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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________ to _________
Commission file number 1-4404
THE STRIDE RITE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-1399290
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation) Number)
191 Spring Street, P.O. Box 9191, Lexington, Massachusetts 02420-9191
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 824-6000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $.25 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required 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 report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
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---
/___/ Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the Registrant's Common Stock $.25 par value, held
by non-affiliates of the Registrant as of February 15, 2000, was $252,752,965
based on the closing price on that date on the New York Stock Exchange. As of
February 15, 2000, 43,484,381 shares of the Registrant's Common Stock, $.25 par
value, and the accompanying Preferred Stock Purchase Rights were outstanding.
Documents Incorporated by Reference
Certain portions of the following documents (as more specifically identified
elsewhere in this Annual Report) are incorporated by reference herein:
Part of Form 10-K into
Name of Document which document is incorporated
- ---------------- ------------------------------
Portions of the Registrant's Annual
Report to Stockholders for fiscal year
ended December 3, 1999 Part I and Part II
Portions of the Registrant's Proxy
Statement for 2000 Annual Meeting of
Stockholders Part III
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PART I
Item 1. Business
General
The Stride Rite Corporation is the leading marketer of high quality
children's footwear in the United States and a major marketer of athletic and
casual footwear for children and adults. All of the Company's products are
manufactured abroad by independent manufacturers in accordance with the
Company's specifications and quality standards. Footwear products are
distributed through independent retail stores, company-owned stores and footwear
departments in department stores. Unless the context otherwise requires,
references to the "Company" and "The Stride Rite Corporation" in this document
are to The Stride Rite Corporation and all of its wholly owned subsidiaries.
Certain Factors Affecting Future Operating Results
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We caution investors that any forward-looking statements
presented in this report and presented elsewhere by management from time to time
are based on management's beliefs and assumptions made by, and information
currently available to, management. When used, the words "anticipate,"
"estimate," "project," "should," "expect" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to risks,
uncertainties and assumptions and are not guarantees of future performance,
which may be affected by various trends and factors that are beyond our control.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. Accordingly, past results and trends
should not be used by investors to anticipate future results or trends. Some of
the key factors that may have a direct bearing on our results are as follows:
Mature markets; Competition; Consumer Trends
Our strategy for growth depends upon increasing the acceptance of
our current brands in our major markets, expanding into new markets and
increasing the number of footwear products and brands that we sell. There
can be no assurance that we will be able to successfully develop new
branded products or acquire existing brands from third parties. The bulk
of our sales are in the U.S. and Canada where the market is mature for
many of our products. To grow our business, we must increase our market
share at the expense of our competitors, and there can be no assurance we
will be successful. Our efforts to expand sales outside the U.S. and
Canada may not succeed.
The footwear industry specifically, and the fashion industry in
general, are subject to rapid and substantial shifts in consumer tastes
and preferences. There are many competitors in our markets with
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substantially greater financial resources, production, marketing and
product development capabilities. Our performance may be hurt by our
competitors' product development, sourcing, pricing, innovation and
marketing strategies. In addition, we expect the footwear industry in the
U.S. to continue to experience substantial foreign competition.
The fashion industry and retail industry is exposed to sudden shifts
in consumer trends and consumer spending, on which our results are, in
part, dependent. Consumer acceptance of our new products may fall below
expectations and the launch of new product lines may be delayed. Our
results are affected by the buying plans of our customers in the wholesale
business, which include large department stores, as well as smaller
retailers. Our wholesale customers may not inform us of changes in their
buying plans until it is too late for us to make the necessary adjustments
to our product lines and marketing strategies. While we believe that
purchasing decisions in many cases are made independently by individual
stores or store chains, we are exposed to a decision by the controlling
owner of a store chain, to decrease the amount of footwear products
purchased from us. Moreover, the retail industry periodically experiences
consolidation. We face a risk that our wholesale customers may
consolidate, restructure, reorganize or realign in ways which could
decrease the number of stores, or the amount of shelf space, that carry
our products. The impact that electronic commerce will have in the future
on the retail industry is uncertain, but there is no assurance that any
such impact will not adversely affect our business.
Inventory Obsolescence
The fashion-oriented nature of our industry, the rapid changes in
customer preferences and the extended product development and sourcing
lead times also leave us vulnerable to an increased risk of inventory
obsolescence. While we have successfully managed this risk in the past,
and believe we can successfully manage it in the future, if we are unable
to do so our revenue and operating margins will suffer.
Retention of Major Brand License
We have derived significant revenues and earnings in the past from
our exclusive licensing arrangement with Tommy Hilfiger Licensing, Inc. to
produce and sell Hilfiger branded footwear. Our Hilfiger license expires
December 31, 2001 and we have one option to renew the license for an
additional three-year term. Whether our license with Hilfiger will remain
in effect depends on our achieving certain minimum sales levels for the
licensed products. We believe that our relationship with Hilfiger is good
and that we will be able to renew the license at the end of the current
term; however, there can be no assurance that we will be able to do so. If
we lose the Hilfiger license, our business could be materially and
adversely affected.
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Overseas Production and Raw Material Procurement
We purchase substantially all of our product lines and raw materials
overseas and expect to do so for the foreseeable future. Our international
sourcing subjects us to the risks of doing business abroad. Such risks
include expropriation, acts of war, political disturbances, political
instability and similar events, including trade sanctions, loss of
normalized trade relations status, export duties, import controls, quotas,
and other trading restrictions, as well as fluctuations in currency
values. Moreover, we rely heavily on independent third-party manufacturing
facilities, primarily located in China, to produce our products. If trade
relations between the U.S. and China, or other countries in which we
manufacture our products, deteriorate or are threatened by instability,
our business may be adversely impacted. We cannot predict the effect that
changes in the economic and political conditions in China could have on
the economics of doing business with Chinese manufacturers. Although we
believe that we could find alternative manufacturing sources for our
products with independent third-party manufacturing facilities in other
countries, the loss of a substantial portion of our Chinese manufacturing
capacity could have a material adverse effect on our business. Also, if we
were required to relocate a substantial portion of our manufacturing
outside of China, there can be no assurance that we could obtain as
favorable economic terms, which could adversely affect our performance.
Dependence on Logistical Systems
Our business operations are dependent on our logistical systems,
which include our order management system and our computerized warehouse
network, enabling us to procure our footwear products from overseas
manufacturers, transport it to our distribution facilities, store it and
deliver it to our customers on time, in the correct sizes and styles. A
disruption to the logistical systems could adversely impact our business.
In addition, to improve overall efficiency, we are in the process of
implementing new computer software systems that control our order
management systems. We expect that the implementation of the new software
systems will go smoothly. However, if we experience problems with such
implementation, we could experience disruptions to our business that could
have an adverse effect on our business.
Intellectual Property Risk
We believe that our patents and trademarks are important to our
business and are generally sufficient to permit us to carry on our
business as presently conducted. We cannot, however, know whether we will
be able to secure patents or trademark protection for our intellectual
property in the future or that protection will be adequate for future
products. Further, we face the risk of ineffective protection of
intellectual property rights in the countries where we source and
distribute our products. Finally, we cannot be sure that our
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activities will not infringe on the proprietary rights of others. If we
are compelled to prosecute infringing parties, defend our intellectual
property, or defend ourselves from intellectual property claims made by
others, we may face significant expenses and liability.
Products
The Stride Rite Children's Group designs and markets children's footwear,
primarily for consumers between the ages of six months and ten years, including
dress and recreational shoes, boots, sandals and sneakers, in traditional and
contemporary styles. Those products are marketed under the Company's STRIDE
RITE(R), MUNCHKIN(R), SPERRY(R), SPERRY TOP-SIDER(R) and STREET HOT(R)
trademarks in medium to high price ranges. The Company also markets a line of
casual and dress footwear, which is targeted at six to ten year old girls, using
the NINE WEST KIDS(R) trademark under a licensing agreement with Nine West
Group, a subsidiary of Jones Apparel Group, Inc.
The Keds group designs and markets sneakers and casual footwear for adults
and children under the KEDS(R) and PRO-KEDS(R) trademarks and casual footwear
for women under the GRASSHOPPERS(R) label.
The Sperry group designs and markets marine footwear and outdoor
recreational, hand-sewn, dress and casual footwear for adults and children under
the Company's SPERRY TOP-SIDER(R) and SPERRY(R) trademarks. Products sold under
the SPERRY TOP-SIDER(R) label also include sneakers and sandals for men and
women.
In 1997, the Company began marketing a line of dress casual, sport casual
and athletic footwear for men and boys using the TOMMY HILFIGER(R) brand name
under a license agreement with Tommy Hilfiger Licensing, Inc. A women's footwear
product line was launched in August 1998 using the TOMMY HILFIGER(R) brand name.
The Company is currently planning to begin shipments of a girls' footwear
product line during the third quarter of 2000.
Sales and Distribution
The Company sells its products nationwide to customers operating retail
outlets, including premier department stores, value retailers and specialty
stores, as well as to Stride Rite children's shoe stores and other shoe stores
operated by independent retailers. In addition, the Company sells footwear
products to consumers through company-owned stores, including children's shoe
stores, manufacturers' outlet stores and the children's footwear departments of
certain department stores. The Company also sells a small amount of product
directly to consumers through its e-commerce site, Keds.com. The Company's
largest single customer accounted for approximately 8% of consolidated net sales
for the fiscal year ended December 3, 1999.
The Company provides assistance to a limited number of qualified specialty
retailers to enable them to operate independent Stride Rite children's shoe
stores. Such assistance sometimes includes the sublease of a desirable retail
site by the Company to an independent dealer. There are approximately 15
independent dealers who currently sublease store locations from the Company.
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The Company owns two distribution centers, one located in Louisville,
Kentucky with 520,000 square feet of space and the other in Huntington, Indiana
with 263,000 square feet of space. Due to the growth of the Tommy Hilfiger
footwear business in fiscal 1999 and the related warehouse capacity constraints,
the Company began outsourcing the warehousing and facility distribution
functions for one of its brands through a third-party facility in Chicago,
Illinois.
The Company maintains an in-stock inventory of certain styles of its
various branded footwear in a wide range of sizes and widths for shipment to its
wholesale customers. In accordance with practices in the footwear industry, the
Company encourages early acceptance of merchandise by shipping some products to
customers in advance of their seasonal requirements and permitting payment for
such merchandise at specified later dates.
Generally, the Company uses independent distributors and licensees to
market its various product lines outside of North America. International
revenues, including sales of the Company's Canadian subsidiary, represented 4.4%
of consolidated net sales for the fiscal year ended December 3, 1999.
The Company is also a party to foreign license agreements in which
independent companies operate Stride Rite retail stores outside the United
States. An aggregate of 10 stores are currently operating in Canada, Costa Rica,
El Salvador, Honduras, Mexico and Peru pursuant to such agreements.
The Company also distributes SPERRY TOP-SIDER(R), STRIDE RITE(R), KEDS(R),
GRASSHOPPERS(R), TOMMY HILFIGER(R) and NINE WEST KIDS(R) products in Canada
through its Canadian subsidiary.
International Sourcing
Having closed all of its manufacturing facilities in the United States and
the Caribbean over the years, the Company purchases substantially all of its
products from foreign sources. It maintains a staff of approximately 100
professional and technical personnel in Taiwan, Thailand, Indonesia and China,
to supervise a substantial portion of its canvas and leather footwear
production. It is anticipated that overseas resources will continue to be
utilized in the future. The Company also purchases certain raw materials
(particularly leather) from overseas resources. The Company is a party to a
joint venture agreement with a foreign footwear manufacturer which operates a
manufacturing facility in Thailand. The Company has a 49.5% interest in the Thai
corporation operating this facility, which manufactures vulcanized canvas and
leather footwear. During fiscal 1999, approximately 3% of the Company's total
footwear production requirements were fulfilled by the Thai facility. In
addition, the Company uses the services of buying agents to source merchandise.
Approximately 83% of the Company's footwear products are manufactured by
independently owned footwear manufacturers in China. Historically, instability
in China's political and economic environment has not had a
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material adverse effect on the Company's financial condition or results of
operations. The Company cannot predict, however, the effect that future changes
in economic or political conditions in China could have on the economics of
doing business with its Chinese manufacturers.
Retail Operations
As of December 3, 1999, the Company operated 117 Stride Rite children's
shoe stores, 46 leased children's shoe departments in leading department stores,
and 29 manufacturers' outlet stores under the name STRIDE RITE FAMILY FOOTWEAR
which sell primarily prior season goods for all of the Company's owned and
licensed brands. The product and merchandising formats of the Stride Rite
children's shoe stores are utilized in the 46 leased children's shoe departments
which the Company operates in certain divisions of Federated Department Stores,
including Macy's, Rich's and Lazarus department stores. The Stride Rite
children's shoe stores carry a significant portion of the lines of the Company's
STRIDE RITE(R) and SPERRY (R) children's footwear and a portion of the KEDS(R)
children's product line, the TOMMY HILFIGER(R) boys' line and the NINE WEST
KIDS(R) girls' styles. The Company's stores are located primarily in larger
regional shopping centers, clustered generally in the major marketing areas of
the United States. Most of the Company's manufacturers' outlet stores are
located in shopping centers consisting only of outlet stores.
During the 1999 fiscal year, the Company opened 10 Stride Rite booteries
and 6 manufacturers' outlet stores. During 1999, the Company closed 23 retail
stores, including 14 low volume leased departments in November 1999, in an
effort to improve the profitability of its Retail operations. The Company
currently plans to open approximately 10 to 15 retail stores in fiscal 2000. The
Company will also continue its efforts to close or sell underperforming retail
locations in fiscal 2000, and expects to cease operations in 5 to 10 stores
during the year.
Sales through the Company's retail operations accounted for approximately
17% of consolidated net sales for the fiscal year ended December 3, 1999.
Apparel and Accessory Licensing Activities
License royalties accounted for approximately 1% of the Company's sales in
fiscal year 1999. The Company has license agreements with a number of third
parties pursuant to which apparel and accessories are designed, manufactured and
sold under the KEDS(R), PRO-KEDS(R), STRIDE RITE (R) and SPERRY TOP-SIDER(R)
trademarks. The Company is actively evaluating its current license structure and
is continually pursuing new licensees.
Backlog
At December 3, 1999 and November 27, 1998, the Company had a backlog of
orders amounting to approximately $148,700,000 and $170,800,000, respectively.
To a significant extent, the backlog at the end of each fiscal year represents
orders for the Company's Spring footwear styles, and traditionally
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substantially all of such orders are delivered or canceled during the first two
quarters of the next fiscal year.
In all of the Company's wholesale businesses, reorders from retail
customers are an important source of revenue to supplement the orders taken in
advance of the season. Over the years, the importance of reorder activity to a
season's success has grown as customers, especially larger retailers, have
placed increased reliance on orders during the season which are transmitted via
electronic data interchange (EDI) programs.
Competition
The Company competes with a number of suppliers of children's footwear, a
few of which are divisions of companies which have substantially greater net
worth and/or sales revenue than the Company. Management believes, however, that
on the basis of sales, the Company is the largest supplier of nationally branded
children's footwear in the United States.
In the highly fragmented sneaker, casual and recreational footwear
industry, numerous domestic and foreign competitors, some of which have
substantially greater net worth and/or sales revenue than the Company, produce
and/or market goods which are comparable to, and compete with, the Company's
products in terms of price and general level of quality.
Management believes that the creation of attractive styles, together with
specialized engineering for fit, durability and quality and high service
standards are significant factors in competing successfully in the marketing of
all types of footwear. Management believes that the Company is competitive in
all such respects.
In operating its own retail outlets, the Company competes in the
children's retail shoe industry with numerous businesses, ranging from large
retail chains to single store operators.
Employees
As of December 3, 1999, the Company employed approximately 2,300 full-time
and part-time employees. One collective bargaining unit represents a small
number of these employees. Management believes that its relations with its
employees are good.
Environmental Matters
Compliance with federal, state, local and foreign regulations with respect
to the environment have had, and are expected to have, no material effect on the
capital expenditures, earnings or competitive position of the Company.
Patents, Trademarks and Licenses
The Company has an existing trademark license agreement with Tommy
Hilfiger Licensing, Inc. pursuant to which it designs, markets and sells
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footwear to men, women and boys. In connection with this agreement, the Company
expects to introduce a TOMMY HILFIGER(R) girls' line for the Fall season in
fiscal 2000. The Company also has a trademark license agreement with Nine West
Group, Inc. to design, manufacture and sell NINE WEST KIDS(R) branded children's
footwear.
The Company believes that its patents and trademarks are important to its
business and are generally sufficient to permit the Company to carry on its
business as presently conducted.
Research and Development
The Company depends principally upon its design, engineering and marketing
skills and the quality of its products for its ability to compete successfully.
The Company conducts research and development for footwear products; however,
the level of expenditures with respect to such activity is not material.
Executive Officers of the Registrant
The information with respect to the executive officers of the Company listed
below is as of February 15, 2000.
Name Position with Company Age
David M. Chamberlain Chairman of the Board of Directors and Chief 56
Executive Officer of the Company since
joining the Company in November 1999. Prior
to joining the Company, Mr. Chamberlain was
Chairman of the Board of Genesco, Inc., a
footwear company, from 1994 to 1999 and
President and Chief Executive Officer of
Genesco, Inc. from 1994 to 1996.
Diane M. Sullivan President and Chief Operating Officer since 44
July 1999. Previous to this position, Ms.
Sullivan was Group President of the Company
since October 1997 and President, Wholesale
division, Stride Rite Children's Group,
Inc., since joining the Company in April
1995. Prior to joining the Company, Ms.
Sullivan was Vice President, Marketing, of
The Rockport Company, Inc., a footwear
company wholly owned by Reebok International
Ltd., from May 1993 to April 1995.
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Executive Officers of the Registrant
Name Position with Company Age
Peter J. Charles Senior Vice President and General Manager, 35
Stride Rite Sourcing International, since
August 1999. Previously, Mr. Charles was
Senior Vice President, Sourcing, since he
joined the Company in December 1996. Prior
to joining the Company, Mr. Charles was
employed by Clarks International, an
international footwear manufacturer, from
1986 to 1996, as General Manager, Resourced
Production, Regional Resourcing Manager,
South East Asia and served in various other
management level positions.
Janet M. DePiero Vice President of Human Resources of the 38
Company since March 1997. Previously, Ms.
DePiero was Director of Compensation and
Benefits of the Company from October 1995 to
February 1997 and Manager of Compensation
and Benefits at the Company from December
1991 to September 1995.
Daniel R. Friedman President of The Keds Corporation since 39
joining the Company in November 1999.
Previously, Mr. Friedman was President of
Aerosoles, Inc., a women's footwear
manufacturer, from December 1998 to November
1999, and was with the Nine West Group, a
marketer of women's footwear, in various
senior management positions from 1994 to
1998, including President of its Evan Picone
division.
Sandra A. Hayakawa President, Tommy Hilfiger Footwear, Inc. 38
since July 1999. Previously, Ms. Hayakawa
was Vice President and General Manager,
Sales and Marketing, for Tommy Hilfiger
Footwear since joining the Company in May
1998. Prior to Stride Rite, Ms. Hayakawa
was Vice President, Sales and Marketing for
Donna Karan Footwear, a division of the
Donna Karan Corporation, a women's apparel
manufacturer, from 1992 to 1997.
John M. Kelliher Chief Financial Officer of the Company since 48
February 1998 and Vice President, Finance
and Treasurer of the Company since February
1993. Mr. Kelliher was Corporate Controller
of the Company from March 1982 to January
1998.
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Executive Officers of the Registrant
Name Position with Company Age
Thomas L. Nelson President, Sperry Top-Sider, Inc. since 45
joining the Company in May 1998. Prior to
joining the Company, Mr. Nelson was Senior
Vice President for North American Sales for
Converse, Inc., an athletic footwear
company, from March 1995 to May 1998 and
Senior Vice President of Global Sales for
The Rockport Company, Inc., a footwear
company wholly owned by Reebok
International, Ltd., from September 1992 to
January 1995.
Charles W. Redepenning, Jr. General Counsel, Clerk and Secretary of the 43
Company since March 1998. Prior to joining
the Company, Mr. Redepenning was Senior Vice
President, General Counsel and Secretary of
Daka International, Inc., a multi-national
food service and restaurant corporation,
from 1989 to 1998.
Gerrald B. Silverman President, Stride Rite Children's Group, 41
Inc., since September 1999. Previous to
this position, Mr. Silverman was Senior Vice
President of The Keds Corporation from
January 1996 to September 1999 and President
of Stride Rite International Corp. since
joining the Company in April 1994.
Robert H. White, Jr. Senior Vice President, Information 44
Technology, since joining the Company in May
1998. Prior to joining the Company, Mr.
White was the Director of Information
Technology from August 1995 through May 1998
and Information Technology Manager from
September 1989 through July 1995 at the
Timex Corporation.
These executive officers are generally elected at the Board of Directors'
meeting held in conjunction with the Company's Annual Meeting and serve at the
pleasure of the Board.
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Item 2. Properties
The Company owns an automated distribution center located in Louisville,
Kentucky with 520,000 square feet of space and a distribution center located in
Huntington, Indiana with 263,000 square feet of space. The Company leases
approximately 18,000 square feet of space in Wilmington, Massachusetts for
product sample distribution and customer returns processing. The Company's
Canadian subsidiary leases approximately 30,000 square feet for administrative
offices and warehousing in Mississauga, Ontario.
The Company leases approximately 163,000 square feet for its headquarters
and administrative offices in Lexington, Massachusetts in a single tenant office
building. The Company also leases 24,000 square feet of space in Richmond,
Indiana for its customer service, order processing and telemarketing functions,
and 25,000 square feet of space for its liaison offices in Mainland China and
Taiwan. In addition, the Company leases smaller facilities for local sales
offices and showrooms in various locations in the United States.
At December 3, 1999, the Company operated 146 retail stores throughout the
country on leased premises which, in the aggregate, covered approximately
223,300 square feet of space. The Company also operates 46 children's footwear
departments in certain divisions of Federated Department Stores. In addition,
the Company is the lessee of 15 retail locations with a total of approximately
17,640 square feet which are subleased to independent Stride Rite dealers and
other tenants.
For further information concerning the Company's lease obligations, see
Note 8 to the Company's consolidated financial statements, which are contained
in the Annual Report to Stockholders and are incorporated by reference herein.
Management believes that all properties and facilities of the Company are
suitable, adequate and fit for their intended purposes.
Item 3. Legal Proceedings
The Company is a party to various litigations arising in the normal course
of business. Management of the Company does not believe the ultimate resolution
of such litigations will have a material adverse effect on the Company's
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required by this item is included in the Registrant's 1999
Annual Report to Stockholders on pages 1, 18, 31, 34 through 37, 40 and 44
and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required by this item is included in the Registrant's 1999
Annual Report to Stockholders on page 18 and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is included in the Registrant's 1999
Annual Report to Stockholders on pages 19 through 23 and is incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included in the Registrant's 1999
Annual Report to Stockholders on pages 24 through 42 and is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information set forth under the caption
"Executive Officers of the Registrant" in Item 1 of Part I of this report and to
information under the captions "Information as to Directors and Nominees for
Director" and "Meetings of the Board of Directors and Committees" in the
Registrant's definitive proxy statement relating to its 2000 Annual Meeting of
Stockholders, which will be filed with the Commission within 120 days after the
close of the Registrant's fiscal year ended December 3, 1999, all of which
information is incorporated herein by reference.
Item 11. Executive Compensation
Reference is made to the information set forth in the Registrant's
definitive proxy statement relating to its 2000 Annual Meeting of Stockholders
under the caption "Executive Compensation", which will be filed with the
Commission within 120 days after the close of the Registrant's fiscal year ended
December 3, 1999, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information set forth under the caption
"Ownership of Equity Securities" in the Registrant's definitive proxy statement
relating to its 2000 Annual Meeting of Stockholders, which will be filed with
the Commission within 120 days after the close of the Registrant's fiscal year
ended December 3, 1999, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
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PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) Financial Statements. The following financial statements
and financial statement schedules are contained herein or are incorporated
herein by reference:
Page in
Form 10-K
Consolidated Balance Sheets as of December 3, 1999 and
November 27, 1998 *
Consolidated Statements of Income for the fiscal years ended
December 3, 1999, November 27, 1998 and November 28, 1997 *
Consolidated Statements of Cash Flows for the fiscal years ended
December 3, 1999, November 27, 1998 and November 28, 1997 *
Consolidated Statements of Changes in Stockholders' Equity for
the fiscal years ended December 3, 1999, November 27, 1998
and November 28, 1997 *
Notes to Consolidated Financial Statements *
Report of Independent Accountants *
Report of Independent Accountants on Financial Statement Schedule F-1
Financial Statement Schedule for the fiscal years ended
December 3, 1999, November 27, 1998 and November 28, 1997:
Schedule II - Valuation and Qualifying Accounts F-2
Schedules other than those listed above are omitted because they are either not
required or the information is otherwise included.
* Incorporated herein by reference. See Part II, Item 8 on page 14 of this
Annual Report on Form 10-K.
16
<PAGE>
Exhibits. The following exhibits are contained herein or are incorporated
herein by reference:
Exhibit No. Description of Exhibit
3 (i) Restated Articles of Organization of the Registrant with
amendments thereto through November 28, 1986, incorporated by
reference from Exhibit 4(i) to the Registrant's Form S-8
filed on October 25, 1996.
(ii) Articles of Amendment dated April 7, 1987 to Restated Articles
of Organization, incorporated by reference from Exhibit 4(i)
to the Registrant's Form S-8 filed on October 25, 1996.
(iii) Articles of Amendment dated December 16, 1987 to Restated
Articles of Organization of the Registrant, incorporated by
reference from Exhibit 4(i) to the Registrant's Form S-8 filed
on October 25, 1996.
(iv) Articles of Amendment dated December 3, 1991 to the Restated
Articles of Organization of the Registrant, incorporated by
reference from Exhibit 4(i) to the Registrant's Form S-8 filed
on October 25, 1996.
(v) Certificate of Vote of Directors establishing a series of a
Class of Stock dated as of June 18, 1997.
(vi) By-laws of the Registrant, as amended. This document was filed
as Exhibit 3 of the Registrant's Form 10-Q for the fiscal
period ended June 1, 1990 and is incorporated herein by
reference.
4 (i) Reference is made to Exhibits 3(i), (ii), (iii) and (iv)
referred to above, which are expressly incorporated herein by
reference.
(ii) Rights Agreement dated June 18, 1997 between the Registrant
and BankBoston, N.A. This document was filed as Exhibit 1 to
the Registrant's Form 8-A dated July 1, 1997 and is
incorporated herein by reference.
17
<PAGE>
Exhibits. The following exhibits are contained herein or are incorporated
herein by reference:
Exhibit No. Description of Exhibit
10 (i)* 1975 Executive Incentive Stock Purchase Plan of the
Registrant. This document was filed as Appendix A to the
Registrant's Prospectus relating to such Plan, dated April
18, 1986, which was filed with the Commission pursuant to
Rule 424(b) promulgated under the Securities Act of 1933, as
amended, and is incorporated herein by reference.
(ii)* 1995 Long-Term Growth Incentive Plan of the Registrant. This
document was filed as Exhibit 10(vi) to the Registrant's Form
10-K for the year ended December 2, 1994 and is incorporated
herein by reference.
(iii)* Form of executive termination agreement dated as of February
12, 1998. This document was filed as Exhibit 10(iii) to the
Registrant's Form 10-K for the year ended November 28, 1997
and is incorporated herein by reference.
(iv)* Form of executive termination agreement dated as of February
12, 1998. This document was filed as Exhibit 10(iv) to the
Registrant's Form 10-K for the year ended November 28, 1997
and is incorporated herein by reference.
(v)* Form of severance agreement dated February 22, 1995. This
document was filed as Exhibit 10(vi) to the Registrant's Form
10-K for the year ended November 28, 1997 and is incorporated
herein by reference.
(vi)* Annual Incentive Compensation Plan amended and restated as of
December 11, 1997. This document was filed as Exhibit
10(viii) to the Registrant's Form 10-K for the year ended
November 28, 1997 and is incorporated herein by reference.
(vii)* 1998 Stock Option Plan of the Registrant (as amended). This
document was filed as Exhibit 10(xi) to the Registrant's Form
10-K for the year ended November 27, 1998 and is incorporated
herein by reference.
(viii)* 1998 Non-Employee Director Stock Ownership Plan of the
Registrant (as amended). This document was filed as Exhibit
10(xii) to the Registrant's Form 10-K for the year ended
November 27, 1998 and is incorporated herein by reference.
*Denotes a management contract or compensatory plan or arrangement.
18
<PAGE>
Exhibit No. Description of Exhibit
10 (ix)* Senior Executive Annual Incentive Compensation Plan of
the Registrant. This document was filed as Exhibit 10(xi) to
the Registrant's Form 10-K for the year ended November 28,
1997 and is incorporated herein by reference.
(x)* 1999 Executive Long Term Bonus Plan of the Registrant. This
document was filed as Exhibit 10(xiv) to the Registrant's
Form 10-K for the year ended November 27, 1998 and is
incorporated herein by reference.
(xi)* Employment Agreement between the Registrant and David M.
Chamberlain dated November 4, 1999.
(xii) Revolving Credit Agreement between the Registrant and
BankBoston, N.A., Bank of America, N.A., Bank One, NA,
SunTrust Bank, The Bank of New York, and BankBoston, N.A.
with BancBoston Robertson Stephens Inc., dated as of
January 19, 2000.
(xiii) Amended and Restated License Agreement between Registrant
and Tommy Hilfiger Licensing, Inc.
13 Portions of Registrant's 1999 Annual Report to Stockholders
incorporated by reference into this Annual Report on Form
10-K.
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedules
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 3, 1999.
*Denotes a management contract or compensatory plan or arrangement.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE STRIDE RITE CORPORATION THE STRIDE RITE CORPORATION
/s/ John M. Kelliher /s/ David M. Chamberlain
- --- ---------------- --- --------------------
By: John M. Kelliher, Chief By: David M. Chamberlain,
Financial Officer Chairman of the Board of
(Principal Accounting Officer) Directors and Chief Executive
Officer
Date: February 18, 2000 Date: February 18, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ David M. Chamberlain /s/ Warren Flick
-------------------- ------------
David M. Chamberlain, Chairman Warren Flick, Director
of the Board of Directors and
Chief Executive Officer
Date: February 18, 2000 Date: February 18, 2000
/s/ Donald R. Gant
- --- -------------- ------------------
Donald R. Gant, Director Joanna M. Jacobson, Director
Date: February 18, 2000 Date: February 18, 2000
/s/ Frank R. Mori /s/ Robert L. Seelert
- --- ------------- --- -----------------
Frank R. Mori, Director Robert L. Seelert, Director
Date: February 18, 2000 Date: February 18, 2000
/s/ Myles J. Slosberg /s/ Diane M. Sullivan
- --- ----------------- --- -----------------
Myles J. Slosberg, Director Diane M. Sullivan, Director
Date: February 18, 2000 Date: February 18, 2000
/s/ W. Paul Tippett, Jr. /s/ Bruce Van Saun
- --- -------------------- --------------
W. Paul Tippett, Jr., Director Bruce Van Saun, Director
Date: February 18, 2000 Date: February 18, 2000
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Directors of
The Stride Rite Corporation:
Our audits of the consolidated financial statements referred to in our report
dated January 6, 2000 appearing on page 42 of the 1999 Annual Report to
Stockholders and Directors of The Stride Rite Corporation (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
January 6, 2000
F-1
<PAGE>
THE STRIDE RITE CORPORATION
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged to Balance at
at Costs and End of
Description Beginning Expenses Deductions Period
- ----------- Period
--------- ---------- ---------- ----------
Fiscal year ended November 28, 1997:
Deducted from assets:
Allowance for doubtful
<S> <C> <C> <C> <C>
accounts $3,448 $1,140 $846 (a) $3,742
Allowance for sales
discounts 3,724 3,294 1,754 (b) 5,264
--------- --------- -------- --------
$7,172 $4,434 $2,600 $9,006
========= ========= ======== ========
Fiscal year ended November 27, 1998:
Deducted from assets:
Allowance for doubtful
accounts 3,742 1,402 1,246 (a) 3,898
Allowance for sales
discounts 5,264 2,329 1,920 (b) 5,673
--------- --------- -------- --------
$9,006 $3,731 $3,166 $9,571
========= ========= ======== ========
Fiscal year ended December 3, 1999:
Deducted from assets:
Allowance for doubtful
accounts 3,898 1,125 1,336 (a) 3,687
Allowance for sales
discounts 5,673 2,490 1,899 (b) 6,264
--------- --------- -------- --------
$9,571 $3,615 $3,235 $9,951
========= ========= ======== ========
</TABLE>
(a) Amounts written off as uncollectible.
(b) Amounts charged against the reserve.
F-2
<PAGE>
THE STRIDE RITE CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 3, 1999
Index to Exhibits
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
10 (xi)* Employment Agreement between the Registrant and 24
David M. Chamberlain dated November 4, 1999.
(xii) Revolving Credit Agreement between the Registrant 39
and BankBoston, N.A., Bank of America, N.A., Bank
One, NA, SunTrust Bank, The Bank of New York, and
BankBoston, N.A. with BancBoston Robertson Stephens
Inc., dated as of January 19, 2000.
(xiii) Amended and Restated License Agreement between 166
Registrant and Tommy Hilfiger Licensing, Inc.
13 Portions of Registrant's 1999 Annual Report to 246
Stockholders incorporated by reference into this
Annual Report on Form 10-K.
21 Subsidiaries of the Registrant 279
23 Consent of Independent Accountants 280
27 Financial Data Schedules 281
*Denotes a management contract or compensatory plan or arrangement.
23
<PAGE>
Exhibit 10(xi)
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") is made as of November 4, 1999 (the
"Agreement Date"), by and between The Stride Rite Corporation, a Massachusetts
corporation with its headquarters located in Lexington, Massachusetts (the
"Employer"), and David M. Chamberlain (the "Executive"). In consideration of the
mutual covenants contained in this Agreement, the Employer and the Executive
agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
Executive agrees to be employed by the Employer on the terms and conditions
set forth in this Agreement. The Executive's active employment shall
commence on November 15, 1999 (the "Start Date").
2. Capacity/Duties. The Executive shall serve the Employer as Chairman and
Chief Executive Officer of the Employer. The Executive shall also serve the
Employer in such other or additional related offices as the Executive may
reasonably be requested to serve by the Board. The Executive shall be based at
the Employer's headquarters in Lexington, Massachusetts, or such other
headquarters as may be established by the Employer. The Executive shall have
overall responsibility for the general management of the Employer, subject to
the direction and authority of the Board of Directors of the Employer (the
"Board"). The Executive shall preside at all meetings of the Board and shall be
responsible for formulating and submitting to the Board matters of general
policy for the Employer. The Executive additionally shall be responsible for the
general supervision and control of the business and affairs of the Employer,
subject in each case to the direction and authority of the Board. The Executive
shall be responsible for developing, maintaining and enhancing the Employer's
relationships and reputation with investors, customers, suppliers, analysts and
the public at large. The Executive shall also perform such other duties as
normally are incident to the office of Chief Executive Officer. The Executive
acknowledges that his responsibilities in these capacities will require a
substantial time commitment, frequent travel, and availability at any time the
needs of the business so require. The Executive acknowledges the foregoing
requirements of the position and represents that he is fully capable of
performing the responsibilities from and after the Start Date. The Executive
agrees that during his employment with the Employer his primary residence and
that of his family will be in the greater Boston, Massachusetts area.
3. Term. Subject to the provisions of Section 6, the term of
employment pursuant to this Agreement shall commence on the Start Date and
end on November 30, 2002 (the "Term").
4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
Agreement, the Employer shall pay the Executive a salary (the "Salary")
at the annual rate of Six Hundred Thousand Dollars ($600,000), subject
to increase from time to time in the discretion of the Board or the
Compensation Committee of the Board (the "Compensation Committee"),
which will review the Salary at least annually. The
<PAGE>
Salary shall be payable in periodic installments in accordance with the
Employer's usual practice for its senior executives. Any increase in the
Executive's Salary shall not serve to limit or reduce any other obligation
of the Employer hereunder and, after any such increase, the Executive's
Salary shall not be reduced.
(b) Bonus. Commencing during the Employer's 2000 fiscal year, the
Executive shall be an "Eligible Employee" as that term is defined in the
Employer's Annual Incentive Compensation Plan (the "Annual Incentive
Plan") and may receive incentive compensation as provided by its terms.
Pursuant to the Annual Incentive Compensation Plan, the Executive's "Bonus
Percentage" (as defined) will be fifty percent (50%). The Executive's
participation in the Annual Incentive Plan is subject to the terms and
conditions of such plan, or any amended version of such plan or any
successor or other annual incentive compensation plan which may be adopted
and become legally effective during the Term. The Executive is also
eligible to participate in the 1999 Executive Long-Term Bonus Plan in
accordance with the terms and provisions of such plan. The Executive's
level of participation will be as stated for the previous Chief Executive
Officer of the Employer, pro-rated for the number of months of actual
service of the Executive.
(c) Stock Options. Effective as of the Start Date, the Executive is being
awarded a non-qualified stock option to purchase up to Five Hundred
Thousand (500,000) shares of the Employer's common stock at fair market
value, which shall be the price at the close of trading on the New York
Stock Exchange - Composite Index on the trading day immediately prior to
the Employer's public announcement of the Executive's appointment to the
position of Chairman and Chief Executive Officer. The non-qualified stock
option as set forth herein shall vest upon issuance on the Start Date as
to one hundred thousand (100,000) shares, with the balance to vest ratably
in annual increments over a period of three (3) years, with the first
deferred vesting date being the first anniversary of the Start Date. At
the Board's discretion, additional grants of stock options may be awarded
to the Executive, from time to time, under the prevailing terms and
conditions of the Employer's current Stock Option Plan(s) or any successor
plan.
(d) Regular Benefits. The Executive shall be entitled to participate in
any employee benefit plans, medical insurance plans, life insurance plans,
disability income plans, retirement plans and other benefit plans which
the Employer may from time to time have in effect for all or most of its
senior executives. Such participation shall be subject to the terms of the
applicable plan documents, generally applicable policies of the Employer,
applicable law and the discretion of the Board, the Compensation Committee
or any administrative or other committee provided for in or contemplated
by any such plan. Nothing contained in this Agreement shall be construed
to create any obligation on the part of the Employer to establish any such
plan or to maintain the effectiveness of any such plan which may be in
effect from time to time.
(e) Car Allowance. The Executive shall receive a car allowance of
Ten Thousand Dollars ($10,000) per year, prorated and payable in
regular
<PAGE>
installments coinciding with the Employer's normal pay periods for
senior executives.
(f) Vacation. The Executive shall be entitled to four (4) weeks paid
vacation per year. Any carryover of unused vacation from one annual period
to the next shall be subject to the policies and practices applicable to
other senior executives of the Employer.
(g) Relocation. The Executive shall be entitled to the benefits relating
to the relocation of his residence from San Francisco, California, to the
greater Boston, Massachusetts area, as provided in Exhibit A, Relocation,
attached hereto and incorporated by reference.
(h) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies and practices of
the Employer as in effect from time to time with respect to executives
employed by the Employer.
(i) Taxation of Payments and Benefits. The Employer shall undertake to
make deductions, withholdings and tax reports with respect to payments and
benefits under this Agreement to the extent that it reasonably and in good
faith believes that it is required to make such deductions, withholdings
and tax reports. Payments under this Agreement shall be in amounts net of
any such deductions or withholdings. Except as provided in Exhibit A and
as provided in the CoC Agreement, nothing in this Agreement shall be
construed to require the Employer to make any payments to compensate the
Executive for any adverse tax effect associated with any payments or
benefits or for any deduction or withholding from any payment or benefit.
(j) Exclusivity of Salary and Benefits. The Executive shall not be
entitled to any payments or benefits other than those provided under this
Agreement.
5. Extent of Service. During the Executive's employment under this
Agreement, the Executive shall, subject to the direction and supervision of the
Board, devote the Executive's full business time, best efforts and business
judgment, skill and knowledge to the advancement of the Employer's interests and
to the discharge of the Executive's duties and responsibilities under this
Agreement. The Executive shall not engage in any other business activity, except
as may be approved by the Board; provided that nothing in this Agreement shall
be construed as preventing the Executive from:
(a) investing the Executive's assets in any company or other entity in a
manner not prohibited by Section 7(d) and in such form or manner as shall
not require any material activities on the Executive's part in connection
with the operations or affairs of the companies or other entities in which
such investments are made;
(b) engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive's ability to fulfill the
Executive's duties and responsibilities under this Agreement; or
<PAGE>
(c) serving as a director on the board of directors of Keeco
Corporation, Guckenheimer Enterprises, Inc., Wild Oats, Inc. or
Hugger-Mugger, Inc., or of other companies with the prior reasonable
approval of the Board.
6. Termination and Termination Benefits. Notwithstanding the
provisions of Section 3, the Executive's employment under this Agreement
shall terminate under the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Employer may terminate the
Executive's employment for "Cause" upon a vote of the majority of the
members of the Board and written notice to the Executive. For purposes of
this Agreement, the following shall constitute "Cause" for such
termination:
(i) conviction of or plea of no contest to a felony or any
crime of moral turpitude or admitting the commission of same;
(ii) fraudulent conduct in connection with the business or affairs
of the Employer or any affiliate of the Employer, regardless of
whether said conduct is designed to defraud the Employer or others;
(iii) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Employer (other than
any such failure resulting from incapacity due to physical or mental
illness), not cured within fifteen (15) business days after a
written demand for substantial performance is delivered to the
Executive by the Board which specifically identifies the manner in
which the Board believes that the Executive has not substantially
performed the Executive's duties;
(iv) willful engagement by the Executive in conduct or
misconduct which is substantially injurious to the Employer,
monetarily or otherwise; or
(v) any intentional use or intentional appropriation for his use or
benefit of any funds or properties of the Employer not authorized by
the Board, or any material breach by the Executive of the
Executive's obligations under the Employer's Conflict of Interest
Policy or similar conflicts or self-dealing policies promulgated in
writing from time to time, or his fiduciary duty of loyalty to the
Employer.
For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to
be done, by the Executive in bad faith without reasonable belief that his
action or omission was in the best interests of the Employer.
(b) Termination by the Executive. The Executive's employment under this
Agreement may be terminated by the Executive by written notice to the
Board at least ninety (90) days prior to such termination.
<PAGE>
(c) Termination by the Employer Without Cause. The Executive's employment
under this Agreement may be terminated by the Employer without Cause upon
a vote of the majority of the members of the Board and written notice to
the Executive.
(d) Termination by the Executive for Good Reason. The Executive may
terminate his employment at any time for Good Reason. For purposes of this
Agreement, "Good Reason" means the good faith determination by the
Executive that any one or more of the following have occurred:
(i) without the express written consent of the Executive, the
Employer effects any material change(s) in any of the duties,
authority, or responsibilities of the Executive which is (are)
inconsistent in any substantial respect with the Executive's
position, authority, duties, or responsibilities as contemplated by
Section 2 of this Agreement, which action is not remedied by the
Employer promptly after receipt of notice thereof given by the
Executive; or
(ii) any failure by the Employer to comply with any of the
provisions of Section 4 of this Agreement, other than an
insubstantial and inadvertent failure remedied by the Employer
promptly after receipt of notice thereof given by the Executive.
(e) Certain Termination Benefits. Unless otherwise specifically provided
in this Agreement or otherwise required by law, all compensation and
benefits payable to the Executive under this Agreement shall cease to
accrue on the date of termination of the Executive's employment under this
Agreement. Notwithstanding the foregoing, in the event of termination of
the Executive's employment with the Employer pursuant to Section 6(c) or
Section 6(d) above and subject to the Executive's execution and delivery
to the Employer of an irrevocable release of claims, in a form reasonably
satisfactory to the Employer and the Executive, the Employer shall provide
to the Executive the following termination benefits ("Termination
Benefits"):
(i) continuation of the Executive's Salary at the rate then in
effect pursuant to Section 4(a);
(ii) an amount equal to the bonus (prorated as provided herein) that
would have been paid the Executive pursuant to the Employer's
current Annual Incentive Plan or its successor, had the Executive's
employment not been terminated prior to the end of the then
applicable Annual Incentive Plan period, provided, however, that
such amount shall be prorated to reflect the period ending with the
fiscal quarter in which the Date of Termination occurred, and the
said resulting amount is to be paid to the Executive no later than
such time as the Employer pays its other executives under the Annual
Incentive Plan;
(iii) continuation of group health plan benefits to the extent
authorized by and consistent with 29 U.S.C.ss. 1161 et seq.
(commonly known as "COBRA"), with the cost of the regular
<PAGE>
premium for such benefits shared in the same relative proportion
by the Employer and the Executive as in effect on the Date of
Termination; and
(iv) provided the date of the termination of the Executive's
employment with the Employer is prior to the first anniversary of
the Start Date, the benefits set forth in Section 3 of Exhibit A
relating to the relocation of his residence from the greater Boston,
Massachusetts area to San Francisco, California or another residence
location within the contiguous United States selected by the
Executive in the Termination Benefits Period.
The Termination Benefits set forth in (i) and (iii) above shall continue
after the date of termination for a period of twelve (12) months; provided
that in the event that the Executive commences any employment or
self-employment during the period during which the Executive is entitled
to receive Termination Benefits (the "Termination Benefits Period"), the
remaining amount of Salary due pursuant to Section 6(e)(i) for the period
from the commencement of such employment or self-employment to the end of
the Termination Benefits Period shall be reduced by the amount of gross
compensation which the Executive is entitled to receive from the new
employer or self-employment and the payments provided under Section
6(e)(iii) shall cease effective as of the date of commencement of such
employment or self-employment. Notwithstanding the foregoing, nothing in
this Section 6(e) shall be construed to affect the Executive's right to
receive COBRA continuation entirely at the Executive's own cost to the
extent that the Executive may continue to be entitled to COBRA
continuation after the Executive's right to cost sharing under Section
6(e)(iii) ceases. The Executive shall be obligated to give prompt notice
of the date of commencement of any employment or self-employment during
the Termination Benefits Period and shall respond promptly to any
reasonable inquiries concerning any employment or self-employment in which
the Executive engages during the Termination Benefits Period.
(f) Disability. The Employer may terminate this Agreement, after having
established the Executive's inability to perform the essential functions
of the Executive's then existing position or positions with or without
reasonable accommodation, and if any questions arise as to whether the
Executive is disabled so as to be unable to resume or continue performance
and execution of such essential duties within a period not to exceed sixty
(60) days in duration, the Executive may, and at the request of the
Employer shall, submit to the Employer a certification in reasonable
detail by a physician selected by the Employer to whom the Executive or
the Executive's guardian has no reasonable objection as to whether the
Executive is so disabled or how long such disability is expected to
continue, and such certification shall, for the purposes of this
Agreement, be conclusive of the issue. The Executive hereby agrees and
acknowledges that even relatively short period of disability may prevent
him from being able to perform the essential functions of his position,
particularly during the start-up phase of his employment and that it would
not be reasonable for the Employer to accommodate such a disability by
reducing the Executive's duties or by allowing a leave of absence that
would extend for more than
<PAGE>
sixty (60) days. The Executive agrees to cooperate with any reasonable
request of the physician in connection with such certification. If such
question shall arise and the Executive shall fail to submit to such
certification, the Employer's determination of such issue shall be final
and binding on the Executive. The Board may exercise the Employer's right
to terminate the Agreement by giving to the Executive written notice of
termination (the "Disability Notice"), and his employment with the
Employer shall terminate effective on the 30th day after receipt of such
notice (the "Disability Effective Date"). Notwithstanding any such
Termination, the Executive shall continue to receive the Executive's full
Salary (less any disability pay or sick pay benefits to which the
Executive may be entitled under the Employer's policies) and benefits
under Section 4(d) of this Agreement (except to the extent that the
Executive may be ineligible for one or more such benefits under applicable
plan terms) for a period of one year dating from the Disability Effective
Date.
(g) Termination Pursuant to a Change of Control. Effective as of the Start
Date, the Employer and the Executive are entering into the Employer's
standard Change of Control Employment Agreement ("CoC Agreement") as
previously approved by the Board. Notwithstanding anything to the contrary
contained herein, in the event of a Change of Control, as defined in the
CoC Agreement, the terms of the CoC Agreement shall govern. Absent a
Change of Control, as so defined, the terms of this Agreement shall
govern.
(h) Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Employer and for
which the Executive qualifies, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any stock
option or other agreement with the Employer or any of its affiliates.
Except as otherwise provided herein, amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan or
program of the Employer at or subsequent to the Date of Termination shall
be payable in accordance with such plan or program.
(i) Date of Termination. "Date of Termination" means the date of actual
receipt of the Notice of Termination or any later date specified therein
(but not more than fifteen (15) days after the giving of the Notice of
Termination), as the case may be; provided that (i) if the Executive's
employment is terminated by the Employer for any reason other than Cause
or Disability, the Date of Termination is the date on which the Employer
notifies the Executive of such termination; (ii) if the Executive's
employment is terminated due to Disability, the Date of Termination is the
Disability Effective Date; and (iii) if the Executive's employment is
terminated due to the Executive's death, the Date of Termination shall be
the date of death.
7. Confidential Information, Noncompetition and Cooperation.
(a) Confidential Information. As used in this Agreement,
"Confidential Information" means information belonging to the Employer
which is of value to the Employer in the course of conducting its
<PAGE>
business and the disclosure of which could result in a competitive or
other disadvantage to the Employer. Confidential Information includes,
without limitation, financial information, reports, and forecasts;
inventions, improvements and other intellectual property; trade secrets;
know-how; designs, processes or formulae; software; market or sales
information or plans; customer lists; and business plans, prospects and
opportunities (such as possible acquisitions or dispositions of businesses
or facilities) which have been discussed or considered by the management
of the Employer. Confidential Information includes information developed
by the Executive in the course of the Executive's employment by the
Employer, as well as other information to which the Executive may have
access in connection with the Executive's employment. Confidential
Information also includes the confidential information of others with
which the Employer has a business relationship. Notwithstanding the
foregoing, Confidential Information does not include information in the
public domain, unless due to breach of the Executive's duties under
Section 7(b), or information known to the Executive prior to the Agreement
Date.
(b) Confidentiality. The Executive understands and agrees that the
Executive's employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive's employment with the
Employer and after its termination, the Executive will keep in confidence
and trust all such Confidential Information, and will not use or disclose
any such Confidential Information without the written consent of the
Employer, except as may be necessary in the ordinary course of performing
the Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data, apparatus,
equipment and other physical property, whether or not pertaining to
Confidential Information, which are furnished to the Executive by the
Employer or are produced by the Executive in connection with the
Executive's employment will be and remain the sole property of the
Employer. The Executive will return to the Employer all such materials and
property as and when requested by the Employer. In any event, the
Executive will return all such materials and property immediately upon
termination of the Executive's employment for any reason. The Executive
will not retain with the Executive any such material or property or any
copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the Term and for twelve
(12) months thereafter, the Executive (i) will not, directly or
indirectly, whether as owner, partner, shareholder, consultant, agent,
employee, co-venturer or otherwise, engage, participate, assist or invest
in any Competing Business (as hereinafter defined); (ii) will refrain from
directly or indirectly employing, attempting to employ, recruiting or
otherwise soliciting, inducing or influencing any person to leave
employment with the Employer (other than terminations of employment of
subordinate employees undertaken in the course of the Executive's
employment with the Employer); and (iii) will refrain from soliciting or
encouraging any customer or supplier to terminate or otherwise modify
adversely its business relationship with the Employer. The Executive
understands that the restrictions set forth in this
<PAGE>
Section 7(d) are intended to protect the Employer's interest in its
Confidential Information and established employee, customer and supplier
relationships and goodwill, and agrees that such restrictions are
reasonable and appropriate for this purpose. For purposes of this
Agreement, the term "Competing Business" shall mean a business conducted
anywhere in the United States which is competitive with any business which
the Employer or any of its subsidiaries conducts or proposes to conduct at
any time during the employment of the Executive, including, but not
limited to, specialty retailing of infant's, toddler's and children's
footwear, the design or manufacture of footwear of any type on the
wholesale level, and any and all components of the foregoing.
Notwithstanding the foregoing, the Executive may (i) own up to one percent
(1%) of the outstanding stock of a publicly held corporation which
constitutes or is affiliated with a Competing Business and (ii) retain and
exercise any and all stock, stock options and other stock-related rights
presently held by him in Genesco Inc. Notwithstanding the foregoing
provisions of this Section 7(d), if the Executive's employment is
terminated by the Employer other than for Cause or disability, or if the
Executive terminates his employment pursuant to Section 6(d), Section
7(d)(i) will not apply if, within thirty (30) days after such termination,
the Executive elects in writing to waive any further Termination Benefits
under Section 6(e).
(e) Third-Party Agreements and Rights. The Executive hereby confirms that,
to the best of his knowledge and belief, the Executive is not bound by the
terms of any written agreement with any previous employer or other party
which restricts in any way the Executive's use or disclosure of
information or the Executive's engagement in any business. The Executive
represents to the Employer that the Executive's execution of this
Agreement, the Executive's employment with the Employer and the
performance of the Executive's proposed duties for the Employer will not
violate any obligations the Executive may have to any such previous
employer or other party. In the Executive's work for the Employer, the
Executive will not disclose or make use of any information in violation of
any agreements with or rights of any such previous employer or other
party, and the Executive will not bring to the premises of the Employer
any copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or other party.
(f) Litigation and Regulatory Cooperation. During and after the
Executive's employment, the Executive shall cooperate reasonably with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of
the Employer which relate to events or occurrences that transpired while
the Executive was employed by the Employer. The Executive's cooperation in
connection with such claims or actions shall include, but not be limited
to, being reasonably available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of the Employer at
mutually convenient times. During and after the Executive's employment,
the Executive also shall cooperate reasonably with the Employer in
connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events
or occurrences that transpired while the Executive was
<PAGE>
employed by the Employer. The Employer shall reimburse the Executive for
any reasonable out-of-pocket expenses incurred in connection with the
Executive's performance of obligations pursuant to this Section 7(f). The
Employer shall compensate the Executive for services pursuant to this
Section 7(f) rendered after the first anniversary of the termination of
the Executive's employment with the Employer, at a reasonable per diem
rate.
(g) Nondisparagement. During the Executive's employment and for a period
of twelve (12) months from the date of termination of the Executive's
employment with the Employer, the Executive agrees not to take any action
or make any statement, written or oral, to any current or former employee
of the Employer or to any other person which disparages the Employer, its
officers, directors, management, business practices, or harms the
reputation of the Employer with its customers, suppliers, or the public.
(h) Standstill Agreement . For a period of twelve (12) months from the
date of termination of the Executive's employment with the Employer, the
Executive agrees not to, directly or indirectly: (a) effect or seek, offer
or propose (whether publicly or otherwise) to effect, or cause to
participate in or in any way assist any other person to effect or seek,
offer or propose (whether publicly or otherwise) to effect, or cause or
participate in, (i) any acquisition of any securities (or beneficial
ownership thereof) or assets of the Employer; (ii) any tender or exchange
offer, merger or other business combination involving the Employer; (iii)
any recapitalization, restructuring, liquidation, dissolution or other
extraordinary transaction with respect to the Employer; or (iv) any
"solicitation" of "proxies" (as such terms are used in the proxy rules of
the Securities and Exchange Commission) to vote any voting securities of
the Employer; (b) form, join or in any way participate in a "group" (as
defined in the 1934 Act) or otherwise act, alone or in concert with
others, to seek to control or influence the management, Board of Directors
or policies of the Employer; (c) take any action which might force the
Employer to make a public announcement regarding any of the types of
matters set forth in subsection (a) above; or (d) enter into any
discussions or arrangements with any third party with respect to any of
the foregoing. The restrictions contained in this paragraph shall not be
applicable to purchases solely for investment purposes aggregating less
then 5% of the Employer's outstanding voting securities.
(i) Injunction. The parties agree that it would be difficult to measure
any damages caused which might result from any breach by the Executive or
the Employer of the promises set forth in this Section 7, and that in any
event money damages would be an inadequate remedy for any such breach.
Accordingly, subject to Section 8 of this Agreement, the parties agree
that if one of the parties breaches, or proposes to breach, any portion of
this Agreement, the other party shall be entitled, in addition to all
other remedies that it may have, to an injunction or other appropriate
equitable relief to restrain any such breach without showing or proving
any actual damage to such party.
<PAGE>
8. Arbitration of Disputes. Any controversy or claim arising out of
or relating to this Agreement or the breach thereof or otherwise arising out of
the Executive's hiring, employment or the termination of that employment
(including, without limitation, any claims of unlawful employment discrimination
whether based on age or otherwise) shall, to the fullest extent permitted by
law, be settled by arbitration in any forum and form agreed upon by the parties
or, in the absence of such an agreement, under the auspices of the American
Arbitration Association ("AAA") in Boston, Massachusetts in accordance with the
Employment Dispute Resolution Rules of the AAA, including, but not limited to,
the rules and procedures applicable to the selection of arbitrators. In the
event that any person or entity other than the Executive or the Employer may be
a party with regard to any such controversy or claim, such controversy or claim
shall be submitted to arbitration subject to such other person or entity's
agreement. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. This Section 8 shall be specifically
enforceable. Notwithstanding the foregoing, this Section 8 shall not preclude
either party from pursuing a court action for the sole purpose of obtaining a
temporary restraining order or a preliminary injunction in circumstances in
which such relief is appropriate; provided that any other relief shall be
pursued through an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the Superior Court of the Commonwealth of
Massachusetts and the United States District Court for the District of
Massachusetts. Accordingly, with respect to any such court action, the Executive
(a) submits to the personal jurisdiction of such courts; (b) consents to service
of process; and (c) waives any other requirement (whether imposed by statute,
rule of court, or otherwise) with respect to personal jurisdiction or service of
process.
10. Integration. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all prior agreements between the parties with respect to any related subject
matter.
11. Assignment; Successors and Assigns, etc. Neither the Employer nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided that the Employer may assign its rights under this Agreement
without the consent of the Executive in the event that the Employer shall effect
a reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity. This Agreement shall inure to the benefit of and be binding
upon the Employer and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of
this Agreement) shall to any extent be declared illegal or unenforceable by a
court of competent jurisdiction, such portion or provision may be reformed by
a court of competent jurisdiction to the extent necessary to render it legal
<PAGE>
or enforceable, and in any event shall be enforced to the extent permissible
under the law, and the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
General Counsel, and shall be effective on the date of delivery in person or by
courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
16. Governing Law. This is a Massachusetts contract and shall be construed
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without giving effect to the conflict of laws principles of such
Commonwealth. With respect to any disputes concerning federal law, such disputes
shall be determined in accordance with the law as it would be interpreted and
applied by the United States Court of Appeals for the First Circuit.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be taken to
be an original; but such counterparts shall together constitute one and the
same document.
18. Public Announcements. Neither the Executive nor the Employer shall
make any public announcement, including, without limitation, press releases or
media interviews, with respect to the terms of this Agreement or, if applicable,
the termination of the Executive's employment with the Employer, except as is
mutually approved by the parties (such approval not to be unreasonably withheld)
and except as may be required by applicable law.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employer, by its duly authorized officer, and by the
Executive, as of the Agreement Date.
EXECUTIVE THE STRIDE RITE CORPORATION
/s/ David M. Chamberlain By: /s/ Myles J. Slosberg
David M. Chamberlain Myles J. Slosberg
an individual Chairman and CEO
<PAGE>
EXHIBIT A
RELOCATION
The Executive shall be entitled to the following with respect to the relocation
of his residence from San Francisco, California to the greater Boston,
Massachusetts area, which relocation must be completed before (a date to be
determined):
1. House Hunting Trips. Up to four (4) pre-relocation trips will be provided
for the Executive and his spouse to locate temporary and/or permanent
housing. The arrangements for such house hunting trips shall be
coordinated through the Employer. Travel, meals, housing costs and a
rental car are reimbursed for the Executive and his spouse to visit the
new location for up to five (5) days per trip.
2. Temporary Living. The Executive shall be reimbursed for temporary living
arrangements until the purchase of the Massachusetts Home, as defined
below, but in no event after May 15, 2000. Such reimbursable living
arrangements shall be the Employer's rate at the DoubleTree Guest Suites
Hotel in Waltham, Massachusetts or a comparably priced hotel or apartment.
3. Moving Expenses. The Employer shall move the Executive's household
goods, personal effects, automobiles and small boats. The Employer
shall coordinate the move with its corporate moving consultant. The
moving consultant will select, arrange and contract transportation
carriers for all shipments. The cost will be paid directly by the
Employer. The carrier shall handle normal packing, transportation and
unpacking of goods. If storage is required, it will be provided for up
to thirty (30) days, including handling and re-delivery to the
Executive's new residence in Massachusetts. All shipments of household
goods are insured by the applicable transportation company. The
Employer will reimburse the Executive for any losses in excess of the
carrier's liability, at replacement cost or the cost of repair,
whichever is less. Money, securities, personal papers, jewelry, furs,
watches and precious stones are excluded from insurance coverage. The
Executive should hand carry or make other arrangements for the
relocation of such items. An appraisal and/or list (with description
and value) for all property will be required by the transportation
company in advance of the move.
4. Selling San Francisco Home. The Executive shall be reimbursed for the
reasonable and customary brokers commission (not to exceed One Hundred
Thousand Dollars ($100,000), attorney's fees related to the title,
transfer tax, document and recording fees incurred in the sale of the
Executive's residence located at 2770 Broadway, San Francisco, California
(the "California Home").
5. Purchase of Massachusetts Home. With respect to the Executive's
purchase of permanent residence in the greater Boston, Massachusetts
<PAGE>
area (the "Massachusetts Home"). The Executive shall be reimbursed for the
following reasonable and customary fees and expenses: (i) attorney's fees
related to the title; (ii) transfer and documentary taxes; (iii) recording
fees for the deed and mortgage; (iv) home inspection fees; and (v) up to
two percent (2%) of the first mortgage amount to cover origination fees
and points (not to exceed Thirty Thousand Dollars ($30,000).
