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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0000950123-01-501463.txt : 20010501
<SEC-HEADER>0000950123-01-501463.hdr.sgml : 20010501
ACCESSION NUMBER: 0000950123-01-501463
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20010131
FILED AS OF DATE: 20010430
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MOVADO GROUP INC
CENTRAL INDEX KEY: 0000072573
STANDARD INDUSTRIAL CLASSIFICATION: WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS [3873]
IRS NUMBER: 132595932
STATE OF INCORPORATION: NY
FISCAL YEAR END: 0131
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-22378
FILM NUMBER: 1617215
BUSINESS ADDRESS:
STREET 1: 125 CHUBB AVE
CITY: LYNDHURST
STATE: NJ
ZIP: 07071
BUSINESS PHONE: 2014604800
MAIL ADDRESS:
STREET 1: 125 CHUBB AVE
CITY: LYNDHURST
STATE: NJ
ZIP: 07071
FORMER COMPANY:
FORMER CONFORMED NAME: NORTH AMERICAN WATCH CORP
DATE OF NAME CHANGE: 19930916
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>y48189e10-k.txt
<DESCRIPTION>MOVADO GROUP, INC.
<TEXT>
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 AND EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JANUARY 31, 2001,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22378
MOVADO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK 13-2595932
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
125 CHUBB AVENUE 07071
LYNDHURST, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 460-4800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
NAME OF EACH EXCHANGE ON WHICH REGISTERED:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT;
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the closing sales price of the Common Stock as of April 20, 2001,
the aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $139,736,884. For purposes of this computation,
each share of Class A Common Stock is assumed to have the same market value as
one share of Common Stock into which it is convertible and only shares of stock
held by directors and executive officers were excluded.
The number of shares outstanding of the registrant's Common Stock and Class
A Common Stock as of April 20, 2001 were 9,687,960 and 3,509,733 respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to Registrant's 2001
annual meeting of shareholders (the "Proxy Statement") are incorporated by
reference in Part III hereof.
- --------------------------------------------------------------------------------
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<PAGE> 2
PART I
Item 1. Business
CORPORATE ORGANIZATION
The registrant, Movado Group, Inc. is a designer, manufacturer and distributor
of quality watches with prominent brands sold in almost every price category
comprising the watch industry. The Company was incorporated in New York in 1967
to acquire Piaget Watch Corporation and Corum Watch Corporation, which had been,
respectively, the exclusive importers and distributors of Piaget and Corum
watches in the United States since the 1950's. The registrant and its
subsidiaries are referred to herein as "Movado Group, Inc.," or the "Company"
unless the context otherwise requires.
In 1970, the Company acquired the Swiss manufacturer of Concord watches, which
had been manufacturing Concord watches since 1908, and in 1983, the Company
acquired the U.S. distributor of and substantially all the assets related to the
Movado watch brand from the Swiss manufacturer of Movado watches.
On October 7, 1993, the Company completed a public offering of 2,666,667 shares
of common stock, par value $.01 per share (the "Common Stock"). In connection
with the public offering, each share of the then currently existing Class A
Common Stock was converted into 10.46 shares of new Class A Common Stock, par
value of $.01 per share (the "Class A Common Stock"). Each share of Common Stock
is entitled to one vote per share and each share of Class A Common Stock is
entitled to 10 votes per share on all matters submitted to a vote of the
shareholders. Each holder of shares of Class A Common Stock is entitled to
convert, at anytime, any and all such shares into the same number of shares of
Common Stock. Each share of Class A Common Stock is converted automatically into
Common Stock in the event that the beneficial or record ownership of such shares
of Class A Common Stock is transferred to any person, except to certain family
members or affiliated persons deemed "permitted transferees" pursuant to the
Company's Amended Restated Certificate of Incorporation. The Common Stock is
traded on the NASDAQ National Market under the trading symbol "MOVA".
On October 21, 1997, the Company completed a secondary stock offering in which
1,500,000 shares of Common Stock were issued.
On February 22, 1999, the Company completed the sale of its Piaget business to
VLG North America, Inc. ("VLG"). The Company sold all of its rights, title and
interest in substantially all the assets and properties relating to the business
of selling and distributing Piaget watches and jewelry in the United States,
Canada, Central America and the Caribbean.
On January 14, 2000, the Company completed the sale of its Corum business to
Corum Reis Bannwart & Co. SA ("Corum Switzerland"). The Company sold all of its
rights, title and interest in substantially all the assets and properties
relating to the business of selling and distributing Corum watches in the United
States, Canada and the Caribbean.
With executive offices in Woodcliff Lake and Lyndhurst, New Jersey, the Company
operates wholly owned subsidiaries in Canada, Hong Kong, Japan, Singapore,
Switzerland and the United States.
1
<PAGE> 3
INDUSTRY OVERVIEW
The largest markets for watches are North America, Western Europe and the Far
East. While exact worldwide wholesale sales volumes are difficult to quantify,
the Company estimates from data obtained from the Federation of the Swiss Watch
Industry that worldwide wholesale sales of watches and related components are
over $12 billion annually. Watches are produced predominantly in Switzerland,
Hong Kong/China and Japan. According to the Federation of the Swiss Watch
Industry, Switzerland, Hong Kong/China and Japan accounted for approximately
53%, 37% and 1% respectively, of worldwide watch exports based on units in 2000.
Among all the major watch exporting countries, Swiss watches have the highest
average unit value.
The Company divides the watch market into six principal categories as set forth
in the following table:
<TABLE>
<CAPTION>
PRIMARY CATEGORY OF
SUGGESTED RETAIL MOVADO GROUP, INC.
MARKET CATEGORY PRICE RANGE BRANDS
--------------------- -------------------------- -----------------------
<S> <C> <C>
Exclusive $10,000 and over Concord
Luxury $1,000 to $9,999 Concord
Premium $500 to $999 Movado and Coach
Moderate $125 to $499 ESQ and Coach
Fashion Watch Market $55 to $125 Tommy Hilfiger
Mass Market Less than $55 __
</TABLE>
The Company's Concord watches compete primarily in the Luxury category of the
market, although certain Concord watches compete in the Exclusive and Premium
categories. The Company's Movado watches compete primarily in the Premium
category of the market, although certain Movado watches compete in the
Exclusive, Luxury and Moderate categories. The Company's Coach brand competes in
both the Premium and Moderate categories. The ESQ line competes in the Moderate
category of the market. The Company entered the Fashion Watch Market category in
March 2001 with the launch of the Tommy Hilfiger line of watches manufactured,
distributed and marketed under a license agreement with Tommy Hilfiger
Licensing, Inc. The Company does not currently sell watches in the Mass Market
category.
Exclusive Watches
Exclusive watches are usually made of precious metals, including 18 karat gold
or platinum, and may be set with precious gems, including diamonds, emeralds,
rubies and sapphires. These watches are primarily mechanical or quartz-analog
watches. Mechanical watches keep time with intricate mechanical movements
consisting of an arrangement of wheels, jewels and winding and regulating
mechanisms. Quartz-analog watches have quartz movements in which time is
precisely calibrated to the regular frequency of the vibration of quartz
crystal. Exclusive watches are manufactured almost entirely in Switzerland. In
addition to the Company's Concord and Movado watches, well-known brand names of
Exclusive watches include Audemars Piguet, Patek Philippe, Piaget and Vacheron
Constantin.
2
<PAGE> 4
Luxury Watches
Luxury watches are either quartz-analog watches or mechanical watches. These
watches typically are made with either 14 or 18 karat gold, stainless steel or a
combination of gold and stainless steel, and are occasionally set with precious
gems. Luxury watches are primarily manufactured in Switzerland. In addition to a
majority of the Company's Concord and certain Movado watches, well-known brand
names of Luxury watches include Baume & Mercier, Breitling, Cartier, Ebel,
Omega, Rolex and TAG Heuer.
Premium Watches
The majority of Premium watches are quartz-analog watches. These watches
typically are made with gold finish, stainless steel or a combination of gold
finish and stainless steel. Premium watches are manufactured primarily in
Switzerland, although some are manufactured in the Far East. In addition to a
majority of the Company's Movado, Coach and certain Concord watches, well-known
brand names of Premium watches include Gucci, Rado and Raymond Weil.
Moderate Watches
Most Moderate watches are quartz-analog watches. Moderate watches are
manufactured primarily in the Far East and Switzerland. These watches typically
are made with gold finish, stainless steel, brass or a combination of gold
finish and stainless steel. In addition to the Company's ESQ and Coach brands,
well-known brand names of watches in the Moderate category include Anne Klein,
Bulova, Gucci, Guess, Seiko, Citizen and Wittnauer.
Fashion Watch Market Watches
Watches comprising the Fashion Watch Market are primarily quartz-analog watches
but also include some digital watches. Digital watches, unlike quartz-analog
watches, have no moving parts. Instead, time is kept by electronic microchips
and is displayed as discrete Arabic digits illuminated on the watch face by
light emitting diodes (LED's) or liquid crystal displays (LCD's). Watches in the
Fashion Watch Market category are generally made with stainless steel, gold
finish, brass and/or plastic and are manufactured primarily in the Far East.
Fashion Watch Market watches are based on designs and use features that attempt
to reflect current and emerging fashion trends. Many are sold under licensed
designer and brand names that are well known principally in the apparel
industry. Well-known brands of Fashion Watch Market watches include Anne Klein
II, DKNY, Guess?, Kenneth Cole, Swatch and Fossil. The Company entered this
category in March 2001 with the launch of the Tommy Hilfiger line of watches
produced and sold under license from Tommy Hilfiger Licensing, Inc.
Mass Market Watches
Mass market watches typically consist of digital watches and analog watches
made from stainless steel, brass and/or plastic manufactured in the Far East.
Well known brands include Armatron, Casio, Citizen, Pulsar, Seiko and Timex.
3
<PAGE> 5
PRODUCTS
During Fiscal 2001, the Company marketed five distinctive brands of watches:
Movado, Concord, ESQ, Coach and Tommy Hilfiger, which compete in the Exclusive,
Luxury, Premium, Moderate and Fashion Watch Market categories. The Company
designs, manufactures and contracts for the assembly of Movado and Concord
watches primarily in Switzerland, as well as in the United States, for sale
throughout the world. ESQ and Tommy Hilfiger watches are manufactured to the
Company's specifications by independent contractors located in the Far East. ESQ
watches are presently sold primarily in the United States, Canada and the
Caribbean. Tommy Hilfiger watches are presently sold in the United States. Coach
watches are assembled in Switzerland by independent suppliers and primarily sold
in North America, Caribbean and Far East. Until the end of fiscal 1999, the
Company distributed Piaget watches. On February 22, 1999, the Company sold its
Piaget business to VLG. Until the end of fiscal 2000, the Company distributed
Corum watches. On January 14, 2000, the Company sold its Corum business to Corum
Switzerland.
Movado
Founded in 1881 in La Chaux-de-Fonds, Switzerland, the Movado brand today
includes a line of watches based on the design of the world famous Movado Museum
watch and a number of other watch collections with more traditional dial
designs. The design for the Movado Museum watch was the first watch design
chosen by the Museum of Modern Art for its permanent collection. It has since
been honored by 10 other museums throughout the world. All Movado watches have
Swiss movements, and are made with 14 or 18 karat gold, 18 karat gold finish,
stainless steel or a combination of 18 karat gold finish and stainless steel.
The majority of Movado watches have suggested retail prices between
approximately $195 and $4,000.
Concord
Concord was founded in 1908 in Bienne, Switzerland. All Concord watches have
Swiss movements, either quartz or mechanical. Concord watches are made with 18
karat gold, stainless steel or a combination of 18 karat gold and stainless
steel, except for Concord Royal Gold watches, most of which are made with 14
karat gold. The majority of Concord watches have suggested retail prices between
approximately $1,000 and $15,000.
Coach
During fiscal 1999, the Company introduced Coach watches under an exclusive
license with Coach, Inc. All Coach watches contain Swiss movements and are made
with stainless steel, gold finish or a combination of stainless steel and gold
finish with leather straps, stainless steel bracelets or gold finish bracelets.
The suggested retail prices range from $195 to $795.
ESQ
ESQ was launched in the second half of fiscal 1993 under an exclusive license
agreement with The Hearst Corporation. All ESQ watches contain Swiss movements
and are made with stainless steel, gold finish or a combination of stainless
steel and gold finish, with leather straps, stainless steel bracelets or gold
finish bracelets. The ESQ brand consists of sport and fashion watches with
suggested retail prices ranging from $125 to $495, with features and styles
comparable to more expensive watches.
4
<PAGE> 6
Tommy Hilfiger
The Company launched Tommy Hilfiger watches in March 2001, under an exclusive
agreement with Tommy Hilfiger Licensing, Inc. Marketed under the TOMMY
HILFIGER(R) and TOMMY(R) labels. Tommy Hilfiger watches feature quartz, digital
and analog-digital movements, with stainless steel, titanium, aluminum,
silver-tone, two-tone and gold-tone cases and bracelets, and leather, fabric,
plastic and rubber straps. The line includes fashion and sport models with
suggested retail prices from $55 to $195.
Other Revenue
During fiscal 2001, sales of other products and services totaled approximately
$45.1 million, or approximately 14% of consolidated net sales. Approximately
$39.3 million of this other revenue is derived from the Company's retail
operations which consist of 23 outlet stores and seven Movado Boutiques. The
outlet stores sell discontinued models and factory seconds of all of the
Company's watch brands. The Movado Boutiques sell selected models of Movado
watches as well as proprietary jewelry, home and personal accessory lines which
were launched in 1998. The jewelry, home and personal accessory lines are sold
exclusively in the Movado Boutiques. Other revenue also includes the Company's
after sales service and watch repair operations.
WARRANTY AND REPAIR
The Company has service facilities around the world including eight
Company-owned service facilities and approximately 120 authorized independent
service centers. The Company conducts training sessions for and distributes
technical information and updates to repair personnel in order to maintain
consistency and quality at its service facilities and authorized independent
service centers. The Company's products are covered by limited warranties
against defects in materials and workmanship for periods ranging from one to
three years from the date of purchase for movements and up to five years for
Movado watch casings and bracelets. Products that are returned under warranty to
the Company are generally serviced by the Company's employees at its service
facilities.
Historically, the Company retained significant inventories of component parts
to facilitate after sales service of its watches for an extended period of
time after the discontinuance of such watches from its core range line. During
fiscal 1999, the Company decided that it would no longer retain this level of
non-core component inventories and took steps to begin assembling some of these
components into finished watches for resale through liquidation channels and its
outlet stores.
ADVERTISING
Advertising is important to the successful marketing of the Company's watches.
Hence, the Company devotes significant resources to advertising. Since 1972, the
Company has maintained its own in-house advertising department which the Company
restructured to focus primarily on the implementation and management of global
marketing and advertising programs. At the time, the Company also shifted the
creative development of advertising campaigns to an outside agency with no
increase in cost. Advertising expenditures totaled approximately 19.4%, 21.0%
and 19.4% of net sales in fiscal 2001, 2000 and 1999, respectively. Advertising
is developed individually for each of the Company's watch
5
<PAGE> 7
brands and is directed primarily to the ultimate consumer rather than to
trade customers and is developed by targeting consumers with particular
demographic characteristics appropriate to the image and price range of the
brand. Advertisements are placed predominately in magazines and other print
media, but are also created for radio and television campaigns, catalogues and
promotional materials.
SALES AND DISTRIBUTION
Overview
The Company divides its business into two major geographic segments: "Domestic"
which includes the results of the Company's United States and Canadian
operations and "International" which includes the results of all other Company
operations. The Company's international operations are principally conducted in
Europe and the Far East.
