel under Tenant's
control ("Tenant's Personnel") entering the Premises, will cooperate with
Landlord and Landlord's general contractor; (ii) Tenant agrees that any such
early entry is subject to all of the terms and conditions of the Lease except
for those
-2-
<PAGE>
relating to the payment of Rent and other monetary obligations, which
provisions will become applicable in accordance with the terms of this Lease;
(iii) Prior to any entry upon the Premises by Tenant or Tenant's Personnel,
Tenant agrees to pay for and provide to Landlord certificates evidencing the
existence and amounts of liability insurance carried by Tenant, which
coverage must comply with the provisions of this Lease relating to insurance;
(iv) Tenant and Tenant's Personnel agree to comply with all applicable laws,
regulations, permits and other approvals required to perform Tenant's Work or
by the early entry on the Premises by Tenant and Tenant's Personnel; and (v)
Tenant agrees to indemnify, protect, defend and save Landlord harmless from
and against any and all liens, liabilities, losses, damages, costs, expenses,
demands, actions, causes of action and claims (including, without limitation,
attorneys' fees and legal costs) arising out of the early entry, use,
construction, or occupancy of the Premises by Tenant or Tenant's Personnel.
If, in Landlord's reasonable judgment, Tenant's Personnel and/or the work
that is being performed by Tenant's Personnel interferes with Landlord's
construction of the Tenant Improvements, or detrimentally affects Landlord's
ability to comply with its commitments for completing its improvements on the
Premises or cause labor difficulties, Landlord will have the right to order
Tenant's early entry to cease in the event Tenant has not taken action to
remedy such interference within forty-eight (48) hours following Landlord's
notice to Tenant of the existence of the same, and if Landlord so requires in
connection therewith because such items are interfering with Landlord's Work,
Tenant agrees to cause Tenant's Personnel to remove all tools, equipment and
materials from the Premises.
5. RENT.
(a) MONTHLY BASE RENT. Tenant agrees to pay Landlord the
Monthly Base Rent for the Premises (subject to adjustment as hereinafter
provided) in advance on the first day of each calendar month during the Term
without prior notice or demand, except that Tenant agrees to pay the Monthly
Base Rent for the first month of the Term directly to Landlord concurrently
with Tenant's delivery of the executed Lease to Landlord; provided, that
payment of rent shall not commence prior to December 1, 1999. If the Term of
this Lease commences or ends on a day other than the first day of a calendar
month, then the rent for such period will be prorated in the proportion that
the number of days this Lease is in effect during such period bears to the
number of days in such month. All rent must be paid to Landlord, without any
deduction or offset, in lawful money of the United States of America, at the
address designated by Landlord or to such other person or at such other place
as Landlord may from time to time designate in writing. Monthly Base Rent
will be adjusted during the Term of this Lease as provided in Exhibit "B".
(b) ADDITIONAL RENT. All amounts and charges to be paid by
Tenant hereunder, including, without limitation, payments for Operating
Expenses, real property taxes, insurance and repairs, will be considered
additional rent for purposes of this Lease, and the word "rent" as used in
this Lease will include all such additional rent unless the context
specifically or clearly implies that only Monthly Base Rent is intended.
(c) LATE PAYMENTS. Late payments of Monthly Base Rent and/or
any item of additional rent will be subject to interest and a late charge as
provided in Subparagraph 22(f) below.
6. OPERATING EXPENSES.
(a) OPERATING EXPENSES. In addition to Monthly Base Rent,
throughout the Term of this Lease, Tenant agrees to pay Landlord as
additional rent in accordance with the terms of this Paragraph 6, Tenant's
Percentage of Operating Expenses for the Development as defined in Exhibit
"E" attached hereto.
(b) ESTIMATE STATEMENT. Prior to the Commencement Date and
on or about April 1st of each subsequent calendar year during the Term of
this Lease, Landlord will endeavor to deliver to Tenant a statement
("Estimate Statement") wherein Landlord will estimate both the Operating
Expenses and Tenant's Percentage of Operating Expenses for the then current
calendar year. Tenant agrees to pay Landlord, as additional rent, one-twelfth
(1/l2th) of the estimated Tenant's Percentage of Operating Expenses each
month thereafter, beginning with the next installment of rent due, until such
time as Landlord issues a revised Estimate Statement or the Estimate
Statement for the succeeding calendar year; except that, concurrently with
the regular monthly rent payment next due following the receipt of each such
Estimate Statement, Tenant agrees to pay Landlord an amount equal to one
monthly installment of the estimated Tenant's Percentage of Operating
Expenses (less any applicable Operating Expenses already paid) multiplied by
the number of months from January, in the current calendar year, to the month
of such rent payment next due, all months inclusive. If at any time during
the Term of this Lease, but not more often than quarterly, Landlord
reasonably determines that Tenant's Percentage of Operating Expenses for the
current calendar year will be greater than the amount set forth in the then
current Estimate Statement, Landlord may issue a revised Estimate Statement
and Tenant agrees to pay Landlord, within thirty (30) days of receipt of the
revised Estimate Statement, the difference between the amount owed by Tenant
under such revised Estimate Statement and the amount owed by Tenant under the
original Estimate Statement for the portion of the then current calendar year
which has expired. Thereafter Tenant agrees to pay Tenant's Percentage of
Operating Expenses based on such revised Estimate Statement until Tenant
receives the next calendar year's Estimate Statement or a new revised
Estimate Statement for the current calendar year.
(c) ACTUAL STATEMENT. By April 1st of each calendar year
during the Term of this Lease, Landlord will also endeavor to deliver to
Tenant a statement ("Actual Statement") which states the actual Operating
Expenses for the preceding calendar year. If the Actual Statement reveals
that Tenant's Percentage of the actual Operating Expenses is more than the
total Additional Rent paid by Tenant for Operating Expenses on account of the
preceding calendar year, Tenant agrees to pay Landlord the difference in a
lump sum within thirty (30) days of receipt of the Actual Statement. If the
Actual Statement reveals that Tenant's Percentage of the actual Operating
Expenses is less than the Additional Rent paid by Tenant for Operating
Expenses on account of the preceding calendar year, Landlord will credit any
overpayment toward the next monthly installment(s) of Monthly Base Rent and
Tenant's Percentage of the Operating Expenses due under this Lease.
(d) MISCELLANEOUS. Any delay or failure by Landlord in
delivering any Estimate Statement or Actual Statement pursuant to this
Paragraph 6 will not constitute a waiver of its right to require an increase
in additional rent nor will it relieve Tenant of its obligations pursuant to
this Paragraph 6, except that Tenant will not be obligated to make any
payments based on such Estimate Statement or Actual Statement until thirty
(30) days after receipt of such Estimate Statement or Actual Statement. Even
though the Term has expired and Tenant has vacated the Premises, when the
final determination is made of Tenant's Percentage of the actual Operating
Expenses for the year in which this Lease terminates, Tenant agrees to
promptly pay any increase due over the estimated expenses paid and,
conversely, any overpayment made in the event said expenses decrease shall
promptly be rebated by Landlord to Tenant. Such obligation will be a
continuing one which will survive the expiration or termination of this
Lease. Prior to the expiration or sooner termination of the Lease Term and
Landlord's acceptance of Tenant's surrender of the Premises, Landlord will
have the right to estimate the actual Operating Expenses for the then current
Lease Year and to collect from Tenant prior to Tenant's surrender of the
Premises, Tenant's Percentage of any excess of such actual Operating Expenses
over the estimated Operating Expenses paid by Tenant in such Lease Year.
-3-
<PAGE>
(e) AUDIT RIGHT. In the event of any dispute as to the
amount of Tenant's Percentage of Operating Expenses, Tenant or an accounting
firm selected by Tenant and reasonably satisfactory to Landlord (billing
hourly and not on a contingency fee basis) will have the right, by prior
written notice ("Audit Notice") given within eighteen (18) months ("Audit
Period") following receipt of an Actual Statement and at reasonable times
during normal business hours, to audit Landlord's accounting records with
respect to Operating Expenses relative to the year to which such Actual
Statement relates at the offices of Landlord's property manager. In no event
will Landlord or its property manager be required to (i) photocopy any
accounting records or other items or contracts, (ii) create any ledgers or
schedules not already in existence, (iii) incur any costs or expenses
relative to such inspection, or (iv) perform any other tasks other than
making available such accounting records as aforesaid. Tenant must pay its
Percentage of Operating Expenses when due pursuant to the terms of this Lease
and may not withhold payment of Operating Expenses or any other rent pending
results of the audit or during a dispute regarding Operating Expenses. The
audit must be completed within sixty (60) days of the date of Tenant's Audit
Notice and the results of such audit shall be delivered to Landlord within
ninety (90) days of the date of Tenant's Audit Notice. If Tenant does not
comply with any of the aforementioned time frames, then such Actual Statement
will be conclusively binding on Tenant. If such audit or review correctly
reveals that Landlord has overcharged Tenant and Landlord agrees with the
results of such audit, then within thirty (30) days after the results of such
audit are made available to Landlord, Landlord agrees to reimburse Tenant the
amount of such overcharge. If the audit reveals that Tenant was
undercharged, then within thirty (30) days after the results of the audit are
made available to Tenant, Tenant agrees to reimburse Landlord the amount of
such undercharge. Tenant agrees to pay the cost of such audit, provided that
if the audit reveals that Landlord's determination of Tenant's Percentage of
Operating Expenses as set forth in the relevant Actual Statement was in error
in Landlord's favor by more than five percent (5%) of the amount charged by
Landlord to Tenant pursuant to such Actual Statement, then Landlord agrees to
pay the reasonable, third-party cost of such audit incurred by Tenant. To
the extent Landlord must pay the cost of such audit, such cost shall not
exceed a reasonable hourly charge for a reasonable amount of hours spent by
such third-party in connection with the audit, and in no event will exceed
the amount of the error. Tenant agrees to keep the results of the audit
confidential and will cause its agents, employees and contractors to keep
such results confidential. To that end, Landlord may require Tenant and its
auditor to execute a confidentiality agreement provided by Landlord.
7. SECURITY DEPOSIT. N/A
8. USE.
(a) TENANT'S USE OF THE PREMISES. The Premises may be used
for the use or uses set forth in Subparagraph 1(m) only.
(b) COMPLIANCE. At Tenant's sole cost and expense, Tenant
agrees to procure, maintain and hold available for Landlord's inspection, all
governmental licenses and permits required for the proper and lawful conduct
of Tenant's business from the Premises, if any. Tenant agrees not to use,
alter or occupy the Premises or allow the Premises to be used, altered or
occupied in violation of, and Tenant, at its sole cost and expense, agrees to
use and occupy the Premises and cause the Premises to be used and occupied in
compliance with: (i) any and all laws, statutes, zoning restrictions,
ordinances, rules, regulations, orders and rulings now or hereafter in force
and any requirements of any insurer, insurance authority or duly constituted
public authority having jurisdiction over the Premises now or hereafter in
force, (ii) the requirements of the Board of Fire Underwriters and any other
similar body, (iii) the Certificate of Occupancy issued for the Building, and
(iv) any recorded covenants, conditions and restrictions and similar
regulatory agreements, if any, which affect the use, occupation or alteration
of the Premises. Tenant agrees to comply with the Rules and Regulations
referenced in Paragraph 28 below. Tenant agrees not to do or permit anything
to be done in or about the Premises which will in any manner obstruct or
interfere with the rights of other tenants or occupants of the Development,
or injure or unreasonably annoy them, or use or allow the Premises to be used
for any unlawful or unreasonably objectionable purpose. Tenant agrees not to
cause, maintain or permit any nuisance or waste in, on, under or about the
Premises. Notwithstanding anything contained in this Lease to the contrary,
all transferable development rights related in any way to the Development are
and will remain vested in Landlord, and Tenant hereby waives any rights
thereto.
(c) HAZARDOUS MATERIALS; TENANT. Except for ordinary and
general office supplies, such as copier toner, liquid paper, glue, ink and
common household cleaning materials and other supplies or materials (in
customary amounts) necessary for the operation of Tenant's business (some or
all of which may constitute "Hazardous Materials" as defined in this Lease),
Tenant agrees not to cause or knowingly permit any Hazardous Materials to be
brought upon, stored, used, handled, generated, released or disposed of on,
in, under or about the Premises, the Building, the Development or any portion
thereof by Tenant, its agents, employees, subtenants, assignees, licensees or
contractors (collectively, "Tenant's Parties"), without the prior written
consent of Landlord, which consent Landlord may withhold in its sole and
absolute discretion. Concurrently with the execution of this Lease, Tenant
agrees to complete and deliver to Landlord an Environmental Questionnaire in
the form of Exhibit "H" attached hereto. Upon the expiration or earlier
termination of this Lease, Tenant agrees to promptly remove from the
Premises, at its sole cost and expense, any and all Hazardous Materials,
including any equipment or systems containing Hazardous Materials which are
installed, brought upon, stored, used, generated or released upon, in, under
or about the Premises, the Building, the Development or any portion thereof
by Tenant or any of Tenant's Parties. To the fullest extent permitted by
law, Tenant agrees to promptly indemnify, protect, defend and hold harmless
Landlord and Landlord's partners, officers, directors, employees, agents,
successors and assigns (collectively, "Landlord Indemnified Parties") from
and against any and all claims, damages, judgments, suits, causes of action,
losses, liabilities, penalties, fines, expenses and costs (including, without
limitation, clean-up, removal, remediation and restoration costs, sums paid
in settlement of claims, attorneys' fees, consultant fees and expert fees and
court costs) which arise directly or result directly from the release of
Hazardous Materials on, in, under or about the Premises, the Building or any
other portion of the Development and which are caused or knowingly permitted
by Tenant or any of Tenant's Parties. Tenant agrees to promptly notify
Landlord of any release of Hazardous Materials at the Premises, which Tenant
becomes aware of during the Term of this Lease, whether caused by Tenant or
any other persons or entities. In the event of any release of Hazardous
Materials caused or permitted by Tenant or any of Tenant's Parties, Landlord
shall have the right, but not the obligation, to cause Tenant to immediately
take all steps Landlord deems necessary or appropriate to remediate such
release and prevent any similar future release to the satisfaction of
Landlord and Landlord's mortgagee(s). As used in this Lease, the term
"Hazardous Materials" shall mean and include any hazardous or toxic
materials, substances or wastes as now or hereafter designated under any law,
statute, ordinance, rule, regulation, order or ruling of any agency of the
State, the United States Government or any local governmental authority,
including, without limitation, asbestos, petroleum, petroleum hydrocarbons
and petroleum based products, urea formaldehyde foam insulation,
polychlorinated biphenyls ("PCBs"), and freon and other chlorofluorocarbons.
The term "Environmental Law" means any federal, state or local law, statute,
ordinance, regulation or order pertaining to health, industrial hygiene,
environmental conditions or Hazardous Materials. The provisions of this
Subparagraph 8(c) will survive the expiration or earlier termination of this
Lease.
(d) HAZARDOUS MATERIALS; LANDLORD. Prospective Purchaser
Consent Decree Re: Sternco Property, Renton, Washington (King County Cause
No. 97-2-1-17988-2SEA) ("Consent Decree"), entered on July 22, 1997, pursuant
to the
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Washington State Model Toxics Control Act (Chapter 70.105D RCW), requires
Landlord to complete the remediation of releases of certain Hazardous
Materials at a site consisting of approximately 45 acres, and including the
legal parcel on which the Premises are located. Landlord did not cause or
contribute to the release or threatened release of Hazardous Materials that
required remediation under the terms of the Decree. Landlord has completed
all remediation activities required under the terms of the Decree at the
legal parcel on which the Premises are located. Pursuant to the terms of the
Decree, the Washington State Department of Ecology has certified in writing
that all clean-up activities required under the terms of Decree at the legal
parcel on which the Premises are located have been completed and that no
further action is necessary under the terms of the Decree on such legal
parcel, with the exception of continuing groundwater monitoring and
maintenance of institutional controls, which Landlord shall undertake at
Landlord's sole expense. The interest conveyed hereby is subject to the
effect of a Restrictive Covenant recorded in the public land records as
Document No. 97-2-17988-2SEA, in favor of, and enforceable by, the State of
Washington. Landlord shall promptly protect, indemnify, defend and hold
harmless Tenant and its directors, officers, employees, agents, parents,
subsidiaries, successors and assigns ("Tenant Indemnified Parties") from and
against any and all claims, judgments, suits, causes of action, penalties,
fines, loss, damage, cost, expense or liability (including without
limitation, clean-up, removal, remediation and restoration costs, sums paid
in settlement of claims, consultant fees and expert fees, attorneys' fees and
costs) arising directly out of, or resulting directly from, the presence at
the Premises of Hazardous Materials on, in, under or about the Building or
the Development prior to the date of this Lease or caused by Landlord or its
agents, contractors or employees. Nothing in this indemnity shall require
Landlord to protect, indemnify, defend or hold harmless Tenant or any Tenant
Indemnified Parties from any loss, damage, cost, expense or liability
(including reasonable attorneys' fees and costs) arising out of Tenant's
release (or release by any of Tenant's Parties) of Hazardous Materials and/or
Tenant's violation (or the violation by any of Tenant's Parties) of any
Environmental Law. The provisions of this Subparagraph 8(d) shall survive
expiration or earlier termination of this Lease.
9. NOTICES. Any notice required or permitted to be given
hereunder must be in writing and may be given by personal delivery (including
delivery by overnight courier or an express mailing service) or by mail, if
sent by registered or certified mail. Notices to Tenant shall be sufficient
if delivered to Tenant at the address designated in Subparagraph 1(b) and
notices to Landlord shall be sufficient if delivered to Landlord at the
address designated in Subparagraph 1(a). Either party may specify a
different address for notice purposes by written notice to the other, except
that the Landlord may in any event use the Premises as Tenant's address for
notice purposes.
10. BROKERS. The parties acknowledge that the broker(s) who
negotiated this Lease are stated in Subparagraph 1(n). Each party represents
and warrants to the other, that, to its knowledge, no other broker, agent or
finder (a) negotiated or was instrumental in negotiating or consummating this
Lease on its behalf, and (b) is or might be entitled to a commission or
compensation in connection with this Lease. Landlord and Tenant each agree
to promptly indemnify, protect, defend and hold harmless the other from and
against any and all claims, damages, judgments, suits, causes of action,
losses, liabilities, penalties, fines, expenses and costs (including
attorneys' fees and court costs) resulting from any breach by the
indemnifying party of the foregoing representation, including, without
limitation, any claims that may be asserted by any broker, agent or finder
undisclosed by the indemnifying party. The foregoing mutual indemnity shall
survive the expiration or earlier termination of this Lease.
11. SURRENDER; HOLDING OVER.
(a) SURRENDER. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not constitute a
merger, and shall, at the option of Landlord, operate as an assignment to
Landlord of any or all subleases or subtenancies. Upon the expiration or
earlier termination of this Lease, Tenant agrees to peaceably surrender the
Premises to Landlord broom clean and in a state of good order, repair and
condition, ordinary wear and tear and casualty damage (if this Lease is
terminated as a result thereof pursuant to Paragraph 20) excepted, together
with all of Tenant's personal property and Alterations (as defined in
Paragraph 13) removed from the Premises to the extent required under
Paragraph 13 and all damage caused by such removal repaired as required by
Paragraph 13. The delivery of keys to any employee of Landlord or to
Landlord's agent or any employee thereof alone will not be sufficient to
constitute a termination of this Lease or a surrender of the Premises.
(b) HOLDING OVER. Tenant will not be permitted to hold over
possession of the Premises after the expiration or earlier termination of the
Term. If Tenant holds over after the expiration or earlier termination of
the Term, Landlord may, at its option, treat Tenant as a tenant at sufferance
only, and such continued occupancy by Tenant shall be subject to all of the
terms, covenants and conditions of this Lease, so far as applicable, except
that the Monthly Base Rent for any such holdover period shall be equal to one
hundred fifty percent (150%) of the Monthly Base Rent in effect under this
Lease immediately prior to such holdover, prorated on a daily basis.
Acceptance by Landlord of rent after such expiration or earlier termination
will not result in a renewal of this Lease. The foregoing provisions of this
Paragraph 11 are in addition to and do not affect Landlord's right of
re-entry or any rights of Landlord under this Lease or as otherwise provided
by law. If Tenant fails to surrender the Premises upon the expiration of
this Lease in accordance with the terms of this Paragraph 11 despite demand
to do so by Landlord, Tenant agrees to promptly indemnify, protect, defend
and hold Landlord harmless from all claims, damages, judgments, suits, causes
of action, losses, liabilities, penalties, fines, expenses and costs
(including attorneys' fees and costs), including, without limitation, costs
and expenses incurred by Landlord in returning the Premises to the condition
in which Tenant was to surrender it and claims made by any succeeding tenant
founded on or resulting from Tenant's failure to surrender the Premises. The
provisions of this Subparagraph 11(b) will survive the expiration or earlier
termination of this Lease.
12. TAXES.
(a) PAYMENT OF TAXES. If the Premises are separately
assessed, Tenant agrees to pay all real property taxes, as defined in
Paragraph 12(b) below, applicable to the Premises during the term of this
Lease. All such payments shall be made at least ten (10) days prior to the
due date of such payment. Tenant agrees to promptly furnish Landlord with
satisfactory evidence that such real property taxes have been paid. If any
such real property taxes paid by Tenant shall cover any period of time prior
to or after the expiration of the term thereof, Tenant's share of such real
property taxes is to be equitably prorated to cover only the period of time
within the tax fiscal year during which this Lease shall be in effect, and
Landlord will promptly reimburse Tenant to the extent required. If Tenant
fails to pay any such real property taxes, Landlord will have the right to
pay the same, in which case Tenant will repay such amount to Landlord with
Tenant's next rent installment together with interest at the rate at the
Interest Rate. In the event real property taxes are billed to Landlord,
Tenant shall pay its pro rata share as determined in Paragraph 12(c) below of
said taxes within thirty (30) days after billing by Landlord.
(b) DEFINITION OF "REAL PROPERTY TAXES". As used herein, the
term "real property taxes" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license fee,
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on or with respect to the Premises
by any authority having the direct or indirect power to tax, including any
city, state or federal government, or any school, agricultural, sanitary,
fire,
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street, drainage or other improvement district thereof, as against any legal
or equitable interest of Landlord in the Premises or in the real property of
which the Premises are a part, as against Landlord's right to rent or other
income therefrom, and as against Landlord's business of leasing the Premises.
Assessments and improvement bonds shall be amortized over the longest
allowable period and Tenant shall be responsible for only those portions
coming due during the Term of this Lease. The term "real property taxes"
shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or
charge herein above included within the definition of "real property tax";
(ii) the nature of which was hereinabove included within the definition of
"real property tax"; (iii) which is measured by or reasonably attributable to
the cost or value of Tenant's equipment, fixtures or other property located
on the Premises or Tenant's leasehold improvements made in or to the
Premises, regardless of whether title to such improvements shall be in
Landlord or Tenant (except to the extent covered b Subparagraph 12(d) below);
(iv) upon or measured by the rent payable hereunder; and (v) upon or with
respect to the possession, leasing, operation, maintenance, management,
repair, use or occupancy of the Premises or any portion thereof.
(c) JOINT ASSESSMENT. If the Premises are not separately
assessed, Tenant's liability shall be an equitable proportion of the real
property taxes for all of the land and improvement included within the tax
parcel assessed, such proportion to be determined by Landlord from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available.
(d) PERSONAL PROPERTY TAXES. Tenant agrees to pay prior to
delinquency all taxes assessed against and levied upon trade fixtures,
furnishings, equipment and all other personal property of Tenant contained in
the Premises or elsewhere. When possible, Tenant will cause said trade
fixtures, furnishings, equipment and all other personal property !o be
assessed and billed separately from the real property of Landlord. If any of
Tenant's personal property is assessed with Landlord's real property, Tenant
shall pay Landlord the taxes attributable to Tenant within thirty (30) days
after receipt of a written statement setting forth the taxes applicable to
Tenant's property.
13. ALTERATIONS. After installation of the initial Tenant
Improvements for the Premises pursuant to Exhibit "C", Tenant may, at its
sole cost and expense, make alterations, additions, improvements, "Utility
Installations" and decorations to the Premises (collectively, "Alterations")
subject to and only upon the following terms and conditions:
(a) PROHIBITED ALTERATIONS. Tenant may not make any
Alterations which: (i) affect any area outside the Premises; (ii) affect the
Building's structure, roof, equipment, services or systems, or the proper
functioning thereof, or Landlord's access thereto; (iii) affect the outside
appearance or character of the Building or affect the appearance, character
or use of the Common Areas; (iv) in the reasonable opinion of Landlord,
lessen the value of the Building; or (v) will violate any occupancy
certificate applicable to the Premises. As used in this Paragraph 13, the
term "Utility Installations" means carpeting, window coverings, air lines,
power panels, electrical distribution systems, heating, ventilation and air
conditioning systems, plumbing systems, fencing, landscaping, or gas lines.
(b) LANDLORD'S APPROVAL. Before proceeding with any
Alterations which are not prohibited in Subparagraph 13(a) above, Tenant must
first obtain Landlord's written approval of the plans, specifications and
working drawings for such Alterations, which approval Landlord will not
unreasonably withhold or delay; provided, however, Landlord's prior approval
will not be required for any such Alterations which are not prohibited by
Subparagraph 13(a) above and which cost less than One Hundred Thousand
Dollars ($100,000) per Lease Year as long as (i) Tenant delivers to Landlord
notice and a copy of any final plans, specifications and working drawings for
any such Alterations at least ten (10) days prior to commencement of the work
thereof, and (ii) the other conditions of this Paragraph 13 are satisfied,
including, without limitation, conforming to Landlord's rules, regulations
and insurance requirements which govern contractors. Landlord's approval of
plans, specifications and/or working drawings for Alterations will not create
any responsibility or liability on the part of Landlord for their
completeness, design sufficiency, or compliance with applicable permits,
laws, rules and regulations of governmental agencies or authorities.
(c) CONTRACTORS. Alterations may be made or installed only
by contractors and subcontractors which have been approved by Landlord, which
approval Landlord will not unreasonably withhold or delay. Before proceeding
with any Alterations, Tenant agrees to provide Landlord with ten (10) days'
prior written notice and Tenant's contractors must obtain and maintain, on
behalf of Tenant and at Tenant's sole cost and expense, all necessary
governmental permits and approvals for the commencement and completion of
such Alterations. Throughout the performance of any Alterations, Tenant
agrees to obtain, or cause its contractors to obtain, workers compensation
insurance and general liability insurance in compliance with the provisions
of Paragraph 19 of this Lease.
(d) MANNER OF PERFORMANCE. All Alterations must be
performed: (i) in accordance with the approved plans, specifications and
working drawings; (ii) in a lien-free and first-class and workmanlike manner;
(iii) in compliance with all applicable permits, laws, statutes, ordinances,
rules, regulations, orders and rulings now or hereafter in effect and imposed
by any governmental agencies and authorities which assert jurisdiction; (iv)
in such a manner so as not to interfere with the occupancy of any other
tenant of the Development, nor impose any additional expense upon Landlord;
and (v) at such times, in such manner, and subject to such rules and
regulations as Landlord may from time to time reasonably designate.