6. Bridge Loan. The Employer shall, at the Executive's request, provide a
loan in the amount of One Million Dollars ($1,000,000) which will be
secured by the equity value of the California Home (the "Bridge
Loan"). The Employer reserves the right to have an independent real
estate broker appraise the California Home. The Bridge Loan shall: (i)
carry interest at a rate of one percentage point lower than the closing
prime commercial lending rate as reported by Chase Manhattan Bank N.A.
on the business day prior to the date of the Bridge Loan; (ii) be due
and payable the earlier of: (x) the sale of the California Home; (y)
termination of the Executive's employment with the Employer; or (z) 18
months from the date of the Bridge Loan; and (iii) be secured by a
second mortgage on the California Home. Interest shall accrue on the
Bridge Loan and shall be payable at the time the principal balance is
due in accordance with 6 (ii), above. The Bridge Loan is subject to
documentation reasonably acceptable to the Employer.
7. Taxes. In order to assist the Executive in alleviating the tax burden
caused by the reimbursement of certain expenses arising from the
relocation of the Executive by the Employer, the Employer shall pay to
the Executive an amount sufficient to reimburse the Executive for
additional Federal and State income taxes, including those applicable
taxes on such reimbursement, incurred on that portion of the
Executive's relocation expenses as provided in Sections 1, 2, 3, 4, 5
of this Exhibit A, which are not deductible under current Internal
Revenue Service rules, regulations and interpretations. A record of
all reimbursed relocation expenses shall be provided to the Executive
by the Employer's Accounting Department at the end of the tax year.
The tax allowance paid to the Executive shall be reported by the
Employer as extra income and appropriate tax withheld.
<PAGE>
Exhibit 10(xii)
REVOLVING CREDIT AGREEMENT
Dated as of January 19, 2000
among
THE STRIDE RITE CORPORATION,
the BANKS listed on Schedule 1 hereto
and
BANKBOSTON, N.A.,
as Agent for the Banks
with
BANCBOSTON ROBERTSON STEPHENS INC.
having acted as Arranger
<PAGE>
REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT is made as of January 19, 2000, by and
among The Stride Rite Corporation, (the "Borrower"), a Massachusetts corporation
having its principal place of business at 191 Spring Street, Lexington,
Massachusetts 02421, and BankBoston, N.A., a national banking association, and
the other lending institutions listed on Schedule 1, and BankBoston, N.A. as
agent for itself and such other lending institutions.
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. Definitions. The following terms shall have the meanings set forth in
this Section 1 or elsewhere in the provisions of this Credit Agreement referred
to below:
Accounts Receivable. All rights of the Borrower or any of its Subsidiaries
to payment for goods sold, leased or otherwise marketed in the ordinary course
of business and all rights of the Borrower or any of its Subsidiaries to payment
for services rendered in the ordinary course of business and all sums of money
or other proceeds due thereon pursuant to transactions with account debtors,
except for that portion of the sum of money or other proceeds due thereon that
relate to sales, use or property taxes in conjunction with such transactions,
recorded on books of account in accordance with generally accepted accounting
principles.
Additional Bank. See Section 2.4.3.
Affiliate. Any Person that would be considered to be an affiliate of the
Borrower under Rule 144(a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.
Adjustment Date. The first day of the calendar month immediately
following the month in which a Compliance Certificate is delivered by the
Borrower pursuant to Section 7.4(c).
Agent. BankBoston, N.A. acting as agent for the Banks.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Agent's Special Counsel. Bingham Dana LLP or such other counsel as may
be approved by the Agent.
Applicable Pricing. With respect to the LIBOR Rate, the Facility Fee, and
Letter of Credit Fees, the rate per annum specified in the table below as the
LIBOR Margin, Facility Fee Rate and Letter of Credit Rate, respectively, in the
Rate Level row opposite the Fixed Charge Coverage Ratio as of the last day of
the most recent fiscal quarter for which the Borrower has delivered financial
statements pursuant to Section.7.4 and the related Compliance Certificate of the
Borrower referred to in Section.7.4(c):
<PAGE>
---------------------------------------------------------------
Facility Letter of
Rate Fixed Charge LIBOR Fee Credit
Level Coverage Ratio Margin Rate Rate
---------------------------------------------------------------
1 Less than 2.35:1 0.825% 0.425% 0.875%
---------------------------------------------------------------
2 equal to or greater 0.625% 0.375% 0.750%
than 2.35:1 and less
than 3.50:1
---------------------------------------------------------------
3 equal to or greater 0.425% 0.325% 0.625%
than 3.50:1
---------------------------------------------------------------
provided, however, that the LIBOR Margin, Facility Fee Rate and Letter of Credit
Rate shall not be less than as set forth in Rate Level 2 above for the period
commencing on the date hereof and ending on July 15, 2000. For the purposes of
this Credit Agreement, any change in the Applicable Pricing shall become
effective on the Adjustment Date. If the Borrower shall fail to deliver the
financial statements referred to in Section 7.4 and the related Compliance
Certificate referred to in Section.7.4(c) indicating such Fixed Charge Coverage
Ratio, then the Applicable Pricing shall automatically, and without any further
act of the Agent, equal the highest Applicable Pricing set forth in the table
above.
Arranger. BancBoston Robertson Stephens Inc., in its capacity as
arranger of the credit facilities provided under the Loan Documents.
Assignment and Acceptance. Section 18.1.
Balance Sheet Date. December 3, 1999.
Banks. BKB and the other lending institutions listed on Schedule 1 hereto,
as it may be amended from time to time by the addition of other lending
institutions pursuant to Section 2.4, and any other Person who becomes an
assignee of any rights and obligations of a Bank pursuant to Section 18.
Base Rate. The higher of (i) the annual rate of interest announced from
time to time by BKB at its head office in Boston, Massachusetts, as its "base
rate" and (ii) one-half of one percent (0.50%) above the Federal Funds Effective
Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall
mean for any day, the rate per annum equal to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three funds brokers of recognized
standing selected by the Agent.
Base Rate Loans. Loans bearing interest calculated by reference to the
Base Rate.
<PAGE>
BKB. BankBoston, N.A., a national banking association, in its
individual capacity.
Borrower. As defined in the preamble hereto.
Business Day. Any day on which banking institutions in Boston,
Massachusetts, and New York, New York, are open for the transaction of banking
business and, in the case of LIBOR Rate Loans, also a day which is a Eurodollar
Business Day.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally accepted
accounting principles.
Capital Expenditures. Amounts paid or Indebtedness incurred by the
Borrower or any of its Subsidiaries in connection with (i) the purchase or lease
by the Borrower or any of its Subsidiaries of Capital Assets that would be
required to be capitalized and shown on the balance sheet of such Person in
accordance with generally accepted accounting principles or (ii) the lease of
any assets by the Borrower or any of its Subsidiaries as lessee under any
synthetic lease referred to in clause (vi) of the definition of the term
Indebtedness to the extent that such assets would have been Capital Assets had
the synthetic lease been treated for accounting purposes as a Capitalized Lease.
Capitalized Leases. Leases under which the Borrower or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
CERCLA. See Section 6.17(a).
Closing Date. The first date on which the conditions set forth in Section
10 have been satisfied and any Loans are to be made or any Letter of Credit is
to be issued hereunder.
Code. The Internal Revenue Code of 1986, as amended.
Commitment. With respect to each Bank, the amount set forth on Schedule 1
hereto as the amount of such Bank's commitment to make Loans to, and to
participate in the issuance, extension and renewal of Letters of Credit for the
account of, the Borrower, as the same may be reduced from time to time; or if
such commitment is terminated pursuant to the provisions hereof, zero.
Commitment Increase Request. See Section 2.4.1.
<PAGE>
Commitment Percentage. With respect to each Bank, the percentage set
forth on Schedule 1 hereto as such Bank's percentage of the aggregate
Commitments of all of the Banks.
Competitive Bid Loans. Revolving credit loans made hereunder to the
Borrower by any of the Banks, such loan or loans on any single occasion being
made by one or more of the Banks whose offer to make a revolving credit loan as
a part of the requested Competitive Bid Loan on such occasion has been accepted
by the Borrower under the auction bidding procedure described in Section 2.9.
Competitive Bid Note. See Section 2.9.1(b).
Competitive Bid Quote. An offer by a Bank to make a Competitive Bid
Loan in accordance with Section 2.9.
Competitive Bid Quote Request. See Section 2.9.1(c).
Competitive Bid Rate. See Section 2.9.1(e)(ii)(C).
Compliance Certificate. See Section 7.4(d).
Consolidated or consolidated. With reference to any term defined herein,
shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
Consolidated EBITDA. The consolidated earnings (or loss) from operations
(excluding all extraordinary and nonrecurring items of income (or loss, but only
to the extent not involving cash charges)) of the Borrower and its Subsidiaries
for any period, after all expenses and other proper charges but before payment
or provision for any income taxes or interest expense for such period, plus
depreciation, amortization and all other nonrepetitive noncash charges for such
period (including without limitation noncash charges relating to the granting or
repricing of stock options), all as determined in accordance with generally
accepted accounting principles.
Consolidated Net Income (or Deficit). The consolidated net income (or
deficit) of the Borrower and its Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in accordance with generally
accepted accounting principles, after eliminating therefrom all extraordinary
nonrecurring items of income.
Consolidated Operating Cash Flow. For any period, an amount equal to (i)
the sum of (A) Consolidated EBITDA for such period, plus (B) Includable Interest
Income for such period, less (ii) to the extent not already deducted in the
determination of Consolidated EBITDA, Capital Expenditures made during such
period.
Consolidated Tangible Net Worth. The excess of Consolidated Total
Assets over Consolidated Total Liabilities, and less the sum of:
<PAGE>
(a) the total book value of all assets of the Borrower and its
Subsidiaries properly classified as intangible assets under generally accepted
accounting principles, including such items as good will, the purchase price of
acquired assets in excess of the fair market value thereof, trademarks, trade
names, service marks, brand names, copyrights, patents and licenses, and rights
with respect to the foregoing;
(b) all amounts representing any write-up in the book value of any assets
of the Borrower or its Subsidiaries resulting from a revaluation thereof
subsequent to the Balance Sheet Date (excluding adjustments to translate foreign
assets and liabilities for changes in foreign exchange rates made in accordance
with Financial Accounting Standards Board Statement No. 52); and
(c) to the extent otherwise includable in the computation of Consolidated
Tangible Net Worth, any subscriptions receivable.
Consolidated Total Assets. The sum of (i) all assets ("consolidated
balance sheet assets") of the Borrower and its Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles,
plus (ii) without duplication, all assets leased by the Borrower or any
Subsidiary as lessee under any synthetic lease referred to in clause (vi) of the
definition of the term Indebtedness to the extent that such assets would have
been consolidated balance sheet assets had the synthetic lease been treated for
accounting purposes as a Capitalized Lease, plus (iii) without duplication, all
sold receivables referred to in clause (vii) of the definition of the term
Indebtedness to the extent that such receivables would have been consolidated
balance sheet assets had they not been sold.
Consolidated Total Interest Expense. For any period, the aggregate amount
of interest required to be paid or accrued by the Borrower and its Subsidiaries
during such period on all Indebtedness of the Borrower and its Subsidiaries
outstanding during all or any part of such period, whether such interest was or
is required to be reflected as an item of expense or capitalized, including
payments consisting of interest in respect of any Capitalized Lease, or any
synthetic lease referred to in clause (vi) of the definition of the term
Indebtedness.
Consolidated Total Liabilities. All liabilities of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles and classified as such on the consolidated
balance sheet of the Borrower and its Subsidiaries.
Conversion Request. A notice given by the Borrower to the Agent of the
Borrower's election to convert or continue a Loan in accordance with Section
2.8.
Credit Agreement. This Revolving Credit Agreement, including the
Schedules and Exhibits hereto.
Default. See Section 12.1.
Delinquent Bank. See Section 14.5.3.
<PAGE>
Distribution. The declaration or payment of any dividend on or in respect
of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise; the return of capital by the Borrower to its shareholders
as such; or any other distribution on or in respect of any shares of any class
of capital stock of the Borrower.
Dollars or $. Dollars in lawful currency of the United States of America.
Drawdown Date. The date on which any Syndicated Loan is made or is to be
made, and the date on which any Syndicated Loan is converted or continued in
accordance with Section 2.8.
EBIT. With respect to any Person, the earnings (or loss) from operations
of such Person (excluding all extraordinary and nonrecurring items of income (or
loss, but only to the extent not involving cash charges)) for any period, after
all expenses and other proper charges but before payment or provision for any
income taxes or interest expense for such period, all as determined in
accordance with generally accepted accounting principles.
Eligible Assignee. Any of (i) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (ii)
a savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with generally
accepted accounting principles; (iii) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, provided that such
bank is acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (iv) the
central bank of any country which is a member of the OECD; and (v) if, but only
if, any Event of Default has occurred and is continuing, any other bank,
insurance company, commercial finance company or other financial institution
approved by the Agent, such approval not to be unreasonably withheld.
Employee Benefit Plan. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan.
Environmental Laws. See Section 6.17(a).
EPA. See Section 6.17(b).
ERISA. The Employee Retirement Income Security Act of 1974, as amended.
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ERISA Affiliate. Any Person which is treated as a single employer with the
Borrower under Section 414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder.
Eurocurrency Reserve Rate. For any day with respect to a LIBOR Rate Loan,
the maximum rate (expressed as a decimal) at which any lender subject thereto
would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor or similar regulations
relating to such reserve requirements) against "Eurocurrency Liabilities" (as
that term is used in Regulation D), if such liabilities were outstanding. The
Eurocurrency Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurocurrency Reserve Rate.
Event of Default. See Section 12.1.
Facility Fee. See Section 2.2.
Facility Fee Rate. See definition of Applicable Pricing.
Fixed Charge Coverage Ratio. See Section 9.1.
generally accepted accounting principles. (i) When used in Section 9,
whether directly or indirectly through reference to a capitalized term used
therein, means (A) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and
(B) to the extent consistent with such principles, the accounting practice of
the Borrower reflected in its financial statements for the year ended on the
Balance Sheet Date, and (ii) when used in general, other than as provided above,
means principles that are (A) consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors, as in
effect from time to time, and (B) consistently applied with past financial
statements of the Borrower adopting the same principles, provided that in each
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would, insofar as the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(2)of ERISA maintained or contributed to by the Borrower or
any ERISA Affiliate the benefits of which are guaranteed on termination in full
or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Guaranty. The Guaranty referred to in Section 5.13, in the form of
Exhibit B hereto, made by each Significant Subsidiary of the Borrower in favor
of the
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Banks and the Agent pursuant to which such Subsidiary guaranties to the
Banks and the Agent the payment and performance of the Obligations.
Hazardous Substances. See Section 6.17(b).
Includable Interest Income. For any period, (i) interest income earned on
cash balances of the Borrower and its Subsidiaries, less (ii) an amount equal to
$10,000,000 multiplied by the average thirty (30) day LIBOR Rate during such
period.
Indebtedness. As to any Person and whether recourse is secured by or is
otherwise available against all or only a portion of the assets of such Person
and whether or not contingent, but without duplication:
(i) every obligation of such Person for money borrowed (other than
obligations in respect of borrowings against the cash value of insurance
policies owned by such Person, provided that such obligations do not have
enforcement recourse to other assets of such Person),
(ii) every obligation of such Person evidenced by bonds, debentures, notes
or other similar instruments, including obligations incurred in connection with
the acquisition of property, assets or businesses,
(iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person,
(iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (including securities repurchase
agreements but excluding trade accounts payable or accrued liabilities arising
in the ordinary course of business which are not overdue or which are being
contested in good faith),
(v) every obligation of such Person under any Capitalized Lease,
(vi) every obligation of such Person under any lease (a "synthetic
lease") treated as an operating lease under generally accepted accounting
principles and as a loan or financing for U.S. income tax purposes,
(vii) all sales by such Person of (A) accounts or general intangibles for
money due or to become due, (B) chattel paper, instruments or documents creating
or evidencing a right to payment of money or (C) other receivables (collectively
"receivables"), whether pursuant to a purchase facility or otherwise, other than
in connection with the disposition of the business operations of such Person
relating thereto or a disposition of defaulted receivables for collection and
not as a financing arrangement, and together with any obligation of such Person
to pay any discount, interest, fees, indemnities, penalties, recourse, expenses
or other amounts in connection therewith,
(viii) every obligation of such Person (an "equity related purchase
obligation") to purchase, redeem, retire or otherwise acquire for value any
shares of capital stock of any class issued by such Person, any
<PAGE>
warrants, options or other rights to acquire any such shares, or any
rights measured by the value of such shares, warrants, options or other rights,
(ix) every obligation of such Person under any forward contract, futures
contract, swap, option or other financing agreement or arrangement (including,
without limitation, caps, floors, collars and similar agreements), the value of
which is dependent upon interest rates, currency exchange rates, commodities or
other indices (a "derivative contract"),
(x) every obligation in respect of Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent that such Person is liable therefor as a result of such Person's
ownership interest in or other relationship with such entity, except to the
extent that the terms of such Indebtedness provide that such Person is not
liable therefor and such terms are enforceable under applicable law,
(xi) every obligation, contingent or otherwise, of such Person
guarantying, or having the economic effect of guarantying or otherwise acting as
surety for, any obligation of a type described in any of clauses (i) through (x)
(the "primary obligation") of another Person (the "primary obligor"), in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person (A) to purchase or pay (or advance or supply funds for
the purchase of) any security for the payment of such primary obligation, (B) to
purchase property, securities or services for the purpose of assuring the
payment of such primary obligation, or (C) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such primary obligation.
The "amount" or "principal amount" of any Indebtedness at any time of
determination represented by (u) any Indebtedness, issued at a price that is
less than the principal amount at maturity thereof, shall be the amount of the
liability in respect thereof determined in accordance with generally accepted
accounting principles, (v) any Capitalized Lease shall be the principal
component of the aggregate of the rentals obligation under such Capitalized
Lease payable over the term thereof that is not subject to termination by the
lessee, (w) any sale of receivables shall be the amount of unrecovered capital
or principal investment of the purchaser (other than the Borrower or any of its
wholly-owned Subsidiaries) thereof, excluding amounts representative of yield or
interest earned on such investment, (x) any synthetic lease shall be the
stipulated loss value, termination value or other equivalent amount, (y) any
derivative contract shall be the maximum amount of any termination or loss
payment required to be paid by such Person if such derivative contract were, at
the time of determination, to be terminated by reason of any event of default or
early termination event thereunder, whether or not such event of default or
early termination event has in fact occurred and (z) any equity related purchase
obligation shall be the maximum fixed redemption or purchase price thereof
inclusive of any accrued and unpaid dividends to be comprised in such redemption
or purchase price.
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Ineligible Securities. Securities which may not be underwritten or dealt
in by member banks of the Federal Reserve System under Section 16 of the Banking
Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.
Interest Payment Date. (i) As to any Base Rate Loan, the last day of the
calendar quarter with respect to interest accrued during such calendar quarter,
including without limitation the calendar quarter which includes the Drawdown
Date of such Base Rate Loan; and (ii) as to any LIBOR Rate Loan in respect of
which the Interest Period is (A) 3 months or less, the last day of such Interest
Period and (B) more than 3 months, the date that is 3 months from the first day
of such Interest Period and, in addition, the last day of such Interest Period.
Interest Period. With respect to each Loan (i) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrower in a Loan Request or
as otherwise required by the terms of this Credit Agreement: (A) for any Base
Rate Loan, the last day of the calendar quarter; (B) for any LIBOR Rate Loan, 1,
2, 3 or 6 months; (C) for any Competitive Bid Loan, from 10 to 90 days, and (D)
for any Swing Line Loan, from 1 to 30 days; and (ii) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Loan and ending on the last day of one of the periods set forth above, as
selected by the Borrower in a Conversion Request; provided that all of the
foregoing provisions relating to Interest Periods are subject to the following:
(a) if any Interest Period with respect to a LIBOR Rate Loan would
otherwise end on a day that is not a LIBOR Business Day, that Interest Period
shall be extended to the next succeeding LIBOR Business Day unless the result of
such extension would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the immediately
preceding LIBOR Business Day;
(b) if any Interest Period with respect to a Base Rate Loan would end on a
day that is not a Business Day, that Interest Period shall end on the next
succeeding Business Day;
(c) if the Borrower shall fail to give notice as provided in Section 2.8,
the Borrower shall be deemed to have requested a conversion of the affected
LIBOR Rate Loan to a Base Rate Loan and the continuance of all Base Rate Loans
as Base Rate Loans on the last day of the then current Interest Period with
respect thereto;
(d) any Interest Period relating to any LIBOR Rate Loan that begins on the
last LIBOR Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last LIBOR Business Day of a calendar month; and
(e) any Interest Period that would otherwise extend beyond the Maturity
Date shall end on the Maturity Date.
<PAGE>
International Standby Practices. With respect to any standby Letter of
Credit, International Standby Practices (ISP98), International Chamber of
Commerce Publication No. 590, or any successor code of standby letter of credit
practices among banks adopted by the Agent in the ordinary course of its
business as a standby letter of credit issuer and in effect at the time of
issuance of such Letter of Credit.
Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock, other equity or
Indebtedness of, or for loans, advances, capital contributions or transfers of
property to, or in respect of any guaranties (or other commitments as described
under Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (i) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (ii) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(iii) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (iv) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (ii) may be
deducted when paid; and (v) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
Letter of Credit. See Section 4.1.1.
Letter of Credit Application. See Section 4.1.
Letter of Credit Fee. See Section 4.6.
Letter of Credit Participation. See Section 4.1.4.
Letter of Credit Rate. See definition of Applicable Pricing.
LIBOR Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other eurodollar interbank market as may be selected by the Agent in its sole
discretion acting in good faith.
LIBOR Margin. See definition of Applicable Pricing.
LIBOR Rate. For any Interest Period with respect to a LIBOR Rate Loan, the
rate of interest equal to (i) the rate determined by the Agent at which Dollar
deposits for such Interest Period are offered based on information presented on
Telerate Page 3750 as of 11:00 a.m. London time on the second LIBOR Business Day
prior to the first day of such Interest Period, divided by (ii) a number equal
to 1.00 minus the eurocurrency Reserve Rate, if applicable.
<PAGE>
LIBOR Rate Loans. Loans bearing interest calculated by reference to
the LIBOR Rate.
Loan Documents. This Credit Agreement, the Notes, the Letter of Credit
Applications, the Letters of Credit and the Guaranties.
Loan Request. See Section 2.6.
Loans. Revolving credit loans made or to be made by the Banks to the
Borrower pursuant to Section 2, whether Syndicated Loans or Competitive Bid
Loans, and Swing Line Loans made by BKB pursuant to Section 2.10.
Majority Banks. As of any date, the Banks whose aggregate Commitments
constitute at least fifty percent (50%) of the Total Commitment; and after the
Total Commitment has been terminated, the Banks holding at least fifty percent
(50%) of the outstanding principal amount of the Loans on such date.
Maturity Date. The third anniversary of the Closing Date or, if such
date is not a Business Day, the Business Day next preceding such anniversary.
Maximum Drawing Amount. The maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
Multiemployer Plan. Any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate.
Notes. The Revolving Credit Notes, the Competitive Bid Notes and the
Swing Line Notes, or, when used in the singular, any of such Notes.
Note Record. A Record with respect to a Note.
Obligations. All indebtedness, obligations and liabilities of any of the
Borrower and its Subsidiaries to any of the Banks and the Agent, individually or
collectively, existing on the date of this Credit Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, arising
by contract, operation of law or otherwise, arising or incurred under this
Credit Agreement or any of the other Loan Documents or in respect of any of the
Loans made or Reimbursement Obligations incurred or any of the Notes, Letter of
Credit Application, Letter of Credit or other instruments at any time evidencing
any thereof.
outstanding. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created byss.4002 of
ERISA and any successor entity or entities having similar responsibilities.
Perfection Certificates. The Perfection Certificates as defined in the
Security Agreements.
<PAGE>
Permitted Acquisition. See Section 8.5.3.
Permitted Distributions. See Section 8.4.
Permitted Liens. Liens, security interests and other encumbrances
permitted by Section 8.2.
Person. Any individual, corporation, partnership, limited liability
company, trust, unincorporated association, business, or other legal entity, and
any government or any governmental agency or political subdivision thereof.
RCRA. See Section 6.17(a).
Real Estate. All real property at any time owned or leased (as lessee
or sublessee) by the Borrower or any of its Subsidiaries.
Record. The grid attached to a Note, or the continuation of such grid, or
any other similar record, including computer records, maintained by any Bank
with respect to any Loan referred to in such Note.
Register. See Section 18.3.
Reimbursement Obligation. The Borrower's obligation to reimburse the
Agent and the Banks on account of any drawing under any Letter of Credit as
provided in Section 4.2.
Rental Expense. For any period, all obligations of the Borrower and its
Subsidiaries under any rental agreements or leases of real property, other than
(i) obligations that can be terminated by the giving of notice without liability
to the Borrower or such Subsidiary in excess of the liability for rent due as of
the date on which such notice is given and under which no penalty or premium is
paid as a result of any such termination, and (ii) obligations in respect of any
Capitalized Leases.
Revolving Credit Note Record. A Record with respect to a Revolving
Credit Note.
Revolving Credit Notes. See Section 2.5.
SARA. See Section 6.17(a).
Section 20 Subsidiary. A Subsidiary of the bank holding company
controlling any Bank, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities. The term
includes BancBoston Robertson Stephens Inc.
Significant Subsidiary. Any Subsidiary of the Borrower (a) the book value
of the total assets of which, as of the Balance Sheet Date or of the last day of
the most recent fiscal period for which financial statements have been furnished
pursuant to ss.7.4, equals or exceeds $5,000,000, or (b) the EBIT of which for
the fiscal period then ended equals or exceeds 5% of the Consolidated EBIT of
the Borrower and its Subsidiaries; provided that, if all
<PAGE>
Subsidiaries of the Borrower which are not Significant Subsidiaries
pursuant to the foregoing test (the "Excluded Subsidiaries") have an aggregate
EBIT for the fiscal period then ended exceeding 15% of the Consolidated EBIT of
the Borrower and its Subsidiaries, then one or more of the largest Excluded
Subsidiaries shall be deemed Significant Subsidiaries until the aggregate EBIT
of the Excluded Subsidiaries does not exceed such limit.
Subsidiary. Any corporation, association, trust, or other business entity
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes) of
the outstanding Voting Stock.
Substantially the Same Business. With respect to the businesses conducted
by the Borrower and its Subsidiaries, such businesses conducted on the date
hereof and other marketing and retail lines of business.
Swing Line Loan Maturity Date. With respect to any Swing Line Loan, the
date specified by the Borrower in the Swing Line Loan Request relating thereto
as the maturity date of such Swing Line Loan, which in no event shall be later
than the earlier to occur of (i) thirty (30) days after the Drawdown Date of
such Swing Line Loan and (ii) the Maturity Date.
Swing Line Loan Request. See Section 2.10.1.
Swing Line Loans. See Section 2.10.1.
Swing Line Note. See Section 2.10.5.
Swing Line Rate. A fixed rate per annum quoted by BKB in its discretion
pursuant to Section 2.10.2, such rate not to exceed the Base Rate in effect on
the date of quotation.
Syndicated Loans. Revolving credit loans made by the Banks in
accordance with their respective Commitment Percentages pursuant to Section 2.1.
Total Commitment. The sum of the Commitments of the Banks, as in
effect from time to time.
Total Funded Debt. As of any date of determination, on a consolidated
basis in accordance with generally accepted accounting principles, an amount
equal to the sum of (a) all Indebtedness of the Borrower and its Subsidiaries
relating to the borrowing of money or the utilization of credit (including
letters of credit, other than (i) documentary letters of credit and (ii) standby
letters of credit to the extent the same support Indebtedness otherwise included
in Total Funded Debt), and (b) all obligations of the Borrower and its
Subsidiaries in respect of Capitalized Leases.
Type. As to any Syndicated Loan, its nature as a Base Rate Loan or a
LIBOR Rate Loan.
Uniform Customs. With respect to any Letter of Credit, the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 or any successor version thereto
<PAGE>
adopted by the Agent in the ordinary course of its business as a letter of
credit issuer and in effect at the time of issuance of such Letter of Credit.
Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which
the Borrower does not reimburse the Agent and the Banks on the date specified
in, and in accordance with Section 4.2.
Utilization Fee. See Section 2.2.
Voting Stock. Stock or similar interests, of any class or classes (however
designated), the holders of which are at the time entitled, as such holders, to
vote for the election of a majority of the directors (or persons performing
similar functions) of the corporation, association, trust or other business
entity involved, whether or not the right so to vote exists by reason of the
happening of a contingency.
1.2. Rules of Interpretation.
(a) A reference to any document or agreement shall include such document
or agreement as amended, modified or supplemented from time to time in
accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by generally accepted
accounting principles, which terms are defined in the Uniform Commercial Code as
in effect in the Commonwealth of Massachusetts, have the meanings assigned to
them therein, with the term "instrument" being that defined under Article 9 of
the Uniform Commercial Code.
(h) Reference to a particular "Section" refers to that section of this
Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Credit Agreement as a whole and not to any particular
section or subdivision of this Credit Agreement.
(j) Unless otherwise expressly indicated, in the computation of periods of
time from a specified date to a later specified date, the word
<PAGE>
"from" means "from and including," the words "to" and "until" each mean
"to but excluding," and the word "through" means "to and including."
(k) This Credit Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are, however, cumulative
and are to be performed in accordance with the terms thereof.
(l) This Credit Agreement and the other Loan Documents are the result of
negotiation among, and have been reviewed by counsel to, among others, the Agent
and the Borrower and are the product of discussions and negotiations among all
parties. Accordingly, this Credit Agreement and the other Loan Documents are not
intended to be construed against the Agent or any of the Banks merely on account
of the Agent's or any Bank's involvement in the preparation of such documents.
2. THE REVOLVING CREDIT FACILITY.
2.1. Commitment to Lend. Subject to the terms and conditions set forth in
this Credit Agreement, each of the Banks severally agrees to lend to the
Borrower and the Borrower may borrow, repay, and reborrow from time to time from
the Closing Date up to but not including the Maturity Date upon notice by the
Borrower to the Agent given in accordance with Section 2.7, such Syndicated
Loans as are requested by the Borrower up to a maximum aggregate amount
outstanding (after giving effect to all amounts requested) at any one time equal
to such Bank's Commitment minus such Bank's Commitment Percentage of the sum of
the Maximum Drawing Amount and all Unpaid Reimbursement Obligations, provided
that the sum of the outstanding amount of the Loans (after giving effect to all
amounts requested) plus the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations shall not at any time exceed the Total Commitment. The Syndicated
Loans shall be made pro rata in accordance with each Bank's Commitment
Percentage. Each request for a Loan hereunder shall constitute a representation
and warranty by the Borrower that the conditions set forth in Sections 11 and
12, in the case of the initial Loans to be made on the Closing Date, and Section
12, in the case of all other Loans, have been satisfied on the date of such
request.
2.2. Facility Fee and Utilization Fee.
2.2.1. Facility Fee. The Borrower agrees to pay to the Agent for the
accounts of the Banks in accordance with their respective Commitment Percentages
a facility fee (the "Facility Fee") calculated at the Applicable Facility Fee
Rate (as set forth in the Applicable Pricing) on the average daily amount of
each Bank's Commitment during each calendar quarter or portion thereof from the
date hereof to the Maturity Date (without regard to whether any Loans by such
Bank have been during such period outstanding and whether the availability of
such Commitment has been during the such period reduced by outstanding
Competitive Bid Loans or Swing Line Loans).
2.2.2. Utilization Fee. In addition to the Facility Fee,
the Borrower agrees to pay to the Agent for the accounts of the Banks in
accordance with their respective Commitment Percentages, a utilization fee
(the "Utilization Fee"), for each day of each calendar quarter or portion
<PAGE>
thereof from the date hereof to the Maturity Date on which the total
amount outstanding hereunder in respect of Loans, the Maximum Drawing Amount and
Unpaid Reimbursement Obligations (the "Total Outstandings") exceeds fifty
percent (50%) of the Total Commitment, in an amount equal to one-eighth of one
percent (0.125%) per annum of the Total Outstandings.
2.2.3. Payment. The Facility Fee and the Utilization Fee shall be
payable quarterly in arrears on the last day of each calendar quarter for such
quarter, commencing on the first such date following the date hereof, with a
final payment on the Maturity Date or any earlier date on which the Commitments
shall terminate.
2.3. Reduction of Total Commitment. The Borrower shall have the right at
any time and from time to time upon five (5) Business Days prior written notice
to the Agent to reduce by $5,000,000 or an integral multiple thereof or
terminate entirely the Total Commitment, whereupon the Commitments of the Banks
shall be reduced pro rata in accordance with their respective Commitment
Percentages of the amount specified in such notice or, as the case may be,
terminated. Promptly after receiving any notice of the Borrower delivered
pursuant to this Section 2.3, the Agent will notify the Banks of the substance
thereof. Upon the effective date of any such reduction or termination, the
Borrower shall pay to the Agent for the respective accounts of the Banks the
full amount of any commitment fee then accrued on the amount of the reduction.
No reduction or termination of the Commitments may be reinstated.
2.4. Increase of Total Commitment; Additional Banks.
2.4.1. Commitment Increase Request. The Borrower shall have the
right upon one occasion by written notice to the Agent (a "Commitment Increase
Request") to request an increase in the Total Commitment by an amount equal to
$25,000,000 (the "Increase Amount"), up to a maximum Total Commitment of
$100,000,000; provided that, at the time of the Commitment Increase Request and
at the time such request would become effective, no Default or Event of Default
has occurred and is continuing or would exist after giving effect to such
increase in the Total Commitment. Any such increase in the Total Commitment
shall become effective only upon written notice by the Agent to the Borrower and
the Banks stating the new Total Commitment and, in respect thereof, the
respective Commitment amounts and Commitment Percentages of the Banks
(including, if applicable, any Additional Bank).
2.4.2. Banks' First Refusal Right. The Agent shall promptly upon
receipt of any Commitment Increase Request send a copy thereof to the Banks.
Each of the Banks shall have the right (but not the obligation) to increase its
Commitment in connection with the increased Total Commitment, exercisable by
written notice to the Agent within fifteen (15) Business Days following the date
of the Commitment Increase Request specifying the maximum amount (not exceeding
the Increase Amount) by which such Bank is willing to increase its Commitment.
In the event that the responding Banks shall have offered to increase their
Commitments by an aggregate amount exceeding the Increase Amount, the Agent
shall allocate the Increase Amount to the respective Commitments of the
responding Banks as nearly as possible (in such
<PAGE>
multiples, not less than $100,000, as the Agent may deem appropriate, and
in the event that the aggregate Commitment increases offered by the Banks shall
not equal or exceed the Increase Amount, subject to reduction for the Commitment
of one or more Additional Banks pursuant to Section 2.4.3) in the proportion of
the respective Banks' Commitment increase offers.
2.4.3. Additional Banks. In the event that the aggregate Commitment
increases offered by the Banks shall not equal or exceed the Increase Amount,
one or more other commercial banks which would qualify as an Eligible Assignee
(an "Additional Bank") and which are acceptable to each of the Agent and
Borrower may be admitted as a Bank party to this Credit Agreement in accordance
with the provisions of Section 18.10, provided that the Commitment of any such
Additional Bank shall not be less than $5,000,000 nor greater than the Increase
Amount.
2.5. The Revolving Credit Notes. The Syndicated Loans shall be evidenced
by separate promissory notes of the Borrower in substantially the form of
Exhibit A hereto (each a "Revolving Credit Note"), dated as of the Closing Date
(or, in the event of the admission of any Additional Bank pursuant to Section
2.4.3 and Section 18.10, dated as of the effective date specified in the
Instrument of Adherence executed and delivered by such Additional Bank pursuant
to Section 18.10) and completed with appropriate insertions. One Revolving
Credit Note shall be payable to the order of each Bank in a principal amount
equal to such Bank's Commitment or, if less, the outstanding amount of all Loans
made by such Bank, plus interest accrued thereon, as set forth below. The
Borrower irrevocably authorizes each Bank to make or cause to be made, at or
about the time of the Drawdown Date of any Syndicated Loan or at the time of
receipt of any payment of principal on such Bank's Revolving Credit Note, an
appropriate notation on such Bank's Revolving Credit Note Record reflecting the
making of such Syndicated Loan or (as the case may be) the receipt of such
payment. The outstanding amount of the Loans set forth on such Bank's Revolving
Credit Note Record shall be prima facie evidence of the principal amount thereof
owing and unpaid to such Bank, but the failure to record, or any error in so
recording, any such amount on such Bank's Revolving Credit Note Record shall not
limit or otherwise affect the obligations of the Borrower hereunder or under any
Revolving Credit Note to make payments of principal of or interest on any
Revolving Credit Note when due.
2.6. Interest on Loans. Except as otherwise provided in Section 5.11,
(a) Each Base Rate Loan shall bear interest for the period commencing with
the Drawdown Date thereof and ending on the last day of the Interest Period with
respect thereto at Base Rate.
(b) Each LIBOR Rate Loan shall bear interest for the period commencing
with the Drawdown Date thereof and ending on the last day of the Interest Period
with respect thereto at the LIBOR Rate determined for such Interest Period, plus
the LIBOR Margin set forth in the Applicable Pricing.
(c) The Borrower promises to pay interest on each Syndicated Loan in
arrears on each Interest Payment Date with respect thereto.
<PAGE>
2.7. Requests for Loans. The Borrower shall give to the Agent written
notice in the form of Exhibit C hereto (or telephonic notice confirmed in a
writing in the form of Exhibit C hereto) of each Syndicated Loan requested
hereunder (a "Loan Request") no later than (i) 1:00 p.m. (Boston time) on the
proposed Drawdown Date of any Base Rate Loan and (ii) two (2) LIBOR Business
Days prior to the proposed Drawdown Date of any LIBOR Rate Loan. Each such
notice shall specify (A) the principal amount of the Syndicated Loan requested,
(B) the proposed Drawdown Date of such Syndicated Loan, (C) the Interest Period
for such Syndicated Loan and (D) the Type of such Syndicated Loan. Promptly upon
receipt of any such notice, the Agent shall notify each of the Banks thereof.
Each Loan Request shall be irrevocable and binding on the Borrower and shall
obligate the Borrower to accept the Syndicated Loan requested from the Banks on
the proposed Drawdown Date. Each Loan Request shall be in a minimum aggregate
amount of $5,000,000 and an integral multiple of $1,000,000.
2.8. Conversion Options.
2.8.1. Conversion to Different Type of Syndicated Loan. The Borrower
may elect from time to time to convert any outstanding Syndicated Loan to a
Syndicated Loan of another Type, provided that (i) with respect to any such
conversion of a Syndicated Loan to a Base Rate Loan, the Borrower shall give the
Agent at least two (2) Business Days prior written notice of such election; (ii)
with respect to any such conversion of a Base Rate Loan to a LIBOR Rate Loan,
the Borrower shall give the Agent at least two (2) LIBOR Business Days prior
written notice of such election; (iii) with respect to any such conversion of a
LIBOR Rate Loan into a Base Rate Loan, such conversion shall only be made on the
last day of the Interest Period with respect thereto; and (iv) no Loan may be
converted into a LIBOR Rate Loan when any Default or Event of Default has
occurred and is continuing. All or any part of outstanding Syndicated Loans of
any Type may be converted into a Syndicated Loan of another Type as provided
herein, provided that any partial conversion shall be in a minimum aggregate
principal amount of $5,000,000 and an integral multiple of $1,000,000. Each
Conversion Request relating to the conversion of a Syndicated Loan to a LIBOR
Rate Loan shall be irrevocable by the Borrower.
2.8.2. Continuation of Type of Syndicated Loan. Any Syndicated Loan
of any Type may be continued as a Syndicated Loan of the same Type upon the
expiration of an Interest Period with respect thereto by compliance by the
Borrower with the notice provisions contained in Section 2.8.1; provided that no
LIBOR Rate Loan may be continued as such when any Default or Event of Default
has occurred and is continuing, but shall be automatically converted to a Base
Rate Loan on the last day of the first Interest Period relating thereto ending
during the continuance of any Default or Event of Default of which officers of
the Agent active upon the Borrower's account have actual knowledge. In the event
that the Borrower fails to provide any such notice with respect to the
continuation of any LIBOR Rate Loan as such, then such LIBOR Rate Loan shall be
automatically converted to a Base Rate Loan on the last day of the first
Interest Period relating thereto. The Agent shall
<PAGE>
notify the Banks promptly when any such automatic conversion contemplated
by this Section 2.8 is scheduled to occur.
2.8.3. LIBOR Rate Loans. Any conversion to or from LIBOR Rate Loans
shall be in such amounts and be made pursuant to such elections so that, after
giving effect thereto, the aggregate principal amount of all LIBOR Rate Loans
having the same Interest Period shall not be less than $5,000,000 or a whole
multiple of $1,000,000 in excess thereof.
2.9. Competitive Bid Loans.
2.9.1. Competitive Bid Borrowings.
(a) The Competitive Bid Option. In addition to the Syndicated
Loans permitted to be made hereunder pursuant to Section 2.1 hereof, the
Borrower may, from time to time pursuant to the terms of this Section 2.9, cause
the Agent to request the Banks to make offers to fund Competitive Bid Loans to
the Borrower from time to time prior to the Maturity Date. The Banks may, but
shall have no obligation to, make such offers and the Borrower may, but shall
have no obligation to, accept such offers in the manner set forth in this
Section 2.9. Each Bank may make Competitive Bid Loans in an aggregate amount
(after giving effect to all amounts requested) not to exceed $30,000,000,
provided that (i) the aggregate principal amount of Competitive Bid Loans
outstanding at any time (after giving effect to all amounts requested) shall not
be less than $5,000,000 nor more than $30,000,000, and (ii) the sum of (A) the
aggregate amount of all outstanding Syndicated Loans plus (B) the aggregate
amount of all outstanding Swing Line Loans, plus (C) the Maximum Drawing Amount,
plus (D) all Unpaid Reimbursement Obligations, plus (E) the aggregate amount of
all outstanding Competitive Bid Loans (after giving effect to all amounts
requested) shall at no time exceed the Total Commitment.
(b) Competitive Bid Notes. The Competitive Bid Loans shall be
evidenced by separate promissory notes of the Borrower in substantially the form
of Exhibit D-1 attached hereto (each a "Competitive Bid Note"), dated as of the
Closing Date and completed with appropriate insertions. A Competitive Bid Note
shall be payable to the order of each Bank in a principal amount equal to the
Total Commitment or, if less, the outstanding amount of all Competitive Bid
Loans made by such Bank to the Borrower hereunder, plus interest accrued
thereon. The Borrower irrevocably authorizes each Bank to make, at or about the
time of the Drawdown Date of any Competitive Bid Loan made by such Bank or at
the time of receipt of the payment of principal of such Competitive Bid Loan, an
appropriate notation on the Record attached to such Bank's Competitive Bid Note
reflecting the making of such Competitive Bid Loan and repayments thereof. All
such notations shall constitute prima facie evidence of the amount of such
Competitive Bid Loans and the repayments thereof, but the failure to record, or
any error in so recording such amount on such Bank's Record shall not limit or
otherwise affect the obligations of the Borrower hereunder or under any
Competitive Bid Note to make payments of principal or interest on any
Competitive Bid Note when due.
<PAGE>
(c) Competitive Bid Quote Request. When the Borrower wishes to
request offers to make Competitive Bid Loans under this Section 2.9, it shall
transmit to the Agent by telex, facsimile or electronic mail a Competitive Bid
Quote Request substantially in the form of Exhibit D-2 attached hereto (a
"Competitive Bid Quote Request") so as to be received no later than 1:00 p.m.
(Boston time) on the second Business Day prior to the requested Drawdown Date,
specifying (i) the requested Drawdown Date (which must be a Business Day), (ii)
the amount of such Competitive Bid Loan (which must be a minimum of $5,000,000
or any greater integral multiple of $1,000,000 and may not exceed $30,000,000
(after giving effect to all amounts requested), and (iii) the Interest Period of
such Competitive Bid Loan (which may not be fewer than ten (10) nor more than
ninety (90) days and may not extend beyond the Maturity Date). A Competitive Bid
fee of $750 shall be payable by the Borrower to the Agent with respect to each
Competitive Bid Quote Request on the date of the delivery of such request. The
Borrower may request offers to make Competitive Bid Loans for one amount and
three Interest Periods in a single Competitive Bid Quote Request.
(d) Invitation for Competitive Bid Quotes; Alternative Manner
of Auction. Subsequent to timely receipt of a Competitive Bid Quote Request, the
Agent shall send to the Banks by telex, facsimile or electronic mail an
Invitation for Competitive Bid Quotes substantially in the form of Exhibit D-3
attached hereto (an "Invitation for Competitive Bid Quotes"), as promptly as
possible but not later than 3:00 p.m. (Boston time) on the second Business Day
prior to the requested Drawdown Date which shall constitute an invitation by the
Borrower to each Bank to submit Competitive Bid Quotes offering to make
Competitive Bid Loans to which such Competitive Bid Quote Request relates in
accordance with this Section 2.9. If, after receipt by the Agent of a
Competitive Bid Quote Request from the Borrower in accordance with subsection
(c) of this Section 2.9.1, the Agent or any Bank shall be unable to complete any
procedure of the auction process described in subsections (d) through (g)
(inclusive) of this Section 2.9.1 due to the inability of such Person to
transmit or receive communications through the means specified therein, such
Person may rely on telephonic notice for the transmission or receipt of such
communications. In any case where such Person shall rely on telephone
transmission or receipt, any communication made by telephone shall, as soon as
possible thereafter, be followed by written confirmation thereof.
(e) Submission and Contents of Competitive Bid Quotes.
(i) Each Bank may submit a Competitive Bid Quote
containing an offer or offers to make Competitive Bid Loans in response to any
Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply
with the requirements of this subsection (e) and must be submitted to the Agent
by telex, facsimile or electronic mail not later than 10:00 a.m. (Boston time)
on the requested Drawdown Date, provided, that Competitive Bid Quotes may be
made by the Agent in its capacity as a Bank only if it notifies the Borrower of
the terms of its Competitive Bid Quote no later than 9:30 a.m. (Boston time) on
the requested Drawdown Date. Subject to the provisions of Sections 10, 11, and
12 hereof, any Competitive Bid Quote so made shall be irrevocable except with
the written consent of the Agent given on the instructions of the Borrower.
<PAGE>
(ii) Each Competitive Bid Quote shall be in
substantially the form of Exhibit D-4 attached hereto and shall in any case
specify: (A) the requested Drawdown Date and Interest Periods, (B) the principal
amount of the Competitive Bid Loan for which each such offer is being made,
which principal amount (x) may be greater than the Commitment of the quoting
Bank but may not exceed $30,000,000, (y) must be $2,000,000 or a larger multiple
of $1,000,000 and (z) may not exceed the aggregate principal amount of
Competitive Bid Loans for which offers were requested, (C) the fixed rate of
interest per annum (rounded to the nearest 1/1000th of 1%) (the "Competitive Bid
Rate") offered for each such Competitive Bid Loan, and (D) the identity of the
quoting Bank.
(iii) Any Competitive Bid Quote shall be disregarded
if it: (A) is not substantially in the form of Exhibit D-4 attached hereto or
does not specify all of the information required by subsection (e)(ii) of this
Section 2.9.1; (B) contains qualifying, conditional or similar language (except
that it may, in the case of a quote relating to more than one Interest Period,
contain the condition that the Bank will fund any one, but not more, of the
Competitive Bid Loans offered in such Competitive Bid Quote); (C) proposes terms
other than or in addition to those set forth in the applicable Invitation for
Competitive Bid Quotes; or (D) arrives after the time set forth in subsection
(e)(i) of this Section 2.9.1.
(f) Notice to Borrower. Not later than 10:30 a.m. (Boston
time) on the requested Drawdown Date, the Agent shall notify the Borrower of the
terms of all Competitive Bid Quotes submitted by the Banks in accordance with
subsection (e) of this Section 2.9.1. The Agent's notice to the Borrower shall
specify (i) the aggregate principal amount of Competitive Bid Loans for which
offers have been received for each Interest Period specified in the related
Competitive Bid Quote Request, and (ii) the respective principal amounts and
Competitive Bid Rates so offered.
(g) Acceptance and Notice by Borrower. Not later than 11:00
a.m. (Boston time) on the requested Drawdown Date, the Borrower shall notify the
Agent, and the Agent shall promptly notify each Bank with respect to its offer,
of the Borrower's acceptance or non-acceptance of the offers of which it was
notified pursuant to subsection (f) of this Section 2.9.1. In the case of an
acceptance, such notice shall (i) be substantially in the form of Exhibit D-5
attached hereto (a "Notice of Competitive Bid Borrowing"), (ii) be irrevocable
by the Borrower, and (iii) specify the aggregate principal amount of offers for
each Interest Period that are accepted. Each acceptance by the Borrower of
Competitive Bid Loans hereunder shall constitute a representation and warranty
by the Borrower that the conditions set forth in Sections 10 and 11 hereof have
been satisfied on the date of such acceptance. The Borrower may accept any
Competitive Bid Quote in whole or in part; provided that: (A) the aggregate
principal amount of each Competitive Bid Loan may not exceed the applicable
amount set forth in the related Competitive Bid Quote Request, (B) the aggregate
principal amount of each Competitive Bid Loan must be $2,000,000 or a larger
multiple of $1,000,000, and (C) acceptance of offers may only be made on the
basis of ascending Competitive Bid Rates.
<PAGE>
(h) Allocation by Agent; Usage of Commitments. If offers are
made by two or more Banks with the same Competitive Bid Rates, for a greater
aggregate principal amount than the amount in respect of which offers are
accepted for the related Interest Period, the principal amount of Competitive
Bid Loans in respect of which such offers are accepted shall be allocated by the
Agent among such Banks as nearly as possible (in such multiples, not less than
$100,000 as the Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. If any such Bank has indicated a minimum
acceptable Competitive Bid Loan in its Competitive Bid Request, and under the
procedures of this subsection (h), the Agent would have allocated to it an
amount less than such minimum, such Competitive Bid Quote will instead be deemed
to have been withdrawn. Determination by the Agent of the amounts of Competitive
Bid Loans and the allocation thereof shall be conclusive in the absence of
manifest error. The Agent shall, promptly after the funding of any Competitive
Bid Loan, notify the Banks thereof pursuant to a notice substantially in the
form of Exhibit D-6 attached hereto.
(i) Funding of Competitive Bid Loans. If, on or prior to the
Drawdown Date of any Competitive Bid Loan, the Total Commitment has not
terminated in full and if, on such Drawdown Date, the applicable conditions of
ss.ss.10 and 11 hereof are satisfied, the Bank or Banks whose offers the
Borrower has accepted will fund each Competitive Bid Loan so accepted as
provided in Section 2.11.1 hereof.
2.9.2. Maximum Competitive Bid Loans; Funding Losses.
(a) Notwithstanding any other provision herein to the
contrary, at no time shall the aggregate principal amount of Competitive Bid
Loans outstanding at any time exceed the lesser of (i) $30,000,000 and (ii) the
Total Commitment, minus the sum of (A) the aggregate principal amount of
Syndicated Loans outstanding at such time plus (B) the aggregate principal
amount of Swing Line Loans outstanding at such time plus (C) the Maximum Drawing
Amount plus (D) all Unpaid Reimbursement Obligations.
(b) If after acceptance of any Competitive Bid Quote pursuant
to Section 2.9.1(f) hereof, the Borrower fails to borrow any Competitive Bid
Loan so accepted on the date specified therefor, the Borrower shall indemnify
the Bank funding such Loan against any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Bank to
fund or maintain such unborrowed Competitive Bid Loans, including, without
limitation, compensation as provided in Section 5.10 hereof.
2.9.3. Repayment of Competitive Bid Loans. The principal of each
Competitive Bid Loan shall become absolutely due and payable by the Borrower on
the last day of the Interest Period relating thereto, and the Borrower hereby
absolutely and unconditionally promises to pay to the Agent, for the accounts of
the relevant Banks, on the last day of the Interest Period relating thereto the
principal amount of all such Competitive Bid Loans plus interest thereon at the
applicable Competitive Bid Rate. Subject to the terms of this Credit Agreement,
the Borrower may reborrow any amounts so repaid from time to time prior to the
Maturity Date.
<PAGE>
2.10. The Swing Line.
2.10.1. The Swing Line Loans. Subject to the terms and conditions
hereinafter set forth, upon notice by the Borrower to BKB in accordance with
this Section 2.10, BKB agrees to make loans to the Borrower (the "Swing Line
Loans") on any Business Day prior to the Maturity Date in an aggregate principal
amount (together with all other outstanding Swing Line Loans) not to exceed
$10,000,000 at any one time outstanding. Each Swing Line Loan shall be in a
minimum amount equal to $1,000,000 and in an integral multiple thereof.
Notwithstanding any other provisions of this Credit Agreement and in addition to
the limit set forth above, at no time shall the aggregate principal amountof all
outstanding Swing Line Loans exceed the lesser of (i) the Commitment of BKB then
in effect, minus the sum of (without duplication)(A) the aggregate principal
amount of all Syndicated Loans by BKB outstanding, (B) the aggregate amount of
all Competitive Bid Loans by BKB outstanding and (C) BKB's Commitment Percentage
of the Maximum Drawing Amount plus all unpaid Reimbursement Obligations, and
(ii) the Total Commitment then in effect, minus the sum of (without duplication)
(A) the aggregate principal amount of all Syndicated Loans outstanding, (B) the
aggregate amount of Competitive Bid Loans outstanding, (C) the Maximum Drawing
Amount, and (D) all Unpaid Reimbursement Obligations.
2.10.2. Notice of Borrowing. When the Borrower desires BKB to make a
Swing Line Loan, it shall send to BKB written notice in the form of Exhibit E-1
hereto (or telephonic notice confirmed in a writing in the form of Exhibit E-1
hereto) of each Swing Line Loan requested hereunder (a "Swing Line Loan
Request") not later than 1:00 p.m. (Boston time) on the proposed Drawdown Date
of any Swing Line Loan. Each such Swing Line Request Confirmation shall set
forth the principal amount of the proposed Swing Line Loan and the Swing Line
Loan Maturity Date relating to such Swing Line Loan, which shall in no event be
later than the earlier of (i) the thirtieth (30th) day after the Drawdown Date
and (ii) the Maturity Date. Not later than 2:00 p.m. (Boston time) on the
proposed Drawdown Date of any Swing Line Loan, BKB shall notify the Borrower of
the Swing Line Rate at which BKB is willing to make the requested Swing Line
Loan. If the Borrower desires to borrow the requested Swing Line Loan at the
Swing Line Rate, it shall confirm such desire by telex, facsimile or electronic
mail (a "Swing Line Request Confirmation") not later than 2:30 p.m. (Boston
time) on the proposed Drawdown Date. Each Swing Line Loan Request Confirmation
shall be irrevocable and binding on the Borrower and shall obligate the Borrower
to borrow the Swing Line Loan from BKB on the proposed Drawdown Date thereof.
Upon satisfaction of the applicable conditions set forth in this Credit
Agreement, on the proposed Drawdown Date BKB shall make the Swing Line Loan
available to the Borrower no later than 3:00 p.m. (Boston time) on the proposed
Drawdown Date by crediting the amount of the Swing Line Loan to the account
specified by the Borrower; provided that BKB shall not advance any Swing Line
Loans after it has received notice from any Bank that a Default or Event of
Default has occurred and stating that no new Swing Line Loans are to be made
until such Default or Event of Default has been cured or waived in accordance
with the provisions of this Credit Agreement.
2.10.3. Interest on Swing Line Loans. Each Swing Line Loan shall,
except as otherwise provided in ss.5.11 hereof, bear interest from the
<PAGE>
Drawdown Date thereof until repaid in full at the rate per annum equal to
the Swing Line Rate quoted for such Swing Line Loan, which shall be paid on each
Interest Payment Date for Base Rate Loans.
2.10.4. Repayment of Swing Line Loans. The Borrower shall repay each
outstanding Swing Line Loan on or prior to the Swing Line Loan Maturity Date
relating thereto. Upon notice by BKB on any Business Day following the Swing
Line Loan Maturity Date relating to each Swing Line Loan, in the event that the
Borrower has not repaid such Swing Line Loan, each of the Banks hereby agrees to
make Syndicated Loans to the Borrower constituting Base Rate Loans, on the next
succeeding Business Day following such notice, in an amount equal to such Bank's
Commitment Percentage of the aggregate amount of all Swing Line Loans
outstanding and overdue. The proceeds thereof shall be applied directly by BKB
to repay outstanding Swing Line Loans. Each Bank hereby absolutely,
unconditionally and irrevocably agrees to make such Syndicated Loans upon one
Business Day's notice as set forth above, notwithstanding (i) that the amount of
such Syndicated Loan may not comply with the applicable minimums set forth
herein, (ii) the failure of the Borrower to meet the applicable conditions set
forth herein, (iii) the occurrence or continuance of a Default or an Event of
Default hereunder, and (iv) the Total Commitment in effect at such time. In the
event that it is impracticable for such Syndicated Loan to be made for any
reason on the date otherwise required above, then each Bank hereby agrees that
it shall forthwith purchase (as of the date such Syndicated Loan would have been
made, but adjusted for any payments received from the Borrower on or after such
date and prior to such purchase) from BKB, and BKB shall sell to each Bank, such
participations in the Swing Line Loans (including all accrued and unpaid
interest thereon) outstanding as shall be necessary to cause the Banks to share
in such Swing Line Loans pro rata based on their respective Commitment
Percentages (without regard to any termination of the Total Commitment
hereunder) by making available to BKB an amount equal to such Bank's
participation in the Swing Line Loans; provided that (x) all interest payable on
the Swing Line Loans (other than interest received by BKB pursuant to clause (y)
below) shall be for the account of BKB as a funding and administrative fee until
the date as of which the respective participation is purchased, and (y) at the
time any purchase of such participation is actually made, the purchasing Bank
shall be required to pay BKB interest on the principal amount of the
participation so purchased for each day from and including the date such Loan
would otherwise have been made until the date of payment for such participation
at the rate of interest then applicable to such Swing Line Loans during such
period. The Borrower shall have the right, at its election, to repay the
outstanding amount of a Swing Line Loan, as a whole or in part, at any time
without penalty or premium, provided that any full or partial repayment of the
outstanding amount of any Swing Line Loan may be made only on the last day of
the Interest Period relating thereto unless the Borrower pays, in accordance
with Section 5.10, BKB the costs and expenses incurred by BKB as a result of the
repayment of such Swing Line Loan on a day other than the last day of such
Interest Period relating thereto.
2.10.5. The Swing Line Note. The obligation of the Borrower to repay
the Swing Line Loans made pursuant to this Agreement and to pay interest thereon
as set forth in this Agreement shall be evidenced by a promissory note of the
Borrower substantially in the form of Exhibit E-2 attached hereto
<PAGE>
(the "Swing Line Note"), dated the Closing Date and payable to the order
of BKB in a principal amount stated to be the lesser of (i) $10,000,000 and (ii)
the aggregate principal amount of Swing Line Loans at any time advanced by BKB
and outstanding hereunder. The Borrower irrevocably authorizes BKB to make or
cause to be made, at or about the time of the Drawdown Date of any Swing Line
Loan or at the time of receipt of any payment of principal on the Swing Line
Note, an appropriate notation on the grid attached to such Note or BKB's records
reflecting the making of such Swing Line Loan or (as the case may be) the
receipt of such payment. The outstanding amount of the Swing Line Loans set
forth on such grid or such records shall be prima facie evidence of the
principal amount thereof owing and unpaid to BKB, but the failure to record, or
any error in so recording, any such amount on such Note or such records shall
not limit or otherwise affect the actual amount of the obligations of the
Borrower hereunder or under the Swing Line Note to make payments of principal of
or interest on the Swing Line Note when due.
2.11. Funds for Syndicated Loan.
2.11.1. Funding Procedures. Not later than 11:00 a.m. (Boston time)
on the proposed Drawdown Date of any Syndicated Loans, each of the Banks will
make available to the Agent, at the Agent's Head Office, in immediately
available funds, the amount of such Bank's Commitment Percentage of the amount
of the requested Syndicated Loans. Upon receipt from each Bank of such amount,
and upon receipt of the documents required by Sections 10 and 11 and the
satisfaction of the other conditions set forth therein, to the extent
applicable, the Agent will make available to the Borrower the aggregate amount
of such Syndicated Loans made available to the Agent by the Banks. The failure
or refusal of any Bank to make available to the Agent at the aforesaid time and
place on any Drawdown Date the amount of its Commitment Percentage of the
requested Syndicated Loans shall not relieve any other Bank from its several
obligation hereunder to make available to the Agent the amount of such other
Bank's Commitment Percentage of any requested Syndicated Loans.
2.11.2. Advances by Agent. The Agent may, unless notified to the
contrary by any Bank prior to a Drawdown Date, assume that such Bank has made
available to the Agent on such Drawdown Date the amount of such Bank's
Commitment Percentage of the Syndicated Loans to be made on such Drawdown Date,
and the Agent may (but it shall not be required to), in reliance upon such
assumption, make available to the Borrower a corresponding amount. If any Bank
makes available to the Agent such amount on a date after such Drawdown Date,
such Bank shall pay to the Agent on demand an amount equal to the product of (i)
the average computed for the period referred to in clause (iii) below, of the
weighted average interest rate paid by the Agent for federal funds acquired by
the Agent during each day included in such period, times (ii) the amount of such
Bank's Commitment Percentage of such Syndicated Loans, times (iii) a fraction,
the numerator of which is the number of days that elapse from and including such
Drawdown Date to the date on which the amount of such Bank's Commitment
Percentage of such Syndicated Loans shall become immediately available to the
Agent, and the denominator of which is 365. A statement of the Agent submitted
to such Bank with respect to any amounts owing under this paragraph shall be
prima facie evidence of the
<PAGE>
amount due and owing to the Agent by such Bank. If the amount of such
Bank's Commitment Percentage of such Syndicated Loans is not made available to
the Agent by such Bank within three (3) Business Days following such Drawdown
Date, the Agent shall be entitled to recover such amount from the Borrower on
demand, with interest thereon at the rate per annum applicable to the Syndicated
Loans made on such Drawdown Date.