Domestic Wholesale
The Company sells all of its brands in the domestic market primarily through
department stores, such as Macy's, Neiman-Marcus and Saks Fifth Avenue; jewelry
store chains, such as Zales, Helzberg and Sterling; and independent jewelers.
Sales to trade customers in the United States and Canada are made directly by
the Company's sales force of approximately 105 employees who typically
specialize in a particular brand. A majority of the sales force is compensated
solely on the basis of commissions, which are determined as a percentage of
sales. Zale Corporation accounted for 10%, 13% and 10% of the Company's
consolidated net sales for fiscal 2001, 2000 and 1999, respectively. At
January 31, 2001 and 2000, the same trade customer accounted for 13% and 18% of
consolidated trade receivables, respectively.
International Wholesale
The Company sells Movado, Concord and Coach watches internationally through its
own sales force of approximately 30 employees operating from the Company's sales
and distribution offices in Hong Kong, Singapore, and Switzerland, and also
through a network of approximately 72 independent distributors operating in
numerous countries around the world. A majority of the Company's arrangements
with its international distributors are long term, generally require certain
minimum purchases and restrict the distributor from selling competitive
products.
Retail
In addition to its sales to trade customers and independent distributors, the
Company sells Movado watches as well as Movado jewelry, tabletop accessories and
other product line extensions in seven company-operated Movado Boutiques. The
Company also operates 23 outlet stores which sell discontinued and sample
merchandise and factory seconds, providing the Company with an organized and
efficient method of reducing inventory without competing directly with trade
customers.
BACKLOG
At March 31, 2001, the Company had unfilled customer orders of approximately
$45.8 million, compared to approximately $49.8 million at March 31, 2000. The
Company believes the backlog is affected by a variety of factors, including
seasonality and the scheduling of the manufacture and shipment of products.
6
<PAGE> 8
SOURCES AND AVAILABILITY OF SUPPLIES
Concord watches are generally assembled at the Company's manufacturing facility
in Bienne, Switzerland with some off-site assembly performed principally by
independent Swiss watchmakers. Movado watches are assembled primarily in
Switzerland by independent third party subcontract assemblers. Until the middle
of fiscal 2001, certain lower price point Movado models were assembled by
subcontractors in the Far East. Movado and Concord watches are assembled using
Swiss movements and other components obtained from third party suppliers. Coach
watches are assembled in Switzerland by independent assemblers using Swiss
movements and other components obtained from third party suppliers in
Switzerland and elsewhere. ESQ and Tommy Hilfiger watches are assembled by
independent contractors in the Far East. ESQ watches are manufactured using
Swiss movements and other components purchased from third party suppliers
principally located in the Far East. Tommy Hilfiger watches are manufactured
using movements and other components purchased from third party suppliers
located in the Far East.
A majority of the watch movements used in the manufacture of Movado, Concord and
ESQ watches are purchased from two suppliers. The Company obtains other watch
components for all of its manufactured brands, including movements, cases,
crystals, dials, bracelets and straps from a number of other suppliers.
Precious stones used in the Company's watches are purchased from various
suppliers and are set in the United States and Switzerland. The Company does not
have long-term supply contracts with any of its component parts suppliers.
COMPETITION
The markets for each of the Company's watch brands are highly competitive. With
the exception of The Swatch Group, Ltd. (formerly known as SMH), a large
Swiss-based competitor, no single company competes with the Company across all
of its brands. Certain companies, however, compete with Movado Group, Inc. with
respect to one or more of its watch brands. Certain of these companies have, and
other companies that may enter the Company's markets in the future may have,
substantially greater financial, distribution, marketing and advertising
resources than the Company. The Company's future success will depend, to a
significant degree, upon its continued ability to compete effectively with
regard to, among other things, the style, quality, price, advertising, marketing
and distribution of its watch brands.
TRADEMARKS, PATENTS AND LICENSING AGREEMENTS
Movado Group, Inc. owns the trademarks MOVADO(R), CONCORD(R) and VIZIO(R), as
well as trademarks for the Movado Museum dial design, and related trademarks for
watches in the United States and in numerous other countries. The Company
licenses ESQUIRE(R), ESQ(R) and related trademarks on an exclusive basis for use
in connection with the manufacture, distribution, advertising and sale of
watches pursuant to an agreement with the Hearst Corporation ("Hearst License
Agreement"). The current term of the Hearst License Agreement expires December
31, 2003 but contains options for renewal at the Company's discretion through
December 31, 2018. The Company licenses the trademark COACH(R) and related
trademarks on an exclusive basis for use in connection with the manufacture,
distribution, advertising and sale of watches pursuant to an agreement with
Coach, Inc. ("Coach License Agreement"). Subject to meeting certain performance
goals, the Coach License Agreement expires in March 2008.
7
<PAGE> 9
The Company has also entered into a license agreement with Tommy Hilfiger
Licensing, Inc. ("THLI"), the initial term of which expires December 31, 2005
but which can be extended at the request of the Company through December 31,
2010 if it is in compliance with all material terms of the agreement. Under the
agreement with THLI, the Company has been granted the exclusive license to use
the trademark TOMMY HILFIGER(R) and related trademarks in connection with the
manufacture of watches worldwide and in connection with the marketing,
advertising, sale and distribution of watches at wholesale (and at retail
through its outlet stores) in the United States, Canada, the Caribbean, and in
duty free and U.S. military shops worldwide.
In connection with the sale of the Piaget business to VLG, and the Corum
business to Corum Switzerland, the Company assigned the trademark PIAGET(R)for
watches and jewelry and certain related trademarks in the United States to VLG
and assigned the trademark CORUM(R) and certain related trademarks in the United
States to Corum Switzerland.
The Company also owns and has pending applications for a number of design
patents in the United States and internationally for various watch designs, as
well as designs of watch cases, bracelets and jewelry.
The Company actively seeks to protect and enforce its intellectual property
rights by working with industry associations, anti-counterfeiting organizations,
private investigators and law enforcement authorities, including the United
States Customs Service and, when necessary, suing infringers of its trademarks
and patents. Consequently, the Company is involved from time to time in
litigation or other proceedings to determine the enforceability, scope and
validity of these rights. With respect to the trademarks MOVADO(R) and
CONCORD(R) and certain other related trademarks, the Company has received
exclusion orders that prohibit the importation of counterfeit goods or goods
bearing confusingly similar trademarks into the United States. In accordance
with Customs regulations, these exclusion orders, however, cannot cover the
importation of gray-market Movado or Concord watches because the Company is the
manufacturer of such watches. All of the Company's exclusion orders are
renewable.
EMPLOYEES
As of January 31, 2001, the Company has approximately 838 full-time employees in
its domestic and international operations. No employee of the Company is
represented by a labor union or is subject to a collective bargaining agreement.
The Company has never experienced a work stoppage due to labor difficulties and
believes that its employee relations are good.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS, SEASONALITY, FOREIGN AND
DOMESTIC OPERATIONS
The Company divides its business into two major geographic segments: "Domestic",
which includes the results of the Company's United States and Canadian
operations, and "International", which includes the results of all other Company
operations. The Company's international operations are principally conducted in
Europe and the Far East and its international assets are substantially located
in Europe.
The Company's domestic sales are traditionally greater during the Christmas and
holiday season and are significantly more seasonal than its international sales.
Consequentially, the Company's net sales historically have been higher during
8
<PAGE> 10
the second half of its fiscal year. The second half of each year accounted for
approximately 59.6%, 60.3% and 60.2% of the Company's net sales for the fiscal
years ending January 31, 2001, 2000, and 1999, respectively. The amount of net
sales and operating income generated during the second half of each fiscal year
depends upon the general level of retail sales during the Christmas and holiday
season, as well as economic conditions and other factors beyond the Company's
control. The Company does not expect any significant change in the seasonality
of its domestic business in the foreseeable future. International sales tend to
be less seasonal, particularly those derived from the Middle and Far Eastern
markets.
The Company conducts its business primarily in two operating segments:
"Wholesale" and "Other". The Company's wholesale segment includes the design,
manufacture and distribution of quality watches. The Company's other segment
includes the Company's retail and service center operations. See Note 12 to the
Consolidated Financial Statements for financial information regarding segment
data.
Item 2. Properties
The Company leases various facilities in the United States, Canada, Switzerland,
and the Far East for its corporate, manufacturing, distribution and sales
operations. The Company's leased facilities are as follows:
<TABLE>
<CAPTION>
SQUARE LEASE
LOCATION FUNCTION FOOTAGE EXPIRATION
- -------- -------- ------- ----------
<S> <C> <C> <C>
Moonachie, New Jersey Watch assembly, distribution 100,000 June 2010
and repair
Paramus, New Jersey New executive offices 57,500 July 2013
Lyndhurst, New Jersey Former watch assembly and 57,000 May 2002
distribution
Bienne, Switzerland Corporate functions, watch 52,000 January 2007
sales, distribution,
assembly and repair
Lyndhurst, New Jersey Corporate offices 28,000 December 2001
Woodcliff Lake, New Jersey Executive offices 19,400 July 2001
Markham, Canada Office and distribution 11,200 June 2007
Hong Kong Watch sales, distribution 8,500 June 2004
and repair
Hackensack, New Jersey Warehouse 6,600 July 2004
New York, New York Watch repair and Public 4,900 April 2008
Relations Office
Los Angles, California Watch repair 3,000 December 2002
Miami, Florida Watch repair 2,600 October 2001
Grenchen, Switzerland Watch sales 2,600 March 2005
Toronto, Canada Office 1,600 June 2001
Japan Watch sales 1,500 Month to Month
Singapore Watch sales, distribution 1,100 August 2001
and repair
</TABLE>
The Company believes that its existing facilities are suitable and adequate for
its current operations. The Company leases retail space averaging 1,400 square
feet per store with leases expiring from July 2001 to November 2007 for the
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<PAGE> 11
operation of the Company's 23 outlet stores. The Company also leases retail
space for the operation of each of its nine Movado Boutiques, two opening in
fiscal 2002, averaging 1,960 square feet per store with leases expiring from
January 2005 to January 2012.
The Company also owns approximately 2,400 square feet of office space in Hanau,
Germany, which it previously used for sales, distribution and watch repair
functions. The Company is currently subletting this facility.
The Company will move its Woodcliff Lake, New Jersey offices to its new Paramus,
New Jersey, Corporate Headquarters in July 2001 and its Lyndhurst, New Jersey
offices by the end of 2001. In February 2001 the Company moved its U.S.
Distribution operations from Lyndhurst, New Jersey to a 100,000 sq. ft. facility
in Moonachie, New Jersey. This lease expires in June 2010.
Item 3. Legal Proceedings
The Company is involved in certain legal proceedings arising in the normal
course of its business. The Company believes that none of these proceedings,
either individually or in the aggregate, will have a material adverse effect on
the Company's operating results, liquidity or its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the Company during the
fourth quarter of fiscal 2001.
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<PAGE> 12
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
As of March 26, 2001, there were 46 holders of record of the Class A Common
Stock and, the Company estimates, approximately 2,445 beneficial owners of the
Common Stock represented by 410 holders of record. The Common Stock is traded on
the NASDAQ National Market under the symbol "MOVA" and on March 26, 2001, the
closing price of the Common Stock was $13.39. The quarterly high and low closing
prices for the fiscal years ended January 31, 2001 and 2000 were as follows:
<TABLE>
<CAPTION>
FISCAL 2001 FISCAL 2000
----------- -----------
QUARTER ENDED LOW HIGH LOW HIGH
------------- --- ---- --- ----
<S> <C> <C> <C> <C>
April 30 $8.57 $19.08 $20.75 $25.75
July 31 $7.70 $14.07 $22.88 $27.75
October 31 $13.20 $17.31 $21.63 $27.13
January 31 $11.50 $15.59 $18.63 $25.38
</TABLE>
The Class A Common Stock is not publicly traded and is subject to certain
restrictions on transfer as provided under the Company's Restated Certificate of
Incorporation, as amended and, consequently, there is currently no established
public trading market for these shares.
During the fiscal year ended January 31, 2001, the Board of Directors approved
for each of the first three quarters a cash dividend of $0.025 per share and,
for the fourth quarter, approved an increase of the quarterly cash dividend to
$0.03 per share to Common Stock and Class A Common Stock shareholders. During
the fiscal year ended January 31, 2000, the Board of Directors approved four
$0.025 per share quarterly cash dividends to Common Stock and Class A Common
Stock shareholders. The declaration and payment of future dividends, if any,
will be at the sole discretion of the Board of Directors and will depend upon
the Company's profitability, financial condition, capital and surplus
requirements, future prospects, terms of indebtedness and other factors deemed
relevant by the Board of Directors. See Notes 4 and 5 to the Consolidated
Financial Statements regarding contractual restrictions on the Company's ability
to pay dividends.
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<PAGE> 13
Item 6. Selected Financial Data
The selected financial data presented below has been derived from the
Consolidated Financial Statements. This information should be read in
conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this report. Amounts
are in thousands except per share amounts.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $320,841 $295,067 $277,836 $237,005 $215,107
--------- ----------- ----------- ---------- ----------
Cost of sales 123,392 126,667 111,766 97,456 95,031
Selling, general and
administrative 163,317 152,631 133,395 113,593 99,657
--------- ----------- ----------- ---------- ----------
Total expenses 286,709 279,298 245,161 211,049 194,688
--------- ----------- ----------- ---------- ----------
Operating income 34,132 15,769 32,675 25,956 20,419
Gain on disposition of business 4,752
Net interest expense 6,443 5,372 5,437 5,383 4,874
--------- ----------- ----------- ---------- ----------
Income before income taxes 27,689 15,149 27,238 20,573 15,545
Provision for income taxes 6,922 1,428 6,265 4,731 3,853
--------- ----------- ----------- ---------- ----------
Net income (1) $20,767 $ 13,721 $ 20,973 $15,842 $11,692
========= =========== =========== ========== ==========
Net income per share-Basic $1.78 $1.10 $1.63 $1.35 $1.04
Net income per share-Diluted (1) $1.75 $1.06 $1.58 $1.29 $1.02
Basic shares outstanding 11,651 12,527 12,842 11,736 11,273
Diluted shares outstanding 11,866 12,890 13,256 12,236 11,489
Cash dividends declared per share $0.105 $0.10 $0.08 $0.08 $0.064
BALANCE SHEET DATA (END OF
PERIOD):
Working capital $154,637 $157,465 $191,033 $157,103 $126,690
Total assets 290,405 259,649 296,375 249,069 208,443
Long-term debt 40,000 45,000 55,000 35,000 40,000
Shareholders' equity $159,470 $147,815 $162,608 $145,533 $ 13,870
</TABLE>
(1) Includes $8.3 million pre-tax or $0.46 per share after tax one-time charge
and $4.8 million pre-tax or $0.28 per share after tax gain from the sale of the
Company's Piaget business during 2000. Excluding these items, net income would
have been $15.9 million or $1.24 per share on a diluted basis.