(e) OWNERSHIP. The Tenant Improvements and all Alterations
will become the property of Landlord and will remain upon and be surrendered
with the Premises at the end of the Term of this Lease; provided, however,
Landlord may, by written notice delivered to Tenant concurrently with
Landlord's approval of the final working drawings for any Alterations,
identify those Alterations which Landlord will require Tenant to remove at
the expiration or earlier termination of this Lease. Landlord may also
require Tenant to remove Alterations which Landlord did not have the
opportunity to approve as provided in this Paragraph 13. If Landlord
requires Tenant to remove any Alterations, Tenant, at its sole cost and
expense, agrees to remove the identified Alterations on or before the
expiration or earlier termination of this Lease and repair any damage to the
Premises caused by such removal (or, at Landlord's option, Tenant agrees to
pay to Landlord all of Landlord's costs of such removal and repair).
(f) PLAN REVIEW. Tenant agrees to pay Landlord, as
additional rent, the reasonable costs of professional services and costs for
general conditions of Landlord's third party consultants if utilized by
Landlord (but not Landlord's "in-house" personnel) for review of all plans,
specifications and working drawings for any Alterations, within thirty (30)
days after Tenant's receipt of invoices either from Landlord or such
consultants.
(g) PERSONAL PROPERTY. All articles of personal property
owned by Tenant or installed by Tenant at its expense in the Premises
(including Tenant's business and trade fixtures, furniture, movable
partitions and equipment [such as telephones, copy machines, computer
terminals, refrigerators and facsimile machines]) will be and remain the
property of Tenant, and must be removed by Tenant from the Premises, at
Tenant's sole cost and expense, on or before the expiration or earlier
termination of
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this Lease. Tenant agrees to repair any damage caused by such removal at its
cost on or before the expiration or earlier termination of this Lease.
(h) REMOVAL OF ALTERATIONS. If Tenant fails to remove by the
expiration or earlier termination of this Lease all of its personal property,
or any Alterations identified by Landlord for removal, Landlord may, at its
option, treat such failure as a hold-over pursuant to Subparagraph 11(b)
above, and/or Landlord may (without liability to Tenant for loss thereof)
treat such personal property and/or Alterations as abandoned and, at Tenant's
sole cost and expense, and in addition to Landlord's other rights and
remedies under this Lease, at law or in equity: (a) remove and store such
items; and/or (b) upon ten (10) days' prior notice to Tenant, sell, discard
or otherwise dispose of all or any such items at private or public sale for
such price as Landlord may obtain or by other commercially reasonable means.
Tenant shall be liable for all costs of disposition of Tenant's abandoned
property and Landlord shall have no liability to Tenant with respect to any
such abandoned property. Landlord agrees to apply the proceeds of any sale
of any such property to any amounts due to Landlord under this Lease from
Tenant (including Landlord's attorneys' fees and other costs incurred in the
removal, storage and/or sale of such items), with any remainder to be paid to
Tenant.
14. REPAIRS.
(a) TENANT'S OBLIGATIONS. Subject to Landlord's obligations
under Subparagraph 14(c) below, Tenant agrees to keep in good order,
condition and repair the Premises and every part thereof, including, without
limiting the generality of the foregoing, all plumbing, heating, ventilation,
air conditioning (notwithstanding the foregoing, Landlord shall procure and
maintain, at Tenant's sole cost and expense, a heating, ventilation and air
conditioning system maintenance contract and Tenant shall pay direct to
Landlord's contractor the actual and reasonable costs incurred in connection
therewith as additional rent under this Lease), electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior
only), ceilings, floors, windows, doors, plate glass and skylights located
within the Premises, dock levelers, dock bumpers, truck doors, interior pest
control, and signs located on the Premises. Tenant agrees to cause any
mechanics' liens or other liens arising as a result of work performed by
Tenant or at Tenant's direction to be eliminated as provided in Paragraph 15
below.
(b) TENANT'S FAILURE TO REPAIR. If Tenant refuses or
neglects to repair and maintain the Premises properly as required hereunder
to the reasonable satisfaction of Landlord, Landlord, at any time following
thirty (30) days from the date on which Landlord makes a written demand on
Tenant to effect such repair and maintenance, may enter upon the Premises and
make such repairs and/or maintenance, and upon completion thereof, Tenant
agrees to pay to Landlord as additional rent, Landlord's costs for making
such repairs plus an amount not to exceed ten percent (10%) of such costs for
overhead, within thirty (30) days of receipt from Landlord of a written
itemized bill therefor. Any amounts not reimbursed by Tenant within such
thirty (30) day period will bear interest at the Interest Rate until paid by
Tenant.
(c) LANDLORD'S OBLIGATIONS. At Landlord's sole cost,
Landlord shall maintain and repair the structural roof, foundation and the
structural soundness of the exterior walls of the Building in good condition,
ordinary wear and tear and damage by fire or casualty, excepted; provided,
however, to the extent repairs to such items are required as a result of the
negligent or intentionally willful acts or omissions of Tenant or its
employees, agents, contractors or subtenants, such repairs plus an
administration fee of ten percent (10%) shall be made by Landlord at the sole
cost of Tenant. As part of Operating Expenses, Landlord shall be responsible
for the landscaping, parking lot and driveway sweeping and repaving, exterior
painting, and nonstructural roof. Except for the obligations of Landlord in
this Paragraph 14 above, under Paragraph 20 relating to damage or destruction
of the Premises, or under Paragraph 21 relating to eminent domain, it is
intended by the parties that Landlord have no obligation of any kind
whatsoever, (i) to repair or maintain the Premises or any portion thereof or
any equipment therein, all of which obligations are intended to be Tenant's
obligations, or (ii) to pay any other cost or expense whatsoever directly or
indirectly relating to the ownership, management, lease, operation or use of
the Premises. Except as expressly provided in this Lease, Tenant waives the
right to make repairs at Landlord's expense under any law, statute,
ordinance, rule, regulation, order or ruling.
(d) SELF-HELP. Notwithstanding anything to the contrary
contained in Paragraph 14(a) of this Lease, and in addition to any other
available remedies, if Landlord fails to perform any obligation under this
Lease which it is obligated to perform within the time periods set forth in
Paragraph 23 of this Lease following receipt of written notice from Tenant,
and if Landlord does not in good faith dispute that it is supposed to be
performing such obligation but fails to diligently attempt to do so, then
Tenant shall be permitted to perform such obligations on Landlord's behalf in
the Premises, provided Tenant first delivers to Landlord an additional two
(2) business days prior written notice that Tenant will be performing such
obligations, and provided Landlord fails to commence to perform such
obligations within such additional two (2) business day period. If the
obligations to be performed by Tenant will affect the structure of the
Building or the Building's life safety, electrical, plumbing, HVAC or
sprinkler systems, then Tenant shall use only those contractors used by
Landlord in the Building for work thereon, provided Landlord notifies Tenant
of the names of such contractors upon Tenant's request (unless such
contractors are unwilling or unable to perform such work, in which event
Tenant may utilize the services of any other qualified contractor approved by
Landlord, which approval shall not be unreasonably withheld, conditioned or
delayed). All other contractors shall be subject to Landlord's reasonable
approval, and Landlord agrees to approve or reject any contractor proposed to
be used by Tenant within eight (8) business hours (i.e., between 8:00 a.m.
and 6:00 p.m., Monday through Friday) of receipt of Tenant's second notice,
provided that if a proposed contractor is licensed and bonded and all
requisite permits have been obtained for the desired work, then Landlord
agrees not to withhold its approval of the proposed contractor. Any work
performed by or on behalf of Tenant shall be performed in accordance with
provisions of clauses (ii), (iii) and (iv) of Paragraph 13(d) of this Lease.
Landlord agrees to promptly reimburse Tenant following the receipt of a
written statement of all reasonable and actual costs incurred by Tenant in
performing such obligations on behalf of Landlord ("Costs"). If Landlord
disputes Tenant's entitlement to some or all of the Costs and fails or
refuses to reimburse such Costs to Tenant within thirty (30) days after
Tenant's written demand therefor, then Tenant may deduct the Costs from rent
due under this Lease after and only to the extent Tenant has been authorized
to do so by the arbitrator pursuant to and in accordance with the terms of
Paragraph 44 of the Addendum hereof.
15. LIENS. Tenant agrees not to permit any mechanic's,
materialmen's or other liens to be filed against all or any part of the
Premises or the Development, nor against Tenant's leasehold interest in the
Premises, by reason of or in connection with any repairs, alterations,
improvements or other work contracted for or undertaken by Tenant or any
other act or omission of Tenant or Tenant's agents, employees, contractors,
licensees or invitees. At Landlord's request, Tenant agrees to provide
Landlord with enforceable, conditional and final lien releases (or other
evidence reasonably requested by Landlord to demonstrate protection from
liens) from all persons furnishing labor and/or materials at the Premises.
Landlord will have the right at all reasonable times to post on the Premises
and record any notices of non-responsibility which it deems necessary for
protection from such liens. If any such liens are filed, Tenant will, at its
sole cost, promptly cause such liens to be released of record or bonded so
that it no longer affects title to the Premises or the Development. If
Tenant fails to cause any such liens to be so released or bonded within
thirty (30) days after receiving notice of the filing thereof, such failure
will be deemed a material breach by Tenant under this Lease without the
benefit of any additional notice or cure period described in Paragraph 22
below, and Landlord may, without waiving its rights and remedies
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based on such breach, and without releasing Tenant from any of its
obligations, cause such liens to be released by any means it shall deem
proper, including payment in satisfaction of the claims giving rise to such
liens. Tenant agrees to pay to Landlord within thirty (30) days after
receipt of invoice from Landlord, any sum paid by Landlord to remove such
liens, together with interest at the Interest Rate from the date of such
payment by Landlord.
16. ENTRY BY LANDLORD. Landlord and its employees and agents will
at all times (during normal business hours and after at least 48 hours prior
written notice to Tenant, except in the case of emergency, in which event no
prior notice to Tenant shall be required) have the right to enter the
Premises to inspect the same, to show the Premises to prospective purchasers
or, during the last 180 days of the Term, to tenants, to post notices of
nonresponsibility, and/or to repair the Premises as permitted or required by
this Lease. In exercising such entry rights, Landlord will endeavor to
minimize, as reasonably practicable, the interference with Tenant's business,
and will provide Tenant with reasonable advance notice of any such entry
(except in emergency situations). Landlord may, in order to carry out such
purposes, erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed. Landlord will at all
times have and retain a key with which to unlock all doors in the Premises,
excluding Tenant's vaults and safes. Landlord will have the right to use any
and all means which Landlord may reasonably deem proper to open said doors in
an emergency in order to obtain entry to the Premises. Any entry to the
Premises obtained by Landlord by any of said means, or otherwise, will not be
construed or deemed to be a forcible or unlawful entry into the Premises, or
an eviction of Tenant from the Premises.
17. UTILITIES AND SERVICES. Tenant agrees to contract directly
for and to pay for all water, gas, heat, light, power, telephone, waste/trash
removal, sewer and other utilities and services supplied to the Premises,
together with any taxes thereon. If any such services are not separately
metered to Tenant, Tenant agrees to pay a reasonable proportion to be
determined by Landlord of all charges jointly metered with other Premises.
Landlord will not be liable to Tenant for any failure to furnish any of the
foregoing utilities and services if such failure is caused by all or any of
the following: (i) accident, breakage or repairs; (ii) strikes, lockouts or
other labor disturbance or labor dispute of any character; (iii) governmental
regulation, moratorium or other governmental action or inaction; (iv)
inability despite the exercise of reasonable diligence to obtain electricity,
water or fuel; or (v) any other cause beyond Landlord's reasonable control.
In addition, in the event of any stoppage or interruption of services or
utilities, Tenant shall not be entitled to any abatement or reduction of rent
(except as expressly provided in Subparagraphs 20(f) or 21(b) if such failure
results from a damage or taking described therein), no eviction of Tenant
will result from such failure and Tenant will not be relieved from the
performance of any covenant or agreement in this Lease because of such
failure. Notwithstanding anything in this Lease to the contrary, if, as a
result of the negligent acts or omissions of Landlord or its agents,
contractors or employees, for more than three (3) consecutive business days
following written notice to Landlord, there is no elevator service to the
Premises, or no HVAC or electricity to the Premises, or such an interruption
of other essential utilities and building services, such as fire protection
or water, so that any portion of the Premises cannot be and is not used by
Tenant, in Tenant's judgment reasonably exercised, then Tenant's rent shall
thereafter be abated until the Premises are again usable by Tenant in
proportion to the extent to which Tenant's use of the Premises is interfered
with; provided, however, that if Landlord is diligently pursuing the repair
of such utilities or services and Landlord provides substitute services
reasonably suitable for Tenant's purposes, as for example, bringing in
portable air-conditioning equipment, then there shall not be an abatement of
rent. This paragraph shall not apply in case of damage to, or destruction
of, the Building, which shall be governed by a separate provision of this
Lease. Notwithstanding the foregoing, Tenant may not abate rent if Landlord
disputes Tenant's right to abate or the amount thereof until and only to the
extent the arbitrator provides that Tenant may do so in accordance with and
pursuant to the terms of Paragraph 44 hereof.
18. ASSUMPTION OF RISK AND INDEMNIFICATION.
(a) ASSUMPTION OF RISK. Tenant, as a material part of the
consideration to Landlord, hereby agrees that neither Landlord nor any
Landlord Indemnified Parties (as defined in Subparagraph 8(c) above) will be
liable to Tenant for, and Tenant expressly assumes the risk of and waives any
and all claims it may have against Landlord or any Landlord Indemnified
Parties with respect to, (i) any and all damage to property or injury to
persons in, upon or about the Premises (except that resulting from the
negligent or willful act or omission of Landlord or its employees, agents or
contractors), (ii) any such damage caused by other tenants or persons in or
about the Premises, or caused by quasi-public work, (iii) any loss of or
damage to property by theft or otherwise, or (iv) any injury or damage to
persons or property resulting from any casualty, explosion, falling plaster
or other masonry or glass, steam, gas, electricity, water or rain which may
leak from any part of the Building or from the pipes, appliances or plumbing
works therein or from the roof, street or subsurface or from any other place,
or resulting from dampness (except to the extent resulting from the negligent
or willful act or omission of Landlord or its employees, agents or
contractors). Notwithstanding anything to the contrary contained in this
Lease, neither Landlord nor any Landlord Indemnified Parties will be liable
for consequential damages arising out of any loss of the use of the Premises
or any equipment or facilities therein by Tenant or any Tenant Parties.
(b) INDEMNIFICATION. Tenant will be liable for, and agrees,
to the maximum extent permissible under applicable law, to promptly
indemnify, protect, defend and hold harmless Landlord and Landlord
Indemnified Parties, from and against, any and all claims, damages,
judgments, suits, causes of action, losses, liabilities, penalties, fines,
expenses and costs, including attorneys' fees and court costs (collectively,
"Indemnified Claims"), arising or resulting from (i) any negligent act or
omission of Tenant or any Tenant Parties (as defined in Subparagraph 8(c)
above); (ii) the use of the Premises and conduct of Tenant's business by
Tenant or any Tenant Parties, or any other activity, work or thing done,
knowingly permitted or suffered by Tenant or any Tenant Parties, in or about
the Premises; and/or (iii) any default by Tenant of any obligations on
Tenant's part to be performed under the terms of this Lease. In case any
action or proceeding is brought against Landlord or any Landlord Indemnified
Parties by reason of any such Indemnified Claims, Tenant, upon notice from
Landlord, agrees to promptly defend the same at Tenant's sole cost and
expense by counsel approved in writing by Landlord, which approval Landlord
will not unreasonably withhold.
(c) SURVIVAL; NO RELEASE OF INSURERS. Tenant's
indemnification obligations under Subparagraph 18(b) will survive the
expiration or earlier termination of this Lease. Tenant's covenants,
agreements and indemnification obligation in Subparagraphs 18(a) and 18(b)
above, are not intended to and will not relieve any insurance carrier of its
obligations under policies required to be carried by Tenant pursuant to the
provisions of this Lease.
(d) INDEMNITY BY LANDLORD. Notwithstanding anything to the
contrary contained in Paragraph 18 of, or elsewhere in, this Lease, Tenant
shall not be required to indemnify and hold Landlord harmless from any
Indemnified Claims resulting from the negligence or willful misconduct of
Landlord or Landlord's agents, employees or contractors (except for damage to
Tenant's personal property, fixtures, furniture and equipment in the
Premises, to the extent Tenant is required to obtain insurance coverage
therefor pursuant to the terms of this Lease), and, subject to the
limitations contained in (i) the second to the last sentence of Paragraph
18(a) of this Lease, and (ii) Paragraph 35 of this Lease, Landlord agrees to
indemnify and hold Tenant harmless from and against any and all such
Indemnified Claims and all Indemnified Claims arising or resulting from (i)
any negligent act or omission of Landlord or its employees, agents or
contractors, and/or (ii) any default by Landlord of any of its obligations
under this Lease.
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Landlord's indemnification obligations under this paragraph will survive the
expiration or earlier termination of this Lease and are not intended to and
will not relieve any insurance carrier of its obligations under policies
required to be carried by Landlord and/or by Tenant pursuant to the
provisions of this Lease.
19. INSURANCE.
(a) TENANT'S INSURANCE. On or before the date Tenant is
permitted any access to the Premises pursuant to this Lease (which may be
prior to the Commencement Date), and continuing throughout the entire Term
hereof and any other period of occupancy, Tenant agrees to keep in full force
and effect, at its sole cost and expense, the following insurance:
(i) "All Risks" property insurance including at least
the following perils: fire and extended coverage, smoke damage, vandalism,
malicious mischief, and sprinkler leakage. This insurance policy must be
upon all property owned by Tenant, for which Tenant is legally liable, or
which is installed at Tenant's expense, and which is located in the Premises
including, without limitation, any Alterations and all furniture, fittings,
installations, fixtures and any other personal property of Tenant, in an
amount not less than the full replacement cost thereof.
(ii) One (1) year insurance coverage for business
interruption and loss of income and extra expense insuring the same perils
described in Subparagraph 19(a)(i) above, in such amounts as will reimburse
Tenant for any direct or indirect loss of earnings attributable to any such
perils including prevention of access to the Premises, Tenant's parking areas
or the Building as a result of any such perils.
(iii) Commercial General Liability Insurance (on an
occurrence form) insuring bodily injury, personal injury and property damage
including the following divisions and extensions of coverage: Premises and
Operations; Owners and Contractors protective; blanket contractual liability
(including coverage for Tenant's indemnity obligations under this Lease); and
products and completed operations. Such insurance must have the following
minimum limits of liability: bodily injury, personal injury and property
damage - $5,000,000 each occurrence, provided that if liability coverage is
provided by a Commercial General Liability policy the general aggregate limit
shall apply separately and in total to this location only (per location
general aggregate).
(iv) Comprehensive Automobile Liability insuring bodily
injury and property damage arising from all owned, non-owned and hired
vehicles, if any, with minimum limits of liability of $1,000,000 per accident.
(v) Worker's Compensation or similar insurance as
required by the laws of the State.
(vi) Any other form or forms of insurance as Tenant or
Landlord or any mortgagees of Landlord may reasonably require from time to
time in form, in amounts, and for insurance risks against which, a prudent
tenant would protect itself, but only to the extent coverage for such risks
and amounts are available in the insurance market at commercially acceptable
rates. Landlord makes no representation that the limits of liability required
to be carried by Tenant under the terms of this Lease are adequate to protect
Tenant's interests and Tenant should obtain such additional insurance or
increased liability limits as Tenant deems appropriate.
(b) SUPPLEMENTAL TENANT INSURANCE REQUIREMENTS. All policies
must be in a form reasonably satisfactory to Landlord and issued by an
insurer admitted to do business in the State. All policies must be issued by
insurers with a minimum policyholder rating of "A-" and a financial rating of
"VII" in the most recent version of Best's Key Rating Guide. All policies
must contain a requirement to notify Landlord (and Landlord's property
manager and any mortgagees or ground lessors of Landlord who are named as
additional insureds, if any) in writing not less than thirty (30) days prior
to any material change, reduction in coverage, cancellation or other
termination thereof. Tenant agrees to deliver to Landlord, as soon as
practicable after placing the required insurance, but in any event within the
time frame specified in Subparagraph 19(a) above, certificate(s) of insurance
evidencing the existence of such insurance and Tenant's compliance with the
provisions of this Paragraph 19. Tenant agrees to cause replacement
certificates to be delivered to Landlord not less than thirty (30) days prior
to the expiration of any such policy or policies. If any such initial or
replacement certificates are not furnished within the time(s) specified
herein, Tenant will be deemed to be in material default under this Lease
without the benefit of any additional notice or cure period provided in
Subparagraph 22(a)(iii) below, and Landlord will have the right, but not the
obligation, to procure such insurance as Landlord deems necessary to protect
Landlord's interests at Tenant's expense. If Landlord obtains any insurance
that is the responsibility of Tenant under this Paragraph 19, Landlord agrees
to deliver to Tenant a written statement setting forth the cost of any such
insurance and showing in reasonable detail the manner in which it has been
computed and Tenant agrees to promptly reimburse Landlord for such costs as
additional rent. General Liability and Automobile Liability policies under
Subparagraphs 19(a)(iii) and (iv) must name Landlord and Landlord's property
manager (and at Landlord's request, Landlord's mortgagees and ground lessors
of which Tenant has been informed in writing) as additional insureds and must
also contain a provision that the insurance afforded by such policy is
primary insurance and any insurance carried by Landlord and Landlord's
property manager or Landlord's mortgagees or ground lessors, if any, will be
excess over and non-contributing with Tenant's insurance.
(c) BUILDING INSURANCE. Landlord shall obtain, as an
Operating Expense, a policy or policies of insurance covering loss or damage
to the Premises, in the amount of the full replacement value thereof, as the
same may exist from time to time, but in no event less than the total amount
required by lenders having liens on the Premises, against all perils included
within the classification of fire, extended coverage, vandalism, malicious
mischief, and special extended perils ("All Risk" as such term is used in the
insurance industry), including twelve (12) months rent loss insurance.
Landlord may also elect to insure the perils of flood and/or earthquake.
Said insurance shall provide for payment of loss to Landlord, or to the
holders of mortgages or the beneficiaries under deeds of trust on the
Premises. If such insurance coverage has a deductible clause, the deductible
amount shall not exceed Ten Thousand ($10,000) per occurrence, and Tenant
will be liable for such deductible and Tenant agrees to reimburse Landlord
for the entire cost of such premiums within thirty (30) days after demand
therefor by Landlord. If the Premises are part of a group of buildings owned
by Landlord which are adjacent to the Premises, then Tenant shall pay for any
increase in the property insurance of such other buildings if said increase
is caused by Tenant's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S USE. Tenant will not keep, use, sell or offer
for sale in or upon the Premises any article which may be prohibited by any
insurance policy periodically in force covering the Premises. If Tenant's
occupancy or business in, or on, the Premises, whether or not Landlord has
consented to the same, results in any increase in premiums for the insurance
periodically carried by Landlord with respect to the Building or results in
the need for Landlord to maintain special or additional insurance, Tenant
agrees to pay Landlord the cost of any such increase in premiums or special
or additional coverage as additional rent within thirty (30) days after being
billed therefor by Landlord. In determining whether increased premiums are a
result of Tenant's use of the Premises, a schedule issued by the organization
computing the insurance rate on the Building showing the various components
of such rate, will be
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conclusive evidence of the several items and charges which make up such rate.
Tenant agrees to promptly comply with all reasonable requirements of the
insurance authority or any present or future insurer relating to the Premises.
(e) CANCELLATION OF LANDLORD'S POLICIES. If any of
Landlord's insurance policies are canceled or cancellation is threatened or
the coverage reduced or threatened to be reduced in any way because of the
use of the Premises or any part thereof by Tenant or any assignee or
subtenant of Tenant or by anyone Tenant permits on the Premises and, if
Tenant fails to remedy the condition giving rise to such cancellation,
threatened cancellation, reduction of coverage, threatened reduction of
coverage, increase in premiums, or threatened increase in premiums, within
forty-eight (48) hours after notice thereof, Tenant will be deemed to be in
material default of this Lease and Landlord may, at its option, either
terminate this Lease or enter upon the Premises and attempt to remedy such
condition, and Tenant shall promptly pay Landlord the reasonable costs of
such remedy as additional rent. If Landlord is unable, or elects not to
remedy such condition, then Landlord will have all of the remedies provided
for in this Lease in the event of a default by Tenant.
(f) WAIVER OF CLAIMS. Notwithstanding any provision of this
Lease to the contrary, whenever (a) any loss, cost, damage or expense
(collectively, "damage") resulting from fire, explosion or any other casualty
is incurred by either Landlord or by Tenant or by anyone claiming by, through
or under Landlord or Tenant in connection with the Premises, its contents, or
the Development, and (b) such party is covered in whole or in part by
insurance with respect to such damage or is required under this Lease to be
so insured, then the party so insured (or so required) hereby waives (on its
own behalf and on behalf of its insurer) any claims against and releases the
other party from any liability said other party may have on account of such
damage. The foregoing is not intended to release Tenant from liability for
damage in connection with any such casualty up to the amount of the insurance
deductible as described in Paragraph 19(c) above.
(g) WAIVER OF WORKER'S COMPENSATION IMMUNITY. The
indemnification obligations contained in this Lease shall not be limited by
any worker's compensation, benefit or disability laws, and each indemnifying
party hereby waives any immunity that said indemnifying party may have under
the Industrial Insurance Act, Title 51 RCW and similar worker's compensation,
benefit or disability laws.
(h) PROVISIONS SPECIFICALLY NEGOTIATED. LANDLORD AND TENANT
ACKNOWLEDGE BY THEIR EXECUTION OF THIS LEASE THAT EACH OF THE INDEMNIFICATION
PROVISIONS OF THIS LEASE (SPECIFICALLY INCLUDING BUT NOT LIMITED TO THOSE
RELATING OT WORKER'S COMPENSATION BENEFITS AND LAWS) WERE SPECIFICALLY
NEGOTIATED AND AGREED TO BY LANDLORD AND TENANT.
20. DAMAGE OR DESTRUCTION.
(a) PARTIAL DESTRUCTION. If the Premises are damaged by fire
or other casualty to an extent not exceeding thirty-five percent (35%) of the
full replacement cost thereof, and Landlord's contractor reasonably estimates
in a writing delivered to Landlord and Tenant that the damage thereto may be
repaired, reconstructed or restored to substantially its condition
immediately prior to such damage within one hundred twenty (120) days from
the date of such casualty, and Landlord will receive insurance proceeds
sufficient to cover the costs of such repairs, reconstruction and restoration
(including proceeds from Tenant and/or Tenant's insurance which Tenant is
required to deliver to Landlord pursuant to Subparagraph 20(e) below to cover
Tenant's obligation for the costs of repair, reconstruction and restoration
of any portion of any Alterations for which Tenant is responsible under this
Lease), then Landlord agrees to commence and proceed diligently with the work
of repair, reconstruction and restoration and this Lease will continue in
full force and effect.