3. REPAYMENT OF THE LOANS.
3.1. Maturity. The Borrower promises to pay on the Maturity Date, and
there shall become absolutely due and payable on the Maturity Date, all of the
Loans outstanding on such date, together with any and all accrued and unpaid
interest thereon.
3.2. Mandatory Repayments of Loans. If at any time the sum of the
outstanding amount of the Loans, the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations exceeds the Total Commitment, then the Borrower shall
immediately pay the amount of such excess to the Agent for the respective
accounts of the Banks for application: first, to any Unpaid Reimbursement
Obligations; second, to the Loans; and third, to provide to the Agent cash
collateral for Reimbursement Obligations as contemplated by Section 4.2(b) and
(c). Each payment of any Unpaid Reimbursement Obligations or prepayment of Loans
shall be allocated among the Banks, in proportion, as nearly as practicable, to
each Reimbursement Obligation or (as the case may be) the respective unpaid
principal amount of each Bank's Revolving Credit Note, with adjustments to the
extent practicable to equalize any prior payments or repayments not exactly in
proportion.
3.3. Optional Repayments of Syndicated Loans. The Borrower shall have the
right, at its election, to repay the outstanding amount of the Syndicated Loans,
as a whole or in part, at any time without penalty or premium, provided that any
full or partial repayment of the outstanding amount of any LIBOR Rate Loans
pursuant to this Section 3.3 other than on the last day of the Interest Period
relating thereto shall be subject to Section 5.10. The Borrower shall give the
Agent prior written notice (including without limitation by telex, facsimile or
electronic mail) of any proposed prepayment pursuant to this Section 3.3, no
later than 1:00 p.m., Boston time, on the proposed prepayment date, with respect
to any proposed prepayment of Base Rate Loans, and three (3) LIBOR Business Days
prior to any proposed prepayment of LIBOR Rate Loans, in each case specifying
the proposed date of prepayment of Loans and the principal amount to be prepaid.
Each such partial prepayment of the Syndicated Loans shall be in a minimum
amount of $5,000,000 and an integral multiple of $1,000,000, shall be
accompanied by the payment of accrued interest on the principal prepaid to the
date of prepayment and shall be applied, in the absence of instruction by the
Borrower, first to the principal of Base Rate Loans and then to the principal of
LIBOR Rate Loans. Each partial prepayment shall be allocated among the Banks, in
proportion, as nearly as practicable, to the respective unpaid principal amount
of each Bank's Revolving Credit Note, with adjustments to the extent practicable
to equalize any prior repayments not exactly in proportion.
<PAGE>
4. LETTERS OF CREDIT.
4.1. Letter of Credit Commitments.
4.1.1. Commitment to Issue Letters of Credit. Subject to the terms
and conditions hereof and the execution and delivery by the Borrower of a letter
of credit application on the Agent's customary form (a "Letter of Credit
Application"), the Agent on behalf of the Banks and in reliance upon the
agreement of the Banks set forth in Section 4.1.4 and upon the representations
and warranties of the Borrower contained herein, agrees, in its individual
capacity, to issue, extend and renew for the account of the Borrower one or more
standby or documentary letters of credit (individually, a "Letter of Credit"),
in such form as may be requested from time to time by the Borrower and agreed to
by the Agent; provided, however, that, after giving effect to such request, (a)
the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement
Obligations shall not exceed $55,000,000 at any one time and (b) the sum of (i)
the Maximum Drawing Amount on all Letters of Credit, (ii) all Unpaid
Reimbursement Obligations, and (iii) the amount of all Loans outstanding shall
not exceed the Total Commitment.
4.1.2. Letter of Credit Applications. Each Letter of Credit
Application shall be completed to the satisfaction of the Agent. In the event
that any provision of any Letter of Credit Application shall be inconsistent
with any provision of this Credit Agreement, then the provisions of this Credit
Agreement shall, to the extent of any such inconsistency, govern.
4.1.3. Terms of Letters of Credit. Each Letter of Credit issued,
extended or renewed hereunder shall, among other things, (i) provide for the
payment of sight drafts for honor thereunder when presented in accordance with
the terms thereof and when accompanied by the documents described therein, and
(ii) have an expiry date no later than the date which is fourteen (14) days
prior to the Maturity Date. Each Letter of Credit so issued, extended or renewed
shall be subject to the Uniform Customs or, in the case of a standby Letter of
Credit, either the Uniform Customs or the International Standby Practices.
4.1.4. Reimbursement Obligations of Banks. Each Bank severally
agrees that it shall be absolutely liable, without regard to the occurrence of
any Default or Event of Default or any other condition precedent whatsoever, to
the extent of such Bank's Commitment Percentage, to reimburse the Agent on
demand for the amount of each draft paid by the Agent under each Letter of
Credit to the extent that such amount is not reimbursed by the Borrower pursuant
to Section 4.2 (such agreement for a Bank being called herein the "Letter of
Credit Participation" of such Bank).
4.1.5. Participations of Banks. Each such payment made by a Bank
shall be treated as the purchase by such Bank of a participating interest in the
Borrower's Reimbursement Obligation under Section 4.2 in an amount equal to such
payment. Each Bank shall share in accordance with its participating interest in
any interest which accrues pursuant to Section 4.2.
<PAGE>
4.2. Reimbursement Obligation of the Borrower. In order to induce the
Agent to issue, extend and renew each Letter of Credit and the Banks to
participate therein, the Borrower hereby agrees to reimburse or pay to the
Agent, for the account of the Agent or (as the case may be) the Banks, with
respect to each Letter of Credit issued, extended or renewed by the Agent
hereunder,
(a) except as otherwise expressly provided in Section 4.2(b) and (c), on
each date that any draft presented under such Letter of Credit is honored by the
Agent, or the Agent otherwise makes a payment with respect thereto, (i) the
amount paid by the Agent under or with respect to such Letter of Credit, and
(ii) the amount of any taxes, fees, charges or other costs and expenses
whatsoever incurred by the Agent or any Bank in connection with any payment made
by the Agent or any Bank under, or with respect to, such Letter of Credit,
(b) upon the reduction (but not termination) of the Total Commitment to an
amount less than the Maximum Drawing Amount, an amount equal to such difference,
which amount shall be held by the Agent for the benefit of the Banks and the
Agent as cash collateral for all Reimbursement Obligations, and
(c) upon the termination of the Total Commitment, or the acceleration of
the Reimbursement Obligations with respect to all Letters of Credit in
accordance with Section 12, an amount equal to the then Maximum Drawing Amount
on all Letters of Credit, which amount shall be held by the Agent for the
benefit of the Banks and the Agent as cash collateral for all Reimbursement
Obligations.
Each such payment shall be made to the Agent at the Agent's Head Office in
immediately available funds. Interest on any and all amounts remaining unpaid by
the Borrower under this Section 4.2 at any time from the date such amounts
become due and payable (whether as stated in this Section 4.2, by acceleration
or otherwise) until payment in full (whether before or after judgment) shall be
payable to the Agent on demand at the rate specified in Sectoin 5.11 for overdue
principal on the Loans.
4.3. Letter of Credit Payments. If any draft shall be presented or other
demand for payment shall be made under any Letter of Credit, the Agent shall
notify the Borrower of the date and amount of the draft presented or demand for
payment and of the date and time when it expects to pay such draft or honor such
demand for payment. If the Borrower fails to reimburse the Agent as provided in
Section 4.2 on or before the date that such draft is paid or other payment is
made by the Agent, the Agent may at any time thereafter notify the Banks of the
amount of any such Unpaid Reimbursement Obligation. No later than 3:00 p.m.
(Boston time) on the Business Day next following the receipt of such notice,
each Bank shall make available to the Agent, at the Agent's Head Office, in
immediately available funds, such Bank's Commitment Percentage of such Unpaid
Reimbursement Obligation, together with an amount equal to the product of (i)
the average, computed for the period referred to in clause (iii) below, of the
weighted average interest rate paid by the Agent for federal funds acquired by
the Agent during each day included in such period, times (ii) the amount equal
to such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation,
times (iii) a fraction, the
<PAGE>
numerator of which is the number of days that elapse from and including
the date the Agent paid the draft presented for honor or otherwise made payment
to the date on which such Bank's Commitment Percentage of such Unpaid
Reimbursement obligation shall become immediately available to the Agent, and
the denominator of which is 360. The responsibility of the Agent to the Borrower
and the Banks shall be only to determine that the documents (including each
draft) delivered under each Letter of Credit in connection with such presentment
shall be in conformity in all material respects with such Letter of Credit.
4.4. Obligations Absolute. The Borrower's obligations under this ss.4
shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Agent, any Bank or any
beneficiary of a Letter of Credit. The Borrower further agrees with the Agent
and the Banks that the Agent and the Banks shall not be responsible for, and the
Borrower's Reimbursement Obligations under Section 4.2 shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, fraudulent or forged, or any dispute between or among
the Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of the Borrower against the beneficiary of any
Letter of Credit or any such transferee. The Agent and the Banks shall not be
liable for any error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in connection with
any Letter of Credit. The Borrower agrees that any action taken or omitted by
the Agent or any Bank under or in connection with each Letter of Credit and the
related drafts and documents, if done in good faith, shall be binding upon the
Borrower and shall not result in any liability on the part of the Agent or any
Bank to the Borrower.
4.5. Reliance by Issuer. To the extent not inconsistent with Section 4.4,
the Agent shall be entitled to rely, and shall be fully protected in relying
upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent. The Agent shall be fully justified in
failing or refusing to take any action under this Credit Agreement unless it
shall first have received such advice or concurrence of the Majority Banks as it
reasonably deems appropriate or it shall first be indemnified to its reasonable
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Credit Agreement in accordance with a request of the Majority
Banks, and such request and any action taken or failure to act pursuant thereto
shall be binding upon the Banks and all future holders of the Revolving Credit
Notes or of a Letter of Credit Participation.
<PAGE>
4.6. Letter of Credit Fee. The Borrower shall pay to the Agent quarterly
in arrears, for the accounts of the Banks in accordance with their respective
Commitment Percentages, a fee (in each case, a "Letter of Credit Fee") with
respect to each Letter of Credit issued or renewed, at rate per annum equal to
(i) in respect of each standby Letter of Credit, the Letter of Credit Rate (as
set forth in the Applicable Pricing), and (ii) in respect of each documentary
Letter of Credit, 75% of the Letter of Credit Rate (but not less than 0.50%), in
each case computed on the Maximum Drawing Amount of such Letter of Credit for
the period such Letter of Credit is outstanding. In respect of each Letter of
Credit, the Borrower shall also pay to the Agent, for the Agent's own account,
(x) on the date of issuance of any extension or renewal of a Letter of Credit, a
fronting fee in an amount equal to one-eighth of one percent (0.125%) multiplied
by the face amount of such Letter of Credit and (y) at such other time or times
as such charges are customarily made by the Agent, the Agent's customary
issuance, amendment, negotiation or document examination and other
administrative fees as in effect from time to time.
5. CERTAIN GENERAL PROVISIONS.
5.1. Agent's Fee. The Borrower shall pay to the Agent annually in advance,
for the Agent's own account, on the Closing Date and on each anniversary of the
Closing Date, an Agent's fee initially in the amount of $30,000.
5.2. Arrangement Fee. The Borrower agrees to pay to the Agent, for the
account of BancBoston Robertson Stephens Inc., as Arranger, on the Closing Date,
an arrangement fee as set forth the fee letter dated November 3, 1999, among the
Borrower, the Agent and BancBoston Robertson Stephens Inc.
5.3. Funds for Payments.
5.3.1. Payments to Agent. All payments of principal, interest,
Reimbursement Obligations, Letter of Credit Fees, Facility Fees, Utilization
Fees and any other amounts due hereunder or under any of the other Loan
Documents shall be made on the due date thereof to the Agent in Dollars, for the
respective accounts of the Banks and the Agent, at the Agent's Head Office or at
such other place that the Agent may from time to time designate, in each case at
or about 11:00 a.m. (Boston, Massachusetts, time or other local time at the
place of payment) and in immediately available funds.
5.3.2. No Offset, etc. All payments by the Borrower hereunder and
under any of the other Loan Documents shall be made without recoupment, setoff
or counterclaim and free and clear of and without deduction for any taxes,
levies, imposts, duties, charges, fees, deductions, withholdings, compulsory
loans, restrictions or conditions of any nature now or hereafter imposed or
levied by any jurisdiction or any political subdivision thereof or taxing or
other authority therein unless the Borrower is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the Borrower
with respect to any amount payable by it hereunder or under any of the other
Loan Documents, the Borrower will pay to the Agent, for the account of the Banks
or (as the case may be) the Agent, on the date on which such amount is due and
payable hereunder or under such other Loan Document,
<PAGE>
such additional amount in Dollars as shall be necessary to enable the
Banks or the Agent to receive the same net amount which the Banks or the Agent
would have received on such due date had no such obligation been imposed upon
the Borrower. The Borrower will deliver promptly to the Agent certificates or
other valid vouchers for all taxes or other charges deducted from or paid with
respect to payments made by the Borrower hereunder or under such other Loan
Document.
5.4. Computations. All computations of interest on the Loans (other than
LIBOR Rate Loans) and of Letter of Credit Fees, Facility Fees and Utilization
Fees shall be based on a 365/366-day year and paid for the actual number of days
elapsed. Computations of interest on LIBOR Rate Loans shall be based on a
360-day year and paid for the actual number of days elapsed. Except as otherwise
provided in the definition of the term Interest Period with respect to LIBOR
Rate Loans, whenever a payment hereunder or under any of the other Loan
Documents becomes due on a day that is not a Business Day, the due date for such
payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension. The outstanding amount of the Loans as
reflected on the Records of the related Notes from time to time shall be
considered correct and binding on the Borrower unless within five (5) Business
Days after receipt of any notice by the Agent or any of the Banks of such
outstanding amount, the Agent or such Bank shall notify the Borrower to the
contrary.
5.5. Inability to Determine LIBOR Rate. In the event, prior to the
commencement of any Interest Period relating to any LIBOR Rate Loan, the Agent
shall determine that adequate and reasonable methods do not exist for
ascertaining the LIBOR Rate that would otherwise determine the rate of interest
to be applicable to any LIBOR Rate Loan during any Interest Period, the Agent
shall forthwith give notice of such determination (which shall be conclusive and
binding on the Borrower and the Banks) to the Borrower and the Banks. In such
event (i) any Loan Request or Conversion Request with respect to LIBOR Rate
Loans shall be automatically withdrawn and shall be deemed a request for Base
Rate Loans, (ii) each LIBOR Rate Loan will automatically, on the last day of the
then current Interest Period relating thereto, become a Base Rate Loan, and
(iii) the obligations of the Banks to make LIBOR Rate Loans shall be suspended
until the Agent determines that the circumstances giving rise to such suspension
no longer exist, whereupon the Agent shall so notify the Borrower and the Banks.
5.6. Illegality. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or in the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
LIBOR Rate Loans, such Bank shall forthwith give notice of such circumstances to
the Borrower and the other Banks and thereupon (i) the commitment of such Bank
to make LIBOR Rate Loans or convert Loans of another Type to LIBOR Rate Loans
shall forthwith be suspended and (ii) such Bank's Loans then outstanding as
LIBOR Rate Loans, if any, shall be converted automatically to Base Rate Loans on
the last day of each Interest Period applicable to such LIBOR Rate Loans or
within such earlier period as may be required by law. The Borrower hereby agrees
promptly to pay the Agent for the account of such Bank, upon demand by such
Bank, any additional amounts necessary to compensate such Bank for any costs
incurred by such Bank in
<PAGE>
making any conversion in accordance with this Section 5.6, including any
interest or fees payable by such Bank to lenders of funds obtained by it in
order to make or maintain its LIBOR Rate Loans hereunder.
5.7. Additional Costs, etc. If any present or future applicable law, which
expression, as used herein, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time hereafter made upon or otherwise issued to any Bank or
the Agent by any central bank or other fiscal, monetary or other authority
(whether or not having the force of law), shall:
(a) subject any Bank or the Agent to any tax, levy, impost, duty, charge,
fee, deduction or withholding of any nature with respect to this Credit
Agreement, the other Loan Documents, any Letters of Credit, such Bank's
Commitment or the Loans (other than taxes based upon or measured by the income
or profits of such Bank or the Agent), or
(b) materially change the basis of taxation (except for changes in taxes
on income or profits) of payments to any Bank of the principal of or the
interest on any Loans or any other amounts payable to any Bank or the Agent
under this Credit Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Credit Agreement) any special
deposit, reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held by, or
deposits in or for the account of, or loans by, or letters of credit issued by,
or commitments of an office of any Bank, or
(d) impose on any Bank or the Agent any other conditions or requirements
with respect to this Credit Agreement, the other Loan Documents, any Letters of
Credit, the Loans, such Bank's Commitment, or any class of loans, letters of
credit or commitments of which any of the Loans or such Bank's Commitment forms
a part, and the result of any of the foregoing is
(i) to increase the cost to any Bank of making, funding, issuing,
renewing, extending or maintaining any of the Loans or such Bank's Commitment or
any Letter of Credit, or
(ii) to reduce the amount of principal, interest, Reimbursement
Obligation or other amount payable to such Bank or the Agent hereunder on
account of such Bank's Commitment, any Letter of Credit or any of the Loans, or
(iii) to require such Bank or the Agent to make any payment or to
forego any interest or Reimbursement Obligation or other sum payable hereunder,
the amount of which payment or foregone interest or Reimbursement Obligation or
other sum is calculated by reference to the gross amount of any sum receivable
or deemed received by such Bank or the Agent from the Borrower hereunder,
<PAGE>
then, and in each such case, the Borrower will, upon demand made by such
Bank or (as the case may be) the Agent at any time and from time to time and as
often as the occasion therefor may arise, pay to such Bank or the Agent such
additional amounts as will be sufficient to compensate such Bank or the Agent
for such additional cost, reduction, payment or foregone interest or
Reimbursement Obligation or other sum.
5.8. Capital Adequacy. If after the date hereof any Bank or the Agent
determines that (i) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (ii) compliance by such Bank or the
Agent or any corporation controlling such Bank or the Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has the
effect of reducing the return on such Bank's or the Agent's commitment with
respect to any Loans to a level below that which such Bank or the Agent could
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's or the Agent's then existing policies with respect to
capital adequacy and assuming full utilization of such entity's capital) by any
amount deemed by such Bank or (as the case may be) the Agent to be material,
then such Bank or the Agent may notify the Borrower of such fact. To the extent
that the amount of such reduction in the return on capital is not reflected in
the Base Rate, the Borrower agrees to pay such Bank or (as the case may be) the
Agent for the amount of such reduction in the return on capital as and when such
reduction is determined upon presentation by such Bank or (as the case may be)
the Agent of a certificate in accordance with ss.5.9 hereof. Each Bank shall
allocate such cost increases among its customers in good faith and on an
equitable basis.
5.9. Certificate. A certificate setting forth any additional amounts
payable pursuant to Sections 5.7 or 5.8 and a brief explanation of such amounts
which are due, submitted by any Bank or the Agent to the Borrower, shall be
prima facie evidence, absent demonstrable error, that such amounts are due and
owing.
5.10. Indemnity. The Borrower agrees to indemnify each Bank and to hold
each Bank harmless from and against any loss, cost or expense (including loss of
anticipated profits) that such Bank may sustain or incur as a consequence of (i)
default by the Borrower in payment of the principal amount of or any interest on
any LIBOR Rate Loans as and when due and payable, including any such loss or
expense arising from interest or fees payable by such Bank to lenders of funds
obtained by it in order to maintain its LIBOR Rate Loans, (ii) default by the
Borrower in making a borrowing or conversion after the Borrower has given (or is
deemed to have given) a Loan Request or a Conversion Request relating thereto in
accordance with Secton 2.7 or Section 2.8 or (iii) the making of any payment of
a LIBOR Rate Loan or the making of any conversion of any such Loan to a Base
Rate Loan on a day that is not the last day of the applicable Interest Period
with respect thereto, including interest or fees payable by such Bank to lenders
of funds obtained by it in order to maintain any such Loans.
<PAGE>
5.11. Interest After Default.
5.11.1. Overdue Amounts. Overdue principal and (to the extent
permitted by applicable law) interest on the Loans and all other overdue amounts
payable hereunder or under any of the other Loan Documents shall bear interest
compounded monthly and payable on demand at a rate per annum equal to two
percent (2%) above the rate otherwise applicable until such amount shall be paid
in full (after as well as before judgment).
5.11.2. Amounts Not Overdue. During the continuance of an Event of
Default the principal of the Loans not overdue shall, until such Event of
Default has been cured or remedied or such Event of Default has been waived by
the Majority Banks pursuant to ss.25, bear interest at a rate per annum equal to
two percent (2%) above the rate of interest otherwise applicable to such Loans
hereunder.
5.12. HLT Classification. If, after the date hereof, the Agent determines
or is advised by any Bank that such Bank has determined, or the Agent receives
notice from or is advised by any Bank that such Bank has received notice from
any governmental authority, central bank or comparable agency having
jurisdiction over such Bank, that any of the Commitments, Loans, Letters of
Credit or Letter of Credit Participations are classified as a "highly leveraged
transaction" (an "HLT Classification") pursuant to any existing regulations
regarding "highly leveraged transactions" or any modification, amendment or
interpretation thereof, or the adoption of new regulations regarding "highly
leveraged transactions" after the date hereof by any governmental authority,
central bank or comparable agency, the Agent shall promptly give notice of such
HLT Classification to the Borrower and the Banks. The Agent, the Banks and the
Borrower shall thereupon commence negotiations in good faith to agree on the
extent to which fees, interest rates and/or margins hereunder should be
increased so as to reflect such HLT Classification. If the Borrower and the
Majority Banks agree on the amount of such increase or increases, this Credit
Agreement shall be promptly amended to give effect to such increase or
increases. If the Borrower and the Majority Banks fail to so agree and the
Borrower has failed to refinance the Obligations within ninety (90) days after
notice is given by the Agent as provided above, then the Agent shall, if so
requested by the Majority Banks, by notice to the Borrower terminate the
Commitments, and the Commitments shall thereupon terminate, with the provisions
of Sections 3.2 and 4.2(c) then becoming applicable. The Agent and the Banks
acknowledge that an HLT Classification is not a Default or an Event of Default.
5.13. Guaranties of Subsidiaries. The Obligations shall be guaranteed
pursuant to the terms of the Guaranty given by each Significant Subsidiary. The
Borrower agrees to notify the Agent promptly of any Subsidiary qualifying as a
Significant Subsidiary which shall not have theretofore executed and delivered a
Guaranty, and to cause such Subsidiary to execute and deliver a Guaranty to the
Agent.
6. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Banks and the Agent as
follows:
<PAGE>
6.1. Corporate Authority.
6.1.1. Incorporation; Good Standing. Each of the Borrower and its
Significant Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation, (ii) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated, and (iii) is in good standing as a
foreign corporation and is duly authorized to do business in each jurisdiction
where such qualification is necessary except where a failure to be so qualified
would not have a materially adverse effect on the business, assets or financial
condition of the Borrower or such Subsidiary. Schedule 6.1 hereto sets forth the
names and jurisdictions of organization of all Subsidiaries of the Borrower,
specifying those which are Significant Subsidiaries on the date hereof.
6.1.2. Authorization. The execution, delivery and performance of
this Credit Agreement and the other Loan Documents to which the Borrower or any
of its Subsidiaries is or is to become a party and the transactions contemplated
hereby and thereby (i) are within the corporate authority of such Person, (ii)
have been duly authorized by all necessary corporate proceedings, (iii) do not
conflict with or result in any breach or contravention of any provision of law,
statute, rule or regulation to which the Borrower or any of its Subsidiaries is
subject or any judgment, order, writ, injunction, license or permit applicable
to the Borrower or any of its Subsidiaries and (iv) do not conflict with any
provision of the corporate charter or bylaws of, or any agreement or other
instrument binding upon, the Borrower or any of its Subsidiaries.
6.1.3. Enforceability. The execution and delivery of this Credit
Agreement and the other Loan Documents to which the Borrower or any of its
Subsidiaries is or is to become a party will result in valid and legally binding
obligations of such Person enforceable against it in accordance with the
respective terms and provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights and
except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
6.2. Governmental Approvals. The execution, delivery and performance by
the Borrower and any of its Subsidiaries of this Credit Agreement and the other
Loan Documents to which the Borrower or any of its Subsidiaries is or is to
become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.
6.3. Title to Properties; Leases. Except as indicated on Schedule 6.3
hereto, the Borrower and its Subsidiaries own all of the assets reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries as at the
Balance Sheet Date or acquired since that date (except property and assets sold
or otherwise disposed of in the ordinary course of business since that date),
subject to no rights of others, including any mortgages, leases,
<PAGE>
conditional sales agreements, title retention agreements, liens or other
encumbrances except Permitted Liens.
6.4. Financial Statements.
6.4.1. Fiscal Year. The Borrower and each of its Significant
Subsidiaries has a fiscal year which is the twelve months ending on the Friday
closest to November 30 in each calendar year.
6.4.2. Financial Statements. There has been furnished to each of the
Banks an unaudited consolidated balance sheet of the Borrower and its
Subsidiaries as at the Balance Sheet Date, and an unaudited consolidated
statement of income of the Borrower and its Subsidiaries for the fiscal year
then ended. The Borrower shall furnish to each of the Banks, as soon as
available, a copy of such consolidated balance sheet as at the Balance Sheet
Date and such consolidated statement for the fiscal year then ended, as
certified by PricewaterhouseCoopers LLP. Such balance sheets and statements of
income have been prepared in accordance with generally accepted accounting
principles and fairly present the financial condition of the Borrower as at the
close of business on the date thereof and the results of operations for the
fiscal year then ended (subject, in the case of the unaudited financial
statements, to adjustments and notes included in the audited financial
statements). There are no contingent liabilities of the Borrower or any of its
Subsidiaries as of such date involving material amounts, known to the officers
of the Borrower, which were not disclosed in such balance sheet and the notes
related thereto.
6.5. No Material Changes, etc. Since the Balance Sheet Date, except as set
forth in Schedule 6.5 hereto, there has occurred no materially adverse change in
the financial condition or business of the Borrower and its Subsidiaries taken
as a whole as shown on or reflected in the consolidated balance sheet of the
Borrower and its Subsidiaries as at the Balance Sheet Date, or the consolidated
statement of income for the fiscal year then ended, other than changes in the
ordinary course of business that have not had any materially adverse effect
either individually or in the aggregate on the business or financial condition
of the Borrower or any of its Significant Subsidiaries. Since the Balance Sheet
Date, except as set forth in Schedule 6.5, the Borrower has not made any
Distribution.
6.6. Franchises, Patents, Copyrights, etc. Each of the Borrower and its
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others.
6.7. Litigation. Except as set forth in Schedule 6.7 hereto, there are no
actions, suits, proceedings or investigations of any kind pending or threatened
against the Borrower or any of its Subsidiaries before any court, tribunal or
administrative agency or board that, if adversely determined, might, either in
any case or in the aggregate, materially adversely affect the properties,
assets, financial condition or business of the Borrower and its Subsidiaries
considered as a whole or materially impair the right of the Borrower and its
Subsidiaries considered as a whole to carry on business
<PAGE>
substantially as now conducted by them, or result in any substantial
liability not adequately covered by insurance, or for which adequate reserves
are not maintained on the consolidated balance sheet of the Borrower and its
Subsidiaries, or which question the validity of this Credit Agreement or any of
the other Loan Documents, or any action taken or to be taken pursuant hereto or
thereto.
6.8. No Materially Adverse Contracts, etc. Neither the Borrower nor any of
its Significant Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower or any of its Significant
Subsidiaries. Neither the Borrower nor any of its Significant Subsidiaries is a
party to any contract or agreement that has or is expected, in the judgment of
the Borrower's officers, to have any materially adverse effect on the business
of the Borrower or any of its Significant Subsidiaries.
6.9. Compliance with Other Instruments, Laws, etc. Neither the Borrower
nor any of its Significant Subsidiaries is in violation of any provision of its
charter documents, bylaws, or any agreement or instrument to which it may be
subject or by which it or any of its properties may be bound or any decree,
order, judgment, statute, license, rule or regulation, in any of the foregoing
cases in a manner that could result in the imposition of substantial penalties
or materially and adversely affect the financial condition, properties or
business of the Borrower or any of its Significant Subsidiaries.
6.10. Tax Status. The Borrower and its Subsidiaries (i) have made or filed
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which any of them is subject, (ii) have paid all
taxes and other governmental assessments and charges shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and by appropriate proceedings and (iii) have set aside on their
books provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Borrower know of no basis
for any such claim.
6.11. No Event of Default. No Default or Event of Default has
occurred and is continuing.
6.12. Holding Company and Investment Company Acts. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
6.13. Absence of Financing Statements, etc. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
<PAGE>
mortgage, real estate mortgage or other document filed or recorded with
any filing records, registry or other public office, that purports to cover,
affect or give notice of any present or possible future lien on, or security
interest in, any assets or property of the Borrower or any of its Significant
Subsidiaries or any rights relating thereto.
6.14. Certain Transactions. Except as set forth in Schedule 6.14, none of
the officers, directors, or employees of the Borrower or any of its Significant
Subsidiaries is presently a party to any transaction with the Borrower or any of
its Significant Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
6.15. Employee Benefit Plans.
6.15.1. In General. Each Employee Benefit Plan and each Guaranteed
Pension Plan has been maintained and operated in compliance in all material
respects with the provisions of ERISA and, to the extent applicable, the Code,
including but not limited to the provisions thereunder respecting prohibited
transactions and the bonding of fiduciaries and other persons handling plan
funds as required by Section 412 of ERISA. The Borrower has heretofore delivered
to the Agent the most recently completed annual report, Form 5500, with all
required attachments, and actuarial statement required to be submitted under
Section 103(d) of ERISA, with respect to each Guaranteed Pension Plan.
6.15.2. Terminability of Welfare Plans. No Employee Benefit Plan,
which is an employee welfare benefit plan within the meaning of Section 3(1) or
Section 3(2)(B) of ERISA, provides benefit coverage subsequent to termination of
employment, except as required by Title I, Part 6 of ERISA or the applicable
state insurance laws. The Borrower may terminate each such Plan at any time (or
at any time subsequent to the expiration of any applicable bargaining agreement)
in the discretion of the Borrower without liability to any Person other than for
claims arising prior to termination.
6.15.3. Guaranteed Pension Plans. Each contribution required to be
made to a Guaranteed Pension Plan, whether required to be made to avoid the
incurrence of an accumulated funding deficiency, the notice or lien provisions
of Section 302(f) of ERISA, or otherwise, has been timely made. No waiver of an
accumulated funding deficiency or extension of amortization periods has been
received with respect to any Guaranteed Pension Plan, and neither the Borrower
nor any ERISA Affiliate is obligated to or has posted security in connection
with an amendment to a Guaranteed Pension Plan pursuant to Section 307 of ERISA
or Section 401(a)(29) of the Code. No liability to the PBGC (other than required
insurance premiums, all of which have been paid) has been incurred by the
Borrower or any ERISA Affiliate with respect to any Guaranteed Pension Plan and
there has not been any ERISA Reportable Event (other than an ERISA Reportable
Event as to which the requirement of 30 days
<PAGE>
notice has been waived), or any other event or condition which presents a
material risk of termination of any Guaranteed Pension Plan by the PBGC. Based
on the latest valuation of each Guaranteed Pension Plan (which in each case
occurred within twelve months of the date of this representation), and on the
actuarial methods and assumptions employed for that valuation, the aggregate
benefit liabilities of all such Guaranteed Pension Plans within the meaning of
Section 4001 of ERISA did not exceed the aggregate value of the assets of all
such Guaranteed Pension Plans, disregarding for this purpose the benefit
liabilities and assets of any Guaranteed Pension Plan with assets in excess of
benefit liabilities.
6.15.4. Multiemployer Plans. Neither the Borrower nor any ERISA
Affiliate has incurred any material liability (including secondary liability) to
any Multiemployer Plan as a result of a complete or partial withdrawal from such
Multiemployer Plan under Section 4201 of ERISA or as a result of a sale of
assets described in Section 4204 of ERISA. Neither the Borrower nor any ERISA
Affiliate has been notified that any Multiemployer Plan is in reorganization or
insolvent under and within the meaning of Section 4241 or Section 4245 of ERISA
or is at risk of entering reorganization or becoming insolvent, or that any
Multiemployer Plan intends to terminate or has been terminated under Section
4041A of ERISA.
6.16. Use of Proceeds.
6.16.1. General. The proceeds of the Loans shall be used for share
repurchases (subject to Section 8.4), acquisitions (subject to Section 8.5.3),
working capital and general corporate purposes.
6.16.2. Regulations U and X. No portion of any Loan is to be used,
and no portion of any Letter of Credit is to be obtained, for the purpose of
purchasing or carrying any "margin security" or "margin stock" as such terms are
used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. Parts 221 and 224.
6.16.3. Ineligible Securities. No portion of the proceeds of any
Loans is to be used, and no portion of any Letter of Credit is to be obtained,
for the purpose of knowingly purchasing, or providing credit support for the
purchase of, during the underwriting or placement period or within 30 days
thereafter, any Ineligible Securities underwritten or privately placed by a
Section 20 Subsidiary.
6.17. Environmental Compliance. The Borrower has taken all necessary steps
to investigate the past and present condition and usage of the Real Estate and
the operations conducted thereon and, based upon such diligent investigation,
has determined that, except as set forth on Schedule 6.17 attached hereto:
(a) none of the Borrower, its Subsidiaries or any operator of the Real
Estate or any operations thereon is in violation, or alleged violation, of any
judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation, those arising under the
Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended
<PAGE>
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986
("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, or any state or local statute, regulation, ordinance,
order or decree relating to health, safety or the environment (hereinafter
"Environmental Laws"), which violation would have a material adverse effect on
the environment or the business, assets or financial condition of the Borrower
or any of its Subsidiaries;
(b) neither the Borrower nor any of its Subsidiaries has received notice
from any third party including, without limitation, any federal, state or local
governmental authority, (i) that any one of them has been identified by the
United States Environmental Protection Agency ("EPA") as a potentially
responsible party under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste,
as defined by 42 U.S.C. Section 6903(5), any hazardous substances as defined by
42 U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C.
Section 9601(33) and any toxic substances, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws ("Hazardous
Substances") which any one of them has generated, transported or disposed of has
been found at any site at which a federal, state or local agency or other third
party has conducted or has ordered that any Borrower or any of its Subsidiaries
conduct a remedial investigation, removal or other response action pursuant to
any Environmental Law; or (iii) that it is or shall be a named party to any
claim, action, cause of action, complaint, or legal or administrative proceeding
(in each case, contingent or otherwise) arising out of any third party's
incurrence of costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Substances;
(c) (i) no portion of the Real Estate has been used for the handling,
processing, storage or disposal of Hazardous Substances except in accordance
with applicable Environmental Laws; and no underground tank or other underground
storage receptacle for Hazardous Substances is located on any portion of the
Real Estate; (ii) in the course of any activities conducted by the Borrower, its
Subsidiaries or operators of its properties, no Hazardous Substances have been
generated or are being used on the Real Estate except in accordance with
applicable Environmental Laws; (iii) there have been no releases (i.e. any past
or present releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping) or threatened releases
of Hazardous Substances on, upon, into or from the properties of the Borrower or
its Subsidiaries, which releases would have a material adverse effect on the
value of any of the Real Estate or adjacent properties or the environment; (iv)
to the best of the Borrower's knowledge, there have been no releases on, upon,
from or into any real property in the vicinity of any of the Real Estate which,
through soil or groundwater contamination, may have come to be located on, and
which would have a material adverse effect on the value of, the Real Estate; and
(v) in addition, any Hazardous Substances that have been generated on any of the
Real Estate have been transported offsite only by carriers having an
identification number issued by the EPA, treated or disposed of only by
treatment or disposal facilities maintaining valid permits as required under
applicable Environmental Laws, which transporters and facilities have been
<PAGE>
and are, to the best of the Borrower's knowledge, operating in
compliance with such permits and applicable Environmental Laws; and
(d) None of the Borrower and its Subsidiaries, any Mortgaged Property or
any of the other Real Estate is subject to any applicable environmental law
requiring the performance of Hazardous Substances site assessments, or the
removal or remediation of Hazardous Substances, or the giving of notice to any
governmental agency or the recording or delivery to other Persons of an
environmental disclosure document or statement by virtue of the transactions set
forth herein and contemplated hereby, or as a condition to the recording of any
Mortgage or to the effectiveness of any other transactions contemplated hereby.
6.18. Subsidiaries, etc. Schedule 6.1 hereto sets forth all Subsidiaries
of the Borrower. Except as set forth on Schedule 6.18 hereto, neither the
Borrower nor any Subsidiary of the Borrower is engaged in any joint venture or
partnership with any other Person.
6.19. Year 2000 Problem. The Borrower and its Significant Subsidiaries,
prior to December 31, 1999, had (i) reviewed the areas within their businesses
and operations which could be adversely affected by failure to become "Year 2000
Compliant" (i.e. to assure that computer applications, imbedded microchips and
other systems used by the Borrower or any of its Significant Subsidiaries, would
be able properly to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999), and (ii)
committed substantial resources to being Year 2000 Compliant. Based upon such
review and upon experience since December 31, 1999, the Borrower reasonably
believes that the Borrower and its Significant Subsidiaries are Year 2000
Compliant except to the extent that failure to be in compliance has and will
have no materially adverse effect on the business or financial condition of the
Borrower or any of its Significant Subsidiaries.
6.20. Disclosure. None of this Credit Agreement or any of the other Loan
Documents contains any untrue statement of a material fact or omits to state a
material fact (known to the Borrower or any of its Significant Subsidiaries in
the case of any document or information not furnished by it or any of its
Significant Subsidiaries) necessary in order to make the statements herein or
therein not misleading. There is no fact known to the Borrower or any of its
Significant Subsidiaries which materially adversely affects, or which is
reasonably likely in the future to materially adversely affect, the business,
assets, financial condition or prospects of the Borrower or any of its
Significant Subsidiaries, exclusive of effects resulting from changes in general
economic conditions, legal standards or regulatory conditions.
7. AFFIRMATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank
has any obligation to make any Loans or the Agent has any obligation to issue,
extend or renew any Letters of Credit:
<PAGE>
7.1. Punctual Payment. The Borrower will duly and punctually pay or cause
to be paid the principal and interest on the Loans, all Reimbursement
Obligations, the Letter of Credit Fees, the Facility Fees, the Utilization Fees,
the Agent's fee and all other amounts provided for in this Credit Agreement and
the other Loan Documents to which the Borrower or any of its Subsidiaries is a
party, all in accordance with the terms of this Credit Agreement and such other
Loan Documents.
7.2. Maintenance of Office. The Borrower will maintain its chief executive
office in Lexington, Massachusetts, or at such other place in the United States
of America as the Borrower shall designate upon written notice to the Agent,
where notices, presentations and demands to or upon the Borrower in respect of
the Loan Documents to which the Borrower is a party may be given or made.
7.3. Records and Accounts. The Borrower will (i) keep, and cause each of
its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with generally
accepted accounting principles, (ii) maintain adequate accounts and reserves for
all taxes (including income taxes), depreciation, depletion, obsolescence and
amortization of its properties and the properties of its Subsidiaries,
contingencies, and other reserves, and (iii) at all times engage
PricewaterhouseCoopers LLP or other independent certified public accountants
reasonably satisfactory to the Agent as the independent certified public
accountants of the Borrower and its Subsidiaries and will not permit more than
thirty (30) days to elapse between the cessation of such firm's (or any
successor firm's) engagement as the independent certified public accountants of
the Borrower and its Subsidiaries and the appointment in such capacity of a
successor firm as shall be reasonably satisfactory to the Agent.
7.4. Financial Statements, Certificates and Information. The Borrower
will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than ninety (90)
days after the end of each fiscal year of the Borrower, the consolidated balance
sheet of the Borrower and its Subsidiaries as at the end of such year, and the
related consolidated statement of income and consolidated statement of cash flow
for such year, each setting forth in comparative form the figures for the
previous fiscal year and all such consolidated statements to be in reasonable
detail, prepared in accordance with generally accepted accounting principles,
and certified without qualification by PricewaterhouseCoopers LLP or by other
independent certified public accountants reasonably satisfactory to the Agent,
together with a written statement from such accountants to the effect that they
have read a copy of this Credit Agreement, and that, in making the examination
necessary to said certification, they have obtained no knowledge of any Default
or Event of Default, or, if such accountants shall have obtained knowledge of
any then existing Default or Event of Default they shall disclose in such
statement any such Default or Event of Default; provided that such accountants
shall not be liable to the Banks for failure to obtain knowledge of any Default
or Event of Default; and simultaneously with the delivery of the financial
statements referred to in this subsection (a), a consolidated financial
<PAGE>
forecast for the Borrower and its Subsidiaries for the then current
fiscal year;
(b) as soon as practicable, but in any event not later than forty-five
(45) days after the end of each of the fiscal quarters of the Borrower, copies
of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries
as at the end of such quarter, and the related consolidated statement of income
and consolidated statement of cash flow for the portion of the Borrower's fiscal
year then elapsed, all in reasonable detail and prepared in accordance with
generally accepted accounting principles, together with a certification by the
principal financial or accounting officer of the Borrower that the information
contained in such financial statements fairly presents the financial position of
the Borrower and its Subsidiaries on the date thereof (subject to year-end
adjustments);
(c) simultaneously with the delivery of the financial statements referred
to in subsections (a) and (b) above, a statement certified by the principal
financial or accounting officer of the Borrower in substantially the form of
Exhibit F hereto (a "Compliance Certificate") and setting forth in reasonable
detail computations evidencing compliance with the covenants contained in ss.9
and (if applicable) reconciliations to reflect changes in generally accepted
accounting principles since the Balance Sheet Date;
(d) contemporaneously with the filing or mailing thereof, copies of all
material of a financial nature filed with the Securities and Exchange Commission
or sent to the stockholders of the Borrower;
(e) from time to time such other financial data and information (including
accountants, management letters) as the Agent or any Bank may reasonably
request.
7.5. Notices.
7.5.1. Defaults. The Borrower will promptly notify the Agent and
each of the Banks in writing of the occurrence of any Default or Event of
Default. If any Person shall give any notice or take any other action in respect
of a claimed default (whether or not constituting an Event of Default) under
this Credit Agreement or any other note, evidence of indebtedness, indenture or
other obligation to which or with respect to which the Borrower or any of its
Subsidiaries is a party or obligor, whether as principal, guarantor, surety or
otherwise, the Borrower shall forthwith give written notice thereof to the Agent
and each of the Banks, describing the notice or action and the nature of the
claimed default.
7.5.2. Environmental Events. The Borrower will promptly give notice
to the Agent and each of the Banks (i) of any violation of any Environmental Law
that the Borrower or any of its Subsidiaries reports in writing or is reportable
by such Person in writing (or for which any written report supplemental to any
oral report is made) to any federal, state or local environmental agency and
(ii) upon becoming aware thereof, of any inquiry, proceeding, investigation, or
other action, including a notice from any agency of potential environmental
liability, of any federal, state or local environmental agency or board, that
has the potential to materially
<PAGE>
affect the assets, liabilities, financial conditions or operations of
the Borrower or any of its Subsidiaries.
7.5.3. Notice of Litigation and Judgments. The Borrower will, and will
cause each of its Subsidiaries to, give notice to the Agent and each of the
Banks in writing within fifteen (15) days of becoming aware of any litigation or
proceedings threatened in writing or any pending litigation and proceedings
affecting the Borrower or any of its Subsidiaries or to which the Borrower or
any of its Subsidiaries is or becomes a party involving an uninsured claim
against the Borrower or any of its Subsidiaries that could reasonably be
expected to have a materially adverse effect on the Borrower or any of its
Subsidiaries and stating the nature and status of such litigation or
proceedings. The Borrower will, and will cause each of its Subsidiaries to, give
notice to the Agent and each of the Banks, in writing, in form and detail
satisfactory to the Agent, within ten (10) days of any judgment not covered by
insurance, final or otherwise, against the Borrower or any of its Subsidiaries
in an amount in excess of $5,000,000.
7.6. Corporate Existence; Maintenance of Properties. The Borrower will do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and those of its
Significant Subsidiaries and will not, and will not cause or permit any of its
Significant Subsidiaries to, convert to a limited liability company. It (i) will
cause all of its properties and those of its Significant Subsidiaries used or
useful in the conduct of its business or the business of its Significant
Subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment, (ii) will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Borrower may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times, and (iii) will, and will cause its Subsidiaries to, continue to
engage in Substantially the Same Business; provided that nothing in this ss.7.6
shall prevent the Borrower from discontinuing the operation and maintenance of
any of its properties or any of those of its Subsidiaries if such discontinuance
is, in the judgment of the Borrower, desirable in the conduct of its or their
business and that do not in the aggregate materially adversely affect the
business of the Borrower and its Subsidiaries on a consolidated basis.
7.7. Insurance. The Borrower will, and will cause each of its Subsidiaries
to, maintain with financially sound and reputable insurers insurance with
respect to its properties and business against such casualties and contingencies
as shall be in accordance with the general practices of businesses engaged in
similar activities in similar geographic areas and in amounts, containing such
terms, in such forms and for such periods as may be reasonable and prudent.
7.8. Taxes. The Borrower will, and will cause each of its Subsidiaries to,
duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes, assessments and other governmental charges
imposed upon it and its real properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid might by
<PAGE>
law become a lien or charge upon any of its property; provided that any
such tax, assessment, charge, levy or claim need not be paid if the validity or
amount thereof shall currently be contested in good faith by appropriate
proceedings and if the Borrower or such Subsidiary shall have set aside on its
books adequate reserves with respect thereto; and provided further that the
Borrower and each Subsidiary of the Borrower will pay all such taxes,
assessments, charges, levies or claims forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security therefor.
7.9. Inspection of Properties and Books, etc.
7.9.1. General. The Borrower shall permit the Banks, through the
Agent or any of the Banks' other designated representatives, to visit and
inspect any of the properties of the Borrower or any of its Subsidiaries, to
examine the books of account of the Borrower and its Subsidiaries (and to make
copies thereof and extracts therefrom), and to discuss the affairs, finances and
accounts of the Borrower and its Subsidiaries with, and to be advised as to the
same by, its and their officers, all at such reasonable times and intervals as
the Agent or any Bank may reasonably request.
7.9.2. Communications with Accountants. The Borrower authorizes the
Agent and, if accompanied by the Agent, the Banks to communicate directly with
the Borrower's independent certified public accountants and authorizes such
accountants to disclose to the Agent and the Banks any and all financial
statements and other supporting financial documents and schedules including
copies of any management letter with respect to the business, financial
condition and other affairs of the Borrower or any of its Subsidiaries. At the
request of the Agent, the Borrower shall deliver a letter addressed to such
accountants instructing them to comply with the provisions of this Section
7.9.2.
7.10. Compliance with Laws, Contracts, Licenses, and Permits. The Borrower
will, and will cause each of its Subsidiaries to, comply with (i) the applicable
laws and regulations wherever its business is conducted, including all
Environmental Laws, (ii) the provisions of its charter documents and by-laws,
(iii) all agreements and instruments by which it or any of its properties may be
bound and (iv) all applicable decrees, orders, and judgments. If any
authorization, consent, approval, permit or license from any officer, agency or
instrumentality of any government shall become necessary or required in order
that the Borrower or any of its Subsidiaries may fulfill any of its obligations
hereunder or any of the other Loan Documents to which the Borrower or such
Subsidiary is a party, the Borrower will, or (as the case may be) will cause
such Subsidiary to, immediately take or cause to be taken all reasonable steps
within the power of the Borrower or such Subsidiary to obtain such
authorization, consent, approval, permit or license and furnish the Agent and
the Banks with evidence thereof.
7.11. Employee Benefit Plans. The Borrower will (i) promptly upon filing
the same with the Department of Labor or Internal Revenue Service, upon request
of the Agent, furnish to the Agent a copy of the most recent actuarial statement
required to be submitted under Section 103(d)of ERISA and Annual Report, Form
5500, with all required attachments, in respect of each
<PAGE>
Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch,
furnish to the Agent any notice, report or demand sent or received in respect of
a Guaranteed Pension Plan under Sections 302, 4041, 4042, 4043, 4063, 4065, 4066
and 4068 of ERISA, or in respect of a Multiemployer Plan, under Sections 4041A,
4202, 4219, 4242, or 4245 of ERISA.
7.12. Use of Proceeds. The Borrower will use the proceeds of the Loans
solely for share repurchase (subject to Section 8.4), acquisitions (subject to
Section 6.16.2, Section 6.16.3 and Section 8.5.3) working capital and general
corporate purposes.
7.13. Further Assurances. The Borrower will, and will cause each of its
Subsidiaries to, cooperate with the Banks and the Agent and execute such further
instruments and documents as the Banks or the Agent shall reasonably request to
carry out to their satisfaction the transactions contemplated by this Credit
Agreement and the other Loan Documents.
8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank
has any obligation to make any Loans or the Agent has any obligations to issue,
extend or renew any Letters of Credit:
8.1. Restrictions on Indebtedness. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Banks and the Agent arising under any of the
Loan Documents;
(b) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the ordinary
course of business;
(c) Indebtedness incurred in connection with the acquisition after the
date hereof of any real or personal property by the Borrower or such Subsidiary
or under any Capitalized Lease, provided that, after giving effect to the
incurrence of such Indebtedness, the Borrower shall be in compliance with its
covenants in Section 9;
(d) Indebtedness existing on the date hereof and listed and described
on Schedule 8.1 hereto;
(e) Indebtedness of a Subsidiary of the Borrower to the Borrower or
to another Subsidiary of the Borrower;
(f) Indebtedness in respect of guaranties of dealer store leases, provided
that the maximum aggregate guaranty obligation in respect thereof shall not
exceed $2,000,000 at any time;
<PAGE>
(g) Indebtedness in respect of foreign currency exchange, future or option
contracts entered into in the ordinary course of business for the purpose of
foreign currency risk hedging;
(h) Indebtedness in respect of reimbursement obligations under letters of
credit (other than Letters of Credit issued pursuant to Section 4 hereof) and
bankers' acceptances incurred in the ordinary course of business, provided that
the aggregate maximum amount available for drawing by the beneficiaries of such
letters of credit and banker's acceptances outstanding at any time shall not
exceed $130,000,000;
(i) Indebtedness in respect of guaranties by the Borrower or any
Subsidiary of Indebtedness of any Subsidiary permitted by this Section 8.1;
(j) Indebtedness in respect of swap, future or option contracts the value
of which are based on interest rates or other interest rate hedging arrangements
entered into in the ordinary course of business; and
(k) other Indebtedness not exceeding in the aggregate $5,000,000 at
any time.
8.2. Restrictions on Liens. The Borrower will not, and will not permit any
of its Subsidiaries to, (i) create or incur or suffer to be created or incurred
or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or
other security interest of any kind upon any of its property or assets of any
character whether now owned or hereafter acquired, or upon the income or profits
therefrom; (ii) transfer any of such property or assets or the income or profits
therefrom for the purpose of subjecting the same to the payment of Indebtedness
or performance of any other obligation in priority to payment of its general
creditors; (iii) acquire, or agree or have an option to acquire, any property or
assets upon conditional sale or other title retention or purchase money security
agreement, device or arrangement; (iv) suffer to exist for a period of more than
thirty (30) days after the same shall have been incurred any Indebtedness or
claim or demand against it that if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over its general
creditors; or (v) sell, assign, pledge or otherwise transfer any "receivables"
as defined in clause (vii) of the definition of the term "Indebtedness," with or
without recourse; provided that the Borrower or any of its Subsidiaries may
create or incur or suffer to be created or incurred or to exist:
(a) liens in favor of the Borrower on all or part of the assets of
Subsidiaries of the Borrower securing Indebtedness owing by Subsidiaries of
the Borrower to the Borrower;
(b) liens to secure taxes, assessments and other government charges in
respect of obligations not overdue or liens on properties to secure claims for
labor, material or supplies in respect of obligations not overdue;
<PAGE>
(c) deposits or pledges made in connection with, or to secure payment of,
workmen's compensation, unemployment insurance, old age pensions or other social
security obligations;
(d) liens on properties in respect of judgments or awards that have been
in force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which the Borrower or such
Subsidiary shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review;
(e) liens of carriers, warehousemen, mechanics and materialmen, and other
like liens on properties, in existence less than 120 days from the date of
creation thereof in respect of obligations not overdue;
(f) encumbrances on Real Estate consisting of easements, rights of way,
zoning restrictions, restrictions on the use of real property and defects and
irregularities in the title thereto, landlord's or lessor's liens under leases
to which the Borrower or a Subsidiary of the Borrower is a party, and other
minor liens or encumbrances none of which in the opinion of the Borrower
interferes materially with the use of the property affected in the ordinary
conduct of the business of the Borrower and its Subsidiaries, which defects do
not individually or in the aggregate have a materially adverse effect on the
business of the Borrower individually or of the Borrower and its Subsidiaries on
a consolidated basis;
(g) liens existing on the date hereof and listed on Schedule 8.2
hereto;
(h) purchase money security interests in or purchase money mortgages on
real or personal property acquired after the date hereof to secure purchase
money Indebtedness of the type and amount permitted by Section 8.1(c), incurred
in connection with the acquisition of such property, which security interests or
mortgages cover only the real or personal property so acquired;
(i) liens (if any) in favor of the Agent for the benefit of the Banks
and the Agent under the Loan Documents; and
(j) lessor's liens and Capitalized Leases permitted by Section 8.1(c).
8.3. Restrictions on Investments. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United States of
America that mature within one (1) year from the date of purchase by the
Borrower;
(b) demand deposits, certificates of deposit, bankers acceptances and time
deposits of United States banks having total assets in excess of $1,000,000,000;
<PAGE>
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America, any state thereof or any country which is a member of the Organization
for Economic Cooperation and Development that at the time of purchase have been
rated and the ratings for which are not less than "P 1" if rated by Moody's
Investors Service, Inc., or not less than "A 1" if rated by Standard and Poor's
Rating Group;
(d) shares of any so-called money market fund which is registered under
the Investment Company Act of 1940, as amended, is in compliance with Rule 2a-7
thereunder and has net assets of at least $250,000,000;
(e) marketable direct or guaranteed obligations of a state of the United
States of America or political subdivision thereof that at the time of purchase,
if short-term, have been rated and the ratings for which are not less than "SP
1" or "A 1" if rated by Standard and Poor's Rating Group or not less than "MIG
1" or "VMIG 1" if rated by Moody's Investors Service, Inc. or, if long-term,
have been rated and the ratings for which are not less than "AA" as rated by
Standard and Poor's Rating Group;
(f) shares of so-called "auction rate preferred stock" which have been
rated "AAA" by Standard and Poor's Rating Group;
(g) debt securities in a portfolio having an aggregate maximum market
value of $20,000,000 at the time of investment (after giving effect to any
investment), such portfolio to be managed by an independent investment manager
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended, to consist of debt securities with a maximum duration of three (3)
years and at least an investment grade rating by a nationally recognized
statistical rating organization, not more than 5% of the total market value of
the portfolio at any time to be represented by securities of any single issue;
(h) Investments consisting of foreign currency exchange, future or option
contracts entered into in the ordinary course of business for the purpose of
foreign currency risk hedging;
(i) Investments consisting of swap, future or option contracts the value
of which is based upon interest rates or other interest rate hedging
arrangements entered into in the ordinary course of business;
(j) Investments existing on the date hereof and listed on
Schedule 8.3 hereto;
(k) Investments with respect to Indebtedness permitted byss.8.1(f) so
long as such entities remain Subsidiaries of the Borrower;
(l) Investments consisting of the Guaranty or Investments by the
Borrower in Subsidiaries of the Borrower;
(m) Investments consisting of promissory notes received as proceeds
of asset dispositions permitted by Section 8.5.2;
<PAGE>
(n) Investments in Permitted Acquisitions pursuant to Section 8.5.3; and
(o) Investments consisting of loans and advances to employees for moving,
entertainment, travel and other similar expenses in the ordinary course of
business not to exceed $5,000,000 in the aggregate at any time outstanding.
8.4. Distributions. The Borrower will not make any Distributions; provided
that the Borrower may make distributions ("Permitted Distributions") which
satisfy the following tests: (i) the aggregate amount of such Distribution and
all other Distributions during the same fiscal year of the Borrower does not
exceed $30,000,000, and (ii) at the time of such Distribution, no Default or
Event of Default has occurred and is continuing or would exist after giving
effect to such Distribution.
8.5. Merger, Consolidation, Acquisitions and Disposition of Assets.
8.5.1. Mergers and Acquisitions. The Borrower will not, and will not
permit any of its Subsidiaries to, (a) become a party to any merger or
consolidation except (i) the merger or consolidation of one or more of the
Subsidiaries of the Borrower with and into the Borrower, or of two or more
Subsidiaries of the Borrower, or (ii) a merger or consolidation in connection
with a Permitted Acquisition in which the Borrower or a Subsidiary is the
surviving entity, or (b) agree to or effect any asset acquisition or equity
acquisition other than (i) the acquisition of assets in the ordinary course of
business consistent with past practices and (ii) any Permitted Acquisition
pursuant to Section 8.5.3.
8.5.2. Disposition of Assets. The Borrower will not, and will not
permit any Significant Subsidiary to, become a party to or agree to or effect
disposition of all or any substantial portion of its assets (other than the sale
of inventory, the licensing of intellectual property and the disposition of
obsolete assets, in each case in the ordinary course of business consistent with
past practices).
8.5.3 Acquisition of Businesses. The Borrower will not, and will not
permit any of its Subsidiaries to, acquire the assets or equity of any going
business, except any such acquisition of a business (i) which is engaged in
Substantially the Same Business, and (ii) the cash purchase price for which, in
the aggregate together with the cash purchase price paid for all other such
acquisitions from and after the Closing Date, does not exceed $50,000,000 (a
"Permitted Acquisition").
8.6. Sale and Leaseback. The Borrower will not, and will not permit any of
its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby
the Borrower or any Subsidiary of the Borrower shall sell or transfer any
property owned by it in order then or thereafter to lease such property or lease
other property that the Borrower or any Subsidiary of the Borrower intends to
use for substantially the same purpose as the property being sold or
transferred.
8.7. Compliance with Environmental Laws. The Borrower will not, and
will not permit any of its Subsidiaries to, (i) use any of the Real Estate or
<PAGE>
any portion thereof for the handling, processing, storage or disposal of
Hazardous Substances, (ii) cause or permit to be located on any of the Real
Estate any underground tank or other underground storage receptacle for
Hazardous Substances, (iii) generate any Hazardous Substances on any of the Real
Estate, (iv) conduct any activity at any Real Estate or use any Real Estate in
any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping) or threatened release of Hazardous Substances on, upon or
into the Real Estate or (v) otherwise conduct any activity at any Real Estate or
use any Real Estate in any manner that would violate any Environmental Law or
bring such Real Estate in violation of any Environmental Law.
8.8. Employee Benefit Plans. Neither the Borrower nor any ERISA
Affiliate will
(a) engage in any "prohibited transaction" within the meaning of Section
406 of ERISA or Section 4975 of the Code which could result in a material
liability for the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated funding
deficiency", as such term is defined in Seciton 302 of ERISA, whether or not
such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an extent which,
or terminate any Guaranteed Pension Plan in a manner which, could result in the
imposition of a lien or encumbrance on the assets of the Borrower or any of its
Subsidiaries pursuant to Seciton 302(f) or Section 4068 of ERISA; or
(d) amend any Guaranteed Pension Plan in circumstances requiring the
posting of security pursuant to Section 307 of ERISA or Seciton 401(a)(29) of
the Code; or
(e) permit or take any action which would result in the aggregate benefit
liabilities (with the meaning of Section 4001 of ERISA) of all Guaranteed
Pension Plans exceeding the value of the aggregate assets of such Plans,
disregarding for this purpose the benefit liabilities and assets of any such
Plan with assets in excess of benefit liabilities[, by more than the amount set
forth in Section 6.15.3.]
8.9. Business Activities. The Borrower will not, and will not permit its
Subsidiaries to, engage directly or indirectly (whether through Subsidiaries or
otherwise) in any business activities which would represent a departure from
Substantially the Same Business.
8.10. Fiscal Year. The Borrower will not, and will not permit any of it
Subsidiaries to, change the date of the end of its fiscal year from that set
forth in Section 6.4.1.
8.11. Transactions with Affiliates. The Borrower will not, and will not
permit any of its Subsidiaries to, engage in any transaction with any Affiliate
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal
<PAGE>
property to or from, or otherwise requiring payments to or from any such
Affiliate or, to the knowledge of the Borrower, any corporation, partnership,
trust or other entity in which any such Affiliate has a substantial interest or
is an officer, director, trustee or partner, on terms more favorable to such
Person than would have been obtainable on an arm's-length basis in the ordinary
course of business.
9. FINANCIAL COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank
has any obligation to make any Loans or the Agent has any obligation to issue,
extend or renew any Letters of Credit:
9.1. Fixed Charge Coverage Ratio. The Borrower will not permit the ratio
(the "Fixed Charge Coverage Ratio"), as of the end of any fiscal quarter of the
Borrower and for the period of four consecutive fiscal quarters then ended, of
(a) Consolidated Operating Cash Flow plus Rental Expense, to (b) Consolidated
Total Interest Expense plus Rental Expense, to be less than 1.75:1.