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<PAGE> 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING STATEMENTS
Statements in this annual report on Form 10-K, including statements under this
Item 7 and elsewhere in this report as well as statements in future filings by
the Company with the Securities and Exchange Commission ("SEC"), in the
Company's press releases and oral statements made by or with the approval of an
authorized executive officer of the Company, which are not historical in nature,
are intended to be, and are hereby identified as, "FORWARD LOOKING STATEMENTS"
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934. The Company cautions readers that FORWARD LOOKING
STATEMENTS include, without limitation, those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs, plans
for future operations, effective tax rates, margins, interest costs, and income
as well as assumptions relating to the foregoing. FORWARD LOOKING STATEMENTS are
subject to certain risks and uncertainties, some of which cannot be predicted or
quantified. Actual results and future events could differ materially from those
indicated in the FORWARD LOOKING STATEMENTS, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the SEC including, without
limitation, the following: general economic and business conditions which may
impact disposable income of consumers, changes in consumer preferences and
popularity of particular designs, new product development and introduction,
competitive products and pricing, seasonality, availability of alternative
sources of supply in the case of the loss of any significant supplier, the loss
of significant customers,the Company's dependence on key officers, the
continuation of licensing arrangements with third parties, ability to secure and
protect trademarks, patents and other intellectual property rights, ability to
lease new stores on suitable terms in desired markets and to complete
construction on a timely basis, continued availability to the Company of
financing and credit on favorable terms, business disruptions, general risks
associated with doing business outside the United States including, without
limitations, import duties, tariffs, quotas, political and economic stability,
and success of hedging strategies with respect to currency exchange rate
fluctuations.
GENERAL
Wholesale Sales. Among the more significant factors that influence annual sales
are general economic conditions in the Company's domestic and international
markets, new product introductions, the level and effectiveness of advertising
and marketing expenditures, and product pricing decisions.
Approximately 19% of the Company's total sales are from international markets
and therefore reported sales are affected by foreign exchange rates. Significant
portions of the Company's international sales are billed in Swiss francs and
translated to U.S. dollars at average exchange rates for financial reporting
purposes.
The Company's business is very seasonal. There are two major selling seasons in
the Company's domestic markets: the Spring season, which includes school
graduations and several holidays, and, most importantly, the Christmas and
holiday season. Major selling seasons in certain international markets center
around significant local holidays that occur in late Winter or early Spring.
These markets are a less significant portion of the Company's business and,
therefore, their impact is far less than that of the selling seasons in North
America.
13
<PAGE> 15
During fiscal 2000, the Company completed the sale of both the Piaget and Corum
distribution businesses and substantially all the assets associated with these
businesses. Prior to the sale, the Company had been the exclusive distributor of
these brands in North America. The Company completed the sale of its Piaget
business to VLG in February 1999 and sold its Corum business to Corum
Switzerland in January 2000. The disposition of these brands negatively impacted
sales in fiscal 2000.
Retail Sales. The Company's retail operations consist of 23 outlet stores
located throughout the U.S. and seven full-priced Movado Boutiques. The Company
does not have any overseas retail operations.
The significant factors that influence annual sales volumes in the Company's
retail operations are similar to those that influence domestic wholesale
operations. In addition, many of the Company's outlet stores are located near
vacation destinations and, therefore, the seasonality of these stores is driven
by the peak tourist season associated with these locations.
Gross Margins. The Company's overall gross margins are primarily affected by
four major factors: sales mix, product pricing strategy, manufacturing costs and
the U.S. dollar/Swiss franc exchange rate.
Gross margins vary among the brands included in the Company's portfolio and also
among watch models within each brand. Luxury and premium retail price point
models generally earn lower gross margins than more popular moderate price
models. Gross margins in the Company's outlet business are lower than those of
the wholesale business since the outlets primarily sell seconds and discontinued
models that generally command lower retail prices. Gross margins in the full
priced Movado Boutiques exceed those of the wholesale business since the Company
earns full channel margins from manufacture to point of sale in this business.
All of the Company's brands compete with a number of other brands on the basis
of not only styling but also wholesale and retail price. The Company's ability
to improve margins through price increases is, therefore, to some extent,
constrained by competitors' actions. In addition, the Company's wholesale
operation periodically engages in liquidation sales of discontinued models at
reduced prices. The level of these sales in a particular period can also have a
significant impact on the Company's gross margins.
Manufacturing costs of the Company's brands consist primarily of component
costs, internal and subcontractor assembly costs and unit overhead costs
associated with the Company's supply chain operations in the U.S., Switzerland
and the Far East. The Company seeks to control and reduce component and
subcontractor labor costs through a combination of negotiations with existing
suppliers and alternative sourcing. The Company's supply chain operations
consist of logistics management of assembly operations and product sourcing in
Switzerland and the Far East and minor assembly in the U.S. The Company has
historically controlled the level of overhead costs and maintained flexibility
in its cost structure by outsourcing a significant portion of its component and
assembly requirements and expects to extend this strategy over the near term.
Since a substantial amount of the Company's product costs are incurred in Swiss
francs, fluctuations in the U.S. dollar/Swiss franc exchange rate can impact the
Company's production costs and, therefore, its gross margins. The Company,
therefore, hedges its Swiss franc purchases using a combination of forward
contracts, purchased currency options and spot purchases. The Company's hedging
program has, in the recent past, been reasonably successful in stabilizing
product costs and therefore gross margins despite exchange rate fluctuations.
14
<PAGE> 16
Operating Expenses. The Company's operating expenses consist primarily of
advertising, selling, distribution and general and administrative expenses.
Annual advertising expenditures are based principally on overall strategic
considerations relative to maintaining or increasing market share in markets
that management considers to be crucial to the Company's continued success as
well as on general economic conditions in the various markets around the world
in which the Company sells its products.
Selling expenses consist primarily of sales commissions, sales force costs and
operating costs incurred in connection with the Company's retail business. Sales
commissions vary proportionally with overall sales levels. Retail operating
expenses consist primarily of salaries and store rents.
Distribution expenses consist primarily of salaries of distribution staff, the
cost of part-time help to meet seasonal needs, and shipping costs and supplies.
General and administrative expenses consist primarily of salaries, employee
benefit plan costs, office rent, management information systems costs and
various other general corporate expenses.
Operating expenses over the last three fiscal years reflect the effect of the
implementation of the Company's growth strategy. The more significant expenses
associated with this strategy include advertising and marketing expenses
designed to increase market share for all of the Company's watch brands, both
domestically and internationally; additions to the Company's sales force;
salaries and rents associated with additional outlet stores and the Movado
Boutiques; the addition of staff to support distribution, inventory management
and customer service requirements coincident with growth of the Company's
business; and general and administrative expenses, such as employee benefits and
the development of the Company's information systems infrastructure.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JANUARY 31, 2001, 2000 AND 1999
Net Sales. Comparative net sales by product class were as follows:
FISCAL YEARS ENDED JANUARY 31,
<TABLE>
<CAPTION>
2001 2000 1999
--------- --------- ----------
(in thousands)
<S> <C> <C> <C>
Concord, Movado, Coach and
ESQ:
Domestic $216,390 $200,480 $180,909
International 59,668 56,185 50,940
Piaget and Corum (336) (726) 13,934
Other 45,119 39,128 32,053
--------- --------- ----------
Net Sales $320,841 $295,067 $277,836
========= ========= ==========
</TABLE>
Total net sales increased 8.7% to $320.8 million in fiscal 2001 from $295.1
million in fiscal 2000. Domestic sales increased 9.5% to $260.6 million from
$237.9 million in the prior year. Domestic sales were led by double digit growth
in the Movado brand and high single digit growth in the ESQ brand. International
sales of the Company's core brands increased 6.2% led by the continuing
international rollout of the Coach watch brand in the Far East, which resulted
in a doubling of Coach watch international sales in fiscal 2001 and double digit
growth in the Concord brand.
15
<PAGE> 17
Other net domestic sales, which includes the Company's outlet stores, Movado
Boutiques and after sales service business, increased 16% over the prior year.
This growth was primarily attributable to comparable store sales gains in the
Movado Boutiques of approximately 27% and new store openings in the Company's
outlet stores and Movado Boutiques, offset by a decrease in after sales service
revenues as a result of the sale of the Piaget and Corum businesses. Comparable
store sales in the Company's outlet stores were relatively flat.
Total net sales increased 6.2% for the year ended January 31, 2000. Sales from
ongoing operations, excluding the disposed Piaget and Corum distribution
businesses, increased 13.4% to $295.8 million from $260.9 million in the prior
year. Domestic sales of the Company's core Concord, Movado, ESQ and Coach brands
increased 10.8%. All of the Company's core brands experienced high single or low
double digit percentage growth rates in the domestic market. International sales
of the Company's core brands increased 10.3% led by the continuing international
rollout of the Coach watch brand in the Far East, which resulted in a near
doubling of Coach watch international sales in fiscal 2000. International sales
of the Concord brand also increased approximately 10%.
Other net sales, which includes the Company's outlet stores, Movado Boutiques
and after sales service business, increased 22% over the prior year. This growth
was primarily attributable to double digit comparable store sales gains in both
the outlets and the Boutiques and new store openings in both of these retail
venues, offset by a decrease in after sales service revenues as a result of the
sale of the Piaget business.
Gross Margins. The gross margin for fiscal 2001 was 61.5% as compared to 57.1%
for fiscal 2000. Gross margin increases reflect the improvements the Company
initiated in fiscal 2001. These improvements included the improved availability
of core range products, higher margins on new model introductions, reduction of
product acquisition costs mainly due to the strength of the U.S. dollar against
the Swiss franc and significant reduction of liquidation sales. The gross margin
increase was also due to one time charges of $5.0 million made in fiscal 2000 to
write down non-core component inventories and the $2.3 million book to physical
inventory adjustment during fiscal 2000.
The Company's gross margin decreased from 59.8% in fiscal 1999 to 57.1% in
fiscal 2000 due to the one time charge of $5.0 million to write down non-core
component inventories and $2.3 million book to physical inventory adjustments.
The decrease was also attributed to a higher level of liquidation sales in
fiscal 2000 due to the unavailability of higher margin core range products.
Operating Expenses. Operating expenses for fiscal 2001 were $163.3 million or
50.9% of net sales as compared to $152.6 million or 51.7% of net sales in fiscal
2000. The increase in operating expenses of approximately 7% or $10.7 million
relates to several areas, including advertising and marketing expenses, which
increased $0.4 million or 0.65%; selling expenses, which increased $2.2 million
or 5%; distribution costs, which decreased $0.2 million or 2%, and general and
administrative expenses, which increased $8.3 million or 21%.
The increase in advertising costs were the results of an increase of $1.3
million in the Movado Boutiques and cooperative advertising programs offset by a
decrease of expenditures for special events, point of sale support material such
as displays and product brochures and media advertising programs. Increases in
advertising expenses at the Movado Boutiques reflect the costs associated with
new business initiatives.
16
<PAGE> 18
Selling expenses increased in both the Company's wholesale and retail
businesses. Increases in selling expenses in the wholesale business primarily
reflects higher levels of sales commissions due to sales increases in the Movado
brands and increases in head count to support the launch of the
Tommy Hilfiger line.
Increases in selling expenses associated with the Company's retail operations
relate primarily to the addition of one new outlet and two new Movado Boutiques
in fiscal 2001 as well as the annualized cost of stores opened during fiscal
2000.
Distribution expenses are largely variable in nature and these expenses grew
proportionately with increases in unit volume shipments offset by a nonrecurring
charge of $1.0 million made in fiscal 2000, for expenses related to the
relocation of the Company's U.S. distribution operations.
Increases in general and administrative expenses were substantially due to the
recording of a management bonus as a result of exceeding corporate performance
targets, a moving and relocation expense associated with the shutdown of the
distribution and service center in Lyndhurst, N.J. and costs associated with new
business initiatives including staffing costs for the launch of the Tommy
Hilfiger brand, Movado Boutiques and Company outlet stores. In addition, there
were cost increases in a small number of general and administrative expenses
which are consistent with industry cost increases.
Operating expenses for fiscal 2000 were $152.6 million or 51.7% of net sales as
compared to $133.4 million or 48.0% of net sales in fiscal 1999. The increase in
operating expenses of approximately 14% or $19.2 million relates to several
areas, including advertising and marketing expenses, which increased $8.1
million or 15%; selling expenses, which increased $4.5 million or 12%;
distribution costs, which increased $2.3 million or 38%, and general and
administrative expenses, which increased $4.3 million or 12%.
The increase in advertising costs related to increased media and cooperative
advertising programs with retailers in support of the Company's brands, higher
advertising production costs due to the launch of new media campaigns for both
the Concord and ESQ brands, increased spending on point of sale support material
such as displays and product brochures, and the development of a new advertising
and marketing management team.
Selling expenses increased in both the Company's wholesale and retail
businesses. Selling expenses in the wholesale business primarily reflect higher
levels of sales commissions due to sales increases across the Company's brands.
Headcount increases in the Coach and ESQ brands to support growth also resulted
in increased compensation and travel expenses. Selling expenses for fiscal 2000
also reflect the first year of amortization of the Company's major trade show
exhibition facility constructed for use at the annual Basel International Watch
and Jewelry Show.
Increases in selling expenses associated with the Company's retail operations
relate primarily to the addition of four new outlets and one new Movado Boutique
in fiscal 2000 as well as the annualization of cost of stores opened during
fiscal 1999.
Increases in distribution expenses include a nonrecurring charge associated with
the planned relocation of the Company's U.S. distribution operations. The
remaining increase is due to the variable nature of distribution expenses which
grew proportionately with increases in unit volume shipments.
17
<PAGE> 19
Increases in general and administrative expenses were primarily in the area of
human resources and information systems. The Company experienced increases in
employee benefit costs associated with a growing workforce as well as recruiting
fees, specifically associated with the hiring of two senior executives in the
fourth quarter. Information systems related expenses increased as the Company
began amortizing its significant investment in its new U.S. core system
effective with the March 1999 implementation date and incurred Year 2000
remediation expenses relative to systems in Switzerland and its other
international subsidiaries. The Company also added information systems support
personnel in fiscal 2000.
Interest Expense. Net interest expense in fiscal 2001 increased $1.0 million
from $5.4 million in fiscal 2000 to $6.4 million in fiscal 2001. The increase in
interest expense was primarily a result of a decrease in investment income from
the investment of the $28.4 million proceeds from the Company's sale of the
Piaget business in February 1999. Gross interest expense decreased by $148,000
or 2.4% due to a decrease in the average revolving credit and working capital
borrowings from $40.3 million in fiscal 2000 to $31.7 million in fiscal 2001, a
21% reduction of debt, offset by an increase in average interest rates. In
addition, a $5.0 million payment on the Senior Note borrowings was made in
January 2000, interest for this borrowing was reduced by approximately $0.3
million.
Net interest expense for fiscal 2000 and 1999 was $5.4 million and consisted
primarily of interest on the Company's 6.56% Senior Notes, 6.90% Series A Senior
Notes, revolving lines of credit and borrowings against working capital lines.
Income Taxes. The Company's income tax provision amounted to $6.9 million, $1.4
million, and $6.3 million for fiscal 2001, 2000 and 1999, respectively, or 25%
of pretax income for fiscal 2001, 9.4% for fiscal 2000 and 23% for fiscal 1999.
Also, a portion of the Company's consolidated operations are located in non-U.S.
jurisdictions, and, therefore, the Company's effective rate differs from U.S.
statutory rates. The majority of the Company's non-U.S. operations are located
in jurisdictions with statutory rates below U.S. rates. The Company believes
that the near term future effective tax rate will stabilize in the 25% to 30%
range reflecting the Company's current expectation that domestic earnings will
gradually increase as a percentage of the overall earnings mix. However, there
can be no assurance of this result as it is dependent on a number of factors,
including the mix of foreign to domestic earnings, local statutory tax rates and
the Company's ability to utilize net operating loss carryforwards in certain
jurisdictions.
LIQUIDITY AND FINANCIAL POSITION
Operating activities generated cash flows of $25.3 million in fiscal 2001, $28.3
million in fiscal 2000 and ($9.1) million in fiscal 1999. Cash flows from
operating activities in fiscal 2001 were less than fiscal 2000 mainly due to
increased inventory positions. Operating cash flows in fiscal 2000 increased
from fiscal 1999 due to a reduction in working capital.