(b) SUBSTANTIAL DESTRUCTION. Any damage or destruction to
the Premises or the Building which Landlord is not obligated to repair
pursuant to Subparagraph 20(a) above will be deemed a substantial
destruction. In the event of a substantial destruction, Landlord may elect
to either: (i) repair, reconstruct and restore the portion of the Premises
damaged by such casualty, in which case this Lease will continue in full
force and effect, subject to Tenant's termination right contained in
Subparagraph 20(d) below; or (ii) terminate this Lease effective as of the
date which is thirty (30) days after Tenant's receipt of Landlord's election
to so terminate.
(c) NOTICE. Under any of the conditions of Subparagraph
20(a) or (b) above, Landlord agrees to give written notice to Tenant of its
intention to repair or terminate, as permitted in such paragraphs, within the
earlier of forty-five (45) days after the occurrence of such casualty, or
fifteen (15) days after Landlord's receipt of the estimate from Landlord's
contractor (the applicable time period to be referred to herein as the
"Notice Period").
(d) TENANT'S TERMINATION RIGHTS. If Landlord elects to
repair, reconstruct and restore pursuant to Subparagraph 20(b)(i)
hereinabove, and if Landlord's contractor estimates that as a result of such
damage, Tenant cannot be given reasonable use of and access to the Premises
within two hundred ten (210) days after the date of such damage, then Tenant
may terminate this Lease effective upon delivery of written notice to
Landlord within ten (10) days after Landlord delivers notice to Tenant of its
election to so repair, reconstruct or restore.
(e) TENANT'S COSTS AND INSURANCE PROCEEDS. In the event of
any damage or destruction of all or any part of the Premises, Tenant agrees
to immediately (i) notify Landlord thereof, and (ii) deliver to Landlord all
property insurance proceeds received by Tenant with respect to any
Alterations, but excluding proceeds for Tenant's furniture, fixtures,
equipment and other personal property, whether or not this Lease is
terminated as permitted in this Paragraph 20, and Tenant hereby assigns to
Landlord all rights to receive such insurance proceeds. If, for any reason
(including Tenant's failure to obtain insurance for the full replacement cost
of any Alterations from any and all casualties), Tenant fails to receive
insurance proceeds covering the full replacement cost of any Alterations
which are damaged, Tenant will be deemed to have self-insured the replacement
cost of such items, and upon any damage or destruction thereto, Tenant agrees
to immediately pay to Landlord the full replacement cost of such items, less
any insurance proceeds actually received by Landlord from Landlord's or
Tenant's insurance with respect to such items.
(f) ABATEMENT OF RENT. In the event of any damage, repair,
reconstruction and/or restoration described in this Paragraph 20, rent will
be abated or reduced, as the case may be, in proportion to the degree to
which Tenant's use of the Premises is impaired during such period of repair
until such use is restored. Except for abatement of rent as provided
hereinabove, Tenant will not be entitled to any compensation or damages for
loss of, or interference with, Tenant's business or use or access of all or
any part of the Premises or for lost profits or any other consequential
damages of any kind or nature, which result from any such damage, repair,
reconstruction or restoration.
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(g) INABILITY TO COMPLETE. Notwithstanding anything to the
contrary contained in this Paragraph 20, if Landlord is obligated or elects
to repair, reconstruct and/or restore the damaged portion of the Building or
the Premises pursuant to Subparagraph 20(a) or 20(b)(i) above, but is delayed
from completing such repair, reconstruction and/or restoration beyond the
date which is sixty (60) days after the date estimated by Landlord's
contractor for completion thereof by reason of any causes (other than delays
caused by Tenant, its subtenants, employees, agents or contractors or delays
which are beyond the reasonable control of Landlord as described in Paragraph
33), then either Landlord or Tenant may elect to terminate this Lease upon
ten (10) days' prior written notice given to the other after the expiration
of such sixty (60) day period.
(h) DAMAGE NEAR END OF TERM. Landlord and Tenant shall each
have the right to terminate this Lease if any material damage to the Building
occurs during the last twelve (12) months of the Term of this Lease where
Landlord's contractor estimates in a writing delivered to Landlord and Tenant
that the repair, reconstruction or restoration of such damage cannot be
completed within sixty (60) days after the date of such casualty. If either
party desires to terminate this Lease under this Subparagraph (h), it shall
provide written notice to the other party of such election within ten (10)
days after receipt of Landlord's contractor's repair estimates.
(i) WAIVER OF TERMINATION RIGHT. Landlord and Tenant agree
that the foregoing provisions of this Paragraph 20 are to govern their
respective rights and obligations in the event of any damage or destruction
and supersede and are in lieu of the provisions of any applicable law,
statute, ordinance, rule, regulation, order or ruling now or hereafter in
force which provide remedies for damage or destruction of leased premises.
(j) TERMINATION. Upon any termination of this Lease under
any of the provisions of this Paragraph 20, the parties will be released
without further obligation to the other from the date possession of the
Premises is surrendered to Landlord except for items which have accrued and
are unpaid as of the date of termination and matters which are to survive any
termination of this Lease as provided in this Lease.
21. EMINENT DOMAIN.
(a) SUBSTANTIAL TAKING. If the whole of the Premises or a
material portion thereof or of the parking areas for the Premises is taken
for any public or quasi-public purpose by any lawful power or authority by
exercise of the right of appropriation, condemnation or eminent domain, or
sold to prevent such taking, either party will have the right to terminate
this Lease effective as of the date possession is required to be surrendered
to such authority. For purposes of the preceding sentence, a "material"
portion of the Premises or of the parking areas for the Premises is deemed to
be any portion without which Tenant can no longer viably operate its business
in the Premises.
(b) PARTIAL TAKING; ABATEMENT OF RENT. In the event of a
taking of a portion of the Premises which does not constitute a material
taking under Subparagraph 21(a) above, then, neither party will have the
right to terminate this Lease and Landlord will thereafter proceed to make a
functional unit of the remaining portion of the Premises (but only to the
extent Landlord receives proceeds therefor from the condemning authority),
and rent will be abated in proportion to percentage of parking or the floor
area of the Premises which Tenant is deprived of on account of such taking;
provided, however, there will be no abatement of rent if the only area taken
is that which does not have a building or parking area used by Tenant located
thereon.
(c) CONDEMNATION AWARD. In connection with any taking of all
or any portion of the Premises, Landlord will be entitled to receive the
entire amount of any award which may be made or given in such taking or
condemnation, without deduction or apportionment for any estate or interest
of Tenant, it being expressly understood and agreed by Tenant that no portion
of any such award will be allowed or paid to Tenant for any so-called bonus
or excess value of this Lease, and such bonus or excess value will be the
sole property of Landlord. Tenant agrees not to assert any claim against
Landlord or the taking authority for any compensation because of such taking
(including any claim for bonus or excess value of this Lease); provided,
however, if any portion of the Premises is taken, Tenant will have the right
to recover from the condemning authority (but not from Landlord) any
compensation as may be separately awarded or recoverable by Tenant for the
taking of Tenant's furniture, fixtures, equipment and other personal property
within the Premises, for Tenant's relocation expenses, and for any other
damage to Tenant's business by reason of such taking.
(d) TEMPORARY TAKING. In the event of taking of the Premises
or any part thereof for temporary use, (i) this Lease will remain unaffected
thereby and rent will equitably abate for the duration of the taking, and
(ii) Landlord will be entitled to receive such portion or portions of any
award made for such use with respect to the period of the taking, provided
that if such taking remains in force at the expiration or earlier termination
of this Lease, Tenant will then pay to Landlord a sum equal to the reasonable
cost of performing Tenant's obligations under Paragraph 11 with respect to
surrender of the Premises and upon such payment Tenant will be excused from
such obligations. For purpose of this Subparagraph 21(d), a temporary taking
shall be defined as a taking for a period of ninety (90) days or less.
22. DEFAULTS AND REMEDIES.
(a) DEFAULTS. The occurrence of any one or more of the
following events will be deemed a default by Tenant:
(i) The abandonment of the Premises by Tenant.
(ii) The failure by Tenant to make any payment of rent
or additional rent or any other payment required to be made by Tenant
hereunder, as and when due, where such failure continues for a period of ten
(10) days after written notice thereof from Landlord to Tenant.
(iii) The failure by Tenant to observe or perform any of
the express covenants or provisions of this Lease to be observed or performed
by Tenant, other than as specified in Subparagraph 22(a)(i) or (ii) above,
where such failure continues for a period of thirty (30) days (or such
shorter or longer period of time as may otherwise be specified in this Lease
as to any particular provision hereof) after written notice thereof from
Landlord to Tenant. If the nature of Tenant's default is such that more than
thirty (30) days are reasonably required for its cure, then Tenant will not
be deemed to be in default if Tenant commences such cure within such thirty
(30) day period and thereafter diligently prosecutes such cure to completion.
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(iv) (A) The making by Tenant of any general assignment
for the benefit of creditors; (B) the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
(C) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within
thirty (30) days; or (D) the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease where such seizure is not discharged within
thirty (30) days.
(b) LANDLORD'S REMEDIES; TERMINATION. In the event of any
default by Tenant, in addition to any other remedies available to Landlord at
law or in equity under applicable law, Landlord will have the immediate right
and option to terminate this Lease and all rights of Tenant hereunder. If
Landlord elects to terminate this Lease then, to the extent permitted under
applicable law, Landlord may recover from Tenant: (i) the worth at the time
of award of any unpaid rent which had been earned at the time of such
termination; plus (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rent loss that Tenant proves could have
been reasonably avoided; plus (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the Term after the time of
award exceeds the amount of such rent loss that Tenant proves could be
reasonably avoided; plus (iv) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which, in the ordinary course of
things, results therefrom including, but not limited to: attorneys' fees and
costs; brokers' commissions; the costs of refurbishment, alterations,
renovation and repair of the Premises, and removal (including the repair of
any damage caused by such removal) and storage (or disposal) of Tenant's
personal property, equipment, fixtures, Alterations and any other items which
Tenant is required under this Lease to remove but does not remove, as well as
the unamortized value of any free or reduced rent or any tenant improvement
allowance or other costs or economic concessions provided, paid, granted or
incurred by Landlord pursuant to this Lease. The unamortized value of such
concessions shall be determined by taking the total value of such concessions
and multiplying such value by a fraction, the numerator of which is the
number of months of the Lease Term not yet elapsed as of the date on which
this Lease is terminated, and the denominator of which is the total number of
months of the Lease Term.
As used in Subparagraphs 22(b)(i) and (ii) above, the "worth
at the time of award" is computed by allowing interest at the Interest Rate.
As used in Subparagraph 22(b)(iii) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
(c) LANDLORD'S REMEDIES; RE-ENTRY RIGHTS. In the event of
any default by Tenant, in addition to any other remedies available to
Landlord under this Lease, at law or in equity, Landlord will also have the
right, with or without terminating this Lease, to re-enter the Premises and
remove all persons and property from the Premises; such property may be
removed and stored in a public warehouse or elsewhere and/or disposed of at
the sole cost and expense of and for the account of Tenant in accordance with
the provisions of Subparagraph 13(h) of this Lease or any other procedures
permitted by applicable law. No re-entry or taking possession of the
Premises by Landlord pursuant to this Subparagraph 22(c) will be construed as
an election to terminate this Lease unless a written notice of such intention
is given to Tenant or unless the termination thereof is decreed by a court of
competent jurisdiction.
(d) LANDLORD'S REMEDIES; RE-LETTING. In the event of the
vacation or abandonment of the Premises by Tenant or in the event that
Landlord elects to re-enter the Premises or takes possession of the Premises
pursuant to legal proceeding or pursuant to any notice provided by law, then
if Landlord does not elect to terminate this Lease, Landlord may from time to
time, without terminating this Lease, either recover all rent as it becomes
due or relet the Premises or any part thereof on terms and conditions as
Landlord in its reasonable discretion may deem advisable with the right to
make alterations and repairs to the Premises in connection with such
reletting. If Landlord elects to relet the Premises, then rents received by
Landlord from such reletting will be applied: first, to the payment of any
indebtedness other than rent due hereunder from Tenant to Landlord; second,
to the payment of any cost of such reletting; third, to the payment of the
cost of any alterations and repairs to the Premises incurred in connection
with such reletting; fourth, to the payment of rent due and unpaid hereunder
and the residue, if any, will be held by Landlord and applied to payment of
future rent as the same may become due and payable hereunder. Should that
portion of such rents received from such reletting during any month, which is
applied to the payment of rent hereunder, be less than the rent payable
during that month by Tenant hereunder, then Tenant agrees to pay such
deficiency to Landlord immediately upon demand therefor by Landlord. Such
deficiency will be calculated and paid monthly.
(e) LANDLORD'S REMEDIES; PERFORMANCE FOR TENANT. All
covenants and agreements to be performed by Tenant under any of the terms of
this Lease are to be performed by Tenant at Tenant's sole cost and expense
and without any abatement of rent. If Tenant fails to pay any sum of money
owed to any party other than Landlord, for which it is liable under this
Lease, or if Tenant fails to perform any other act on its part to be
performed hereunder, and such failure continues for thirty (30) days after
written notice thereof by Landlord, Landlord may, without waiving or
releasing Tenant from its obligations, but shall not be obligated to, make
any such payment or perform any such other act to be made or performed by
Tenant. Tenant agrees to reimburse Landlord upon demand for all sums so paid
by Landlord and all necessary incidental costs, together with interest
thereon at the Interest Rate, from the date of such payment by Landlord until
reimbursed by Tenant. This remedy shall be in addition to any other right or
remedy of Landlord set forth in this Paragraph 22.
(f) LATE PAYMENT. If Tenant fails to pay any installment of
rent within five (5) days of when due or if Tenant fails to make any other
payment for which Tenant is obligated under this Lease within five (5) days
of when due, such late amount will accrue interest at the Interest Rate and
Tenant agrees to pay Landlord as additional rent such interest on such amount
from the date such amount becomes due until such amount is paid. In
addition, Tenant agrees to pay to Landlord concurrently with such late
payment amount, as additional rent, a late charge equal to five percent (5%)
of the amount due to compensate Landlord for the extra costs Landlord will
incur as a result of such late payment. The parties agree that (i) it would
be impractical and extremely difficult to fix the actual damage Landlord will
suffer in the event of Tenant's late payment, (ii) such interest and late
charge represents a fair and reasonable estimate of the detriment that
Landlord will suffer by reason of late payment by Tenant, and (iii) the
payment of interest and late charges are distinct and separate in that the
payment of interest is to compensate Landlord for the use of Landlord's money
by Tenant, while the payment of late charges is to compensate Landlord for
Landlord's processing, administrative and other costs incurred by Landlord as
a result of Tenant's delinquent payments. Acceptance of any such interest
and late charge will not constitute a waiver of the Tenant's default with
respect to the overdue amount, or prevent Landlord from exercising any of the
other rights and remedies available to Landlord. If Tenant incurs a late
charge more than three (3) times in any period of twelve (12) months during
the Lease Term, then, notwithstanding that Tenant cures the late payments for
which such late charges are imposed, Landlord will have the right to require
Tenant thereafter to pay all installments of Monthly Base Rent quarterly in
advance throughout the remainder of the Lease Term. Notwithstanding anything
to the contrary in this subparagraph (f), with respect to the first
delinquent installment of Monthly Base Rent in each Lease Year, no interest
shall accrue and no late charge shall be payable provided that Tenant
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pays to Landlord such delinquent installment of Monthly Base Rent within five
(5) days after Landlord's delivery of written notice that such installment is
past due.
(g) RIGHTS AND REMEDIES CUMULATIVE. All rights, options and
remedies of Landlord contained in this Lease will be construed and held to be
cumulative, and no one of them will be exclusive of the other, and Landlord
shall have the right to pursue any one or all of such remedies or any other
remedy or relief which may be provided by law or in equity, whether or not
stated in this Lease. Nothing in this Paragraph 22 will be deemed to limit
or otherwise affect Tenant's indemnification of Landlord pursuant to any
provision of this Lease.
23. LANDLORD'S DEFAULT. Landlord will not be in default in the
performance of any obligation required to be performed by Landlord under this
Lease unless Landlord fails to perform such obligation within thirty (30)
days after the receipt of written notice from Tenant specifying in detail
Landlord's failure to perform; provided however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required
for performance, then Landlord will not be deemed in default if it commences
such performance within such thirty (30) day period and thereafter diligently
pursues the same to completion. Upon any default by Landlord, Tenant may
exercise any of its rights provided at law or in equity, subject to the
limitations on liability set forth in Paragraph 35 of this Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) RESTRICTION ON TRANSFER. Except as expressly provided in
this Paragraph 24, Tenant will not, either voluntarily or by operation of
law, assign or encumber this Lease or any interest herein or sublet the
Premises or any part thereof, or permit the use or occupancy of the Premises
by any party other than Tenant (any such assignment, encumbrance, sublease or
the like will sometimes be referred to as a "Transfer"), without the prior
written consent of Landlord, which consent Landlord will not unreasonably
withhold.
(b) CORPORATE AND PARTNERSHIP TRANSFERS. For purposes of
this Paragraph 24, if Tenant is a corporation, partnership or other entity,
any transfer, assignment, encumbrance or hypothecation of fifty percent (50%)
or more (individually or in the aggregate) of any stock or other ownership
interest in such entity, and/or any transfer, assignment, hypothecation or
encumbrance of any controlling ownership or voting interest in such entity,
will be deemed a Transfer and will be subject to all of the restrictions and
provisions contained in this Paragraph 24. Notwithstanding the foregoing,
the immediately preceding sentence will not apply to any transfers of stock
of Tenant if Tenant is a publicly-held corporation and such stock is
transferred publicly over a recognized security exchange or over-the-counter
market.
(c) PERMITTED CONTROLLED TRANSFERS. Notwithstanding the
provisions of this Paragraph 24 to the contrary, Tenant may assign this Lease
or sublet the Premises or any portion thereof ("Permitted Transfer"), without
Landlord's consent, to any parent, subsidiary or affiliate entity which
controls, is controlled by or is under common control with Tenant, or to any
entity resulting from a merger or consolidation with Tenant, or to any person
or entity which acquires substantially all the assets of Tenant's business as
a going concern, provided that: (i) at least ten (10) days prior to such
assignment or sublease, Tenant delivers to Landlord the financial statements
and other financial and background information of the assignee or sublessee
described in Subparagraph 24(d) below; (ii) if an assignment, the assignee
assumes, in full, the obligations of Tenant under this Lease (or if a
sublease, the sublessee of a portion of the Premises or Term assumes, in
full, the obligations of Tenant with respect to such portion); (iii) the
financial net worth of the assignee or sublessee immediately after the
effective date of the proposed assignment or sublease is sufficient to
fulfill the obligations imposed by the Transfer and this Lease; (iv) Tenant
remains fully liable under this Lease; and (v) the use of the Premises under
Paragraph 8 remains unchanged.
(d) TRANSFER NOTICE. If Tenant desires to effect a Transfer,
then at least fifteen (15) days prior to the date when Tenant desires the
Transfer to be effective (the "Transfer Date"), Tenant agrees to give
Landlord a notice (the "Transfer Notice"), stating the name, address and
business of the proposed assignee, sublessee or other transferee (sometimes
referred to hereinafter as "Transferee"), reasonable information (including
references) concerning the character, ownership, and financial condition of
the proposed Transferee, the Transfer Date, any ownership or commercial
relationship between Tenant and the proposed Transferee, and the
consideration and all other material terms and conditions of the proposed
Transfer, all in such detail as Landlord may reasonably require. If
Landlord reasonably requests additional detail, the Transfer Notice will not
be deemed to have been received until Landlord receives such additional
detail, and Landlord may withhold consent to any Transfer until such
information is provided to it.
(e) LANDLORD'S OPTIONS. Within ten (10) days of Landlord's
receipt of any Transfer Notice, and any additional information requested by
Landlord concerning the proposed Transferee's financial responsibility,
Landlord will elect to do one of the following: (i) consent to the proposed
Transfer; (ii) refuse such consent, which refusal shall be on reasonable
grounds including, without limitation, those set forth in Subparagraph 24(f)
below; or (iii) terminate this Lease and recapture the Premises for reletting
by Landlord.
(f) REASONABLE DISAPPROVAL. Landlord and Tenant hereby
acknowledge that Landlord's disapproval of any proposed Transfer pursuant to
Subparagraph 24(e) will be deemed reasonably withheld if based upon any
reasonable factor, including, without limitation, any or all of the following
factors: (i) the proposed Transferee is a governmental entity; (ii) the
portion of the Premises to be sublet or assigned is irregular in shape with
inadequate means of ingress and egress; (iii) the use of the Premises by the
Transferee (A) is not permitted by the use provisions in Paragraph 8 hereof,
or (B) poses a risk of increased liability to Landlord; (iv) the Transferee
does not have the financial capability to fulfill the obligations imposed by
the Transfer and this Lease, or (v) the Transferee poses a business or other
economic risk which Landlord deems unacceptable.
(g) ADDITIONAL CONDITIONS. A condition to Landlord's consent
to any Transfer of this Lease will be the delivery to Landlord of a true copy
of the fully executed instrument of assignment, sublease, transfer or
hypothecation, and, in the case of an assignment, the delivery to Landlord of
an agreement executed by the Transferee in form and substance reasonably
satisfactory to Landlord, whereby the Transferee assumes and agrees to be
bound by all of the terms and provisions of this Lease and to perform all of
the obligations of Tenant hereunder. As a condition to Landlord's consent to
any sublease, such sublease must provide that in the event of termination of
this Lease for any reason, including without limitation a voluntary surrender
by Tenant, or in the event of any reentry or repossession of the Premises by
Landlord, Landlord may, at its option, either (i) terminate the sublease, or
(ii) take over all of the right, title and interest of Tenant, as sublessor,
under such sublease, in which case such sublessee will attorn to Landlord,
but that nevertheless Landlord will not (1) be liable for any previous act or
omission of Tenant under such sublease, (2) be subject to any defense or
offset previously accrued in favor of the sublessee against Tenant, or (3) be
bound by any previous modification of any sublease made without Landlord's
written consent, or by any previous prepayment by sublessee of more than one
month's rent.
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(h) EXCESS RENT. If Landlord consents to any assignment of
this Lease, Tenant agrees to pay to Landlord, as additional rent, fifty
percent (50%) of all sums and other consideration payable to and for the
benefit of Tenant by the assignee on account of the assignment, as and when
such sums and other consideration are due and payable by the assignee to or
for the benefit of Tenant (or, if Landlord so requires, and without any
release of Tenant's liability for the same, Tenant agrees to instruct the
assignee to pay such sums and other consideration directly to Landlord). If
for any sublease, Tenant receives rent or other consideration, either
initially or over the term of the sublease, in excess of the rent fairly
allocable to the portion of the Premises which is subleased based on square
footage, Tenant agrees to pay to Landlord as additional rent fifty percent
(50%) of the excess of each such payment of rent or other consideration
received by Tenant promptly after its receipt. In calculating excess rent or
other consideration which may be payable to Landlord under this paragraph,
Tenant will be entitled to deduct commercially reasonable third party
brokerage commissions and attorneys' fees and other amounts reasonably and
actually expended by Tenant in connection with such assignment or subletting
if acceptable written evidence of such expenditures is provided to Landlord.
(i) TERMINATION RIGHTS. If Tenant requests Landlord's
consent to any assignment or subletting of all or substantially all of the
Premises, Landlord will have the right, as provided in Subparagraph 24(e), to
terminate this Lease effective as of the date Tenant proposes to sublet or
assign. Landlord will exercise such termination right, if at all, by giving
written notice to Tenant within ten (10) days of receipt by Landlord of the
financial responsibility information required by this Paragraph 24. Tenant
understands and acknowledges that the option, as provided in this Paragraph
24, to terminate this Lease rather than approve the subletting or assignment,
is a material inducement for Landlord's agreeing to lease the Premises to
Tenant upon the terms and conditions herein set forth.
(j) NO RELEASE. No Transfer will release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to pay
the rent and to perform all other obligations to be performed by Tenant
hereunder. Landlord may require that, while Tenant is in default under this
Lease, any Transferee remit directly to Landlord on a monthly basis, all
monies due Tenant by said Transferee. However, the acceptance of rent by
Landlord from any other person will not be deemed to be a waiver by Landlord
of any provision hereof. Consent by Landlord to one Transfer will not be
deemed consent to any subsequent Transfer. In the event of default by any
Transferee of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such Transferee or successor.
Landlord may consent to subsequent assignments of this Lease or sublettings
or amendments or modifications to this Lease with assignees of Tenant,
without notifying Tenant, or any successor of Tenant, and without obtaining
its or their consent thereto and any such actions will not relieve Tenant of
liability under this Lease.
(k) ADMINISTRATIVE AND ATTORNEYS' FEES. If Tenant effects a
Transfer or requests the consent of Landlord to any Transfer (whether or not
such Transfer is consummated), then, upon demand, Tenant agrees to pay
Landlord a non-refundable administrative fee of Two Hundred Fifty Dollars
($250.00), plus any reasonable attorneys' and paralegal fees (not to exceed
$1,000 for each such Transfer) incurred by Landlord in connection with such
Transfer or request for consent (whether attributable to Landlord's in-house
attorneys or paralegals or otherwise). Acceptance of the Two Hundred Fifty
Dollar ($250.00) administrative fee and/or reimbursement of Landlord's
attorneys' and paralegal fees will in no event obligate Landlord to consent
to any proposed Transfer.
25. SUBORDINATION. Without the necessity of any additional
document being executed by Tenant for the purpose of effecting a
subordination, and at the election of Landlord or any mortgagee or
beneficiary with a deed of trust encumbering the Premises, or any lessor of a
ground or underlying lease with respect to the Premises, this Lease will be
subject and subordinate at all times to: (i) all ground leases or underlying
leases which may now exist or hereafter be executed affecting the Premises;
and (ii) the lien of any mortgage or deed of trust which may now exist or
hereafter be executed for which the Premises, or Landlord's interest and
estate in any of said items, is specified as security; provided that Tenant
receives a commercially reasonable non-disturbance agreement from the
respective lessor, mortgagee or beneficiary. Notwithstanding the foregoing,
Landlord reserves the right to subordinate any such ground leases or
underlying leases or any such liens to this Lease. If any such ground lease
or underlying lease terminates for any reason or any such mortgage or deed of
trust is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, at the election of Landlord's successor in interest, Tenant agrees to
attorn to and become the tenant of such successor in which event Tenant's
right to possession of the Premises will not be disturbed as long as Tenant
is not in default under this Lease. Tenant hereby waives its rights under
any law which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease and the obligations of Tenant hereunder
in the event of any such foreclosure proceeding or sale. Tenant covenants
and agrees to execute and deliver, upon demand by Landlord and in the form
reasonably required by Landlord, any additional documents evidencing the
priority or subordination of this Lease and Tenant's attornment agreement
with respect to any such ground lease or underlying leases or the lien of any
such mortgage or deed of trust. If Tenant fails to sign and return any such
documents within ten (10) days of receipt, Tenant will be in default
hereunder.