9.2. Funded Debt to EBITDA. The Borrower will not permit the ratio, as of
the end of any fiscal quarter and for the period of four consecutive fiscal
quarters then ended, of Total Funded Debt to Consolidated EBITDA to exceed
2.25:1.
9.3. Consolidated Tangible Net Worth. The Borrower will not permit
Consolidated Tangible Net Worth to be less than the sum of $200,000,000 plus, on
a cumulative basis 50% of positive Consolidated Net Income for each fiscal
quarter subsequent to the Closing Date, minus Permitted Distributions made
subsequent to the Closing Date.
10. CLOSING CONDITIONS.
The obligations of the Banks to make the initial Loans and of the Agent to
issue any initial Letters of Credit shall be subject to the satisfaction of the
following conditions precedent on or prior to January 31, 2000:
10.1. Loan Documents. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the Banks.
Each Bank shall have received a fully executed copy of each such document.
10.2. Certified Copies of Charter Documents. Each of the Banks shall have
received from the Borrower and each of its Subsidiaries a copy, certified by a
duly authorized officer of such Person to be true and complete on the Closing
Date, of each of (i) its charter or other incorporation documents as in effect
on such date of certification, and (ii) its by-laws as in effect on such date.
10.3. Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by the Borrower and each of its
<PAGE>
Subsidiaries of this Credit Agreement and the other Loan Documents to
which it is or is to become a party shall have been duly and effectively taken,
and evidence thereof satisfactory to the Banks shall have been provided to the
Agent.
10.4. Incumbency Certificate. Each of the Banks shall have received from
the Borrower and each of its Subsidiaries an incumbency certificate, dated as of
the Closing Date, signed by a duly authorized officer of the Borrower or such
Subsidiary, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (i) to sign, in the name and on behalf of
each of the Borrower of such Subsidiary, each of the Loan Documents to which the
Borrower or such Subsidiary is or is to become a party; (ii) in the case of the
Borrower, to make Loan Requests and Conversion Requests and to apply for Letters
of Credit; and (iii) to give notices and to take other action on its behalf
under the Loan Documents.
10.5. Certificates of Insurance. The Agent shall have received (i) a
certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance obtained in accordance with
the provisions of the Security Agreements and (ii) certified copies of all
policies evidencing such insurance (or certificates therefore signed by the
insurer or an agent authorized to bind the insurer).
10.6. Opinion of Counsel. Each of the Banks and the Agent shall have
received a favorable legal opinion addressed to the Banks and the Agent, dated
as of the Closing Date, in form and substance satisfactory to the Banks and the
Agent, from Goodwin, Procter & Hoar LLP, counsel to the Borrower and its
Subsidiaries.
10.7. Payment of Fees. The Borrower shall have paid to the Banks or the
Agent, as appropriate, the Agent's fee and the Arranger's fee pursuant to
Section s5.1 and 5.2.
10.8. Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Credit Agreement, the other Loan Documents and
all other documents incident thereto shall be satisfactory in substance and in
form to the Banks and to the Agent and the Agent's Special Counsel, and the
Banks, the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as the
Agent may reasonably request.
11. CONDITIONS TO ALL BORROWINGS.
The obligations of the Banks to make any Loan and of the Agent to issue,
extend or renew any Letter of Credit, in each case whether on or after the
Closing Date, shall also be subject to the satisfaction of the following
conditions precedent:
11.1. Representations True; No Event of Default. Each of the
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this
<PAGE>
Credit Agreement shall be true as of the date as of which they were made
and shall also be true at and as of the time of the making of such Loan or the
issuance, extension or renewal of such Letter of Credit, with the same effect as
if made at and as of that time (except to the extent of changes resulting from
transactions contemplated or permitted by this Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing.
11.2. No Legal Impediment. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Bank would make it illegal for such Bank to make such Loan or to
participate in the issuance, extension or renewal of such Letter of Credit or in
the reasonable opinion of the Agent would make it illegal for the Agent to
issue, extend or renew such Letter of Credit.
11.3. Governmental Regulation. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
12. EVENTS OF DEFAULT; ACCELERATION; ETC.
12.1. Events of Default and Acceleration. If any of the following events
("Events of Default" or, if the giving of notice or the lapse of time or both is
required, then, prior to such notice or lapse of time, "Defaults") shall occur:
(a) the Borrower shall fail to pay any principal of the Loans or any
Reimbursement Obligation when the same shall become due and payable, whether at
the stated date of maturity or any accelerated date of maturity or at any other
date fixed for payment;
(b) the Borrower or any of its Subsidiaries shall fail to pay any interest
on the Loans, any Letter of Credit Fee, any Facility Fee, any Utilization Fee,
the Agent's fee, or other sums due hereunder or under any of the other Loan
Documents, within five (5) days after the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of maturity or at
any other date fixed for payment;
(c) the Borrower shall fail to comply with any of its covenants
contained in Sections 8 or 9;
(d) the Borrower or any of its Subsidiaries shall fail to perform any
term, covenant or agreement contained herein or in any of the other Loan
Documents (other than those specified elsewhere in this ss.12.1) for twenty (20)
days after written notice of such failure has been given to the Borrower by the
Agent;
<PAGE>
(e) any representation or warranty of the Borrower or any of its
Subsidiaries in this Credit Agreement or any of the other Loan Documents or in
any other document or instrument delivered pursuant to or in connection with
this Credit Agreement shall prove to have been false in any material respect
upon the date when made or deemed to have been made or repeated;
(f) the Borrower or any of its Subsidiaries shall fail to pay at maturity,
or within any applicable period of grace, any obligation for borrowed money or
credit received or in respect of any Capitalized Leases, or fail to observe or
perform any material term, covenant or agreement contained in any agreement by
which it is bound, evidencing or securing borrowed money or credit received or
in respect of any Capitalized Leases, which in the aggregate represents
Indebtedness of $2,000,000 or more, for such period of time as would permit
(assuming the giving of appropriate notice if required) the holder or holders
thereof or of any obligations issued thereunder to accelerate the maturity
thereof, or if any such holder or holders shall rescind or shall have a right to
rescind the purchase of any such obligations;
(g) the Borrower or any Significant Subsidiary shall make an assignment
for the benefit of creditors, or admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, or shall petition
or apply for the appointment of a trustee or other custodian, liquidator or
receiver of the Borrower or any Significant Subsidiary or of any substantial
part of the assets of the Borrower or any Significant Subsidiary or shall
commence any case or other proceeding relating to the Borrower or any
Significant Subsidiary under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction, now or hereafter in effect, or shall take any action to
authorize or in furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case or other proceeding shall be
commenced against the Borrower or any Significant Subsidiary and the Borrower or
any Significant Subsidiary shall indicate its approval thereof, consent thereto
or acquiescence therein or such petition or application shall not have been
dismissed within sixty (60) days following the filing thereof;
(h) a decree or order is entered appointing any such trustee, custodian,
liquidator or receiver or adjudicating the Borrower or any Significant
Subsidiary bankrupt or insolvent, or approving a petition in any such case or
other proceeding, or a decree or order for relief is entered in respect of the
Borrower or any Significant Subsidiary of the Borrower in an involuntary case
under federal bankruptcy laws as now or hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied and unstayed,
for more than forty-five (45) days, whether or not consecutive, any final
judgment against the Borrower or any of its Subsidiaries that, with other
outstanding final judgments, undischarged, against the Borrower or any of its
Subsidiaries exceeds in the aggregate $5,000,000;
(j) if any of the Guaranties shall be cancelled, terminated, revoked
or rescinded otherwise than in accordance with the terms thereof or with the
<PAGE>
express prior written agreement, consent or approval of the Banks, or any
action at law, suit or in equity or other legal proceeding to cancel, revoke or
rescind any of the Loan Documents shall be commenced by or on behalf of the
Borrower or any of its Subsidiaries party thereto or any of their respective
stockholders, or any court or any other governmental or regulatory authority or
agency of competent jurisdiction shall make a determination that, or issue a
judgment, order, decree or ruling to the effect that, any one or more of the
Loan Documents is illegal, invalid or unenforceable in accordance with the terms
thereof;
(k) the Borrower or any ERISA Affiliate incurs any liability to the PBGC
or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate
amount exceeding $5,000,000, or the Borrower or any ERISA Affiliate is assessed
withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan
requiring aggregate annual payments exceeding $5,000,000, or any of the
following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA
Reportable Event, or a failure to make a required installment or other payment
(within the meaning of Section 302(f)(1) of ERISA), provided that the Agent
determines in its reasonable discretion that such event (A) could be expected to
result in liability of the Borrower or any of its Subsidiaries to the PBGC or
such Guaranteed Pension Plan in an aggregate amount exceeding $5,000,000 and (B)
could constitute grounds for the termination of such Guaranteed Pension Plan by
the PBGC, for the appointment by the appropriate United States District Court of
a trustee to administer such Guaranteed Pension Plan or for the imposition of a
lien in favor of such Guaranteed Pension Plan; or (ii) the appointment by a
United States District Court of a trustee to administer such Guaranteed Pension
Plan; or (iii) the institution by the PBGC of proceedings to terminate such
Guaranteed Pension Plan;
(l) the Borrower or any Significant Subsidiary shall be enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting any material part of its
business and such order shall continue in effect for more than thirty (30) days;
(m) there shall occur the loss, suspension or revocation of, or failure to
renew, any license or permit now held or hereafter acquired by the Borrower or
any of its Subsidiaries if such loss, suspension, revocation or failure to renew
would have a material adverse effect on the business or financial condition of
the Borrower or such Subsidiary;
(n) the Borrower or any of its Subsidiaries shall be indicted for a state
or federal crime, or any civil or criminal action shall otherwise have been
brought against the Borrower or any of its Subsidiaries, a punishment for which
in any such case could include the forfeiture of any assets of the Borrower or
such Subsidiary having a fair market value in excess of $5,000,000; or
(o) any person or group of persons (within the meaning of Section 13 or 14
of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) of 30% or more of the
outstanding shares of common stock of the Borrower; or, during any period of
<PAGE>
twelve consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period shall cease to constitute a majority of
the board of directors of the Borrower;
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Credit Agreement,
the Notes and the other Loan Documents and all Reimbursement Obligations to be,
and they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrower; provided that in the event of any Event
of Default specified in Sections 12.1(g) or 12.1(h), all such amounts shall
become immediately due and payable automatically and without any requirement of
notice from the Agent or any Bank.
12.2. Termination of Commitments. If any one or more of the Events of
Default specified in Section 12.1(g) or Section 12.1(h) shall occur, any unused
portion of the credit hereunder shall forthwith terminate and each of the Banks
shall be relieved of all further obligations to make Loans to the Borrower and
the Agent shall be relieved of all further obligations to issue, extend or renew
Letters of Credit. If any other Event of Default shall have occurred and be
continuing, the Agent may and, upon the request of the Majority Banks, shall, by
notice to the Borrower, terminate the unused portion of the credit hereunder,
and upon such notice being given such unused portion of the credit hereunder
shall terminate immediately and each of the Banks shall be relieved of all
further obligations to make Loans and the Agent shall be relieved of all further
obligations to issue, extend or renew Letters of Credit. No termination of the
credit hereunder shall relieve the Borrower or any of its Subsidiaries of any of
the Obligations.
12.3. Remedies. In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Loans pursuant to Section 12.1, each Bank, if
owed any amount with respect to the Loans or the Reimbursement Obligations, may,
with the consent of the Majority Banks but not otherwise, proceed to protect and
enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Credit Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Bank are evidenced,
including as permitted by applicable law the obtaining of the ex parte
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Bank. No remedy herein conferred upon any Bank
or the Agent or the holder of any Note or purchaser of any Letter of Credit
Participation is intended to be exclusive of any other remedy and each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or any
other provision of law.
13. SETOFF.
Regardless of the adequacy of any collateral, during the continuance of
any Event of Default, any deposits or other sums credited by or due from any
<PAGE>
of the Banks to the Borrower and any securities or other property of the
Borrower in the possession of such Bank may be applied to or set off by such
Bank against the payment of Obligations and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, of the Borrower to such Bank. Each of the Banks agrees
with each other Bank that (i) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by
the Notes held by such Bank or constituting Reimbursement Obligations owed to
such Bank, such amount shall be applied ratably to such other Indebtedness and
to the Indebtedness evidenced by all such Notes held by such Bank or
constituting Reimbursement Obligations owed to such Bank, and (ii) if such Bank
shall receive from the Borrower, whether by voluntary payment, exercise of the
right of setoff, counterclaim, cross action, enforcement of the claim evidenced
by the Notes held by, or constituting Reimbursement Obligations owed to, such
Bank by proceedings against the Borrower at law or in equity or by proof thereof
in bankruptcy, reorganization, liquidation, receivership or similar proceedings,
or otherwise, and shall retain and apply to the payment of the Note or Notes
held by, or Reimbursement Obligations owed to, such Bank any amount in excess of
its ratable portion of the payments received by all of the Banks with respect to
the Notes held by, and Reimbursement Obligations owed to, all of the Banks, such
Bank will make such disposition and arrangements with the other Banks with
respect to such excess, either by way of distribution, pro tanto assignment of
claims, subrogation or otherwise as shall result in each Bank receiving in
respect of the Notes held by it or Reimbursement obligations owed it, its
proportionate payment as contemplated by this Credit Agreement; provided that if
all or any part of such excess payment is thereafter recovered from such Bank,
such disposition and arrangements shall be rescinded and the amount restored to
the extent of such recovery, but without interest.
14. THE AGENT.
14.1. Authorization.
(a) The Agent is authorized to take such action on behalf of each of the
Banks and to exercise all such powers as are hereunder and under any of the
other Loan Documents and any related documents delegated to the Agent, together
with such powers as are reasonably incident thereto, provided that no duties or
responsibilities not expressly assumed herein or therein shall be implied to
have been assumed by the Agent.
(b) The relationship between the Agent and each of the Banks is that of an
independent contractor. The use of the term "Agent" is for convenience only and
is used to describe, as a form of convention, the independent contractual
relationship between the Agent and each of the Banks. Nothing contained in this
Credit Agreement nor the other Loan Documents shall be construed to create an
agency, trust or other fiduciary relationship between the Agent and any of the
Banks.
(c) As an independent contractor empowered by the Banks to exercise
certain rights and perform certain duties and responsibilities hereunder and
under the other Loan Documents, the Agent is nevertheless a "representative"
<PAGE>
of the Banks, as that term is defined in Article 1 of the Uniform
Commercial Code, for purposes of actions for the benefit of the Banks and the
Agent with respect to all collateral security and guaranties contemplated by the
Loan Documents. Such actions include the designation of the Agent as "secured
party", "mortgagee" or the like on all (if any) financing statements and other
documents and instruments, whether recorded or otherwise, relating to the
attachment, perfection, priority or enforcement of any security interests,
mortgages or deeds of trust in collateral security intended to secure the
payment or performance of any of the Obligations, all for the benefit of the
Banks and the Agent.
14.2. Employees and Agents. The Agent may exercise its powers and execute
its duties by or through employees or agents and shall be entitled to take, and
to rely on, advice of counsel concerning all matters pertaining to its rights
and duties under this Credit Agreement and the other Loan Documents. The Agent
may utilize the services of such Persons as the Agent in its sole discretion may
reasonably determine.
14.3. No Liability. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Agent or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
14.4. No Representations.
14.4.1. General. The Agent shall not be responsible for the
execution or validity or enforceability of this Credit Agreement, the Notes, the
Letters of Credit, any of the other Loan Documents or any instrument at any time
constituting, or intended to constitute, collateral security for the Notes, or
for the value of any such collateral security or for the validity,
enforceability or collectability of any such amounts owing with respect to the
Notes, or for any recitals or statements, warranties or representations made
herein or in any of the other Loan Documents or in any certificate or instrument
hereafter furnished to it by or on behalf of the Borrower or any of its
Subsidiaries, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or in
any instrument at any time constituting, or intended to constitute, collateral
security for the Notes or to inspect any of the properties, books or records of
the Borrower or any of its Subsidiaries. The Agent shall not be bound to
ascertain whether any notice, consent, waiver or request delivered to it by the
Borrower or any holder of any of the Notes shall have been duly authorized or is
true, accurate and complete. The Agent has not made nor does it now make any
representations or warranties, express or implied, nor does it assume any
liability to the Banks, with respect to the credit worthiness or financial
conditions of the Borrower or any of its Subsidiaries. Each Bank acknowledges
that it has, independently and without reliance upon the Agent or any other
Bank, and based upon such information
<PAGE>
and documents as it has deemed appropriate, made its own credit analysis
and decision to enter into this Credit Agreement.
14.4.2. Closing Documentation, etc. For purposes of determining
compliance with the conditions set forth in Section 10, each Bank that has
executed this Credit Agreement shall be deemed to have consented to, approved or
accepted, or to be satisfied with, each document and matter either sent, or made
available, by the Agent or BancBoston Robertson Stephens Inc., as arranger to
such Bank for consent, approval, acceptance or satisfaction, or required
thereunder to be consented to or approved by or acceptable or satisfactory to
such Bank, unless an officer of the Agent or BancBoston Robertson Stephens Inc.
active upon the Borrower's account shall have received notice from such Bank not
less than two (2) days prior to the Closing Date specifying such Bank's
objection thereto and such objection shall not have been withdrawn by notice to
the Agent or BancBoston Robertson Stephens Inc. to such effect on or prior to
the Closing Date.
14.5. Payments.
14.5.1. Payments to Agent. A payment by the Borrower to the Agent
hereunder or any of the other Loan Documents for the account of any Bank shall
constitute a payment to such Bank. The Agent agrees promptly to distribute to
each Bank such Bank's pro rata share of payments received by the Agent for the
account of the Banks except as otherwise expressly provided herein or in any of
the other Loan Documents.
14.5.2. Distribution by Agent. If in the opinion of the Agent the
distribution of any amount received by it in such capacity hereunder, under the
Notes or under any of the other Loan Documents might involve it in liability, it
may refrain from making distribution until its right to make distribution shall
have been adjudicated by a court of competent jurisdiction. If a court of
competent jurisdiction shall adjudge that any amount received and distributed by
the Agent is to be repaid, each Person to whom any such distribution shall have
been made shall either repay to the Agent its proportionate share of the amount
so adjudged to be repaid or shall pay over the same in such manner and to such
Persons as shall be determined by such court.
14.5.3. Delinquent Bank. Notwithstanding anything to the contrary
contained in this Credit Agreement or any of the other Loan Documents, any Bank
that fails (i) to make available to the Agent its pro rata share of any Loan or
to purchase any Letter of Credit Participation or (ii) to comply with the
provisions of Section 13 with respect to making dispositions and arrangements
with the other Banks, where such Bank's share of any payment received, whether
by setoff or otherwise, is in excess of its pro rata share of such payments due
and payable to all of the Banks, in each case as, when and to the full extent
required by the provisions of this Credit Agreement, shall be deemed delinquent
(a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as
such delinquency is satisfied. A Delinquent Bank shall be deemed to have
assigned any and all payments due to it from the Borrower, whether on account of
outstanding Loans, Unpaid Reimbursement Obligations, interest, fees or
otherwise, to the remaining nondelinquent Banks for application to, and
reduction of, their respective
<PAGE>
pro rata shares of all outstanding Loans and Unpaid Reimbursement
Obligations. The Delinquent Bank hereby authorizes the Agent to distribute such
payments to the nondelinquent Banks in proportion to their respective pro rata
shares of all outstanding Loans and Unpaid Reimbursement Obligations. A
Delinquent Bank shall be deemed to have satisfied in full a delinquency when and
if, as a result of application of the assigned payments to all outstanding Loans
and Unpaid Reimbursement Obligations of the nondelinquent Banks, the Banks'
respective pro rata shares of all outstanding Loans and Unpaid Reimbursement
Obligations have returned to those in effect immediately prior to such
delinquency and without giving effect to the nonpayment causing such
delinquency.
14.6. Holders of Notes. The Agent may deem and treat the payee of any Note
or the purchaser of any Letter of Credit Participation as the absolute owner or
purchaser thereof for all purposes hereof until it shall have been furnished in
writing with a different name by such payee or by a subsequent holder, assignee
or transferee.
14.7. Indemnity. The Banks ratably agree hereby to indemnify and hold
harmless the Agent and its affiliates from and against any and all claims,
actions and suits (whether groundless or otherwise), losses, damages, costs,
expenses (including any expenses for which the Agent or such affiliate has not
been reimbursed by the Borrower as required by Section 15), and liabilities of
every nature and character arising out of or related to this Credit Agreement,
the Notes, or any of the other Loan Documents or the transactions contemplated
or evidenced hereby or thereby, or the Agent's actions taken hereunder or
thereunder, except to the extent that any of the same shall be directly caused
by the Agent's willful misconduct or gross negligence.
14.8. Agent as Bank. In its individual capacity, BKB shall have the same
obligations and the same rights, powers and privileges in respect to its
Commitment and the Loans made by it, and as the holder of any of the Notes and
as the purchaser of any Letter of Credit Participations, as it would have were
it not also the Agent.
14.9. Resignation. The Agent may resign at any time by giving sixty (60)
days prior written notice thereof to the Banks and the Borrower. Upon any such
resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
<PAGE>
14.10. Notification of Defaults and Events of Default. Each Bank hereby
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall promptly notify the Agent thereof. The Agent hereby agrees that upon
receipt of any notice under this Section 14.10 it shall promptly notify the
other Banks of the existence of such Default or Event of Default.
15. EXPENSES AND INDEMNIFICATION.
15.1. Expenses. The Borrower agrees to pay (i) the reasonable costs of
producing and reproducing this Credit Agreement, the other Loan Documents and
the other agreements and instruments mentioned herein, (ii) the reasonable fees,
expenses and disbursements of the Agent's Special Counsel or any local counsel
to the Agent incurred in connection with the preparation, syndication,
administration or interpretation of the Loan Documents and other instruments
mentioned herein, each closing hereunder, any amendments, modifications,
approvals, consents or waivers hereto or hereunder, or the cancellation of any
Loan Document upon payment in full in cash of all of the Obligations or pursuant
to any terms of such Loan Document for providing for such cancellation, (iii)
the fees, expenses and disbursements of the Agent or any of its affiliates
incurred by the Agent or such affiliate in connection with the preparation,
syndication, administration or interpretation of the Loan Documents and other
instruments mentioned herein, including without limitation the reasonable fees
and expenses of Persons retained pursuant to Section 14.2, all title insurance
premiums and surveyor, engineering and appraisal charges, and (iv) all
reasonable out-of-pocket expenses (including without limitation reasonable
attorneys' fees and costs, which attorneys may be employees of any Bank or the
Agent, and reasonable consulting, accounting, appraisal, investment banking and
similar professional fees and charges) incurred by any Bank or the Agent in
connection with (A) the enforcement of or preservation of rights under any of
the Loan Documents against the Borrower or any of its Subsidiaries or the
administration thereof after the occurrence of a Default or Event of Default and
(B) any litigation, proceeding or dispute whether arising hereunder or
otherwise, in any way related to any Bank's or the Agent's relationship with the
Borrower or any of its Subsidiaries.
15.2. Indemnification. The Borrower agrees to indemnify and hold harmless
the Agent, its affiliates and the Banks from and against any and all claims,
actions and suits whether groundless or otherwise, and from and against any and
all liabilities, losses, damages and expenses of every nature and character
arising out of this Credit Agreement or any of the other Loan Documents or the
transactions contemplated hereby (except to the extent any such claim, action or
suit results from the gross negligence or willful misconduct of the Agent, its
affiliate or the Bank seeking indemnification hereunder) including, without
limitation, (i) any actual or proposed use by the Borrower or any of its
Subsidiaries of the proceeds of any of the Loans or Letters of Credit, (ii) the
Borrower or any of its Subsidiaries entering into or performing this Credit
Agreement or any of the other Loan Documents or (iii) with respect to the
Borrower and its Subsidiaries and their respective properties and assets, the
violation of any Environmental Law, the presence, disposal, escape, seepage,
leakage, spillage, discharge, emission, release or threatened release of any
Hazardous Substances or any action, suit, proceeding or investigation brought or
threatened with respect to any
<PAGE>
Hazardous Substances (including, but not limited to, claims with respect
to wrongful death, personal injury or damage to property), in each case
including, without limitation, the reasonable fees and disbursements of counsel
and allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding. In litigation, or the preparation
therefor, the Banks and the Agent and its affiliates shall be entitled to select
their own counsel (which shall be one counsel unless there is an unwaivable
conflict of interest) and, in addition to the foregoing indemnity, the Borrower
agrees to pay promptly the reasonable fees and expenses of such counsel. If, and
to the extent that the obligations of the Borrower under this ss.15.2 are
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment in satisfaction of such obligations which is
permissible under applicable law.
15.3. Survival. The covenants contained in this ss.15 shall survive
payment or satisfaction in full of all other Obligations.
16. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.
16.1. Sharing of Information with Section 20 Subsidiary. The Borrower
acknowledges that from time to time financial advisory, investment banking and
other services may be offered or provided to the Borrower or one or more of its
Subsidiaries, in connection with this Credit Agreement or otherwise, by a
Section 20 Subsidiary. The Borrower, for itself and each of its Subsidiaries,
hereby authorizes (a) such Section 20 Subsidiary to share with the Agent and
each Bank any information delivered to such Section 20 Subsidiary by the
Borrower or any of its Subsidiaries, and (b) the Agent and each Bank to share
with such Section 20 Subsidiary any information delivered to the Agent or such
Bank by the Borrower or any of its Subsidiaries pursuant to this Credit
Agreement, or in connection with the decision of such Bank to enter into this
Credit Agreement; it being understood, in each case, that any such Section 20
Subsidiary receiving such information shall be bound by the confidentiality
provisions of this Credit Agreement. Such authorization shall survive the
payment and satisfaction in full of all of Obligations.
16.2. Confidentiality. Each of the Banks and the Agent agrees, on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives, to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Borrower or any of its Subsidiaries
pursuant to this Credit Agreement that is identified by such Person as being
confidential at the time the same is delivered to the Banks or the Agent,
provided that nothing herein shall limit the disclosure of any such information
(a) after such information shall have become public other than through a
violation of this ss.16, (b) to the extent required by statute, rule, regulation
or judicial process, (c) to counsel for any of the Banks or the Agent, (d) to
bank examiners or any other regulatory authority having jurisdiction over any
Bank or the Agent, or to auditors or accountants, (e) to the Agent, any Bank or
any Section 20 Subsidiary, (f) in connection with any litigation to which any
one or more of the Banks, the Agent or any Section 20 Subsidiary is a party, or
in connection with the enforcement of rights or remedies hereunder or under any
other Loan Document,
<PAGE>
(g) to a Subsidiary or affiliate of such Bank as provided in Section 16.1, or
(h) to any assignee or participant (or prospective assignee or participant) so
long as such assignee or participant agrees to be bound by the provisions of
Section 18.6. Moreover, each of the Agent, the Banks and any Section 20
Subsidiary is hereby expressly permitted by the Borrower to refer to any of the
Borrower and its Subsidiaries in connection with any advertising, promotion or
marketing undertaken by the Agent, such Bank or such Section 20 Subsidiary and,
for such purpose, the Agent, such Bank or such Section 20 Subsidiary may utilize
any trade name, trademark, logo or other distinctive symbol associated with the
Borrower or any of its Subsidiaries or any of their businesses (provided that
neither the Agent nor any Bank shall refer to the Borrower and its Subsidiaries
or use such trade name, trademark, logo or distinctive symbol in any such
advertising, promotion or marketing in the public media without the prior
written consent of the Borrower).
16.3. Prior Notification. Unless specifically prohibited by applicable law
or court order, each of the Banks and the Agent shall, prior to disclosure
thereof, notify the Borrower of any request for disclosure of any such
non-public information by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial
condition of such Bank by such governmental agency) or pursuant to legal
process.
16.4. Other. In no event shall any Bank or the Agent be obligated or
required to return any materials furnished to it or any Section 20 Subsidiary by
the Borrower or any of its Subsidiaries. The obligations of each Bank under this
Section 16 shall supersede and replace the obligations of such Bank under any
confidentiality letter in respect of this financing signed and delivered by such
Bank to the Borrower prior to the date hereof and shall be binding upon any
assignee of, or purchaser of any participation in, any interest in any of the
Loans or Reimbursement Obligations from any Bank.
17. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein, in
the Notes, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Borrower or any of its Subsidiaries
pursuant hereto shall be deemed to have been relied upon by the Banks and the
Agent, notwithstanding any investigation heretofore or hereafter made by any of
them, and shall survive the making by the Banks of any of the Loans and the
issuance, extension or renewal of any Letters of Credit, as herein contemplated,
and shall continue in full force and effect so long as any Letter of Credit or
any amount due under this Credit Agreement or the Notes or any of the other Loan
Documents remains outstanding or any Bank has any obligation to make any Loans
or the Agent has any obligation to issue, extend or renew any Letter of Credit,
and for such further time as may be otherwise expressly specified in this Credit
Agreement. All statements contained in any certificate or other paper delivered
to any Bank or the Agent at any time by or on behalf of the Borrower or any of
its Subsidiaries pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the
Borrower or such Subsidiary hereunder.
<PAGE>
18. ASSIGNMENT, PARTICIPATION AND ADDITIONAL BANKS.
18.1. Conditions to Assignment by Banks. Except as provided herein, each
Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Loans at the time owing to it, the Notes held by it and its participating
interest in the risk relating to any Letters of Credit); provided that (i) each
of the Agent and, unless a Default or Event of Default shall have occurred and
be continuing, the Borrower shall have given its prior written consent to such
assignment, which consent, in the case of the Borrower, will not be unreasonably
withheld (provided that consent of the Borrower shall not be required for any
such assignment by any Bank to an Affiliate of such Bank or to another Bank
whose Commitment Percentage will not thereby equal or exceed 50% of the
aggregate Commitments of all of the Banks), (ii) each such assignment shall be
of a constant, and not a varying, percentage of all the assigning Bank's rights
and obligations under this Credit Agreement, (iii) each assignment shall be in
an amount that is a whole multiple of $5,000,000 and (iv) each Bank which is a
Bank on the date hereof shall retain, free of any such assignment, an amount of
its Commitment of not less than $5,000,000 and (v) the parties to such
assignment shall execute and deliver to the Agent, for recording in the Register
(as hereinafter defined), an Assignment and Acceptance, substantially in the
form of Exhibit G hereto (an "Assignment and Acceptance"), together with any
Notes subject to such assignment. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five (5) Business Days after
the execution thereof, (i) the assignee thereunder shall be a party hereto and,
to the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the
extent provided in such assignment and upon payment to the Agent of the
registration fee referred to in Section 18.10, be released from its obligations
under this Credit Agreement.
18.2. Certain Representations and Warranties; Limitations; Covenants. By
executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the legal and
beneficial owner of the interest being assigned thereby free and clear of any
adverse claim, the assigning Bank makes no representation or warranty, express
or implied, and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Credit
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, the other Loan Documents or any
other instrument or document furnished pursuant hereto or the attachment,
perfection or priority of any security interest or mortgage,
(b) the assigning Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower and its
Subsidiaries or any other Person primarily or secondarily liable in respect of
any of the Obligations, or the performance or observance
<PAGE>
by the Borrower and its Subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations of any of their
obligations under this Credit Agreement or any of the other Loan Documents or
any other instrument or document furnished pursuant hereto or thereto;
(c) such assignee confirms that it has received a copy of this Credit
Agreement, together with copies of the most recent financial statements referred
to in Section 6.4 and Section 7.4 and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance upon the
assigning Bank, the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Credit Agreement;
(e) such assignee represents and warrants that it is an Eligible
Assignee;
(f) such assignee appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under this Credit Agreement and
the other Loan Documents as are delegated to the Agent by the terms hereof or
thereof, together with such powers as are reasonably incidental thereto;
(g) such assignee agrees that it will perform in accordance with their
terms all of the obligations that by the terms of this Credit Agreement are
required to be performed by it as a Bank;
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; and
(i) such assignee acknowledges that it has made arrangements with the
assigning Bank satisfactory to such assignee with respect to its pro rata share
of Letter of Credit Fees in respect of outstanding Letters of Credit.
18.3. Register. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Loans owing to and Letter of Credit
Participations purchased by, the Banks from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Banks may treat each Person whose name is recorded
in the Register as a Bank hereunder for all purposes of this Credit Agreement.
The Register shall be available for inspection by the Borrower and the Banks at
any reasonable time and from time to time upon reasonable prior notice. Upon
each such recordation, the assigning Bank or, as the case may be, Additional
Bank agrees to pay to the Agent a registration fee in the sum of $2,500.
18.4. New Notes. Upon its receipt of an Assignment and Acceptance executed
by the parties to such assignment, together with each Note subject
<PAGE>
to such assignment, the Agent shall (i) record the information contained
therein in the Register, and (ii) give prompt notice thereof to the Borrower and
the Banks (other than the assigning Bank). Within five (5) Business Days after
receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Agent, in exchange for each surrendered Note, a new Note to the
order of such Eligible Assignee in an amount equal to the amount assumed by such
Eligible Assignee pursuant to such Assignment and Acceptance and, if the
assigning Bank has retained some portion of its obligations hereunder, a new
Note to the order of the assigning Bank in an amount equal to the amount
retained by it hereunder. Such new Notes shall provide that they are
replacements for the surrendered Notes, shall be in an aggregate principal
amount equal to the aggregate principal amount of the surrendered Notes, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the assigned Notes. Within five (5)
days of issuance of any new Notes pursuant to this Section 18.4, the Borrower
shall deliver an opinion of counsel, addressed to the Banks and the Agent,
relating to the due authorization, execution and delivery of such new Notes and
the legality, validity and binding effect thereof, in form and substance
satisfactory to the Banks. The surrendered Notes shall be cancelled and returned
to the Borrower.
18.5. Participations. Each Bank may sell participations to one or more
banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
that (i) each such participation shall be in an amount of not less than
$5,000,000, (ii) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (iii) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant, reduce
the amount of any commitment fees or Letter of Credit Fees to which such
participant is entitled or extend any regularly scheduled payment date for
principal or interest.
18.6. Disclosure. The Borrower agrees that in addition to disclosures made
in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Credit Agreement to
assignees or participants and potential assignees or participants hereunder;
provided that such assignees or participants or potential assignees or
participants shall agree (i) to treat in confidence such information unless such
information otherwise becomes public knowledge, (ii) not to disclose such
information to a third party, except as required by law or legal process and
(iii) not to make use of such information for purposes of transactions unrelated
to such contemplated assignment or participation. For purposes of this Section
18.6 an assignee or participant or potential assignee or participant may include
a counterparty with whom such Bank has entered into or potentially might enter
into a derivative contract referenced to credit or other risks or events arising
under this Credit Agreement or any other Loan Document.
<PAGE>
18.7. Assignee or Participant Affiliated with the Borrower. If any
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to Section 12.1 or Section
12.2, and the determination of the Majority Banks shall for all purposes of this
Credit Agreement and the other Loan Documents be made without regard to such
assignee Bank's interest in any of the Loans or Reimbursement Obligations. If
any Bank sells a participating interest in any of the Loans or Reimbursement
Obligations to a participant, and such participant is the Borrower or an
Affiliate of the Borrower, then such transferor Bank shall promptly notify the
Agent of the sale of such participation. A transferor Bank shall have no right
to vote as a Bank hereunder or under any of the other Loan Documents for
purposes of granting consents or waivers or for purposes of agreeing to
amendments or modifications to any of the Loan Documents or for purposes of
making requests to the Agent pursuant to Section 12.1 or Section 12.2 to the
extent that such participation is beneficially owned by the Borrower or any
Affiliate of the Borrower, and the determination of the Majority Banks shall for
all purposes of this Credit Agreement and the other Loan Documents be made
without regard to the interest of such transferor Bank in the Loans or
Reimbursement Obligations to the extent of such participation.
18.8. Miscellaneous Assignment Provisions. Any assigning Bank shall retain
its rights to be indemnified pursuant to Section 15 with respect to any claims
or actions arising prior to the date of such assignment. If any assignee Bank is
not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Borrower and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes. Anything contained in
this Section 18 to the contrary notwithstanding, any Bank may at any time pledge
all or any portion of its interest and rights under this Credit Agreement
(including all or any portion of its Notes) to any of the twelve Federal Reserve
Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section
341. No such pledge or the enforcement thereof shall release the pledgor Bank
from its obligations hereunder or under any of the other Loan Documents.
18.9. Assignment by Borrower. The Borrower shall not assign or transfer
any of its rights or obligations under any of the Loan Documents without the
prior written consent of each of the Banks.
18.10. Additional Banks. On one or more occasions, one or more Additional
Banks may be admitted as Banks party to this Credit Agreement in connection with
an increase of the Total Commitment pursuant to Section 2.4, subject to (i)
execution and delivery by any such Additional Bank to the Agent, for recording
in the Register pursuant to Section 18.4, of an Instrument of Adherence
substantially in the form of Exhibit H hereto (an "Instrument of Adherence"),
(ii) acceptance of such Instrument of Adherence by each of the Agent and the
Borrower by their respective executions thereof, (iii) execution and delivery by
the Borrower of a Revolving Credit Note to the
<PAGE>
order of such Additional Bank in the form of Exhibit A hereto, and (iv)
the payment by the Additional Bank to the Agent of the registration fee
specified in Section 18.4. Upon the satisfaction of the foregoing conditions,
from and after the effective date specified in each such Instrument of
Adherence, which effective date shall be at least five (5) Business Days after
the execution thereof, the Additional Bank shall be a Bank party hereto and have
the rights and obligations of a Bank hereunder. By its execution and delivery of
an Instrument of Adherence, each Additional Bank shall represent and warrant to
and agree with the other parties to this Credit Agreement as follows:
(a) that such Additional Bank has received a copy of this Credit
Agreement, together with copies of the most recent financial statements referred
to in Section 6.4 and Section 7.4 and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into such Instrument of Adherence;
(b) that such Additional Bank will, independently and without reliance
upon the Agent or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Credit Agreement;
(c) that such Additional Bank is qualified as an Eligible Assignee;
(d) that such Additional Bank appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under this Credit
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof or thereof, together with such powers as are reasonably incidental
thereto;
(e) that such Additional Bank agrees that it will perform all of the
obligations that by the terms of this Credit Agreement are required to be
performed by it as a Bank; and
(f) that such Additional Bank is legally authorized to enter into such
Instrument of Adherence.
19. NOTICES, ETC.
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Notes or any Letter of Credit Applications shall be in
writing and shall be delivered in hand, mailed by United States registered or
certified first class mail, postage prepaid, sent by overnight courier, or sent
by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier
or postal service, addressed as follows:
(a) if to the Borrower, at 191 Spring Street, Lexington, MA 02421,
Attention: Treasurer, or at such other address for notice as the Borrower shall
last have furnished in writing to the Person giving the notice;
(b) if to the Agent, at 100 Federal Street, Boston, Massachusetts
02110, USA, Attention: Peter L. Griswold, Managing Director, or such other
<PAGE>
address for notice as the Agent shall last have furnished in writing to
the Person giving the notice; and
(c) if to any Bank, at such Bank's address set forth on Schedule 1 hereto,
or such other address for notice as such Bank shall have last furnished in
writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
20. GOVERNING LAW.
THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT
BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN ss.19. THE
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
21. HEADINGS.
The captions in this Credit Agreement are for convenience of reference
only and shall not define or limit the provisions hereof.
22. COUNTERPARTS.
This Credit Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when
executed and delivered shall be an original, and all of which together shall
constitute one instrument. In proving this Credit Agreement it shall not be
necessary to produce or account for more than one such counterpart signed by the
party against whom enforcement is sought.
23. ENTIRE AGREEMENT, ETC.
The Loan Documents and any other documents executed in connection herewith
or therewith express the entire understanding of the parties with respect to the
transactions contemplated hereby. Neither this Credit Agreement nor any term
hereof may be changed, waived, discharged or terminated, except as provided in
ss.25.
<PAGE>
24. WAIVER OF JURY TRIAL.
. The Borrower hereby waives its right to a jury trial with respect to any
action or claim arising out of any dispute in connection with this Credit
Agreement, the Notes or any of the other Loan Documents, any rights or
obligations hereunder or thereunder or the performance of such rights and
obligations. Except as prohibited by law, the Borrower hereby waives any right
it may have to claim or recover in any litigation referred to in the preceding
sentence any special, exemplary, punitive or consequential damages or any
damages other than, or in addition to, actual damages. The Borrower (i)
certifies that no representative, agent or attorney of any Bank or the Agent has
represented, expressly or otherwise, that such Bank or the Agent would not, in
the event of litigation, seek to enforce the foregoing waivers and (ii)
acknowledges that the Agent and the Banks have been induced to enter into this
Credit Agreement, the other Loan Documents to which it is a party by, among
other things, the waivers and certifications contained herein.
25. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Any consent or approval required or permitted by this Credit Agreement to
be given by the Banks may be given, and any term of this Credit Agreement, the
other Loan Documents or any other instrument related hereto or mentioned herein
may be amended, and the performance or observance by the Borrower or any of its
Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or
such other instrument or the continuance of any Default or Event of Default may
be waived (either generally or in a particular instance and either retroactively
or prospectively) with, but only with, the written consent of the Borrower and
the written consent of the Majority Banks. Notwithstanding the foregoing, the
rate of interest on the Notes (other than interest accruing pursuant to Section
5.10.2 following the effective date of any waiver by the Majority Banks of the
Default or Event of Default relating thereto) or the amount of the commitment
fee or Letter of Credit Fees may not be decreased without the written consent of
each Bank affected thereby; the amount of the Commitment of any Bank may not be
increased without the written consent of the Borrower and of such Bank; the
Syndicated Loan Maturity Date may not be postponed without the written consent
of each Bank affected thereby; this Section 25 and the definition of Majority
Banks may not be amended, and no Guaranty may be released, without the written
consent of all of the Banks; and the amount of the Agent's Fee or any Letter of
Credit Fees payable for the Agent's account and Section 15 may not be amended
without the written consent of the Agent. No waiver shall extend to or affect
any obligation not expressly waived or impair any right consequent thereon. No
course of dealing or delay or omission on the part of the Agent or any Bank in
exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon the Borrower shall entitle the
Borrower to other or further notice or demand in similar or other circumstances.
26. SEVERABILITY.
The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall
<PAGE>
affect only such clause or provision, or part thereof, in such
jurisdiction, and shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision of this Credit Agreement in
any jurisdiction.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.
THE STRIDE RITE CORPORATION
By: /s/ John M. Kelliher
John M. Kelliher
Treasurer
BANKBOSTON, N.A., individually and as Agent
By: /s/ Peter L. Griswold
Peter L. Griswold
Managing Director
BANK OF AMERICA, N.A.
By: /s/ Lisa B. Choi
Name: Lisa B. Choi
Title: Vice President
BANK ONE, NA
(Main office Chicago)
By: /s/ Vincent R. Hercheb
Name: Vincent R. Hercheb
Title: Vice President
SUNTRUST BANK
By: /s/ W. David Widsom
Name: W. David Wisdom
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Charlotte Sohn
Name: Charlotte Sohn
Title: Vice President
<PAGE>
SCHEDULE 1
BANKS
Bank Commitment Amount Commitment Percentage
BankBoston, N.A. $23,000,000 30.667%
100 Federal Street
Boston, MA 02110
Attn: Peter L. Griswold,
Managing Director
Bank of America, N.A. $13,000,000 17.333%
335 Madison Avenue
5th Floor
New York, NY 10017
Attn:
Bank One, NA $13,000,000 17.333%
1 Bank One Plaza
14th Floor
Chicago, IL 60670 Attn:
SunTrust Bank $13,000,000 17.333%
711 Fifth Avenue
16th Floor
New York, NY 10022
Attn:
The Bank of New York $13,000,000 17.333%
One Wall Street
New York, NY 10286
Attn:
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
$____________________ January __, 2000
FOR VALUE RECEIVED, the undersigned The Stride Rite Corporation, a
Massachusetts corporation (the "Borrower"), hereby promises to pay to the
order of ____________________, a ________________________________ (the
"Bank") at the Bank's head office at
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(a) prior to or on [January __, 2003] the principal amount of __________
($________) or, if less, the aggregate unpaid principal amount of Syndicated
Loans advanced by the Bank to the Borrower pursuant to the Revolving Credit
Agreement dated as of January __, 2000 (as amended and in effect from time to
time, the "Credit Agreement"), among the Borrower, the Bank and other banks
party thereto, and BankBoston, N.A., as Agent for the banks.
(b) the principal outstanding hereunder from time to time at the
times provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time outstanding
from the Closing Date under the Credit Agreement through and including the
maturity date hereof at the times and at the rate provided in the Credit
Agreement.
This Note evidences borrowings under and has been issued by the Borrower
in accordance with the terms of the Credit Agreement. The Bank and any holder
hereof is entitled to the benefits of the Credit Agreement and the other Loan
Documents, and may enforce the agreements of the Borrower contained therein, and
any holder hereof may exercise the respective remedies provided for thereby or
otherwise available in respect thereof, all in accordance with the respective
terms thereof. All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.
The Borrower irrevocably authorizes the Bank to make or cause to be made,
at or about the time of the Drawdown Date of any Syndicated Loan or at the time
of receipt of any payment of principal of this Note, an appropriate notation on
the grid attached to this Note, or the continuation of such grid, or any other
similar record, including computer records, reflecting the making of such
Syndicated Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the Syndicated Loans set forth on the grid attached to
this Note, or the continuation of such grid, or any other similar record,
including computer records, maintained by the Bank with respect to any
Syndicated Loans shall be prima facie evidence of the principal amount thereof
owing and unpaid to the Bank, but the failure to record, or any error in so
recording, any such amount on any such grid, continuation or other record shall
not limit or otherwise affect the
<PAGE>
obligation of the Borrower hereunder or under the Credit Agreement to
make payments of principal of and interest on this Note when due.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN ss.19 OF THE CREDIT AGREEMENT. THE
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Credit Note
to be signed in its corporate name and its corporate seal to be impressed
thereon by its duly authorized officer as of the day and year first above
written.
<PAGE>
[Corporate Seal]
THE STRIDE RITE CORPORATION
By: _______________________________
Title:
<PAGE>
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Amount of Balance of
Amount Principal Paid Principal Notation
Date of Loan or Prepaid Unpaid Made By:
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<PAGE>
EXHIBIT B
GUARANTY
GUARANTY, dated as of January __, 2000, by ________________, a
_________________ corporation (the "Guarantor") in favor of (i) BankBoston,
N.A., a national banking association, as agent (hereinafter, in such capacity,
the "Agent") for itself and the other banking institutions (hereinafter,
collectively, the "Banks") which are or may become parties to a Revolving Credit
Agreement dated as of January __, 2000 (as amended and in effect from time to
time, the "Credit Agreement"), among The Stride Rite Corporation, a
Massachusetts corporation (the "Company"), the Banks and the Agent, and (ii)
each of the Banks.
WHEREAS, the Company and the Guarantor are members of a group of related
corporations, the success of any one of which is dependent in part on the
success of the other members of such group;
WHEREAS, the Guarantor expects to receive substantial direct and indirect
benefits from the extensions of credit to the Company by the Banks pursuant to
the Credit Agreement (which benefits are hereby acknowledged);
WHEREAS, it is a condition precedent to the Banks' making any loans or
otherwise extending credit to the Company under the Credit Agreement that the
Guarantor execute and deliver to the Agent, for the benefit of the Banks and the
Agent, a guaranty substantially in the form hereof; and
WHEREAS, the Guarantor wishes to guaranty the Company's obligations to the
Banks and the Agent under or in respect of the Credit Agreement as provided
herein;
NOW, THEREFORE, the Guarantor hereby agrees with the Banks and the Agent
as follows:
1. Definitions. The term "Obligations" and all other capitalized terms
used herein without definition shall have the respective meanings provided
therefor in the Credit Agreement.
2. Guaranty of Payment and Performance. The Guarantor hereby guarantees to
the Banks and the Agent the full and punctual payment when due (whether at
stated maturity, by required pre-payment, by acceleration or otherwise), as well
as the performance, of all of the Obligations including all such which would
become due but for the operation of the automatic stay pursuant to Section
362(a) of the Federal Bankruptcy Code and the operation of Sections 502(b) and
506(b) of the Federal Bankruptcy Code. This Guaranty is an absolute,
unconditional and continuing guaranty of the full and punctual payment and
performance of all of the Obligations and not of their collectability only and
is in no way conditioned upon any requirement that the Agent or any Bank first
attempt to collect any of the Obligations from the Company or resort to any
collateral security or other means of obtaining payment. Should the Company
default in the payment or performance of any of the Obligations, the obligations
of the Guarantor hereunder with respect to such Obligations in default shall,
upon demand by the Agent, become
<PAGE>
immediately due and payable to the Agent, for the benefit of the Banks and the
Agent, without demand or notice of any nature, all of which are expressly waived
by the Guarantor. Payments by the Guarantor hereunder may be required by the
Agent on any number of occasions. All payments by the Guarantor hereunder shall
be made to the Agent, in the manner and at the place of payment specified
therefor in the Credit Agreement, for the account of the Banks and the Agent.
3. Guarantor's Agreement to Pay Enforcement Costs, etc. The Guarantor
further agrees, as the principal obligor and not as a guarantor only, to pay to
the Agent, on demand, all costs and expenses (including court costs and legal
expenses) incurred or expended by the Agent or any Bank in connection with the
Obligations, this Guaranty and the enforcement thereof, together with interest
on amounts recoverable under this Section 3 from the time when such amounts
become due until payment, whether before or after judgment, at the rate of
interest for overdue principal set forth in the Credit Agreement, provided that
if such interest exceeds the maximum amount permitted to be paid under
applicable law, then such interest shall be reduced to such maximum permitted
amount.
4. Waivers by Guarantor; Bank's Freedom to Act. The Guarantor agrees that
the Obligations will be paid and performed strictly in accordance with their
respective terms, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Agent or any Bank with respect thereto. The Guarantor waives promptness,
diligences, presentment, demand, protest, notice of acceptance, notice of any
Obligations incurred and all other notices of any kind, all defenses which may
be available by virtue of any valuation, stay, moratorium law or other similar
law now or hereafter in effect, any right to require the marshalling of assets
of the Company or any other entity or other person primarily or secondarily
liable with respect to any of the Obligations, and all suretyship defenses
generally. Without limiting the generality of the foregoing, the Guarantor
agrees to the provisions of any instrument evidencing, securing or otherwise
executed in connection with any Obligation and agrees that the obligations of
the Guarantor hereunder shall not be released or discharged, in whole or in
part, or otherwise affected by (i) the failure of the Agent or any Bank to
assert any claim or demand or to enforce any right or remedy against the Company
or any other entity or other person primarily or secondarily liable with respect
to any of the Obligations; (ii) any extensions, compromise, refinancing,
consolidation or renewals of any Obligation; (iii) any change in the time, place
or manner of payment of any of the Obligations or any rescissions, waivers,
compromise, refinancing, consolidation or other amendments or modifications of
any of the terms or provisions of the Credit Agreement, the Notes, the other
Loan Documents or any other agreement evidencing, securing or otherwise executed
in connection with any of the Obligations, (iv) the addition, substitution or
release of any entity or other person primarily or secondarily liable for any
Obligation; (v) the adequacy of any rights which the Agent or any Bank may have
against any collateral security or other means of obtaining repayment of any of
the Obligations; (vi) the impairment of any collateral securing any of the
Obligations, including without limitation the failure to perfect or preserve any
rights which the Agent or any Bank might have in such collateral security or the
substitution, exchange, surrender, release, loss or
<PAGE>
destruction of any such collateral security; or (vii) any other act or omission
which might in any manner or to any extent vary the risk of the Guarantor or
otherwise operate as a release or discharge of the Guarantor, all of which may
be done without notice to the Guarantor. To the fullest extent permitted by law,
the Guarantor hereby expressly waives any and all rights or defenses arising by
reason of (A) any "one action" or "anti-deficiency" law which would otherwise
prevent the Agent or any Bank from bringing any action, including any claim for
a deficiency, or exercising any other right or remedy (including any right of
set-off), against the Guarantor before or after the Agent's or such Bank's
commencement or completion of any foreclosure action, whether judicially, by
exercise of power of sale or otherwise, or (B) any other law which in any other
way would otherwise require any election of remedies by the Agent or any Bank.
5. Unenforceability of Obligations Against Company. If for any reason the
Company has no legal existence or is under no legal obligation to discharge any
of the Obligations, or if any of the Obligations have become irrecoverable from
the Company by reason of the Company's insolvency, bankruptcy or reorganization
or by other operation of law or for any other reason, this Guaranty shall
nevertheless be binding on the Guarantor to the same extent as if the Guarantor
at all times had been the principal obligor on all such Obligations. In the
event that acceleration of the time for payment of any of the Obligations is
stayed upon the insolvency, bankruptcy or reorganization of the Company, or for
any other reason, all such amounts otherwise subject to acceleration under the
terms of the Credit Agreement, the Notes, the other Loan Documents or any other
agreement evidencing, securing or otherwise executed in connection with any
Obligation shall be immediately due and payable by the Guarantor.
6. Subrogation; Subordination.
6.1. Waiver of Rights Against Company. Until the final payment and
performance in full of all of the Obligations, the Guarantor shall not exercise
and hereby waives any rights against the Company arising as a result of payment
by the Guarantor hereunder, by way of subrogation, reimbursement, restitution,
contribution or otherwise, and will not prove any claim in competition with the
Agent or any Bank in respect of any payment hereunder in any bankruptcy,
insolvency or reorganization case or proceedings of any nature; the Guarantor
will not claim any setoff, recoupment or counterclaim against the Company in
respect of any liability of the Guarantor to the Company.
6.2. Subordination. The payment of any amounts due with respect to any
indebtedness of the Company for money borrowed or credit received now or
hereafter owed to the Guarantor is hereby subordinated to the prior payment in
full of all of the Obligations. The Guarantor agrees that, after the occurrence
of any default in the payment or performance of any of the Obligations, the
Guarantor will not demand, sue for or otherwise attempt to collect any such
indebtedness of the Company to the Guarantor until all of the Obligations shall
have been paid in full. If, notwithstanding the foregoing sentence, the
Guarantor shall collect, enforce or receive any amounts in respect of such
indebtedness while any Obligations are still outstanding, such amounts shall be
collected, enforced and received by the
<PAGE>
Guarantor as trustee for the Banks and the Agent and be paid over to the Agent,
for the benefit of the Banks and the Agent, on account of the Obligations
without affecting in any manner the liability of the Guarantor under the other
provisions of this Guaranty.
6.3. Provisions Supplemental. The provisions of this ss.6 shall be
supplemental to and not in derogation of any rights and remedies of the Banks
and the Agent under any separate subordination agreement which the Agent may at
any time and from time to time enter into with the Guarantor for the benefit of
the Banks and the Agent.
7. Security; Setoff. The Guarantor grants to each of the Agent and the
Banks, as security for the full and punctual payment and performance of all of
the Guarantor's obligations hereunder, a continuing lien on and security
interest in all securities or other property belonging to the Guarantor now or
hereafter held by the Agent or such Bank and in all deposits (general or
special, time or demand, provisional or final) and other sums credited by or due
from the Agent or such Bank to the Guarantor or subject to withdrawal by the
Guarantor. Regardless of the adequacy of any collateral security or other means
of obtaining payment of any of the Obligations, each of the Agent and the Banks
is hereby authorized at any time and from time to time, without notice to the
Guarantor (any such notice being expressly waived by the Guarantor) and to the
fullest extent permitted by law, to set off and apply such deposits and other
sums against the obligations of the Guarantor under this Guaranty, whether or
not the Agent or such Bank shall have made any demand under this Guaranty.
8. Further Assurances. The Guarantor agrees that it will from time to
time, at the request of the Agent, do all such things and execute all such
documents as the Agent may consider necessary or desirable to give full effect
to this Guaranty and to perfect and preserve the rights and powers of the Banks
and the Agent hereunder. The Guarantor acknowledges and confirms that the
Guarantor itself has established its own adequate means of obtaining from the
Company on a continuing basis all information desired by the Guarantor
concerning the financial condition of the Company and that the Guarantor will
look to the Company and not to the Agent or any Bank in order for the Guarantor
to keep adequately informed of changes in the Company's financial condition.
9. Termination; Reinstatement. This Guaranty shall remain in full force
and effect until the Agent is given written notice of the Guarantor's intention
to discontinue this Guaranty, notwithstanding any intermediate or temporary
payment or settlement of the whole or any part of the Obligations. No such
notice shall be effective unless received and acknowledged by an officer of the
Agent at the address of the Agent for notices set forth in Section 19 of the
Credit Agreement. No such notice shall affect any rights of the Agent or any
Bank hereunder, including without limitation the rights set forth in Sections 4
and 6, with respect to any Obligations incurred or accrued prior to the receipt
of such notice or any Obligations incurred or accrued pursuant to any contract
or commitment in existence prior to such receipt. This Guaranty shall continue
to be effective or be reinstated, notwithstanding any such notice, if at any
time any payment made or value received with respect to any Obligation is
rescinded or must otherwise be returned by the Agent or any
<PAGE>
Bank upon the insolvency, bankruptcy or reorganization of the Company, or
otherwise, all as though such payment had not been made or value received.
10. Successors and Assigns. This Guaranty shall be binding upon the
Guarantor, its successors and assigns, and shall inure to the benefit of the
Agent, the Banks, Additional Banks (if any) becoming party to the Credit
Agreement, and their respective successors, transferees and assigns. Without
limiting the generality of the foregoing sentence, each Bank may assign or
otherwise transfer the Credit Agreement, the Notes, the other Loan Documents or
any other agreement or note held by it evidencing, securing or otherwise
executed in connection with the Obligations, or sell participations in any
interest therein, to any other entity or other person, and such other entity or
other person shall thereupon become vested, to the extent set forth in the
agreement evidencing such assignment, transfer or participation, with all the
rights in respect thereof granted to such Bank herein, all in accordance with
Section 18 of the Credit Agreement. The Guarantor may not assign any of its
obligations hereunder.
11. Amendments and Waivers. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantor therefrom shall be
effective unless the same shall be in writing and signed by the Agent with the
consent of the Majority Banks. No failure on the part of the Agent or any Bank
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
12. Notices. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided herein,
shall be deemed to have been duly made or given when delivered by hand or mailed
first class, postage prepaid, or, in the case of telegraphic or telexed notice,
when transmitted, answer back received, addressed as follows: if to the
Guarantor, at the address set forth beneath its signature hereto, and if to the
Agent, at the address for notices to the Agent set forth in Section 19 of the
Credit Agreement, or at such address as either party may designate in writing to
the other.
13. Governing Law; Consent to Jurisdiction. THIS GUARANTY IS INTENDED TO
TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Guarantor
agrees that any suit for the enforcement of this Guaranty may be brought in the
courts of the Commonwealth of Massachusetts or any federal court sitting therein
and consents to the nonexclusive jurisdiction of such court and to service of
process in any such suit being made upon the Guarantor by mail at the address
specified by reference in Section 12. The Guarantor hereby waives any objection
that it may now or hereafter have to the venue of any such suit or any such
court or that such suit was brought in an inconvenient court.
14. Waiver of Jury Trial. THE GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF ANY OF SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by
<PAGE>
law, the Guarantor hereby waives any right which it may have to claim or recover
in any litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. The Guarantor (i) certifies that neither the Agent or any Bank
nor any representative, agent or attorney of the Agent or any Bank has
represented, expressly or otherwise, that the Agent or any Bank would not, in
the event of litigation, seek to enforce the foregoing waivers and (ii)
acknowledges that, in entering into the Credit Agreement and the other Loan
Documents to which the Agent or any Bank is a party, the Agent and the Banks are
relying upon, among other things, the waivers and certifications contained in
this Section 14.
15. Miscellaneous. This Guaranty constitutes the entire agreement of the
Guarantor with respect to the matters set forth herein. The rights and remedies
herein provided are cumulative and not exclusive of any remedies provided by law
or any other agreement, and this Guaranty shall be in addition to any other
guaranty of or collateral security for any of the Obligations. The invalidity or
unenforceability of any one or more sections of this Guaranty shall not affect
the validity or enforceability of its remaining provisions. Captions are for the
ease of reference only and shall not affect the meaning of the relevant
provisions. The meanings of all defined terms used in this Guaranty shall be
equally applicable to the singular and plural forms of the terms defined.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed
and delivered as of the date first above written.
[NAME OF GUARANTOR]
By: _______________________________
Title:
Address:
Telex: ___________________________
Telecopy: ________________________
<PAGE>
EXHIBIT C
SYNDICATED Loan Request
THE STRIDE RITE CORPORATION
[date]
BankBoston, N.A., as Agent
100 Federal Street
Boston, MA 02110
Attention: ___________________
Ladies and Gentlemen:
Reference is hereby made to that certain Revolving Credit Agreement, dated
as of January __, 2000 (as the same may be amended and in effect from time to
time, the "Credit Agreement"), among The Stride Rite Corporation (the
"Borrower"), BankBoston, N.A., and the other lending institutions which are or
may become parties thereto from time to time (collectively, the "Banks"), and
BankBoston, N.A., as agent for the Banks (the "Agent"). Capitalized terms which
are used herein without definition and which are defined in the Credit Agreement
shall have the same meanings herein as in the Credit Agreement.
Pursuant to Section 2.7 of the Credit Agreement, we hereby request that a
Syndicated Loan consisting of [a Base Rate Loan in the principal amount of
$__________, or a LIBOR Rate Loan in the principal amount of $__________ with an
Interest Period of _________] be made on __________ __, 200__. We understand
that this request is irrevocable and binding on us and obligates us to accept
the requested Syndicated Loan on such date.