The Company used cash of $11.7 million in fiscal 2001 for investing activities,
primarily for capital expenditures. This compared to a cash inflow of $17.5
million in fiscal 2000 mainly as a result of the sale of its Piaget business to
VLG for $28.4 million in cash. In fiscal 1999, $10.9 million of cash was
utilized in investing activities, primarily for capital expenditures.
Capital expenditures amounted to $10.8 million in fiscal 2001 and related
primarily to management information systems projects, the addition of one outlet
store and two Movado Boutiques and the build out of the new distribution center
in Moonachie, New Jersey. The Company's capital expenditures for fiscal 2000 and
18
<PAGE> 20
fiscal 1999 amounted to $10.1 million and $11.7 million, respectively.
Expenditures in fiscal 2000 were primarily related to management information
systems projects, the addition of four new outlet stores and one Movado
Boutique, and construction of a major tradeshow exhibition facility used
annually at the Basel International Watch and Jewelry show. Expenditures in
fiscal 1999 were primarily related to planned expenditures for the Company's
information systems, including retail information systems, expansion of the
Company's Movado Boutiques and further expansion of the Company's network of
outlet stores. The Company expects that annual capital expenditures in the near
term will approximate the levels experienced in fiscal 2001 and 2000 and will
relate primarily to relocating its U.S. headquarters, various information
systems projects and leasehold improvements associated with additional Movado
Boutiques and outlet stores.
Cash used in financing activities amounted to $17.4 million in fiscal 2001. This
compares to $22.1 million of cash used in and $18.6 million of cash provided by
financing activities in fiscal 2000 and 1999, respectively.
At January 31, 2001 the Company had two series of Senior Notes outstanding.
Senior Notes due January 31, 2005 were originally issued in a private placement
completed in fiscal 1994. These notes have required annual principal payments of
$5.0 million since January 1998. The Company repaid $5 million and $10 million
in principal amount of these notes in fiscal 2001 and fiscal 2000, respectively.
At January 31, 2001, $20 million in principal amount of these notes remained
outstanding.
During fiscal 1999, the Company issued $25 million of Series A Senior Notes
under a Note Purchase and Private Shelf Agreement dated November 30, 1998. The
$25 million Series A Senior Notes bear interest at 6.90%, mature on October 30,
2010 and are subject to annual repayments of $5.0 million commencing October 31,
2006.
On March 21, 2001, the Company entered into a new Note Purchase and Private
Shelf Agreement which allows for the issuance for up to three years after the
date thereof, of senior promissory notes in the aggregate principal amount of up
to $40 million with maturities up to 12 years from their original date of
issuance.
The Company finances its seasonal working capital requirements through
borrowings under its bank lines of credit. The Company borrows from its bank
group under both a $100 million unsecured revolving line and $15.0 million of
uncommitted working capital lines of credit. The borrowings are governed under a
three year renewed Bank Credit Agreement dated June 22, 2000, among the Company
and its bank group, which replaced a previous agreement dated July 23, 1997. The
previous agreement provided for a $90 million unsecured revolving line and $31.6
million of annually renewable working capital lines of credit. At January 31,
2001, the Company had $8.8 million of outstanding borrowings under its bank
lines as compared to $13.5 million at January 31, 2000.
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary buy-back program
throughout fiscal 2001. Share repurchases under the repurchase program amounted
to $7.3 million, $17.6 million and $0.6 million in fiscal 2001, 2000 and 1999,
respectively. As of January 31, 2001, the Company had authority to repurchase
$4.5 million against an aggregate authorization of $30 million.
During fiscal 1999, the Company repurchased $2.3 million of stock under a
400,000 share program that had been authorized by the Board of Directors in
19
<PAGE> 21
March 1998. This program had been put in place to mitigate the dilutive impact
of employee compensation programs.
Cash dividends in fiscal 2001 amounted to $1.2 million compared to $1.2 million
in fiscal 2000 and $1.0 million in fiscal 1999.
Cash and cash equivalents at January 31, 2001 amounted to $23.1 million compared
to $26.6 million at January 31, 2000. Net debt to total capitalization at
January 31, 2001 was 16% as compared to 20% at January 31, 2000.
In summary, the Company made significant progress in fiscal 2001 in maintaining
its liquidity primarily through the success of its operating expense reduction
initiatives and increased product profitability. The Company plans to continue
to focus on improving its cash flows in fiscal 2002.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, which is effective for the
Company as of February 1, 2001. SFAS 133 requires that an entity recognizes all
derivatives as either assets or liabilities measured at fair value. Changes in
derivative fair values will either be recognized in earnings as offsets to the
changes in fair values of related hedged assets, liabilities and firm
commitments or, for forecasted transactions, deferred and recorded as a
component of other stockholders' equity until the hedged transactions occur and
are recognized in earnings. The ineffective portion of a hedging derivative's
change in fair value will be immediately recognized in earnings. Adoption of
this statement is not expected to materially impact the Company's financial
statements.
In December 1999, the Securities and Exchange Commission "SEC", issued Staff
Accounting Bulletin No. 101, "SAB 101", "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views in applying
accounting principles generally accepted in the United States to revenue
recognition in financial statements. The Company adopted the guidance of this
bulletin during fiscal 2001, which had no material impact on the Company's
revenue recognition policy.
MARKET RISKS
The Company's primary market risk exposure relates to foreign currency exchange
risk (see Note 6 to the Consolidated Financial Statements). The majority of the
Company's purchases are denominated in Swiss francs. The Company reduces its
exposure to the Swiss franc exchange rate risk through a hedging program. Under
the hedging program, the Company purchases various financial instruments,
predominately forward and option contracts. Gains and losses on financial
instruments resulting from this hedging activity are offset by the effects of
the currency movements on respective underlying hedged transactions. If the
Company did not engage in a hedging program, any change in the Swiss franc to
local currency would have an equal effect on the entities' cost of sales. As of
January 31, 2001, the Company's hedging portfolio consisted of various dates
ranging through April 30, 2003 with an average forward rate of 1.6368 Swiss
francs per dollar. The Company has $20.0 million of option contracts with a
maturity date of February 1, 2001 and $25 million of option contracts with a
maturity date of December 11, 2001. The option contracts have an average strike
price of 1.6543 Swiss francs per dollar. As of January 31, 2001, the carrying
value of the options amounted to approximately $0.6 million, which represents
the unamortized premium of the option and a fair market value of approximately
$1.3 million.
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<PAGE> 22
In addition, the Company has certain debt obligations with variable interest
rates, which are based on LIBOR plus a fixed additional interest rate. The
Company does not hedge these interest rate risks. The Company also has certain
debt obligations with fixed interest rates. The difference between the market
based interest rates at January 31, 2001 and the fixed rates was minimal.
21
<PAGE> 23
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Schedule Page
Number Number
-------- --------
<S> <C> <C>
Report of Independent Accountants F-1
Consolidated Statements of Income for the fiscal years ended
January 31, 2001, 2000 and 1999 F-2
Consolidated Balance Sheets at January 31, 2001 and 2000 F-3
Consolidated Statements of Cash Flows for the fiscal years
ended January 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the fiscal years ended January 31, 2001, 2000 and
1999 F-5
Notes to Consolidated Financial Statements F-6 to F-21
Valuation and Qualifying Accounts and Reserves II S-1
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
22
<PAGE> 24
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is included in the Company's Proxy
Statement for the 2001 annual meeting of shareholders and is incorporated herein
by reference.
Item 11. Executive Compensation
The information required by this item is included in the Company's Proxy
Statement for the 2001 annual meeting of shareholders and is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included in the Company's Proxy
Statement for the 2001 annual meeting of shareholders and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included in the Company's Proxy
Statement for the 2001 annual meeting of shareholders and is incorporated herein
by reference.
23
<PAGE> 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report
1. Financial Statements:
See Financial Statements Index on page 22 included in Item 8 of part II
of this report.
2. Financial Statement Schedule:
Schedule II Valuation and Qualifying
Accounts and Reserves
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
3. Exhibits:
Incorporated herein by reference is a list of the Exhibits contained in
the Exhibit Index on pages 27 through 32 of this report.
(b) Current Reports on Form 8-K
None
24
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOVADO GROUP, INC.
(Registrant)
Dated: April 30, 2001 By: /s/ Gedalio Grinberg
--------------------
Gedalio Grinberg
Chief Executive Officer and
Chairman of the Board of Directors
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 date indicated:
Dated: April 30, 2001 /s/ Gedalio Grinberg
--------------------
Gedalio Grinberg
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Dated: April 30, 2001 /s/ Efraim Grinberg
-------------------
Efraim Grinberg
President
Dated: April 30, 2001 /s/ Richard J. Cote
-------------------
Richard J. Cote
Executive Vice President of Finance and
Administration
Dated: April 30, 2001 /s/ Kennith C. Johnson
----------------------
Kennith C. Johnson
Senior Vice President and Chief Financial Officer
(Chief Financial Officer)
Dated: April 30, 2001 /s/ Margaret Hayes Adame
------------------------
Margaret Hayes Adame
Director
Dated: April 30, 2001 /s/ Donald Oresman
------------------
Donald Oresman
Director
25
<PAGE> 27
Dated: April 30, 2001 /s/ Leonard L. Silverstein
--------------------------
Leonard L. Silverstein
Director
Dated: April 30, 2001 /s/ Alan H. Howard
------------------
Alan H. Howard
Director
26
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1 Restated By-Laws of the Registrant. Incorporated by reference to
Exhibit 3.1 filed with the Registrant's Registration statement
on Form S-1 (Registration No. 33-666000).
3.2 Restated Certificate of Incorporation of the Registrant as
amended. Incorporated herein by reference to Exhibit 3(i) to the
Registrant's Quarterly Report on Form 10-Q filed for the quarter
ended July 31, 1999.
4.1 Specimen Common Stock Certificate. Incorporated herein by
reference to Exhibit 4.1 to the Registrant's Annual Report on
Form 10-K for the year ended January 31, 1998.
4.2 Note Agreement, dated as of November 9, 1993, by and between the
Registrant and The Prudential Insurance Company of America.
Incorporated herein by reference to Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1993.
4.3 Note Purchase and Private Shelf Agreement dated as of November
30, 1998 between the Registrant and The Prudential Insurance
Company of America. Incorporated herein by reference to Exhibit
10.31 to the Registrant's Annual Report on Form 10-K for the
year ended January 31, 1999.
4.4 Note Purchase and Private Shelf agreement dated as of March 21,
2001 between the Registrant and The Prudential Insurance Company
of America.
10.1 Lease dated August 5, 1998 between Grand Canal Shops
Mall Construction, LLC as landlord and Movado Retail Group,
Inc., as tenant, for premises at Grand Canal Shops, Clark
County, Nevada. Incorporated herein by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the
quarter Ended July 31, 1998.
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.2 Amendment Number 1 to License Agreement dated December 9, 1996
between Registrant as Licensee and Coach, a division of Sara Lee
Corporation as Licensor, dated as of February 1, 1998.
Incorporated herein by reference to exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1998.
10.3 Agreement, dated January 1, 1992, between The Hearst Corporation
and the Registrant, as amended on January 17, Incorporated
herein by reference to Exhibit 10.8 filed with Company's
Registration Statement on Form S-1 (Registration No. 33-666000).
10.4 Letter Agreement between the Registrant and The Hearst
Corporation dated October 24, 1994 executed October 25, 1995
amending License Agreement dated as of January 1, 1992, as
amended. Incorporated herein by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1995.
10.5 Lease Agreement between the Registrant and Meadowlands
Associates, dated October 31, 1986, for office space in
Lyndhurst, New Jersey, together with the Non-Disturbance and
Attornment Agreement, dated March 11, 1987. Incorporated herein
by reference to Exhibit 10.10 filed with Company's Registration
Statement on Form S-1 (Registration No. 33-666000).
10.6 Registrant's 1996 Stock Incentive Plan amending and restating
the 1993 Employee Stock Option Plan. Incorporated herein by
reference to Exhibit 10.5 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1996.**
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.7 Lease dated August 10, 1994 between Rockefeller Center
Properties, as landlord and SwissAm Inc., as tenant for space at
630 Fifth Avenue, New York, New York. Incorporated herein by
reference to Exhibit 10.4 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended July 31,1994.
10.8 First Amendment of Lease dated May 31, 1994 between Meadowlands
Associates, as landlord and the Registrant, as tenant for
additional space at 125 Chubb Avenue, Lyndhurst, New Jersey.
Incorporated herein by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994.
10.9 Death and Disability Benefit Plan Agreement dated September 23,
1994 between the Registrant and Gedalio Grinberg, Incorporated
herein by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended October 31, 1994.**
10.10 Registrant's amended and restated Deferred Compensation Plan for
Executives effective January 1, 1998. Incorporated herein by
reference to Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the year ended January 31, 1998. **
10.11 Policy Collateral Assignment and Split Dollar Agreement dated
December 5, 1995 by and between the Registrant and The Grinberg
Family Trust together with Demand Note dated December 5, 1995.
Incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 1996.**
10.12 License Agreement dated December 9, 1996 between the Registrant
and Sara Lee Corporation. Incorporated herein by reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for
the year ended January 31, 1997.
10.13 First Amendment to Lease dated April 8, 1998 between RCPI Trust,
successor in interest to Rockefeller Center Properties
("Landlord") and Movado Retail Group, Inc., successor in
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
interest to SwissAm Inc. ("Tenant") amending lease dated August
10, 1994 between Landlord and Tenant for space at 630 Fifth
Avenue, New York, New York. Incorporated herein by reference to
Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for
the year ended January 31, 1998.
10.14 Second Amendment dated as of September 1, 1999 to the December
1, 1996 license agreement between Sara Lee Corporation and
Registrant. Incorporated herein by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1999.
10.15 License Agreement entered into as of June 3, 1999 between Tommy
Hilfiger Licensing, Inc. and Registrant. Incorporated herein by
reference to Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended October 31, 1999.
10.16 Second Amendment of Lease dated as of December 23, 1998 between
Meadowlands Associates, as landlord and the Registrant, as
tenant, further amending lease dated as of October 31, 1986.
Incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 2000.
10.17 Lease termination agreement dated as of February 1, 2000 between
PW/MS OP SUB I, LLC, successor in interest to Belle Mead
Corporation, landlord, and Movado Group, Inc., tenant,
terminating lease dated as of April 15, 1996, as amended,
respecting premises located at 1200 Wall Street West, Lyndhurst,
New Jersey. Incorporated herein by reference to Exhibit 10.31
to the Registrant's Annual Report on Form 10-K for the year
ended January 31, 2000.
10.18 Sublease made as of October 26, 1999 between Merck-Medco Managed
Care, L.L.C. as sublessor and Registrant as Sublessee for
premises at 300 Tice Boulevard, Woodcliff Lake, New Jersey.
Incorporated herein by reference to Exhibit 10.32 to the
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
Registrant's Annual Report on Form 10-K for the year ended
January 31, 2000.
10.19 Third Amendment of lease dated as of February 17, 2000 between
Meadowlands Associates, as landlord, and the Registrant, as
tenant, further amending lease dated as of October 31, 1986.
Incorporated herein by reference to Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 2000.
10.20 License Agreement entered into as of October 31, 1999 by and
between Movado Corporation, Movado Watch Company S.A. and Lantis
Eyewear Corporation. Incorporated herein by reference to Exhibit
10.34 to the Registrant's Annual Report on Form 10-K for the
year ended January 31, 2000.
10.21 Severance Agreement dated December 15, 1999, and entered into
December 16, 1999 between the Registrant and Richard J. Cote.