26. ESTOPPEL CERTIFICATE. Within fifteen (15) days following any
written request which Landlord may make from time to time, Tenant agrees to
execute and deliver to Landlord a statement, in a form substantially similar
to the form of Exhibit "F" attached hereto or as may reasonably be required
by Landlord's lender, certifying: (i) the date of commencement of this
Lease; (ii) the fact that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that this Lease is in full
force and effect, and stating the date and nature of such modifications);
(iii) the date to which the rent and other sums payable under this Lease have
been paid; (iv) that, to the best of Tenant's knowledge, there are no current
defaults under this Lease by either Landlord or Tenant except as specified in
Tenant's statement; and (v) such other matters reasonably requested by
Landlord. Landlord and Tenant intend that any statement delivered pursuant
to this Paragraph 26 may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Premises or any interest therein.
Tenant's failure to deliver such statement within such time will be
conclusive upon Tenant (i) that this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) that
there are no uncured defaults in Landlord's performance, and (iii) that not
more than one (1) month's rent has been paid in advance. Without limiting
the foregoing, if Tenant fails to deliver any such statement within such
fifteen (15) day period, Landlord may deliver to Tenant an additional request
for such statement and Tenant's failure to deliver such statement to Landlord
within five (5) days after delivery of such additional request will
constitute a default under this Lease.
27. EASEMENTS. Landlord reserves to itself the right, from time
to time, to grant such easements, rights and dedications that Landlord deems
necessary or desirable, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably or materially interfere with the use of the
Premises by Tenant. Tenant shall sign any of the aforementioned documents
upon request of Landlord and failure to do so shall constitute a material
breach of this Lease.
28. RULES AND REGULATIONS. Tenant agrees to faithfully observe
and comply with the "Rules and Regulations," a copy of which is attached
hereto and incorporated herein by this reference as Exhibit "G", and all
reasonable and nondiscriminatory modifications thereof and additions thereto
from time to time put into effect by Landlord.
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29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND
LESSORS. If, in connection with Landlord's obtaining or entering into any
financing or ground lease affecting the Premises, the lender or ground lessor
requests modifications to this Lease, Tenant, within twenty (20) days after
request therefor, agrees to execute an amendment to this Lease incorporating
such modifications, provided such modifications are acceptable to Tenant in
the exercise of its reasonable discretion. In no event will Tenant be
required to modify the Lease to increase the obligations of Tenant under this
Lease or adversely affect the leasehold estate created by this Lease. In the
event of any default on the part of Landlord, Tenant will give notice by
registered or certified mail to any beneficiary of a deed of trust or
mortgage covering the Premises or ground lessor of Landlord whose address has
been furnished to Tenant, and Tenant agrees to offer such beneficiary,
mortgagee or ground lessor the same opportunity to cure the default as is
provided to Landlord under this Lease.
30. DEFINITION OF LANDLORD. The term "Landlord," as used in this
Lease, so far as covenants or obligations on the part of Landlord are
concerned, means and includes only the owner or owners, at the time in
question, of the fee title of the Premises or the lessees under any ground
lease, if any. In the event of any transfer, assignment or other conveyance
or transfers of any such title (other than a transfer for security purposes
only), Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) will be automatically relieved from and after
the date of such transfer, assignment or conveyance of all liability as
respects the performance of any covenants or obligations on the part of
Landlord contained in this Lease thereafter to be performed, so long as the
transferee assumes in writing all such covenants and obligations of Landlord
arising after the date of such transfer. Landlord and Landlord's transferees
and assignees have the absolute right to transfer all or any portion of their
respective title and interest in the Premises, the Building, the Development
and/or this Lease without the consent of Tenant, and such transfer or
subsequent transfer will not be deemed a violation on Landlord's part of any
of the terms and conditions of this Lease.
31. WAIVER. The waiver by either party of any breach of any term,
covenant or condition herein contained will not be deemed to be a waiver of
any subsequent breach of the same or any other term, covenant or condition
herein contained, nor will any custom or practice which may develop between
the parties in the administration of the terms hereof be deemed a waiver of
or in any way affect the right of either party to insist upon performance in
strict accordance with said terms. The subsequent acceptance of rent or any
other payment hereunder by Landlord will not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent. No acceptance by Landlord of a lesser sum than the
basic rent and additional rent or other sum then due will be deemed to be
other than on account of the earliest installment of such rent or other
amount due, nor will any endorsement or statement on any check or any letter
accompanying any check be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such installment or other amount or pursue any other remedy
provided in this Lease. The consent or approval of Landlord to or of any act
by Tenant requiring Landlord's consent or approval will not be deemed to
waive or render unnecessary Landlord's consent or approval to or of any
subsequent similar acts by Tenant.
32. PARKING. So long as this Lease is in effect and provided
Tenant is not in default hereunder, Landlord grants to Tenant and Tenant's
customers, suppliers, employees and invitees ("Tenant's Authorized Users") a
non-exclusive license to use up to the number of parking spaces designated in
Paragraph 1(q) hereof in the designated parking areas in the Common Areas.
All visitor parking will be on a non-exclusive, in common basis with all
other visitors and guests of the Development. Tenant will not use or allow
any of Tenant's Authorized Users to use any parking spaces which have been
specifically assigned by Landlord for other uses such as visitor parking or
which have been designated by any governmental entity as being restricted to
certain uses. Landlord may assign any unreserved and unassigned parking
spaces and/or make all or any portion of such spaces reserved, if Landlord
reasonably determines that it is necessary for orderly and efficient parking
or for any other reasonable reason. Tenant and Tenant's Authorized Users
shall comply with all rules and regulations regarding parking set forth in
Exhibit "G" attached hereto and Tenant agrees to cause its employees,
subtenants, assignees, contractors, suppliers, customers and invitees to
comply with such rules and regulations. Landlord reserves the right from
time to time to modify and/or adopt such other reasonable and
non-discriminatory rules and regulations for the parking facilities as it
deems reasonably necessary for the operation of the parking facilities.
Subject to Tenant's compliance with laws, Landlord agrees that Tenant may
park in the loading bay areas for the Premises which are not being used as
loading bays during the Lease Term.
33. FORCE MAJEURE. If either Landlord or Tenant is delayed,
hindered in or prevented from the performance of any act required under this
Lease by reason of strikes, lock-outs, labor troubles, inability to procure
standard materials, failure of power, riots, civil unrest or insurrection,
war, fire, earthquake, flood or other natural disaster, unusual and
unforeseeable delay which results from an interruption of any public
utilities (e.g., electricity, gas, water, telephone) or other unusual and
unforeseeable delay not within the reasonable control of the party delayed in
performing work or doing acts required under the provisions of this Lease (a
"force majeure delay"), then performance of such act will be excused for the
period of the delay and the period for the performance of any such act will
be extended for a period equivalent to the period of such delay. Except with
regard to the initial build-out of the Premises as contemplated in Exhibit
"C", force majeure delays will also include restrictive governmental laws,
regulations or orders or governmental action or inaction (including failure,
refusal or delay in issuing permits, approvals and/or authorizations which is
not the result of the action or inaction of the party claiming such delay).
The provisions of this Paragraph 33 will not operate to excuse Tenant from
prompt payment of rent or any other payments required under the provisions of
this Lease.
34. SIGNS. Subject to Tenant's compliance with the terms of this
Paragraph 34, Tenant is hereby granted the right (i) to install on the
Northeast corner of the Building one Tenant identification sign and (ii) to
install one monument sign on the Premises and (iii) such other identification
signs as Tenant may deem necessary for the operation of its business and
which are approved by Landlord in advance in writing. Landlord and Tenant
will mutually determine the exact locations on the Premises for Tenant's
signs. Tenant agrees to have Landlord install and maintain Tenant's signs in
such designated locations in accordance with this Paragraph 34 at Tenant's
sole cost and expense. Tenant has no right to install Tenant identification
signs in any other location in, on or about the Premises or the Development
in any interior or exterior common areas. The size, design, color and other
physical aspects of any and all permitted sign(s) will be subject to (i)
Landlord's written approval prior to installation, which approval may be
withheld in Landlord's reasonable discretion, (ii) any covenants, conditions
or restrictions governing the Premises, and (iii) any applicable municipal or
governmental permits and approvals. Tenant will be solely responsible for
all costs for installation, maintenance, repair and removal of any Tenant
identification sign(s). If Tenant fails to remove Tenant's sign(s) upon
termination of this Lease and repair any damage caused by such removal,
Landlord may do so at Tenant's sole cost and expense. Tenant agrees to
reimburse Landlord for all costs incurred by Landlord to effect any
installation, maintenance or removal on Tenant's account, which amount will
be deemed additional rent, and may include, without limitation, all sums
disbursed, incurred or deposited by Landlord including Landlord's costs,
expenses and actual attorneys' fees with interest thereon at the Interest
Rate from the date of Landlord's demand until paid by Tenant.
35. LIMITATION ON LIABILITY. In consideration of the benefits
accruing hereunder, Tenant on behalf of itself and all successors and assigns
of Tenant covenants and agrees that, in the event of any actual or alleged
failure, breach or default
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hereunder by Landlord: (a) tenant's recourse against Landlord for monetary
damages will be limited to Landlord's interest in the Premises including,
subject to the prior rights of any Mortgagee, Landlord's interest in the
rents of the Premises and any insurance proceeds payable to Landlord; (b)
except as may be necessary to secure jurisdiction of Landlord, no member or
partner of Landlord shall be sued or named as a party in any suit or action
and no service of process shall be made against any member or partner of
Landlord; (c) no member or partner of Landlord shall be required to answer or
otherwise plead to any service of process; (d) no judgment will be taken
against any member or partner of Landlord and any judgment taken against any
member or partner of Landlord may be vacated and set aside at any time after
the fact; (e) no writ of execution will be levied against the assets of any
member or partner of Landlord; (f) the obligations under this Lease do not
constitute personal obligations of the individual members, partners,
directors, officers or shareholders of Landlord, and Tenant shall not seek
recourse against the individual members, partners, directors, officers or
shareholders of Landlord or any of their personal assets for satisfaction of
any liability in respect to this Lease; and (g) these covenants and
agreements are enforceable both by Landlord and also by any member or partner
of Landlord.
36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by
Landlord and at any time during the Term of this Lease upon ten (10) days
prior written notice from Landlord, Tenant agrees to provide Landlord with a
current financial statement for Tenant and any guarantors of Tenant and
financial statements for the two (2) years prior to the current financial
statement year for Tenant and any guarantors of Tenant. Such statements are
to be prepared in accordance with generally accepted accounting principles
and, if such is the normal practice of Tenant, audited by an independent
certified public accountant.
37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
that upon Tenant paying the rent required under this Lease and paying all
other charges and performing all of the covenants and provisions on Tenant's
part to be observed and performed under this Lease, Tenant may peaceably and
quietly have, hold and enjoy the Premises in accordance with this Lease
without hindrance or molestation by Landlord or its agents.
38. AUCTIONS. Tenant shall not conduct, nor permit to be
conducted, either voluntarily or involuntarily, any auction upon the Premises
without first having obtained Landlord's prior written consent.
39. MISCELLANEOUS.
(a) CONFLICT OF LAWS. This Lease shall be governed by and
construed solely pursuant to the laws of the State, without giving effect to
choice of law principles thereunder.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise provided in
this Lease, all of the covenants, conditions and provisions of this Lease
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns.
(c) PROFESSIONAL FEES AND COSTS. If either Landlord or
Tenant should bring suit against the other with respect to this Lease, then
all costs and expenses, including without limitation, actual professional
fees and costs such as appraisers', accountants' and attorneys' fees and
costs, incurred by the party which prevails in such action, whether by final
judgment or out of court settlement, shall be paid by the other party, which
obligation on the part of the other party shall be deemed to have accrued on
the date of the commencement of such action and shall be enforceable whether
or not the action is prosecuted to judgment. As used herein, attorneys' fees
and costs shall include, without limitation, attorneys' fees, costs and
expenses incurred in connection with any (i) postjudgment motions; (ii)
contempt proceedings; (iii) garnishment, levy, and debtor and third party
examination; (iv) discovery; and (v) bankruptcy litigation.
(d) TERMS AND HEADINGS. The words "Landlord" and "Tenant" as
used herein shall include the plural as well as the singular. Words used in
any gender include other genders. The paragraph headings of this Lease are
not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
(e) TIME. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is
a factor.
(f) PRIOR AGREEMENT; AMENDMENTS. This Lease constitutes and
is intended by the parties to be a final, complete and exclusive statement of
their entire agreement with respect to the subject matter of this Lease.
This Lease supersedes any and all prior and contemporaneous agreements and
understandings of any kind relating to the subject matter of this Lease.
There are no other agreements, understandings, representations, warranties,
or statements, either oral or in written form, concerning the subject matter
of this Lease. No alteration, modification, amendment or interpretation of
this Lease shall be binding on the parties unless contained in a writing
which is signed by both parties.
(g) SEPARABILITY. The provisions of this Lease shall be
considered separable such that if any provision or part of this Lease is ever
held to be invalid, void or illegal under any law or ruling, all remaining
provisions of this Lease shall remain in full force and effect to the maximum
extent permitted by law.
(h) RECORDING. Neither Landlord nor Tenant shall record this
Lease nor a short form memorandum thereof without the consent of the other.
(i) COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which
shall be one and the same agreement.
(j) NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute
proprietary information of Landlord. Disclosure of the terms could adversely
affect the ability of Landlord to negotiate other leases and impair
Landlord's relationship with other tenants. Accordingly, Tenant agrees that
it, and its partners, officers, directors, employees, agents and attorneys,
shall not intentionally and voluntarily disclose the terms and conditions of
this Lease to any newspaper or other publication or any other tenant or
apparent prospective tenant of the Building or other portion of the
Development, or real estate agent, either directly or indirectly, without the
prior written consent of Landlord, provided, however, that Tenant may
disclose the terms to prospective subtenants or assignees under this Lease.
-16-
<PAGE>
40. EXECUTION OF LEASE.
(a) JOINT AND SEVERAL OBLIGATIONS. If more than one person
executes this Lease as Tenant, their execution of this Lease will constitute
their covenant and agreement that (i) each of them is jointly and severally
liable for the keeping, observing and performing of all of the terms,
covenants, conditions, provisions and agreements of this Lease to be kept,
observed and performed by Tenant, and (ii) the term "Tenant" as used in this
Lease means and includes each of them jointly and severally. The act of or
notice from, or notice or refund to, or the signature of any one or more of
them, with respect to the tenancy of this Lease, including, but not limited
to, any renewal, extension, expiration, termination or modification of this
Lease, will be binding upon each and all of the persons executing this Lease
as Tenant with the same force and effect as if each and all of them had so
acted or so given or received such notice or refund or so signed.
(b) TENANT AS CORPORATION OR PARTNERSHIP. If Tenant executes
this Lease as a corporation or partnership, then Tenant and the persons
executing this Lease on behalf of Tenant represent and warrant that such
entity is duly qualified and in good standing to do business in California
and that the individuals executing this Lease on Tenant's behalf are duly
authorized to execute and deliver this Lease on its behalf, and in the case
of a corporation, in accordance with a duly adopted resolution of the board
of directors of Tenant, a copy of which is to be delivered to Landlord on
execution hereof, if requested by Landlord, and in accordance with the
by-laws of Tenant, and, in the case of a partnership, in accordance with the
partnership agreement and the most current amendments thereto, if any, copies
of which are to be delivered to Landlord on execution hereof, if requested by
Landlord, and that this Lease is binding upon Tenant in accordance with its
terms.
(c) EXAMINATION OF LEASE. Submission of this instrument by
Landlord to Tenant for examination or signature by Tenant does not constitute
a reservation of or option for lease, and it is not effective as a lease or
otherwise until execution by and delivery to both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly
executed by their duly authorized representatives as of the date first above
written.
TENANT: LANDLORD:
CUTTER & BUCK, INC., ZELMAN RENTON, LLC,
a Washington corporation a Delaware limited liability company
By: /s/ Philip Davis By: Zelman Industrial Partners, Inc.,
-------------------------------- a California corporation,
Its: Managing Member
Print Name: Philip Davis
--------------------
By: /s/ Paul T. Casey
Title: VP Operations -------------------------------
------------------------- Paul T. Casey
Its: Vice President
-17-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I now or have satisfactory evidence that
Philip Davis is the person who appeared before me, and said person
acknowledged that he/she was authorized to execute the instrument and
acknowledged it as the Vice President of Operations of Cutter and Buck to be
the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
Dated: May 27, 1999
-----------------------------
- ---------------------------------------- /s/ Susan M. Cannon
---------------------------------
Notary Public
Print Name: Susan M. Cannon
----------------------
My commission expires 4/6/03
------------
- ----------------------------------------
(Use this space for notarial stamp/seal)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I now or have satisfactory evidence that Paul
T. Casey is the person who appeared before me, and said person acknowledged
that he/she was authorized to execute the instrument and acknowledged it as
the Vice President of Zelman Renton to be the free and voluntary act of such
party for the uses and purposes mentioned in the instrument.
Dated: May 27, 1999
-----------------------------
- ---------------------------------------- /s/ Susan M. Cannon
---------------------------------
Notary Public
Print Name: Susan M. Cannon
----------------------
My commission expires 4/6/03
------------
- ----------------------------------------
(Use this space for notarial stamp/seal)
-18-
<PAGE>
ADDENDUM TO INDUSTRIAL LEASE
THIS ADDENDUM TO INDUSTRIAL LEASE ("Addendum") is attached to and
constitutes a part of that certain Industrial Lease [Single Tenant - Triple
Net] between ZELMAN RENTON, LLC, a Delaware limited liability company
("Landlord"), and CUTTER & BUCK, INC., a Washington corporation ("Tenant").
Landlord and Tenant agree that, notwithstanding anything contained in the
Lease to the contrary, the provisions set forth in this Addendum will be
deemed to be a part of the Lease and will supersede any contrary provisions
in the Lease and shall prevail and control for all purposes. All references
in the Lease and in this Addendum to the defined term "Lease" are to be
construed to mean the Lease as amended and supplemented by this Addendum.
Capitalized terms which are not defined in this Addendum have the meanings
given to them in the Lease. The paragraphs below are numbered consecutively
with those of the Lease.
41. OPTION TO EXTEND.
(a) EXTENSION OPTION. Subject to the terms of this Paragraph 41
and Paragraph 43 below, Landlord hereby grants to Tenant the option (the
"Extension Option") to extend the Term of this Lease with respect to the
entire Premises for one (1) additional period of five (5) years (the "Option
Term"), on the same terms, covenants and conditions as provided for in this
Lease during the initial Lease Term, except that (i) Tenant shall have no
further extension rights, and (ii) Monthly Base Rent shall be established
based on the "fair market rental rate" for the Premises for the Option Term
as defined and determined in accordance with the provisions of this Paragraph
41 below. As used in this Paragraph 41, the term "Premises" shall mean and
refer to the Premises and, in the event Tenant exercises the Expansion Option
(as defined in Paragraph 42 below), the Expansion Space (as defined in
Paragraph 42 below).
(b) EXERCISE OF EXTENSION OPTION. The Extension Option must be
exercised, if at all, by written notice ("Extension Notice") delivered by
Tenant to Landlord no later than the date which is two hundred ten (210)
days, and no earlier than the date which is one (1) year prior to the
expiration of the then current Term of this Lease.
(c) FAIR MARKET RENTAL RATE. The term "fair market rental rate"
as used in this Addendum shall mean the annual amount per rentable square
foot, projected during the relevant period, that a willing, comparable,
non-equity, renewal tenant (excluding sublease and assignment transactions)
would pay, and a willing, comparable, institutional landlord of a comparable
quality industrial building located in the Renton, Tukwila and North Kent,
Washington area North of 212th Street ("Comparison Area") would accept, at
arm's length (what Landlord is accepting in current transactions for other
buildings within the Development may be considered), for space comparable in
size and quality as the leased area at issue taking into account the age,
quality and layout of the existing improvements in the leased area at issue
and taking into account items that professional real estate brokers
customarily consider, including, but not limited to, rental rates, industrial
space availability, tenant size, tenant improvement allowances, parking,
loading, power, ceiling height, sprinkler capacity, and any other economic
matters then being charged by Landlord or the lessors of such similar
industrial buildings. In no event will Monthly Base Rent decrease from that
payable in the last year of the original Lease Term as a result of the fair
market rental rate determination provided for in this Paragraph 41. In no
event will any consideration be given, in the fair market rental rate
determination, to any amounts to be paid by Tenant during the Option Term as
repayment of the Above Standard Allowance described in Paragraph 5(b) of the
Work Letter Agreement.
(d) TENANT'S REVIEW PERIOD. Landlord's determination of fair
market rental rate shall be delivered to Tenant in writing not later than
thirty (30) days following Landlord's receipt of Tenant's Extension Notice.
Tenant will have thirty (30) days ("Tenant's Review Period") after receipt of
Landlord's notice of the fair market rental rate within which to accept such
fair market rental rate or to object thereto in writing. Tenant's failure to
object to the fair market rental rate submitted by Landlord in writing within
Tenant's Review Period will conclusively be deemed Tenant's approval and
acceptance thereof. If Tenant objects to the fair market rental rate
submitted by Landlord within Tenant's Review Period, then Landlord and Tenant
will attempt in good faith to agree upon such fair market rental rate using
their best good faith efforts. If Landlord and Tenant fail to reach agreement
on such fair market rental rate within fifteen (15) days following the
expiration of Tenant's Review Period (the "Outside Agreement Date"), then
each party's determination will be submitted to appraisal in accordance with
the provisions below.
(e) APPRAISAL.
(i) Landlord and Tenant shall each appoint one independent,
unaffiliated real estate broker (referred to herein as an "appraiser" even
though only a broker) who has been active over the five (5) year period
ending on the date of such appointment in the leasing of industrial space in
the Comparison Area. Each such appraiser will be appointed within thirty (30)
days after the Outside Agreement Date.
(ii) The two (2) appraisers so appointed will within fifteen
(15) days of the date of the appointment of the last appointed appraiser
agree upon and appoint a third appraiser who shall be qualified under the
same criteria set forth herein above for qualification of the initial two (2)
appraisers.
(iii) The determination of the appraisers shall be limited
solely to the issue of whether Landlord's or Tenant's last proposed (as of
the Outside Agreement Date) new Monthly Base Rent for the Premises is the
closest to the actual new Monthly Base Rent for the Premises as determined by
the appraisers, taking into account the requirements of Paragraph 41(c) and
this Paragraph 41(e) regarding same.
(iv) The three (3) appraisers shall within thirty (30) days
of the appointment of the third appraiser reach a decision as to whether the
parties shall use Landlord's or Tenant's submitted new Monthly Base Rent, and
shall notify Landlord and Tenant thereof.
(v) The decision of the majority of the three (3)
appraisers shall be binding upon Landlord and Tenant and neither party will
have the right to reject the determination or undo the exercise of the
Extension Option. The cost of each party's appraiser shall be the
responsibility of the party selecting such appraiser, and the cost of the
third appraiser (or arbitration, if necessary) shall be shared equally by
Landlord and Tenant.
ADDENDUM
Page 1
<PAGE>
(vi) If either Landlord or Tenant fails to appoint an
appraiser within the time period in Paragraph (e)(i) herein above, the
appraiser appointed by one of them shall reach a decision, notify Landlord
and Tenant thereof and such appraiser's decision shall be binding upon
Landlord and Tenant and neither party will have the right to reject the
determination or undo the exercise of the Extension Option.
(vii) If the two (2) appraisers fail to agree upon and
appoint a third appraiser, both appraisers shall be dismissed and the matter
to be decided shall be forthwith submitted to binding arbitration under the
provisions of the American Arbitration Association.
(viii) In the event that the new Monthly Base Rent is not
established prior to end of the initial Term of the Lease, the Monthly Base
Rent immediately payable at the commencement of the Option Term shall be
based on $0.40 per square foot of space then in the Premises (which rate
shall not be considered a factor in determining the new Monthly Base Rent).
Notwithstanding the above, once the fair market rental is determined in
accordance with this section, the parties shall settle any under or
overpayment on the next Monthly Base Rent payment date falling not less than
thirty (30) days after such determination.
42. EXPANSION OPTION. Subject to the terms of this Paragraph 42 and
Paragraph 43 below, Landlord hereby grants to Tenant a right to expand the
Premises ("Expansion Option") to include not less than approximately 117,000
square feet (subject to reduction as provided in subparagraph (c) below) of
contiguous space (as determined by Tenant in accordance with this Paragraph
42) located within a new building ("New Building") to be constructed within
the Development, which New Building is to consist of approximately 234,000
square feet and is depicted on ADDENDUM SCHEDULE "1" attached hereto (the
"Expansion Space").
(a) PROCEDURE FOR EXERCISE OF EXPANSION OPTION.
(i) PROCEDURE FOR OFFER. Prior to November 1, 2000 (the
"Expansion Expiration Date"), Tenant shall notify Landlord in writing of its
desire to exercise its Expansion Option and how much space Tenant requires.
If Tenant duly notifies Landlord of its desire to exercise its Expansion
Option, Landlord shall notify Tenant (the "Expansion Offer Notice") of the
precise area of the New Building in which the Expansion Space will be
located. Landlord's Expansion Offer Notice shall also set forth the
Expansion Space Rent (as that term is defined in Paragraph 42(d) below).
(ii) PROCEDURE FOR ACCEPTANCE. After receipt of Landlord's
Expansion Offer Notice, if Tenant thereafter wishes to exercise Tenant's
Expansion Option with respect to the space described in Landlord's Expansion
Offer Notice, then within ten (10) business days following delivery of
Landlord's Expansion Offer Notice to Tenant, Tenant shall deliver written
notice (the "Expansion Exercise Notice") to Landlord of Tenant's exercise of
its Expansion Option setting forth the amount of the space described in
Landlord's Expansion Offer Notice which, in accordance with the terms of this
Paragraph 42, Tenant desires to lease. If Tenant does not send to Landlord
the Expansion Exercise Notice within the ten (10) business day period, then
Landlord shall be free to lease the space described in the Expansion Offer
Notice to anyone to whom Landlord desires on any terms and conditions
Landlord desires and Tenant shall have no further right to expand the
Premises. Concurrently with its delivery of the Expansion Exercise Notice,
Tenant shall deliver to Landlord current, certified financial statements of
Tenant for Tenant's most recent two (2) fiscal years.
(b) DELIVERY OF THE EXPANSION SPACE. In the event Tenant duly
delivers the Expansion Exercise Notice, Landlord shall deliver the Expansion
Space to Tenant on or after October 1, 2001 but before January 1, 2002 (which
period shall be extended day for day by Force Majeure Delays and Tenant
Delays [as such terms are defined in the Work Letter Agreement]).