We hereby certify that:
(a) The aggregate outstanding principal amount of the Syndicated Loans on
today's date, excluding this Borrowing, is $_________, the aggregate outstanding
principal amount of the Swing Line Loans on today's date, including any Swing
Line Loans to be made today, is $_________, the aggregate amount of Competitive
Bid Loans outstanding on today's date is $_________, and the sum of the Maximum
Drawing Amount and all Unpaid Reimbursement Obligations on today's date is
$_________. The remainder of the Total Commitment minus the sum of the foregoing
amounts specified in this clause (a) is $____________.
(b) We will use the proceeds of the requested Syndicated Loan in
accordance with the provisions of the Credit Agreement,
(c) Each of the representations and warranties contained in the Credit
Agreement or in any document or instrument delivered pursuant to or in
connection with the Credit Agreement was true as of the date as of which it was
made and is true at and as of the date hereof (except to the extent of changes
resulting from transactions contemplated or permitted by the Credit
<PAGE>
Agreement and changes occurring in the ordinary course of business that singly
or in the aggregate are not materially adverse, and to the extent that such
representations and warranties related expressly to an earlier date).
(d) No Default or Event of Default has occurred and is continuing.
Very truly yours,
THE STRIDE RITE CORPORATION
By:
Title:
<PAGE>
EXHIBIT D-1
COMPETITIVE BID NOTE
$____________________ January __, 2000
FOR VALUE RECEIVED, the undersigned The Stride Rite Corporation, a
Massachusetts corporation (the "Borrower"), hereby promises to pay to the
order of ____________________, a ________________________________ (the
"Bank") at the Bank's head office at
- ----------------------------------------------------------------------:
(a) prior to or on [January __, 2003] the principal amount of __________
($________) or, if less, the aggregate unpaid principal amount of Competitive
Bid Loans advanced by the Bank to the Borrower pursuant to the Revolving Credit
Agreement dated as of January __, 2000 (as amended and in effect from time to
time, the "Credit Agreement"), among the Borrower, the Bank and other banks
party thereto, and BankBoston, N.A., as Agent for the banks;
(b) the principal outstanding hereunder from time to time at the
times provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time outstanding
from the Closing Date under the Credit Agreement through and including the
Maturity Date at the times and at the rate provided in the Credit Agreement.
This Competitive Bid Note evidences borrowings under and has been issued
by the Borrower in accordance with the terms of the Credit Agreement. The Bank
and any holder hereof is entitled to the benefits of the Credit Agreement and
the other Loan Documents, and may enforce the agreements of the Borrower
contained therein, and any holder hereof may exercise the respective remedies
provided for thereby or otherwise available in respect thereof, all in
accordance with the respective terms thereof. All capitalized terms used in this
Note and not otherwise defined herein shall have the same meanings herein as in
the Credit Agreement.
The Borrower irrevocably authorizes the Bank to make or cause to be made,
at or about the time of the Drawdown Date of any Competitive Bid Loan or at the
time of receipt of any payment of principal of this Competitive Bid Note, an
appropriate notation on the grid attached hereto, or the continuation of such
grid, or any other similar record, including computer records, reflecting the
making of such Competitive Bid Loan or (as the case may be) the receipt of such
payment. The outstanding amount of the Competitive Bid Loans set forth on the
grid attached to this Competitive Bid Note, or the continuation of such grid, or
any other similar record, including computer records, maintained by the Bank
with respect to any Competitive Bid Loans shall be prima facie evidence of the
principal amount thereof owing and unpaid to the Bank, but the failure to
record, or any error in so recording, any such amount on any such grid,
continuation or other record shall not limit or otherwise affect the obligation
of the Borrower
<PAGE>
hereunder or under the Credit Agreement to make payments of principal of
and interest on this Competitive Bid Note when due.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Competitive Bid Note on the terms and conditions specified in the Credit
Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Competitive Bid Note and all of the unpaid interest
accrued thereon may become or be declared due and payable in the manner and with
the effect provided in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
The Borrower and every endorser and guarantor of this Competitive Bid Note
or the obligation represented hereby waives presentment, demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Competitive Bid Note, and assents to
any extension or postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondarily liable.
THIS COMPETITIVE BID NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER
SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW
OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS
OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
COMPETITIVE BID NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH
SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN ss.19 OF
THE CREDIT AGREEMENT. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH
SUIT IS BROUGHT IN AN INCONVENIENT COURT.
This Competitive Bid Note shall be deemed to take effect as a sealed
instrument under the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has caused this Competitive Bid Note
to be signed in its corporate name and its corporate seal to be impressed
thereon by its duly authorized officer as of the day and year first above
written.
<PAGE>
[Corporate Seal]
THE STRIDE RITE CORPORATION
By: _______________________________
Title:
<PAGE>
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Amount of Balance of
Amount Principal Paid Principal Notation
Date of Loan or Prepaid Unpaid Made By:
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<PAGE>
EXHIBIT D-2
Competitive Bid Quote Request
[Date]
To: BankBoston, N.A., as Agent (the "Agent")
From: The Stride Rite Corporation (the "Borrower")
Re: Revolving Credit Agreement (as the same may be amended and in effect
from time to time, the "Credit Agreement"), dated as of January __,
2000, among the Borrower, the lending institutions which are or may
become parties thereto (the "Banks") and the Agent.
We hereby give notice pursuant to Section 9.1(c) of the Credit Agreement
that we request Competitive Bid Quotes for the following proposed Competitive
Bid Loan(s):
Requested Drawdown Date:
Principal Amount* Interest Period** Maturity Date***
$
Such Competitive Bid Quotes should offer a Competitive Bid Rate.
Capitalized terms which are used herein without definition shall have the
same meanings herein as in the Credit Agreement.
The Stride Rite Corporation
By:_____________________________
Title:
- ---------------------
* Amount must be $5,000,000 minimum, or a greater integral multiple of
$1,000,000, and may not exceed the $30,000,000.
** From 10 through 90 days, but not to extend beyond the Maturity Date; a
maximum of three Interest Periods may be selected in one Competitive Bid
Quote Request
*** Last day of Interest Period
<PAGE>
EXHIBIT D-3
Invitation for Competitive Bid Quotes
To: [Name of Bank]
Pursuant to Section 2.9.1(d) of the Revolving Credit Agreement, dated as
of January __, 2000 (as the same is amended and in effect from time to time, the
"Credit Agreement"), among The Stride Rite Corporation (the "Borrower"), the
lending institutions which are or may become parties thereto (the "Banks"), and
BankBoston, N.A., as Agent, we are pleased on behalf of the Borrower to invite
you to submit Competitive Bid Quotes to the Borrower for the following proposed
Competitive Bid Loan(s):
Requested Drawdown Date:
Principal Amount Interest Period(s)* Maturity Date**
$
Such Competitive Bid Quotes should offer a Competitive Bid Rate.
Capitalized terms which are used herein without definition and which are
defined in the Credit Agreement shall have the same meanings herein as in the
Credit Agreement.
Please respond to this invitation by no later than 10:00 a.m. (Boston
time) on the requested Drawdown Date to the attention of [ ] at facsimile number
[ ].
BANKBOSTON, N.A., as Agent
By:___________________________________
Title:
- --------------------
* Up to three Interest Periods may be specified.
** Last day of Interest Period
<PAGE>
EXHIBIT D-4
Competitive Bid Quote
BankBoston, N.A., as Agent
100 Federal Street
Boston, Massachusetts 02110
Attention:
Re: Competitive Bid Quote to The Stride Rite Corporation (the
"Borrower")
In response to your invitation on behalf of the Borrower dated , 19
, we hereby make the following Competitive Bid Quote on
the following terms:
1. Quoting Bank:________________________________________________________
2. Person to contact at quoting Bank:___________________________________
3. Drawdown Date:_______________________________________________________*
4. We hereby offer to make Competitive Bid Loan(s) in the following
principal amounts, for the following Interest Periods and at the
following rates:
We understand and agree that the offer(s) set forth above, subject to the
satisfaction of the applicable conditions set forth in the Revolving Credit
Agreement, dated as of January __, 2000 (as the same may be amended and in
effect from time to time, the "Credit Agreement"), among the Borrower, the
lending institutions which are or may become parties thereto, and BankBoston,
N.A., as Agent, irrevocably obligates us to make the Competitive Bid Loan(s) for
which any offer(s) are accepted in whole or in part by the Borrower.
Principal Interest Competitive Bid
Amount** Period(s)*** Rate(s)****
$
$
5. Aggregate Principal Amount: $
Capitalized terms which are used herein without definition and which are
defined in the Credit Agreement shall have the same meanings herein as in the
Credit Agreement.
Very truly yours,
[NAME OF BANK]
Dated:_________________________ By:________________________
Title:
- --------------------
<PAGE>
* As specified in the related Invitation for Competitive Bid Quotes.
** Principal amount bid for each Interest Period may not exceed the
aggregate principal amount of Competitive Bid Loans for which offers were
requested and may not exceed the $30,000,000. Bids must be made for
$5,000,000 or any larger multiple of $1,000,000.
*** From 10 through 90 days, as specified in the related Invitation for
Competitive Bid Quotes.
**** Specify rate of interest per annum (each rounded to the nearest 1/1,000th
of 1%) for each applicable Interest Period.
<PAGE>
EXHIBIT D-5
Notice of Competitive Bid Borrowing
BankBoston, N.A., as Agent
100 Federal Street
Boston, Massachusetts 02110
Attention: _________________________
Re: Revolving Credit Agreement (as the same may be amended and in effect
from time to time the "Credit Agreement"), dated as of January __, 2000, among
The Stride Rite Corporation (the "Borrower"), the lending institutions which are
or may become parties thereto (the "Banks"), and BankBoston, N.A., as Agent.
We hereby give notice pursuant to Section 2.9.1(g) of the Credit Agreement
of our acceptance of the following Competitive Bid Quote(s):
1. Bank:
2. Drawdown Date: *
3. In the following principal amounts, for the following Interest Periods
and at the following rates:
Principal Interest Competitive Bid
Amount** Period(s) Rate(s)***
$
$
[Repeat for each Bank as necessary]
4. The aggregate principal amount for each Interest Period is:
Interest Aggregate
Period Principal Amount
$
$
- --------------------
* As specified in the related Invitation for Competitive Bid Quotes.
** Aggregate principal amount of each Competitive Bid Loan may not exceed
applicable amount set forth in related Competitive Bid Quote Request, and
must be $5,000,000 or a larger multiple of $1,000,000.
*** Specify rate of interest per annum (each rounded to the nearest 1/1,000th
of 1%) for each applicable Interest Period.
<PAGE>
We hereby certify that:
(a) We will use the proceeds of the requested Competitive Bid Loan in
accordance with the provisions of the Credit Agreement.
(b) Each of the representations and warranties contained in the Credit
Agreement or in any document or instrument delivered pursuant to or in
connection with the Credit Agreement was true as of the date as of which it was
made and is true at and as of the date hereof (except to the extent of changes
resulting from transactions contemplated or permitted by the Credit Agreement
and changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties related expressly to an earlier date.
(c) No Default or Event of Default has occurred and is continuing.
Capitalized terms which are used herein without definition and which are
defined in the Credit Agreement shall have the same meanings herein as in the
Credit Agreement.
Very truly yours,
THE STRIDE RITE CORPORATION
Dated:____________________________ By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT D-6
NOTICE OF COMPETITIVE BID LOANS
[date]
To: Each of the Banks referred to below
From: BankBoston, N.A., as Agent
Reference is hereby made to that certain Revolving Credit Agreement, dated
as of January __, 2000, among The Stride Rite Corporation (the "Borrower"), the
lending institutions which are or may become parties thereto (the "Banks"), and
BankBoston, N.A., as agent for the Banks (the "Agent") (as amended and in effect
from time to time, the "Credit Agreement"). Capitalized terms which are used
herein without definition and which are defined in the Credit Agreement shall
have the same meanings herein as in the Credit Agreement.
Under Section 2.9 of the Credit Agreement, the Borrower borrowed $________
in Competitive Bid Loans on _____________, 200__ with an Interest Period of
_____________________. The Competitive Bid Rate for the period is _______%.
A range of Competitive Bid Quotes were submitted. The bids ranged from
_____% to _____%.
BANKBOSTON, N.A., as Agent
By: ___________________________
Title:
<PAGE>
EXHIBIT E-1
Swing Line Loan Request
THE STRIDE RITE CORPORATION
[date]
BankBoston, N.A., as Agent
100 Federal Street
Boston, MA 02110
Attention: ___________________
Ladies and Gentlemen:
Reference is hereby made to that certain Revolving Credit Agreement, dated
as of January __, 2000, (as the same may be amended and in effect from time to
time, the "Credit Agreement"), among The Stride Rite Corporation, BankBoston,
N.A. and certain other lending institutions which are or may become parties
thereto from time to time (collectively, the "Banks"), and BankBoston, N.A., as
agent for the Banks (the "Agent"). Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.
Pursuant to Section 2.10.2(b) of the Credit Agreement, we hereby request
that a Swing Line Loan in the principal amount of $__________, be made on
________________ [Drawdown Date]. The Swing Line Loan Maturity Date relating to
such Swing Line Loan shall be ________________. We understand that this request
is irrevocable and binding on us and obligates us to accept the requested Swing
Line Loan on such date.
We hereby certify that:
(a) The aggregate outstanding principal amount of the Syndicated Loans on
today's date, including amounts to be borrowed today, is $_________, the
aggregate outstanding principal amount of the Swing Line Loans as of today's
date, including this borrowing, is $_________, the sum of the Maximum Drawing
Amount and all Unpaid Reimbursement Obligation on today's date, is $_________,
the aggregate amount of Competitive Bid Loans outstanding on today's date is
$________; and the sum of the foregoing amounts is
$----------------.
(b) We will use the proceeds of the requested Swing Line Loan in
accordance with the provisions of the Credit Agreement.
(c) Each of the representations and warranties contained in the Credit
Agreement or in any document or instrument delivered pursuant to or in
connection with the Credit Agreement was true as of the date as of which it was
made and is true at and as of the date hereof (except to the extent of changes
resulting from transactions contemplated or permitted by the Credit Agreement
and changes occurring in the ordinary course of business that
<PAGE>
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties related expressly to an earlier date).
(d) No Default or Event of Default has occurred and is continuing.
Very truly yours,
THE STRIDE RITE CORPORATION
By:
Title:
<PAGE>
EXHIBIT E-2
SWING LINE NOTE
$10,000,000 January __, 2000
FOR VALUE RECEIVED, the undersigned The Stride Rite Corporation, a
Massachusetts corporation (the "Borrower"), hereby promises to pay to the order
of BankBoston, N.A., a national banking association (the "Bank") at the Bank's
head office at 100 Federal Street, Boston, Massachusetts 02110:
(a) prior to or on [January __, 2003] the principal amount of TEN MILLION
DOLLARS ($10,000,000) or, if less, the aggregate unpaid principal amount of
Swing Line Loans advanced by the Bank to the Borrower pursuant to the Revolving
Credit Agreement dated as of January __, 2000 (as amended and in effect from
time to time, the "Credit Agreement"), among the Borrower, the Bank and other
banks party thereto, and BankBoston, N.A., as Agent for the banks;
(b) the principal outstanding hereunder from time to time at the
times provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time outstanding
from the Closing Date under the Credit Agreement through and including the
Maturity Date at the times and at the rate provided in the Credit Agreement.
This Swing Line Note evidences borrowings under and has been issued by the
Borrower in accordance with the terms of the Credit Agreement. The Bank and any
holder hereof is entitled to the benefits of the Credit Agreement and the other
Loan Documents, and may enforce the agreements of the Borrower contained
therein, and any holder hereof may exercise the respective remedies provided for
thereby or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All capitalized terms used in this Note and not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement.
The Borrower irrevocably authorizes the Bank to make or cause to be made,
at or about the time of the Drawdown Date of any Swing Line Loan or at the time
of receipt of any payment of principal of this Swing Line Note, an appropriate
notation on the grid attached hereto, or the continuation of such grid, or any
other similar record, including computer records, reflecting the making of such
Swing Line Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the Swing Line Loans set forth on the grid attached to
this Swing Line Note, or the continuation of such grid, or any other similar
record, including computer records, maintained by the Bank with respect to any
Swing Line Loans shall be prima facie evidence of the principal amount thereof
owing and unpaid to the Bank, but the failure to record, or any error in so
recording, any such amount on any such grid, continuation or other record shall
not limit or otherwise affect the obligation of the Borrower hereunder or under
the Credit Agreement to make payments of principal of and interest on this Swing
Line Note when due.
<PAGE>
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Swing Line Note on the terms and conditions specified in the Credit
Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Swing Line Note and all of the unpaid interest accrued
thereon may become or be declared due and payable in the manner and with the
effect provided in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
The Borrower and every endorser and guarantor of this Swing Line Note or
the obligation represented hereby waives presentment, demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Swing Line Note, and assents to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS SWING LINE NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL
FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
COMPETITIVE BID NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH
SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN ss.19 OF
THE CREDIT AGREEMENT. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH
SUIT IS BROUGHT IN AN INCONVENIENT COURT.
This Swing Line Note shall be deemed to take effect as a sealed instrument
under the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has caused this Swing Line Note to be
signed in its corporate name and its corporate seal to be impressed thereon by
its duly authorized officer as of the day and year first above written.
<PAGE>
[Corporate Seal]
THE STRIDE RITE CORPORATION
By: _______________________________
Title:
<PAGE>
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<PAGE>
EXHIBIT F
COMPLIANCE CERTIFICATE
[Date]
To the Banks Party to the
Credit Agreement Referred to Below
c/o BankBoston, N.A., as Agent
100 Federal Street
Boston, Massachusetts 02110
Attn: Peter L. Griswold, Managing Director
Ladies and Gentlemen:
Reference is made to the Revolving Credit Agreement, dated as of January
__, 2000 (as amended and in effect from time to time, the "Credit Agreement"),
by and among The Stride Rite Corporation (the "Borrower"), BankBoston, N.A., the
other lenders that may become parties thereto from time to time (collectively,
the "Banks"), and BankBoston, N.A., as agent for the Banks (the "Agent").
Capitalized terms used herein without definition and which are defined in the
Credit Agreement shall have the respective meanings assigned to such terms in
the Credit Agreement.
Pursuant to Section 7.4(c) of the Credit Agreement, the principal financial
or accounting officer of the Borrower hereby certifies to each of you as
follows: (a) the information furnished in the calculations attached hereto was
true and correct as of the last day of the fiscal [year] [quarter] next
preceding the date of this certificate; (b) as of the date of this certificate,
there exists no Default or Event of Default or condition which would, with
either or both the giving of notice or the lapse of time, result in a Default or
an Event of Default; and (c) the financial statements delivered herewith were
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods (except, in the case of quarterly
statements, for provisions for footnotes and, in all cases, except as disclosed
therein).
IN WITNESS WHEREOF, the undersigned officer has executed this Compliance
Certificate as of the date first written above.
THE STRIDE RITE CORPORATION
By:_______________________________
Title:
<PAGE>
COMPLIANCE CERTIFICATE SCHEDULE
Financial Covenants
For the quarter ended ________, 200_
For all purposes of this Schedule, terms are used as defined in the Credit
Agreement; and in the event of any ambiguity or conflict, the provisions of the
Credit Agreement shall prevail.
Section 9.1 - Fixed Charge Coverage Ratio
(For the period of four consecutive fiscal quarters then ended)
1. Consolidated Operating Cash Flow
(a) Consolidated EBITDA
(i) Consolidated earnings (or loss) from
operations $_________
after expenses and other proper
charges:
(ii) Add back:
Depreciation: $__________
Amortization: $__________
Nonrepetitive
noncash charges: $__________
Total: $_________
(iii) Minus: extraordinary nonrecurring items $_________
of income:
(iv) Result of (i) plus (ii) minus (iii): $_________
(b) Includable Interest Income
(i) Earned income on cash balances: $__________
(ii) $10,000,000 times 30-day LIBOR Rate: $__________
(iii) Result of (i) minus (ii): $__________
(c) Capitalized Expenditures (to the extent not
deducted in 1(a)): $__________
(d) Result of (a)(iv) plus (b)(iii) minus (c): $__________
2. Rental Expense: $__________
3. Consolidated EBITDA plus Rental Expense: $__________
<PAGE>
4. Consolidated Total Interest Expense: $_________
5. Rental Expense: $_________
6. Consolidated Total Interest Expense plus Rental Expense: $_________
7. Ratio of 3 to 6: ___:___
Minimum Ratio: 1.75:1
<PAGE>
Section 9.2 - Funded Debt to EBITDA Ratio
(For the period of four consecutive fiscal quarters then ended)
1. Total Funded Indebtedness
(i) Indebtedness relating to the borrowing of
money or utilization of credit (including
letters of credit except (x) documentary
letters of credit and (y) standby letters of $________
credit to the extent supporting included
Indebtedness):
(ii) Obligations under Capitalized Leases: $________
(iii) Sum of (i) and (ii): $________
2. Consolidated EBITDA
(Item 1(a)(iv) above): $________
3. Ratio of 1 to 2: ____:___
Maximum Ratio Permitted: 2.25:1.0
Section 9.3 - Consolidated Tangible Net Worth
1. Consolidated Net Worth
(i) Consolidated Total Assets: $________
(ii) Consolidated Total Liabilities: $________
(iii) Result of (i) minus (ii): $________
2. Total book value of intangible assets: $________
3. Write-up in book value of any assets resulting from
revaluation after Balance Sheet Date: $________
4. Consolidated Tangible Net Worth
(1 minus 2 and 3): $________
5. Initial Amount: $200,000,000
6. 50% of cumulative positive Consolidated Net Income,
beginning with fiscal quarter ending December 3, 1999 $________
(with no deduction for losses):
7. Aggregate Permitted Distributions since Closing Date: $________
<PAGE>
8. Required Consolidated Tangible Net Worth
(5 plus 6 minus 7): $________
9. Excess (Deficit) TNW
(4 minus 8): $__________
<PAGE>
EXHIBIT G
ASSIGNMENT AND ACCEPTANCE
Dated as of ____________, 2000
Reference is made to the Revolving Credit Agreement , dated as of January
__, 2000 (as from time to time amended and in effect, the "Credit Agreement"),
by and among The Stride Rite Corporation, a Massachusetts corporation (the
"Borrower"), the banking institutions referred to therein as Banks
(collectively, the "Banks"), and BankBoston, N.A., a national banking
association, as agent (in such capacity, the "Agent") for the Banks. Capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
such terms in the Credit Agreement.
______________________________ (the "Assignor") and
______________________________ (the "Assignee") hereby agree as follows:
1. Assignment. Subject to the terms and conditions of this Assignment and
Acceptance, the Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes without recourse to the Assignor, a
$__________ interest in and to the rights, benefits, indemnities and obligations
of the Assignor under the Credit Agreement equal to _______.00% in respect of
the Total Commitment immediately prior to the Effective Date (as hereinafter
defined).
2. Assignor's Representations. The Assignor (i) represents and warrants
that (A) it is legally authorized to enter into this Assignment and Acceptance,
(B) as of the date hereof, its Commitment is $__________, its Commitment
Percentage is __________.00%, the aggregate outstanding principal balance of its
Syndicated Loans equals $__________, the aggregate amount of its Letter of
Credit Participations equals $__________ (in each case after giving effect to
the assignment contemplated hereby but without giving effect to any contemplated
assignments which have not yet become effective), and (C) immediately after
giving effect to all assignments which have not yet become effective, the
Assignor's Commitment Percentage will be sufficient to give effect to this
Assignment and Acceptance, (ii) makes no representation or warranty, express or
implied, and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or any of the other Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement, the
other Loan Documents or any other instrument or document furnished pursuant
thereto or the attachment, perfection or priority of any security interest or
mortgage, other than that it is the legal and beneficial owner of the interest
being assigned by it hereunder free and clear of any claim or encumbrance; (iii)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or any of its Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations, or the performance or observance by the Borrower or any of its
Subsidiaries or any other Person primarily or secondarily liable in respect of
any of the Obligations of any of its obligations under the Credit Agreement or
any of the other Loan Documents or any other instrument or document delivered or
executed pursuant
<PAGE>
thereto; and (iv) attaches hereto the Revolving Credit Note and the
Competitive Bid Note delivered to it under the Credit Agreement.
The Assignor requests that the Borrower exchange the Assignor's Revolving
Credit Note and the Competitive Bid Note for new Revolving Credit and
Competitive Bid Notes payable to the Assignor and the Assignee as follows:
Notes Payable to Amount of Revolving Amount of
the Order of: Credit Note Competitive Bid Note
Assignor $____________ $____________
Assignee $____________ $____________
3. Assignee's Representations. The Assignee (i) represents and warrants
that (A) it is duly and legally authorized to enter into this Assignment and
Acceptance, (B) the execution, delivery and performance of this Assignment and
Acceptance do not conflict with any provision of law or of the charter or
by-laws of the Assignee, or of any agreement binding on the Assignee, (C) all
acts, conditions and things required to be done and performed and to have
occurred prior to the execution, delivery and performance of this Assignment and
Acceptance, and to render the same the legal, valid and binding obligation of
the Assignee, enforceable against it in accordance with its terms, have been
done and performed and have occurred in due and strict compliance with all
applicable laws; (ii) confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 7.4 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; (iii) agrees that it
will, independently and without reliance upon the Assignor, the Agent or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iv) represents and warrants that
it is an Eligible Assignee; (v) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Credit
Agreement and the other Loan Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
(vi) agrees that it will perform in accordance with their terms all the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank; and (vii) acknowledges that it has made arrangements
with the Assignor satisfactory to the Assignee with respect to its pro rata
share of Letter of Credit Fees in respect of outstanding Letters of Credit.
4. Effective Date. The effective date for this Assignment and Acceptance
shall be _______________, 2000 (the "Effective Date"). Following the execution
of this Assignment and Acceptance [and the consent of the Borrower hereto having
been obtained], each party hereto shall deliver its duly executed counterpart
hereof to the Agent for acceptance by the Agent and recording in the Register by
the Agent. Schedule 1 to the Credit Agreement
<PAGE>
shall thereupon be replaced as of the Effective Date by the Schedule 1
annexed hereto.
5. Rights Under Credit Agreement. Upon such acceptance and recording, from
and after the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Bank thereunder, and (ii) the Assignor shall,
with respect to that portion of its interest under the Credit Agreement assigned
hereunder, relinquish its rights and be released from its obligations under the
Credit Agreement; provided, however, that the Assignor shall retain its rights
to be indemnified pursuant to Section 15 of the Credit Agreement with respect to
any claims or actions arising prior to the Effective Date.
6. Payments. Upon such acceptance of this Assignment and Acceptance by the
Agent and such recording, from and after the Effective Date, the Agent shall
make all payments in respect of the rights and interests assigned hereby
(including payments of principal, interest, fees and other amounts) to the
Assignee. The Assignor and the Assignee shall make any appropriate adjustments
in payments for periods prior to the Effective Date by the Agent or with respect
to the making of this assignment directly between themselves.
7. Governing Law. THIS ASSIGNMENT AND ACCEPTANCE IS INTENDED TO TAKE
EFFECT AS A SEALED INSTRUMENT TO BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO
CONFLICT OF LAWS).
8. Counterparts. This Assignment and Acceptance may be executed in
any number of counterparts which shall together constitute but one and the
same agreement.
IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned
has caused this Assignment and Acceptance to be executed on its behalf by its
officer thereunto duly authorized, as of the date first above written.
[NAME OF ASSIGNOR]
By:
Title
[NAME OF ASSIGNEE]
By:
Title
<PAGE>
CONSENTED TO:
BANKBOSTON, N.A., as Agent
By:
Title:
THE STRIDE RITE CORPORATION
By:
Title:
<PAGE>
EXHIBIT H
INSTRUMENT OF ADHERENCE
Dated as of ____________, 2000
Reference is made to the Revolving Credit Agreement , dated as of January
__, 2000 (as from time to time amended and in effect, the "Credit Agreement"),
by and among The Stride Rite Corporation, a Massachusetts corporation (the
"Borrower"), the banking institutions referred to therein as Banks
(collectively, the "Banks"), and BankBoston, N.A., a national banking
association, as agent (in such capacity, the "Agent") for the Banks. Capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
such terms in the Credit Agreement.
_____________________________________, a ________________________ (the
"Additional Bank"), hereby agrees to become a Bank party to the Credit
Agreement, subject to and in accordance with the following provisions:
1. Commitment to Lend.
(a) Subject to the terms and conditions set forth in this Instrument of
Adherence and the Credit Agreement, the Additional Bank hereby agrees to lend to
the Borrower and the Borrower may borrow, repay, and reborrow from time to time
from the Effective Date hereof up to but not including the Maturity Date upon
notice by the Borrower to the Agent given in accordance with Section 2.7 of the
Credit Agreement, such Syndicated Loans as are requested by the Borrower up to a
maximum aggregate amount outstanding (after giving effect to all amounts
requested) at any one time equal to the Additional Bank's Commitment minus the
Additional Bank's Commitment Percentage of the sum of the Maximum Drawing Amount
and all Unpaid Reimbursement Obligations, provided, that the sum of the
outstanding amount of the Loans under the Credit Agreement (after giving effect
to all amounts requested) plus the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations shall not at any time exceed the Total Commitment.
(b) The Additional Bank's Commitment Amount, as of the Effective Date, is
$______________, and Commitment Percentage is ______________% of the aggregate
Commitments of all of the Banks.
2. Additional Bank's Representations. The Additional Bank hereby
represents and warrants to, and agrees with, the other parties to the Credit
Agreement as follows:
(a) The Additional Bank has received a copy of the Credit Agreement,
together with copies of the most recent financial statements referred to in
Section 6.4 and Section 7.4 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Instrument of Adherence.
(b) The Additional Bank will, independently and without reliance upon the
Agent or any other Bank and based on such documents and information as it
<PAGE>
shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit Agreement.
(c) The Additional Bank is qualified as an Eligible Assignee.
(d) The Additional Bank appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Credit
Agreement and the other Loan Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto.
(e) The Additional Bank agrees that it will perform all of the obligations
that by the terms of the Credit Agreement are required to be performed by it as
a Bank.
(f) The Additional Bank is legally authorized to enter into this
Instrument of Adherence.
3. Effective Date. The effective date for this Instrument of Adherence
shall be _______________, 200_ (the "Effective Date"). Following the execution
of this Instrument of Adherence by the Additional Bank and the consent of the
Agent and Borrower hereto having been obtained, the Agent shall record in the
Register the Additional Bank's Commitment, the Borrower shall execute and
deliver to the Additional Bank a Revolving Credit Note and a Competitive Bid
Note, each dated as of the Effective Date and completed appropriately with
respect to the Additional Bank's Commitment. Schedule 1 to the Credit Agreement
shall thereupon be replaced as of the Effective Date by the Schedule 1 annexed
hereto.
4. Rights Under Credit Agreement. Upon such acceptance and recording, from
and after the Effective Date, the Additional Bank shall be a party to the Credit
Agreement and, to the extent provided in this Instrument of Adherence, have the
rights and obligations of a Bank thereunder.
5. Governing Law. THIS INSTRUMENT OF ADHERENCE IS INTENDED TO TAKE EFFECT
AS A SEALED INSTRUMENT TO BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF
LAWS).
6. Counterparts. This Instrument of Adherence may be executed in any
number of counterparts which shall together constitute but one and the same
agreement.
IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned
has caused this Instrument of Adherence to be executed on its behalf by its
officer thereunto duly authorized, as of the date first above written.
<PAGE>
[NAME OF ADDITIONAL BANK]
By:
Title
CONSENTED TO:
BANKBOSTON, N.A., as Agent
By:
Title:
THE STRIDE RITE CORPORATION
By:
Title:
<PAGE>
SCHEDULE 6.1
SUBSIDIARIES OF THE BORROWER
The subsidiaries of the Borrower, all of which are wholly owned by the
Borrower, are listed below:
Place of Incorporation
* Stride Rite Children's Group, Inc. Massachusetts
* Sperry Top-Sider, Inc. Massachusetts
* The Keds Corporation Massachusetts
* Tommy Hilfiger Footwear, Inc. Massachusetts
* SR Holdings Inc. Delaware
Stride Rite International Corp. Massachusetts
Stride Rite Sourcing International, Inc. Massachusetts
Boston Footwear Group, Inc. Massachusetts
S/R Ecom, Inc. Massachusetts
Stride Rite Investment Corporation Massachusetts
Stride Rite Manufacturing of Missouri, Inc. Missouri
SRR, Inc. Delaware
SRL, Inc. Delaware
SR California Inc. California
Stride Rite Canada Limited Canada
S.R. Footwear Limited Bermuda
Stride Rite de Mexico, S.A. de C.V. Mexico
*Denotes a Significant Subsidiary
<PAGE>
SCHEDULE 6.3
TITLE TO PROPERTIES
This Schedule 6.3 is intentionally left blank.
<PAGE>
SCHEDULE 6.5
NO MATERIAL CHANGES
Distributions since the Balance Sheet Date, December 3, 1999:
o Dividend payment on common shares $2,247,164.42
o Common stock repurchased $3,869,612.83
<PAGE>
SCHEDULE 6.7
LITIGATION
See paragraph on Saco, Maine Landfill in Schedule 6.17.
<PAGE>
SCHEDULE 6.14
TRANSACTIONS
o Donald R. Gant, a director of the Borrower, is a Limited Partner of The
Goldman Sachs Group L.P., an investment banking firm that, from time to
time, provides services to the Borrower.
o Bruce Van Saun, a director of the Borrower, is Senior Executive Vice
President and Chief Financial Officer of Bank of New York, one of the
lending institutions in this Revolving Credit Agreement.
<PAGE>
SCHEDULE 6.17
ENVIRONMENTAL COMPLIANCE
Saco, Maine Landfill. Joseph M. Herman Co., Inc., which was merged into Sperry
Top-Sider, Inc., was a party to an environmental action regarding a landfill in
Saco, Maine. Sperry has entered into an Administrative Consent Order with the
EPA pursuant to which we will be required to pay $18,000 to settle our liability
as a potentially "responsible party" for contamination found at this site. The
Consent Order is presently out for public comment via publication in the Federal
Register, and we are awaiting word from the EPA of its effective date.
Harrison Ave., Boston, Massachusetts. Stride Rite Children's Group, Inc. owned a
former distribution center located on Harrison Ave., Boston, MA. It was
determined in 1990 that an underground storage tank at this facility that was
used for heating oil had leaked some of its contents into the surrounding soil
and groundwater. 134 tons of oil-contaminated soil was excavated from the
vicinity of the LUST (Leaky Underground Storage Tank) and was removed from the
premises for off-site disposal. By the end of 1991all of the UST's had been
removed from the property. For the last 3-5 years of our ownership, we operated
oil/water separators in the basement to clean the oil from groundwater that
appeared in some of the basement sump holes. Prior to selling the facility we
recorded an Activity and Use Limitation on the affected site (e.g., it cannot be
used as a playground or as farmland for crops intended for human consumption).
Huntington, Indiana. Stride Rite Children's Group, Inc. owns a distribution
center in Huntington, Indiana, which has two underground fuel oil tanks. The
tanks were vacuum tested in November 1996 and found to be tight at such time.
<PAGE>
SCHEDULE 6.18
JOINT VENTURE OR PARTNERSHIP
o SR Holdings, Inc. is a 49% venture partner in a joint venture to own and
operate a footwear manufacturing plant in Thailand known as PSR Footwear
Co., Ltd.
o SR Holdings, Inc. is a Limited Partner in the investment partnership
called Boston Ventures Limited Partnership II carried on the books of the
Borrower at approximately $63,000 on the Balance Sheet Date.
<PAGE>
SCHEDULE 8.1
INDEBTEDNESS
Approximately $32,700,000.00 of indebtedness to BankBoston, N.A., for short-term
borrowings which will be refinanced by this Revolving Credit Facility.
<PAGE>
SCHEDULE 8.2
LIENS
This Schedule 8.2 is intentionally left blank.
<PAGE>
SCHEDULE 8.3
INVESTMENTS
o SR Holdings, Inc. is a Limited Partner in the investment partnership
called Boston Ventures Limited Partnership II carried on the books of the
Borrower at approximately $63,000 on the Balance Sheet Date.
o The Keds Corporation holds Common stock in Weiners Stores Inc. valued at
approximately $38,000 on the Balance Sheet Date.
Exhibit 10(xiii)
AMENDED AND RESTATED
LICENSE AGREEMENT
BETWEEN
TOMMY HILFIGER LICENSING, INC.
AND
THE STRIDE RITE CORPORATION
<PAGE>
AMENDED AND RESTATED
LICENSE AGREEMENT
THIS AMENDED AND RESTATED LICENSE AGREEMENT entered into this 2nd
day of February, 2000, by and between TOMMY HILFIGER LICENSING, INC., having an
address at 913 N. Market Street, Wilmington, Delaware 19801 (hereinafter
referred to as "Licensor") and THE STRIDE RITE CORPORATION, a Massachusetts
corporation, having its offices at 191 Spring Street, P.O. Box 9191, Lexington,
Massachusetts 02420 (hereinafter referred to as "Licensee").
W I T N E S S E T H :
WHEREAS, TOMMY HILFIGER LICENSING, INC. and THE STRIDE RITE
CORPORATION entered into a license agreement dated August 22, 1995, which was
amended on January 17, 1996, September 1, 1996, January 1, 1997, and August 18,
1997 (the license agreement and amendments are hereinafter referred to as the
"License Agreement"); and
WHEREAS, the parties desire to clarify and restate the License
Agreement incorporating all terms and provisions of the August 22, 1995
Agreement and all subsequent amendments;
WHEREAS, the parties desire to further amend the terms of the
License Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
agreements herein contained and promises herein expressed, and for other good
consideration acknowledged by each of them to be satisfactory and adequate, do
hereby agree as follows:
ARTICLE 1. DEFINITIONS
Definitions. The following terms shall have the following
meanings when used in this Agreement attached hereto:
1.1 Affiliates of Licensee shall mean all persons and business
entities, whether corporations, partnerships, joint ventures or otherwise, which
now or hereafter control, or are owned or controlled, directly or indirectly by
Licensee, or are under common control with Licensee.
1.2 Agreement shall mean this agreement.
1.3 Annual Period shall mean each twelve-month period commencing on
January 1 and ending on December 31, except that the first Annual Period shall
be the period commencing on August 22, 1995 and ending on December 31, 1997.
1.4 Close-Outs shall mean first quality Licensed Products which
cannot reasonably be sold to regular customers.
<PAGE>
1.5 Gross Sales shall mean the invoiced amount of Licensed Products
shipped by Licensee before any deductions for discounts and returns, insurance
and freight.
1.6 Guaranteed Minimum Royalty shall mean the minimum royalties
payable in each Annual Period as set forth in Paragraph 5.2.
1.7 Inventory shall mean Licensee's inventory of Licensed Products
and of related work in progress.
1.8 Inventory Schedule shall mean a complete and accurate
schedule of Inventory.
1.9 Labels shall mean all labels, tags, packaging material, business
supplies and advertising and promotional materials and all other forms of
identification bearing the Trademark.
1.10 Licensed Products shall mean all types and sizes of mens,
womens, childrens (including boys, girls, infants and toddlers) footwear, other
than performance ski boots.
1.11 Mens Footwear shall mean mens and boys footwear.
1.12 Minimum Sales Level shall mean the minimum Net Sales of
Licensed Products during each Annual Period as set forth in Paragraph 4.2.
1.13 Net Sales shall mean the Gross Sales price of Licensed
Products, including but not limited to, Seconds and Close-Outs, to retailers who
are not Affiliates of Licensee less returns actually allowed and actually
received by Licensee, price allowances and customary and usual trade discounts
granted. The combined deductions from the Gross Sales for allowances and trade
discounts, including returns, from the total gross invoice price shall not
exceed ten (10%) percent of the Gross Sales of the Licensed Products shipped in
any Annual Period. No other deductions shall be taken. It is the intention of
the parties that royalties will be based on the bona fide wholesale prices at
which Licensee sells Licensed Products to independent retailers in arms' length
transactions. In the event Licensee shall sell Licensed Products to its
Affiliates, royalties shall be calculated on the basis of such a bona fide
wholesale price irrespective of Licensee's internal accounting treatment of such
sales. Licensee shall identify separately in the statements of operations
provided to Licensor pursuant to paragraph 5.4 hereof all sales to Affiliates.
1.14 Percentage Royalty shall have the definition given that term in
Paragraph 5.3.
1.15 Seasonal Collections shall mean at least two (2)
collections per annum.
1.16 Seconds shall mean damaged, imperfect, non-first quality or
defective goods.
<PAGE>
1.17 Term shall have the definition given that term in Paragraph 3.1
and shall, if not otherwise specifically excluded, include all Renewal Terms
hereinafter defined.
1.18 Territory shall mean the continental United States, Alaska,
Hawaii, Puerto Rico, Canada and the United States possessions.
1.19 Trade Secrets shall mean information including a formula,
pattern, compilation, program, device, method, technique, or process, that
derives independent economic value, actual or potential, from not being
generally known to the public or to other persons who can obtain economic value
from its disclosure or use; and is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.
1.20 Trademark shall mean the trademark registrations which are set
forth in the annexed Exhibit A, and all combinations, forms and derivatives
thereof which may be hereafter approved by Licensor for use by Licensee in
connection with the Licensed Products subject to any conditions set forth in any
written approval.
1.21 Womens Footwear shall mean womens and girls footwear.
ARTICLE 2. GRANT
2.1 License. Licensor hereby grants to Licensee an exclusive
non-assignable license during the Term of the Agreement, subject to all of the
terms and conditions contained in this Agreement to use the Trademark in
connection with the manufacture and sale of the Licensed Products in the
Territory.
2.2 Reservations. The license granted in this Article 2 does not
grant any right to Licensee to use the name "TOMMY" or "HILFIGER" individually
or derivatives of the Trademark. Nothing contained in this Agreement shall be
construed as an assignment or grant to Licensee of any right, title or interest
in or to the Trademark, it being understood and acknowledged by Licensee that
all rights relating thereto are reserved by Licensor except for the rights
specifically granted to Licensee in this Agreement. Licensee understands and
agrees that Licensor, and its other licensees and sublicensees, may manufacture
or authorize third parties to manufacture Licensed Products in the Territory for
ultimate sale outside of the Territory, or to manufacture and sell or authorize
third parties to manufacture and sell products of any and all types and
descriptions other than the Licensed Products in or outside the Territory. In
addition, to the extent it is legally permissible to do so, no license is
granted hereunder for the manufacture, sale or distribution of the Licensed
Products to be used for publicity purposes, other than publicity of the Licensed
Products, in combination sales, premiums or giveaways, or to be disposed of
under or in connection with similar methods of merchandising, such license being
specifically reserved for Licensor.
2.3 Territory. Licensee agrees that it will neither export
Licensed Products from the Territory nor sell same to any entity which it
knows
<PAGE>
or has any reason to believe intend to export Licensed Products from
the Territory. Licensee will use its best efforts to prohibit its customers from
shipping Licensed Products outside of the Territory. To that end, Licensee shall
include the following legend on all invoices to its customers:
"The Purchaser is expressly prohibited from exporting the
items sold hereunder from the continental United States,
including Alaska, Hawaii, Puerto Rico and Canada."
2.4 Exclusivity. Licensor shall neither use nor authorize third
parties to use the Trademark in connection with the sale and/or importation of
the Licensed Products in the Territory during the Term hereof without Licensee's
prior approval. Licensor hereby agrees that Licensee shall have the exclusive
right to import into and resell the Licensed Products in the Territory.
2.5 Definitional Disputes. Licensee acknowledges that due to the
nature of the marketplace, the definition of Licensed Products may change or may
not be amenable to precise delineation. Licensee agrees that if there is a
dispute over the definition of Licensed Products, Licensor shall render a
reasonable written determination which shall be conclusive and binding on
Licensee without legal recourse.
2.6 Best Efforts. At all times while this Agreement is in effect,
Licensee shall use its best efforts to exploit the License granted throughout
the Territory, including but not limited to, selling a sufficiently
representative quantity of all styles, fabrications and colors of the Licensed
Products; offering for sale the Licensed Products so that they may be sold to
the consumer on a timely basis; maintaining a sales force sufficient to provide
effective distribution throughout all areas of the Territory; and cooperating
with Licensor's and any of its licensees' marketing, merchandising, sales and
anti-counterfeiting programs.
2.7 Showrooms and In-Store Shops.
(a) Licensee shall display the Licensed Products for sale in
separate showrooms for each of Mens Footwear, and Womens Footwear, designed and
displayed in accordance with Licensor's specifications, apart from any
showroom(s) in which Licensee or another business may offer other than Licensed
Products for sale. Subject to prior approval by Licensor, Licensee may display
the Trademark on showroom doors and office directories;
(b) Licensor reserves the right to designate the location of
Licensee's primary showroom required by Paragraph 2.7(a) above and in
satisfaction of the foregoing, Licensee agrees to sublease (the "Sublease") a
portion of the premises at 25 West 39th Street, New York, New York to house the
aforementioned showroom and offices. Licensor and Licensee have entered into a
Sublease dated as of April 28, 1997 for showroom space for Mens Footwear, and
the parties agree to negotiate in good faith a Sublease for a Womens Footwear
showroom in space adjacent to the Mens showroom space with commercial terms that
are no less favorable to the Licensee than those set forth on the attached
Schedule 2.7(b). Among other provisions, the Sublease shall contain (i) a cross
<PAGE>
default provision with this Agreement and (ii) a monthly rent
equal to Licensee's pro rata portion of Licensor's rent (including common area
charges and additional rent). Upon reasonable notice, Licensee shall be
permitted to inspect Licensor's expense records in connection with such showroom
and offices; and
(c) Licensee will, at Licensor's option, participate in any
in-store shop or main floor fixturing program with any of Licensee's customers.
To that end, to the extent that the same is not paid for by Licensee's customers
or Licensor pursuant to the following sentence, Licensee shall pay for the
necessary fixturing for the display of the Licensed Products which shall be in
keeping with the specifications and design of the respective shop or main floor
fixtures.
(i) In connection with the fixturing associated with
Mens Footwear, Licensor shall contribute the first $____________ toward the
in-store shop program during the First and Second Annual Periods, which
contribution shall be applied to the cost of the design and installation of the
shop fixtures. To the extent that Licensor contributes more than $____________
toward the in-store shop program for the fixturing associated with Mens Footwear
during the First and Second Annual Periods, Licensee shall add an amount equal
to such excess to its advertising obligations set forth in Article 7 ("Excess
Advertising Payment"). The Excess Advertising Payments shall be in addition to,
and not in lieu of any other advertising obligations of Licensee hereunder, and
shall be due and payable to Licensor within thirty (30) days of the excess
contribution by Licensor. Licensor will, upon reasonable request from Licensee,
provide Licensee with evidence of such contribution.
(ii) In connection with the fixturing associated with
Womens Footwear, Licensee shall contribute the greater of (i) $__________; or
(ii) _______ (_____%) percent of Net Sales of Womens Footwear toward the
in-store shop program during each Annual Period hereunder. With Licensor's prior
written consent, a portion of the aforementioned amount to be expended in
connection with Womens Footwear may be expended by Licensee for cooperative
advertising.
(d) In the event that Licensee shall maintain a showroom in a
city in which Licensor's U.S. mens sportswear licensee shall maintain a
showroom, such as Dallas, Atlanta, etc., Licensor may require Licensee's
showroom to be located in the sportswear showroom or adjacent thereto.
2.8 Sales and Deliveries. Licensee acknowledges that the
availability and selection of styles, fabrications, colors and sizes are an
integral part of the high reputation and value which the trade and consumers
have come to associate with the Trademark. Therefore, to protect that reputation
and value, Licensee agrees that its policy of sale, distribution, and
exploitation shall be of a high standard and to the best advantage, and that the
same shall in no way adversely reflect upon the good name, trademarks and trade
names of Licensor or any of its programs. Licensee further agrees that it will
use due diligence to make certain that at all times no less than ninety-five
(95%) percent of the Licensed Products ordered and approved by Licensee for
<PAGE>
shipment are shipped timely in compliance with the shipping schedule
recited in each order. Licensee shall at all times maintain a sales force for
the sale of the Licensed Products which shall be sufficient to provide effective
distribution of the Licensed Products throughout the entire Territory.
2.9 Organization. Licensee shall establish a separate division of
its company dedicated exclusively to the sale of Licensed Products, under the
name "Tommy Hilfiger Footwear". In connection with such division, Licensee
shall, at its sole cost and expense, employ individuals qualified to hold the
positions set forth on the organization charts for each of Mens and Womens
Footwear annexed hereto as Exhibit F. All personnel employed by the Tommy
Hilfiger Footwear division shall work exclusively with Licensor's
representatives on the Licensee's business arising under this Agreement and
shall report directly to the President of Licensee or his designee. The
individuals holding the positions marked with an asterisk on Exhibit F will be
hired with the prior approval of Licensor and will be relieved of their duties
under this Agreement at the request of Licensor. In addition, Licensee shall
maintain separate sales force for the sale of Licensed Products. The members of
such sales force may not sell or represent any products other than the Licensed
Products.
2.10 Merchandise Coordinator Program. Except as set forth herein,
Licensee shall participate in Licensor's Merchandise Coordinator Program on a
direct cost basis to be reasonably determined by Licensor. In no event shall the
amount of Licensee's required participation for the First Annual Period exceed
$100,000.00 and for each Annual Period thereafter exceed _____ (___%) percent of
its Net Sales. Licensee shall be responsible for paying for the portion of such
cost of the program as is dedicated to Licensee relative to the other licensees
included in the program. Effective May 1, 1998, Licensor shall no longer include
Mens Footwear in Licensor's Merchandise Coordinator Program, however Licensee
shall continue to pay to Licensor ______ (___%) percent of Net Sales of Licensed
Products for the month of May 1998. Beginning April 1, 1999, Licensor shall
establish a separate merchandise coordinator staff dedicated to the coordination
of the Licensed Products (the "Program"), which Program shall, at its inception,
include twelve (12) merchandise coordinators. Licensee shall be responsible for
all costs associated with the Program. Licensee shall also be responsible for
its pro rata portion of the expenses incurred by the Vice President of the
Program, the Assistant to the Vice President and all regional managers (5 at
Program inception), which expenses shall include, but not be limited to,
salaries, benefit, travel, entertainment and all other Program related expenses.
In Licensor's discretion, Licensor may, by written notice to Licensee, require
Licensee to resume participation in Licensor's Merchandise Coordination Program,
in which event, Licensee shall pay to Licensor, on a quarterly basis, one (1%)
percent of Net Sales of Mens Footwear and two (2%) percent of Net Sales of
Womens Footwear (excluding Seconds and Closeouts). The percentage of Net Sales
paid by Licensee for the Program which are a result of sales in Canada shall be
designated for use in Canada.
<PAGE>
ARTICLE 3. TERM OF THE AGREEMENT
3.1 Term. The initial term of this Agreement shall commence on the
date hereof and shall end on December 31, 2001 (the "Term"). Notwithstanding
anything to the contrary contained herein, Licensor shall have the right to
terminate this Agreement on ninety (90) days written notice if the actual Net
Sales of Licensed Products are not equal to or greater than the applicable
Minimum Sales Level set forth in Paragraph 4.2 below.
3.2 Extension. Providing that Licensee is not then in default and is
not in default for the balance of the initial Term, and providing further that
Licensee has met the Minimum Sales Levels for each Annual Period during the Term
hereof, Licensee shall have the right to extend this Agreement for one
additional three (3) year term on one (1) year prior written notice to Licensor
(the "Extension"). The parties acknowledge that the failure of the Licensee to
meet the Minimum Sales Level for the Second Annual Period for Mens Footwear has
been waived by the Licensor. The notice may not be given more than fifteen (15)
months prior to end of the initial Term. Licensee acknowledges that the one (1)
year period for notice is necessary in order to maintain the continuity of
Licensor's Licensing and Marketing programs and the goodwill associated with the
Trademark. Licensee agrees that "time is of the essence" and that Licensee's
failure to exercise its option to renew timely shall be construed as a decision
by Licensee that it has elected not to renew and shall permit Licensor to
immediately replace Licensee by executing a new License Agreement with third
parties, to commence after this Agreement has concluded, without any liability
to Licensee. Expiration or termination of this Agreement shall not affect any
obligation of Licensee to make payments hereunder accruing prior to such
expiration or termination.
ARTICLE 4. SALES
4.1 Sales/Marketing and Production Plans. On each January 1 and July
1 of each Annual Period during the Term, Licensee will submit to Licensor, for
Licensor's approval, a schedule showing in detail the projected sales and
marketing plans for the Licensed Products for each of the next two quarterly
periods. In addition, Licensee will submit to Licensor upon execution of the
Agreement a proposed production calendar for the Licensed Products. Licensee
will work with Licensor to create a production calendar for Licensed Products
that is agreeable to both parties. Licensee shall provide to Licensor, on a
monthly basis, monthly wholesale bookings reports and retail selling reports, to
the extent the same are available from the retailers.
4.2 Minimum Sales Levels. The first bona fide shipment of Mens
Footwear to a customer of Licensee shall occur no later than February 28, 1997.
In addition, during each Annual Period, Licensee shall be required to meet the
following Minimum Sales Levels of Mens Footwear:
<PAGE>
Minimum Sales
Annual Period Level of Mens Footwear
First $ 7,000,000*
Second $13,000,000
Third $44,600,000
Fourth $48,300,000
Fifth $53,100,000
Sixth $53,100,000
Seventh $53,100,000
Eighth $53,100,000
*In the event that Licensee commences shipment of Licensed Products prior to
October 15, 1996, the Minimum Sales Level for the First Annual Period shall be
increased by $583,333.33 for each month or part thereof from the date of first
shipment to October 15, 1996.
The first bona fide shipment of Womens Footwear to a customer of Licensee shall
occur no later than September 30, 1998. For purposes of the license granted
hereunder for Womens Footwear, the Minimum Sales Level, Net Sales and
corresponding payments associated therewith, shall be accumulated for the Second
and Third Annual Periods. In addition, during each Annual Period, Licensee shall
be required to meet the following minimum levels of Net Sales of Womens
Footwear:
Annual Period Minimum Sales Level
For Womens Footwear
Second and Third $ 40,000,000
Fourth $ 60,000,000
Fifth $ 75,000,000
Sixth $ 90,000,000
Seventh $105,000,000
Eighth $120,000,000
The Minimum Sales Level for each Annual Period, commencing with the Third Annual
Period and thereafter, shall be the greater of the amounts set forth above for
such Annual Periods and eighty (80%) percent of the actual Net Sales for the
immediately preceding Annual Period. In no event may the Minimum Sales Level for
any Annual Period be less than Minimum Sales Level for the immediately preceding
Annual Period.
4.3 Certification. Within ninety (90) days of the end of each Annual
Period, Licensee shall send to Licensor a certification by a duly authorized
officer of Licensee of the Net Sales of Licensed Products during such Annual
Period (the "Certification"). Within one hundred twenty (120) days of the end of
each Annual Period, Licensee shall send to Licensor the Certification further
certified by Licensee's external auditors.
<PAGE>
ARTICLE 5. LICENSE FEES
5.1 Requirement of Royalties. All Licensed Products sold by
Licensee, or its Affiliates or subsidiaries, require the payment of royalties by
Licensee to Licensor as set forth in this Article 5.
5.2 Guaranteed Minimum Royalty. In consideration of the rights
granted to Licensee pursuant to this Agreement, Licensee shall, during each
Annual Period or portion thereof calculated on a pro rata basis, during the
Term, pay to Licensor the Guaranteed Minimum Royalties, as defined in this
paragraph 5.2, payable in quarterly installments in advance on the first day of
each calendar quarter during each year during the Term hereof, except that for
the First Annual Period, the Guaranteed Minimum Royalties shall be paid in four
(4) equal installments on the date hereof, October 1, 1996, January 1, 1997 and
April 1, 1997. The Guaranteed Minimum Royalty for each Annual Period shall be
equal to _______ (___%) percent of the Minimum Sales Levels for such Annual
Period as the same may be adjusted pursuant to Paragraph 4.2 above. In the event
that during any Annual Period, the actual payments under Paragraph 5.3 hereof
exceed the entire Guaranteed Minimum Royalty with respect to that Annual Period,
no further Guaranteed Minimum Royalty payments need be made for such Annual
Period.
5.3 Percentage Royalty. In consideration of the rights granted to
Licensee pursuant to this Agreement, Licensee shall, during each of the First
and Second Annual Periods or portion thereof pay Licensor a royalty of the
following listed percentages of Net Sales of Mens Footwear sold by Licensee.
Percentage Royalties for
Annual Net Sales Mens Footwear
$0 - $9,999,999.99 ___%
$10,000,000 - $19,999,999.99 ___%
Over $20,000,000 ___%
Licensee shall, during each Annual Period or portion thereof beginning with the
Third Annual Period pay Licensor a royalty of _______ (___%) percent of Net
Sales of Mens Footwear sold by Licensee, and during each Annual Period or
portion thereof pay to Licensor a percentage royalty of seven (7%) percent of
the Net Sales of Womens Footwear sold by Licensee. The Percentage Royalty for
Close-Outs and Seconds shall be _________ (___%) percent of Net Sales of such
Licensed Products. Percentage royalties shall be payable in quarterly
installments on January 15, April 15, July 15 and October 15 for the immediately
preceding quarter of sale, less Guaranteed Minimum Royalty payments for such
period. All royalties shall accrue upon the sale of the Licensed Products
regardless of the time of collection by Licensee. For purposes of this
Agreement, a Licensed Product shall be considered "sold" upon the date of
billing, invoicing, shipping, or payment, whichever occurs first.
<PAGE>
5.4 Royalty Statements. Licensee will deliver to Licensor at the
time each Percentage Royalty payment is due, complete and accurate statements,
in the form annexed hereto as Exhibit B, signed by a duly authorized officer of
Licensee and certified by him as accurate indicating all of the following
information by month: (i) the total invoice price of all Licensed Products sold
during the period covered by such percentage royalty payment; (ii) the amount of
discounts and credits from Gross Sales which properly may be deducted therefrom,
during said period; (iii) computation of the amount of percentage royalty
payable hereunder for said period; and (iv) the breakdown among Mens Footwear,
and Womens Footwear, as well as a break-out in each of the foregoing categories
for the sales of Seconds and Close-Outs. At least once annually, or more often
at Licensor's request, Licensee will also deliver to Licensor a certification
from its external auditors that the statement which it accompanies is in
accordance with the requirements of this paragraph 5.4. Receipt or acceptance by
Licensor of any statement furnished, or of any sums paid by Licensee, shall not
preclude Licensor from questioning their correctness at any time; provided,
however, that reports submitted by Licensee shall be binding and conclusive on
Licensee in the event of any termination based on a breach by Licensee arising
out of any payment or report.
5.5 Books and Records. Licensee shall, at its sole cost and expense,
maintain complete and accurate books and records (specifically including,
without limitation, the originals or copies of documents supporting entries in
the books of account) covering all transactions arising out of or relating to
this Agreement. In addition, Licensor and its duly authorized representative
have the right, during normal business hours, for the duration of this Agreement
and for seven (7) years thereafter, to examine and copy said books and records
and all other documents and materials in the possession of and under the control
of Licensee with respect to the subject matter and terms of this Agreement. The
exercise by Licensor of any right to audit at any time or times or the
acceptance by Licensor of any statement or payment shall be without prejudice to
any of Licensor's rights or remedies and shall not bar Licensor from thereafter
disputing the accuracy of any payment or statement and Licensee shall remain
fully liable for any balance due under this Agreement. The Products shall be
assigned style numbers unique from any products other than the Licensed Products
Licensee may manufacture and/or sell. The style number assigned to each Licensed
Product shall be identical to the style number utilized to identify that
Licensed Product in all Licensee's books and records. All documents evidencing
the sale of Licensed Products shall state the style and number of each of such
products. Licensee shall not use terms such as "assorted" or "irregular" without
a style specification. All sales of the Licensed Products shall be made on
sequentially numbered invoices which shall (1) contain sales only of the
Licensed Products, (2) contain a statement that it shall only be paid to an
account owned by Licensee or its assignee, and (3) be recorded in a separate
ledger account.
5.6 Taxes. Licensee will bear all taxes, duties and other
governmental charges in the Territory relating to or arising under this
Agreement, including without limitation, any state or federal income taxes
(except withholding taxes on royalties), any stamp or documentary taxes or
<PAGE>
duties, turnover, sales or use taxes, value-added taxes, excise
taxes, customs or exchange control duties or any other charges relating to or on
any royalty payable by Licensee to Licensor. Licensee shall obtain, at its own
cost and expense, all licenses, Reserve Bank, Commercial Bank or other bank
approvals, and any other documentation necessary for the importation of
materials and the transmission of royalties and all other payments relevant to
Licensee's performance under this Agreement. If any tax or withholding is
imposed on royalties, Licensee shall obtain certified proof of the tax payment
or withholding and immediately transmit it to Licensor. Nothing contained in
this Paragraph 5.6 shall be interpreted to mean that Licensee is responsible for
any income taxes or other taxes which would be the obligation of Licensor.
5.7 Underpayments. If, upon any examination of Licensee's books and
records pursuant to Paragraph 5.5 hereof, Licensor shall discover any royalty
underpayment by Licensee, Licensee will make all payments required to be made to
correct and eliminate such underpayment within ten (10) days of Licensor's
demand. In addition, if said examination reveals a royalty underpayment of five
percent (5%) or more for any royalty period, Licensee will reimburse Licensor
for the cost of said examination within ten (10) days of Licensor's demand.
5.8 Manner of Payment. All payments required by Licensee hereunder
shall be made to Licensor in Delaware in U.S. Dollars, and all references to
dollars shall mean U.S. Dollars. In the event that Licensee is required to
withhold certain amounts for payment to the appropriate governmental
authorities, Licensee will supply to Licensor the official receipts evidencing
payment therefor.
5.9 Interest on Late Payments. In addition to any other remedy
available to Licensor, if any payment due under this Agreement is delayed for
any reason, interest shall accrue and be payable, to the extent legally
enforceable, on such unpaid principal amounts from and after the date on which
the same became due, at a per annum equal to the lower of four (4) percentage
points above the prime rate of interest in effect from time to time at Chemical
Bank in New York, New York, U.S.A. and the highest rate permitted by law in New
York.