Incorporated herein by reference to Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 2000.**
10.22 Lease made December 21, 2000 between the Registrant and
Mack-Cali Realty, L.P. for premises in Paramus, New Jersey
together with First Amendment thereto made December 21, 2000.
10.23 Temporary rental agreement between the Registrant and 300 Tice
Realty Associates L.L.C. for premises in Woodcliff Lake, New
Jersey dated December 21, 2000.
10.24 Credit Agreement dated June 22, 2000 among the Registrant, the
Chase Manhattan Bank as Administrative Agent, and as
Swingline Bank, and as issuing Bank, Fleet Bank, N.A. as
Syndication Agent, The Bank of New York as Documentation Agent
and the other Lenders signatory thereto. Incorporated herein by
reference to Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q filed for the quarter ended July 31, 2000.
10.25 Lease agreement dated May 22, 2000 between Forsgate Industrial
Complex and the Registrant for premises located at 105 State
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
Street, Moonachie, New Jersey. Incorporated herein by reference
to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q filed for the quarter ended April 30, 2000.
10.26 Line of Credit Letter Agreement dated June 22, 2000 between the
Registrant and Fleet Bank, N.A.
10.27 Amended and Restated Master Promissory Note agreement dated
June 27, 2000 between the Registrant and The Bank of New York.
10.28 Loan Agreement dated May 19, 1999 between Concord Watch
Company, S.A. and credit Swiss (English translation).
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
</TABLE>
** Constitutes a compensatory plan or arrangement.
32
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Movado Group, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 24 present fairly, in all material
respects, the financial position of Movado Group, Inc. and its subsidiaries at
January 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) on page 24 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audit of these statements in accordance with auditing standards generally
accepted in the United States of America, 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 our opinion.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 23, 2001
F-1
<PAGE> 35
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------
2001 2000 1999
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 320,841 $ 295,067 $ 277,836
--------- --------- ---------
Costs and expenses:
Cost of sales 123,392 126,667 111,766
Selling, general and administrative 163,317 152,631 133,395
--------- --------- ---------
286,709 279,298 245,161
--------- --------- ---------
Operating income 34,132 15,769 32,675
Interest expense, net 6,443 5,372 5,437
Gain on disposition of business -- 4,752 --
--------- --------- ---------
Income before income taxes 27,689 15,149 27,238
Provision for income taxes 6,922 1,428 6,265
--------- --------- ---------
Net income $ 20,767 $ 13,721 $ 20,973
========= ========= =========
Net income per share - Basic $ 1.78 $ 1.10 $ 1.63
========= ========= =========
Weighted average shares outstanding 11,651 12,527 12,842
========= ========= =========
Net income per share - Diluted $ 1.75 $ 1.06 $ 1.58
========= ========= =========
Weighted average shares and share
equivalents outstanding 11,866 12,890 13,256
========= ========= =========
COMPREHENSIVE INCOME:
- --------------------
Net Income $ 20,767 $ 13,721 $ 20,973
Other comprehensive income, net of tax:
Foreign currency translation adjustment (1,707) (10,456) (869)
--------- --------- ---------
Comprehensive income $ 19,060 $ 3,265 $ 20,104
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 36
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
2001 2000
--------- ---------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 23,059 $ 26,615
Trade receivables, net 98,797 96,258
Inventories, net 95,863 77,075
Other 23,501 18,076
--------- ---------
Total current assets 241,220 218,024
Plant, property and equipment, net 32,906 27,593
Other assets 16,279 14,032
--------- ---------
$ 290,405 $ 259,649
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Loans payable to banks $ 8,800 $ 13,500
Current portion of long-term debt 5,000 5,000
Accounts payable 28,819 17,562
Accrued liabilities 28,157 19,065
Current taxes payable 12,677 2,013
Deferred taxes payable 3,130 3,419
--------- ---------
Total current liabilities 86,583 60,559
--------- ---------
Long-term debt 40,000 45,000
Deferred and noncurrent foreign income taxes 3,517 5,105
Other liabilities 835 1,170
--------- ---------
Total liabilities 130,935 111,834
--------- ---------
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued -- --
Common Stock, $0.01 par value, 20,000,000 shares
authorized; 9,600,435 and 9,496,529 shares issued, respectively 96 95
Class A Common Stock, $0.01 par value, 10,000,000 shares
authorized; 3,509,733 and 3,509,733 shares issued and
outstanding, respectively 35 35
Capital in excess of par value 67,242 66,113
Retained earnings 138,176 118,615
Accumulated other comprehensive income (18,169) (16,462)
Treasury stock, 1,556,670 and 920,690 shares at cost, respectively (27,910) (20,581)
--------- ---------
Total shareholders' equity 159,470 147,815
--------- ---------
$ 290,405 $ 259,649
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE> 37
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20,767 $ 13,721 $ 20,973
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 6,341 5,189 5,380
Deferred and noncurrent foreign income taxes (1,342) (1,636) 1,764
Provision for losses on accounts receivable 2,083 1,077 1,304
Provision for losses on inventory 1,710 7,263 --
Gain on disposition of business -- (4,752) --
Changes in current assets and liabilities:
Trade receivables (4,831) 2,469 (24,693)
Inventories (20,043) 14,609 (19,925)
Other current assets (3,383) (6,269) (1,265)
Accounts payable 11,142 (7,004) 4,108
Accrued liabilities 9,322 4,464 3,352
Deferred and current taxes payable 9,800 (2,532) 229
Other noncurrent assets (5,960) 2,305 (314)
Other noncurrent liabilities (335) (629) (29)
-------- -------- --------
Net cash provided by (used in) operating activities 25,271 28,275 (9,116)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (10,833) (10,125) (11,707)
Proceeds from disposition of business -- 28,409 --
Goodwill, trademarks and other intangibles (852) (755) (1,835)
Sale of subsidiary -- -- 2,646
-------- -------- --------
Net cash (used in) provided by investing activities (11,685) 17,529 (10,896)
-------- -------- --------
Cash flows from financing activities:
Repayment of Senior Notes (5,000) (10,000) (5,000)
Proceeds from issuance of Series A Senior Notes -- -- 25,000
Net (payment of) proceeds from current bank borrowings (4,700) 6,300 2,200
Principal payments under capital leases -- (69) (387)
Stock options exercised 840 499 627
Dividends paid (1,206) (1,247) (1,026)
Purchase of treasury stock (7,329) (17,593) (2,860)
-------- -------- --------
Net cash (used in) provided by financing activities (17,395) (22,110) 18,554
-------- -------- --------
Effect of exchange rate changes on cash 253 (2,705) (3,790)
-------- -------- --------
Net (decrease) increase in cash (3,556) 20,989 (5,248)
Cash at beginning of year 26,615 5,626 10,874
-------- -------- --------
Cash at end of year $ 23,059 $ 26,615 $ 5,626
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE> 38
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Capital
in Accumulated
Excess Other
Class A of Comp-
Preferred Common Common Par Retained Rehensive Treasury
Stock Stock Stock Value Earnings Income Stock
----------- ----------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1998 -- $93 $36 $64,475 $86,194 ($5,137) ($128)
Net income 20,973
Dividends ($0.08 per share) (1,026)
Stock options exercised, net
of tax benefit 857
Common stock repurchased (2,860)
Foreign currency translation
adjustment (869)
Conversion of Class A Common
Stock to Common Stock 1 (1)
----------- ----------- ----------- ----------- --------- ----------- ---------
Balance, January 31, 1999 -- 94 35 65,332 106,141 (6,006) (2,988)
Net income 13,721
Dividends ($0.10 per share) (1,247)
Stock options exercised,
net of tax benefit 781
Common stock repurchased
Foreign currency translation (17,593)
adjustment (10,456)
Conversion of Class A Common
Stock to Common Stock 1
----------- ----------- ----------- ----------- --------- ----------- ---------
Balance, January 31, 2000 -- 95 35 66,113 118,615 (16,462) (20,581)
Net income 20,767
Dividends ($0.105 per share) (1,206)
Stock options exercised,
net of tax benefit 1,129
Common stock repurchased (7,329)
Foreign currency translation
adjustment (1,707)
Conversion of Class A Common
Stock to Common Stock 1
----------- ----------- ----------- ----------- --------- ----------- ---------
Balance, January 31, 2001 -- $96 $35 $67,242 $138,176 ($18,169) ($27,910)
=========== =========== =========== =========== ========= =========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 39
NOTES TO MOVADO GROUP INC.'S CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Movado Group, Inc. (the "Company") is a designer, manufacturer and distributor
of quality watches with prominent brands in almost every price category
comprising the watch industry. In fiscal 2001, the Company marketed four
distinctive brands of watches: Movado, Concord, ESQ, and Coach, which compete in
most segments of the watch market.
The Company designs and manufactures Concord and Movado watches primarily
through its subsidiaries and third party contract assemblers in Switzerland, as
well as in the United States, for sale throughout the world. ESQ watches are
manufactured to the Company's specifications using Swiss movements by
independent contractors located in the Far East. Coach watches are assembled in
Switzerland by independent suppliers. The Company distributes its watch brands
through its United States operations as well as through sales subsidiaries in
Canada, Hong Kong, Singapore and Switzerland, and through a number of
independent distributors located in various countries throughout the world.
In addition to its sales to trade customers and independent distributors,
through a wholly owned domestic subsidiary, the Company sells Movado watches,
Movado jewelry, tabletop accessories and other product line extensions within
the Movado brand directly to consumers in its Movado Boutiques. Another of the
Company's domestic subsidiaries also operates a number of Movado outlet stores
throughout the United States, through which it sells discontinued and sample
merchandise.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany transactions and balances have been eliminated.
Translation of foreign currency financial statements and foreign currency
transactions
The financial statements of the Company's international subsidiaries have been
translated into United States dollars by translating balance sheet accounts at
year-end exchange rates and statement of operations accounts at average exchange
rates for the year. Foreign currency transaction gains and losses are charged or
credited to income as incurred. Foreign currency translation gains and losses
are reflected in the equity section of the Company's consolidated balance sheet
in accumulated other comprehensive income.
Trade receivables
The Company's trade customers include department stores, jewelry store chains
and independent jewelers. Movado and Concord watches are also marketed outside
the U.S. through a network of independent distributors. Accounts receivable are
stated net of allowances for doubtful accounts of $4,442,000 and $3,604,000 at
January 31, 2001 and 2000, respectively. The Zale Corporation accounted for 10%,
13% and 10% of the Company's consolidated net sales in fiscal 2001, 2000 and
1999, respectively. At January 31, 2001 and 2000, the same trade customer
accounted for 13% and 18% of consolidated trade receivables, respectively.
F-6
<PAGE> 40
The Company's concentrations of credit risk arise primarily from accounts
receivable related to trade customers during the peak selling seasons. The
Company has significant accounts receivable balances due from major department
store chains. The Company's results of operations could be materially adversely
affected in the event any of these customers or a group of these customers
defaulted on all or a significant portion of their obligations to the Company as
a result of financial difficulties.
Inventories
Inventories are valued at the lower of cost or market. The cost of domestic
finished goods inventories is determined primarily using the first-in, first-out
(FIFO) method. The cost of finished goods inventories held by overseas
subsidiaries, and all component parts inventories are determined using average
cost.
Plant, property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of furniture and equipment is provided using the straight-line
method based on the estimated useful lives of assets, which range from three to
ten years. Leasehold improvements are amortized using the straight-line method
over the lesser of the term of the lease or the estimated useful life of the
leasehold improvement. Computer software costs related to the development of
major systems are capitalized as incurred and are amortized over their useful
lives. Maintenance and repair costs are charged to earnings while expenditures
for major renewals and improvements are capitalized. Upon the disposition of
plant, property and equipment, the accumulated depreciation is deducted from the
original cost and any gain or loss is reflected in current earnings.
Goodwill and other intangibles
Other intangible assets consist primarily of trademarks and are recorded at
cost. Trademarks are generally amortized over ten years. Goodwill is amortized
over 40 years. The Company continually reviews goodwill and other intangible
assets to evaluate whether events or changes have occurred that would suggest an
impairment of carrying value. An impairment would be recognized when expected
undiscounted future operating cash flows are lower than the carrying value. At
January 31, 2001 and 2000, goodwill and other intangible assets at cost were
$5,251,000 and $4,358,000, respectively, and related accumulated amortization of
goodwill and other intangibles was $1,549,000 and $1,068,000, respectively.
Revenue Recognition
Sales are recognized upon transfer of title or, in the case of retail sales,
at the time of register receipt. Allowances for estimated returns and sales
discounts are provided when sales are recorded.
Pre-opening Costs
Costs associated with the opening of new retail and outlet stores is expensed in
the period incurred.
F-7
<PAGE> 41
Advertising
The Company expenses the production costs of an advertising campaign at the
commencement date of the advertising campaign. Advertising expenses for fiscal
2001, 2000 and 1999, amounted to $62.3 million, $61.8 million and $53.8 million,
respectively.
Income taxes
The Company and its domestic subsidiaries file a consolidated federal income tax
return. Foreign income taxes have been provided based on the applicable tax
rates in each of the foreign countries in which the Company operates. Certain
Swiss income taxes are payable over several years; the portion of these taxes
not payable within one year is classified as noncurrent. Noncurrent foreign
income taxes included in the consolidated balance sheets at January 31, 2001 and
2000 were $1,812,000 and $1,905,000, respectively.
Earnings per share
The Company presents net income per share on a 'basic' and 'diluted' basis.
Basic earnings per share is computed using weighted average shares outstanding
during the period. Diluted earnings per share is computed using the weighted
average number of shares outstanding adjusted for dilutive common stock
equivalents.
The weighted average number of shares outstanding for basic earnings per share
were 11,651,000, 12,527,000 and 12,842,000 for fiscal 2001, 2000 and 1999,
respectively. For diluted earnings per share, these amounts were increased by
215,000, 363,000 and 414,000 in fiscal 2001, 2000 and 1999, respectively, due to
potentially dilutive common stock equivalents issuable under the Company's stock
option plans. There were no anti-dilutive common stock equivalents in the years
presented.
Stock-based compensation
Stock-based compensation is recognized using the intrinsic value method. For
disclosure purposes, pro forma net income and earnings per share are provided as
if the fair value method had been applied.
Use of estimates in the preparation of 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.
Actual results could differ from those estimates.
Stockholders' Equity
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary buy-back program
throughout fiscal 2001. Share repurchases under the repurchase program amounted
to $7.3 million, $17.6 million and $0.6 million in fiscal 2001, 2000 and 1999,
respectively. As of January 31, 2001, the Company had authorization to
repurchase shares up to an additional $4.5 million against an aggregate
authorization of $30 million.
F-8
<PAGE> 42
During fiscal 1999, the Company repurchased $2.3 million of stock under a
400,000 share repurchase program that had been authorized by the Board of
Directors in March 1998. This program had been put in place to mitigate the
dilutive impact of employee compensation programs.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, which is effective for the
Company as of February 1, 2001. SFAS 133 requires that an entity recognizes
all derivatives as either assets or liabilities measured at fair value. Changes
in derivative fair values will either be recognized in earnings as offsets to
the changes in fair value of related hedged assets, liabilities and firm
commitments or, for forecasted transactions, deferred and recorded as a
component of other stockholders' equity until the hedged transactions occur and
are recognized in earnings. The ineffective portion of a hedging derivative's
change in fair value will be immediately recognized in earnings. Adoption of
this statement is not expected to materially impact the Company's financial
statements.