(c) COMPLETION OF NEW BUILDING; REDUCTION OPTION. Landlord may
elect to complete the New Building on or before December 31, 2000. In the
event Landlord makes such election, Tenant shall have the right to reduce the
minimum size of the Expansion Space by increments of exactly ten percent
(10%) (i.e., if the minimum Expansion Space is to consist of 104,000 square
feet, Tenant may reduce the minimum size of the Expansion Space only by
increments of 10,400 square feet) by providing Landlord with written notice
("Option Reduction Notice"), not later than ten (10) business days following
Tenant's receipt of notice that Landlord has elected to complete the
construction of the New Building on or before December 31, 2000, of Tenant's
election to reduce the minimum size of the Expansion Space and specifying in
increments of ten percent (10%) the square footage by which the minimum
Expansion Space is to be reduced. If Tenant timely delivers the Option
Reduction Notice, then within thirty (30) days thereafter, Landlord shall, at
Landlord's election, pay Tenant or provide Tenant with a credit against Base
Rent an amount equal to $25,000 for each increment of ten percent (10%) by
which Tenant elected to reduce the square footage of the minimum Expansion
Space.
(d) EXPANSION SPACE RENT. The Base Rent payable by Tenant for the
Expansion Space (the "Expansion Space Base Rent") shall be as follows:
<TABLE>
<CAPTION>
Rate Per Square
Months of Expansion Foot of Expansion
Space Term Premises Per Month
---------- ------------------
<S> <C>
1 - 30 $.3350
31 - 60 $.3600
61 - Expiration of Initial Term $.3850
</TABLE>
Prior to the Expansion Commencement Date (as defined in Paragraph
42(f) below), Landlord will cause its architect to measure and certify in
writing to Landlord the square footage of the Expansion Space, following
which time the Expansion Space Base Rent and other figures based upon the
square feet contained in the Expansion Space shall be determined in
accordance with the rental rates set forth above. Except in the case of
manifest error, the certification from Landlord's architect shall be binding
upon Landlord and Tenant.
(e) EARLY ENTRY. Landlord agrees to provide Tenant with at least
forty-five (45) days' prior written notice of the date ("Expansion Delivery
Date") on which the Expansion Building shell will be substantially complete.
Tenant may elect to enter upon the Expansion Space commencing on the
Expansion Delivery Date in order to install communications cabling, fixtures
and racking and the like, at Tenant's sole cost and expense (collectively,
"Tenant's Expansion Work"). Any such entry by Tenant for the purpose of
Tenant's Expansion Work will be subject to all of the terms and conditions
applicable to Tenant's early entry of the Premises pursuant to Paragraph 4(c)
of the Lease.
ADDENDUM
Page 2
<PAGE>
(f) EXPANSION SPACE TERM; RENT COMMENCEMENT; AMENDMENT TO LEASE.
(i) TERM. Tenant shall commence payment of Expansion Space
Base Rent and the term of Tenant's leasing of the Expansion Space shall
commence upon substantial completion by Landlord of the shell Expansion Space
containing (a proportionate share where applicable of ) the base
specifications set forth in Exhibit "A-II" attached to the Lease (the
"Expansion Commencement Date") and shall expire concurrently with the
expiration of the initial Term for the initial Premises; provided, however,
that the Expansion Commencement Date shall not be deemed to have occurred,
and Tenant shall have no right or obligation to occupy the Expansion Space,
prior to October 1, 2001, unless otherwise agreed to by Landlord and Tenant
in writing. Notwithstanding the foregoing, in the event (A) Landlord has
elected to complete construction of the New Building on or before December
31, 2000, and (B) Tenant will occupy more than fifty percent (50%) but less
than seventy percent (70%) of the New Building, then Tenant shall be required
to pay (but shall not be entitled to occupy any portion of the Expansion
Space until the Expansion Commencement Date) Expansion Space Base Rent with
respect to that portion of the Expansion Space in excess of fifty percent
(50%) of the New Building commencing on the date on which Landlord obtains a
temporary certificate of occupancy or other required equivalent approval from
the local governmental authority permitting occupancy of the New Building
notwithstanding that the Expansion Commencement Date shall not be deemed to
have occurred. If Tenant elects to occupy more than 70% of the New Building,
Landlord shall not be permitted to charge any rent in connection therewith
prior to October 1, 2001.
(ii) IN GENERAL. If Tenant timely exercises Tenant's right
to lease the Expansion Space as set forth herein, Landlord and Tenant shall
within thirty (30) days thereafter execute an amendment to this Lease (the
"New Building Amendment") for such Expansion Space upon the terms set forth
in the Expansion Offer Notice, but otherwise upon the terms and conditions
set forth in this Paragraph 42 (including the Extension Option set forth in
Paragraph 41 above) and in this Lease (provided that Tenant shall not be
entitled to any Allowance [as defined in the Work Letter Agreement] in
connection with Tenant's lease of the Expansion Space). Notwithstanding the
foregoing, Landlord may, at its sole option, require that a separate lease be
executed by Landlord and Tenant in connection with Tenant's leasing of the
Expansion Space, in which event such lease (the "New Building Lease") shall
be on the same terms and conditions as affect the initial Premises, except as
provided in this Paragraph 42. The New Building Lease, if applicable, shall
be executed by Landlord and Tenant within thirty (30) days following Tenant's
exercise of its right to lease the Expansion Space. At Landlord's sole
election, Tenant's obligations under the New Building Lease shall be
cross-defaulted with Tenant's obligations hereunder, such that a default by
Tenant under this Lease or the New Building Lease shall also constitute a
default by Tenant under the other lease.
(f) PARKING. During the term of Tenant's lease of the Expansion
Space, Landlord shall provide and Tenant shall have the right to use at a
minimum one unreserved parking space per 1,500 square feet of the Expansion
Space in addition to the parking provided for in Paragraph 1(q) of this
Lease, in accordance with the terms of Paragraph 32 of this Lease.
(g) TERMINATION OF EXPANSION RIGHT. The rights contained in this
Paragraph 42 shall expire on the Expansion Expiration Date if Tenant has not
duly delivered its Expansion Exercise Notice by such date.
(h) TENANT'S CREDITWORTHINESS. Landlord's performance of its
obligations under this Paragraph 42 and Tenant's right to the Expansion
Option are subject to there being no adverse change in the financial
condition of Tenant.
43. OPTIONS.
(a) As used in this Paragraph 43, the word "Options" means the
Extension Option pursuant to Paragraph 41 herein and the Expansion Option
pursuant to Paragraph 42 herein (each, an "Option").
(b) The Options are personal to the original Tenant executing this
Lease and may be exercised only by the original Tenant executing this Lease
while occupying the entire Premises and without the intent of thereafter
assigning this Lease or subletting the Premises and may not be exercised or
be assigned, voluntarily or involuntarily, by any person or entity other than
the original Tenant executing this Lease; provided, that the Options may be
exercised by the assignee (but not sublessee) of this Lease pursuant to a
Permitted Transfer in accordance with Paragraph 24(c). The Options are not
assignable separate and apart from this Lease, nor may the Options be
separated from this Lease in any manner, either by reservation or otherwise.
(c) Tenant shall have no right to exercise either Option,
notwithstanding any provision of the grant of either Option to the contrary,
and Tenant's exercise of either Option may be nullified by Landlord and
deemed of no further force or effect, if Tenant shall be in default of any
monetary obligation or material non-monetary obligation under the terms of
this Lease as of Tenant's exercise of the applicable Option or at the
commencement of the applicable Option event.
44. ARBITRATION. If any dispute referenced in the last sentence of either
Paragraph 14 or Paragraph 17 of this Lease arises ("Dispute"), and if no
other specific procedure is included in this Lease to resolve such Dispute,
then such Dispute, if timely demanded pursuant to Subparagraph (a) below,
shall be resolved and adjudicated by binding arbitration in accordance with
this Paragraph 44. The arbitrator shall be a neutral, disinterested retired
judge selected by the parties from a panel of retired judges available
through the Judicial Arbitration and Mediation Service ("JAMS") or, if JAMS
or its successor does not then exist, by any other arbitrator or retired
judge affiliated with a private, disinterested association providing
arbitration services. Should the parties fail to agree on the selection of a
disinterested, neutral arbitrator within twenty (20) days of written demand
accompanied by written notice of the Dispute by either party, either party
may petition a Washington court of competent jurisdiction and proper venue to
appoint an arbitrator. The arbitration shall be held within sixty (60) days
after the selection of the arbitrator. The parties hereby agree to allow the
taking of depositions for discovery purposes in the arbitration proceedings.
Any hearings required for purposes of the arbitration shall be in Seattle,
Washington at the offices of the arbitrator or such other place designated by
the arbitrator. The arbitration procedure shall be subject to the following:
(a) Any demand for arbitration shall be in writing and must be
made and served on the other party within a reasonable time after the Dispute
has arisen and in no event shall the demand for arbitration be made after the
earlier of the date which is (i) thirty (30) days after service by either
party of summons and complaint, the subject matter of which is essentially
identical with the subject matter of the demand for arbitration, or (ii) the
date that institution of legal or equitable proceedings based on such Dispute
would be barred by the applicable statute of limitations.
(b) The provisions of this Paragraph 44 are not intended to
require Landlord or Tenant to arbitrate any matters relating to any default
under this Lease, which matters shall be governed by the applicable
provisions of this Lease and/or applicable law.
ADDENDUM
Page 3
<PAGE>
(c) All proceedings involving the parties shall be reported by a
certified shorthand court reporter and written transcripts of the proceedings
shall be prepared and made available to the parties.
(d) The arbitrator shall prepare and deliver to the parties
factual findings in writing which shall include the reasons on which the
decision of the arbitrator is based. The arbitrator shall be bound by the
provisions of this Lease, and shall not add to, subtract from or otherwise
modify such provisions.
(e) Final decision by the arbitrator must be provided to the
parties within thirty (30) days from the date on which the matter is
submitted to the arbitrator.
(f) The prevailing party (as defined below) shall be awarded
interest on the amount awarded (at the Interest Rate), reasonable attorneys'
fees, expert and nonexpert witness costs and expenses (including without
limitation the fees and costs of the court reporter described in Subparagraph
(c) above), and other costs and expenses incurred in connection with the
arbitration, unless the arbitrator for good cause determines otherwise.
(g) As used herein, the term "prevailing party" shall mean the
party, if any, that the arbitrator determines is "clearly the prevailing
party."
(h) Costs and fees of the arbitrator shall be borne by the
nonprevailing party, unless the arbitrator for good cause determines
otherwise. If there is no prevailing party, the parties shall bear their own
fees and costs and split the fees and costs of the arbitrator and court
reporter.
(i) The award or decision of the arbitrator, which may include
equitable relief, shall be final and judgment may be entered on it in
accordance with applicable law in any court having jurisdiction over the
matter. The provisions of this Paragraph 44 are not intended to alter the
applicable provisions of law which provide the grounds on which a court may
vacate an arbitration award.
TENANT: LANDLORD:
CUTTER & BUCK, INC., ZELMAN RENTON, LLC,
a Washington corporation a Delaware limited liability company
By: /s/ Philip Davis By: Zelman Industrial Partners, Inc.,
-------------------------------- a California corporation,
Its: Managing Member
Print Name: Philip Davis
--------------------
By: /s/ Paul T. Casey
Title: VP Operations -------------------------------
------------------------- Paul T. Casey
Its: Vice President
ADDENDUM
Page 4
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I now or have satisfactory evidence that
Philip Davis is the person who appeared before me, and said person
acknowledged that he/she was authorized to execute the instrument and
acknowledged it as the Vice President of Operations of Cutter and Buck to be
the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
Dated: May 27, 1999
-----------------------------
- ---------------------------------------- /s/ Susan M. Cannon
---------------------------------
Notary Public
Print Name: Susan M. Cannon
----------------------
My commission expires 4/6/03
------------
- ----------------------------------------
(Use this space for notarial stamp/seal)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I now or have satisfactory evidence that Paul
T. Casey is the person who appeared before me, and said person acknowledged
that he/she was authorized to execute the instrument and acknowledged it as
the Vice President of Zelman Renton to be the free and voluntary act of such
party for the uses and purposes mentioned in the instrument.
Dated: May 27, 1999
-----------------------------
- ---------------------------------------- /s/ Susan M. Cannon
---------------------------------
Notary Public
Print Name: Susan M. Cannon
----------------------
My commission expires 4/6/03
------------
- ----------------------------------------
(Use this space for notarial stamp/seal)
ADDENDUM
Page 5
<PAGE>
NEW BUILDING
[To Be Attached]
SCHEDULE "I"
to
ADDENDUM
<PAGE>
SITE PLAN SHOWING PREMISES
[To be supplied]
EXHIBIT "A-I"
<PAGE>
BASE SPECIFICATIONS AND DESCRIPTION OF PLANS
FOR THE BUILDING
BASE SPECIFICATIONS:
- - 30' MINIMUM Clear Height
- - 52'X40' Column Spacing (60' at doors)
- - ESFR Sprinkler System
- - Gas Heaters in the Warehouse Per Code @ 8BTU/Hr/Sq.Ft.
- - 1200 Amp Electrical Service @277/480 V. 3 phase 4 wire
- - Metal Halide Warehouse Lighting @ 15 Fc
- - Asphalt Paving and Landscaping of Entire Site
- - 30 (more or less) - 9'X10' Dock-High 48" Truck Doors with 4ft Metal Canopy
- - 2-12'X14' Truck Door with Ramp into Building
- - Site Lighting with Wall Pacs on Building
- - 2-Story Glass Entry
- - Concrete Tilt-Up Exterior Walls
- - Wood Panelized Roof Structure with steel open web bar joists and girders
- - 6" Thick Reinforced Concrete Floor Slab (with>250 lb./sf load)
- - 4 Ply Built-up Roofing
- - R-11 Rigid Insulation on Roof Deck
- - 62 (more or less) - 4'X8' Smoke Vents/Skylights
DESCRIPTION OF PLANS:
<TABLE>
<CAPTION>
Sheet Nos. Prepared By Date
<S> <C> <C>
T1 - T5 Barghausen Consulting Engineers 11/2/98
T1.1 Barghausen Consulting Engineers 11/2/98
C1 - C15 Barghausen Consulting Engineers 3/1/99
1 Barghausen Consulting Engineers 3/1/99
2 Barghausen Consulting Engineers 3/1/99
A0.1 - A9.2 CNA Architecture 3/1/99
S1.1 - S4.5 CNA Architecture 3/1/99
</TABLE>
EXHIBIT "A-II"
<PAGE>
ADJUSTMENTS TO
MONTHLY BASE RENT
<TABLE>
<CAPTION>
Rate Per Square Foot Additional Rate Per Square Foot
Months of the Building Per Month of Office Space Per Month
------ ------------------------- -------------------------
<S> <C> <C>
1 $.3325 $.65
2* $0 $0
3 - 48 $.3325 $.65
49 - 84 $.3725 $.72
</TABLE>
Prior to the Commencement Date, Landlord will cause its architect
to measure and certify in writing to Landlord the square footage of the
Premises and the office space within the Premises, following which time the
Monthly Base Rent and other figures based upon the square feet contained in
the Premises and the office space within the Premises shall be determined in
accordance with the rental rates set forth above. Except in the case of
manifest error, the certification from Landlord's architect shall be binding
upon Landlord and Tenant.
* Tenant's obligation to pay Monthly Base Rent shall be abated during the
second (2nd) month of the Term.
EXHIBIT "B"
<PAGE>
WORK LETTER AGREEMENT
[ALLOWANCE]
[LANDLORD BUILD]
This WORK LETTER AGREEMENT ("Work Letter Agreement") is entered into as of
the 27 day of May, 1999 by and between ZELMAN RENTON, LLC, a Delaware limited
liability company ("Landlord"), and CUTTER & BUCK, INC., a Washington
corporation ("Tenant").
R E C I T A L S :
A. Concurrently with the execution of this Work Letter Agreement, Landlord
and Tenant have entered into a lease (the "Lease") covering certain premises
(the "Premises") more particularly described in the Lease. All terms not
defined herein have the same meaning as set forth in the Lease. To the
extent applicable, the provisions of the Lease are incorporated herein by
this reference.
B. In order to induce Tenant to enter into the Lease and in consideration
of the mutual covenants hereinafter contained, Landlord and Tenant agree as
follows:
1. BUILDING SHELL; TENANT IMPROVEMENTS. As used in this Work Letter
Agreement, the term "Building Shell" shall mean the industrial building to be
constructed by Landlord at Landlord's sole expense in accordance with the
plans and specifications described in Exhibit "A-II" to the Lease
(collectively, the "Building Plans"), which Building Plans have been approved
by Landlord and Tenant. As used in the Lease and this Work Letter Agreement,
the term "Tenant Improvements" or "Tenant Improvement Work" means
collectively those items of tenant improvement construction relating to the
office portion of the Premises ("Office Improvements") shown on the Tenant's
Final Plans (described in Paragraph 4 below) and the Above-Standard
Improvements (described in Paragraph 5 below).
2. WORK SCHEDULE. Within thirty (30) days after the execution of this
Lease, Landlord will deliver to Tenant, for Tenant's review and approval, a
schedule ("Work Schedule") which will set forth the timetable for the
construction of the Building Shell and the planning and completion of the
installation of the Tenant Improvements and the Commencement Date of the
Lease. The Work Schedule will set forth each of the various items of work to
be done or approval to be given by Landlord and Tenant in connection with the
completion of the Tenant Improvements. The Work Schedule will be submitted
to Tenant for its approval, which approval Tenant agrees not to unreasonably
withhold, and, once approved by both Landlord and Tenant, the Work Schedule
will become the basis for completing the Tenant Improvements. All plans and
drawings required by this Work Letter Agreement and all work performed
pursuant thereto are to be prepared and performed in accordance with the Work
Schedule. If Tenant fails to approve the Work Schedule, as it may be
modified after discussions between Landlord and Tenant within ten (10)
business days after the date the Work Schedule is first received by Tenant,
the Work Schedule shall be deemed to be approved by Tenant as submitted.
3. CONSTRUCTION REPRESENTATIVES. Landlord hereby appoints the following
person(s) as Landlord's representative ("Landlord's Representative") to act
for Landlord in all matters covered by this Work Letter Agreement: Paul Casey.
Tenant hereby appoints the following person(s) as Tenant's representative
("Tenant's Representative") to act for Tenant in all matters covered by this
Work Letter Agreement: Phil Davis, Vice President-Operations.
All communications with respect to the matters covered by this Work Letter
Agreement are to made to Landlord's Representative or Tenant's
Representative, as the case may be, in writing in compliance with the notice
provisions of the Lease. Either party may change its representative under
this Work Letter Agreement at any time by written notice to the other party
in compliance with the notice provisions of the Lease.
4. TENANT IMPROVEMENT PLANS.
(a) PREPARATION OF SPACE PLANS. In accordance with the Work Schedule,
Tenant agrees to meet with Landlord's architect and/or space planner for the
purpose of promptly preparing preliminary space plans for the interior layout
of Premises ("Space Plans"). The Space Plans are to be sufficient to convey
the architectural design of the interior of the Premises and layout of the
interior of the Office Improvements therein and are to be submitted to
Landlord in accordance with the Work Schedule for Landlord's approval. If
Landlord reasonably disapproves any aspect of the Space Plans, Landlord will
advise Tenant in writing of such disapproval and the reasons therefor in
accordance with the Work Schedule. Tenant will then submit to Landlord for
Landlord's approval, in accordance with the Work Schedule, a redesign of the
Space Plans incorporating the revisions reasonably required by Landlord.
(b) PREPARATION OF TENANT'S FINAL PLANS. Based on the approved Space Plans,
and in accordance with the Work Schedule, Landlord's architect will prepare
complete architectural plans, drawings and specifications and complete
engineered mechanical, structural and electrical working drawings for all of
the Office Improvements for the Premises (collectively, the "Tenant's Final
Plans"). The Tenant's Final Plans will show: (a) the subdivision (including
partitions and walls), layout, lighting, finish and decoration work
(including carpeting and other floor coverings) for the office portion of the
Premises; (b) all internal and external communications and utility facilities
relating to the office portion of the Premises which will require conduiting
or other improvements from the base Building Shell work and/or within common
areas; and (c) all other specifications for the Office Improvements. The
Tenant's Final Plans will be submitted to Tenant for signature to confirm
that they are consistent with the Space Plans. If Tenant reasonably
disapproves any aspect of the Tenant's Final Plans based on any inconsistency
with the Space Plans, Tenant agrees to advise Landlord in writing of such
disapproval and the reasons therefor within the time frame set forth in the
Work Schedule (which shall be no less than five (5) business days after
Tenant's receipt of Tenant's Final Plans). In accordance with the Work
Schedule, Landlord will then cause Landlord's architect to redesign the
Tenant's Final Plans incorporating the revisions reasonably requested by
Tenant so as to make the Tenant's Final Plans consistent with the Space Plans.
(c) REQUIREMENTS OF TENANT'S FINAL PLANS. Tenant's Final Plans will include
locations and complete dimensions, and the Office Improvements, as shown on
the Tenant's Final Plans, will: (i) be compatible with the Building Shell
and with the design, construction
EXHIBIT "C"
Page 1
<PAGE>
and equipment of the Building; (ii) comply with all applicable laws,
ordinances, rules and regulations of all governmental authorities having
jurisdiction, and all applicable insurance regulations; (iii) not require
Building service beyond the level normally provided to other tenants in the
Development and will not overload the Building floors; and (iv) be of a
nature and quality consistent with the overall objectives of Landlord for the
Building, as determined by Landlord in its reasonable but subjective
discretion.
(d) SUBMITTAL OF TENANT'S FINAL PLANS. Once approved by Landlord and
Tenant, Landlord's architect will submit the Tenant's Final Plans to the
appropriate governmental agencies for plan checking and the issuance of a
building permit. Landlord's architect, with Tenant's cooperation, will make
any changes to the Tenant's Final Plans which are requested by the applicable
governmental authorities to obtain the building permit. After approval of
the Tenant's Final Plans no further changes may be made without the prior
written approval of both Landlord and Tenant, and then only after agreement
by Tenant to pay any excess costs resulting from the design and/or
construction of changes requested by Tenant. Tenant hereby acknowledges that
any such changes will be subject to the terms of Paragraph 9 below.
(e) CHANGES TO SHELL OF BUILDING. If the Tenant's Final Plans or any
amendment thereof or supplement thereto shall require changes in the Building
Plans and/or the Building Shell, the increased cost thereof will be paid for
by Tenant or charged against the "Allowances" described in Paragraph 5 below.
Any changes to the Building Plans shall require the prior written approval
of Tenant and Landlord (not to be unreasonably withheld or delayed), provided
that Landlord shall not need the consent or approval of Tenant for changes to
the Building Plans that do not affect the Tenant Improvements and/or the
Premises or materially alter the character of the Building.
(f) WORK COST ESTIMATE AND STATEMENT. Prior to the commencement of
construction of any of the Office Improvements shown on the Tenant's Final
Plans and/or the Above-Standard Improvements, Landlord will submit to Tenant
a written estimate of the cost to complete the Tenant Improvement Work, which
written estimate will be based on the Tenant's Final Plans taking into
account any modifications which may be required to reflect changes in the
Tenant's Final Plans required by the City or County in which the Premises are
located (the "Work Cost Estimate"). Tenant will either approve the Work Cost
Estimate or disapprove specific items and submit to Landlord revisions to the
Tenant's Final Plans to reflect deletions of and/or substitutions for such
disapproved items. Submission and approval of the Work Cost Estimate will
proceed in accordance with the Work Schedule. Upon Tenant's approval of the
Work Cost Estimate (such approved Work Cost Estimate to be hereinafter known
as the "Work Cost Statement"), Landlord will have the right to purchase
materials and to commence the construction of the items included in the Work
Cost Statement pursuant to Paragraph 6 hereof. If the total costs reflected
in the Work Cost Statement exceed the applicable Allowance described in
Paragraph 5 below, Tenant agrees to pay such excess, as additional rent,
prior to the Commencement Date.
5. PAYMENT FOR THE TENANT IMPROVEMENTS.
(a) OFFICE ALLOWANCE. Landlord hereby grants to Tenant a tenant improvement
allowance of $35.00 per square foot of the office portion of the Premises,
not to exceed $210,000 (the "Office Allowance"). The Office Allowance is to
be used only for:
(i) Payment of the cost of preparing the Space Plans and the Tenant's
Final Plans, including mechanical, electrical, plumbing and structural
drawings and of all other aspects necessary to complete the Tenant's Final
Plans. The Office Allowance will not be used for the payment of
extraordinary design work or for payments to any other consultants, designers
or architects other than Landlord's architect and/or Tenant's architect.
(ii) The payment of plan check, permit and license fees relating to
construction of the Office Improvements.
(iii) Construction of the Office Improvements, including, without
limitation, the following:
(aa) Installation within the office portion of the Premises of all
partitioning, doors, floor coverings, ceilings, wall coverings and painting,
millwork and similar items;
(bb) All electrical wiring, lighting fixtures, outlets and switches, and
other electrical work necessary for the office portion of the Premises;
(cc) The furnishing and installation of all duct work, terminal boxes,
diffusers and accessories necessary for the heating, ventilation and air
conditioning systems within the office portion of the Premises, including the
cost of meter and key control for after-hour air conditioning;
(dd) Any additional improvements to the office portion of the Premises
required by Tenant for Tenant's use of the Premises including, but not
limited to, odor control, special heating, ventilation and air conditioning,
noise or vibration control or other special systems or improvements;
(ee) All fire and life safety control systems such as fire walls, sprinklers,
halon, fire alarms, including piping, wiring and accessories, necessary for
the office portion of the Premises;
(ff) All plumbing, fixtures, pipes and accessories necessary for the office
portion of the Premises;
(gg) Testing and inspection costs; and
(hh) Fees for Landlord's tenant improvement coordinator in the amount of
Twenty Five Thousand Dollars ($25,000), and fees for the contractor
including, but not limited to, fees and costs attributable to general
conditions; provided, however, in the event the actual Work Cost exceeds One
Million Dollars ($1,000,000), then Landlord reserves the right to charge
Tenant an additional fee for Landlord's tenant improvement coordinator in the
amount of five percent (5%) of the actual Work Cost in excess of One Million
Dollars ($1,000,000).
(iv) OTHER COSTS. All other costs to be expended by Landlord in the
construction of the Tenant Improvements, including those costs incurred by
Landlord for construction of elements of the Tenant Improvements in the
Premises, which construction was performed by Landlord prior to the execution
of the Lease by Landlord and Tenant and which construction is for the benefit
of tenants and is customarily performed by Landlord prior the execution of
leases for space in the Building for reasons of economics (examples of such
construction would include, but not be limited to, the extension of
mechanical [including heating, ventilating and air conditioning
EXHIBIT "C"
Page 2
<PAGE>
systems] and electrical distribution systems outside of the core of the
Building, wall construction, column enclosures and painting outside of the
core of the Building, ceiling hanger wires and window treatment).