5.10 No Set-Off. The obligation of Licensee to pay royalties
hereunder shall be absolute notwithstanding any claim which Licensee may assert
against Licensor. Licensee shall not have the right to set-off, compensate or
make any deduction from such royalty payments for any reason whatsoever.
5.11 Purchases By Licensor's Outlet Stores. Licensee agrees that it
will offer for sale an amount of Closeouts and Seconds to outlet stores owned by
or affiliated with Licensor (the "Outlet Stores") equal to the amount of
Closeouts and Seconds made available to Licensee's outlet stores. Prior to
offering Close-Outs and Seconds for sale to other customers, Licensee shall
first offer the same to the Outlet Stores. The price for such Closeouts and
Seconds shall be the price charged to Licensee's most favored customers. In
addition, beginning on the first day of each of Licensee's market periods,
Outlet Stores may purchase Licensed Product at the wholesale price of the
<PAGE>
Licensed Product. Licensee agrees to fill the orders of the Outlet
Stores in at least the same manner which Licensee fills orders from its other
customers. Finally, Outlet Stores may contract for special programs of Licensed
Product at a price equal to the landed cost of such product plus twenty-five
(25%) percent. No royalty or advertising payment shall be due on purchases of
Licensed Product (including Closeouts, Seconds or special programs) by Outlet
Stores. No Licensed Product may be sold or displayed in the outlet stores of
Licensor or Licensee earlier than six (6) months from the launch of that
product. Licensee may not manufacture Licensed Products for its outlet stores
and may only sell Close-Outs and Seconds from such stores.
5.12 Purchases By Licensor's Retail Stores. Beginning on the first
day of each of Licensee's market periods, retail stores owned by or affiliated
with Licensor (the "Retail Stores") may purchase Licensed Product at the
wholesale price of the Licensed Product. Licensee agrees to fill the orders of
the Retail Stores and flagship retail locations owned or affiliated with
Licensor "the "Flagship Stores") in at least the same manner which Licensee
fills orders from its other customers. In addition, Retail Stores may contract
for special programs of Licensed Product at a price equal to the landed cost of
such product plus twenty-five (25%) percent and Flagship Stores (such Flagship
Stores in the United States not to exceed three in number) may purchase all
Licensed Products including, but not limited to, special programs, at a price
equal to the landed cost of such product plus twenty (20%) percent. No royalty
or advertising payment shall be due on purchases of Licensed Product (including
Closeouts, Seconds or special programs) by Retail Stores or Flagship Stores.
5.13 Products for Licensor's Use. Licensee shall supply to Licensor,
at Licensee's sole cost and expense, three (3) edited sets of each Seasonal
Collection of Licensed Products for Licensor's public relations and advertising
purposes or for Licensor's showrooms, plus a reasonable quantity of Licensed
Products for Mr. Tommy Hilfiger's personal use and a reasonable quantity of
Licensed Products for "shoe" advertisements.
5.14 Purchases By Licensor. In addition to the Licensed Products
which Licensee provides to Licensor pursuant to Paragraph 5.13 above, Licensor
may purchase reasonable quantities of Licensed Products from Licensee for
display in Licensor's showrooms, for public relations purposes and for "non-shoe
specific" advertisements at forty (40%) percent off the regular wholesale price
of Licensed Products on standard industry terms. Licensee shall permit Licensor
to purchase a reasonable amount of Licensed Products for the personal use of
Licensor's employees from Licensee at the regular wholesale price of such
Licensed Products on standard industry terms. No royalty or advertising payment
shall be payable by Licensee with respect to such purchases.
5.15 Financial Statements. Licensee shall provide Licensor (a) a
certified, audited financial statement to be delivered to Licensor within five
(5) months after the end of each fiscal year of Licensee and (b) a six (6) month
interim financial statement to be delivered to Licensor within sixty (60) days
after the end of the six (6) month period. The year end financial information
must be prepared by a chartered accountant having no interest in Licensee's
business and approved by Licensor.
<PAGE>
ARTICLE 6. REPRESENTATIONS AND WARRANTIES
6.1 Warranties and Representations of Licensor. Licensor hereby
represents, warrants and covenants that:
(a) it has the full right, power and authority to enter into this
Agreement and to license Licensee with respect to all the rights granted
hereunder;
(b) it is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation;
(c) all necessary corporate acts have been effected by it to
render this Agreement valid and binding upon it; and
(d) in its negotiations relative to this Agreement, it has not
utilized the services of any finder, broker or agent and it owes no commissions
or fees to any such person in relation hereto. Licensor agrees to indemnify
Licensee against, and hold it harmless from, any and all liabilities (including,
without limitation, reasonable attorneys' fees) to any person, firm or
corporation claiming commissions or fees in connection with this Agreement or
the transactions contemplated hereby as a result of an agreement with or
services rendered to Licensor.
(e) it is the owner of the trademarks listed on Exhibit A, which
trademarks are valid, existing trademarks.
6.2 Warranties and Representations of Licensee. Licensee hereby
represents, warrants and covenants that:
(a) it has the full right, power and authority to enter into this
Agreement and to perform all of its obligations hereunder;
(b) it is financially capable of undertaking the business
operations which it conducts and of performing its obligations hereunder;
(c) it is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation;
(d) all necessary corporate acts have been effected by it to
render this Agreement valid and binding upon it; and
(e) in its negotiations relative to this Agreement, it has not
utilized the services of any finder, broker or agent and it owes no commission
or fees to any such person in relation hereto. Licensee agrees to indemnify
Licensor against, and hold it harmless from, any and all liabilities (including,
without limitation, reasonable legal fees) to any person, firm or corporation
claiming commissions or fees in connection with this Agreement or the
transactions contemplated hereby as a result of an agreement with or services
rendered to Licensee.
<PAGE>
ARTICLE 7. ADVERTISING
7.1 Guaranteed Minimum Advertising Payment. In order to ensure that
advertising of the Licensed Products shall be consistent with Licensor's
advertising plans, Licensee shall, during each Annual Period or portion thereof
calculated on a pro rata basis during the Term, pay to Licensor the Guaranteed
Minimum Advertising Payments listed below, payable in quarterly installments
concurrently with the Guaranteed Minimum Royalty Payments in advance on the
first day of each quarter, except that for the First Annual Period, the
Guaranteed Minimum Advertising Payments for Mens Footwear shall be paid in four
(4) equal installments on August 22, 1995, September 1, 1996, January 1, 1997,
and April 1, 1997 and for the Second and Third Annual Periods, the Guaranteed
Minimum Advertising payments for Womens Footwear shall be paid in four (4) equal
installments on August 1, 1997, January 1, 1998, January 1, 1999 and March 25,
1999. In the event that the foregoing payment schedule is not sufficient to pay
for expenditures made by Licensor pursuant to the advertising plan submitted by
Licensor for that Annual Period, Licensee shall accelerate, any or all of such
payments, as necessary, on ten (10) days written notice. In the event that
during any Annual Period, the actual payments under Paragraph 7.2 hereof exceed
the entire Guaranteed Minimum Advertising Payment with respect to that Annual
Period, no further Guaranteed Minimum Advertising Payment need be made for such
Annual Period:
Guaranteed Minimum Advertising Payment
Annual Period Mens Womens
First $_________* -----
Second $_________ $_________**
Third $_________ $_________
Fourth $_________ $_________
Fifth $_________ $_________
Sixth $_________ $_________
Seventh $_________ $_________
Eighth $_________ $_________
The Guaranteed Minimum Advertising Payment for Mens Footwear for each Annual
Period shall be equal to the greater of the amounts set forth above and _____
(___%) percent of the Minimum Sales Level for such Annual Period as provided in
Paragraph 4.2 above.
*In the event that Licensee commences shipment of Licensed Products prior to
October 15, 1996, the Guaranteed Minimum Advertising Payment for Mens Footwear
for the First Annual Period shall be increased by $__________ for each month or
part thereof from the date of first shipment to October 15, 1996.
**Licensee shall receive a credit of no more than $280,000 to be applied
against the combined Guaranteed Minimum Advertising Payment for the second
and third Annual Periods equal to the cost of Licensee's cooperative
advertising with its customer, provided that such cost is separately charged
to Licensee. Licensee
<PAGE>
shall provide the back-up documentation evidencing the credit to Hilfiger with
each Guaranteed Minimum Advertising during the applicable annual Periods.
7.2 Percentage Advertising Payment. Licensee shall pay to
Licensor a Percentage Advertising Payment equal to the following listed
percentages of Net Sales of Licensed Products:
Annual Period Mens % Womens %
First _____ _____
Second _____ _____
Third _____ _____
Fourth and thereafter _____ _____
Beginning with the Third Annual Period for Mens Footwear and the Fourth Annual
Period for Womens Footwear, the Percentage Advertising Payment for Seconds and
Close-Outs shall be reduced to two (2%) percent of Net Sales. Percentage
Advertising Payments shall be payable in quarterly installments on January 15,
April 15, July 15 and October 15 for the immediately preceding quarter of sale,
less Guaranteed Minimum Advertising Payments for such period.
In addition to the Percentage Advertising Payment, Licensee shall expend an
additional one (1%) percent of the Net Sales of Womens Footwear (during the
Third Annual Period only) for cooperative advertising. Licensee shall receive a
credit against this obligation for early order discounts to its customers
whereby the customers receiving the discount are required to spend the amount of
such discount for cooperative advertising. In no event shall such credit exceed
one (1%) percent of the total price of the invoice to which such discount
pertains. In order to receive a credit for an early order discount, Licensee
must provide to Licensor evidence of the expenditure and placement of the
cooperative advertising for which the credit has been given together with the
Advertising Expenditure Form attached as Exhibit E.
7.3 Advertising Expenditures. Licensor shall spend the amounts
received from Licensee pursuant to Paragraphs 7.1 and 7.2 above, as well as the
Excess Advertising Payments received pursuant to Paragraph 2.7(c) above, for the
purpose of promoting the Licensed Products and the Trademark in any manner
Licensor, in its sole discretion, deems appropriate.
- --------------------------------------------------------------------------------
Such expenditures shall include, without limitation, creative, marketing,
advertising, public relations, special events and promotions, media and
production, administration and other costs related to all of the foregoing. All
amounts received by Licensor from Licensee pursuant to Paragraphs 7.1 and 7.2
above, which are a result of sales in Canada shall be directed by Licensor to be
spent in Canada. Within sixty (60) days of the end of each Annual Period,
Licensor shall provide to Licensee a statement of advertising including the
Licensed Products placed during that Annual Period and the cost of such
advertising. In the event that the cost of such advertising is less than the
total advertising payments made by Licensee to Licensor for that Annual Period,
Licensor agrees to place additional advertising in an amount
<PAGE>
equal to the shortage during the first quarter of the next Annual
Period. Any apportionment of advertising costs among the Licensed Products and
other products bearing the Trademark shall be made by Licensor in its sole
discretion. Licensor shall make its best efforts to have Licensed Products
appear in advertising placed by Licensor if the model's feet are visible and the
model is wearing shoes.
7.4 Approval of Packaging, Labeling and Advertising. All packaging,
labeling and advertising shall be in strict compliance with specifications to be
provided by Licensor. No advertising, including cooperative advertising, may be
used without the prior written consent of Licensor first had and obtained in
each instance. Licensee agrees that it will cease selling Licensed Products to
any of its customers who place or use unauthorized advertisements including the
Licensed Products or the Trademarks. The use of any other packaging or labeling
is expressly prohibited. All packaging and labeling shall use the Trademark, but
no other trademark or trade name shall be used except as may be required by
applicable law or permitted by Licensor. Licensee shall not be permitted to use
its name(s) on the Licensed Products, packaging and other materials displaying
the Trademark other than as specifically approved by Licensor. Any packaging and
labeling materials provided by Licensor to Licensee shall be so provided at
Licensee's expense and the price therefor shall be Licensor's cost of producing
and providing the same. Licensor reserves the right to require Licensee to
purchase Labels to be used on the Licensed Products only from sources designated
by Licensor, provided that such sources provide the Labels to Licensee in a
reasonably competitive manner as to price and delivery.
7.5 Launch. In addition to the advertising requirements of
Paragraphs 7.1 and 7.2, Licensee agrees to host a launch event or distribute a
gift package to the fashion and financial press and to major retail accounts
during the initial selling season for the first Seasonal Collection to be sold
under this Agreement. Such event shall be comparable to similar launch events
hosted by Licensor's other licensees of the Trademark and shall reasonably
reflect the prestige of the Trademark and the relative significance of Licensed
Products to Licensor. Licensor shall develop advertisements to be used in
connection with the consumer launch of the Licensed Products.
7.6 Fashion Show. Licensee shall, at Licensee's sole cost and
expense, provide reasonable quantities of mens footwear for fashion shows held
by Licensor and/or its other licensees. For fashion shows held by Licensor or
its other licensees in which womens footwear is required, Licensee shall provide
womens footwear, including footwear to be manufactured specifically for use in
fashion shows, at Licensee' sole cost and expense, however such cost and expense
shall not exceed fifty thousand ($50,000) dollars for womens footwear during
each Annual Period.
7.7 Trade Shows. Licensee may not participate in trade shows
without the prior written consent of Licensor.
<PAGE>
ARTICLE 8. QUALITY AND STANDARDS
8.1 Distinctiveness and Quality of the Trademark. Licensee shall
maintain the distinctiveness of the Trademark and the image and high quality of
the goods and merchandise bearing the mark presently manufactured and sold by
Licensor and its other licensees, and the prestigious marketing of same as
hitherto and presently maintained by Licensor and its other licensees. Licensee
agrees that, with respect to all Licensed Products manufactured or sold by it,
the same will be of high quality as to workmanship, fit, design and materials
used therein, and shall be at least equal in quality, workmanship, fit, design
and material to the samples of Licensed Products submitted by Licensee and
approved by Licensor pursuant to Paragraph 8.3 hereof. All manufacturing and
production shall be of a quality in keeping with the prestige of the Trademark.
In addition, Licensee acknowledges that in order to preserve the goodwill
attached to the Trademark, the Licensed Products should be sold at prices and
terms reflecting the prestigious nature of the Trademark, and the reputation of
the Trademark as appearing on goods of high quality and reasonable price, it
being understood, however, that Licensor is not empowered to fix or regulate the
prices for which the Licensed Products are to be sold, either at the wholesale
or retail level.
8.2 Shops, Stores, Retail Outlets. The Licensed Products sold by
Licensee may be sold only to those specialty shops, department stores and retail
outlets which carry high quality and prestige merchandise and whose operations
are consistent with Licensor's reputation and its sales policies and with the
prestige of the Trademark and only to those customers expressly approved by
Licensor. Prior to the opening of each selling season (and whenever Licensee
shall wish to sell Licensed Products to customers not previously approved by
Licensor), Licensee shall submit a written list of the proposed customers to
Licensor for Licensor's prior written approval, which approval may be given or
withheld at Licensor's sole discretion, based upon whether it deems that the
proposed customer shall enhance the quality and prestige of the Trademark.
Licensor shall have the right to withdraw any such approval on thirty (30) days
written notice to Licensee. Licensee shall not (a) market or promote or seek
customers for the Licensed Products outside of the Territory; (b) establish a
branch, wholly owned by subsidiary, distribution or warehouse with inventories
of Licensed Products outside of the Territory; (c) sell or distribute any
Licensed Products to wholesalers, jobbers, diverters, catalog vendors or any
other entity which does not operate retail stores exclusively; (d) use the
Licensed Products as giveaways, prizes or premiums, except for promotional
programs which have received the prior written approval of Licensor; or (e) sell
the Licensed Products to any third party or Affiliate of Licensee or any of its
directors, officers, employees or any person having an equity participation in
or any other affiliation to Licensee, without the prior written approval of
Licensor. Licensee shall include and shall enforce the following on all invoices
to its customers:
"Limitations on Sale by Buyer. (A) Seller expressly
reserves the right to limit the amount of merchandise
delivered to only such quantities as are necessary to
<PAGE>
meet the reasonably expect demand at Buyer's store locations.
(B) This Merchandise is sold to Buyer for resale to the ultimate
consumer only. Buyer shall be expressly prohibited from selling the
merchandise purchased hereunder to a retailer or other dealer in
like merchandise, or to any party who Buyer knows, or has reason to
know, intends to resell the merchandise.
(C) The merchandise purchased hereunder may not be sold by Buyer
from any of its store location(s) which Seller has advised Buyer
does not qualify as an acceptable location."
8.3 Samples of Manufactured Products. Before Licensee shall sell or
distribute any Licensed Products in any Seasonal Collection, Licensee shall
submit samples of each of such Licensed Products to Licensor for its prior
written approval, which approval may be withheld by Licensor in its sole and
absolute discretion. Any such request for approval shall be submitted to
Licensor on the form annexed hereto as Exhibit C. Such samples shall be
submitted sufficiently far in advance to permit Licensee time to make such
changes as Licensor deems necessary. Any approval given hereunder shall apply
only to that Seasonal Collection for which it is submitted to Licensor. Once
samples have been approved, Licensee will manufacture only in accordance with
such approved samples and will not make any changes for manufacture without
Licensor's prior written approval. All samples of Licensed Products submitted to
Licensor pursuant to this Paragraph 8.3 shall be provided at Licensee's sole
cost and expense. Licensee shall submit to Licensor additional samples of
Licensed Products upon Licensor's reasonable request. No Licensed Products
(including samples) shall be distributed and/or sold by Licensee pursuant to
this Agreement unless such Licensed Products are in substantial conformity with
and at least equal in quality to the samples previously approved by Licensor in
accordance with this Paragraph 8.3.
8.4 Non-Conforming Products. In the event that any Licensed Product
is, in the judgment of Licensor, not being manufactured, distributed or sold
with first quality workmanship or in strict adherence to all details and
characteristics furnished by Licensor, Licensor shall notify Licensee thereof in
writing and Licensee shall promptly repair or change such Licensed Product to
conform thereto. If a Licensed Product as repaired or changed does not strictly
conform after Licensor's request and such strict conformity cannot be obtained
after at least one (1) resubmission, the Trademark shall be promptly removed
from the item, at the option of Licensor, in which event the item may be sold by
Licensee, provided such miscut or damaged item does not contain any labels or
other identification bearing the Trademark without Licensor's prior approval.
Notwithstanding anything in this paragraph 8.4 to the contrary, sales of all
products of Licensor's design whether or not bearing the Trademark, shall
nonetheless be subject to royalty payments pursuant to Article 5 hereof.
Licensor may purchase at Licensee's expense any Licensed Products found in the
marketplace which, in Licensor's judgment, are inconsistent with approved
<PAGE>
quality standards and bill such costs to Licensee. Licensee must pay
all royalties due on sales of nonconforming goods. Licensor may require Licensee
to recall any Licensed Products not consistent with approved quality standards.
Licensee shall use its best efforts to comply.
8.5 Approvals. All approvals required or permitted by this Agreement
must be in writing from Licensor to Licensee. All matters requiring approval of
Licensor or the exercise of its discretion shall be at the sole subjective
discretion of Licensor. A submission for approval shall be deemed disapproved
unless Licensor delivers a notice of approval within ten (10) business days from
date stamped receipt at Licensor's office. Licensor will make reasonable efforts
to provide a timely response. Licensor shall provide an explanation for
disapprovals. Licensor has no obligation to approve, review or consider any item
which does not strictly comply with the required submission procedures provided
that Licensor designates the procedure which was not followed. Approval by
Licensor shall not be construed as a determination that the approved matter
complies with all applicable regulations and laws. No disapproved item shall be
manufactured, sold, used, distributed or advertised. Licensee may revise any
disapproved item and resubmit it. Licensee must strictly comply with all of
Licensor's decisions. The parties will adjust the approval forms as appropriate.
Upon reasonable notice, Licensor may withdraw approval of any previously
approved item. In the event that it is reasonably necessary for Licensor to do
on-site developments and approvals, Licensee will pay any and all expenses and
airfare incurred by Licensor with respect to such on-site developments and
approvals.
8.6 Approval Withdrawal. If the style, appearance or quality of any
Licensed Product ceases to be acceptable to Licensor, Licensor shall have the
right in the exercise of its sole discretion to withdraw its approval of such
Licensed Product. In the event that a style of Licensed Product comprises twenty
(20%) percent or more of a "category", Licensor may only withdraw approval of
such Licensed Product in the reasonable exercise of its discretion. For the
purposes hereof, a "category" shall mean (a) dress shoes; (b) casual shoes; or
(c) athletic shoes. Upon receipt of written notice from Licensor of its election
to withdraw such approval, Licensee shall immediately cease the use of the
Trademark in connection with the promotion, advertising, sale, manufacture,
distribution or use of such Licensed Product(s). Notice of such election by
Licensor to withdraw approval shall not relieve Licensee from its obligation to
pay royalties on sales of such Licensed Product(s) made by Licensee to the date
of disapproval or thereafter as permitted. Licensee may, however, complete work
in process and utilize materials on hand provided that it submits proof of such
work in progress and fabric inventory to Licensor.
8.7 Samples and Artwork. Licensor shall, at least four (4) times
during each Annual Period, make available to Licensee certain samples, designs,
colors, fabric samples, tags, labels, packaging and artwork available to
Licensor, and the cost of providing such materials shall be borne by Licensee at
the cost incurred by Licensor to provide the same. All right, title and interest
in and to samples, sketches, designs, and other materials furnished by or to
Licensee or submitted by or to Licensor whether created by Licensor or Licensee
in connection with such Licensed Product, including any modifications
<PAGE>
or improvements thereof which may be created by Licensor or
Licensee, are hereby assigned to and shall be the sole property of Licensor as
between Licensee and Licensor, and are licensed hereunder solely and exclusively
for use in connection with the manufacture and sale of Licensed Products in the
Territory. Licensor may use and permit others to use said designs and other
materials in any manner it desires, provided that such use does not conflict
with any rights granted Licensee hereunder. Licensee specifically acknowledges
that such designs and other materials may be used by Licensor and other
licensees on Licensed Products in jurisdictions outside the Territory and on
products other than Licensed Products anywhere in the world. In addition to the
foregoing, for marketing purposes, Licensor shall, upon reasonable request, make
available to Licensee such of the following which are available to Licensor: (a)
reports on marketing policy of Licensor; (b) reports on color, style and fabric
trends; (c) samples of advertising materials; (d) display ideas; (e) labels,
hangtags and packaging.
8.8 Confidentiality. Licensee acknowledges that it will receive from
Licensor prints, designs, ideas, sketches, and other materials or Trade Secrets
which Licensor intends to use on or in connection with lines of merchandise
other than the Licensed Products and which have not as yet found their way into
the channels of distribution. The parties recognize that these materials are
valuable property of Licensor. Licensee acknowledges the need to preserve the
confidentiality and secrecy of these materials and agrees to take all necessary
steps to ensure that use by it, or by its contractors will in all respects
preserve such confidentiality and secrecy. Licensee shall take all reasonable
precautions to protect the secrecy of the materials, samples, and designs
described in this Article 8 prior to their commercial distribution or the
showing of samples for sale, and shall not sell any merchandise employing or
adapted from any of said designs except under the Trademark. Licensor shall take
all reasonable precautions to protect the secrecy of the original designs
created by Licensee for Licensed Products prior to their advertisement,
commercial distribution or the showing of samples for sale. Neither Licensor nor
Licensee shall, at any time during the term of this Agreement, disclose or use
for any purpose, other than as contemplated by this Agreement, any revealed or
otherwise acquired confidential information and data relating to the business of
the other.
8.9 Manufacture of Licensed Products by Third Parties.
(a) For purposes of this Agreement a "Third Party
Manufacturer" shall be defined as an entity or an individual which or whom
Licensee either hires or pays to manufacture the Licensed Products. A
"subcontractor" shall be defined as an entity or an individual which or whom a
Third Party Manufacturer either hires or pays to perform the manufacturing tasks
which the Third Party Manufacturer could otherwise perform itself at its own
facility or through its own employees and staff. A "supplier" shall be defined
as an individual or entity who produces components for the Licensed Products,
and provides such components to manufacturer in order to assemble the finished
Licensed Products. Examples of a supplier include, but are not limited to,
fabric/trim manufacturers, yarn manufacturers, button manufacturers, or zipper
<PAGE>
manufacturers, provided that such named manufacturers do not
contribute further to the manufacture of the finished Licensed Products.
(b) Attached hereto as Exhibit H is Licensor's Supplier Code
of Conduct (the "Code") which applies to any entity manufacturing merchandise
under the Tommy Hilfiger(R) label (including the components thereof). Licensee
shall ensure that Licensee and all Third Party Manufacturers, subcontractors and
suppliers shall comply with the terms of the Code and shall evidence such
compliance by, (1) upon execution of this Agreement, Licensee executing the Code
and having all Third Party Manufacturers, subcontractors and suppliers execute
the Code in the form as attached or such other form as may be provided by
Licensor from time to time, and returning such document to Licensor, and (2)
publicly displaying and having all Third Party Manufacturers, subcontractors and
suppliers display the Code, in the most current form provided by Licensor, in a
clearly visible location in Licensee's manufacturing facilities (if applicable)
and in the manufacturing facilities of Licensee's Third Party Manufacturers,
subcontractors and suppliers, at all times during the Term of this Agreement.
(c) Licensee acknowledges that it has in effect (or will
promptly develop), to the satisfaction of Licensor, a program of monitoring
manufacturing facilities whether operated by Licensee, by Third Party
Manufacturers, subcontractors and suppliers which is sufficient to ensure their
substantial compliance with the Code and all applicable state, local and foreign
laws and regulations pertaining to wages, overtime compensation, benefits,
hours, hiring and employment, workplace conditions and safety, the environment,
collective bargaining, freedom of association and that their products or and the
components thereof are made without the use of child (persons under the age of
15 or younger than the age for completing compulsory education, if that age is
higher than 15), prison, indentured, exploited bonded, forced or slave labor.
Such compliance shall be evidenced by Licensee, upon execution of this
Agreement, executing and abide by the Certification in the form as attached
hereto as Exhibit G, and executing and abiding by any such other form as may be
provided by Licensor from time to time.
(d) Within thirty (30) days after establishing a new
arrangement with a Third Party Manufacturer or subcontractor, Licensee shall
inspect each Third Party Manufacturer or subcontractor and provide approval, in
writing, signed by an authorized employee or agent of Licensee that such Third
Party Manufacturer or subcontractor is in compliance with Paragraph 8.9(c)
above, and shall obtain and provide to Licensor the signature of an authorized
representative from each of such parties on a Third Party Manufacturing
Agreement in the form as Exhibit D attached hereto, or such other form as may be
provided by Licensor from time to time. Within thirty (30) days after
establishing a new arrangement with a supplier, Licensee shall obtain and
provide to Licensor the signature of an authorized representative from each
supplier on a Certification in the form as Exhibit G attached hereto, or such
other form as may be provided by Licensor from time to time. In the event
Licensee has knowledge of, has reason to believe, or should have reason to know
that any Third Party Manufacturer, subcontractor or supplier is in breach of the
Third Party Manufacturing Agreement or Certification, as the case may be,
Licensee shall immediately notify Licensor and Licensee shall, at its sole
<PAGE>
expense, take immediate action to rectify such breach,
including, where Licensor deems it necessary, immediate termination of its
relationship with such Third Party Manufacturer, subcontractor or supplier. If
Licensee fails to take immediate action or such action is not successful,
Licensee shall assign its rights to proceed against such Third Party
Manufacturer, subcontractor or supplier to Licensor and Licensor shall, at
Licensee's expense, have the right to pursue all available remedies to protect
its rights. Notwithstanding the foregoing, Licensee acknowledges that it shall
remain primarily liable and completely obligated under all of the provisions of
this Agreement in respect of the production of Licensed Products hereunder. In
the event that either Licensee or Licensor obtains information in the form of
reports of employees or agents of either party, indicating that any Third Party
Manufacturer, subcontractor or supplier may be in breach of the Third Party
Manufacturing Agreement or Certification, it will upon request of the other
party provide copies of any such reports.
(e) In order to maintain Licensor's high standard of quality
control and to insure that appropriate measures are taken against
counterfeiting, Licensee shall provide notice to Licensor, on a quarterly basis,
including all of the following information: (i) the name and address of each
Third Party Manufacturer, subcontractor and supplier; (ii) the type of Licensed
Products manufactured by such Third Party Manufacturer and subcontractor; (iii)
quantity of Licensed Products to be manufactured by each such entity; (iv) the
type of components provided by each supplier; and (iv) any other relevant
information regarding all such entities.
(f) Licensee shall ensure that all merchandise manufactured
hereunder shall be manufactured in compliance with all federal, state and local
laws which pertain to the manufacture of clothing, apparel, and other
merchandise including the Flammable Fabrics Act, as amended, and regulations
thereunder and Licensee guarantees, that with regard to all products, fabrics or
related materials used in the manufacture of Licensed Products, for which
flammability standards have been issued, amended or continued in effect under
the Flammable Fabrics Act, as amended, reasonable and representative tests, as
prescribed by the Consumer Product Safety Commission, have been performed which
show that Licensed Products at the time of their shipment or delivery conform to
the above-referenced flammability standards as are applicable.
(g) All Licensed Products manufactured in the United States
(whether by Licensee, by Licensee's manufacturer or by manufacturers'
contractors) shall be in compliance with all applicable requirements of Sections
6, 7, and 12 of the Fair Labor Standards Act, as amended, and all regulations
and orders of the United States Department of Labor under Section 14 thereof,
and applicable state and local laws pertaining to child labor, minimum wage and
overtime compensation; and, all Licensed Products manufactured outside the
United States, (whether by Licensee, by Licensee's manufacturer or by
manufacturers' contractors) shall be manufactured in compliance with the wage,
overtime compensation, benefits, hour, hiring and employment, workplace
conditions and safety, environmental, collective bargaining, freedom of
association laws of the country of manufacture and without the use of child
(persons under the age of fifteen or younger than the age for completing
<PAGE>
compulsory education, if that age is higher than 15), prison,
indentured, exploited bonded, forced or slave labor.
(h) Licensee will require that all commercial invoices (bills
of lading) which accompany all Licensed Products must include the following
language (either preprinted or "stamped"):
"We hereby certify that the merchandise (including components
thereof) covered by this shipment was manufactured in compliance
with the Tommy Hilfiger Supplier Code of Conduct and: (1) if the
merchandise was manufactured in the United States, it was
manufactured in compliance with (a) sections 6, 7, and 12 of the
Fair Labor Standards Act, as amended and all regulations and orders
of the United States Department of Labor under section 14 thereof,
and (b) state and local laws pertaining to child labor, minimum wage
and overtime compensation; or (2) if the merchandise was
manufactured outside the United States, it was manufactured in
compliance with the wage and hour laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger
than the age for completing compulsory education, if that age is
higher than 15), prison, indentured, exploited bonded, forced or
slave labor. We further certify that we have in effect a program of
monitoring our subcontractors and suppliers and other designated
contract facilities which manufacture Tommy Hilfiger(R) brand
merchandise for compliance with the foregoing. We also certify that
the merchandise is in compliance with all laws governing the
designation of country of origin and, if applicable, is being
shipped under legally issued and valid export license or visa."
(i) Licensee shall not utilize or permit any Third Party
Manufacturer, subcontractors or suppliers to utilize in the manufacture or
treatment of any Licensed Products (including the components thereof)
manufactured hereunder any Azo dyes that can be split into any of the following
amines:
CAS # CAS #
4-Aminobiphenlyl 92-67-1 3,3'-Dimethoxybenzidine 119-90-4
Benzidine 92-87-5 3,3'-Dimethylbenzadine 119-93-7
4-Chloro-o-toluidine 95-69-2 3,3'-Dimethyl- 838-88-0
2-Naphthylamin 91-59-8 4,4'diaminodiphenylmethane
o-Aminoazotoluol 97-56-3 p-Kresidin 120-71-8
2-amino-4-nitrotoluol 99-55-8 4,4'Methaylen-bis-(2-chloranilin)101-14-4
p-Chloroaniline 106-47-8 4,4'Oxydianiline 101-80-4
2,4-Diaminoanisole 615-05-4 4,4'Thiodianiline 139-65-1
4,4'-Diaminodiphenylmethane 101-77-9 o-Toluidine 95-53-4
3,3'-Dichlorbenzidin 91-94-1 2,4-Toluylenediamine 95-80-7
Aminoanabenzane 2,4,5-Trimethylaniline 137-17-7
o-Anisidine
<PAGE>
(j) Licensee's use or any of Licensee' Third Party
Manufacturers, subcontractors or suppliers use of the following chemicals in
connection with the manufacturer or treatment of any of the Licensed Products
(including the components thereof) manufactured hereunder, shall be in
accordance with the following standards or such other standards Licensor may
designate from time to time:
(i) Formaldehyde: Must be less than 300 p.p.m. when
tested in by the Acetylacetone method in
accordance with Japanese law 112.
(ii) Pentachlorophenol (Pesticides): Must be less
than 5 p.p.m.
and; (iii) Nickel: In the event any metal parts of a
garment or other merchandise coming into contact
with the skin, contain nickel in excess of 0.5
micrograms per square centimeter/week, Licensor
must be so notified and special warning labels
need to be attached to the garment.
8.10 Compliance with Applicable Laws. All Licensed Products
manufactured, distributed or sold by, or on behalf of, Licensee shall be marked,
labeled, packaged, advertised, distributed and sold in accordance with this
Agreement, in accordance with all applicable laws, rules and regulations in the
Territory, and in such a manner as will not tend to mislead or deceive the
public. At the request of Licensor, Licensee shall cause to be placed on all
Licensed Products appropriate notice designating Licensor as the trademark,
copyright or design patent owner thereof, as the case may be. The manner of
presentation of said notice shall be determined by Licensor.
8.11 Inspection of Facilities. Licensee shall regularly, and not
less than two (2) times per year, inspect the facilities it utilizes and those
facilities utilized by Third Parties for compliance with Paragraph 8.9 and shall
take all action necessary to cure any deficiencies. Licensee further agrees that
it shall terminate any agreement with any third party found to be in default of
the terms of this provision on three (3) separate inspections. Licensor and its
duly authorized representatives shall have the right, during normal business
hours and upon reasonable notice, to inspect all facilities utilized by
Licensee, Licensee's third party manufacturers, and such third party
manufacturers' contractors and suppliers in connection with the manufacture,
sale, storage or distribution of Licensed Products, and to examine (i) the
Licensed Products at all stages manufacture; (ii) the manufacturing facility,
residential facilities (if any) and any manufacturing and/or residential
facility; (iii) the books and records relating to employee wages, employee
timecards, evidence of employee age, shipping documents, cutting reports and
other documentation relating to the manufacture and shipment of the Licensed
Products; and (iii) the books and records relating to the use of chemicals and
dyestuffs in the fabrics, trims, garments and other components of the Licensed
Products manufactured hereunder.
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8.12 Rules and Regulations. To the extent permitted by applicable
law, Licensor may, from time to time, promulgate rules and regulations to
Licensee relating to the manner of use of the Trademark. Licensee shall comply
with all such rules and regulations.
8.13 Disposal of Seconds and Close-Outs.
(a) Seconds. Licensee shall only sell Licensed Products which
are Seconds in a way which shall not reduce the value of the Trademark or
detract from its reputation and shall obtain the express prior written consent
of Licensor with respect to the terms and method of such disposal. All Seconds
approved for sale by Licensor shall be clearly marked "Seconds" or "Irregular".
The Net Sales of Seconds of any of the Licensed Products which may be disposed
of pursuant to this Paragraph 8.13(a) shall not, in any event, exceed five (5%)
percent of the Net Sales of Licensed Products distributed or sold by Licensee in
any Annual Period.
(b) Close-Outs. All Close-Outs, shall be sold only with
Licensor's prior written approval, which Licensor may withhold in its sole
discretion, through retail outlets and traditional and accepted dealers in such
merchandise and upon such terms and conditions as Licensee, in its reasonable
discretion, determines appropriate and shall not be sold to any person which
Licensee knows, or has reason to know, will export such Close-Outs from the
Territory. The Net Sales of Close-Outs of any of the Licensed Products which may
be disposed of pursuant to this Paragraph 8.13(b) shall not, in any event,
exceed fifteen (15%) percent of the Net Sales of Licensed Products distributed
or sold by Licensee.
8.14 Assistance By Licensor. Licensee shall have the right to cause
its personnel to reasonably visit Licensor's offices, factories, showroom, and
other places of business, and also to attend Licensor's sales meetings in order
to obtain additional know-how and assistance. The scheduling of such visits
shall be at times mutually convenient to the parties hereto. In connection with
such visits, Licensee shall bear all airfare to and from, and subsistence
expenses of Licensee's representatives. In the event Licensee requests Mr. Tommy
Hilfiger or any other member(s) of Licensor's staff to make a personal
appearance, to attend any function, to visit Licensee's manufacturing plants or
facilities or to attend any design meetings, Licensee shall pay all of the
reasonable expenses in connection therewith, including air travel and hotel
accommodations, and other reasonable services of Licensor's choosing. Licensee
shall reimburse Licensor for all reasonable expenses so incurred by Licensor. On
at least two (2) months notice, Licensor shall have Mr. Tommy Hilfiger appear at
Licensee's launch party. At Mr. Tommy Hilfiger's personal appearances for other
licensed products, Licensor shall make reasonable efforts to have the Licensed
Products visually enhanced.
8.15 Meetings. Licensor may from time to time but no more than twice
a year hold a meeting of Licensor's Licensees/Distributors. Licensee agrees upon
receipt of reasonable notice to attend any such meeting(s) at its own expense.
<PAGE>
8.16 Design Rights. Licensee acknowledges and agrees that Licensor
owns or shall own all design rights, regardless of whether such designs were
created by Licensor or by or on behalf of Licensee. Licensee agrees to make,
procure and execute all assignments necessary to vest ownership of design rights
in Licensor. Licensee shall place appropriate notices, reflecting ownership of
design rights by Licensor, on all the Licensed Products, packaging, tags, labels
and advertising and promotional materials. Licensee shall not do or allow to be
done anything which may adversely affect any of Licensor's design rights. All
designs used by Licensee for the Licensed Products shall be used exclusively for
the Licensed Products and may not be used under any other trademark or private
label without the prior written consent of Licensor. Licensee shall disclose and
freely make available to Licensor any and all developments or improvements it
may make relating to the Licensed Products and to their manufacture, promotion
and sales, including, without limitation, developments and improvements in any
machine, process or product design, that may be disclosed or suggested by
Licensor or regarding any patent or trademark which Licensee is entitled to
utilize.
8.17 Pricing. Licensee acknowledges that in order to preserve the
goodwill attached to the Trademark, the Licensed Products should be sold at
prices and terms reflecting the prestigious nature of the Trademark, it being
understood, however, that Licensor is not empowered to fix or regulate the
prices for which the Licensed Products are to be sold, either at the wholesale
or retail level.
8.18 Cost of Designs. Licensor will only be responsible for its
ordinary pre-adoption costs associated with the preparation and submission of
designs by Licensor to Licensee of inspirational sketches or prototypes only.
Licensee shall pay for all other pre and post-adoption design costs for
Licensor's designs and all design costs for Licensee's designs, as well as all
extraordinary costs such as expedited shipping charges associated with the
delivery of the designs.
8.19 Morals. Mr. Tommy Hilfiger's conduct shall be with due
regard to public conventions and morals, and Mr. Tommy Hilfiger has not done
and shall not do or commit any act that will degrade him before a substantial
portion of society or bring him into public hatred. If Mr. Tommy Hilfiger
shall materially breach this provision, Licensee may terminate this License
on six (6) months written notice to Licensor.
ARTICLE 9. THE TRADEMARK
9.1 Rights to the Trademark. Licensee acknowledges the great value
of the goodwill associated with the Trademark, and acknowledges that the
Trademark and all the rights therein, and goodwill attached thereto, belong
exclusively to Licensor. Licensee will not, at any time, do, or otherwise suffer
to be done any act or thing which may, in any way, adversely affect any rights
of Licensor in and to the Trademark or any registrations thereof or which,
directly or indirectly, may reduce the value of the Trademark or detract
<PAGE>
from its reputation. Nothing contained in this Agreement shall be
construed as an assignment or grant to Licensee of any right, title or interest
in or to the Trademark, or any of Licensor's other trademarks, it being
understood that all rights relating thereto are reserved by Licensor, except for
the License hereunder to Licensee of the right to use and utilize the Trademark
only as specifically and expressly provided herein. Licensee shall not file or
prosecute a trademark or service mark application or applications to register
the Trademark in respect of the Licensed Products or any other goods or
services. Licensee shall not, during the term of this Agreement or thereafter,
(a) attack Licensor's title or right in and to the Trademark in any jurisdiction
or attack the validity of this License or the Trademark or (b) contest the fact
that Licensee's rights under this Agreement (i) are solely those of a
manufacturer and distributor and, (ii) subject to the provisions of Article 11
hereof, cease upon termination of this Agreement. The provisions of this
paragraph 9.1 shall survive the termination of this Agreement.
9.2 Protecting the Trademark. Licensee shall cooperate fully and in
good faith with Licensor for the purpose of securing, preserving and protecting
Licensor's rights in and to the Trademark. At the request of Licensor, Licensee
shall execute and deliver to Licensor any and all documents and do all other
acts and things which Licensor deems necessary or appropriate to make fully
effective or to implement the provisions of this Agreement relating to the
ownership or registration of the Trademark.
9.3 Compliance with Legal Requirements. Licensee will use the
Trademark in the Territory strictly in compliance with the legal requirements
therein. Whenever any Trademark is used on any item of packaging or labeling or
in any advertisement, it must be followed, in the case of a registered trademark
by the registration symbol, i.e., R, and in the case of all other trademarks by
the symbol TM, or other appropriate symbols of similar import acceptable to
Licensor. Licensee shall duly display all other notices with respect to the
Trademark, on the Licensed Products and otherwise, as are or may be required by
the trademark laws and regulations applicable within the Territory. Upon
expiration or termination of this Agreement for any reason whatsoever, Licensee
will execute and deliver to Licensor any and all documents required by Licensor
terminating any and all trademark registrations, Registered User agreements and
other documents regarding this Trademark.
9.4 Ownership of Copyright. Any copyright which may be created in
any sketch, design, print, package, label, tag or the like designed or approved
or used with the Trademark by Licensor will be the property of Licensor.
Licensee will not, at any time, do, or otherwise suffer to be done, any act or
thing which may adversely affect any rights of Licensor in such sketches,
designs, prints, packages, labels, tags and the like and will, at Licensor's
request, do all things reasonably required by Licensor to preserve and protect
said rights.
9.5 Notice of Infringement. Licensee shall notify Licensor in
writing of any infringement or imitation of the Trademark or the use by any
person of any trademarks or tradenames confusingly similar to the Trademark
promptly as same may come to the attention of Licensee. Licensor will
thereupon
<PAGE>
take such action as it deems advisable for the protection of the
Trademark and its rights therein, and Licensee shall assist Licensor in the
prosecution of any such suit, as Licensor may reasonably request, at Licensor's
expense. In no event, however, will Licensor be required to take any action if
it deems it inadvisable to do so and Licensee will have no right to take any
action with respect to the Trademark without the prior written consent of
Licensor. In the event a third party infringes the use of the Trademark in the
Territory on items similar to the Licensed Products, Licensor shall take all
advisable and necessary measures to protect the Trademark and Licensee agrees
that, at Licensor's request, it will pay the reasonable costs incurred therefor,
including judicial expenses and legal fees.
9.6 Counterfeit Protection. Licensee shall use its best efforts to
prevent counterfeiting. All Licensed Products shall bear and use any reasonable
counterfeit preventive system, devices or labels designated by Licensor. At its
option, Licensor may supply the system, devices or labels (provided that they
are supplied on a timely basis), which Licensee must use and for which Licensee
shall pay all reasonable costs in advance.
9.7 Use of Other Trademarks. At all times while this Agreement is in
effect, neither Licensee, nor any company affiliated with Licensee, owned or
controlled by Licensee, under common ownership with or having common
stockholders as Licensee, in which the owner of Licensee is a partner, or in
which Licensee is a partner, shall act as a licensee or distributor in the
Territory of any products included in Paragraph 1.10 under any name directly
competitive with Licensor without the prior written approval of Licensor.
Nothing herein is to be construed so as to prohibit Licensee from acting as a
manufacturer only of such products under a name competitive with Licensor,
providing that Licensee shall not be the licensee or distributor thereof. The
design and style of any such products or any of Licensee's private label
products, must be clearly distinguished from the Licensed Products. If such
consent is given, unless prohibited by other agreements, Licensee shall provide
Licensor with samples of any other products, lines or collections it
manufactures or has manufactured for it or distributed for it which do not bear
the Trademarks. A breach of this clause shall constitute a violation of
Licensee's obligation to use its best efforts to exploit this license. The
design, merchandising, packaging, sales and display of all of Licensee's
non-licensed products shall be separate and distinct from the Licensed Products.
Licensee shall maintain a separate area for exhibition of the Licensed Products
wherever the Licensed Products are sold.
9.8 Use of Trademark on Invoices, etc. The use of the Trademark by
Licensee on invoices, order forms, stationery and related materials in
advertising in telephone or other directory listings is permitted only upon
Licensor's prior written approval of the format in which the Trademark is to be
so used, the juxtaposition of the Trademark with other words and phrases, and
the content of the copy prior to the initial such use of the Trademark and prior
to any material change therein; provided, however, that each such use of the
Trademark is only in conjunction with the manufacture, sale, distribution or
advertisement of Licensed Products pursuant to this Agreement.
<PAGE>
9.9 Monitoring. Licensee shall actively monitor use of the Trademark
by Licensee and its customers and shall use its best efforts to see that such
use does not impair the image or reputation heretofore or hereafter established
by Licensor for products bearing the Trademark; provided, however, that the
Licensee shall have no obligation to place any unlawful restriction on its
customers.
ARTICLE 10. INSOLVENCY
10.1 Effect of Proceeding in Bankruptcy, etc. If either party
institutes for its protection or is made a defendant in any proceeding under
bankruptcy, insolvency, reorganization or receivership law, or if either party
is placed in receivership or makes an assignment for benefit of creditors or is
unable to meet its debts in the regular course of business, the other party may
elect to terminate this Agreement immediately by written notice to the other
party without prejudice to any right or remedy the terminating party may have,
including, but not limited to, damages for breach to the extent that the same
may be recoverable.
10.2 Rights, Personal. The license and rights granted hereunder are
personal to Licensee. No assignee for the benefit of creditors, receiver,
trustee in bankruptcy, sheriff or any other officer or court charged with taking
over custody of Licensee's assets or business, shall have any right to continue
performance of this Agreement or to exploit or in any way use the Trademark if
this Agreement is terminated pursuant to Paragraphs 11.1 and 11.2, except as may
be required by law.
10.3 Trustee in Bankruptcy. Notwithstanding the provisions of
Paragraph 10.2 above, in the event that, pursuant to the applicable bankruptcy
law (the "Code"), a trustee in bankruptcy, receiver or other comparable person,
of Licensee, or Licensee, as debtor, is permitted to assume this Agreement and
does so and, thereafter, desires to assign this Agreement to a third party,
which assignment satisfies the requirements of the Code, the trustee or
Licensee, as the case may be, shall notify Licensor of same in writing. Said
notice shall set forth the name and address of the proposed assignee, the
proposed consideration for the assignment and all other relevant details
thereof. The giving of such notice shall be deemed to constitute an offer to
Licensor to have this Agreement assigned to it or its designee for such
consideration, or its equivalent in money, and upon such terms as are specified
in the notice. The aforesaid offer may be accepted by Licensor only by written
notice given to the trustee or Licensee, as the case may be, within fifteen (15)
days after Licensor's receipt of the notice to such party. If Licensor fails to
deliver such notice within the said fifteen (15) days, such party may complete
the assignment referred to in its notice, but only if such assignment is to the
entity named in said notice and for the consideration and upon the terms
specified therein. Nothing contained herein shall be deemed to preclude or
impair any rights which Licensor may have as a creditor in any bankruptcy
proceeding.
<PAGE>
ARTICLE 11. TERMINATION
11.1 Other Rights Unaffected. It is understood and agreed that
termination by Licensor on any ground shall be without prejudice to any other
remedies which Licensor may have.
11.2 Termination Without Notice. If any of the following grounds for
termination shall occur, this Agreement shall thereupon forthwith terminate and
come to an end without any need for notice from Licensor:
(a) If Licensee shall make an unauthorized disclosure of
confidential information, Trade Secrets, or materials given or loaned to
Licensee by Licensor;
(b) If Licensee institutes proceedings seeking relief under a
bankruptcy act or any similar law, or otherwise violates the provisions of
paragraph 10.1 thereof;
(c) If Licensee transfers or agrees to transfer substantially
all of its property, its shares of stock or, this Agreement in violation of
Article 17 thereof;
(d) If Licensee shall sell unapproved merchandise in
violation of paragraph 8.3 hereof;
(e) If Licensee shall, without the prior written consent of
Licensor, use the Trademark in an unauthorized or improper manner;
(f) If Licensee shall use the Trademark in connection with
another trademark or name; and/or
(g) If Licensee shall place or participate in any
advertising prohibited by Article 7.
11.3 Termination With Notice. If Licensee breaches any of its
obligations under this Agreement, other than those specified in Paragraph 11.2
above, Licensor may terminate this Agreement by giving Notice of Termination to
Licensee. Termination will become effective automatically unless Licensee
completely cures the breach within fifteen (15) days of the giving of such
Notice. Termination based upon Licensee's failure to comply with the Minimum
Sales Levels set forth in Paragraph 4.2 shall become effective thirty (30) days
after the giving of the Notice. If the notice relates to royalties or to product
quality, pending cure Licensee shall ship no Licensed Products; if Licensee does
ship, it shall automatically forfeit its right to cure and the License shall be
terminated. Upon the giving of a Notice of Termination for the second time, for
any reason, Licensee shall no longer have the right to cure any violation, and
termination shall be effective upon the giving of the Notice.
11.4 Effect of Termination. On the termination of this
Agreement for any reason whatsoever: all of the rights of Licensee under
this Agreement
<PAGE>
shall forthwith terminate and immediately revert to Licensor; all royalties on
sales theretofore made shall become immediately due and payable; Licensee shall
forthwith discontinue all use of the Trademark, except that Licensee may have a
period of ninety (90) days after such termination to consummate all sales of
Licensed Products which were firm upon the delivery of the Inventory Schedule in
accordance with Paragraph 11.5 hereof and to sell the balance of the Inventory
not purchased by Licensor, and royalties with respect thereto shall be due on
such ninetieth day. Licensor shall have the right to conduct a physical
inventory of the Licensed Products in Licensee's possession or control. Licensee
will completely remove the Trademark from Licensed Products and destroy all
hangtags and labeling attached to such Licensed Products. Licensee shall, at
Licensee's expense, either return to Licensor all remaining Inventory after such
ninetieth (90th) day or destroy all remaining Inventory under the supervision of
Licensor. Licensee shall no longer use the Trademark, any variation, imitation
or simulation thereof, or any Trademark similar thereto; Licensee will promptly
transfer to Licensor, free of charge, all registrations, filings and rights with
regard to the Trademark which it may have possessed at any time; and Licensee
shall thereupon deliver to Licensor, free of charge, all sketches, designs,
colors and the like in its possession or control, designed or approved by
Licensor, and all Labels supplied by Licensor in Licensee's possession or
control. Licensor shall have the option, exercisable upon notice to Licensee
within thirty (30) days of termination, to negotiate the purchase of the Labels
which have not been supplied by Licensor. If such negotiations do not result in
the purchase of the Labels not supplied by Licensor, Licensee shall destroy the
Labels under the supervision of Licensor, and Licensee, shall supply to Licensor
a certificate of destruction thereof signed by a duly authorized officer of
Licensee.
11.5 Inventory Upon Termination. Within twenty (20) days of the
termination of this Agreement for any reason whatsoever, Licensee shall deliver
to Licensor an Inventory Schedule. The Inventory Schedule shall be prepared as
of the close of business on the date of such termination and shall reflect
direct cost of each such item (not including overhead or any general or
administrative expenses). Licensor thereupon shall have the option, exercisable
by notice in writing delivered to Licensee within thirty (30) days after its
receipt of the complete Inventory Schedule, to purchase any or all of the
Inventory for an amount equal to the Licensee's standard cost (the actual
manufacturing cost). In the event such notice is sent by Licensor, Licensor may
collect the Inventory referred to therein within ninety (90) days after
Licensor's said notice. Licensor will pay such Licensee for such Inventory upon
such collection. In the event such notice is not sent, Licensee may dispose of
the Licensed Products within ninety (90) days of the date of termination;
provided, however, that any advertising used during such period shall be subject
to Licensor's prior written approval and such disposition of the Licensed
Products shall be subject to Licensee's obligations hereunder, including, but
not limited to payments to be made to Licensor. At the end of such ninety (90)
day period, any Licensed Products remaining in Licensee's possession shall, at
the request of Licensor, be destroyed.
11.6 Freedom to License. In the event of termination of this
Agreement or the receipt by Licensor of a notice of termination from
Licensee,
<PAGE>
Licensor shall be free to license to others the use of the Trademark
in connection with the manufacture and sale of Licensed Products in the
Territory, but only if the sale of such Licensed Products in the Territory
produced pursuant to such third party agreement is prohibited until after the
termination of this Agreement.
11.7 Equitable Relief. Licensor and Licensee shall be entitled to
equitable relief by way of temporary and permanent injunction and such other and
further relief as any court with jurisdiction may deem just and proper.
ARTICLE 12. RELATIONSHIP BETWEEN THE PARTIES
12.1 No Agency. Licensee shall not represent itself as the agent or
legal representative of Licensor, Licensor's affiliates or Tommy Hilfiger for
any purpose whatsoever and shall have no right to create or assume any
obligation of any kind, express or implied, for or on behalf of them in any way
whatsoever. Licensor shall similarly not represent itself as the agent or legal
representative of Licensee.
ARTICLE 13. INTENTIONALLY OMITTED
ARTICLE 14. BENEFIT
14.1 Benefit. This Agreement shall inure to the benefit of and be
binding upon the parties hereto, and, subject to Article 17 hereof, their
successors and assigns.
ARTICLE 15. ENTIRE AGREEMENT; AMENDMENT
15.1 Entire Agreement; Amendment. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and this Agreement may not be amended or modified, except in a writing signed by
both parties hereto.
ARTICLE 16. NON-WAIVER
16.1 Non-Waiver. The failure of
either party to enforce at any time any term, provision or condition of this
Agreement, or to exercise any right or option herein, shall in no way operate as
a waiver thereof, nor shall any single or partial exercise preclude any other
right or option herein; and no waiver whatsoever shall be valid unless in
writing, signed by the waiving party, and only to the extent herein set forth.
ARTICLE 17. ASSIGNMENT
17.1 No Assignment Without Consent. The license and rights
granted to Licensee hereunder are personal in nature, and Licensee may not
and shall not
<PAGE>
sell, transfer, lease, sublicense or assign this Agreement or its
rights and interest hereunder, or any part hereof, by operation of law or
otherwise, without the prior written consent of Licensor, which consent may be
withheld by Licensor in its sole and absolute discretion, except that Licensee
shall have the right, upon written notice to Licensor, to assign this Agreement
to a corporation, subsidiary or affiliate under the same direction and control
as Licensee; provided, however, that in such event Licensee agrees to guarantee
the performance and obligations of such corporation, subsidiary or affiliate
under this Agreement.
17.2 Sale of Assets. A sale or other transfer of all or
substantially all of the assets of Licensee or a change in the control of
Licensee other than as permitted under Paragraph 17.1 shall be deemed an
assignment of Licensee's rights and interests under this Agreement to which the
terms and conditions of Paragraph 17.1 of this Agreement shall apply.
17.3 Sale of Stock/Interest. Any transfer, by operation of law or
otherwise, of Licensee's interest in this Agreement (in whole or in part), a
fifty (50%) percent or greater interest in one or in a series of transactions in
Licensee (whether stock, partnership, interest or otherwise) or any interest
directly or indirectly to a competitor of Licensor shall be deemed an assignment
of Licensee's rights and interest under this Agreement to which the terms and
conditions of Paragraph 17.1 of this Agreement shall apply. The issuance of
shares of stock to other than the existing shareholders is deemed to be a
transfer of that stock for the purposes of this paragraph. If there has been a
previous transfer of less than a fifty (50%) percent interest in Licensee, then
any other transfer of an interest in Licensee which when added to the total
percentage previously transferred totals a transfer of greater than fifty (50%)
percent interest of Licensee, shall be deemed an assignment of Licensee's
interest in this Agreement within the meaning of this Paragraph to which the
terms and conditions of Paragraph 20.1 shall apply.
17.4 Assignment by Licensor. Licensor shall have a complete and
unrestricted right to sell, transfer, lease or assign its rights and interests
in this Agreement to any domestic or foreign corporation or other business
entity, providing that such transferee agrees to be bound by all of the terms
hereof and is the holder of the Trademark in the Territory. When Licensor wishes
to sell, transfer, lease or assign its rights and interests in this Agreement,
Licensor shall do so on notice to Licensee.
ARTICLE 18. INDEMNIFICATION AND INSURANCE
18.1 Indemnification by Licensee. Licensee does hereby indemnify and
hold harmless Licensor, Tommy Hilfiger, and their directors, officers,
employees, agents, officials and related companies from and against any and all
losses, liability, damages and expenses (including reasonable attorneys' fees
and expenses) which they or any of them may incur or be obligated to pay in any
action, claim or proceeding against them or any of them, for or by reason of any
acts, whether of omission or commission, that may be committed or suffered by
<PAGE>
Licensee or any of their servants, agents or employees in connection
with Licensee's performance of this Agreement, including but not limited to:
18.1.1. any alleged defect in any Licensed Product,
regardless of whether the action is based upon negligence or strict
liability, and regardless of whether the alleged negligence of Licensor is
characterized as "passive" or "active";
18.1.2. the manufacture, labelling, sale, distribution
or advertisement of any Licensed Product by Licensee;
18.1.3. any violation of any warranty, representation
or agreement made by Licensee pertaining to a Licensed Product;
18.1.4. the claim of any broker, finder or agent in
connection with the making of this Agreement or any transactions contemplated
by this Agreement.
The provisions of this paragraph and Licensee's obligations hereunder shall
survive any termination or rescission of this Agreement.
18.2 Notice of Suit or Claim. Licensee shall promptly inform
Licensor by written notice of any suit or claim against Licensee relating to
Licensee's performance under this Agreement, whether such suit or claim is for
personal injury, involves alleged defects in the Licensed Products manufactured,
sold or distributed hereunder, or otherwise.
18.3 Indemnification by Licensor. Licensor does hereby indemnify and
hold harmless Licensee, against any and all liabilities, damages and expense
(including reasonable attorneys' fees, costs and expenses) which Licensee may
incur or be obligated to pay in any action or claim against Licensee for
infringement of any other person's claimed right to use a trademark in the
Territory, but only where such action or claim results from Licensee's use of
the Trademark in the Territory in accordance with the terms of this Agreement.
Licensee shall give Licensor prompt written notice of any such claim or action
and thereupon Licensor shall undertake and conduct the defense of any suit so
brought. It is understood, however, that if there is a dispute between Licensor
and Licensee as to whether the suit was brought as a result of Licensee's
failure to use the Trademark in accordance with the terms of this Agreement
Licensee may be required to conduct such defense unless and until it is
determined that no such misuse of the Trademark occurred. In the event
appropriate action is not taken by Licensor within thirty (30) days of its
receipt of notice from Licensee, Licensee shall have the right to defend such
claim or action in its own name, but no settlement or compromise of any such
claim or action may be made without the prior written approval of Licensor. In
either case, Licensor and Licensee shall keep each other fully advised of all
developments and shall cooperate fully with each other and in all respects in
connection with any such defense. Such indemnification shall be deemed to apply
solely to the amount of the judgment, if any, against Licensee, and sums paid by
Licensee in connection with its defense, and shall not apply to any
consequential damages suffered by Licensee which are not included in the
<PAGE>
aforementioned judgment. Such indemnification shall not apply to any
damages sustained by Licensee by reason of such claimed infringement other than
those specified above.
18.4 Insurance.
(a) Requirements. Without limiting Licensee's liability
pursuant to the indemnity provisions of this Agreement, Licensee shall maintain
comprehensive general liability insurance in the amount of at least $5,000,000
(combined single limit per occurrence) with a broad form property damage
liability endorsement. This insurance shall include broad form blanket
contractual liability, personal injury liability, advertising liability,
products and completed operations liability. Each coverage shall be written on
an "occurrence" form.
(b) Theft and destruction coverage. Licensee shall purchase
insurance against theft and destruction of the Licensed Products which shall (1)
be written on an "all risk" basis; (2) provide that Licensee shall be reimbursed
for loss in an amount equal to the manufacturer's selling price for the products
(this may be accomplished by either a selling price endorsement or business
interruption insurance); (3) provide that Licensor is added as a loss payee as
respects loss to Licensed Products; (4) be in effect while goods are on premises
owned, rented or controlled by Licensee and while in transit or storage; and (5)
include a brand and label clause stating that the insurer will pay the cost of
removing Licensor's name from damaged merchandise and relabeling goods.
(c) General provisions. The insurance described in
subparagraphs (a) and (b) shall include: (1) a cross-liability endorsement; (2)
an endorsement stating that Licensor shall receive at least thirty (30) days
written notice prior to cancellation or non-renewal of coverage; (3) an
endorsement naming Licensor as an insured; (4) an endorsement stating that the
insurance required by this Agreement is primary and that any insurance purchased
by Licensor shall only apply in excess of the insurance purchased by Licensee;
(5) a waiver of subrogation in favor of Licensor; and (6) an endorsement stating
that Licensor may recover for any loss caused Licensor, its agents or employees
by the negligence (including active, passive and gross negligence) of Licensee.