In December 1999, the Securities and Exchange Commission, "SEC", issued Staff
Accounting Bulletin No. 101, "SAB 101", "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying
accounting principles generally accepted in the United States to revenue
recognition in financial statements. The Company adopted the guidance of this
bulletin during fiscal 2001, which had no material impact on the Company's
revenue recognition policy.
Reclassification
Certain prior year amounts have been reclassified to conform to the fiscal 2001
presentation.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
2001 2000
------- -------
<S> <C> <C>
Finished goods $60,909 $50,565
Component parts 30,942 25,473
Work-in-process 4,012 1,037
------- -------
$95,863 $77,075
======= =======
</TABLE>
F-9
<PAGE> 43
NOTE 3 - PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment at January 31, at cost, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
2001 2000
-------- --------
<S> <C> <C>
Furniture and equipment $44,705 $40,820
Leasehold improvements 15,579 11,026
-------- --------
60,284 51,846
Less: accumulated depreciation (27,378) (24,253)
-------- --------
$32,906 $27,593
======== ========
</TABLE>
Depreciation and amortization for fiscal 2001, 2000 and 1999
was $5,732,000, $4,701,000 and $4,820,000, respectively.
NOTE 4 - BANK CREDIT ARRANGEMENTS AND LINES OF CREDIT
The Company's revolving credit facility with its domestic bank group was entered
into in June 2000 to provide for a three-year $100.0 million unsecured revolving
line of credit, which replaced a three-year $90.0 million unsecured facility
dated July 1997. In addition, certain members within the bank group provided for
$15.0 million and $31.6 million of uncommitted working capital lines of credit
at January 31, 2001 and 2000, respectively. The renewed bank credit agreement
provides for various rate options including the federal funds rate plus a fixed
rate, the prime rate or a fixed rate plus the LIBOR rate. The Company pays a
facility fee on the unused portion of the credit facility. The agreement also
contains certain financial covenants including an interest coverage ratio and
certain restrictions that limits the Company on the sale, transfer or
distribution of corporate assets, including dividends and limit the amount of
debt outstanding. The Company was in compliance with these restrictions and
covenants at January 31, 2001 and 2000. The domestic unused line of credit was
$106.2 million and $108.1 million at January 31, 2001 and 2000, respectively.
The Company's Swiss subsidiaries maintain secured and unsecured lines of credit
with Swiss banks, a majority of which have an unspecified duration. Available
credit under these lines totaled 11.3 million Swiss francs and 10.0 million
Swiss francs, with dollar equivalents of approximately $6.9 million and $6.0
million at January 31, 2001 and 2000, of which a maximum of $5.0 million can be
drawn. One subsidiary's credit line contains a covenant requiring maintenance of
retained earnings above a specified minimum level. This subsidiary was in
compliance with this covenant at January 31, 2001 and 2000. There are no other
restrictions on transfers in the form of dividends, loans or advances to the
Company by its foreign subsidiaries.
F-10
<PAGE> 44
Outstanding borrowings against the Company's aggregate demand lines of credit
were $8.8 million at January 31, 2001 and $13.5 million at January 31, 2000.
Aggregate maximum and average monthly outstanding borrowings against the
Company's lines of credit and related weighted average interest rates during
fiscal 2001, 2000 and 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------
2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Maximum borrowings $51,850 $61,900 $70,900
Average monthly borrowings $31,622 $40,290 $41,229
Weighted average interest rate 8.2% 6.3% 6.9%
</TABLE>
Weighted average interest rates were computed based on average month-end
outstanding borrowings and applicable average month-end interest rates.
NOTE 5 - LONG-TERM DEBT
The components of long-term debt as of January 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
2001 2000
------- -------
<S> <C> <C>
Senior Notes $20,000 $25,000
Series A Senior Notes 25,000 25,000
------- -------
45,000 50,000
Less current portion 5,000 5,000
------- -------
Long-term debt $40,000 $45,000
======= =======
</TABLE>
Senior Notes due January 31, 2005 (the "Senior Notes") were issued in a private
placement completed in fiscal 1994 and bear interest at 6.56% per annum, payable
semiannually on July 31 and January 31, and are subject to annual payments of
$5.0 million commencing January 31, 1998. Accordingly, such amounts have been
classified as a current liability in fiscal 2001 and 2000. The Company has the
option to prepay amounts due to holders of the Senior Notes at 100% of the
principal plus a "make-whole" premium and accrued interest.
The Series A Senior Notes ("Series A Senior Notes") were issued on December 1,
1998 under a Note Purchase and Private Shelf Agreement and bear interest at
6.90% per annum. Interest is payable semiannually on April 30 and October 30.
These notes mature on October 30, 2010 and are subject to annual payments of
$5.0 million commencing on October 31, 2006.
F-11
<PAGE> 45
On March 21, 2001 the Company entered into a new Note Purchase and Private Shelf
Agreement which allows for the issuance for up to three years after the date
thereof, of senior promissory notes in the aggregate principal amount of up to
$40.0 million with maturities up to 12 years from their original date of
issuance.
The agreements governing the Senior Notes and Series A Senior Notes contain
certain restrictions and covenants which generally require the maintenance of a
minimum net worth, limit the amount of additional secured debt the Company can
incur and limit the sale, transfer or distribution of corporate assets including
dividends. The Company was in compliance with these restrictions and covenants
at January 31, 2001 and 2000.
NOTE 6 - FOREIGN CURRENCY MANAGEMENT
A substantial portion of the Company's watches and watch components are sourced
from affiliated and nonaffiliated suppliers in Switzerland. A significant
strengthening of the Swiss franc against currencies of other countries in which
the Company conducts sales activities increases the Company's product cost. This
may adversely impact gross margins to the extent the Company is unsuccessful in
hedging against changes in the currency exchange rates or higher product costs
cannot be recovered through price increases in local markets. Significant
fluctuations in the Swiss franc - U.S. dollar exchange rate can also have a
material impact on the U.S. dollar value of the net assets of the Company's
wholly-owned Swiss subsidiaries.
The Company hedges against foreign currency exposure using only forward exchange
contracts, purchased foreign currency options and open market purchases to cover
identifiable inventory purchase commitments and, occasionally, equity invested
in its international subsidiaries.
The Company has established strict counterparty credit guidelines and only
enters into foreign currency transactions with financial institutions of
investment grade or better. To minimize the concentration of credit risk, the
Company enters into hedging transactions with each of these financial
institutions. As a result, the Company considers the risk of counterparty
default to be minimal.
The following table presents the aggregate contract amounts and fair values,
based on dealer quoted prices, of the Company's financial instruments
outstanding at January 31, 2001 and 2000. Foreign currency forward contracts
included below mature within one year. Currency option contracts at January 31,
2001 generally mature after one year. All financial instruments included below
were held for hedging purposes only. Contract amounts (in thousands) consist
primarily of U.S. dollar - Swiss franc contracts.
<TABLE>
<CAPTION>
AS OF JANUARY 31,
-------------------------------------------
2001 2000
------------------- -------------------
CONTRACT FAIR CONTRACT FAIR
AMOUNTS VALUES AMOUNTS VALUES
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Foreign Currency Forward Contracts $67,477 $67,602 $47,287 $42,732
Purchased Options $27,202 $1,340 $94,105 $1,638
</TABLE>
The contract amounts of these foreign currency forward contracts and purchased
options do not necessarily represent amounts exchanged by the parties and,
therefore, are not a direct measure of the exposure of the Company through its
use of these financial instruments. The amounts exchanged are calculated on the
basis of
F-12
<PAGE> 46
the contract amounts and the other terms of the financial instruments, which
relate to exchange rates. As of January 31, 2001 and 2000, the payable to banks
recorded in current liabilities associated with closed contract positions was
$681,000 and $1,795,000, respectively.
The estimated fair values of these foreign currency forward amounts and
purchased options used to hedge the Company's risks will fluctuate over time.
These fair value amounts should not be viewed in isolation, but rather in
relation to the fair values of the underlying hedged transactions and
investments and the Company's overall exposure to fluctuations in foreign
exchange rates.
Gains and losses from and premiums paid for forward or option transactions that
hedge inventory purchase commitments are included in the carrying cost of
inventory and are recognized in cost of sales upon sale of the inventory. Net
deferred charges from hedging amounted to $0.6 million and $2.7 million at
January 31, 2001 and 2000, respectively. These amounts were included in other
current assets on the accompanying balance sheets.
NOTE 7 - FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The fair value of the Company's 6.56% Senior Notes and 6.9% Series A Senior
Notes approximate 99% and 95% of the carrying value of the notes, respectively,
as of January 31, 2001. The fair value was calculated based upon the present
value of future cash flows discounted at estimated borrowing rates for similar
debt instruments or upon estimated prices based on current yields for debt
issues of similar quality and terms.
F-13
<PAGE> 47
NOTE 8 - INCOME TAXES
The provision for income taxes for the fiscal years ended January 31, 2001, 2000
and 1999 consists of the following components (in thousands):
<TABLE>
<CAPTION>
2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Current:
U.S. Federal $ 3,124 $ -- $ 1,500
U.S. State and Local 498 11 444
Non-U.S. 2,607 1,043 1,888
------- ------- -------
6,229 1,054 3,832
======= ======= =======
Noncurrent:
U.S. Federal -- -- --
U.S. State and Local -- -- --
Non-U.S. 1,674 1,785 1,924
------- ------- -------
1,674 1,785 1,924
======= ======= =======
Deferred:
U.S. Federal (1,948) (1,518) (750)
U.S. State and Local (385) -- --
Non-U.S. 1,352 107 1,259
------- ------- -------
(981) (1,411) 509
======= ======= =======
Provision for income taxes $ 6,922 $ 1,428 $ 6,265
======= ======= =======
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Deferred income taxes have been
classified as current or noncurrent on the consolidated balance sheets based on
the underlying temporary differences and the expected due dates of taxes payable
upon reversal. Significant components of the Company's deferred income tax
assets and liabilities for the fiscal year ended January 31, 2001 and 2000
consist of the following (in thousands):
<TABLE>
<CAPTION>
2001 DEFERRED TAX 2000 DEFERRED TAX
----------------------- ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Operating loss carry forwards $ 1,596 $ -- $ 2,706 $ --
Rent accrual 143 -- 291 --
Inventory reserve 2,225 3,502 894 5,340
Receivable allowance 2,183 2,862 1,054 1,278
Depreciation/amortization 1,628 -- 1,089 --
Other 2,352 -- 1,355 --
-------- -------- -------- --------
10,127 6,364 7,389 6,618
Valuation allowance (1,383) -- (1,439) --
-------- -------- -------- --------
Total $ 8,744 $ 6,364 $ 5,950 $ 6,618
======== ======== ======== ========
</TABLE>
F-14
<PAGE> 48
As of January 31, 2001, the Company had foreign net operating loss
carryforwards of approximately $3.5 million, which are available to offset
taxable income in future years. As of January 31, 2001, the Company maintained a
valuation allowance with respect to the tax benefit of certain foreign net
operating loss carryforwards. Since the Company's foreign deferred tax assets
relate primarily to its former sales office in Germany, which is currently
operated by an independent distributor, the Company's assessment is that a
portion of the foreign deferred tax assets will not likely be utilized in the
foreseeable future. Management is continuing to evaluate the appropriate level
of allowance based on future operating results and changes in circumstances.
The provision for income taxes differs from the amount determined by applying
the U.S. federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------
2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Provision for income taxes at the U.S. statutory rate $9,691 $5,311 $9,533
Lower effective foreign income tax rate (3,621) (3,362) (3,685)
Change in valuation allowance (56) (1,221) --
Tax provided on repatriated earnings of foreign
subsidiaries 265 238 252
State and local taxes, net of federal benefit 113 8 134
Other, net 530 454 31
------- ------- -------
$6,922 $1,428 $6,265
======= ======= =======
</TABLE>
In fiscal 2001, the Company recognized a tax benefit of $1,083 from realization
of domestic and certain foreign net operating loss carryforwards.
No provision has been made for taxes on foreign subsidiaries' undistributed
earnings of approximately $155 million at January 31, 2001, as those earnings
are considered to be reinvested for an indefinite period.
NOTE 9 - OTHER ASSETS
In fiscal 1996, the Company entered into an agreement with a trust which owns an
insurance policy issued on the lives of the Company's Chairman and Chief
Executive Officer and his spouse. Under that agreement, the trust has assigned
the insurance policy to the Company as collateral to secure repayment by the
trust of interest-free loans to be made by the Company in amounts sufficient for
the trust to pay the premiums on said insurance policy (approximately $741,000
per annum). Under the agreement, the trust will repay the loans from the
proceeds of the policy. The Company had loaned approximately $3.8 million and
$3.1 million under this agreement at January 31, 2001 and 2000, respectively.
F-15
<PAGE> 49
NOTE 10 - LEASES, COMMITMENTS AND CONTINGENCIES
The Company leases office, distribution, retail and manufacturing facilities and
office equipment under operating leases, which expire at various dates through
July 2013. Certain of the leases provide for renewal options and escalation
clauses for real estate taxes and other occupancy costs. Rent expense for
equipment and distribution, factory and office facilities under operating leases
was approximately $9.4 million, $6.6 million and $5.5 million in fiscal 2001,
2000 and 1999, respectively. Minimum annual rentals at January 31, 2001 under
noncancelable operating leases which do not include escalations that will be
based on increases in real estate taxes and operating costs are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
(IN THOUSANDS):
<S> <C>
2002 $8,488
2003 5,856
2004 4,874
2005 4,436
2006 3,268
Thereafter 11,883
------------
$38,805
============
</TABLE>
Due to the nature of its business as a luxury consumer goods distributor, the
Company is exposed to various commercial losses. The Company believes it is
adequately insured against such losses.
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Company maintains an Employee Savings Plan under Section 401(k) of the
Internal Revenue Code. Company contributions and expenses of administering the
Employee Savings Plan amounted to $528,000, $556,000 and $430,000 in fiscal
2001, 2000 and 1999, respectively.
Effective June 1, 1995, the Company adopted a defined contribution supplemental
executive retirement plan ("SERP"). The SERP provides eligible executives with
supplemental pension benefits in addition to amounts received under the
Company's other retirement plan. The Company makes a matching contribution which
vests equally over five years. During fiscal 2001, 2000 and 1999, the Company
recorded an expense related to the SERP of approximately $381,000, $640,000 and
$338,000, respectively.
During fiscal 1999, the Company adopted a Stock Bonus Plan for all employees not
in the SERP. Under the terms of this Stock Bonus Plan, the Company contributes a
discretionary amount to the trust established under the plan. Each plan
participant vests after five years in 100% of their respective pro rata portion
of such contribution. For fiscal 2001, 2000 and 1999 the Company recorded an
expense of $80,000, $159,000 and $209,000 respectively, related to this plan.
F-16
<PAGE> 50
On September 23, 1994, the Company entered into a Death and Disability Benefit
Plan agreement with the Company's Chairman and Chief Executive Officer. Under
the terms of the agreement, in the event of the Chairman's death or disability,
the Company is required to make an annual benefit payment of approximately
$300,000 to his spouse for the lesser of ten years or her remaining lifetime.
Neither the agreement nor the benefits payable thereunder are assignable and no
benefits are payable to the estates or heirs of the Chairman or his spouse.
Results of operations include an actuarially determined charge related to this
plan of approximately $120,000, $110,000 and $101,000 for fiscal 2001, 2000 and
1999, respectively.