(b) ABOVE STANDARD ALLOWANCE. Landlord hereby grants to Tenant an
additional allowance of $401,000 ("Above Standard Allowance") for the
purchase, construction and installation of the above-standard improvements
described on SCHEDULE "1" to this Exhibit "C" ("Above-Standard
Improvements"). The Office Allowance and the Above-Standard Allowance are
sometimes each individually referred to as an "Allowance" and sometimes
collectively referred to as the "Allowances." All costs disbursed or
expended by Landlord as part of the Above Standard Allowance shall be fully
amortized over seven (7) years of the Term and the five (5) year extension
term (i.e., a 12-year amortization), plus interest at a rate of eleven
percent (11%) per year, and the annual amortized amount shall be paid by
Tenant monthly, as additional rent under the Lease, in equal installments
throughout such twelve (12) year period until such excess costs have been
fully repaid; provided, however, that if the term of the Lease is not
extended beyond the initial seven (7) year term, Tenant shall not be
obligated to make any repayment of the Above Standard Allowance which would
otherwise have been payable had the Lease term been extended.
(c) EXCESS COSTS. The cost of each item referenced in Paragraphs 5(a) and
5(b) above shall be charged against the respective Allowance. If the Work
Cost for either the Office Improvements or the Above-Standard Improvements
exceeds the respective Allowance, Tenant agrees to pay to Landlord such
excess including reasonable fees for the contractor prior to the commencement
of construction (less any sums previously paid by Tenant for such excess
pursuant to the Work Cost Estimate). In no event will the Allowances be used
to pay for Tenant's furniture, artifacts, equipment, telephone systems or any
other item of personal property which is not affixed to the Premises.
(d) CHANGES. If, after the Tenant's Final Plans have been prepared and the
Work Cost Statement has been established, Tenant requires any changes or
substitutions to the Tenant's Final Plans, any additional costs related
thereto including reasonable fees for the contractor are to be paid by Tenant
to Landlord prior to the Commencement Date. Any changes to the Tenant's
Final Plans will be approved by Landlord and Tenant in the manner set forth
in Paragraph 4 above and will, if necessary, require the Work Cost Statement
to be revised and agreed upon between Landlord and Tenant in the manner set
forth in Subparagraph 4(f) above. Landlord will have the right to decline
Tenant's request for a change to the Tenant's Final Plans if such changes are
inconsistent with the provisions of Paragraph 4 above, or if the change would
unreasonably delay construction of the Tenant Improvements and the
Commencement Date of the Lease.
(e) UNUSED ALLOWANCE AMOUNTS. Except as provided in the following sentence,
any unused portion of either Allowance upon completion of the Tenant
Improvements will not be refunded to Tenant or be available to Tenant as a
credit against any obligations of Tenant under the Lease. The unused portion
of either Allowance, if any, shall be credited against the excess costs, if
any, associated with improvements made with respect to the other Allowance.
(f) AMENDMENT TO LEASE. Within fifteen (15) business days following the
Commencement Date (as defined in Paragraph 8(a) below), Landlord and Tenant
shall execute an amendment to the Lease setting forth a new rent schedule
which incorporates the amortization of any costs funded by Landlord with
respect to the Above Standard Allowance.
6. CONSTRUCTION OF TENANT IMPROVEMENTS. Until Tenant approves the Tenant's
Final Plans and Work Cost Statement, Landlord will be under no obligation to
cause the construction of any of the Tenant Improvements. Following Tenant's
approval of the Work Cost Statement described in Subparagraph 4(f) above,
Landlord's contractor will commence and diligently proceed with the
construction of the Tenant Improvements, subject to Tenant Delays (as
described in Paragraph 9 below) and Force Majeure Delays (as described in
Paragraph 10 below).
7. CONSTRUCTION AND PAYMENT FOR THE BUILDING SHELL. Landlord hereby agrees
to use its commercially reasonable efforts to cause the Building Shell to be
constructed in accordance with the Building Plans. Except as provided in
Paragraph 4(e) above, Landlord shall pay the cost of designing and
constructing the Building Shell in accordance with the Building Plans.
8. COMMENCEMENT DATE AND SUBSTANTIAL COMPLETION.
(a) COMMENCEMENT DATE. The Term of the Lease will commence on the date (the
"Commencement Date") which is the earlier of: (i) the date Tenant moves into
the Premises to commence operation of its business in all or any portion of
the Premises; or (ii) the date the Building Shell and the Tenant Improvements
have been "substantially completed" (as defined below); provided, however,
that if substantial completion of the Building Shell or the Tenant
Improvements is delayed as a result of any Tenant Delays described in
Paragraph 9 below, then the Commencement Date as would otherwise have been
established pursuant to this Subparagraph 8(a)(ii) will be accelerated by the
number of days of such Tenant Delays; provided, further, that the
Commencement Date (and Tenant's rights to occupy the Premises) shall not
occur prior to that date which is forty-two (42) days after the Shell
Delivery Date (as defined in Paragraph 4(c) of the Lease).
(b) SUBSTANTIAL COMPLETION; PUNCH-LIST. For purposes of Subparagraph
8(a)(ii) above, the Building Shell and the Tenant Improvements will be deemed
to be "substantially completed" when Landlord's contractor certifies in
writing to Landlord and Tenant that Landlord: (a) is able to provide Tenant
with reasonable access to the Premises; (b) has substantially performed all
of the Tenant Improvement Work required to be performed by Landlord under
this Work Letter Agreement, other than decoration and minor "punch-list" type
items and adjustments which do not materially interfere with Tenant's access
to or use of the Premises; and (c) has obtained a temporary certificate of
occupancy or other required equivalent approval from the local governmental
authority permitting occupancy of the Premises. Within thirty (30) days
after receipt of such certificate from Landlord's contractor, Tenant will
conduct a walk-through inspection of the Premises with Landlord and provide
to Landlord a written punch-list specifying those decoration and other
punch-list items which require completion, which items Landlord will
thereafter diligently complete.
(c) DELIVERY OF POSSESSION. Landlord agrees to deliver possession of the
Premises to Tenant when the Building Shell and the Tenant Improvements have
been substantially completed in accordance with Subparagraph (b) above. The
parties estimate that Landlord will deliver possession of the Premises to
Tenant and the Term of this Lease will commence on or before the estimated
commencement date set forth in the Work Schedule delivered to Tenant pursuant
to Paragraph 2 above (the "Projected Commencement Date"). Landlord agrees to
use its commercially reasonable efforts to cause the Premises to be
substantially completed on or before the Projected Commencement Date. In the
event Landlord does not substantially complete construction of the Tenant
Improvements on or before December 1, 1999, which date shall be extended
day-for-day for each day of Tenant Delays and/or Force Majeure Delays (as
such terms are defined in Paragraphs 9 and 10 below) (as so extended, the
"First Damage Date"), for reasons solely attributable to the fault of
Landlord, then the sole remedy of Tenant will be the right to receive one and
one-half (1-1/2) day's worth of Monthly Base Rent credit for every day past
the First Damage Date that Landlord is late in substantially completing
construction of the Tenant Improvements. In
EXHIBIT "C"
Page 3
<PAGE>
the event Landlord does not substantially complete construction of the Tenant
Improvements on or before February 1, 2000, which date shall be extended
day-for-day for each day of Tenant Delays and/or Force Majeure Delays (as so
extended, the "Second Damage Date"), for reasons solely attributable to the
fault of Landlord, then the sole remedy of Tenant will be the right to
receive two and one-half (2-1/2) days worth of Monthly Base Rent credit for
every day past the Second Damage Date that Landlord is late in substantially
completing construction of the Tenant Improvements. Notwithstanding anything
to the contrary in this Lease, if the Commencement Date has not occurred by
December 1, 2000 for any reason other than Tenant Delays, then Tenant may, at
its option by notice to Landlord prior to the Commencement Date, elect to
terminate this Lease.
9. TENANT DELAYS. For purposes of this Work Letter Agreement, "Tenant
Delays" means any delay in the completion of the Building Shell or the Tenant
Improvements resulting from any or all of the following: (a) Tenant's
failure to timely perform any of its obligations pursuant to this Work Letter
Agreement, including any failure to complete, on or before the due date
therefor, any action item which is Tenant's responsibility pursuant to the
Work Schedule delivered by Landlord to Tenant pursuant to this Work Letter
Agreement; (b) Tenant's changes to Space Plans or Tenant's Final Plans after
Landlord's approval thereof; (c) changes to the Building Plans resulting from
changes to the Tenant's Final Plans after Landlord's approval thereof; (d)
Tenant's request for materials, finishes, or installations which are not
readily available or which are incompatible with Landlord's standard
specifications for tenant improvements for the Development; (e) any delay of
Tenant in making payment to Landlord for Tenant's share of the Work Cost; or
(f) any other act or failure to act by Tenant, Tenant's employees, agents,
architects, independent contractors, consultants and/or any other person
performing or required to perform services on behalf of Tenant.
10. FORCE MAJEURE DELAYS. For purposes of this Work Letter, "Force Majeure
Delays" means any actual delay in the construction of the Tenant
Improvements, which is beyond the reasonable control of Landlord or Tenant,
as the case may be, as described in Paragraph 33 of the Lease.
IN WITNESS WHEREOF, the undersigned Landlord and Tenant have caused this Work
Letter Agreement to be duly executed by their duly authorized representatives
as of the date of the Lease.
TENANT: LANDLORD:
CUTTER & BUCK, INC., ZELMAN RENTON, LLC,
a Washington corporation a Delaware limited liability company
By: /s/ Philip Davis By: Zelman Industrial Partners, Inc.,
-------------------------------- a California corporation,
Its: Managing Member
Print Name: Philip Davis
--------------------
By: /s/ Paul T. Casey
Print Title: VP Operations -------------------------------
------------------- Paul T. Casey
Its: Vice President
EXHIBIT "C"
Page 4
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I now or have satisfactory evidence that Philip
Davis is the person who appeared before me, and said person acknowledged that
he/she was authorized to execute the instrument and acknowledged it as the
Vice President of Operations of Cutter and Buck to be the free and voluntary
act of such party for the uses and purposes mentioned in the instrument.
Dated: May 27, 1999
-----------------------------
- ---------------------------------------- /s/ Susan M. Cannon
---------------------------------
Notary Public
Print Name: Susan M. Cannon
----------------------
My commission expires 4/6/03
------------
- ----------------------------------------
(Use this space for notarial stamp/seal)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I now or have satisfactory evidence that Paul T.
Casey is the person who appeared before me, and said person acknowledged that
he/she was authorized to execute the instrument and acknowledged it as the
Vice President of Zelman Renton to be the free and voluntary act of such
party for the uses and purposes mentioned in the instrument.
Dated: May 27, 1999
-----------------------------
- ---------------------------------------- /s/ Susan M. Cannon
---------------------------------
Notary Public
Print Name: Susan M. Cannon
----------------------
My commission expires 4/6/03
------------
- ----------------------------------------
(Use this space for notarial stamp/seal)
EXHIBIT "C"
Page 5
<PAGE>
ABOVE-STANDARD IMPROVEMENTS
<TABLE>
<CAPTION>
Item Estimated Additional Cost
- ---- -------------------------
<S> <C>
R-21 Roof Insulation (for heating requirement) 62,000
R-11 Wall Insulation (for heating requirement) 43,000
Dock Equipment (10 - 30,000 lb. Levelers/Lights) 50,000
Warehouse Heating 182,000
Lighting Upgrade 56,000
Power Upgrade 8,000
Contractors General Conditions/Supervision/Insurance 40,000
---------
Total $401,000
---------
---------
</TABLE>
SCHEDULE "1"
TO
EXHIBIT "C"
<PAGE>
NOTICE OF LEASE TERM DATES
AND TENANT'S PERCENTAGE
To: Date:
------------------------------------ -----------------------
------------------------------------
------------------------------------
Re: Lease dated _______________________, 19 (the "Lease"),
between __________________________________________, Landlord, and ___________
____________________________________________________, Tenant, concerning the
building located at _________________________________________________________
(the "Premises").
To Whom It May Concern:
In accordance with the subject Lease, we wish to advise and/or
confirm as follows:
1. That the Premises have been accepted by the Tenant as being
substantially complete in accordance with the subject Lease and that there is
no deficiency in construction except for latent defects as may be indicated
on the "Punch-List" prepared by Landlord and Tenant, a copy of which is
attached hereto.
2. That the Tenant has possession of the subject Premises and
acknowledges that under the provisions of the Lease the Commencement Date is
____________________________________, and the Term of the Lease will expire
on _______________.
3. That in accordance with the Lease, rent commenced to accrue on
______________________.
4. If the Commencement Date of the Lease is other than the first
day of the month, the first billing will contain a pro rata adjustment. Each
billing thereafter will be for the full amount of the monthly installment as
provided for in the Lease.
5. Rent is due and payable in advance on the first day of each
and every month during the Term of the Lease. Your rent checks should be
made payable to ________________________________________________________ at
_________________________________________________________.
6. The number of square feet within the Premises is _____________
square feet as determined by Landlord's architect in accordance with the
terms of the Lease.
7. Tenant's Percentage, as adjusted based upon the number of
square feet within the Premises, is _______%.
LANDLORD:
ZELMAN RENTON, LLC,
a Delaware limited liability company
By: Zelman Industrial Partners, Inc.,
a California corporation,
Its: Managing Member
By:
--------------------------------
Ben Reiling
Its: President
EXHIBIT "D"
<PAGE>
INDUSTRIAL LEASE
[SINGLE TENANT - TRIPLE NET]
DEFINITION OF OPERATING EXPENSES
1. ITEMS INCLUDED IN OPERATING EXPENSES. The term "Operating
Expenses" as used in the Lease to which this Exhibit "E" is attached means:
all costs and expenses of operation and maintenance all buildings (exterior
maintenance costs) and Common Areas of the Development (as such terms are
defined in the Lease), as determined by generally accepted accounting
practices, including the following costs by way of illustration but not
limitation, but excluding those items specifically set forth in Paragraph 2
below: (a) real property taxes (as defined in Paragraph 12 of the Lease);
(b) any and all assessments imposed with respect to the Building pursuant to
any covenants, conditions and restrictions affecting the Development, the
Common Areas or the Building amortized over the longest allowable period; (c)
Common Area water charges and other Common Area utilities; (d) utilities
surcharges and any other costs, levies or assessments resulting from statutes
or regulations promulgated by any government or quasi-government authority in
connection with the use, occupancy or alteration of the Building or the
Premises or the parking facilities serving the Building or the Premises; (e)
costs of insurance (including reasonable deductibles) obtained by Landlord
pursuant to Paragraph 19 of the Lease; (f) repair and maintenance of storm
drainage facilities; (g) security (if deemed necessary by Landlord); (h)
labor; (i) costs incurred in the management of the Development, including,
without limitation: (i) supplies, (ii) Development management office rental,
supplies, equipment and related operating expenses, and (iii) a
management/administrative fee determined as a percentage of the annual gross
revenues of the Development exclusive of the proceeds of financing or a sale
of the Development or any portion thereof, which management/administrative
fee shall not exceed three percent (3%) of such annual gross revenues, and an
administrative fee for the management of the Common Area (not to exceed five
percent (5%) of Common Area Operating Expenses); (j) supplies, materials,
equipment and tools including rental of personal property used for
maintenance; (k) repair and maintenance of the buildings (including, without
limitation, the exterior roofs) within the Development; (l) maintenance,
costs and upkeep of all parking and other Common Areas, including sidewalks,
curbs and drives; (m) depreciation on a straight line basis and rental of
personal property used in maintenance; (n) amortization on a straight line
basis over the useful life [together with interest at the Interest Rate on
the unamortized balance] of all capitalized expenditures which are: (i)
reasonably intended to produce a reduction in operating charges or energy
consumption; or (ii) required under any governmental law or regulation that
was not applicable to the Development at the time it was originally
constructed; or (iii) for replacement of any Development equipment needed to
operate the Development at the same quality levels as prior to the
replacement; (o) costs and expenses of gardening and landscaping; (p)
maintenance of signs (other than signs of tenants of the Development); (q)
personal property taxes levied on or attributable to personal property used
in connection with the Common Areas; (r) reasonable accounting, audit,
verification, legal and other consulting fees; (s) repair, maintenance and
monitoring of fire protection systems; (t) exterior pest control; (u)
exterior window washing; and (v) costs and expenses of repairs, resurfacing,
repairing, maintenance, painting, exterior lighting, cleaning, and similar
items, including appropriate reserves.
2. ITEMS EXCLUDED FROM OPERATING EXPENSES. Notwithstanding the
provisions of Paragraph 1 above to the contrary, "Operating Expenses" will not
include: (a) Landlord's federal or state income, franchise, inheritance or
estate taxes; (b) any ground lease rental; (c) costs incurred by Landlord for
the repair of damage to the extent that Landlord is reimbursed by insurance or
condemnation proceeds or by tenants, warrantors or other third persons; (d)
depreciation, amortization and interest payments, except as specifically
provided herein, and except on materials, tools, supplies and vendor-type
equipment purchased by Landlord to enable Landlord to supply services Landlord
might otherwise contract for with a third party, where such depreciation,
amortization and interest payments would otherwise have been included in the
charge for such third party's services, all as determined in accordance with
generally accepted accounting practices; (e) brokerage commissions, finders'
fees, attorneys' fees, space planning costs and other costs incurred by
Landlord in leasing or attempting to lease space in the Development; (f) costs
of a capital nature, including, without limitation, capital improvements,
capital replacements, capital repairs, capital equipment and capital tools, all
as determined in accordance with generally accepted accounting practices;
provided, however, the capital expenditures set forth in Subparagraph 1(n)
above will in any event be included in the definition of Operating Expenses;
(g) interest, principal, points and fees on debt or amortization on any
mortgage, deed of trust or other debt encumbering the Building or the
Development; (h) costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant improvements for tenants in
the Development (including the original Tenant Improvements for the Premises),
or incurred in renovating or otherwise improving, decorating, painting or
redecorating space for tenants or other occupants of the Development, including
space planning and interior design costs and fees; (i) attorneys' fees and
other costs and expenses incurred in connection with negotiations or disputes
with present or prospective tenants or other occupants of the Development;
provided, however, that Operating Expenses will include those attorneys' fees
and other costs and expenses incurred in connection with negotiations, disputes
or claims relating to items of Operating Expenses, enforcement of rules and
regulations of the Development, and such other matters relating to the
maintenance of standards required of Landlord under the Lease; (j) except for
the administrative/management fees described in Subparagraph 1(i) above, costs
of Landlord's general corporate overhead; (k) all items and services for which
Tenant or any other tenant in the Development reimburses Landlord (other than
through operating expense pass-through provisions); (l) electric power costs
for which any tenant directly contracts with the local public service company;
(m) costs arising from Landlord's charitable or political contributions; and
(n) any costs relating to the initial development and construction of the
Development.
EXHIBIT "E"
<PAGE>
ESTOPPEL CERTIFICATE
The undersigned, _______________________________________________________
_______________ ("Tenant"), hereby certifies to _______________________________
___________________________________, as follows:
1. Attached hereto is a true, correct and complete copy of that
certain lease dated _________________________, 19__, between _______________
("Landlord") and Tenant (the "Lease"), regarding the premises located at _______
______________________________________________________________________ (the
"Premises"). The Lease is now in full force and effect and has not been
amended, modified or supplemented, except as set forth in Paragraph 4 below.
2. The Term of the Lease commenced on ___________________________,
19______.
3. The Term of the Lease shall expire on ________________________,
19______.
4. The Lease has: (Initial one)
(______________) not been amended, modified, supplemented,
extended, renewed or assigned.
(______________) been amended, modified, supplemented, extended,
renewed or assigned by the following described terms or agreements, copies of
which are attached hereto:
_____________________________________________________________________
_____________________________________________________________________
5. Tenant has accepted and is now in possession of the Premises.
6. Tenant and Landlord acknowledge that Landlord's interest in the
Lease will be assigned to _____________________________________________________
and that no modification, adjustment, revision or cancellation of the Lease or
amendments thereto shall be effective unless written consent of _______________
_______________________________ is obtained, and that until further notice,
payments under the Lease may continue as heretofore.
7. The amount of Monthly Base Rent is $___________________.
8. The amount of Security Deposit (if any) is $________________.
No other security deposits have been made except as follows: ___________________
________________________________________________________________________________
___________________________________.
9. Tenant is paying the full lease rental which has been paid in
full as of the date hereof. No rent or other charges under the Lease have been
paid for more than thirty (30) days in advance of its due date except as
follows: _______________________________________________________________________
__________________________________________________.
10. All work required to be performed by Landlord under the Lease
has been completed except as follows: _________________________________________
_____________________________________________________________________.
11. To the best of Tenant's knowledge, there are no defaults on the
part of the Landlord or Tenant under the Lease except as follows: _____________
_______________________________________________________________________________.
12. To the best of Tenant's knowledge, tenant has no defense as to
its obligations under the Lease and claims no set-off or counterclaim against
the other party except as follows: _____________________________________________
________________________________________________________________________________
___________________________________.
13. Tenant has no right to any concession (rental or otherwise) or
similar compensation in connection with renting the space it occupies other
than as provided in the Lease except as follows: _______________________________
________________________________________________________________________________
________________________________________.
All provisions of the Lease and the amendments thereto (if any) referred to
above are hereby ratified.
The foregoing certification is made with the knowledge that ___________
_________________________ is about to fund a loan to Landlord or _______________
___________________________________ is about to purchase the Building from
Landlord and that _____________________________________________________________
is relying upon the representations herein made in funding such loan or in
purchasing the Building.
IN WITNESS WHEREOF, this certificate has been duly executed and
delivered by the authorized officers of the undersigned as of _______________,
19__.
TENANT:
,
- --------------------------------------
a
-------------------------------------
By:
-----------------------------------
Print Name:
-----------------------
Title:
----------------------------
SAMPLE ONLY
[NOT FOR EXECUTION]
EXHIBIT "F"
<PAGE>
RULES AND REGULATIONS
A. GENERAL RULES AND REGULATIONS. The following rules and
regulations govern the use of the Building and the Common Areas. Tenant will
be bound by such rules and regulations and agrees to cause Tenant's
Authorized Users, its employees, subtenants, assignees, contractors and
suppliers to observe the same.
1. Except as specifically provided in the Lease to which these
Rules and Regulations are attached, no sign, placard, picture, advertisement,
name or notice may be installed or displayed on any part of the outside or
inside of the Building without the prior written consent of Landlord.
Landlord will have the right to remove, at Tenant's expense and without
notice, any sign installed or displayed in violation of this rule. All
approved signs or lettering on doors and walls are to be printed, painted,
affixed or inscribed at the expense of Tenant and under the direction of
Landlord by a person or company designated or approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds,
shades, screens or hanging plants or other similar objects attached to or
used in connection with any window or door of the Premises, or placed on any
windowsill, which is visible from the exterior of the Premises, Tenant will
immediately discontinue such use. Tenant agrees not to place anything
against or near glass partitions or doors or windows which may appear
unsightly from outside the Premises.
3. Tenant will not obstruct any sidewalks, passages, exits or
entrances of the Development. The sidewalks, passages, exits and entrances
are not open to the general public, but are open, subject to reasonable
regulations, to Tenant's business invitees. Landlord will in all cases retain
the right to control and prevent access thereto of all persons whose presence
in the reasonable judgment of Landlord would be prejudicial to the safety,
character, reputation and interest of the Development and its tenants,
provided that nothing herein contained will be construed to prevent such
access to persons with whom any tenant normally deals in the ordinary course
of its business, unless such persons are engaged in illegal or unlawful
activities. No tenant and no employee or invitee of any tenant will go upon
the roof of the Building.
4. Landlord expressly reserves the right to absolutely prohibit
solicitation, canvassing, sales and displays of products, goods and wares in
all portions of the Development except for such activities as may be
expressly requested by a tenant and conducted solely within such requesting
tenant's premises. Landlord reserves the right to restrict and regulate the
use of the Common Areas of the Development by invitees of tenants providing
services to tenants on a periodic or daily basis including food and beverage
vendors. Such restrictions may include limitations on time, place, manner
and duration of access to a tenant's premises for such purposes.
5. Landlord reserves the right to prevent access to the
Development in case of invasion, mob, riot, public excitement or other
commotion by closing the doors or by other appropriate action.
6. Tenant shall not alter any lock or install any new additional
lock or bolt on any door of the Premises. Tenant, upon the termination of
its tenancy, will deliver to Landlord the keys to all doors which have been
furnished to Tenant, and in the event of loss of any keys so furnished, will
pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm,
satellite dishes, antennae or similar services, it will first obtain
Landlord's approval, and comply with, Landlord's reasonable rules and
requirements applicable to such services.
8. No deliveries will be made which impede or interfere with
other tenants or the operation of the Development.
9. Tenant will not permit or allow the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors or vibrations, nor will Tenant bring
into or keep in or about the Premises any birds or animals.
10. The toilet rooms, toilets, urinals, wash bowls and other
apparatus will not be used for any purpose other than that for which they
were constructed and no foreign substance of any kind whatsoever shall be
thrown therein. The expense of any breakage, stoppage or damage resulting
from any violation of this rule will be borne by the tenant who, or whose
employees or invitees, break this rule.
11. Tenant will not sell, or permit the sale at retail of
newspapers, magazines, periodicals, theater tickets or any other goods or
merchandise to the general public in or on the Premises. Tenant will not
make any building-to-building solicitation of business from other tenants in
the Development. Tenant will not use the Premises for any business or
activity other than that specifically provided for in this Lease.
Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Development are prohibited, and Tenant will
cooperate with Landlord to prevent such activities.
12. Tenant will not install any radio or television antenna,
loudspeaker, satellite dishes or other devices on the roof(s) or exterior
walls of the Building or the Development without signing Landlord's license
agreement with respect thereto. Tenant will not interfere with radio or
television broadcasting or reception from or in the Development or elsewhere.
13. Tenant will not affix any floor covering to the floor of the
Premises in any manner except as approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule.
14. Landlord reserves the right to exclude or expel from the
Development any person who, in Landlord's judgment, is in violation of any of
the Rules and Regulations.
15. Tenant will store all its trash and garbage within its
Premises or in other facilities provided by Landlord. Tenant will not place
in any trash box or receptacle any material which cannot be disposed of in
the ordinary and customary manner of trash and garbage disposal. All garbage
and refuse disposal is to be made in accordance with directions issued from
time to time by Landlord.
16. The Premises will not be used for lodging nor shall the
Premises be used for any improper, immoral or objectionable purpose.
EXHIBIT "G"
Page 1
<PAGE>
17. Tenant agrees to comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or any
governmental agency.
18. Tenant assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage, which includes keeping doors
locked and other means of entry to the Premises closed.
19. Tenant shall use at Tenant's cost such pest extermination and
control contractor(s) as Landlord may direct and at such intervals as
Landlord may reasonably require.