(d) Approved Carrier/Policy Changes. All insurance shall be
obtained from an insurance company approved by Licensor. Licensee shall give at
least thirty (30) days prior written notice to Licensor of the cancellation of,
or any modification in, such insurance policy that would affect Licensor's
status or benefits thereunder. This insurance may be obtained for Licensor by
Licensee in conjunction with a policy which covers products other than the
Licensed Products.
(e) Evidence of coverage. No later than thirty (30) days from
the date hereof, Licensee shall furnish to Licensor evidence, in form and
substance satisfactory to Licensor, of the maintenance and renewal of the
required insurance including, but not limited to, copies of policies with
applicable riders and endorsements, and certificates of insurance.
<PAGE>
(f) Territory. The insurance set forth in this Section
must cover the entire Territory.
ARTICLE 19. SEVERABILITY
19.1 Severability. If any provision or any portion of any provision
of this Agreement shall be construed to be illegal, invalid, or unenforceable,
such shall be deemed stricken and deleted from this Agreement to the same extent
and effect as if never incorporated herein, but all other provisions of this
Agreement and any remaining portion of any provision which is not deemed
illegal, invalid or unenforceable in part shall continue in full force and
effect.
ARTICLE 20. NOTICES
20.1 Notices. All reports, approvals and notices required or
permitted to be given under this Agreement shall, unless specifically provided
otherwise in this Agreement, be deemed to have been given if personally
delivered or if mailed by certified or registered mail, if to Licensor, to:
TOMMY HILFIGER LICENSING, INC.
913 N. Market Street
Wilmington, Delaware 19801
Attention: Mr. Joel Horowitz
Chief Executive Officer
Copy to: Steven R. Gursky, Esq.
Gursky & Ederer, P.C.
21 East 40th Street
New York, New York 10016
and if to Licensee, to the address set forth above. The parties may change their
address for receipt of notices at any time upon notice to the other party.
ARTICLE 21. SUSPENSION OF OBLIGATIONS
21.1 Suspension of Obligations. If Licensee shall be prevented from
performing any of its obligations because of governmental regulation or order,
or by strike or war, declared or undeclared, or other calamities such as fire,
earthquake, or similar acts of God, or because of other similar or dissimilar
cause beyond the control of Licensee, Licensee's obligations shall be suspended
during the period of such conditions. If such condition continues for a period
of more than sixty (60) days, Licensor shall have the right to terminate this
Agreement. If the act of force majeure consists of a fire, earthquake, flood,
hurricane, tornado, or nuclear war and if the act prevents
<PAGE>
Licensee from manufacturing and/or delivering the Licensed Products,
whether due to an inability to obtain fabric or other materials, destruction of
manufacturing facilities, inability to deliver finished product, or otherwise,
Licensee shall have a period of not to exceed ninety (90) days to find alternate
sources and Licensee shall advise Licensor on a weekly basis of the progress it
has made in that regard. If, in Licensor's reasonable opinion, Licensee shall
fail to diligently proceed to obtain alternate sources, or if the condition
shall continue to exist for a period of ninety (90) days, Licensor shall have
the right to terminate this Agreement.
ARTICLE 22. EXHIBITS
22.1 Exhibits. All Exhibits are incorporated into this
Agreement. The forms of Licensor may be revised by Licensor at any time.
ARTICLE 23. OTHER PROVISIONS
23.1 Headings. The headings of the Articles and Paragraphs of this
Agreement are for convenience only and in no way limit or affect the terms or
conditions of this Agreement.
23.2 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
23.3 Construction. This Agreement shall be interpreted and construed
in accordance with the laws of the State of New York with the same force and
effect as if fully executed and to be performed therein.
23.4 Jurisdiction. The parties hereby consent to the jurisdiction of
the United States District Court for the Southern District of New York and of
any of the courts of the State of New York in any dispute arising under this
Agreement and agree further that service of process or notice in any such
action, suit or proceeding shall be effective if in writing and delivered in
person or sent as provided in Paragraph 20.1 hereof.
23.5 Compliance with Laws. Licensee shall comply with all laws,
rules, regulations and requirements of any governmental body which may be
applicable to the operations of Licensee contemplated hereby, including, without
limitation, as they relate to the manufacture, distribution, sale or promotion
of Licensed Products, notwithstanding the fact that the Licensor may have
approved such item or conduct.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
TOMMY HILFIGER LICENSING, INC. THE STRIDE RITE CORPORATION
By: /s/ Virginia M. Cleary By: /s/ Diane M. Sullivan
Title: Assistant Secretary Title: President & COO
<PAGE>
EXHIBIT A
<PAGE>
TOMMY HILFIGER LICENSING, INC.
TRADEMARK REGISTRATIONS
IN CLASS 25
IN U.S. PATENT AND TRADEMARK OFFICE
Trademark Registration Number
TOMMY HILFIGER Reg. No. 1,398,612
FLAG/LOGO DESIGN Reg. No. 1,460,988
CREST DESIGN Reg. No. 1,673,527
<PAGE>
EXHIBIT B
<PAGE>
TOMMY HILFIGER LICENSING, INC. STATEMENT OF ROYALTIES
FOR_________TO________19__
(QUARTER)
LICENSEE NAME____________________________________________
LICENSEE ADDRESS_________________________________________
- ---------------------------------------------------------
LICENSEE PRODUCT(S)______________________________________
CUSTOMER INVOICE ITEM UNIT NUMBER GROSS LESS LESS LESS LESS NET
SALES NET ROYALTY
NAME NUMBER STYLE WHOLESALE SOLD SALES ALLOWANCES MARKDOWNS TRADE
RETURNS AMOUNT
PRICE DISCOUNTS
TOTALS
SEND STATEMENT TO:
TOMMY HILFIGER LICENSING, INC. I CERTIFY THAT THE ABOVE IS ACCURATE
913 N. Market Street
Wilmington, Delaware 19801
- ------------------------------------
U.S.A. SIGNATURE
<PAGE>
EXHIBIT C
<PAGE>
TOMMY HILFIGER LICENSING, INC. Page______ of ________
Date__________________
FORM MUST BE SUBMITTED COMPLETE SUBMIT TO THE ATTENTION OF:
TOMMY HILFIGER LICENSING, INC.
25 WEST 39TH STREET
NEW YORK, NEW YORK 10018
SAMPLE APPROVAL FORM
(ALL SAMPLES SUBMITTED FOR APPROVAL MUST BE IN CORRECT FABRIC)
NAME OF LICENSEE __________________________________________________________
LICENSED PRODUCT _________________________________________________________
LICENSEE'S ADDRESS ________________________________________________________
SEASON _____________ STYLE NUMBER _____________ FABRICATION _____________
WHOLESALE PRICE ____________________ COLORS _____________________________
SIZES ______________________________ FACTORY _____________________________
START TAKING ORDERS __________________ END TAKING ORDERS __________________
START SHIP ____________________________ END SHIP __________________________
APPROVED ________________ DISAPPROVED ___________________
COMMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------- ----------------------------
SIGNATURE OF LICENSEE SIGNATURE OF LICENSOR
DATE RETURNED TO LICENSEE _______________________________________
<PAGE>
EXHIBIT D
<PAGE>
THIRD PARTY MANUFACTURING AGREEMENT
THIS AGREEMENT made this ____ day of ___________ 199__, by and between
____________________________, having an office at
- -------------------------------
__________________________________ (hereinafter referred to as the
"Company"), and
________________________________________________________________ having an
office at ________________________________________________________________
(hereinafter referred to as the "Manufacturer").
W I T N E S S E T H :
WHEREAS, Manufacturer is engaged is the manufacture of garments and/or
other items of merchandise;
WHEREAS, Company wishes to contract with Manufacturer for manufacture of
certain garments and/or other merchandise from time to time, which garments
and/or other items of merchandise (the "Products") will bear the trademark TOMMY
HILFIGER, the trade name TOMMY HILFIGER, all related logos, crests, emblems or
symbols, and all combinations, forms and derivatives thereof as are from time to
time used by Company or any of its affiliates, whether registered or
unregistered (the "Trademarks"); and
WHEREAS, Company has been licensed by Tommy Hilfiger Licensing, Inc.
("THLI"), the owner of all rights, title and interests in and to the Trademarks,
to use the Trademarks.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1. THE PRODUCTS.
Company and THLI have created certain designs and patterns from
which Manufacturer will create three-dimensional samples. Company shall advise
Manufacturer if the samples meet Company's quality requirements within fifteen
(15) days of receipt. Manufacturer shall make any modifications to the samples
as required by Company. Samples accepted by Company shall be designated as
prototypes for the purposes of this Agreement.
2. TERM.
(a) The term of this Agreement shall commence as of the date hereof
and continue through December 31, 1999.
<PAGE>
(b) In the event that Manufacturer shall have faithfully performed
each and every obligation of this Agreement during the Term referred to in
Paragraph 2(a) above, then this Agreement shall automatically renew from month
to month commencing immediately upon expiration of the term, unless either party
has given the other thirty (30) days written notice of its intention to
terminate the Agreement.
3. MANUFACTURE.
(a) Manufacturer shall only manufacture the specific number of
Products as requested by Company and at no time shall manufacture excess goods
or overruns. Manufacturer shall not sell any Products bearing the Trademarks to
any third parties without the express written consent of Company.
(b) Manufacturer shall manufacture the Products and Packaging to
conform in quality and specifications to the prototypes as defined in Paragraph
1, above.
(c) All Products and Packaging manufactured by Manufacturer shall be
delivered to locations specified by Company or directly to Company, whichever
Company may direct.
4. COMPLIANCE WITH CODE; APPLICABLE LAWS.
(a) Attached hereto as Addendum A is THLI's Supplier Code of Conduct
(the "Code") which applies to any entity manufacturing merchandise under the
Tommy Hilfiger(R) label (including the components thereof). As a condition to
manufacturing Products hereunder, Manufacturer shall comply with the terms of
the Code and evidence such compliance by, (1) upon execution of this Agreement,
executing the Code in the form as attached or such other form as provided by
THLI, and returning such document to THLI, and (2) publicly displaying the Code,
in a form as provided by THLI from time to time, in a clearly visible location
in Manufacturer's facility at all times while this Agreement is in effect.
(b) In order to ensure compliance with the Code, Company has
developed a program of monitoring its manufacturers and such manufacturers'
subcontractors (hereinafter the "Supplier Monitoring Program"). As a condition
to manufacturing Product hereunder, Manufacturer hereby agrees that it shall
cooperate fully with the Supplier Monitoring Program, which cooperation includes
but is not limited to Company's inspections in accordance with Paragraph 5,
below.
(c) For purposes of this Agreement a "subcontractor" shall be
defined as an entity or an individual which or whom Manufacturer either hires or
pays to perform the manufacturing tasks which Manufacturer could otherwise
perform itself at its own facility or through its own employees and staff. A
"supplier" shall be defined as an individual or entity who produces components
for merchandise, and provides such components to manufacturer in order to
assemble the finished merchandise. Examples of a supplier include, but are not
limited to, fabric/trim manufacturers, yarn manufacturers, button manufacturers,
or zipper manufacturers, provided that such named manufacturers do not
contribute further to the manufacture of the finished merchandise. Prior to
<PAGE>
utilizing any subcontractor or supplier for the manufacture of the
Products, Manufacturer shall provide written notice to Company of: (i) the name
and address of each such subcontractor and/or supplier; (ii) the nature and type
of work performed or product supplied to Manufacturer; and (iii) duration of the
subcontractor or supplier relationship.
(d) Within thirty (30) days from executing this Agreement for any
existing subcontractor and suppliers, and within thirty (30) days after
establishing a new arrangement with a subcontractor or supplier, Manufacturer
shall obtain and provide to Company the signature of an authorized
representative from each of its subcontractors (if any) used in the production
of Products for Company on a Manufacturing Agreement in the same form as this
Agreement. Manufacturer shall further obtain and provide to Company the
signature of an authorized representative from each of Manufacturer's suppliers
of fabric, trim or any other product used in the manufacture of merchandise for
Company on a Certification in the same form as that which is attached hereto and
hereafter referred to as Addendum B, and provided by Company from time, or such
other form as provided by Company. In the event Manufacturer has knowledge of,
has reason to believe, or should have reason to know that any supplier or
subcontractor used by Manufacturer is in breach of the Certification or
Manufacturing Agreement, as the case may be, Manufacturer shall immediately
notify Company and Manufacturer shall, at its sole expense, take immediate
action to rectify such breach, including, where Company deems it necessary,
immediate termination of its relationship with such supplier or subcontractor.
If Manufacturer fails to take immediate action, Company shall have the right to
terminate this Manufacturing Agreement immediately. Manufacturer acknowledges
that it shall remain primarily liable and completely obligated under all of the
provisions of this Agreement in respect of such subcontracting and supplier
arrangement.
(e) Manufacturer certifies that it has in effect a program of
monitoring its subcontractors and suppliers and other designated contract
facilities which manufacture Tommy Hilfiger(R) brand merchandise which is
sufficient to ensure their compliance with the Code and all applicable state,
local and foreign laws and regulations pertaining to wages, overtime
compensation, benefits, hours, hiring and employment, workplace conditions and
safety, the environment, collective bargaining, freedom of association and that
their products or and the components thereof are made without the use of child
(persons under the age of 15 or younger than the age for completing compulsory
education, if that age is higher than 15), prison, indentured, exploited bonded,
forced or slave labor.
(f) Manufacturer shall ensure that all merchandise manufactured
hereunder shall be manufactured in compliance with all federal, state and local
laws which pertain to the manufacture of clothing, apparel, and other
merchandise including the Flammable Fabrics Act, as amended, and regulations
thereunder and Manufacturer guarantees, that with regard to all products,
fabrics or related materials used in the manufacture of the Products, for which
flammability standards have been issued, amended or continued in effect under
the Flammable Fabrics Act, as amended, reasonable and representative tests, as
prescribed by the Consumer Product Safety Commission, have been performed which
<PAGE>
show that the Products at the time of their shipment or delivery
conform to the above-referenced flammability standards as are applicable.
(g) Manufacturer shall manufacture or cause to manufacture all
Products (including components thereof) manufactured in the United States, in
compliance with all applicable requirements of Sections 6, 7, and 12 of the Fair
Labor Standards Act, as amended, and all regulations and orders of the United
States Department of Labor under Section 14 thereof, and applicable state and
local laws pertaining to child labor, minimum wage and overtime compensation,
and, if the Products are manufactured outside the United States, in compliance
with all applicable laws, including but not limited to, wage, overtime
compensation, benefits, hour, hiring and employment, workplace conditions and
safety, environmental, collective bargaining, freedom of association laws of the
country of manufacture and without the use of child (persons under the age of
fifteen or younger than the age for completing compulsory education, if that age
is higher than 15), prison, indentured, exploited bonded, forced or slave labor.
(h) Manufacturer acknowledges that it has read and understands
Company's policy with regard to the manufacture of Products for Company.
Manufacturer further agrees that it shall, simultaneous to executing this
Agreement, execute and abide by the Certification, shall execute and abide by
all Certifications provided by Company from time to time. Failure by
Manufacturer to execute and abide by such Certification shall be grounds for
immediate termination of this Agreement by Company.
(i) Manufacturer shall not utilize or permit any subcontractors or
suppliers to utilize in the manufacture or treatment of any of the Products
(including the components thereof) manufactured hereunder any Azo dyes that can
be split into any of the following amines:
CAS # CAS #
4-Aminobiphenlyl 92-67-1 3,3'-Dimethoxybenzidine 119-90-4
Benzidine 92-875 3,3'-Dimethylbenzadine 119-93-7
4-Chloro-o-toluidine 95-69-2 3,3'-Dimethyl- 838-88-0
2-Naphthylamin 91-59-8 4,4'diaminodiphenylmethane
o-Aminoazotoluol 97-56-3 p-Kresidin 120-71-8
2-amino-4-nitrotoluol 99-55-8 4,4'Methaylen-bis-(2-chloranilin)101-14-4
p-Chloroaniline 106-47-8 4,4'Oxydianiline 101-80-4
2,4-Diaminoanisole 615-05-4 4,4'Thiodianiline 139-65-1
4,4'-Diaminodiphenylmethane 101-77-9 o-Toluidine 95-53-4
3,3'-Dichlorbenzidin 91-94-1 2,4-Toluylenediamine 95-80-7
Aminoanabenzane 2,4,5-Trimethylaniline 137-17-7
o-Anisidine
(j) Manufacturer's use or any of Manufacturer's subcontractors or
suppliers use of the following chemicals in connection with the manufacturer or
treatment of any of the Products (including the components thereof) manufactured
hereunder, shall be in accordance with the following standards or such other
standards Company may designate from time to time:
<PAGE>
(i) Formaldehyde: Must be less than 300 p.p.m. when
tested in by the Acetylacetone method in accordance
with Japanese law 112.
(ii) Pentachlorophenol (Pesticides): Must be less than 5
p.p.m.
and; (iii) Nickel: In the event any metal parts of a garment
or other merchandise coming into contact with the skin,
contain nickel in excess of 0.5 micrograms per square
centimeter/week, Company must be so notified and special
warning labels need to be attached to the garment.
5. INSPECTION.
(a) Manufacturer shall arrange for and provide access to Company's
and THLI's representative, including, but not limited to, any independent entity
designated by Company or THLI's legal representative, to: (i) Manufacturer's
manufacturing facility, residential facilities (if any) and any manufacturing
and/or residential facility operated by any of Manufacturer's subcontractors;
(ii) Manufacturer's books, records and documents necessary to evidence
Manufacturer's compliance with the Code and all applicable laws, rules and
regulations including, but not limited to, employee wages, employee timecards,
withholding rates and deductions, worker's contracts and/or agreements, any
company policies affecting employees, evidence of employee age, shipping
documents, cutting reports and other documentation relating to the manufacture
and shipment of the Products; and (iii) Manufacturer's books, records and
documents relating to the use of chemicals and dyestuffs in the fabrics, trims,
garments and other merchandise manufactured hereunder. For purposes of this
Paragraph, all such books, records and documents shall be maintained by
Manufacturer in a secure and readily accessible location for a period of three
(3) years from their creation.
(b) The access provided by Manufacturer as set forth in Paragraph
5(a), above, shall include Company's and THLI's right to inspect, test, and take
samples of the Products, whether finished or semi-finished, at any time during
the manufacturing process to ensure that the manufacture of the Products is in
accordance with the terms and restrictions herein contained
(c) Company shall have the right to reject any Products or packaging
not meeting the standards described in Paragraph 1, above. Manufacturer shall
not have the right to sell or otherwise distribute any rejected Products or
packaging. All such products shall be destroyed according to methods and
procedures provided by Company.
6. SHIPPING LEGEND.
All commercial invoices (bills of lading) which accompany all
Products must include the following language (either preprinted or "stamped"):
<PAGE>
"We hereby certify that the merchandise (including components
thereof) covered by this shipment was manufactured in compliance
with the Tommy Hilfiger Supplier Code of Conduct and: (1) if the
merchandise was manufactured in the United States, it was
manufactured in compliance with (a) sections 6, 7, and 12 of the
Fair Labor Standards Act, as amended and all regulations and orders
of the United States Department of Labor under section 14 thereof,
and (b) state and local laws pertaining to child labor, minimum wage
and overtime compensation; or (2) if the merchandise was
manufactured outside the United States, it was manufactured in
compliance with the wage and hour laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger
than the age for completing compulsory education, if that age is
higher than 15), prison, indentured, exploited bonded, forced or
slave labor. We further certify that we have in effect a program of
monitoring our subcontractors and suppliers and other designated
contract facilities which manufacture Tommy Hilfiger(R) brand
merchandise for compliance with the foregoing. We also certify that
the merchandise is in compliance with all laws governing the
designation of country of origin and, if applicable, is being
shipped under legally issued and valid export license or visa."
Any merchandise shipped that is not accompanied by a commercial invoice bearing
the required language will be subject to rejection and returned at
Manufacturer's expense and Manufacturer may be charged for any and all costs
that are incurred by Company due to the rejection, including, but not limited
to, damages sustained as a result of Company's liability to customers, any
resulting fines and penalties and attorney's fees for said rejected goods. Such
rejected goods may not be sold or distributed by Manufacturer to any entity
other than Company.
7. USE OF TRADEMARKS; TRADEMARKS.
(a) Manufacturer shall not use the Trademarks, in any manner
whatsoever (including, without limitation, for advertising, promotion and
publicity purposes), without obtaining the prior written approval of THLI, which
may be withheld in THLI's sole discretion. In any event Manufacturer shall not
at any time use, promote, advertise, display or otherwise commercialize the
Trademarks or any material utilizing or reproducing the Trademarks in any
manner. Manufacturer shall not make any reference in its business materials,
advertising or in any of its business activities to the fact that Manufacturer
is being contracted by Company to manufacture merchandise under the Tommy
Hilfiger(R) label.
(b) The Trademarks will appear on all of the Products and all
packaging in the manner provided by Company.
(c) No other trademarks or notices shall appear on Products or
packaging without Company's and THLI's prior written consent in each instance.
<PAGE>
(d) Manufacturer's use of the Trademarks shall inure to the benefit
of THLI. Manufacturer shall take any and all steps required by THLI and the law
to perfect THLI's rights therein.
8. PROPERTY OF OWNER.
(a) Manufacturer recognizes the great value of the goodwill
associated with the Trademarks and the identification of the Products with the
Trademarks and acknowledges that the Trademarks and all rights therein and
goodwill pertaining thereto belong exclusively to THLI Manufacturer further
recognizes and acknowledges that a breach by Manufacturer of any of its
covenants, agreements or other undertakings hereunder will cause THLI
irreparable damage, which cannot be adequately remedied in damages in an action
at law, and may, in addition thereto, constitute an infringement of THLI's
rights in the Trademarks, thereby entitling THLI to equitable remedies, costs
and reasonable attorney's fees.
(b) To the extent any rights in and to the Trademarks are deemed to
accrue to Manufacturer, Manufacturer hereby assigns any and all such rights, at
such time as they may be deemed to accrue, including the related goodwill, to
THLI.
(c) Manufacturer shall (i) never challenge the validity of THLI's
ownership in and to the Trademarks or any application for registration thereof,
or any trademark registration thereof and (ii) never contest the fact that
Manufacturer's rights under this Agreement are solely those of a manufacturer
and terminate upon expiration of this Agreement. Manufacturer shall, at any
time, whether during or after the term of the Agreement, execute any documents
reasonably requested by THLI to confirm THLI's ownership rights. All rights in
the Trademarks other than those specifically granted herein are reserved by THLI
for its own use and benefit.
(d) Without limiting the generality of any other provision of this
Agreement, Manufacturer shall not (i) use the Trademarks, in whole or in part,
as a corporate or trade name or (ii) join any name or names with the Trademarks
so as to form a new trademark. Manufacturer agrees not to register, or attempt
to register, the Trademarks in its own name or any other name, anywhere in the
world.
(e) All provisions of this paragraph shall survive the expiration or
termination of this Agreement.
9. TRADEMARK PROTECTION.
(a) In the event that Manufacturer learns of any infringement or
imitation of the Trademarks or of any use by any person or entity of a trademark
similar to the Trademarks, it shall promptly notify Company and thereupon,
Company shall so notify THLI. THLI shall take such action as it deems advisable
for the protection of its rights in and to the Trademark and, if requested to do
so by THLI, Manufacturer shall cooperate with THLI in all respects. In no
<PAGE>
event, however, shall THLI be required to take any action if it
deems it inadvisable to do so.
(b) THLI shall defend, at its cost and expense, and with counsel of
its own choice, any action or proceeding brought against Manufacturer for
alleged trademark infringement arising out of Manufacturer's use of the
Trademarks in accordance with the provisions of this Agreement.
(c) Manufacturer shall cooperate with THLI in the execution, filing
and prosecution of any trademark, copyright or design patent applications that
THLI may desire to file and for that purpose Manufacturer shall supply to THLI
from time to time such samples as may be reasonably required.
(d) All provisions of this paragraph shall survive the
expiration or of this Agreement.
10. TRANSSHIPMENT. Transshipment is an illegal practice of falsely
documenting the country of origin of the raw materials used to manufacture the
Products and the finished Products shipped to the United States in order to
evade quota restraints on the country of actual production and the shipment of
products under counterfeit export licenses or visas. Manufacturer acknowledges
that transshipment in any form, violates U.S. federal law, that Company and THLI
will review all documents received from Manufacturer to assure the veracity and
the authenticity of the sources of Products and that, upon indication of
transshipment of the Products by Manufacturer, Company or THLI reserves the
right to immediately terminate this Agreement and pursue available remedies
against Manufacturer.
11. SECONDS, THIRDS OR EXCESS GOODS. Manufacturer shall not have the right
to sell any Products or packaging which are determined to be seconds, thirds or
are in excess of the amount of the Products requested by Company. All seconds,
thirds or excess products, including trims, shall be purchased by Company at a
reasonable fair market price. Company shall have the right to inspect any
seconds, thirds or excess Products to ensure that they comply with the terms of
this Agreement.
12. STOLEN GOODS OR DAMAGED GOODS. Manufacturer will provide Company with
immediate notice of any stolen Products or damaged Products including Products
that were then in production. With regard to damaged Products, Manufacturer
shall not have the right to sell any damaged Products. With regard to stolen
Products, Manufacturer shall cooperate with Company with respect to any action
regarding the stolen Products.
13. DESIGN OWNERSHIP. All rights, including without limitation, copyright,
trade secret and design patent, to designs for the Products including, without
limitation, artwork, prints, patterns, package designs, labels, advertising or
promotional materials or any other designs using or used on or affixed thereto,
and to any package design, bearing the Trademarks shall, as between the parties
hereto be the property of THLI. All Products manufactured from designs submitted
by Manufacturer and approved by THLI shall bear the Trademarks.
<PAGE>
14. CONFIDENTIALITY. During the term of this Agreement and thereafter,
each party shall keep strictly secret and confidential any and all information
acquired from the other party hereto or its designee and shall take all
necessary precautions to prevent unauthorized disclosure of such information.
Manufacturer acknowledges that it will receive from Company prints, designs,
ideas, sketches, and other materials which Company and THLI intend to use on or
in connection with lines of merchandise which have not yet been put into the
channels of distribution. The parties recognize that these materials are
valuable property of THLI. Manufacturer acknowledges the need to preserve the
confidentiality and secrecy of these materials and agrees to take all necessary
steps to ensure that use by it or by its employees and/or agents will in all
respects preserve such confidentiality and secrecy. Manufacturer shall take all
reasonable precautions to protect the secrecy of the materials, samples, and
designs prior to their commercial distribution or the showing of samples for
sale, and shall not manufacture any merchandise employing or adapted from any of
said designs except for Company, THLI or its affiliates or designees.
15. FORCE MAJEURE.
(a) No failure or omission by either of the parties to perform any
of its obligations under this Agreement shall be deemed a breach of this
Agreement if such failure or omission is the result of acts of God, war, riot,
accidents, compliance with any action or restriction of any government or agency
thereof, strikes or labor disputes, inability to obtain suitable raw materials,
fuel, power or transportation, or any other factor or circumstance beyond the
control of the party, which is not attributable to the negligence of such party.
(b) Any suspension of performance by reason of this paragraph shall
be limited to the period during which such cause of failure exists, but such
suspension shall not affect the running of the term of this Agreement. However,
if the suspension of performance by reason of this paragraph exceeds six months,
either party may give written notice of termination of this Agreement.
16. MANUFACTURER'S WARRANTIES AND REPRESENTATIONS.
Manufacturer warrants and represents that:
(a) It has and will have throughout the term of this Agreement, the
full power, authority and legal right to execute and deliver, and to perform
fully and in accordance with all of the terms of this Agreement.
(b) The entering of this Agreement by Manufacturer does not violate
any agreements, rights or obligations existing between Manufacturer and any
other person, entity, or corporation.
(c) It is not engaged in and will not engage in any activities which
are in violation of any applicable domestic, foreign or international laws,
rules or regulations, including without limitation laws, rules or regulations
governing labor, the environment, the manufacture and sale of goods, U.S.
Customs laws or illegal transshipment. Company maintains a policy against
<PAGE>
engaging in any illegal activities and will not buy or sell products
provided throughout the use of any unlawful or unethical practices.
(d) It accurately states the country of origin on all products, that
it does not and will not transship, and it will act to stop or prevent any known
illegal transshipment activity.
(e) It shall not utilize, nor permit any of its subcontractors or
suppliers to utilize in the manufacture or treatment of any of the Products
(including the components thereof) manufactured hereunder any AZO dyes that can
be split into any of the amines set forth in Paragraph 3(i), above.
(f) Its use or any of its subcontractors or suppliers use of the
chemicals set forth in Paragraph 3(j), above, in connection with the
manufacturer or treatment of any of the Products (including the components
thereof) manufactured hereunder, shall be in accordance with the standards set
forth in Paragraph 3(j) or such other standards as Company may designate from
time to time.
17. COMPANY'S WARRANTIES AND REPRESENTATIONS.
Company warrants and represents that:
(a) it has, and will have throughout the Term of this Agreement, the
right to authorize use of the Trademark to Manufacturer in accordance with the
terms and provisions of this Agreement; and
(b) the entering of this Agreement by Company does not violate any
agreements, rights or obligations existing between Company and any other person,
entity, or corporation.
18. INDEMNIFICATIONS.
(a) Company hereby indemnifies Manufacturer and shall hold it
harmless from any loss, liability, damage, cost or expense (including reasonable
attorney's fees) arising out of any claims or suits which may be brought against
Manufacturer by reason of the breach by Company of the warranties or
representations as set forth in Paragraph 17, above, provided that Manufacturer
gives prompt written notice, and full cooperation and assistance to Company
relative to any such claim or suit, and that Company shall have the option to
undertake and conduct the defense of any suit so brought. Manufacturer shall
cooperate fully in all respects with Company in the conduct and defense of said
suit and/or proceedings.
(b) Manufacturer indemnifies and agrees to hold Company harmless
from any loss, liability, damage, cost or expense (including reasonable
attorney's fees), arising out of (i) any breach of the terms herein contained;
(ii)any claims or suits by reason of any unauthorized use by Manufacturer in
connection with the Products or the Trademarks covered by this Agreement; (iii)
Manufacturer's noncompliance with any applicable federal, state, or local law or
<PAGE>
with any other applicable governmental units or agency's rules,
regulations; and (iv) any alleged defects and/or inherent dangers in Products or
use thereof.
(c) If reasonably available in the country in which Manufacturer
operates its factory, Manufacturer agrees to obtain, at its own expense, product
liability insurance providing adequate protection for Company and Manufacturer
against any claims or suits in an amount no less than $3,000,000. If applicable,
within thirty (30) days from the date hereof, Manufacturer undertakes to submit
to Company a fully paid policy or Certificate of Insurance naming Company as an
insured party and, requiring that the insurer shall not terminate or materially
modify such without written notice to Company of at least twenty (20) days.
19. TERMINATION.
(a) Company shall have the right to terminate this Agreement
immediately upon written notice to Manufacturer if Manufacturer breaches any of
its obligations under this Agreement or such other occurrences as outlined
below, and such breach remains uncured or cannot be cured by Manufacturer within
ten (10) days from receipt of notice;
(b) Company shall have the right to terminate this Agreement
immediately upon written notice to Manufacturer, if Manufacturer is found at any
time to be in breach of the representation made in Paragraph 16(e) or if any
governmental agency or other body or office or official vested with appropriate
authority deems the Products to be harmful or defective in any way, manner or
form, or are being sold or distributed in contravention of applicable laws and
regulations or in a manner likely to cause harm;
(c) Company shall have the right to terminate this Agreement
immediately upon written notice to Manufacturer, if Manufacturer manufactures
the Products without the prior written approval of Company as provided herein;
(d) Company shall have the right to terminate this Agreement upon
ten (10) days written notice to Manufacturer, if Manufacturer is unable to pay
its debts when due, or makes any assignment for the benefit of creditors, or
files any petition under the bankruptcy or insolvency laws of any jurisdiction,
country or place, or has or suffers a receiver or trustee to be appointed for
its business or property, or is adjudicated a bankrupt or an insolvent;
(e) Company shall have the right to terminate this Agreement upon
ten (10) days written notice to Manufacturer, if Manufacturer fails to make
timely delivery of the Products; or
(f) Notwithstanding the foregoing provisions, Company shall have the
right to terminate this Agreement, with or without cause, upon thirty (30) days
notice to Manufacturer, provided however, that, upon written approval by
Company, Manufacturer shall have the right to complete any work then in
progress.
<PAGE>
20. ACTS UPON EXPIRATION OR TERMINATION OF THIS AGREEMENT.
(a) Upon and after the expiration or termination of this Agreement,
Manufacturer agrees not to make reference in its advertising or its business
materials to having been formerly associated with Company or the Trademarks.
(b) Upon and after the expiration or termination of this Agreement,
Manufacturer will refrain from further use of the Trademarks or of anything
confusingly similar thereto, in connection with the manufacture of any products.
Additionally, all originals and copies of all sketches, patterns, prototypes,
samples or other materials relating to the Products shall be immediately
returned by Manufacturer to Company.
(c) In the event of expiration or termination of this Agreement, as
herein provided, with the exception of the Products which Manufacturer may, with
Company's consent, ship to satisfy any unfilled, confirmed orders for the
current season it had received prior to said expiration or termination, Company
shall have the prior right and option to purchase any or all of the Products and
packaging materials, as then in Manufacturer's possession or carried on its
books of account. Upon such termination or expiration, Manufacturer shall
immediately cause physical inventories to be taken of (i) Products on hand; (ii)
Products in the process of manufacture; and (iii) all packaging materials, which
inventories shall be reduced to writing and a copy thereof shall be delivered to
Company not later than fifteen (15) days from such termination or expiration.
Written notice of the taking of each inventory shall be given Company at least
forty-eight (48) hours prior thereto. Company shall have the right to be present
at such physical inventory or to take its own inventory, and to exercise all
rights it has available with respect to the examination of Manufacturer's books
and records. If Manufacturer does not allow Company to take such inventory, it
shall have no right to sell the remaining Products as provided in Paragraph
20(e) below.
(d) Manufacturer recognizes that any sale of the Products upon
termination or expiration, would cause irreparable damage to the prestige of
Company and to the Trademarks, and to the goodwill pertaining thereto.
(e) Upon expiration or termination of this Agreement, Manufacturer
shall cease the manufacture of Products. All the Products set forth on the
inventories referred to in subdivision (i) and (ii) of Paragraph 20(c) which are
not purchased by Company pursuant to such paragraph may be sold subject to
Company's prior right to approve the customers in writing and the terms and
conditions of each sale. Such sale shall otherwise be strictly in accordance
with the terms, covenants and conditions of this Agreement as though the
Agreement had not expired or terminated. In no event shall Manufacturer sell any
Products to any third party without the prior written approval of Company.
21. NOTICES.
All notices which either party hereto is required or may desire to
give shall be given by addressing the same to the address hereinafter in this
<PAGE>
paragraph, or at such other address as may be designated in writing
by any party in a notice to the other given in the manner prescribed in this
paragraph. All such notices shall be sufficiently given when mailed by
registered or certified mail. The address to which any such notices, shall be
given are the following:
TO COMPANY: TO MANUFACTURER:
22. NO PARTNERSHIP, ETC.
This Agreement does not constitute and shall not be construed as a
partnership or joint venture between Company and Manufacturer. Neither party
shall have any right to obligate or bind the other party in any manner
whatsoever, and nothing herein contained shall give, or is intended to give, any
rights of any kind to any third persons.
23. NON-ASSIGNABILITY, ETC.
This Agreement shall bind and inure to the benefit of Company and
its successors and assigns. This Agreement is personal to Manufacturer, and
Manufacturer shall not franchise its rights hereunder and neither this Agreement
nor any of the rights of Manufacturer hereunder shall be sold, transferred or
assigned by Manufacturer and no rights hereunder shall devolve by operation of
law or otherwise upon any receiver, liquidator, trustee or other party.
24. SEVERABILITY.
If any provision or any portion of any provision of this Agreement
shall be construed to be illegal, invalid, or unenforceable, such shall be
deemed stricken and deleted from this Agreement to the same extent and effect as
if never incorporated herein, but all other provisions of this Agreement and
remaining portion of any provision which is illegal, invalid or unenforceable in
part shall continue in full force and effect.
25. HEADINGS.
The headings of the Paragraphs of this Agreement are for convenience
only and shall in no way limit or affect the term or conditions of this
Agreement.
26. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
27. CONSTRUCTION.
This Agreement shall be construed in accordance with the laws of the
State of New York of the United States of America with the same force and effect
as if fully executed and to be performed therein.
28. JURISDICTION
The parties hereby consent to the exclusive jurisdiction of the
United States District Court for the Southern District of New York and of any of
the courts of the State of New York in any dispute arising under this Agreement
and agree further that service of process or notice in any such action, suit or
proceeding shall be effective if in writing and delivered in person or sent as
provided in Paragraph 21 hereof.
29. WAIVER, MODIFICATION, ETC.
No waiver, modification or cancellation of any term or condition of
this Agreement shall be effective unless executed in writing by the party
charged therewith. No written waiver shall excuse the performance of any acts
other than those specifically referred to herein. The fact that Company has not
previously insisted upon Manufacturer expressly complying with any provision of
this Agreement shall not be deemed to be a waiver of Company's future right to
require compliance in respect thereof and Manufacturer specifically acknowledges
and agrees that the prior forbearance in respect of any act, term or condition
shall not prevent Company from subsequently requiring full and complete
compliance thereafter.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date first written above.
- --------------------------------------
- -------------------------------------
[LICENSEE NAME] [MANUFACTURER NAME]
By: _____________________________ By:__________________________________
Print Name: _______________________ Print Name:__________________________
Title: _______________________ Title:_______________________________
Date: _____________________________ Date: _______________________________
<PAGE>
Tommy Hilfiger Corporation
Supplier Code of Conduct
We, at the Tommy Hilfiger Corporation (hereinafter "Tommy Hilfiger")
are proud of our tradition of conducting our business in accordance with the
highest ethical standards and in compliance with the laws of the United States
and of the countries in which we produce, buy and sell our products.
Tommy Hilfiger is committed to legal compliance and ethical business
practices in all operations and seeks to do business with suppliers who share
that commitment. Tommy Hilfiger actively seeks to engage as its suppliers,
companies which offer their workers safe and healthy workplaces.
Tommy Hilfiger will not tolerate exploitative or abusive conditions once
known. The Tommy Hilfiger Supplier Code of Conduct (hereinafter the "Code of
Conduct") defines our minimum expectations. No Code can be all inclusive, but we
expect our suppliers to act reasonably in all respects and to ensure that no
abusive, exploitative or illegal conditions exist at their workplaces.
Tommy Hilfiger requires its suppliers to extend principles of fair and
honest dealing to all others with whom they do business, including employees,
subcontractors and other third parties. We also require our suppliers to ensure
and to certify to us that no abusive, exploitative or illegal conditions exist
at the workplaces of their suppliers and subcontractors.
Tommy Hilfiger will only do business with suppliers who obey the laws of
the country in which they operate and the principles expressed in this Code of
Conduct.
Tommy Hilfiger will only do business with suppliers who have certified to
us that their business practices are lawful, ethical and in compliance with the
principles set forth in this Code of Conduct. Moreover, Tommy Hilfiger will only
do business with suppliers who have agreed to be subjected to the scrutiny of
the Tommy Hilfiger Supplier Monitoring Program under which they will be
inspected and evaluated to ensure their compliance with this Code of Conduct.
Forced Labor: Tommy Hilfiger will not purchase products or components
thereof from suppliers that use forced labor, prison labor, indentured labor or
exploited bonded labor, or permit their suppliers to do so.
Child Labor: Tommy Hilfiger will not purchase products or components
thereof manufactured by persons younger than 15 years of age or younger than the
age of completing compulsory education in the country of manufacture where such
age is higher than 15.
<PAGE>
Addendum A
Harassment or Abuse: Tommy Hilfiger suppliers and subcontractors must
treat their employees with respect and dignity. No employee shall be subject to
physical, sexual or psychological harassment or abuse.
Nondiscrimination: Tommy Hilfiger suppliers and subcontractors shall not
subject any person to discrimination in employment, including hiring, salary,
benefits, advancement, discipline, termination or retirement, on the basis of
gender, race, religion, age, disability, sexual orientation, nationality,
political opinion, or social or ethnic origin.
Health and Safety: Tommy Hilfiger suppliers and subcontractors shall
provide a safe and healthy working environment to prevent accidents and injury
to health arising out of, linked with, or occurring in the course of work or as
a result of the operation of employer facilities. Employers must fully comply
with all applicable workplace conditions, safety and environmental laws.
Freedom of Association: Tommy Hilfiger suppliers and subcontractors shall
recognize and respect the right of employees to freely associate in accordance
with the laws of the countries in which they are employed.
Wages and Benefits: Tommy Hilfiger suppliers and subcontractors recognize
that wages are essential to meeting employees' basic needs. Tommy Hilfiger
suppliers and subcontractors shall pay employees at least the minimum wage
required by local law regardless of whether they pay by the piece or by the hour
and shall provide legally mandated benefits.
Work Hours: Tommy Hilfiger suppliers and subcontractors shall not require
their employees to work more than the limits on regular and overtime hours
allowed by the law of the country of manufacture. Except under extraordinary
business circumstances, Tommy Hilfiger suppliers' and subcontractors' employees
shall be entitled to one day off in every seven-day period. Tommy Hilfiger
suppliers and subcontractors must inform their workers at the time of their
hiring if mandatory overtime is a condition of their employment. Tommy Hilfiger
suppliers and subcontractors shall not compel their workers to work excessive
overtime hours.
Overtime Compensation: Tommy Hilfiger suppliers' and subcontractors'
employees, shall be compensated for overtime hours at such premium rate as is
legally required in the country of manufacture or, in countries where such laws
do not exist, at a rate at least equal to their regular hourly compensation
rate.
Contract Labor: Tommy Hilfiger suppliers or subcontractors shall not use
workers obligated under contracts which exploit them, which deny them the basic
legal rights available to people and to workers within the countries in which
they work or which are inconsistent with the principles set forth in this Code
of Conduct
<PAGE>
Legal and Ethical Business Practices: Tommy Hilfiger suppliers and
subcontractors must fully comply with all applicable local, state, federal,
national and international laws, rules and regulations including, but not
limited to, those relating to wages, hours, labor, health and safety, and
immigration. Tommy Hilfiger suppliers and subcontractors must be ethical in
their business practices.
Penalties: Tommy Hilfiger reserves the right to terminate its business
relationship with any supplier who violates this Code of Conduct or whose
suppliers or subcontractors violate this Code of Conduct. Tommy Hilfiger
reserves the right to terminate its business relationship with suppliers who
fail to provide written confirmation to Tommy Hilfiger that they have a program
in place to monitor their suppliers and subcontractors for compliance with this
Code of Conduct.
<PAGE>
CERTIFICATION
In consideration of Tommy Hilfiger U.S.A., Inc. ("THUSA") placing orders
for the manufacture of Tommy Hilfiger(R) brand merchandise with us in the
future, and in compliance with THUSA's Manufacturing Agreement with us (the
"Agreement"), we hereby certify that:
I. Any merchandise (including components thereof) we manufacture or cause
to be manufactured under the Agreement will be manufactured in compliance with:
(1) all applicable requirements of Sections 6, 7, and 12 of the Fair Labor
Standards Act, as amended, and all regulations and orders of the United States
Department of Labor under Section 14 thereof, and applicable state and local
laws pertaining to child labor, minimum wage and overtime compensation, and, if
the merchandise is manufactured outside the United States, it will be
manufactured in compliance with the wage, overtime compensation, benefits, hour,
hiring and employment, workplace conditions and safety, environmental,
collective bargaining, freedom of association laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger than the
age for completing compulsory education, if that age is higher than 15), prison,
indentured, exploited bonded, forced or slave labor; (2) we currently have in
effect and will maintain a program of monitoring all of our suppliers,
subcontractors, subcontract sewing shops and other designated contract
facilities producing Tommy Hilfiger(R) brand merchandise for compliance with (1)
above; (3) we will obtain the signature of an authorized representative of our
suppliers, subcontractors, subcontract sewing shops and other designated
contract facilities producing Tommy Hilfiger(R) brand merchandise on a current
supplier agreement, as provided by THUSA; and (4) within two (2) weeks of the
execution of this Certification, we will provide to THUSA the names and
addresses of all of our suppliers, subcontractors, subcontract sewing shops and
other designated contract facilities producing Tommy Hilfiger(R) brand
merchandise under the Agreement and all such merchandise shall be manufactured
solely in factories (whether operated by our suppliers, subcontractors,
subcontract sewing shops or designated contract facilities) that have been
inspected and approved in writing by our authorized employee or agent; and (5)
all shipping documents which accompany all Tommy Hilfiger(R) brand merchandise
will include the following language (either preprinted or "stamped"):
"We hereby certify that the merchandise (including components
thereof) covered by this shipment was, if manufactured in the
United States, in compliance with all applicable requirements
(1) of Sections 6, 7, and 12 of the Fair Labor Standards Act,
as amended and all regulations and orders of the United States
Department of Labor under Section 14 thereof; (2) state and
local laws pertaining to child labor, minimum wage and
overtime compensation; or if the merchandise was manufactured
outside the United States, in compliance with the wage and
hour laws of the country of manufacture and without the use of
child (persons under the age of 15 or
<PAGE>
Addendum B
younger than the age for completing compulsory education, if that
age is higher than 15), prison, indentured, exploited bonded, forced
or slave labor; and for all merchandise, wherever manufactured, in
compliance with the Tommy Hilfiger Supplier Code of Conduct. We
further certify that we have in effect a program of monitoring our
subcontractors and suppliers and other designated contract
facilities which manufacture Tommy Hilfiger(R) brand merchandise
which is sufficient to ensure such entities' compliance with the
foregoing. We also certify that upon importation (if applicable)
this shipment is in compliance with all laws applicable to the
designation of country of origin and is being shipped under legally
issued and valid export license or visa."
II. Neither we, nor any of our subcontractors or suppliers, will in the
manufacture or treatment of any of the merchandise and Products (including the
components thereof) manufactured hereunder use any Azo dyes that can be split
into any of the following amines:
CAS # CAS #
4-Aminobiphenlyl 92-67-1 3,3'-Dimethoxybenzidine 119-90-4
Benzidine 92-87-5 3,3'-Dimethylbenzadine 119-93-7
4-Chloro-o-toluidine 95-69-2 3,3'-Dimethyl- 838-88-0
2-Naphthylamin 91-59-8 4,4'diaminodiphenylmethane
o-Aminoazotoluol 97-56-3 p-Kresidin 120-71-8
2-amino-4-nitrotoluol 99-55-8 4,4'Methaylen-bis-(2-chloranilin)101-14-4
p-Chloroaniline 106-47-8 4,4'Oxydianiline 101-80-4
2,4-Diaminoanisole 615-05-4 4,4'Thiodianiline 139-65-1
4,4'-Diaminodiphenylmethane 101-77-9 o-Toluidine 95-53-4
3,3'-Dichlorbenzidin 91-94-1 2,4-Toluylenediamine 95-80-7
Aminoanabenzane 2,4,5-Trimethylaniline 137-17-7
o-Anisidine
and;
III. We, and our subcontractors or suppliers, will only use the following
chemicals in connection with the manufacture or treatment of any of the
merchandise and products (including the components thereof) manufactured
hereunder, in accordance with the following standards or any further standards
THUSA designates from time to time:
(i) Formaldehyde: Must be less than 300 p.p.m. when
tested in by the Acetylacetone method in accordance
with Japanese law 112.
(ii) Pentachlorophenol (Pesticides): Must be less than 5
p.p.m.
<PAGE>
(iii) Nickel: In the event any metal parts of a garment or
other merchandise coming into contact with the skin,
contain nickel in excess of 0.5 micrograms per square
centimeter/week, Company must be so notified and special
warning labels need to be attached to the garment.
----------------------------------
[Name of your Company]
Date: _____________________ By:_______________________________
[Authorized Signature]
Print Name: _______________________
<PAGE>
EXHIBIT E
<PAGE>
TOMMY HILFIGER LICENSING, INC. PAGE_______OF ______
DATE________________
FORM MUST BE SUBMITTED COMPLETED SUBMIT TO THE ATTENTION OF:
TOMMY HILFIGER LICENSING, INC.
913 N. MARKET STREET
WILMINGTON, DELAWARE 19801
NAME OF
LICENSEE_______________________________________________________________
LICENSED
PRODUCT_______________________________________________________________
LICENSEE'S
ADDRESS_____________________________________________________________
EXPENDITURES REFLECT THE PERIOD _____ / _____ / _____ TO _____ /_____ /_____,
ALL TEARSHEETS AND ADVERTISING BILLS MUST ACCOMPANY THIS FORM.
DATE OF PUBLICATION OF DOLLAR AMOUNT
ADVERTISING TYPE OF ADVERTISING LICENSEE SPENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT F
<PAGE>
ORGANIZATIONAL CHART
<PAGE>
EXHIBIT G
<PAGE>
CERTIFICATION
In consideration of ____________________ ("Company") placing orders for
the manufacture of Tommy Hilfiger(R) brand merchandise with us in the future,
and in compliance with Company's Manufacturing Agreement with us (the
"Agreement"), we hereby certify that:
I. Any merchandise (including components thereof) we manufacture or cause
to be manufactured under the Agreement will be manufactured in compliance with:
(1) all applicable requirements of Sections 6, 7, and 12 of the Fair Labor
Standards Act, as amended, and all regulations and orders of the United States
Department of Labor under Section 14 thereof, and applicable state and local
laws pertaining to child labor, minimum wage and overtime compensation, and, if
the merchandise is manufactured outside the United States, it will be
manufactured in compliance with the wage, overtime compensation, benefits, hour,
hiring and employment, workplace conditions and safety, environmental,
collective bargaining, freedom of association laws of the country of manufacture
and without the use of child (persons under the age of 15 or younger than the
age for completing compulsory education, if that age is higher than 15), prison,
indentured, bonded, forced or slave labor; (2) we currently have in effect and
will maintain a program of monitoring all of our suppliers and subcontractors
and other designated contract facilities producing Tommy Hilfiger(R) brand
merchandise for compliance with (1) above; (3) we will obtain the signature of
an authorized representative of (i) our subcontractors and other designated
contract facilities producing Tommy Hilfiger(R) brand merchandise on a current
Manufacturing Agreement in the same form as that which we have executed with
Company and (i) our suppliers on a Certification in the same form as this
Certification; and (4) within two (2) weeks of the execution of this
Certification, we will provide to Company the names and addresses of all of our
suppliers, and subcontractors and other designated contract facilities producing
Tommy Hilfiger(R) brand merchandise under the Agreement and all such merchandise
shall be manufactured solely in factories (whether operated by our suppliers,
subcontractors or other designated contract facilities) that have been inspected
and approved in writing by our authorized employee or agent; and (5) all
commercial invoices which accompany all Tommy Hilfiger(R) brand merchandise will
include the following language (either preprinted or "stamped"):
"We hereby certify that the merchandise (including components thereof)
covered by this shipment was manufactured in compliance with (1) all
applicable requirements of Sections 6, 7, and 12 of the Fair Labor
Standards Act, as amended and all regulations and orders of the United
States Department of Labor under Section 14 thereof, and applicable state
and local laws pertaining to child labor, minimum wage and overtime
compensation, and, (2) if manufactured outside the United States, was
manufactured in compliance with all applicable requirements of the wage,
overtime compensation, benefits, hour, hiring and employment, workplace
conditions and safety, environmental, collective bargaining, freedom of
association laws of the country of manufacture and without the use of
child (persons under the age of 15 or younger than the age for completing
<PAGE>
compulsory education, if that age is higher than 15), prison, indentured,
bonded, forced or slave labor. We further certify that we currently have
in effect a program of monitoring of our suppliers and subcontractors and
other designated contract facilities which manufacture Tommy Hilfiger(R)
brand merchandise to ensure their compliance with the Fair Labor Standards
Act and all state, local and foreign laws pertaining to wages, overtime
compensation, benefits, hours, hiring and employment, workplace conditions
and safety, environmental, collective bargaining, freedom of association
and that their products or and the components thereof are made without the
use of child (persons under the age of 15 or younger than the age for
completing compulsory education, if that age is higher than 15), prison,
indentured, bonded, forced or slave labor. We also certify that upon
importation (if applicable) this shipment is in compliance with all laws
applicable to the designation of country of origin and is being shipped
under legally issued and valid export license or visa."
II. Neither we, nor any of our subcontractors or suppliers, will use
any of the following chemicals or dyestuffs in the manufacture or treatment
of any of the merchandise and Products (including the components thereof)
manufactured hereunder:
CAS # CAS #
4-Aminobiphenlyl 92-67-1 3,3'-Dimethoxybenzidine 119-90-4
Benzidine 92-875 3,3'-Dimethylbenzadine 119-93-7
4-Chloro-o-toluidine 95-69-2 3,3'-Dimethyl- 838-88-0
2-Naphthylamin 91-59-8 4,4'diaminodiphenylmethane
o-Aminoazotoluol 97-56-3 p-Kresidin 120-71-8
2-amino-4-nitrotoluol 99-55-8 4,4'Methaylen-bis-(2-chloranilin)101-14-4
p-Chloroaniline 106-47-8 4,4'Oxydianiline 101-80-4
2,4-Diaminoanisole 615-05-4 4,4'Thiodianiline 139-65-1
4,4'-Diaminodiphenylmethane 101-77-9 o-Toluidine 95-53-4
3,3'-Dichlorbenzidin 91-94-1 2,4-Toluylenediamine 95-80-7
Aminoanabenzane 2,4,5-Trimethylaniline 137-17-7
o-Anisidine
and;
III. We, and our subcontractors or suppliers, will only use the following
chemicals in connection with the manufacture or treatment of any of the
merchandise and products (including the components thereof) manufactured
hereunder, in accordance with the following standards or any further standards
Company and THLI designate from time to time:
(i) Formaldehyde: Must be less than 300 p.p.m. when
tested in by the Acetylacetone method in accordance
with Japanese law 112.
(ii) Pentachlorophenol (Pesticides): Must be less than 5
p.p.m.
<PAGE>
(iii) Nickel: In the event any metal parts of a garment or
other merchandise coming into contact with the skin,
contain nickel in excess of 0.5 micrograms per square
centimeter/week, Company must so notified and special
warning labels need to be attached to the garment.
----------------------------------
[Name of your Company]
Date: _____________________ By:_______________________________
[Authorized Signature]
Print Name: _______________________
<PAGE>
EXHIBIT H
<PAGE>
Tommy Hilfiger Corporation
Supplier Code of Conduct
We, at the Tommy Hilfiger Corporation (hereinafter "Tommy Hilfiger")
are proud of our tradition of conducting our business in accordance with the
highest ethical standards and in compliance with the laws of the United States
and of the countries in which we produce, buy and sell our products.
Tommy Hilfiger is committed to legal compliance and ethical business
practices in all operations and seeks to do business with suppliers who share
that commitment. Tommy Hilfiger actively seeks to engage as its suppliers,
companies which offer their workers safe and healthy workplaces.
Tommy Hilfiger will not tolerate exploitative or abusive conditions once
known. The Tommy Hilfiger Supplier Code of Conduct (hereinafter the "Code of
Conduct") defines our minimum expectations. No Code can be all inclusive, but we
expect our suppliers to act reasonably in all respects and to ensure that no
abusive, exploitative or illegal conditions exist at their workplaces.
Tommy Hilfiger requires its suppliers to extend principles of fair and
honest dealing to all others with whom they do business, including employees,
subcontractors and other third parties. We also require our suppliers to ensure
and to certify to us that no abusive, exploitative or illegal conditions exist
at the workplaces of their suppliers and subcontractors.
Tommy Hilfiger will only do business with suppliers who obey the laws of
the country in which they operate and the principles expressed in this Code of
Conduct.
Tommy Hilfiger will only do business with suppliers who have certified to
us that their business practices are lawful, ethical and in compliance with the
principles set forth in this Code of Conduct. Moreover, Tommy Hilfiger will only
do business with suppliers who have agreed to be subjected to the scrutiny of
the Tommy Hilfiger Supplier Monitoring Program under which they will be
inspected and evaluated to ensure their compliance with this Code of Conduct.
Forced Labor: Tommy Hilfiger will not purchase products or components
thereof from suppliers that use forced labor, prison labor, indentured labor or
exploited bonded labor, or permit their suppliers to do so.
Child Labor: Tommy Hilfiger will not purchase products or components
thereof manufactured by persons younger than 15 years of age or younger than the
age of completing compulsory education in the country of manufacture where such
age is higher than 15.
<PAGE>
EXHIBIT H
Harassment or Abuse: Tommy Hilfiger suppliers and subcontractors must
treat their employees with respect and dignity. No employee shall be subject to
physical, sexual or psychological harassment or abuse.
Nondiscrimination: Tommy Hilfiger suppliers and subcontractors shall not
subject any person to discrimination in employment, including hiring, salary,
benefits, advancement, discipline, termination or retirement, on the basis of
gender, race, religion, age, disability, sexual orientation, nationality,
political opinion, or social or ethnic origin.
Health and Safety: Tommy Hilfiger suppliers and subcontractors shall
provide a safe and healthy working environment to prevent accidents and injury
to health arising out of, linked with, or occurring in the course of work or as
a result of the operation of employer facilities. Employers must fully comply
with all applicable workplace conditions, safety and environmental laws.
Freedom of Association: Tommy Hilfiger suppliers and subcontractors shall
recognize and respect the right of employees to freely associate in accordance
with the laws of the countries in which they are employed.
Wages and Benefits: Tommy Hilfiger suppliers and subcontractors recognize
that wages are essential to meeting employees' basic needs. Tommy Hilfiger
suppliers and subcontractors shall pay employees at least the minimum wage
required by local law regardless of whether they pay by the piece or by the hour
and shall provide legally mandated benefits.
Work Hours: Tommy Hilfiger suppliers and subcontractors shall not require
their employees to work more than the limits on regular and overtime hours
allowed by the law of the country of manufacture. Except under extraordinary
business circumstances, Tommy Hilfiger suppliers' and subcontractors' employees
shall be entitled to one day off in every seven-day period. Tommy Hilfiger
suppliers and subcontractors must inform their workers at the time of their
hiring if mandatory overtime is a condition of their employment. Tommy Hilfiger
suppliers and subcontractors shall not compel their workers to work excessive
overtime hours.
Overtime Compensation: Tommy Hilfiger suppliers' and subcontractors'
employees, shall be compensated for overtime hours at such premium rate as is
legally required in the country of manufacture or, in countries where such laws
do not exist, at a rate at least equal to their regular hourly compensation
rate.
Contract Labor: Tommy Hilfiger suppliers or subcontractors shall not use
workers obligated under contracts which exploit them, which deny them the basic
legal rights available to people and to workers within the countries in which
they work or which are inconsistent with the principles set forth in this Code
of Conduct
<PAGE>
Legal and Ethical Business Practices: Tommy Hilfiger suppliers and
subcontractors must fully comply with all applicable local, state, federal,
national and international laws, rules and regulations including, but not
limited to, those relating to wages, hours, labor, health and safety, and
immigration. Tommy Hilfiger suppliers and subcontractors must be ethical in
their business practices.
Penalties: Tommy Hilfiger reserves the right to terminate its business
relationship with any supplier who violates this Code of Conduct or whose
suppliers or subcontractors violate this Code of Conduct.
Tommy Hilfiger reserves the right to terminate its business relationship
with suppliers who fail to provide written confirmation to Tommy Hilfiger that
they have a program in place to monitor their suppliers and subcontractors for
compliance with this Code of Conduct.
<PAGE>
SCHEDULE 2.7(b)
<PAGE>
January 20, 1999
Ms. Tanys Scoblick
Tommy Hilfiger USA, Inc.
25 West 39th Street
New York, NY 10018
Dear Tanya,
This letter is to confirm our agreement to occupy showroom space on the 3rd
floor of 25 West 39th Street. We will pay for the build-out and annual rental on
spaces 104 and 105 as shown on the floor finish plan labeled A-103 per the
following terms and conditions.
o Showroom Space Square Footage - 514 sf.
o Allocated Common Area Square Footage - 514 sf.
o Build-out Cost - $200 sf on showroom and common area sf including
furniture and sufficient fixturing to display entire Spring and Fall sku
product line.
o Furnishings (art work, graphics, etc) - our share approx. $15,000
one-time charge.
o Other space square footage that rent applies to - approx. 200 sf.
o Total square footage that rent applies to - 1,228 sf.
o Annual rent - $40 sf including base, electric, taxes, porter rages,
security.
Other Conditions:
o Need to work with the architect in making separation between two showrooms
and any fixturing against the separator movable so we can utilize entire
space as one room if necessary.
o Need to furnish the showroom with furniture and fixturing that "fit" the
tight confines of the space yet provide maximum seating and sku capacity.
o Need to review final TH USA "lease" terms sheet prior to giving final
approval.
Please forward the terms sheet at your earliest convenience.
Regards,
/s/ Rick Thornton
Rick Thornton
Sr. VP Finance & Operations
<PAGE>
EXHIBIT 13
The Stride Rite Corporation
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except per
share 1995(1) 1996 1997 1998 1999(2)
data)
- --------------------------------------------------------------------------------
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Net sales $496,432 $448,297 $515,728 $539,413 $572,696
Net income (loss) (8,430) 2,499 19,780 21,052 26,424
Common stock dividends 16,581 9,923 9,630 9,401 9,209
Per common share:
Net income (loss) (.17) .05 .40 .44 .57
Cash dividends .335 .20 .20 .20 .20
FINANCIAL POSITION
Working capital 204,785 201,597 176,263 173,502 166,551
Total assets 366,616 364,330 343,918 335,496 346,192
Long-term debt 833 - - - -
Stockholders' equity 267,456 261,524 242,026 244,727 250,495
Book value per common share 5.40 5.27 5.12 5.28 5.61
STATISTICS
Return on average equity (2.9)% 0.9% 7.8% 8.5% 10.4%
Return on sales (1.7)% 0.6% 3.8% 3.9% 4.6%
Common shares outstanding at
end of year 49,531 49,667 47,316 46,381 44,634
Number of employees
at end of year 3,600 3,500 2,900 2,400 2,300
Number of shareholders 5,000 4,800 5,100 4,800 4,600
</TABLE>
1. 1995 amounts include nonrecurring charges of $16,573,000 ($9,972,000, net
of income taxes or $.20 per share).