Effective concurrently with the consummation of the Company's public offering in
the fourth quarter of fiscal 1994, the Board of Directors and the shareholders
of the Company approved the adoption of the Movado Group, Inc. 1993 Employee
Stock Option Plan (the "Employee Stock Option Plan") for the benefit of certain
officers, directors and key employees of the Company. The Employee Stock Option
Plan was amended in fiscal 1997 and restated as the Movado Group, Inc. 1996
Stock Incentive Plan (the "Plan"). Under the Plan, the Compensation Committee of
the Board of Directors, which is comprised of the Company's four outside
directors, has the authority to grant incentive stock options and nonqualified
stock options, to purchase, as well as stock appreciation rights and stock
awards, up to 2,000,000 shares of Common Stock. Options granted to participants
under the Plan become exercisable in equal installments on the first through
fifth anniversaries of the date of grant and remain exercisable until the tenth
anniversary of the date of grant. The option price may not be less than the fair
market value of the stock at the time the options are granted.
Transactions in stock options under the Plan since fiscal 1998 are summarized as
follows:
<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
----------- ----------------
<S> <C> <C>
January 31, 1998 1,126,400 9.91
Options granted 282,749 25.53
Options exercised (63,250) 9.02
Options forfeited (62,289) 13.39
---------- ------
January 31, 1999 1,283,610 13.23
Options granted 436,550 21.56
Options exercised (54,266) 9.21
Options forfeited (109,477) 16.51
---------- ------
January 31, 2000 1,556,417 15.65
Options granted 244,050 8.72
Options exercised (103,387) 8.15
Options forfeited (82,779) 18.86
---------- ------
January 31, 2001 1,614,301 $15.09
========== ======
</TABLE>
Options exercisable at January 31, 2001, 2000 and 1999 were 813,587, 701,814 and
538,216, respectively.
F-17
<PAGE> 51
The weighted-average fair value of each option grant estimated on the date of
grant using the Black-Scholes option-pricing model is $4.72, $11.18 and $13.34
per share in fiscal 2001, 2000 and 1999, respectively. The following
weighted-average assumptions were used for grants in 2001, 2000 and 1999:
dividend yield of 0.86% for fiscal 2001, 0.45% for fiscal 2000 and 0.3% for
fiscal 1999; expected volatility of 48% for fiscal 2001, 40% for fiscal 2000 and
45% for fiscal 1999, risk-free interest rates of 6.67% for fiscal 2001, 6.75%
for fiscal 2000 and 4.7% for fiscal 1999 and expected lives of seven years for
fiscal 2001, 2000 and 1999.
The Company applies APB Opinion 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for the
Plan. Had compensation cost for the Company grants for stock-based compensation
plans been determined based on the fair value at the grant dates and recognized
ratably over the vesting period, the Company's net income and net income per
share for fiscal 2001, 2000 and 1999 would approximate the pro forma amounts
below (in thousands, except per share data):
<TABLE>
<CAPTION>
2001 2000 1999
---- ---- ----
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Income $20,767 $19,135 $13,721 $12,216 $20,973 $19,856
Net Income per share-Basic $1.78 $1.64 $1.10 $0.98 $1.63 $1.55
Net Income per share-Diluted $1.75 $1.61 $1.06 $0.95 $1.58 $1.50
</TABLE>
The pro forma impact takes into account options granted since February 1, 1995
and is likely to increase in future years as additional options are granted and
amortized ratably over the vesting period.
The following table summarizes outstanding and exercisable stock options as of
January 31, 2001:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING WEIGHTED-AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$5.00 - $9.99 765,545 5.2 $8.53 486,906 $8.39
$10.00 - $14.99 207,756 5.7 $13.16 140,871 $13.17
$15.00 - $19.99 24,500 7.9 $15.87 8,800 $16.16
$20.00 - $24.99 439,950 8.5 $22.41 99,090 $22.49
$25.00 - $29.75 176,550 6.9 $27.44 77,920 $27.39
------------ ---- ----------- --------------- ----------------- --------------- --------------- ------------
$5.00 - $29.75 1,614,301 6.4 $15.09 813,587 $12.84
------------ ---- ----------- --------------- ----------------- --------------- --------------- ------------
</TABLE>
F-18
<PAGE> 52
NOTE 12 - SEGMENT INFORMATION
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which requires reporting certain
financial information according to the "management approach." This approach
requires reporting information regarding operating segments on the basis used
internally by management to evaluate segment performance. SFAS 131 also
requires disclosures about products and services, geographic areas and major
customers.
The Company divides its business into two major geographic segments: "Domestic",
which includes the result of the Company's United States and Canadian
operations, and "International", which includes the results of all other Company
operations. The Company's international operations are principally conducted in
Europe. The Company's international assets are substantially located in Europe.
F-19
<PAGE> 53
The Company conducts its business primarily in two operating segments:
"Wholesale" and "Other". The Company's wholesale segment includes the designing,
manufacturing and distribution of quality watches. Other includes the Company's
retail and service center operations. The accounting policies of the segments
are the same as those described in "Significant Accounting Policies". The
Company evaluates segment performance based on operating profit.
OPERATING SEGMENT DATA AS OF AND FOR THE FISCAL YEAR ENDED JANUARY 31 (IN
THOUSANDS):
<TABLE>
<CAPTION>
NET SALES OPERATING PROFIT (LOSS)
--------------------------------------- ------------------------------------
2001 2000 1999 2001 2000 1999
---------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Wholesale $275,865 $256,081 $245,783 $38,238 $14,187 $34,631
Other 44,976 38,986 32,053 (1,735) 127 (1,597)
Elimination (1) - - - (2,371) 1,455 (359)
---------- ---------- ----------- ---------- ---------- ---------
Consolidated total $320,841 $295,067 $277,836 $34,132 $15,769 $32,675
========== ========== =========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
TOTAL ASSETS CAPITAL EXPENDITURES
--------------------------------------- ------------------------------------
2001 2000 1999 2001 2000 1999
----------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Wholesale $238,278 $207,232 $261,395 $8,167 $7,917 $6,368
Other 29,068 25,802 29,354 2,191 1,520 5,226
Corporate (2) 23,059 26,615 5,626 475 688 113
----------- ---------- ----------- ---------- ---------- ---------
Consolidated total $290,405 $259,649 $296,375 $10,833 $10,125 $11,707
=========== ========== =========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION AND AMORTIZATION
---------------------------------------
2001 2000 1999
----------- ---------- -----------
<S> <C> <C> <C>
Wholesale $4,460 $3,396 $4,515
Other 1,198 966 298
Corporate 683 827 567
----------- ---------- -----------
Consolidated total $6,341 $5,189 $5,380
=========== ========== ===========
</TABLE>
GEOGRAPHIC SEGMENT DATA AS OF AND FOR THE FISCAL YEAR ENDED JANUARY 31 (IN
THOUSANDS):
<TABLE>
<CAPTION>
NET SALES LONG-LIVED ASSETS
-------------------------------------- -----------------------------------------
2001 2000 1999 2001 2000 1999
---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Domestic $288,443 $267,160 $245,865 $18,483 $16,534 $17,222
International 218,379 209,217 199,060 14,423 11,059 5,776
Elimination (3) (185,981) (181,310) (167,089) - - -
---------- ----------- ---------- ----------- ---------- ------------
Consolidated total $320,841 $295,067 $277,836 $32,906 $27,593 $22,998
========== =========== ========== =========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
INCOME (LOSS) BEFORE TAXES
----------------------------------------
2001 2000 1999
----------- ----------- ----------
<S> <C> <C> <C>
Domestic $4,647 $(8,987) $2,096
International 26,399 23,780 25,501
Elimination (3) (3,357) 356 (359)
----------- ----------- ----------
Consolidated total $27,689 $15,149 $27,238
=========== =========== ==========
</TABLE>
(1) Elimination of inter-segment management fees.
(2) Corporate assets include cash.
(3) Elimination of intercompany sales between domestic and international units.
F-20
<PAGE> 54
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents unaudited selected interim operating results of the
Company for fiscal 2001 and 2000 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
1ST 2ND 3RD 4TH
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
FISCAL 2001
Net sales $53,339 $76,173 $105,122 $86,207
Gross profit $32,041 $45,786 $65,195 $54,429
Net income $(173) $4,730 $12,557 $3,653
PER SHARE:
Net income (loss):
Basic $(0.01) $0.41 $1.09 $0.32
Diluted $(0.01) $0.40 $1.07 $0.31
FISCAL 2000
Net sales $47,653 $69,538 $99,032 $78,844
Gross profit $29,035 $41,221 $61,641 $36,503
Net income (loss) $4,312 $4,422 $13,767 ($8,780)
PER SHARE:
Net income:
Basic $0.34 $0.35 $1.10 ($0.70)
Diluted $0.33 $0.34 $1.07 ($0.68)
</TABLE>
As each quarter is calculated as a discrete period, the sum of the four quarters
may not equal the calculated full year amount. This is in accordance with
prescribed reporting requirements.
NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
2001 2000 1999
------------- ------------- -------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $6,634 $7,559 $5,274
Income taxes $2,992 $7,079 $4,585
</TABLE>
F-21
<PAGE> 55
SCHEDULE II
MOVADO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT PROVISION
BEGINNING CHARGED TO CURRENCY NET BALANCE AT
DESCRIPTION OF YEAR OPERATIONS REVALUATION WRITE-OFFS END OF YEAR
----------- ------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 2001:
Allowance for doubtful accounts $3,604 $2,386 $3 ($1,551) $4,442
Year ended January 31, 2000:
Allowance for doubtful accounts $2,567 $2,553 ($21) ($1,495) $3,604
Year ended January 31, 1999 $2,187 $1,304 $7 ($931) $2,567
Allowance for doubtful accounts
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT PROVISION
BEGINNING CHARGED TO CURRENCY BALANCE AT
OF YEAR OPERATIONS REVALUATION ADJUSTMENTS END OF YEAR
------------ ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 2001:
Inventory reserve $7,035 $3,550 $46 ($1,024) $9,607
Year ended January 31, 2000:
Inventory reserve $3,308 $5,113 ($436) ($950) $7,035
Year ended January 31, 1999:
Inventory reserve $2,853 $400 $55 $0 $3,308
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT PROVISION
BEGINNING (BENEFIT) BALANCE AT
OF YEAR CHARGED ADJUSTMENTS END OF YEAR
----------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Year ended January 31, 2001:
Deferred tax assets valuation
allowance $1,439 ($56) $0 $1,383
Year ended January 31, 2000:
Deferred tax assets valuation
allowance $2,660 ($1,221) $0 $1,439
Year ended January 31, 1999:
Deferred tax assets valuation
allowance $2,370 $290 $0 $2,660
</TABLE>
S-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>2
<FILENAME>y48189ex4-4.txt
<DESCRIPTION>NOTE PURCHASE AND PRIVATE SHELF AGREEMENT
<TEXT>
<PAGE> 1
Exhibit 4.4
EXECUTION COPY
================================================================================
MOVADO GROUP, INC.
NOTE PURCHASE AND PRIVATE SHELF AGREEMENT
$40,000,000
Private Shelf Facility
Dated as of March 21, 2001
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(not part of agreement)
Page
----
1. AUTHORIZATION OF ISSUE OF NOTES..........................................1
1A. AUTHORIZATION OF ISSUE OF SHELF NOTES................................1
2. PURCHASE AND SALE OF NOTES...............................................2
2A. PURCHASE AND SALE OF SHELF NOTES................................2
2A(1). FACILITY...........................................2
2A(2). ISSUANCE PERIOD....................................2
2A(3). PERIODIC SPREAD INFORMATION........................2
2A(4). REQUEST FOR PURCHASE...............................3
2A(5). RATE QUOTES........................................3
2A(6). ACCEPTANCE.........................................3
2A(7). MARKET DISRUPTION..................................4
2A(8). FACILITY CLOSINGS..................................4
2A(9). FEES...............................................5
2A(9)(i). FACILITY FEE.......................................5
2A(9)(ii). ISSUANCE FEE.......................................5
2A(9)(iii). DELAYED DELIVERY FEE...............................5
2A(9)(iv). CANCELLATION FEE...................................5
3. CONDITIONS OF CLOSING....................................................6
3A. CERTAIN DOCUMENTS...............................................6
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT......................7
3C. PURCHASE PERMITTED BY APPLICABLE LAWS...........................7
3D. APPROVALS AND CONSENTS..........................................8
3E. PAYMENT OF FEES.................................................8
3F. INSURANCE CERTIFICATE...........................................8
3G. SUBSIDIARY GUARANTEE............................................8
4. PREPAYMENTS..............................................................8
4A. REQUIRED PREPAYMENTS OF SHELF NOTES.............................9
4B. OPTIONAL PREPAYMENTS............................................9
4C. NOTICE OF OPTIONAL PREPAYMENT...................................9
4D. APPLICATION OF PREPAYMENTS......................................9
4E. RETIREMENT OF NOTES.............................................9
4F. PURCHASES OF NOTES BY THE COMPANY...............................9
4G. CANCELLATION OF NOTES..........................................10
5. AFFIRMATIVE COVENANTS...................................................11
5A. FINANCIAL STATEMENTS...........................................11
5B. INFORMATION REQUIRED BY RULE 144A..............................12
5C. INSPECTION OF PROPERTY; BOOKS AND RECORDS......................13
5D. MAINTENANCE OF PROPERTIES......................................13
5E. MAINTENANCE OF INSURANCE.......................................13
5F. COMPLIANCE WITH ENVIRONMENTAL LAWS.............................13
i
<PAGE> 3
5G. ERISA NOTICES..................................................14
5H. PAYMENT OF TAXES AND CLAIMS....................................14
5I. CORPORATE EXISTENCE, ETC.......................................15
5J. COMPLIANCE WITH LAWS, ETC......................................15
5K. COVENANT TO SECURE NOTES EQUALLY...............................15
5L. COVENANT TO MAINTAIN BUSINESS..................................15
6. NEGATIVE COVENANTS......................................................16
6A. MAINTENANCE OF CONSOLIDATED NET WORTH..........................16
6B. LIMITATIONS ON LIENS...........................................16
6C. LIMITATIONS ON DEBT............................................17
6D. LIMITATIONS ON PRIORITY DEBT...................................18
6E. MERGER, CONSOLIDATION, SALE OR TRANSFER OF ASSETS..............18
6F. SALES OF ASSETS................................................19
6G. DISPOSITION OF SUBSIDIARY STOCK................................19
6H. LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS
AND OTHER DISTRIBUTIONS........................................20
6I. SALE AND LEASE-BACK TRANSACTIONS...............................20
6J. TRANSACTIONS WITH AFFILIATES...................................20
6K. SUBSIDIARIES...................................................21
6L. INTEREST COVERAGE RATIO........................................21
7. DEFAULTS; REMEDIES......................................................21
7A. EVENTS OF DEFAULT..............................................21
7B. RESCISSION OF ACCELERATION.....................................25
7C. NOTICE OF ACCELERATION OR RESCISSION...........................25
7D. OTHER REMEDIES.................................................25
8. REPRESENTATIONS, COVENANTS AND WARRANTIES...............................25
8A. ORGANIZATION; AUTHORITY; ENFORCEABILITY........................26
8B. BUSINESS; FINANCIAL STATEMENTS.................................26
8C. ACTIONS PENDING................................................27
8D. OUTSTANDING DEBT...............................................27
8E. CONFLICTING AGREEMENTS AND OTHER MATTERS.......................27
8F. TITLE TO PROPERTIES............................................27
8G. PATENTS, LICENSES, FRANCHISES, ETC.............................28
8H. TAXES..........................................................28
8I. OFFERING OF NOTES..............................................28
8J. REGULATION U, ETC..............................................29
8K. ERISA..........................................................29
8L. ENVIRONMENTAL COMPLIANCE.......................................30
8M. PROCEEDS OF FINANCING..........................................31
8N. GOVERNMENTAL CONSENT...........................................31
8O. COMPLIANCE; DEFAULT............................................31
8P. INVESTMENT COMPANY ACT.........................................31
8Q. PUBLIC UTILITY HOLDING COMPANY ACT.............................31
8R. FOREIGN ASSETS CONTROL REGULATIONS.............................31
8S. DISCLOSURE.....................................................31
8T. HOSTILE TENDER OFFERS..........................................32
ii
<PAGE> 4
9. REPRESENTATIONS OF THE PURCHASERS.......................................32
9A. NATURE OF PURCHASE.............................................32
9B. SOURCE OF FUNDS................................................32
10. DEFINITIONS AND ACCOUNTING MATTERS......................................32
10A. YIELD-MAINTENANCE TERMS........................................32
10B. OTHER DEFINED TERMS............................................33
10C. ACCOUNTING TERMS AND DETERMINATIONS............................46
11. MISCELLANEOUS...........................................................46
11A. NOTE PAYMENTS..................................................46
11B. EXPENSES.......................................................47
11C. CONSENT TO AMENDMENTS..........................................47
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES........................................................48
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS..........................49
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT......................................................49
11G. SUCCESSORS AND ASSIGNS.........................................49
11H. INDEPENDENCE OF COVENANTS......................................49
11I. NOTICES........................................................49
11J. PAYMENTS DUE ON NON-BUSINESS DAYS..............................50
11K. SATISFACTION REQUIREMENT.......................................50
11L. GOVERNING LAW..................................................50
11M. SEVERABILITY...................................................50
11N. DESCRIPTIVE HEADINGS...........................................50
11O. COUNTERPARTS...................................................50
11P. CONFIDENTIALITY................................................51
iii
<PAGE> 5
Exhibits and Schedules
Purchaser Schedule
Information Schedule
Disclosure Schedules:
Schedule 6H -- Restrictions on Subsidiary Dividends and Other Distributions
Schedule 6J -- Transactions with Affiliates
Schedule 8A -- List of Subsidiaries
Schedule 8C -- Pending Actions
Schedule 8D -- Outstanding Debt
Schedule 8E -- Agreements Restricting Debt
Schedule 8F -- Liens on Properties
Schedule 8K -- ERISA Matters
Schedule 8L -- Environmental Compliance
Exhibit A -- Form of Shelf Note
Exhibit B -- Form of Request for Purchase
Exhibit C -- Form of Confirmation of Acceptance
Exhibit D -- Form of Guarantee
Exhibit E-1 -- Form of Opinion of Company/Subsidiary Guarantor Counsel,
Effective Date
Exhibit E-2(A) -- Form of Opinion of Company Counsel, Shelf Note Closing Day
Exhibit E-2(B) -- Form of Opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
Shelf Note Closing Day
iv
<PAGE> 6
EXECUTION COPY
MOVADO GROUP, INC.