20. To the extent Landlord reasonably deems it necessary to
exercise exclusive control over any portions of the Common Areas for the
mutual benefit of the tenants in the Development, Landlord may do so subject
to reasonable, non-discriminatory additional rules and regulations (so long
as the parking, access and visibility of the Premises are not affected).
21. Tenant's requirements will be attended to only upon
appropriate application to Landlord's asset management office for the
Development by an authorized individual of Tenant. Employees of Landlord
will not perform any work or do anything outside of their regular duties
unless under special instructions from Landlord, and no employee of Landlord
will admit any person (Tenant or otherwise) to any office without specific
instructions from Landlord.
22. These Rules and Regulations are in addition to, and will not
be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Landlord may waive any
one or more of these Rules and Regulations for the benefit of Tenant or any
other tenant, but no such waiver by Landlord will be construed as a waiver of
such Rules and Regulations in favor of Tenant or any other tenant, nor
prevent Landlord from thereafter enforcing any such Rules and Regulations
against any or all of the tenants of the Development.
23. Landlord reserves the right to make such other and reasonable
and non-discriminatory Rules and Regulations as, in its judgment, may from
time to time be needed for safety and security, for care and cleanliness of
the Development and for the preservation of good order therein. Tenant
agrees to abide by all such Rules and Regulations herein above stated and any
additional reasonable and non-discriminatory rules and regulations which are
adopted. Tenant is responsible for the observance of all of the foregoing
rules by Tenant's employees, agents and contractors.
B. PARKING RULES AND REGULATIONS. The following rules and
regulations govern the use of the parking facilities which serve the
Building. Tenant will be bound by such rules and regulations and agrees to
cause its employees, subtenants, assignees, contractors and suppliers to
observe the same:
1. Tenant will not permit or allow any vehicles that belong
to or are controlled by Tenant or Tenant's employees, subtenants, customers
or invitees to be loaded, unloaded or parked in areas other than those
designated by Landlord for such activities. No vehicles are to be left in
the parking areas overnight and no vehicles are to be parked in the parking
areas other than normally sized passenger automobiles, motorcycles and
pick-up trucks. Trucks may park in loading areas only during the time such
trucks are being loaded or unloaded. No extended term storage of vehicles is
permitted.
2. Vehicles must be parked entirely within painted stall
lines of a single parking stall.
3. All directional signs and arrows must be observed.
4. The speed limit within all parking areas shall be five
(5) miles per hour.
5. Parking is prohibited:
(a) in areas not striped for parking;
(b) in aisles or on ramps;
(c) where "no parking" signs are posted;
(d) in cross-hatched areas; and
(e) in such other areas as may be designated from time
to time by Landlord or Landlord's parking operator.
6. Landlord reserves the right, without cost or liability to
Landlord, to tow any vehicle if such vehicle's audio theft alarm system
remains engaged for an unreasonable period of time.
7. Washing, waxing, cleaning or servicing of any vehicle in
any area not specifically reserved for such purpose is prohibited.
8. Landlord may refuse to permit any person to park in the
parking facilities who violates these rules with unreasonable frequency, and
any violation of these rules shall subject the violator's car to removal, at
such car owner's expense. Tenant agrees to use its best efforts to acquaint
its employees, subtenants, assignees, contractors, suppliers, customers with
these parking provisions, rules and regulations.
9. Parking stickers, access cards, or any other device or
form of identification supplied by Landlord as a condition of use of the
parking facilities shall remain the property of Landlord. Parking
identification devices, if utilized by Landlord, must be displayed as
requested and may not be mutilated in any manner. The serial number of the
parking identification device may not be obliterated. Parking identification
devices, if any, are not transferable and any device in the possession of an
unauthorized holder will be void. Landlord reserves the right to refuse the
sale of monthly stickers or other parking identification devices to Tenant or
any of its agents, employees or representatives who willfully refuse to
comply with these rules and regulations and all unposted city, state or
federal ordinances, laws or agreements.
EXHIBIT "G"
Page 2
<PAGE>
10. Loss or theft of parking identification devices or access
cards must be reported to the management office in the Development
immediately, and a lost or stolen report must be filed by the Tenant or user
of such parking identification device or access card at the time. Landlord
has the right to exclude any vehicle from the parking facilities that does
not have a parking identification device or valid access card. Any parking
identification device or access card which is reported lost or stolen and
which is subsequently found in the possession of an unauthorized person will
be confiscated and the illegal holder will be subject to prosecution.
11. Landlord is not responsible for damage by water or fire,
or for the acts or omissions of others, or for articles left in vehicles.
12. Landlord reserves the right, without cost or liability to
Landlord, to tow any vehicles which are used or parked in violation of these
rules and regulations.
13. Landlord reserves the right from time to time to modify
and/or adopt such other reasonable and non-discriminatory rules and
regulations for the parking facilities as it deems reasonably necessary for
the operation of the parking facilities.
EXHIBIT "G"
Page 3
<PAGE>
OAKESDALE BUSINESS CAMPUS
TENANT ENVIRONMENTAL QUESTIONNAIRE
The purpose of this form is to obtain information regarding the use or
proposed use of hazardous materials at the premises. Prospective tenants
should answer the questions in light of their proposed operations at the
premises. Existing tenants should answer the questions as they relate to
ongoing operations at the premises and should update any information
previously submitted. If additional space is needed to answer the questions,
you may attach separate sheets of paper to this form.
Your cooperation in this matter is appreciated.
1. GENERAL INFORMATION
Name of Responding Company:
---------------------------------------------
Check the Applicable Status: Prospective Tenant Existing Tenant
--- ---
Mailing Address:
--------------------------------------------------------
-------------------------------------------------------------------------
Contact Person and Title:
-----------------------------------------------
Telephone Number: ( )
----- -----------------------------------------------
Address of Leased Premises:
---------------------------------------------
Length of Lease Term:
------------------------------------------
Describe the proposed operations to take place on the premises, including
principal products manufactured or services to be conducted. Existing
tenants should describe any proposed changes to ongoing operations.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2. STORAGE OF HAZARDOUS MATERIALS
2.1 Will any hazardous materials be used or stored on-site?
Wastes Yes No
----- -----
Chemical Products Yes No
----- -----
2.2 Attach a list of any hazardous materials to be used or stored, the
quantities that will be on-site at any given time, and the location
and method of storage (e.g., 55-gallon drums on concrete pad).
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel or other
hazardous substances in tanks or sumps proposed or currently conducted
at the premises?
Yes No
----- -----
If yes, describe the materials to be stored, and the type, size and
construction of the sump or tank. Attach copies of any permits
obtained for the storage of such substances.
--------------------------------------------------------------------
--------------------------------------------------------------------
3.2 Have any of the tanks or sumps been inspected or tested for leakage?
Yes No
----- -----
If so, attach the results.
EXHIBIT "H"
Page 1
<PAGE>
3.3 Have any spills or leaks occurred from such tanks or sumps?
Yes No
----- -----
If so, describe.
--------------------------------------------------------------------
--------------------------------------------------------------------
3.4 Were any regulatory agencies notified of the spill or leak?
Yes No
----- -----
If so, attach copies of any spill reports filed, any clearance letters
or other correspondence from regulatory agencies relating to the spill
or leak.
3.5 Have any underground storage tanks or sumps been taken out of service
or removed?
Yes No
----- -----
If yes, attach copies of any closure permits and clearance obtained
from regulatory agencies relating to closure and removal of such
tanks.
4. SPILLS
4.1 During the past year, have any spills occurred at the premises?
Yes No
----- -----
If yes, please describe the location of the spill.
--------------------------------------------------------------------
--------------------------------------------------------------------
4.2 Were any agencies notified in connection with such spills?
Yes No
----- -----
If yes, attach copies of any spill reports or other correspondence
with regulatory agencies.
4.3 Were any clean-up actions undertaken in connection with the spills?
Yes No
----- -----
Attach copies of any clearance letters obtained from any regulatory
agencies involved and the results of any final soil or groundwater
sampling done upon completion of the clean-up work.
5. WASTE MANAGEMENT
5.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number?
Yes No
----- -----
5.2 Has your company filed a biennial report as a hazardous waste
generator?
Yes No
----- -----
If so, attach a copy of the most recent report filed.
5.3 Attach a list of the hazardous wastes, if any, generated or to be
generated at the premises, its hazard class and the quantity generated
on a monthly basis.
5.4 Describe the method(s) of disposal for each waste. Indicate where and
how often disposal will take place.
On-site treatment or recovery
----- -------------------------
Discharged to sewer
----- -------------------------
Transported and Disposal of off-site
----- -------------------------
Incinerator
----- -------------------------
EXHIBIT "H"
Page 2
<PAGE>
5.5 Indicate the name of the person(s) responsible for maintaining copies
of hazardous waste manifests completed for off-site shipments of
hazardous waste.
--------------------------------------------------------------------
5.6 Is any treatment of processing of hazardous wastes currently conducted
or proposed to be conducted at the premises:
Yes No
----- -----
If yes, please describe any existing or proposed treatment methods.
--------------------------------------------------------------------
--------------------------------------------------------------------
5.7 Attach copies of any hazardous waste permits or licenses issued to
your company with respect to its operations at the premises.
6. WASTEWATER TREATMENT/DISCHARGE
6.1 Do you discharge wastewater to:
storm drain? sewer?
----- -----
surface water? no industrial discharge
----- -----
6.2 Is your wastewater treated before discharge?
Yes No
----- -----
If yes, describe the type of treatment conducted.
--------------------------------------------------------------------
--------------------------------------------------------------------
6.3 Attach copies of any wastewater discharge permits issued to your
company with respect to its operations at the premises.
7. AIR DISCHARGES
7.1 Do you have any filtration systems or stacks that discharge into the
air?
Yes No
----- -----
7.2 Do you operate any of the following types of equipment or any other
equipment requiring an air emissions permit?
Spray booth
------
Dip tank
------
Drying oven
------
Incinerator
------
Other (please describe)
------ ------------------------------------
No equipment requiring air permits
------
7.3 Are air emissions from your operations monitored?
Yes No
----- -----
If so, indicate the frequency of monitoring and a description of the
monitoring results.
--------------------------------------------------------------------
7.4 Attach copies of any air emissions permits pertaining to your
operations at the premises.
8. HAZARDOUS MATERIALS DISCLOSURES
8.1 Does your company handle hazardous materials in a quantity equal to or
exceeding an aggregate of 500 pounds, 55 gallons, or 200 cubic feet
per month?
Yes No
----- -----
EXHIBIT "H"
Page 3
<PAGE>
8.2 Has your company prepared a hazardous materials management plan
pursuant to any applicable requirements of a local fire department or
governmental agency
Yes No
----- -----
If so, attach a copy of the business plan.
8.3 Has your company adopted any voluntary environmental, health or safety
program?
Yes No
----- -----
If so, attach a copy of the program.
9. ENFORCEMENT ACTIONS, COMPLAINTS
9.1 Has your company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees?
Yes No
----- -----
If so, describe the actions and any continuing compliance obligations
imposed as a result of these actions.
--------------------------------------------------------------------
9.2 Has your company ever received requests for information, notice or
demand letters, or any other inquiries regarding its operations?
Yes No
----- -----
9.3 Have there ever been, or are there now pending, any lawsuits against
the company regarding any environmental or health and safety concerns?
Yes No
----- -----
9.4 Has an environmental audit ever been conducted at your company's
current facility?
Yes No
----- -----
If so, identify who conducted the audit and when it was conducted.
--------------------------------------------------------------------
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- ---------------------------------------
Company
By:
-----------------------------------
Title:
--------------------------------
Date:
---------------------------------
EXHIBIT "H"
Page 4
<PAGE>
CHANGE IN CONTROL AGREEMENT
FOR
HARVEY N. JONES
This Agreement is entered into this 15th day of March, 1999, by and
between Cutter & Buck Inc. (the "Company") and Harvey N. Jones ("Executive").
Executive is an at-will employee of the Company. The parties wish to
provide Executive with severance benefits if Executive's employment is
terminated in connection with a change in control of the Company. The
Company is willing to provide such benefits if Executive enters into the
Company's form of Confidentiality and Non-Competition Agreement for executive
officers.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions contained herein, the parties hereby agree as follows:
1. CHANGE IN CONTROL.
(a) If, within the period commencing 90 days prior to the date of
occurrence (the "Event Date") of a Control Event and ending on the second
anniversary of the Event Date (the "Window"), the Company terminates Executive's
employment (other than for Cause) or Executive resigns for Good Reason, the
Company shall pay to Executive the Severance Payment in immediately available
funds. If the termination occurs prior to the Control Event, the Severance
Payment is due on the twentieth business day following the Event Date; if the
termination occurs on or subsequent to the Event Date, the Severance Payment is
due on the twentieth business day following the date of termination (the
"Termination Date").
(b) The Severance Payment shall be determined pursuant to the following
formula:
[(B-A)/365] x (C + D) where
A = the number of days of continued full-time employment of Executive
by the Company following the Event Date
B = 365
C = Executive's annual base salary as of the Termination Date
D = the average of all cash bonuses that Executive received or is
entitled to receive for the two most recent fiscal years of the
Company during which Executive was employed by the Company in his or
her current position for the entire year;
PROVIDED HOWEVER, that unless the Company, its successors or assigns provides
Executive with at least six (6) months advance written notice of termination,
the Severance Payment shall not be less than the amount computed as follows:
(0.5) x (C + D).
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If the Termination Date occurs during the Window but prior to the Control Event,
the Severance Payment shall be reduced by the sum of any severance payments
previously received by Executive from the Company (but not below zero).
(c) Each of the following shall constitute a "Control Event":
(1) the acquisition of Common Stock of the Company (the "Common
Stock") by any "Person" (as such term is defined in the Rights Agreement dated
as of November 20, 1998 between the Company and ChaseMellon Shareholder Services
LLC (the "Rights Plan"), together with all Affiliates and Associates (as such
terms are defined in the Rights Plan) of such Person, such that such Person
becomes, after the date of this Agreement, the Beneficial Owner (as defined in
the Rights Plan) of a majority of the shares of Common Stock then outstanding,
but shall not include the Company, any subsidiary of the Company, any employee
benefit plan of the Company or of any subsidiary of the Company or any Person or
entity organized, appointed or established by the Company for or pursuant to the
terms of any such employee benefit plan; or
(2) the approval by the shareholders (or, if later, approval by the
shareholders of any Person) of any merger, consolidation, reorganization or
other transaction providing for the conversion or exchange of more than fifty
percent (50%) of the outstanding shares of Common Stock into securities of any
Person, or cash, or property, or a combination of any of the foregoing.
(d) Each of the following shall constitute "Good Reason", provided that it
occurs during the Window:
(1) the material diminution of Executive's position, duties,
responsibilities or status with the Company or its successor, as compared with
the position, duties, responsibilities or status of Executive with the Company
immediately prior to the Event Date, except in connection with the termination
of Executive for Cause;
(2) the Company's assignment of Executive on a substantially
full-time basis to work at a location where the distance between the new
location and Executive's principal residence is at least 20 miles greater than
the distance between the former location and such residence; provided, however,
that this paragraph shall not apply to travel in the furtherance of the
Company's business to an extent substantially consistent with Executive's
business travel obligations as of the date hereof;
(3) the Company's failure to obtain an assumption of the obligations
of the Company to perform this Agreement by any successor to the Company;
(4) any reduction in Executive's base salary, or a material reduction
in benefits payable to Executive or failure of the Company to pay Executive any
earned salary, bonus or benefits except with the prior written consent of
Executive;
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<PAGE>
(5) the exclusion or limitation of Executive from participating in
some form of variable compensation plan which provides the Executive the
opportunity to achieve a level of total compensation (base salary plus variable
compensation) consistent with what the Executive had the opportunity to earn at
the Event Date; or
(6) any demand by any director or officer of the Company that
Executive take any action or refrain from taking any action where such action or
inaction, as the case may be, would violate any law, rule, regulation or other
governmental pronouncement, court order, decree or judgment, or breach any
agreement or fiduciary duty.
(e) Each of the following shall constitute "Cause":
(1) any violation by Executive of any material obligation under this
Agreement or the attached Confidentiality and Non-Disclosure Agreement;
(2) conviction for commitment of a felony;
(3) any violation of law which has a material adverse effect on the
Company;
(4) habitual abuse of alcohol or a controlled substance;
(5) theft or embezzlement from the Company;
(6) repeated unexcused absence from work for reasons unrelated to
short-term illnesses;
(7) Disability of Executive (as defined below); and
(8) repeated failure or refusal by Executive to carry out the
reasonable directives, orders or resolutions of the Company's Board of Directors
or any officer to whom he reports.
(f) "Disability" shall mean any physical, mental or other health condition
which substantially impairs Executive's ability to perform his assigned duties
for 90 days or more in any 180 day period or that can be expected to result in
death. Any disagreement as to whether Executive is disabled shall be resolved
by a physician selected by the Company after an examination of Executive.
Executive hereby consents to such physical examination and to the
3
<PAGE>
examination of all medical records of Executive necessary, in the judgment of
the examining physician, to make the determination of disability.
(g) Notwithstanding any other provision of this Agreement to the contrary,
in the event that any severance or other payment, benefit or right payable or
accruing to Executive hereunder or under the Company's 1991 Stock Option Plan,
1995 Employee Stock Option Plan or 1997 Cutter & Buck Stock Incentive Plan (the
"Option Plans") would constitute a "parachute payment" as defined in Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), then
the total amount of severance and other payments or benefits payable to
Executive hereunder and under the Option Plans which is deemed to constitute a
"parachute payment" shall not exceed and shall, if necessary, be reduced to an
amount (the "Revised Severance Payment") equal to 2.99 times Executive's "base
amount" as defined in Code Section 28G(b)(3). In the event of a disagreement
between the Company and Executive as to whether the provisions of Code section
280G are applicable or the amount of the Revised Severance Payment, such
determination shall be made by the Company's independent public accountants or,
if such firm is unable or unwilling to render such a determination, then by a
law firm mutually acceptable to Executive and the Company. All costs relating
to such determination shall be borne by the Company. The Company and the
Executive shall cooperate in good faith to make the determination required by
this Section l(g) by mutual agreement not later than the later of: (i) the
fifth day preceding the date that the Severance Payment is or would be due or
(ii) the earlier of (x) the tenth day following the expiration of any period of
accelerated vesting of options to purchase the Company's Common Stock provided
by Section 5(n) of the Option Plan or (y) the tenth day following the date of
exercise by Executive of his or her last remaining option which was exercisable
solely due to the application of Section 5(n) of the Option Plan. Pending the
final calculation of the Severance Payment or Revised Severance Payment, the
Company shall pay the amounts described under subsection (b) above at the time
and in the manner provided herein; provided that, pending such determination,
such payments shall be reduced by such amounts as the Company estimates in good
faith to be necessary to satisfy its tax (including excise tax) withholding
obligations and effect the reduction in the amount of the Severance Payment, as
contemplated by this Subsection 1(g). The aggregate amount of any compensation
actually paid or provided to Executive under the terms of this Agreement and in
excess of the Revised Severance Payment shall be deemed, to the extent of such
excess, a loan to Executive payable upon demand and bearing interest at the rate
of 8% per annum.
2. CONFIDENTIALLY AND NON-COMPETITION AGREEMENT. In consideration of the
obligations undertaken by the Company pursuant to this Agreement,
contemporaneously with the execution of this Agreement, Executive and the
Company shall enter into the form of Confidentiality and Non-Competition
Agreement attached hereto as EXHIBIT A and each agreement shall be effective
only if both agreements have been executed.
4
<PAGE>
3. TERM OF AGREEMENT.
The Company's obligations under Section 1 of this Agreement shall expire
with respect to Control Events occurring on or after the third anniversary of
the date of this Agreement unless the term hereof is extended by the Board of
Directors of the Company by a majority vote of those members of the Board who
are not parties to this or a similar agreement.
4. AT WILL EMPLOYMENT. Unless and to the extent otherwise agreed by the
Company and Executive in a separate written employment agreement, Executive's
employment shall be "at will", with either party permitted to terminate the
employment at any time, with or without cause. No term of any employment
agreement between the Company and Executive shall be construed to conflict with,
lessen or expand the obligations of the parties under this Agreement.
5. NOTICES. All notices and other communications called for or required
by this Agreement shall be in writing and shall be addressed to the parties at
their respective addresses stated below or to such other address as a party may
subsequently specify by written notice and shall be deemed to have been received
(i) upon delivery in person, (ii) five days after mailing it by U.S. certified
or registered mail, return receipt requested and postage prepaid, or (iii) two
days after depositing it with a commercial overnight carrier which provides
written verification of delivery:
To the Company: 2701 First Avenue, Suite 500
Seattle, Washington 98121
Attention: Chairman
To Executive: Harvey N. Jones
1415 East Roy Street
Seattle, Washington 98112
6. WITHHOLDING. Except as described in subsection 1(g) of this
Agreement, all payments due to and all benefits to be provided to Executive
hereunder shall be subject to reduction for any applicable withholding taxes,
including excise taxes.
7. ASSIGNMENT. Executive's rights and duties hereunder are personal to
Executive and are not assignable to others, but Executive's obligations
hereunder will bind his heirs, successors, and assigns. The Company may assign
its rights under this Agreement in connection with any merger or consolidation
of the Company or any sale of all or any portion of the Company's assets
(including, without limitation, any division or product line), provided that any
such successor or assignee expressly assumes in writing the Company's
obligations hereunder.
8. NO DUTY TO MITIGATE. Executive shall not be required to mitigate the
amount of any payment made or benefit provided hereunder. The Company may
offset any payment due hereunder by the amount of damages to the Company
resulting from any breach of this Agreement by Executive.
5
<PAGE>
9. GENERAL. This Agreement constitutes the exclusive agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements or understandings of the parties. No waiver of or forbearance to
enforce any right or provision hereof shall be binding unless in writing and
signed by the party to be bound, and no such waiver or forbearance in any
instance shall apply to any other instance or to any other right or provision.
This Agreement will be governed by the local laws of the State of Washington
without regard to its conflicts of laws rules to the contrary. The parties
hereby consent to the exclusive jurisdiction and venue of the state and federal
courts sitting in King County, Washington for all matters and actions arising
under this Agreement. The prevailing party shall be entitled to reasonable
attorneys' fees and costs incurred in connection with such litigation. No term
hereof shall be construed to limit or supersede any other right or remedy of the
Company under applicable law with respect to the protection of trade secrets or
otherwise. If any provision of this Agreement is held to be invalid or
unenforceable to any extent in any context, it shall nevertheless be enforced to
the fullest extent allowed by law in that and other contexts, and the validity
and force of the remainder of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first above written.
CUTTER & BUCK INC. EXECUTIVE:
By /s/ Martin J. Marks Signature /s/ Harvey N. Jones
------------------------------- ---------------------------
Its President Name, Printed Harvey N. Jones
--------------------------- -----------------------
6
<PAGE>
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
FOR
HARVEY N. JONES
This Agreement is entered into this 15th day of March, 1999, by and
between Cutter & Buck Inc. (the "Company") and Harvey N. Jones ("Executive").
Executive is an at-will employee of the Company. In consideration of
entering into an agreement to provide Executive with severance benefits if
Executive's employment is terminated in connection with a change in control
in the Company, Executive promises, on the terms set forth herein, at all
times to protect the Company's proprietary information and to not compete
with the Company following termination of Executive's employment in
connection with a change in control.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions contained herein, the parties hereby agree as follows:
1. NON-COMPETITION AND NON-SOLICITATION.
(a) Executive agrees that during the term of his employment with
the Company and, subject to receipt the Severance Payment (as defined below)
by the Executive, until the earlier of: (i) the first anniversary of the
Termination Date (as defined below), or (ii) the period of time used in
calculating the amount of the Severance Payment, Executive will not in any
capacity directly or indirectly engage in, assist others to engage in or own
a material interest in any business or activity that is, or is preparing to
be, in competition with the Company with respect to any product or service
sold or service provided by the Company up to the time of termination of
employment in any geographical area in which at the time of termination of
employment such product or service is sold or is actively engaged in. For
the purposes of this Agreement, the terms "Severance Payment" and
"Termination Date" shall have the meanings assigned to them in the Change in
Control Agreement (as defined in Section 6 below).
(b) Executive further agrees that during the period stated above, he
will not directly or indirectly call on, reveal the name of, or otherwise
solicit, accept business from or attempt to entice away from the Company any
actual or identified potential customer of the Company, nor will he assist
others in doing so. Executive further agrees that he will not, during the
period stated above, encourage or solicit any other employee or consultant of
the Company to leave such employment for any reason, nor will he assist others
to do so.
(c) Executive acknowledges that the covenants in this Section 1 are
necessary and reasonable to protect the Company in the conduct of its business
and that compliance with such covenants will not prevent him from pursuing his
livelihood. However, should any court find that any provision of such covenants
is unreasonable, invalid or unenforceable, whether in period of time,
geographical area, or otherwise, then in that event the parties hereby agree
that such covenants shall be interpreted and enforced to the maximum extent
which the court deems reasonable.
1
<PAGE>
2. TRADE SECRETS AND CONFIDENTIAL INFORMATION.
(a) Executive acknowledges that the Company's business and future
success depend upon the preservation of the trade secrets and other confidential
information of the Company and its suppliers and customers (the "Secrets"). The
Secrets may include, without limitation, existing and to-be-developed or
acquired product designs, new product plans or ideas, market surveys, the
identities of past, present or potential customers, business and financial
information, pricing methods or data, terms of contracts with present or past
customers, proposals or bids, marketing plans, personnel information, procedural
and technical manuals and practices, servicing routines, and parts and supplier
lists proprietary to the Company or its customers or suppliers, and any other
sorts of items or information of the Company or its customers or suppliers which
are not generally known to the public at large. Executive agrees to protect and
to preserve as confidential during and after the term of his employment all of
the Secrets at any time known to Executive or in his possession or control
(whether wholly or partially developed by Executive or provided to Executive,
and whether embodied in a tangible medium or merely remembered).
(b) Executive shall mark all items containing any of the Secrets with
prominent confidentiality notices acceptable to the Company. Executive shall
neither use nor allow any other person to use any of the Secrets in any way,
except for the benefit of the Company and as directed by Executive's supervisor.
All material containing or disclosing any portion of the Secrets shall be and
remain the property of the Company, shall not be removed from the Company's
premises without specific consent from an officer of the Company, and shall be
returned to the Company upon the termination of Executive's employment or the
earlier request of Executive's supervisor. At such time, Executive shall also
assemble all materials in his possession or control which contain any of the
Secrets, and promptly deliver such items to the Company.
3. INTELLECTUAL PROPERTIES.
(a) All ownership, copyright, patent, trade secrecy and other rights
in all works, designs, inventions, ideas, manuals, improvements, discoveries,
processes, customer lists or other properties (the "Intellectual Properties")
made or conceived by Executive during the term of his/her employment by the
Company shall be the rights and property solely of the Company, whether
developed independently by Executive or jointly with others, and whether or not
developed or conceived during regular working hours or at the Company's
facilities, and whether or not the Company uses, registers, or markets the same.