2. 1999 amounts include nonrecurring charges of $3,254,000 ($2,017,000 net
of income taxes or $.04 per share).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The table below and the paragraphs which follow summarize the Company's
performance in the last three fiscal years. The Company operates within a very
competitive industry. Portions of the information presented in this Annual
Report include "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve
risks, uncertainties and assumptions (detailed from time to time in the
Company's filings with the Securities and Exchange Commission), and are not
guarantees of future performance, which may be affected by various trends and
factors that are beyond the Company's control. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Accordingly, past results and trends should not be used by investors
to anticipate future results or trends. Some of the key factors that may have a
direct bearing on the Company's results are as follows: general economic
conditions, sudden changes in consumer trends, changes in consumer spending
patterns, consumer preference changes for the products of existing competitors,
the arrival of new competitors, delays in the launch of new product lines,
difficulties in forecasting operating results due to the cancellation of advance
orders by retailers, the variability of reorder demand for the Company's
products, the retention of major licensed brands and possible disruptions in
overseas production. The risks listed here are not exhaustive and should be
considered with those detailed in the Company's filings with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
Percent Change
----------------------------------------
Increase (decrease) 1999 vs. 1998 vs. 1997
1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales 6.2% 4.6%
Gross profit 10.4% 1.7%
Selling and administrative expenses 3.4% 3.0%
Operating income 37.6% (4.8)%
Income before income taxes 28.4% 4.1%
Net income 25.5% 6.4%
</TABLE>
<TABLE>
<CAPTION>
Percent to Net Sales
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross profit 36.8% 35.4% 36.4%
Selling and administrative expenses 29.1% 29.9% 30.4%
Nonrecurring charges 0.6% - -
Operating income 7.1% 5.5% 6.0%
Income before income taxes 7.4% 6.2% 6.2%
Net income 4.6% 3.9% 3.8%
</TABLE>
<PAGE>
NET SALES
During fiscal 1999, consolidated net sales increased $33.3 million to $572.7
million or 6.2% above the sales level achieved in fiscal 1998. Sales of the
Company's branded wholesale operations increased 5.7% in fiscal 1999. Unit
shipments of current line merchandise during 1999 for the wholesale brands of
the Company were slightly higher than the prior year, while average selling
prices increased 6% from 1998. The increase in selling prices was principally
due to increased sales of Tommy Hilfiger footwear, where prices are generally
higher than the Company's other lines. Sales of discontinued products in 1999
were 4% lower than last year. In 1999, the retail portion of the Stride Rite
children's business also saw higher sales, with revenues 9% above last year's
results.
The increase in the Company's sales in fiscal 1999 was driven by the Tommy
Hilfiger footwear brand, which delivered a 51% sales increase for the year. This
sales increase was predominantly in the women's product line, which was launched
in the Fall season of 1998, and experienced its first full year of selling in
1999. Sales of Keds products decreased 1% in 1999 as revenues from new products
were offset by a 42% decline in sales of the Keds "Champion" style during the
year. The sales of Keds new, refreshed basics offerings continued to represent a
significant portion of the women's business. However, the new product
introductions could not sustain the same level of sales in 1999, resulting in a
decrease in Ked's women sales of 6% from 1998. The introduction of the "Keds
Stretch" product concept, which offers superior comfort, and increased sales of
the "Relaxed Fit" collection offset the "Champion" and "Ready to Wear" product
line which had lower sales in 1999. The Keds children's business, primarily
directed at young girls, had higher sales in 1999, up 6% from 1998. Sales of the
Stride Rite Children's Group were 1% higher in 1999, with a 9% sales increase at
company-owned retail stores offsetting a 5% decrease in sales to independent
dealers, family shoe stores and department stores. Retail sales benefited from
an extra week in 1999's fiscal calendar, adding $1.6 million to the sales total.
Sales at comparable (stores open for 52 weeks in each fiscal year),
company-owned retail stores increased 3.7% in 1999. This increase followed a
6.7% comparable store sales increase in fiscal 1998. As of year-end 1999, the
Stride Rite Children's Group had 192 stores, down from the store counts of 199
in November 1998 and 201 in November 1997. Sales of the Sperry brand in 1999
increased 15% from last year as a broader product line addressing the office and
weekend casual market boosted sales. International division revenues declined
$5.2 million or 17% in 1999, due primarily to the Company's transition to
licensing arrangements from distributors in certain countries.
In fiscal 1998, consolidated net sales increased $23.7 million or 5% from the
sales level achieved in fiscal 1997. Unit shipments of current line merchandise
increased 6% during 1998, while average selling prices increased less than 1%
from 1997. During 1998, the Company had introduced men's and boys' footwear
under a license with Levi Strauss & Co. After evaluating the weak retail results
and assessing the general strength of the Levi's brand, the Company and Levi
Strauss mutually agreed to discontinue the footwear line. Sales of discontinued
products in 1998 increased 29% from 1997, due to liquidation of inventory in the
Tommy Hilfiger men's business and the closure of the Levi's footwear business.
The higher sales in the Company's wholesale brands in fiscal 1998 were largely
the result of improved conditions in the
<PAGE>
Keds business which delivered a 13% sales increase for the year. In 1998, Tommy
Hilfiger division sales were even with the sales level achieved in 1997 as the
revenue associated with the Tommy Hilfiger women's launch in August 1998 and
liquidation of discontinued men's styles offset a 38% decrease in the sales of
current line merchandise for the Tommy men's business. Sales of Stride Rite
Children's Group in 1998 increased 4%, a combination of a 5% increase in retail
sales and a 4% sales increase of Stride Rite brand products to independent
accounts. Sales of the Sperry division decreased 12% in 1998 as compared to 1997
due to increased competition in the boat shoe market. In 1998, the revenues of
the Company's International division declined 16% from 1997 due to the
transitioning of the Company's operations from subsidiaries and distributors to
licensing arrangements in certain countries.
GROSS PROFIT
The Company's gross profit in fiscal 1999 totaled $210.6 million, an increase of
$19.8 million or 10.4% from fiscal 1998. In 1999, the Company's consolidated
gross profit percent of 36.8% was 1.4 percentage points above the 35.4% rate
achieved in fiscal 1998. Excluding the cost of sales portion ($3.7 million) of
the one-time charges associated with the decision to terminate the Levi's
footwear license, the Company's 1999 gross profit was 0.7 percentage points
above the adjusted 36.1% performance in 1998. The Company's LIFO provision had a
favorable impact on gross profit comparisons in each year, with LIFO increasing
gross profit by $2.3 million (0.4% of net sales) in 1999 compared to an increase
of $3.7 million (0.7% of net sales) in 1998. The primary cause of the favorable
LIFO impact in 1999 was lower product costs, while 1998 benefited from the
reduction of certain domestically manufactured inventory quantities which were
valued at costs prevailing in prior years. As compared to 1998, the Company's
gross profit performance in 1999 was also positively affected by an improved
overall gross profit percent on current merchandise, lower inventory
obsolescence charges and the absence of inventory writedowns related to the
Levi's closure. Fiscal 1999's gross profit performance was favorably impacted by
the sales increase from company-owned retail stores, which generally produce a
higher gross profit percentage than the Company's wholesale brands.
In fiscal 1998, gross profit increased $3.2 million or 1.7% from fiscal 1997.
The Company's 1998 gross profit rate declined a full percentage point to 35.4%
compared to the 36.4% rate achieved in 1997. Excluding the one-time charges
related to the Levi's closure, the 1998 gross profit percent was 36.1%, slightly
below the 36.4% gross profit rate in 1997. The gross profit performance in 1998
was negatively impacted by increased inventory obsolescence charges, as well as
higher sales allowances and retail markdowns. These charges reduced the 1998
gross profit percentage 1.9 percentage points, with obsolescence charges related
to the Tommy Hilfiger men's footwear business representing the largest cost
increase. The Company's LIFO provision had a favorable effect on gross profit
comparisons in both years, increasing gross profit by $3.7 million (0.7% of net
sales) in 1998 compared to a gross profit increase of $4.5 million (0.9% of net
sales) in 1997.
<PAGE>
OPERATING COSTS
In fiscal 1999, the Company's selling and administrative expenses (excluding
nonrecurring charges) increased $5.4 million to $166.7 million, or 3.4% above
the expense level incurred in fiscal 1998. This rate of expense increase was
substantially lower than the 6.2% net sales gain achieved during 1999. As a
percentage of net sales, selling and administrative costs were 29.1% in 1999
compared to 29.9% in 1998. Higher advertising expenses accounted for more than
half of the increased costs in 1999, representing $2.9 million of the total
increase compared to 1998. Advertising spending represented 6.5% of net sales in
1999, up slightly from the prior year. Expenses related to the Tommy Hilfiger
women's product line and the Keds national television campaign, which supported
the refreshed basics product line and introduction of the "Keds Stretch"
product, were the principal reasons for the higher advertising spending in 1999.
Retail store expenses increased $2.6 million in 1999, with $1.1 million of the
increase due to new stores. Distribution costs increased $2 million or 19% in
1999 as the growth of the Tommy Hilfiger business caused capacity constraints at
the Company's facilities, requiring the outsourcing of certain warehousing
functions at higher costs. Total distribution costs represented 2.2% of net
sales in 1999 compared to 2.0% in 1998. Spending on information systems in 1999
increased $1.7 million from 1998 primarily related to the Company's effort to
upgrade computer systems and to prepare for the Year 2000 transition. These
higher costs were partially offset by cost savings measures undertaken by the
Company. The 1999 spending levels were reduced by $1.4 million due to staff
reductions related to international operations. In addition, the Company
completed a restructuring in August 1999 which eliminated approximately 125
positions from its administrative staff by shifting the merchandising, finance
and operations functions from divisional to centralized responsibility. The
restructuring actions are expected to reduce operating costs by approximately
$8.5 million annually beginning in the fourth quarter of fiscal 1999. The 1999
consolidated statement of income includes pre-tax, nonrecurring charges of $3.3
million to cover costs associated with the August 1999 restructuring efforts.
The restructuring amount includes $2.4 million of severance payments, $0.6
million of other employee-related costs and $0.3 million of other costs.
In fiscal 1998, selling and administrative expenses increased $4.7 million or 3%
from fiscal 1997. As a percentage of sales, selling and administrative costs
were 29.9% in 1998 compared to 30.4% in 1997. Advertising and sales promotion
expenses accounted for all of the higher costs in 1998 as advertising spending
increased to 6.4% of net sales compared to 5.5% in 1997. Retail store expenses
decreased $0.3 million in 1998 due principally to the lower average store count
as compared to 1997. Distribution expenses decreased $1.1 million in 1998, as
efficiencies were realized at the Company's Huntington, Indiana distribution
facility, which was operational for its first full year in 1998. Spending on
information systems during 1998 increased $2.4 million from 1997 as part of
efforts to upgrade computer systems. In fiscal 1998, selling and administrative
expenses had included $3.6 million of product development and other costs
related to the introduction of new licensed brands in the second half of the
year and $1.3 million of severance and other costs related to the shutdown of
the Levi's footwear business.
<PAGE>
OTHER INCOME AND TAXES
Non-operating income (expense) increased the Company's pre-tax earnings by $2
million in fiscal 1999 compared to increases of $3.7 million in fiscal 1998 and
$0.9 million in fiscal 1997. Investment income increased by $1.1 million in 1999
due to a 10% increase in the funds available for investment during the year.
Investment income in 1998 decreased slightly from 1997 because of a decrease in
the funds available for investment during the year. Interest expense in 1999 was
flat compared to 1998 as a 4% increase in average borrowings during the year was
offset by a slightly lower average interest rate. Average interest rates during
fiscal 1999 were 6.2% compared to 6.4% in 1998. Interest expense in 1998
increased $1.5 million as compared to 1997 due to the increased need for
short-term borrowing during the year. In fiscal 1999, other income and expense
items decreased pre-tax income by $0.9 million, compared to an increase of $1.8
million in 1998 and a reduction of $2.7 million in 1997. In 1998, other income
included a gain of $3.9 million from the sale of the Company's former
distribution facility in Boston, Massachusetts. Expenses associated with a
company-owned life insurance program reduced income in all three years.
The provision for income taxes increased $4.1 million to $16.2 million in fiscal
1999 as compared to 1998, an increase consistent with the higher pre-tax
earnings. The Company's effective income tax rate was 38.1% in 1999, which was
above the 1998 effective tax rate of 36.6% due principally to the reduced tax
benefits from a company-owned life insurance program. In fiscal 1998, the
provision for income taxes was essentially even with 1997 as a lower effective
tax rate (36.6% versus 38.0% in 1997) offset the impact of increased pre-tax
income.
NET INCOME
The Company earned $26.4 million in fiscal 1999, a 25.5% improvement from the
net income of $21.1 million in fiscal 1998. Excluding the nonrecurring charges
related to the restructuring of the Company's administrative staff in fiscal
1999 and the net effect of one-time items in fiscal 1998, net income totaled
$28.4 million in 1999, an increase of 34% above 1998's performance. The
increased earnings in 1999 were driven principally by the significant
improvement in profitability of the Tommy Hilfiger brand as compared to 1998, as
well as the closure of the Levi's footwear brand. The Company's after-tax return
on sales finished at 4.6% in 1999, above the 3.9% return in 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of the end of fiscal 1999, the Company's balance sheet reflected a current
ratio of 2.8 with no long-term debt. The Company's cash and short-term
investments totaled $57.2 million at December 3, 1999, up $14.8 million from the
total cash and short-term investments of $42.4 million at the end of 1998. In
addition, other assets included $11.2 million in 1999 and $10.5 million in 1998
of investments in intermediate-term, fixed income instruments. During 1999, the
Company's operations generated $60.2 million of cash, a significant increase
from the operating cash flows of $21.7 million in 1998 and $16.3 million in
1997. Operating cash flow in 1999 was favorably impacted by lower levels of
accounts receivable and inventories. The year-end accounts receivable level
decreased $9 million or 15.9% from 1998, and inventory levels
<PAGE>
at December 3, 1999 declined $7.3 million or 5.7% from year-end 1998 principally
due to lower inventory levels in the Keds division.
Additions to property and equipment totaled $19.9 million in fiscal 1999
compared with $17.3 million in fiscal 1998 and $14.3 million in fiscal 1997.
Capital expenditures in 1999 included $14.4 million related to computer systems
as the Company continued its efforts to upgrade information systems capabilities
as part of its preparation for the year 2000. In many areas, the Company had
implemented new computer systems, which were year 2000 compliant, as part of its
continuing efforts to upgrade systems capabilities and to effect the transition
from mainframe computer processing to more flexible, midrange computer systems.
In 1999, spending related to updating retail store designs and opening new
retail stores totaled $3.0 million compared to retail expenditures of $2.7
million in 1998 and $2.2 million in 1997. During 1999, the Company opened 16 new
retail stores compared to 12 store openings in 1998. The Company also closed 23
underperforming retail locations in 1999, including 14 low volume leased
department operations. In 2000, the Company will continue to focus its efforts
on improving retail profitability by critically evaluating underperforming
locations and opening new Stride Rite booteries and manufacturers' outlets where
appropriate. In fiscal 2000, the Company expects capital expenditures to be
slightly higher than in 1999. Expenditures related to retail stores and a
possible expansion of distribution facilities is expected to offset lower
computer software spending. Funding for capital expenditures will generally be
provided from internal sources.
The Company returned $22.5 million to shareholders during fiscal 1999 through
share repurchases and cash dividends. The Company expended $13.2 million in 1999
to repurchase 2,008,400 common shares under its share repurchase program. Over
the three-year period ended December 3, 1999, the Company repurchased a total of
5,808,900 common shares at an aggregate cost of $57.5 million. On December 16,
1999, the Company's Board of Directors authorized the repurchase of an
additional five million shares of common stock. The Company has paid a dividend
to shareholders each quarter since it became a public company in 1960. Cash used
for dividends decreased slightly to $9.3 million in 1999 compared to $9.4
million in 1998 and $9.7 million in 1997 as a result of fewer outstanding
shares. Funds for these stock repurchases and dividends were provided from
internal sources.
In addition to internal sources of capital, the Company maintains bank lines of
credit to satisfy any seasonal borrowing requirements that may be imposed by the
sales patterns which are characteristic of the footwear industry. At year-end
1999, the Company's available, uncommitted lines of credit totaled $75 million.
During 1999, the Company's borrowings averaged $27.7 million compared to the
average borrowings of $26.7 million in 1998 and $1.6 million in 1997. No
short-term borrowings were outstanding at the end of 1999 or 1998. On January
19, 2000, the Company replaced its uncommitted facility by entering into a new
three-year, revolving credit agreement with five banks providing for loans of up
to $75 million. The revolving credit agreement requires the Company to meet
certain financial ratios and covenants and to maintain a minimum consolidated
tangible net worth.
<PAGE>
YEAR 2000
The Company had previously identified three categories of software and systems
that required attention:
(1) Information Technology ("IT") systems, such as mainframes, personal
computers, networks and telecommunications,
(2) Non-IT systems, such as equipment, machinery, climate control and
security systems, which may contain micro-controllers with embedded
technology, and
(3) Partner (supplier and customer) IT and non-IT systems.
Over the last three years, the Company has modified or replaced portions of its
software so that its computer systems and equipment will function properly with
respect to dates for the year 2000 (Y2K) and thereafter. This modification
process was completed during fiscal 1999 and was supplemented by extensive
testing of modified and new computer systems. This modification and replacement
process was implemented by the Company's internal resources and various other
third parties. The Y2K efforts have continued to be supervised by the Company's
Senior Vice President of Information Technology and internal executive
management. The Company has now crossed into the year 2000 successfully with no
major systems failures. The modifications to existing software and conversions
to new software have not posed significant operational problems for its computer
systems. With respect to its non-IT systems, the Company has not experienced any
major Y2K related disruptions. Regarding the Company's key business partners,
including customers, suppliers, banks and other vendors, the Company is not
aware of any major direct or indirect disruptions or delays related to the year
2000 (Y2K) issue.
The total cost of achieving Y2K compliance is expected to be approximately $26
million, of which approximately $20 million is related to new systems which are
being capitalized. This amount includes the upgrade and enhancement of the
Company's order management system. Costs of approximately $6 million,
representing spending related to software remediation, testing and other support
related to the Y2K project, are being expensed. Total Y2K project costs expended
through December 3, 1999 amounted to approximately $25 million.
Like most large business enterprises, the Company is dependent upon its own
internal computer technology and relies upon timely performance by its business
partners. As noted above, although the Company has successfully transitioned
into the year 2000 without any large-scale systems failures, management will
continue to monitor the situation, identify any occurrences and ensure all
systems are compliant throughout the year 2000. The Company's Y2K program has
identified and minimized this risk to the extent feasible. Contingency plans
have been developed, however, judgments regarding contingency plans are
inherently subject to many variables and uncertainties. As a result, there is no
certainty that the Company's contingency plans will be sufficient to mitigate
the impact of noncompliance by suppliers and customers, and some material
adverse effect to Stride Rite may result from one or more third parties
regardless of defensive contingency plans.
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements, which may impact the Company's financial
statements in the future, are described in Note 15 to the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data) 1999 1998
- ---------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $57,186 $ 42,427
Accounts and notes receivable,
less allowances of $9,951 in 1999
and $9,572 in 1998 47,478 56,475
Inventories 121,167 128,472
Deferred income taxes 26,303 24,758
Prepaid expenses 4,895 6,097
------------ ------------
Total current assets 257,029 258,229
Property and equipment, net 67,425 58,350
Other assets, net 20,765 17,739
Goodwill, net 973 1,178
------------ ------------
Total assets $346,192 $335,496
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 41,557 40,951
Income taxes payable 22,059 14,130
Accrued expenses and other liabilities 26,862 29,646
------------ ------------
Total current liabilities 90,478 84,727
Deferred income taxes 5,219 6,042
Stockholders' Equity:
Preferred stock, $1 par value -
1,000,000 shares authorized;
Issued - none - -
Common stock, $.25 par value -
135,000,000 shares authorized;
Issued - 56,946,544 14,237 14,237
Capital in excess of par value 20,738 22,063
Retained earnings 355,158 337,943
------------ ------------
------------ ------------
390,133 374,243
Less cost of 12,312,461 shares
of common stock held in treasury
(10,565,526 in 1998) (139,638) (129,516)
Total stockholders' equity 250,495 244,727
------------ ------------
Total liabilities and
stockholders' equity $346,192 $335,496
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, Years Ended
------------------------------------
except for per share data) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $572,696 $539,413 $515,728
Cost of sales 362,108 348,587 328,172
Selling and administrative expenses 166,689 161,279 156,533
Nonrecurring charges 3,254 0 0
Operating income 40,645 29,547 31,023
Investment income 4,657 3,635 3,755
Interest expense (1,760) (1,730) (188)
Other income (expense), net (886) 1,770 (2,662)
------------------------ -----------
Income before income taxes 42,656 33,222 31,928
Provision for income taxes 16,232 12,170 12,148
------------------------ -----------
Net income $ 26,424 $21,052 $19,780
======================== ===========
Net income per common share:
Diluted $ .57 $ .44 $ .40
======================== ===========
Basic $ .57 $ .45 $ .41
======================== ===========
Average common shares used in per share computations:
Diluted 46,414 47,335 48,949
======================== ===========
Basic 46,214 47,074 48,532
======================== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
CASH WAS PROVIDED FROM (USED FOR)
OPERATIONS:
<S> <C> <C> <C>
Net income $26,424 $21,052 $19,780
Adjustments to reconcile to net cash provided
from operations:
Depreciation and amortization 10,061 9,384 9,833
Deferred income taxes (2,368) 3,793 2,336
Compensation expense related to stock plans 621 112 502
Equity in loss (earnings) of affiliate 1,449 (813) 400
Gain related to long-term investments (265) (58) -
Loss (gain) on disposals of property and
equipment 1,072 (3,199) 1,589
Changes in:
Accounts and notes receivable 8,997 (4,767) (6,842)
Inventories 7,305 6,256 (15,641)
Prepaid expenses 1,202 (975) 2,053
Long-term notes receivable 120 92 502
Accounts payable, income taxes, accrued
expenses and other current liabilities 5,603 (9,207) 1,813
--------- --------- --------
Net cash provided from operations 60,221 21,670 16,325
--------- --------- --------
INVESTMENTS:
Short-term investments - 9,417 25,194
Additions to property and equipment (19,951) (17,323) (14,278)
Proceeds from sales of property and equipment - 8,375 653
Distributions and dividends from long-term
investments 230 361 -
Purchase of noncurrent marketable securities (755) (1,313) (2,160)
Increase in other assets (3,858) (506) (604)
--------- --------- --------
Net cash provided from (used for) investments(24,334) (989) 8,805
--------- --------- --------
FINANCING:
Long-term debt payments - - (833)
Proceeds from sale of stock under stock plans 1,328 1,777 1,654
Tax benefits in connection with stock plans 9 207 65
Repurchase of common stock (13,182) (12,453) (31,873)
Cash dividends paid (9,283) (9,448) (9,749)
--------- --------- --------
Net cash used for financing (21,128) (19,917) (40,736)
--------- --------- --------
Net increase(decrease)in cash and cash equivalents 14,759 764 (15,606)
Cash and cash equivalents at beginning of the year 42,427 41,663 57,269
--------- --------- --------
Cash and cash equivalents at end of the year $57,186 $42,427 $41,663
========= ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Capital in
(In thousands, Common Excess of Retained Treasury
except for share data) Stock Par Value Earnings Stock
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 29, 1996 $14,237 $22,778 $316,142 $(91,633)
Net income 19,780
Issuance of 98,307 common shares
under stock plans (157) 1,234
Issuance of 118,050 common shares
under employee stock plan (397) 1,480
Tax benefit in connection with
stock plans 65
Repurchase of 2,567,500 shares of
common stock (31,873)
Cash dividends on common stock,
$.20 per share (9,630)
------- --------- ------------ -----------
Balance, November 28, 1997 14,237 22,289 326,292 (120,792)
Net income 21,052
Issuance of 298,074 common shares
under stock plans (433) 3,729
Tax benefit in connection with
stock plans 207
Repurchase of 1,233,000 shares of
common stock (12,453)
Cash dividends on common stock,
$.20 per share (9,401)
------- ----------- ------------ ----------
Balance, November 27, 1998 14,237 22,063 337,943 (129,516)
Net income 26,424
Issuance of 83,720 common shares
under stock plans (230) 1,021
Issuance of 177,745 common shares
under employee stock plan (1,104) 2,039
Tax benefit in connection with
stock plans 9
Repurchase of 2,008,400 shares of
common stock (13,182)
Cash dividends on common stock,
$.20 per share (9,209)
------- ----------- ------------ ----------
Balance, December 3, 1999 $14,237 $20,738 $355,158 $(139,638)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements of The
Stride Rite Corporation include the accounts of the Company and all its
wholly-owned subsidiaries. Intercompany transactions between the Company and its
consolidated subsidiaries have been eliminated. The Company's investment in an
unconsolidated, 49.5% owned affiliate is accounted for in the consolidated
financial statements using the equity method of accounting. Under this method,
the Company's share of the affiliate's income or loss is included in the
consolidated statement of income. Earnings related to transactions between the
affiliate and the Company's consolidated subsidiaries are deferred until
merchandise is resold by those subsidiaries.
Fiscal Year -- The Company's fiscal year ends on the Friday closest to November
30 in each year. Fiscal years 1999, 1998 and 1997 ended on December 3, 1999,
November 27, 1998, and November 28, 1997, respectively. The Company's 1999
fiscal year included 53 weeks.
Cash Equivalents, Short-Term Investments and Marketable Securities -- Cash
equivalents represent highly liquid investments, with a maturity of three months
or less at the time of purchase. Short-term investments, representing commercial
paper with a high investment grade, bank certificates of deposit and tax-exempt
debt instruments with a maturity of between three months and one year, are
stated at cost, which, due to their short-term nature, approximates fair value.
Noncurrent marketable securities, representing funds invested in
intermediate-term, fixed income instruments with maturities greater than one
year, are stated at fair value and are considered available for sale.
Financial Instruments -- Financial instruments consist principally of cash,
short-term investments, intermediate-term investments and trade receivables and
payables. The Company places its investments in highly rated financial
institutions and investment grade, short-term financial instruments, which
limits the amount of credit exposure. The Company sells footwear to numerous
retailers. Historically, the Company has not experienced significant losses
related to investments or trade receivables. The Company's exposure to foreign
exchange risk is limited through dollar denominated transactions. The only
derivative financial instruments which the Company utilizes are foreign exchange
forward contracts related to royalty arrangements, which are generally
immaterial. The Company does not enter into material derivative financial
instruments such as futures, forward or option contracts. The Company calculates
the fair value of all financial instruments and includes this additional
information in the consolidated financial statements when the fair value is
different than book value. The Company uses quoted market prices, when
available, to calculate these fair values.
Inventory Valuation -- Inventories are stated at the lower of cost or market.
The cost of inventories is determined on the last-in, first-out (LIFO) basis.
Property and Equipment -- Property and equipment are stated at cost. The cost of
equipment includes the capitalization of certain associated computer software
costs. Depreciation, which is calculated primarily on the straight-
<PAGE>
line method, is provided by periodic charges to expense over the estimated
useful lives of the assets. Leaseholds and leasehold improvements are amortized
over the terms of the related leases or their estimated useful lives, whichever
is shorter, using the straight-line method.
Goodwill and Trademarks -- Goodwill represents the excess of the amount paid
over the fair value of net assets acquired. Trademark rights are stated at
acquisition cost. These assets are amortized on a straight-line basis primarily
over a 25-year period. The carrying value of these intangible assets is
periodically reviewed by the Company and, if necessary, impairments of values
are recognized. If there is a permanent impairment in the carrying value of
goodwill, trademarks or other intangible assets, the amount of such impairment
is computed by comparing the anticipated discounted future operating income of
the acquired business or trademark to the carrying value of the assets. In
performing this analysis, the Company considers current results and trends,
future prospects and other economic factors.
Income Taxes -- Deferred income taxes are provided for temporary differences
between financial and taxable income. Deferred taxes are also provided on
undistributed earnings of subsidiaries and affiliates located outside the United
States at rates expected to be applicable at the time of repatriation.
Advertising - The Company expenses advertising costs as incurred. Total
advertising expense amounted to $37,270,000, $34,385,000 and $28,121,000 for
1999, 1998 and 1997, respectively.
Estimates Included in Financial Statements The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The most significant estimates included in
these financial statements include valuation allowances and reserves for
accounts receivable, inventory and income taxes. Actual results could differ
from those estimates.
Net Income per Common Share - Basic earnings per common share is calculated by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is calculated by dividing net
income by the sum of the weighted average number of shares plus additional
common shares that would have been outstanding if potential dilutive common
shares had been issued for stock options granted. The following table reconciles
the number of shares for the basic and dilutive computations for the fiscal
years presented in the consolidated statements of income:
<PAGE>
<TABLE>
<CAPTION>
(In thousands, except for
per share data) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $26,424 $21,052 $19,780
Weighted average common shares
outstanding (basic) 46,214 47,074 48,532
Dilutive effect of stock options 200 261 417
Weighted average common shares
outstanding (diluted) 46,414 47,335 48,949
Earnings per common share:
Basic $.57 $.45 $.41
Diluted .57 .44 .40
</TABLE>
2. INVENTORIES
The cost of inventories, which consist primarily of finished product, at
December 3, 1999 and November 27, 1998 was determined on a last-in, first-out
(LIFO) basis. During 1999, the LIFO reserve decreased by $2,252,000 to
$12,354,000 at December 3, 1999. If all inventories had been valued on a
first-in, first-out (FIFO) basis, net income would have been lower by $1,420,000
($.03 per share) in 1999. The LIFO reserve also decreased in 1998 and in 1997,
by $3,684,000 and $4,541,000, respectively. If all inventories had been valued
on a FIFO basis, net income would have been lower by $2,323,000 ($.05 per share)
in 1998 and $2,731,000 ($.06 per share) in 1997.
During 1998 and 1997, reductions in certain inventory quantities resulted in the
sale of products carried at costs prevailing in prior years which were different
from current costs. As a result of these inventory reductions, net income was
increased by $1,733,000 ($.04 per share) and $3,379,000 ($.07 per share) in 1998
and 1997, respectively.
3. PROPERTY AND EQUIPMENT
The components of property and equipment at December 3, 1999 and November 27,
1998 and the range of asset lives used in depreciation calculations for each
asset category are as follows:
<TABLE>
<CAPTION>
Range of
Useful Lives
(In thousands) 1999 1998
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements 10 years $ 2,635 $ 2,635
Buildings and improvements 10-40 years 12,542 12,535
Machinery, equipment,
computer software and
fixtures 3-12 years 79,394 64,854
Leaseholds and leasehold
improvements 5-15 years 17,085 14,576
---------- ----------
111,656 94,600
Less accumulated depreciation
and amortization (44,231) (36,250)
---------- ----------
$67,425 $58,350
========== ==========
</TABLE>
<PAGE>
4. OTHER ASSETS
As of December 3, 1999 and November 27, 1998, other assets includes the
following:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
Marketable securities $ 11,200 $ 10,445
Investment in joint venture 1,372 2,821
manufacturing facility
Trademark rights and other
intangible assets, net 2,102 2,239
Other 6,091 2,234
---------- ----------
$ 20,765 $ 17,739
========== ==========
</TABLE>
Marketable securities represent the noncurrent portion of intermediate-term,
fixed income securities investments. The cost basis of these investments was
$11,444,000 in 1999 and $10,463,000 in 1998. Cash equivalents and short-term
investments include $595,000 in 1999 and $1,014,000 in 1998 representing the
current portion of this investment. During 1988 and 1989, the Company invested a
total of $1,948,000 in a joint venture, which is accounted for under the equity
method, with a foreign manufacturer to construct and operate a footwear
manufacturing facility in Thailand. The consolidated statements of income
include a loss of $1,449,000 in 1999, income of $813,000 in 1998, and a loss of
$400,000 in 1997, representing the Company's share of the joint venture's
operating results in those years.
5. DEBT
The Company utilizes short-term bank loans to finance seasonal working capital
requirements. Generally, banks have extended lines of credit to the Company on
an uncommitted basis. During fiscal 1999, 1998 and 1997, borrowings under these
lines averaged $27,695,000, $26,691,000 and $1,557,000, respectively, with a
maximum amount outstanding of $68,400,000 in 1999, $52,800,000 in 1998 and
$11,800,000 in 1997. The weighted average interest rate paid on these borrowings
during the year was 6.2% in 1999, 6.4% in 1998 and 6.2% in 1997. No short-term
borrowings were outstanding on December 3, 1999 or November 27, 1998. Interest
payments amounted to $1,720,000, $1,703,000 and $216,000 in 1999, 1998 and 1997,
respectively.
On January 19, 2000, the Company replaced its uncommitted facility by entering
into a new, three-year revolving credit agreement with five banks providing for
loans of up to $75 million. Under the revolving credit agreement, the Company
may borrow at interest rates which vary with LIBOR. In addition, the agreement
calls for facility fees of .375% per annum on the committed line. The revolving
credit agreement requires the Company to meet certain financial ratios and
covenants and to maintain a minimum consolidated tangible net worth. The
interest rates and facility fees in the agreement also vary somewhat dependent
on the Company's financial performance. The revolving credit agreement also
contains other covenants, which restrict the payment of dividends and common
stock repurchases to $30 million per year.
<PAGE>
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at December 3, 1999 and November
27, 1998 consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- --------------------------------------------------------
<S> <C> <C>
Salaries, wages and commissions $5,463 $ 8,001
Advertising 2,779 3,279
Pensions 3,148 2,620
Dividends 2,247 2,319
Nonrecurring charges 1,517 -
Other liabilities 11,708 13,427
---------- ----------
$26,862 $29,646
========== ==========
</TABLE>
7. NONRECURRING CHARGES
In the third quarter of fiscal 1999, the Company recorded pre-tax nonrecurring
charges of $3,254,000 ($.04 per share after tax) related to a restructuring of
its administrative staff that was implemented to competitively position itself
for future expansion and increased profitability. Certain merchandising, finance
and operations functions were shifted from divisional to centralized
responsibility, resulting in termination of 75 associates and the elimination of
50 unfilled positions from the Company's administrative staff. The nonrecurring
charges during 1999 included $2,358,000 related to severance payments, $637,000
of other employee related costs and $259,000 of other costs associated with the
restructuring.
In 1992 and 1995, the Company incurred nonrecurring charges related to several
major initiatives to reduce future operating costs and to realign certain
product lines and business units. The actions included the shift of the
Company's distribution functions to new facilities, the closure of domestic
manufacturing facilities, the shutdown of underperforming retail locations and
the elimination of certain administrative positions. During 1997 and 1998, these
restructuring actions were completed and the final costs related to these
initiatives were charged against the liabilities accrued in earlier years.
The following table summarizes activity during the three years ended December 3,
1999 with respect to nonrecurring charges:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year - $5,816 $9,580
Nonrecurring charges $3,254
Amounts charged against accrual (1,737) (5,816) (3,764)
Balance at end of year $1,517 - $5,816
</TABLE>
<PAGE>
The balance of $1,517,000, which remains in accrued expenses as of December 3,
1999, includes $1,070,000 of severance costs and $447,000 of other employee
related costs. The Company expects to complete all payments related to this
restructuring by the third quarter of fiscal 2000.
8. LEASES
The Company leases office and retail store space and certain equipment. A
portion of the retail store space is sublet. Some of the leases have provisions
for additional rentals based on increased property taxes and the leases for
retail store space generally require additional rentals based on sales volume in
excess of certain levels. Some leases have renewal options.
Rent expense for operating leases for the three years in the period ended
December 3, 1999 was as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Base rent $18,011 $17,090 $16,548
Additional rent 1,364 1,091 1,174
Less rental from subleases (826) (1,051) (1,161)
--------------- -------------- --------------
$18,549 $17,130 $16,561
=============== ============== ==============
</TABLE>
The future minimum rental payments for all non-cancelable operating leases and
the amounts due from tenants on related subleases at December 3, 1999 are as
follows:
<PAGE>
(In thousands)
- ------------------------------------------------------
2000 $13,561
2001 12,329
2002 10,271
2003 9,043
2004 7,870
Later years 16,688
------------
69,762
Less rental due from subleases (1,786)
------------
Total future minimum rental
payments $67,976
============
9. BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
eligible associates. Pension costs are determined actuarially and are funded to
the extent that deductions are allowable under the United States Internal
Revenue Code. During 1999 and 1998, approximately 65% of the defined benefit
plan's assets were invested in equity investments with the remaining 35%
invested in fixed income securities. Salaried, management, sales and
non-production hourly associates accrue pension benefits based on the
associate's service and compensation. Production associates accrued pension
benefits at a fixed unit rate based on service.
<PAGE>
Pension expense, including amortization of prior service costs over the
remaining service periods of active associates and the remaining lives of vested
and retired associates, for the three years in the period ended December 3,
1999, consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $2,014 $2,002 $1,767
Interest cost 2,800 2,688 2,686
Expected return on assets (4,002) (3,822) (3,449)
Net gain recognized (59) (103) -
Amortization of prior service cost 61 61 64
SFAS 88 curtailment charge - - 93
Transition asset recognized (287) (287) (287)
Net periodic benefit cost $ 527 $ 539 $ 874
</TABLE>
The following provides a reconciliation of benefit obligations, plan assets, the
funded status, and various assumptions related to the Company's defined benefit
pension plan:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Change in benefit obligation:
<S> <C> <C>
Benefit obligation at beginning of year $43,422 $40,134
Service cost 2,014 2,002
Interest cost 2,800 2,688
Actuarial loss(gain) (5,517) 268
Benefits paid (2,109) (1,670)
Benefit obligation at end of year $40,610 $43,422
Change in plan assets:
Fair value of plan assets at beginning of year 45,715 43,810
Actual return on plan assets 5,993 3,575
Employer contributions 0 0
Benefits paid (2,109) (1,670)
Fair value of plan assets at end of year $49,599 $45,715
Funded status:
Excess of assets over benefit obligation 8,989 2,293
Unrecognized net gain (12,078) (4,628)
Unrecognized prior service costs 225 287
Unrecognized net transition asset (284) (572)
Accrued pension cost $(3,148) $(2,620)
Assumptions:
Discount rate 7.50% 6.75%
Expected long-term return on assets 9.00% 9.00%
Compensation increase rate 4.50% 4.50%
</TABLE>
The Company also provides defined contribution plans for its associates. The
Company's defined contribution plans, which are qualified under Section 401(k)
of the Internal Revenue Code of 1986, as amended, enable eligible associates to
defer a portion of their salary to be held by the trustees of the plans.
<PAGE>
The Company makes an additional contribution to the plans equal to a maximum of
50% of the first 6% of savings by each participant. Prior to July 1, 1998, the
Company's contribution to the plans equaled a maximum of 25% of the first 6% of
savings for each participant. During fiscal 1999, 1998 and 1997 the Company's
contribution to the plans amounted to $800,000, $437,000 and $446,000,
respectively.
10. STOCK PURCHASES AND OPTION PLANS
The Company's Employee Stock Purchase Plan, permits eligible associates to elect
to subscribe for an aggregate of 5,640,000 shares of common stock of the
Company. Under the Plan, participating associates could authorize the Company to
withhold up to 10% (limited to either 2.5% or 5% prior to November 1, 1999) of
their earnings for a one or two-year payment period for the purchase of shares.
At the conclusion of the period, associates could purchase shares at the lesser
of 85% of the market value of the Company's common stock on either their entry
date into the Plan or the last day of the payment period. For the payment
periods which ended in fiscal 1999, 177,745 shares were issued under the Plan
for an aggregate amount of $935,000. Effective with the new payment period which
began on January 1, 2000, the payment period was shortened to a six-month
timeframe. At December 3, 1999, a total of 5,241,076 shares had been purchased
under the Plan and 398,924 shares were available for purchase by participating
associates.
During 1998, the Company's shareholders approved The Stride Rite Corporation
1998 Non-Employee Director Stock Ownership Plan. Under the 1998 Director's Plan,
awards of common stock and options to purchase common stock are granted to any
director who is not an employee of the Company in accordance with the provisions
of the Plan. An aggregate of 300,000 shares is authorized for issuance under the
Plan. Options to purchase common stock are granted at a price equal to the
closing price of the Company's common stock on the date the option is granted.
Directors receive an annual grant of options to purchase 5,000 shares of common
stock under the Plan. Options have a term of ten years and are non-transferable.
Under the Plan, options become exercisable over a three-year period and must be
paid for in full at the time of exercise. In April 1999, the shareholders
approved an amendment to the Plan which allowed directors to receive their
annual retainer either entirely in shares of common stock or one-half in shares
of common stock and one-half in cash at the election of each director. Under the
terms of the Plan, the Company awarded 2,959 and 1,000 shares of common stock
during 1999 and 1998, respectively. . In addition, directors may defer receipt
of the stock and/or cash portion of their annual retainer by electing to
participate in the Company's Deferred Compensation Plan for Directors. At
December 3, 1999, the issuance of 41,414 shares has been deferred by
participating directors.
During 1998, the Company's shareholders approved the 1998 Stock Option Plan. The
1998 Stock Option Plan, which expires in April 2001, replaced a similar
long-term incentive plan which had been approved by the shareholders in 1995.
Under the Plan, as amended, options to purchase common stock and stock awards of
up to an aggregate of 3,900,000 shares of the Company's common stock may be
granted to officers and other key associates. The option price of the shares may
not be less than the fair market value of the Company's common stock at the date
of grant. Options under the Plan generally vest over a three-year period and the
rights to purchase common shares expire ten years following the
<PAGE>
date of grant. Stock awards, which are limited to 200,000 shares in the Plan,
generally vest over a five-year period. During 1999, stock awards of 10,750
shares, having an average fair market value of $8.58, were made under the Plan.
During 1997, stock awards of 5,000 shares, averaging to $11.63, were made under
the previous 1995 Stock Option Plan.
A summary of the activity in stock options with respect to all plans for the
three years in the period ended December 3, 1999 is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at November 29, 1996 1,809,362 $ 9.16
Granted 1,023,250 11.44
Exercised (89,807) 6.36
Canceled (160,105) 10.04
Outstanding at November 28, 1997 2,582,700 10.11
Granted 1,054,650 11.11
Exercised (297,074) 5.98
Canceled (533,246) 10.23
Outstanding at November 27, 1998 2,807,030 10.90
Granted 2,135,050 8.53
Exercised (70,011) 5.63
Canceled (1,224,616) 10.23
Outstanding at December 3, 1999 3,647,453 $ 9.84
</TABLE>
The following table summarizes information about stock options outstanding at
December 3, 1999:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------
$ 0.25-$ 8.00 839,886 8.5 years $ 6.82 401,386 $ 6.74
$ 8.125-$11.00 1,622,768 8.2 years 9.41 437,795 10.39
$11.125-$15.875 1,184,799 6.3 years 12.56 903,215 12.81
--------- --------- ------ --------- ------
3,647,453 7.6 years $ 9.84 1,742,396 $10.81
========= ========= ====== ========= ======
At November 27, 1998, options to purchase 1,178,671 shares at an average price
of $11.01 per share were exercisable (911,093 shares at $9.42 per share at
November 28, 1997). At December 3, 1999, stock awards, options to purchase
shares and shares reserved for issuance under deferred compensation plans
totaling 7,818,030 shares had been granted under all plans. Rights to purchase
an additional 2,132,942 shares at December 3, 1999 (2,025,250 shares at November
27, 1998) could be granted under the plans.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), defines a fair-value method of
accounting for
<PAGE>
employee stock options or similar equity instruments and encouraged companies to
adopt that method of accounting. SFAS 123 also allows companies to continue to
use the intrinsic value method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and to
make proforma disclosures of the impact on net income and earnings per share of
applying SFAS 123. The Company has elected to continue to account for stock
options in accordance with APB 25 and related interpretations. Accordingly, no
compensation expense has been recorded in connection with fair market value
stock option grants under the Company's stock option plans and its employee
stock purchase plan.
Proforma net income and earnings per share information included in the table
below, has been calculated as if the Company had accounted for stock options and
other stock-based compensation under the fair value method. The fair value was
estimated as of the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.01% 5.76% 5.95%
Dividend yield 2.2% 1.5% 1.5%
Volatility factor 40% 37% 35%
Weighted average
expected life of options (years) 4.5 4.5 4.5
</TABLE>
Accordingly, the weighted average grant date fair values of stock options
granted during 1999, 1998 and 1997 were estimated at $2.66, $3.75, and $3.95,
respectively. For purposes of proforma disclosure, the estimated fair value is
amortized to expense on a straight-line basis over the options vesting periods.
A comparison of reported and proforma earnings is as follows for the three years
in the period ended December 3, 1999:
<TABLE>
<CAPTION>
(In thousands except for per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $26,424 $21,052 $19,780
Proforma 24,642 19,412 19,058
Net income per As reported .57 .44 .40
diluted share Proforma .53 .41 .39
of common stock
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the use of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimates, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options and other stock-based
compensation.
<PAGE>
11. PREFERRED STOCK PURCHASE RIGHTS
In June 1997, the Company's Board of Directors adopted a Stockholder Rights Plan
to replace a similar plan which was due to expire in July 1997. In connection
with the Plan, the Board declared a dividend of one Preferred Share Purchase
Right for each outstanding share of common stock of the Company, payable to
stockholders of record on July 17, 1997.
The Rights have certain anti-takeover effects. The Rights will cause substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by the Company's Board of Directors, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors. The Rights may be redeemed by the Company at a price of $.01
per Right prior to the time that a person or group has acquired beneficial
ownership of 10% or more of the common shares.
Each Right entitles the holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock at a price of $68 per
one one-hundredth of a Preferred Share. Each preferred share is entitled to
minimum quarterly dividends of $1.00 per share, a minimum preferential
liquidation payment of $100 per share and each preferred share will have 100
votes, voting together with the common shares. The Rights, which may be amended
by the Board of Directors of the Company under most circumstances, become
exercisable at the earlier of ten days following a public announcement that a
person or group ("Acquiring Person") has acquired beneficial ownership of 10% or
more of the Company's outstanding common stock or ten business days following
the commencement of, or announcement of an intention to make, a tender or
exchange offer which would result in the beneficial ownership by an Acquiring
Person of 10% or more of the outstanding common shares. In the event that the
Company is acquired in a merger or other business combination transaction, or
50% or more of its assets or earnings power are sold after a person has acquired
beneficial ownership of 10% or more of the Company's outstanding common stock,
the holders of the Rights will have the right to receive upon exercise that
number of shares of common stock of the Acquiring Person having a market value
of two times the exercise price of the Right. In the event that any person or
group becomes an Acquiring Person, the holders of the Rights, other than the
Acquiring Person, will have the right to receive on exercise that number of
shares of Company common stock having a market value of two times the exercise
price of the Right. The Board of Directors of the Company may also exchange the
Rights, in whole or in part, at an exchange ratio of one common share or one
one-hundredth of a preferred share, at any time after a person or group becomes
an Acquiring Person and prior to the acquisition of 50% or more of the Company's
common stock by such Acquiring Person. The Rights, which have no voting power,
expire on July 17, 2007. Preferred Stock Purchase Rights outstanding under the
Plan totaled 44,634,083 and 46,381,018 as of December 3, 1999 and November 27,
1998, respectively.
12. LITIGATION
The Company is a party to various litigation arising in the normal course of
business. Having considered available facts and opinions of counsel handling
these matters, management of the Company does not believe the ultimate
<PAGE>
resolution of such litigation will have a material adverse effect on the
Company's financial position or results of operations.
13. INCOME TAXES
The provision for income taxes consists of the following for the three years in
the period ended December 3, 1999:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $16,965 $ 7,390 $ 7,942
State 1,635 987 1,870
----------- ----------- ----------
Total current provision 18,600 8,377 9,812
----------- ----------- ----------
Deferred:
Federal (2,013) 3,783 2,095
State ( 355) 10 241
----------- ----------- ----------
Total deferred provision
(benefit) (2,368) 3,793 2,336
----------- ----------- ----------
Provision for income taxes $16,232 $12,170 $12,148
=========== =========== ==========
</TABLE>
Net deferred tax assets as of December 3, 1999 and November 27, 1998 have the
following significant components:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ---------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C>
Inventory valuation reserves $ 6,768 $ 5,477
Accounts receivable allowances 3,861 3,425
Compensation and pension accruals 3,605 3,742
Nonrecurring charges 705 -
Other accounting reserves and accruals 11,364 12,114
------------------
Total deferred tax assets: 26,303 24,758
------------------
Deferred tax liabilities:
Depreciation and amortization 4,498 5,078
Other items 721 964
------------------
Total deferred tax liabilities 5,219 6,042
------------------
Net deferred tax assets $21,084 $18,716
==================
</TABLE>
A valuation allowance has not been assigned to the Company's deferred tax assets
since management believes it is more likely than not that the Company will fully
realize the benefits of such tax assets.
<PAGE>
The effective income tax rate differs from the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 2.0 2.0 4.3
Tax provision (benefit) related to company-
owned life insurance program 2.2 (5.3) (1.8)
Other (1.1) 4.9 0.5
-------- -------- --------
Effective income tax rate 38.1% 36.6% 38.0%
======== ======== ========
</TABLE>
In 1999, 1998 and 1997, the Company paid income taxes of $12,681,000,
$17,666,000 and $8,185,000, respectively.
14. OPERATING SEGMENTS AND RELATED INFORMATION
Effective November 28, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS No. 131
establishes new standards for the way public business enterprises report
information about operating segments and also requires certain disclosures about
products and services, geographic areas of business and major customers. The
adoption of SFAS No. 131 did not affect the Company's consolidated financial
position or results of operations.
The Company operates in one industry segment, the footwear industry. Operating
segments of the Company are based on, among other things, the way the Company's
management organizes the components of the Company's business for the purposes
of allocating resources and assessing performance. The Company designs and
markets footwear under various brand names, which represent the operating
segments of the Company. Products for all of the Company's brands are generally
manufactured using similar processes. The Company's products also share similar
distribution methods and are marketed and sold to the same customer types.
Operating results are assessed on an aggregate basis to make decisions about
resources to be allocated among the brands. Consequently, because the brands
have similar product, distribution, marketing and economic conditions, the
Company's operating segments have been aggregated into one reportable segment
for financial statement purposes as permitted by the provisions of SFAS 131. The
Company presently focuses its brands on the domestic footwear market. No
individual country other than the United States accounted for more than 10% of
consolidated net sales or assets.
15. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS 133 establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value. This statement also
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are
<PAGE>
met. SFAS 133 is effective for fiscal years beginning after June 30, 1999.
However, Statement of Accounting Standard No. 137, "Deferral of the Effective
Date of "SFAS 133" was issued in July of 1999 and delayed the effective date of
SFAS 133 to fiscal years beginning after June 15, 2000. Therefore, SFAS 133 will
not be implemented by the Company until fiscal 2001. Since the Company's current
international operations are not significant and the cost of merchandise sourced
from factories outside the United States is generally denominated in U.S.
dollars, management expects minimal impact from this new standard.
16. QUARTERLY DATA (UNAUDITED)
The following table provides quarterly data for the fiscal years ended December
3, 1999 and November 27, 1998.
<TABLE>
<CAPTION>
(In thousands, except
for per share data) First Second Third Fourth
- -----------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C>
Net sales $148,184 $166,253 $155,952 $102,307
Gross profit 54,507 61,241 57,795 37,045
Net income 6,149 9,763 10,113 399
Per diluted common share:
Net income .13 .21 .22 .01
Dividends .05 .05 .05 .05
First Second Third Fourth
- -----------------------------------------------------------------------------
1998
Net sales $128,985 $143,176 $168,516 $98,736
Gross profit 46,480 51,633 62,744 29,969
Net income (loss) 4,401 9,596 12,766 (5,711)
Per diluted common share:
Net income (loss) .09 .20 .27 (.12)
Dividends .05 .05 .05 .05
</TABLE>
In the third quarter of fiscal 1999, the Company recorded pre-tax, nonrecurring
charges of $3,254,000, ($.04 per share after tax), associated with its decision
to restructure the Company's administrative staff. In the fourth quarter of
fiscal 1998, the Company recorded pre-tax charges of $4,976,000, ($.07 per share
after tax), associated with its decision to terminate its license agreement to
market footwear under the Levi's brand. The charge included losses on the
disposal of Levi's inventory as well as severance and other costs associated
with the decision. In the second quarter of fiscal 1998, the Company recorded a
one-time, pre-tax gain of $3,875,000 ($.05 per share after tax) related to a
real estate sale.
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL INFORMATION
To Our Shareholders:
Management of The Stride Rite Corporation is responsible for the preparation and
integrity of the financial information included in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles. Where required, the financial statements reflect our best
estimates and judgments.
It is the Company's policy to maintain a control-conscious environment through
an effective system of internal accounting controls supported by formal policies
and procedures communicated throughout the Company. These controls are adequate
to provide reasonable assurance that assets are safeguarded against loss or
unauthorized use and to produce the records necessary for the preparation of
financial information. There are limits inherent in all systems of internal
control based on the recognition that the costs of such systems should be
related to the benefits to be derived. We believe the Company's systems provide
this appropriate balance.
The control environment is complemented by the Company's internal audit function
which performs audits and evaluates the adequacy of and the adherence to these
controls, policies and procedures. In addition, the Company's independent
accountants have developed an understanding of our accounting and financial
controls and have conducted such tests as they consider necessary to support
their report on the Company's financial statements.
The Board of Directors pursues its oversight role for the financial statements
through the Audit Committee, which consists solely of independent directors. The
Audit Committee meets regularly with management, the corporate internal auditors
and the Company's independent accountants, PricewaterhouseCoopers LLP, to review
management's process of implementation and administration of internal accounting
controls, and auditing and financial reporting matters. The independent and
internal auditors have unrestricted access to the Audit Committee.
The Company maintains high standards in selecting, training and developing
personnel to help ensure that management's objectives of maintaining strong,
effective internal controls and unbiased, uniform reporting standards are
attained. We believe it is essential for the Company to conduct its business
affairs in accordance with the highest ethical standards as expressed in The
Stride Rite Corporation's Code of Ethics.
/s/ David M. Chamberlain /s/ John M. Kelliher
David M. Chamberlain John M. Kelliher
Chairman of the Board of Chief Financial Officer
Directors and Chief and Treasurer
Executive Officer
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
The Stride Rite Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Stride
Rite Corporation and its subsidiaries at December 3, 1999 and November 27, 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 3, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of The Stride Rite Corporation's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the 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, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts /s/PricewaterhouseCoopers LLP
January 6, 2000 PricewaterhouseCoopers LLP
<PAGE>
BOARD OF DIRECTORS
David M. Chamberlain
Chairman of the Board of Directors
and Chief Executive Officer
Warren Flick
Co-chairman of the Board, eSave Network, Inc.
Donald R. Gant
Limited Partner, The Goldman Sachs Group, L.P.
Joanna M. Jacobson
Former President of The Keds Corporation
Frank R. Mori
President and Chief Executive Officer,
Takihyo, Inc.
Robert L. Seelert
Chairman, Saatchi & Saatchi, plc.
Myles J. Slosberg
Attorney and Former Chairman and Chief Executive Officer of the Company
Diane M. Sullivan
President and Chief Operating Officer
W. Paul Tippett, Jr.
Principal, Ann Arbor Partners
Bruce Van Saun
Senior Executive Vice President and Chief Financial Officer
The Bank of New York
<PAGE>
SENIOR MANAGEMENT
David M. Chamberlain
Chairman of the Board of Directors
and Chief Executive Officer
Diane M. Sullivan
President and Chief Operating Officer
Frank A. Caruso
Vice President and Corporate Controller
Peter J. Charles
Senior Vice President and General Manager,
Stride Rite Sourcing International, Inc.
Janet M. DePiero
Vice President, Human Resources
Daniel R. Friedman
President, The Keds Corporation
Sandy Hayakawa
President, Tommy Hilfiger Footwear
John M. Kelliher
Chief Financial Officer and Treasurer
Thomas L. Nelson
President, Sperry Top-Sider, Inc.
Charles W. Redepenning, Jr.
General Counsel, Secretary and Clerk
Gerrald B. Silverman
President, Stride Rite Children's Group, Inc.
Richard T. Thornton
Vice President, Operations
Robert H. White
Senior Vice President, Information Technology
<PAGE>
CORPORATE DATA
EXECUTIVE OFFICES
191 Spring Street
P.O. Box 9191
Lexington, Massachusetts 02420-9191
(617) 824-6000
Internet addresses: www.strideritecorp.com
www.striderite.com
www.keds.com
www.sperrytopsider.com
MAJOR SUBSIDIARIES
The Keds Corporation
Sperry Top-Sider, Inc.
SR/ecom, Inc.
Stride Rite Canada Limited
Stride Rite Children's Group, Inc.
Stride Rite International Corp.
Stride Rite Sourcing International, Inc.
Tommy Hilfiger(R) Footwear, Inc.
Independent Accountants
PricewaterhouseCoopers LLP
Boston, Massachusetts
STOCK LISTING
The Stride Rite Corporation's common stock is listed on the New York Stock
Exchange and is identified by the symbol SRR.
ANNUAL MEETING
The 2000 Annual Meeting of Stockholders of The Stride Rite Corporation is
scheduled to be held on Thursday, April 13, 2000 at 10:00 a.m. at the Company's
Corporate Headquarters, 191 Spring Street, Lexington, Massachusetts.
<PAGE>
TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND AUTOMATIC DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLANS Communication concerning transfer
requirements, address changes, dividend reinvestment and stock purchase plan
enrollment, and lost certificates should be addressed to:
BankBoston, N.A.
Equiserve Limited Partnership
P.O. Box 8040
Boston, MA 02266-8040
Internet address: www.equiserve.com
The telephone number is (781) 575-3170.
Form 10-K
This Annual Report to Shareholders, the Company's Annual Report on Form 10-K and
its quarterly filings with The Securities and Exchange Commission are available
on the Company's website - www.strideritecorp.com. The Stride Rite Corporation's
Form 10-K is also available by mail, without charge, and may be obtained by
writing to Shareholder Relations at the Company's executive offices.
COMMON STOCK PRICES
1999 1998
- -------------------------------------------------------------
Fiscal Quarter High Low High Low
- -------------------------------------------------------------
1st 11 7/16 7 13/16 12 3/8 10 13/16
2nd 13 1/4 10 3/8 13 9/16 11 3/4
3rd 11 9/16 8 1/8 15 11/16 9 1/2
4th 9 6 1/8 10 1/8 6 7/8
Based on closing prices on the New York Stock
Exchange - Composite Tape.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE STRIDE RITE CORPORATION
The subsidiaries of the Registrant, all of which are wholly owned by the
Registrant except for PSR Footwear Company Limited (49.5% owned), are listed
below:
Place of Incorporation
Boston Footwear Group, Inc. Massachusetts
Stride Rite Children's Group, Inc. Massachusetts
Stride Rite International Corp. Massachusetts
Stride Rite Sourcing International, Inc. Massachusetts
Sperry Top-Sider, Inc. Massachusetts
The Keds Corporation Massachusetts
SR/Ecom, Inc. Massachusetts
Tommy Hilfiger Footwear, Inc. Massachusetts
Stride Rite Investment Corporation Massachusetts
Stride Rite Manufacturing of Missouri, Inc. Missouri
SRR, Inc. Delaware
SR Holdings Inc. Delaware
SRL, Inc. Delaware
SR California Inc. California
Stride Rite Export, Limited Jamaica
Stride Rite Canada Limited Canada
S.R. Footwear Limited Bermuda
Stride Rite de Mexico, S.A. de C.V. Mexico
PSR Footwear Company Limited Thailand
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
The Stride Rite Corporation:
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (SEC File No. 333-51161 and 333-51163) of The Stride Rite Corporation
of our reports dated January 6, 2000 on our audits of the consolidated financial
statements and financial statement schedules of The Stride Rite Corporation as
of December 3, 1999 and November 27, 1998 and for the years ended December 3,
1999, November 27, 1998 and November 28, 1997 which reports are included or
incorporated by reference in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
February 24, 2000
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The notes to the condensed consolidated financial statements are an integral
part of such statements and the condensed consolidated financial information in
this schedule. Figures below are in thousands, except per-share data.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-03-1999 DEC-03-1999
<PERIOD-END> DEC-03-1999 DEC-03-1999
<CASH> 57,186 57,186
<SECURITIES> 0 0
<RECEIVABLES> 57,429 57,429
<ALLOWANCES> 9,951 9,951
<INVENTORY> 121,167 121,167
<CURRENT-ASSETS> 257,029 257,029
<PP&E> 111,656 111,656
<DEPRECIATION> 44,231 44,231
<TOTAL-ASSETS> 346,192 346,192
<CURRENT-LIABILITIES> 90,478 90,478
<BONDS> 0 0
0 0
0 0
<COMMON> 14,237 14,237
<OTHER-SE> 236,258 236,258
<TOTAL-LIABILITY-AND-EQUITY> 346,192 346,192
<SALES> 102,307 572,696
<TOTAL-REVENUES> 102,307 572,696
<CGS> 65,262 362,108
<TOTAL-COSTS> 65,262 362,108
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (83) 1,125
<INTEREST-EXPENSE> 54 1,760
<INCOME-PRETAX> 682 42,656
<INCOME-TAX> 283 16,232
<INCOME-CONTINUING> 399 26,424
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 399 26,424
<EPS-BASIC> .01 .57
<EPS-DILUTED> .01 .57
</TABLE>