(b) In accordance with the Company's policy and Washington law, this
Agreement (other than Subsection 3(c)) does not apply to, and Executive has no
obligation to assign to the Company, any invention for which no Company trade
secrets and no equipment, supplies, or facilities of the Company were used and
which was developed entirely on Executive's own time, unless: (i) the invention
relates directly to the business of the Company, (ii) the invention relates to
actual or demonstrably anticipated research or development work of the Company,
or (iii) the invention results from any work performed by Executive for the
Company.
2
<PAGE>
(c) If and to the extent that Executive makes use, in the course of
his employment, of any items or Intellectual Properties previously developed by
Executive or developed by Executive outside of the scope of this Agreement,
Executive hereby grants the Company a nonexclusive, royalty-free, perpetual,
irrevocable, worldwide license (with right to sublicense) to make, use, sell,
copy, distribute, modify, and otherwise to practice and exploit any and all such
items and Intellectual Properties.
(d) Executive will assist the Company as reasonably requested during
and after the term of his employment to further evidence and perfect, and to
enforce, the Company's rights in and ownership of the Intellectual Properties
covered hereby, including without limitation, the execution of additional
instruments of conveyance and assisting the Company with applications for
patents or copyright or other registrations.
4. AUTHORITY AND NON-INFRINGEMENT. Executive warrants that any and all
items, technology, and Intellectual Properties of any nature developed or
provided by Executive under this Agreement and in any way for or related to the
Company will be original to Executive and will not, as provided to the Company
or when used and exploited by the Company and its contractors and customers and
its and their successors and assigns, infringe in any respect on the rights or
property of Executive or any third party. Executive will not, without the prior
written approval of the Company, use any equipment, supplies, facilities, or
proprietary information of any other party. Executive warrants that Executive
is fully authorized to enter into employment with the Company and to perform
under this Agreement, without conflicting with any of Executive's other
commitments, agreements, understandings or duties, whether to prior employers or
otherwise. Executive will indemnify the Company for all losses, claims, and
expenses (including reasonable attomeys' fees) arising from any breach of by him
of this Agreement.
5. REMEDIES. The harm to the Company from any breach of Executive's
obligations under this Agreement may be wholly or partially irreparable, and
Executive agrees that such obligations may be enforced by injunctive relief and
other appropriate remedies, as well as by damages. If any bond from the Company
is required in connection with such enforcement, the parties agree that a
reasonable value of such bond shall be $5,000. Any amounts received by
Executive or by any other through Executive in breach of this Agreement shall be
held in constructive trust for the benefit of the Company.
6. EXECUTIVE AGREEMENT. In consideration of the obligations
undertaken by Executive pursuant to this Agreement, contemporaneously with
the execution of this Agreement, Executive and the Company are entering into
a Change in Control Agreement (the "Change in Control Agreement"), and each
agreement shall be effective only if both agreements have been executed.
7. AT WILL EMPLOYMENT. Unless and to the extent otherwise agreed by the
Company and Executive in a separate written employment agreement, Executive's
employment shall be "at will", with either party permitted to terminate the
employment at any time, with or without cause.
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<PAGE>
No term of any employment agreement between the Company and Executive shall
be construed to conflict with or lessen Executive's obligations under this
Agreement.
8. NOTICES. All notices and other communications called for or required
by this Agreement shall be in writing and shall be addressed to the parties at
their respective addresses stated below or to such other address as a party may
subsequently specify by written notice and shall be deemed to have been received
(i) upon delivery in person, (ii) five days after mailing it by U.S. certified
or registered mail, return receipt requested and postage prepaid, or (iii) two
days after depositing it with a commercial overnight carrier which provides
written verification of delivery:
To the Company: 2701 First Avenue
Seattle, Washington 98121
Attention: Chairman
To Executive: Harvey N. Jones
1415 East Roy Street
Seattle, Washington 98112
9. ASSIGNMENT. Executive's rights and duties hereunder are personal to
Executive and are not assignable to others, but Executive's obligations
hereunder will bind his heirs, successors, and assigns. The Company may assign
its rights under this Agreement in connection with any merger or consolidation
of the Company or any sale of all or any portion of the Company's assets
(including, without limitation, any division or product line), provided that any
such successor or assignee expressly assumes in writing the Company's
obligations under the Executive Agreement.
10. GENERAL. This Agreement constitutes the exclusive agreement of
the parties with respect to the subject matter hereof and supersedes all prior
agreements or understandings of the parties. No waiver of or forbearance to
enforce any right or provision hereof shall be binding unless in writing and
signed by the party to be bound, and no such waiver or forbearance in any
instance shall apply to any other instance or to any other right or provision.
This Agreement will be governed by the local laws of the State of Washington
without regard to its conflicts of laws rules to the contrary. The parties
hereby consent to the exclusive jurisdiction and venue of the state and federal
courts residing in King County, Washington for all matters and actions arising
under this Agreement. The prevailing party shall be entitled to reasonable
attorneys' fees and costs incurred in connection with such litigation. No term
hereof shall be construed to limit or supersede any other right or remedy of the
Company under applicable law with respect to the protection of trade secrets or
otherwise. If any provision of this Agreement is held to be invalid or
unenforceable to any extent in any context, it shall nevertheless be enforced to
the fullest extent allowed by law in that and other contexts, and the validity
and force of the remainder of this Agreement shall not be affected thereby.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first above
written.
CUTTER & BUCK INC. EXECUTIVE:
By /s/ Martin J. Marks Signature /s/ Harvey N. Jones
------------------------------- ---------------------------
Its President Name, Printed Harvey N. Jones
--------------------------- -----------------------
5
<PAGE>
CHANGE IN CONTROL AGREEMENT
FOR
MARTIN J. MARKS
This Agreement is entered into this 15th day of March, 1999, by and
between Cutter & Buck Inc. (the "Company") and Martin J. Marks ("Executive").
Executive is an at-will employee of the Company. The parties wish to
provide Executive with severance benefits if Executive's employment is
terminated in connection with a change in control of the Company. The
Company is willing to provide such benefits if Executive enters into the
Company's form of Confidentiality and Non-Competition Agreement for executive
officers.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions contained herein, the parties hereby agree as follows:
1. CHANGE IN CONTROL.
(a) If, within the period commencing 90 days prior to the date of
occurrence (the "Event Date") of a Control Event and ending on the second
anniversary of the Event Date (the "Window"), the Company terminates Executive's
employment (other than for Cause) or Executive resigns for Good Reason, the
Company shall pay to Executive the Severance Payment in immediately available
funds. If the termination occurs prior to the Control Event, the Severance
Payment is due on the twentieth business day following the Event Date; if the
termination occurs on or subsequent to the Event Date, the Severance Payment is
due on the twentieth business day following the date of termination (the
"Termination Date").
(b) The Severance Payment shall be determined pursuant to the following
formula:
[(B-A)/365] x (C + D) where
A = the number of days of continued full-time employment of Executive
by the Company following the Event Date
B = 365
C = Executive's annual base salary as of the Termination Date
D = the average of all cash bonuses that Executive received or is
entitled to receive for the two most recent fiscal years of the
Company during which Executive was employed by the Company in his or
her current position for the entire year;
PROVIDED HOWEVER, that unless the Company, its successors or assigns provides
Executive with at least six (6) months advance written notice of termination,
the Severance Payment shall not be less than the amount computed as follows:
(0.5) x (C + D).
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<PAGE>
If the Termination Date occurs during the Window but prior to the Control Event,
the Severance Payment shall be reduced by the sum of any severance payments
previously received by Executive from the Company (but not below zero).
(c) Each of the following shall constitute a "Control Event":
(1) the acquisition of Common Stock of the Company (the "Common
Stock") by any "Person" (as such term is defined in the Rights Agreement dated
as of November 20, 1998 between the Company and ChaseMellon Shareholder Services
LLC (the "Rights Plan"), together with all Affiliates and Associates (as such
terms are defined in the Rights Plan) of such Person, such that such Person
becomes, after the date of this Agreement, the Beneficial Owner (as defined in
the Rights Plan) of a majority of the shares of Common Stock then outstanding,
but shall not include the Company, any subsidiary of the Company, any employee
benefit plan of the Company or of any subsidiary of the Company or any Person or
entity organized, appointed or established by the Company for or pursuant to the
terms of any such employee benefit plan; or
(2) the approval by the shareholders (or, if later, approval by the
shareholders of any Person) of any merger, consolidation, reorganization or
other transaction providing for the conversion or exchange of more than fifty
percent (50%) of the outstanding shares of Common Stock into securities of any
Person, or cash, or property, or a combination of any of the foregoing.
(d) Each of the following shall constitute "Good Reason", provided that it
occurs during the Window:
(1) the material diminution of Executive's position, duties,
responsibilities or status with the Company or its successor, as compared with
the position, duties, responsibilities or status of Executive with the Company
immediately prior to the Event Date, except in connection with the termination
of Executive for Cause;
(2) the Company's assignment of Executive on a substantially
full-time basis to work at a location where the distance between the new
location and Executive's principal residence is at least 20 miles greater than
the distance between the former location and such residence; provided, however,
that this paragraph shall not apply to travel in the furtherance of the
Company's business to an extent substantially consistent with Executive's
business travel obligations as of the date hereof;
(3) the Company's failure to obtain an assumption of the obligations
of the Company to perform this Agreement by any successor to the Company;
(4) any reduction in Executive's base salary, or a material reduction
in benefits payable to Executive or failure of the Company to pay Executive any
earned salary, bonus or benefits except with the prior written consent of
Executive;
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<PAGE>
(5) the exclusion or limitation of Executive from participating in
some form of variable compensation plan which provides the Executive the
opportunity to achieve a level of total compensation (base salary plus variable
compensation) consistent with what the Executive had the opportunity to earn at
the Event Date; or
(6) any demand by any director or officer of the Company that
Executive take any action or refrain from taking any action where such action or
inaction, as the case may be, would violate any law, rule, regulation or other
governmental pronouncement, court order, decree or judgment, or breach any
agreement or fiduciary duty.
(e) Each of the following shall constitute "Cause":
(1) any violation by Executive of any material obligation under this
Agreement or the attached Confidentiality and Non-Disclosure Agreement;
(2) conviction for commitment of a felony;
(3) any violation of law which has a material adverse effect on the
Company;
(4) habitual abuse of alcohol or a controlled substance;
(5) theft or embezzlement from the Company;
(6) repeated unexcused absence from work for reasons unrelated to
short-term illnesses;
(7) Disability of Executive (as defined below); and
(8) repeated failure or refusal by Executive to carry out the
reasonable directives, orders or resolutions of the Company's Board of Directors
or any officer to whom he reports.
(f) "Disability" shall mean any physical, mental or other health condition
which substantially impairs Executive's ability to perform his assigned duties
for 90 days or more in any 180 day period or that can be expected to result in
death. Any disagreement as to whether Executive is disabled shall be resolved
by a physician selected by the Company after an examination of Executive.
Executive hereby consents to such physical examination and to the
3
<PAGE>
examination of all medical records of Executive necessary, in the judgment of
the examining physician, to make the determination of disability.
(g) Notwithstanding any other provision of this Agreement to the contrary,
in the event that any severance or other payment, benefit or right payable or
accruing to Executive hereunder or under the Company's 1991 Stock Option Plan,
1995 Employee Stock Option Plan or 1997 Cutter & Buck Stock Incentive Plan (the
"Option Plans") would constitute a "parachute payment" as defined in Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), then
the total amount of severance and other payments or benefits payable to
Executive hereunder and under the Option Plans which is deemed to constitute a
"parachute payment" shall not exceed and shall, if necessary, be reduced to an
amount (the "Revised Severance Payment") equal to 2.99 times Executive's "base
amount" as defined in Code Section 28G(b)(3). In the event of a disagreement
between the Company and Executive as to whether the provisions of Code section
280G are applicable or the amount of the Revised Severance Payment, such
determination shall be made by the Company's independent public accountants or,
if such firm is unable or unwilling to render such a determination, then by a
law firm mutually acceptable to Executive and the Company. All costs relating
to such determination shall be borne by the Company. The Company and the
Executive shall cooperate in good faith to make the determination required by
this Section l(g) by mutual agreement not later than the later of: (i) the
fifth day preceding the date that the Severance Payment is or would be due or
(ii) the earlier of (x) the tenth day following the expiration of any period of
accelerated vesting of options to purchase the Company's Common Stock provided
by Section 5(n) of the Option Plan or (y) the tenth day following the date of
exercise by Executive of his or her last remaining option which was exercisable
solely due to the application of Section 5(n) of the Option Plan. Pending the
final calculation of the Severance Payment or Revised Severance Payment, the
Company shall pay the amounts described under subsection (b) above at the time
and in the manner provided herein; provided that, pending such determination,
such payments shall be reduced by such amounts as the Company estimates in good
faith to be necessary to satisfy its tax (including excise tax) withholding
obligations and effect the reduction in the amount of the Severance Payment, as
contemplated by this Subsection 1(g). The aggregate amount of any compensation
actually paid or provided to Executive under the terms of this Agreement and in
excess of the Revised Severance Payment shall be deemed, to the extent of such
excess, a loan to Executive payable upon demand and bearing interest at the rate
of 8% per annum.
2. CONFIDENTIALLY AND NON-COMPETITION AGREEMENT. In consideration of the
obligations undertaken by the Company pursuant to this Agreement,
contemporaneously with the execution of this Agreement, Executive and the
Company shall enter into the form of Confidentiality and Non-Competition
Agreement attached hereto as EXHIBIT A and each agreement shall be effective
only if both agreements have been executed.
4
<PAGE>
3. TERM OF AGREEMENT.
The Company's obligations under Section 1 of this Agreement shall expire
with respect to Control Events occurring on or after the third anniversary of
the date of this Agreement unless the term hereof is extended by the Board of
Directors of the Company by a majority vote of those members of the Board who
are not parties to this or a similar agreement.
4. AT WILL EMPLOYMENT. Unless and to the extent otherwise agreed by the
Company and Executive in a separate written employment agreement, Executive's
employment shall be "at will", with either party permitted to terminate the
employment at any time, with or without cause. No term of any employment
agreement between the Company and Executive shall be construed to conflict with,
lessen or expand the obligations of the parties under this Agreement.
5. NOTICES. All notices and other communications called for or required
by this Agreement shall be in writing and shall be addressed to the parties at
their respective addresses stated below or to such other address as a party may
subsequently specify by written notice and shall be deemed to have been received
(i) upon delivery in person, (ii) five days after mailing it by U.S. certified
or registered mail, return receipt requested and postage prepaid, or (iii) two
days after depositing it with a commercial overnight carrier which provides
written verification of delivery:
To the Company: 2701 First Avenue, Suite 500
Seattle, Washington 98121
Attention: Chairman
To Executive: Martin J. Marks
17640 S.E. 45th Place
Bellevue, Washington 98006
6. WITHHOLDING. Except as described in subsection 1(g) of this
Agreement, all payments due to and all benefits to be provided to Executive
hereunder shall be subject to reduction for any applicable withholding taxes,
including excise taxes.
7. ASSIGNMENT. Executive's rights and duties hereunder are personal to
Executive and are not assignable to others, but Executive's obligations
hereunder will bind his heirs, successors, and assigns. The Company may assign
its rights under this Agreement in connection with any merger or consolidation
of the Company or any sale of all or any portion of the Company's assets
(including, without limitation, any division or product line), provided that any
such successor or assignee expressly assumes in writing the Company's
obligations hereunder.
8. NO DUTY TO MITIGATE. Executive shall not be required to mitigate the
amount of any payment made or benefit provided hereunder. The Company may
offset any payment due hereunder by the amount of damages to the Company
resulting from any breach of this Agreement by Executive.
5
<PAGE>
9. GENERAL. This Agreement constitutes the exclusive agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements or understandings of the parties. No waiver of or forbearance to
enforce any right or provision hereof shall be binding unless in writing and
signed by the party to be bound, and no such waiver or forbearance in any
instance shall apply to any other instance or to any other right or provision.
This Agreement will be governed by the local laws of the State of Washington
without regard to its conflicts of laws rules to the contrary. The parties
hereby consent to the exclusive jurisdiction and venue of the state and federal
courts sitting in King County, Washington for all matters and actions arising
under this Agreement. The prevailing party shall be entitled to reasonable
attorneys' fees and costs incurred in connection with such litigation. No term
hereof shall be construed to limit or supersede any other right or remedy of the
Company under applicable law with respect to the protection of trade secrets or
otherwise. If any provision of this Agreement is held to be invalid or
unenforceable to any extent in any context, it shall nevertheless be enforced to
the fullest extent allowed by law in that and other contexts, and the validity
and force of the remainder of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first above written.
CUTTER & BUCK INC. EXECUTIVE:
By /s/ Harvey N. Jones Signature /s/ Martin J. Marks
------------------------------- ---------------------------
Its Chairman Name, Printed Martin J. Marks
--------------------------- -----------------------
6
<PAGE>
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
FOR
MARTIN J. MARKS
This Agreement is entered into this 15th day of March, 1999, by and
between Cutter & Buck Inc. (the "Company") and Martin J. Marks ("Executive").
Executive is an at-will employee of the Company. In consideration of
entering into an agreement to provide Executive with severance benefits if
Executive's employment is terminated in connection with a change in control
in the Company, Executive promises, on the terms set forth herein, at all
times to protect the Company's proprietary information and to not compete
with the Company following termination of Executive's employment in
connection with a change in control.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions contained herein, the parties hereby agree as follows:
1. NON-COMPETITION AND NON-SOLICITATION.
(a) Executive agrees that during the term of his employment with
the Company and, subject to receipt the Severance Payment (as defined below)
by the Executive, until the earlier of: (i) the first anniversary of the
Termination Date (as defined below), or (ii) the period of time used in
calculating the amount of the Severance Payment, Executive will not in any
capacity directly or indirectly engage in, assist others to engage in or own
a material interest in any business or activity that is, or is preparing to
be, in competition with the Company with respect to any product or service
sold or service provided by the Company up to the time of termination of
employment in any geographical area in which at the time of termination of
employment such product or service is sold or is actively engaged in. For
the purposes of this Agreement, the terms "Severance Payment" and
"Termination Date" shall have the meanings assigned to them in the Change in
Control Agreement (as defined in Section 6 below).
(b) Executive further agrees that during the period stated above, he
will not directly or indirectly call on, reveal the name of, or otherwise
solicit, accept business from or attempt to entice away from the Company any
actual or identified potential customer of the Company, nor will he assist
others in doing so. Executive further agrees that he will not, during the
period stated above, encourage or solicit any other employee or consultant of
the Company to leave such employment for any reason, nor will he assist others
to do so.
(c) Executive acknowledges that the covenants in this Section 1 are
necessary and reasonable to protect the Company in the conduct of its business
and that compliance with such covenants will not prevent him from pursuing his
livelihood. However, should any court find that any provision of such covenants
is unreasonable, invalid or unenforceable, whether in period of time,
geographical area, or otherwise, then in that event the parties hereby agree
that such covenants shall be interpreted and enforced to the maximum extent
which the court deems reasonable.
1
<PAGE>
2. TRADE SECRETS AND CONFIDENTIAL INFORMATION.
(a) Executive acknowledges that the Company's business and future
success depend upon the preservation of the trade secrets and other confidential
information of the Company and its suppliers and customers (the "Secrets"). The
Secrets may include, without limitation, existing and to-be-developed or
acquired product designs, new product plans or ideas, market surveys, the
identities of past, present or potential customers, business and financial
information, pricing methods or data, terms of contracts with present or past
customers, proposals or bids, marketing plans, personnel information, procedural
and technical manuals and practices, servicing routines, and parts and supplier
lists proprietary to the Company or its customers or suppliers, and any other
sorts of items or information of the Company or its customers or suppliers which
are not generally known to the public at large. Executive agrees to protect and
to preserve as confidential during and after the term of his employment all of
the Secrets at any time known to Executive or in his possession or control
(whether wholly or partially developed by Executive or provided to Executive,
and whether embodied in a tangible medium or merely remembered).
(b) Executive shall mark all items containing any of the Secrets with
prominent confidentiality notices acceptable to the Company. Executive shall
neither use nor allow any other person to use any of the Secrets in any way,
except for the benefit of the Company and as directed by Executive's supervisor.
All material containing or disclosing any portion of the Secrets shall be and
remain the property of the Company, shall not be removed from the Company's
premises without specific consent from an officer of the Company, and shall be
returned to the Company upon the termination of Executive's employment or the
earlier request of Executive's supervisor. At such time, Executive shall also
assemble all materials in his possession or control which contain any of the
Secrets, and promptly deliver such items to the Company.
3. INTELLECTUAL PROPERTIES.
(a) All ownership, copyright, patent, trade secrecy and other rights
in all works, designs, inventions, ideas, manuals, improvements, discoveries,
processes, customer lists or other properties (the "Intellectual Properties")
made or conceived by Executive during the term of his/her employment by the
Company shall be the rights and property solely of the Company, whether
developed independently by Executive or jointly with others, and whether or not
developed or conceived during regular working hours or at the Company's
facilities, and whether or not the Company uses, registers, or markets the same.
(b) In accordance with the Company's policy and Washington law, this
Agreement (other than Subsection 3(c)) does not apply to, and Executive has no
obligation to assign to the Company, any invention for which no Company trade
secrets and no equipment, supplies, or facilities of the Company were used and
which was developed entirely on Executive's own time, unless: (i) the invention
relates directly to the business of the Company, (ii) the invention relates to
actual or demonstrably anticipated research or development work of the Company,
or (iii) the invention results from any work performed by Executive for the
Company.
2
<PAGE>
(c) If and to the extent that Executive makes use, in the course of
his employment, of any items or Intellectual Properties previously developed by
Executive or developed by Executive outside of the scope of this Agreement,
Executive hereby grants the Company a nonexclusive, royalty-free, perpetual,
irrevocable, worldwide license (with right to sublicense) to make, use, sell,
copy, distribute, modify, and otherwise to practice and exploit any and all such
items and Intellectual Properties.
(d) Executive will assist the Company as reasonably requested during
and after the term of his employment to further evidence and perfect, and to
enforce, the Company's rights in and ownership of the Intellectual Properties
covered hereby, including without limitation, the execution of additional
instruments of conveyance and assisting the Company with applications for
patents or copyright or other registrations.
4. AUTHORITY AND NON-INFRINGEMENT. Executive warrants that any and all
items, technology, and Intellectual Properties of any nature developed or
provided by Executive under this Agreement and in any way for or related to the
Company will be original to Executive and will not, as provided to the Company
or when used and exploited by the Company and its contractors and customers and
its and their successors and assigns, infringe in any respect on the rights or
property of Executive or any third party. Executive will not, without the prior
written approval of the Company, use any equipment, supplies, facilities, or
proprietary information of any other party. Executive warrants that Executive
is fully authorized to enter into employment with the Company and to perform
under this Agreement, without conflicting with any of Executive's other
commitments, agreements, understandings or duties, whether to prior employers or
otherwise. Executive will indemnify the Company for all losses, claims, and
expenses (including reasonable attomeys' fees) arising from any breach of by him
of this Agreement.
5. REMEDIES. The harm to the Company from any breach of Executive's
obligations under this Agreement may be wholly or partially irreparable, and
Executive agrees that such obligations may be enforced by injunctive relief and
other appropriate remedies, as well as by damages. If any bond from the Company
is required in connection with such enforcement, the parties agree that a
reasonable value of such bond shall be $5,000. Any amounts received by
Executive or by any other through Executive in breach of this Agreement shall be
held in constructive trust for the benefit of the Company.
6. EXECUTIVE AGREEMENT. In consideration of the obligations
undertaken by Executive pursuant to this Agreement, contemporaneously with
the execution of this Agreement, Executive and the Company are entering into
a Change in Control Agreement (the "Change in Control Agreement"), and each
agreement shall be effective only if both agreements have been executed.
7. AT WILL EMPLOYMENT. Unless and to the extent otherwise agreed by the
Company and Executive in a separate written employment agreement, Executive's
employment shall be "at will", with either party permitted to terminate the
employment at any time, with or without cause.
3
<PAGE>
No term of any employment agreement between the Company and Executive shall
be construed to conflict with or lessen Executive's obligations under this
Agreement.
8. NOTICES. All notices and other communications called for or required
by this Agreement shall be in writing and shall be addressed to the parties at
their respective addresses stated below or to such other address as a party may
subsequently specify by written notice and shall be deemed to have been received
(i) upon delivery in person, (ii) five days after mailing it by U.S. certified
or registered mail, return receipt requested and postage prepaid, or (iii) two
days after depositing it with a commercial overnight carrier which provides
written verification of delivery:
To the Company: 2701 First Avenue
Seattle, Washington 98121
Attention: Chairman
To Executive: Martin J. Marks
17640 S.E. 45th Place
Bellevue, Washington 98006
9. ASSIGNMENT. Executive's rights and duties hereunder are personal to
Executive and are not assignable to others, but Executive's obligations
hereunder will bind his heirs, successors, and assigns. The Company may assign
its rights under this Agreement in connection with any merger or consolidation
of the Company or any sale of all or any portion of the Company's assets
(including, without limitation, any division or product line), provided that any
such successor or assignee expressly assumes in writing the Company's
obligations under the Executive Agreement.
10. GENERAL. This Agreement constitutes the exclusive agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements or understandings of the parties. No waiver of or forbearance to
enforce any right or provision hereof shall be binding unless in writing and
signed by the party to be bound, and no such waiver or forbearance in any
instance shall apply to any other instance or to any other right or provision.
This Agreement will be governed by the local laws of the State of Washington
without regard to its conflicts of laws rules to the contrary. The parties
hereby consent to the exclusive jurisdiction and venue of the state and federal
courts residing in King County, Washington for all matters and actions arising
under this Agreement. The prevailing party shall be entitled to reasonable
attorneys' fees and costs incurred in connection with such litigation. No term
hereof shall be construed to limit or supersede any other right or remedy of the
Company under applicable law with respect to the protection of trade secrets or
otherwise. If any provision of this Agreement is held to be invalid or
unenforceable to any extent in any context, it shall nevertheless be enforced to
the fullest extent allowed by law in that and other contexts, and the validity
and force of the remainder of this Agreement shall not be affected thereby.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first above
written.
CUTTER & BUCK INC. EXECUTIVE:
By /s/ Harvey N. Jones Signature /s/ Martin J. Marks
------------------------------- ---------------------------
Its Chairman Name, Printed Martin J. Marks
--------------------------- -----------------------
5
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8) pertaining to the 1995 Employee Stock Option Plan, 1995 Nonemployee
Director Stock Incentive Plan, 1995 Employee Stock Purchase Plan and the 1997
Stock Incentive Plan of Cutter & Buck Inc. of our report dated June 15, 1999,
with respect to the consolidated financial statements and schedule of Cutter &
Buck Inc. included in the Annual Report (Form 10-K) for the year ended April 30,
1999.
ERNST & YOUNG LLP
Seattle, Washington
June 18, 1999
57
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