125 CHUBB AVENUE
LYNDHURST, NJ 07071
As of March 21, 2001
The Prudential Insurance Company of
America (herein called "PRUDENTIAL")
Each Prudential Affiliate (as hereinafter
defined) which becomes bound by certain
provisions of this Agreement as hereinafter
provided (together with Prudential, the "PURCHASERS")
c/o Prudential Capital Group
1114 Avenue of the Americas, 30th Floor
New York, New York 10036
Ladies and Gentlemen:
The undersigned, Movado Group, Inc., a New York corporation
(herein called the "COMPANY"), hereby agrees with you as follows:
1. AUTHORIZATION OF ISSUE OF NOTES.
1A. AUTHORIZATION OF ISSUE OF SHELF NOTES. The Company will
authorize the issue of its senior promissory notes (the "SHELF NOTES") in the
aggregate principal amount of $40,000,000, to be dated the date of issue
thereof, to mature, in the case of each Shelf Note so issued, no more than 12
years after the date of original issuance thereof, to have an average life, in
the case of each Shelf Note so issued, of no more than 10 years after the date
of original issuance thereof, to bear interest on the unpaid balance thereof
from the date thereof at the rate per annum, and to have such other particular
terms, as shall be set forth, in the case of each Shelf Note so issued, in the
Confirmation of Acceptance with respect to such Shelf Note delivered pursuant to
paragraph 2A(6), and to be substantially in the form of Exhibit A attached
hereto. The terms "SHELF NOTE", "SHELF NOTES", "NOTE" and "NOTES", as used
herein shall include each Shelf Note delivered pursuant to any provision of this
Agreement and each Shelf Note delivered in substitution or exchange for any such
Shelf Note pursuant to any such provision. Notes which have (i) the same final
maturity, (ii) the same principal prepayment dates, (iii) the same principal
prepayment amounts (as a percentage of the original principal amount of each
Note), (iv) the same interest rate, (v) the same interest payment periods and
(vi) the same date of issuance (which, in the case of a Note issued in exchange
for another Note, shall be deemed for these purposes the date on which such
Note's ultimate predecessor Note was issued), are herein called a "SERIES" of
Notes.
<PAGE> 7
2. PURCHASE AND SALE OF SHELF NOTES.
2A(1). FACILITY. Prudential is willing to consider, in its sole
discretion and within limits which may be authorized for purchase by Prudential
and Prudential Affiliates from time to time, the purchase of Shelf Notes
pursuant to this Agreement. The willingness of Prudential to consider such
purchase of Shelf Notes is herein called the "FACILITY". At any time, the
aggregate principal amount of Shelf Notes stated in paragraph 1A, minus the
aggregate principal amount of Shelf Notes purchased and sold pursuant to this
Agreement prior to such time, minus the aggregate principal amount of Accepted
Notes (as hereinafter defined) which have not yet been purchased and sold
hereunder prior to such time, is herein called the "AVAILABLE FACILITY AMOUNT"
at such time. NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER
PURCHASES OF SHELF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS
UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE
OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES,
SPREADS OR OTHER TERMS WITH RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND
THE FACILITY SHALL IN NO WAY BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY
PRUDENTIAL AFFILIATE. NOTWITHSTANDING THE WILLINGNESS OF THE COMPANY TO CONSIDER
SALES OF SHELF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS
UNDERSTANDING THAT THE COMPANY SHALL NOT BE OBLIGATED TO MAKE OFFERS TO SELL
SHELF NOTES, OR TO REQUEST RATES, SPREADS OR OTHER TERMS WITH RESPECT TO
SPECIFIC SALES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY BE CONSTRUED AS
A COMMITMENT BY THE COMPANY.
2A(2). ISSUANCE PERIOD. Shelf Notes may be issued and sold pursuant
to this Agreement until the earlier of (i) the third anniversary of the date of
this Agreement (or if such anniversary is not a Business Day, the Business Day
next preceding such anniversary) and (ii) the thirtieth day after Prudential
shall have given to the Company, or the Company shall have given to Prudential,
a written notice stating that it elects to terminate the issuance and sale of
Shelf Notes pursuant to this Agreement (or if such thirtieth day is not a
Business Day, the Business Day next preceding such thirtieth day). The period
during which Shelf Notes may be issued and sold pursuant to this Agreement is
herein called the "ISSUANCE PERIOD".
2A(3). PERIODIC SPREAD INFORMATION. Not later than 9:30 A.M. (New
York City local time) on a Business Day during the Issuance Period if there is
an Available Facility Amount on such Business Day, the Company may request by
telecopier or telephone, and Prudential will, to the extent reasonably
practicable, provide to the Company on such Business Day (or, if such request is
received after 9:30 A.M. (New York City local time) on such Business Day, on the
following Business Day), information (by telecopier or telephone followed by
telecopier notice, if requested by the Company) with respect to various spreads
at which Prudential or Prudential Affiliates might be interested in purchasing
Shelf Notes of different average lives; provided, however, that the Company may
not make such requests more frequently than once in every five Business Days or
such other period as shall be mutually agreed to by the Company and Prudential.
The amount and content of information so provided shall be in the sole
discretion of Prudential but it is the intent of Prudential to provide
information which will be of use to the Company in determining whether to
initiate procedures for use of the Facility. Information so provided shall not
constitute an offer to purchase Shelf Notes, and neither Prudential nor any
2
<PAGE> 8
Prudential Affiliate shall be obligated to purchase Shelf Notes at the spreads
specified. Information so provided shall be representative of potential interest
only for the period commencing on the day such information is provided and
ending on the earlier of the fifth Business Day after such day and the first day
after such day on which further spread information is provided. Prudential may
suspend or terminate providing information pursuant to this paragraph 2A(3) for
any reason, including its determination that the credit quality of the Company
has declined since the date of this Agreement and shall be required to provide
written notice to the Company as soon as practicable of its decision to suspend
or terminate providing information to the Company.
2A(4). REQUEST FOR PURCHASE. The Company may from time to time
during the Issuance Period make requests for purchases of Shelf Notes (each such
request being herein called a "REQUEST FOR PURCHASE"). Each Request for Purchase
shall be made to Prudential by telecopier or overnight delivery service, and
shall (i) specify the aggregate principal amount of Shelf Notes covered thereby,
which shall not be less than $5,000,000 and not be greater than the Available
Facility Amount at the time such Request for Purchase is made, (ii) specify the
principal amounts, final maturities, principal prepayment dates and amounts and
interest payment periods (quarterly or semi-annual in arrears) of the Shelf
Notes covered thereby, (iii) specify the use of proceeds of such Shelf Notes,
(iv) specify the proposed day for the closing of the purchase and sale of such
Shelf Notes, which shall be a Business Day during the Issuance Period not less
than 10 days and not more than 25 days after the making of such Request for
Purchase, (v) specify the number of the account and the name and address of the
depository institution to which the purchase prices of such Shelf Notes are to
be transferred on the Closing Day for such purchase and sale, (vi) certify that
the representations and warranties contained in paragraph 8 are true on and as
of the date of such Request for Purchase and that there exists on the date of
such Request for Purchase no Event of Default or Default and (vii) be
substantially in the form of Exhibit B attached hereto. Each Request for
Purchase shall be in writing and shall be deemed made when received by
Prudential.
2A(5). RATE QUOTES. Not later than five Business Days after the
Company shall have given Prudential a Request for Purchase pursuant to paragraph
2A(4), Prudential may, but shall be under no obligation to, provide to the
Company by telephone or telecopier with oral confirmation of receipt by the
Company, in each case between 9:30 A.M. and 1:30 P.M. New York City local time
(or such later time as Prudential may elect) interest rate quotes for the
several principal amounts, maturities, principal prepayment schedules, and
interest payment periods of Shelf Notes specified in such Request for Purchase.
Each quote shall represent the interest rate per annum payable on the
outstanding principal balance of such Shelf Notes at which Prudential or a
Prudential Affiliate would be willing to purchase such Shelf Notes at 100% of
the principal amount thereof.
2A(6). ACCEPTANCE. Within 30 minutes after Prudential shall have
provided any interest rate quotes pursuant to paragraph 2A(5) or such shorter
period as Prudential may specify to the Company (such period herein called the
"ACCEPTANCE WINDOW"), the Company may, subject to paragraph 2A(7), elect to
accept such interest rate quotes as to not less than $5,000,000 aggregate
principal amount of the Shelf Notes specified in the related Request for
Purchase. Such election shall be made by an Authorized Officer of the Company
notifying Prudential by telecopier or telephone followed by telecopier notice,
if requested by the Company within the Acceptance Window that the Company elects
to accept such interest rate quotes, specifying the Shelf Notes (each such Shelf
Note being herein called an "ACCEPTED NOTE") as to which such acceptance (herein
called an "ACCEPTANCE") relates. The day the Company notifies an Acceptance with
3
<PAGE> 9
respect to any Accepted Notes is herein called the "ACCEPTANCE DAY" for such
Accepted Notes. Any interest rate quotes as to which Prudential does not receive
an Acceptance within the Acceptance Window shall expire, and no purchase or sale
of Shelf Notes hereunder shall be made based on such expired interest rate
quotes. Subject to paragraph 2A(6) and the other terms and conditions hereof,
the Company agrees to sell to Prudential or a Prudential Affiliate, and
Prudential agrees to purchase, or to cause the purchase by a Prudential
Affiliate of, the Accepted Notes at 100% of the principal amount of such Notes.
As soon as practicable following the Acceptance Day, the Company, Prudential and
each Prudential Affiliate which is to purchase any such Accepted Notes will
execute a confirmation of such Acceptance substantially in the form of Exhibit C
attached hereto (herein called a "CONFIRMATION OF ACCEPTANCE"). If the Company
should fail to execute and return to Prudential within three Business Days
following receipt thereof a Confirmation of Acceptance with respect to any
Accepted Notes, Prudential may at its election at any time prior to its receipt
thereof cancel the closing with respect to such Accepted Notes by so notifying
the Company in writing.
2A(7). MARKET DISRUPTION. Notwithstanding the provisions of
paragraph 2A(6), if Prudential shall have provided interest rate quotes pursuant
to paragraph 2A(5) and thereafter prior to the time an Acceptance with respect
to such quotes shall have been notified to Prudential in accordance with
paragraph 2A(6) the domestic market for U.S. Treasury securities or derivatives
shall have closed or there shall have occurred a general suspension, material
limitation, or significant disruption of trading in securities generally on the
New York Stock Exchange or in the domestic market for U.S. Treasury securities
or derivatives, then such interest rate quotes shall expire, and no purchase or
sale of Shelf Notes hereunder shall be made based on such expired interest rate
quotes. If the Company thereafter notifies Prudential of the Acceptance of any
such interest rate quotes, such Acceptance shall be ineffective for all purposes
of this Agreement, and Prudential shall promptly notify the Company in writing
that the provisions of this paragraph 2A(7) are applicable with respect to such
Acceptance.
2A(8). FACILITY CLOSINGS. Not later than 11:30 A.M. (New York City
local time) on the Closing Day for any Accepted Notes, the Company will deliver
to each Purchaser listed in the Confirmation of Acceptance relating thereto at
the offices of Prudential Capital Group, 1114 Avenue of the Americas, 30th
Floor, New York, New York 10036, the Accepted Notes to be purchased by such
Purchaser in the form of one or more Notes in authorized denominations as such
Purchaser may request for each Series of Accepted Notes to be purchased on the
Closing Day, dated the Closing Day and registered in such Purchaser's name (or
in the name of its nominee), against payment of the purchase price thereof by
transfer of immediately available funds for credit to the Company's account
specified in the Request for Purchase of such Notes. If the Company fails to
tender to any Purchaser the Accepted Notes to be purchased by such Purchaser on
the scheduled Closing Day for such Accepted Notes as provided above in this
paragraph 2A(8), or any of the conditions specified in paragraph 3 shall not
have been fulfilled by the time required on such scheduled Closing Day, the
Company shall, prior to 1:00 P.M., New York City local time, on such scheduled
Closing Day notify Prudential (which notification shall be deemed received by
each Purchaser) in writing whether (i) such closing is to be rescheduled (such
rescheduled date to be a Business Day during the Issuance Period not less than
one Business Day and not more than 10 Business Days after such scheduled Closing
Day (the "RESCHEDULED CLOSING DAY") and certify to Prudential (which
certification shall be for the benefit of each Purchaser) that the Company
reasonably believes that it will be able to comply with the conditions set forth
in paragraph 3 on such Rescheduled Closing Day and that the Company will pay the
Delayed Delivery Fee in accordance with paragraph 2A(9)(iii) or (ii) such
closing is to be canceled.
4
<PAGE> 10
In the event that the Company shall fail to give such notice referred to in the
preceding sentence, Prudential (on behalf of each Purchaser) may at its
election, at any time after 1:00 P.M., New York City local time, on such
scheduled Closing Day, notify the Company in writing that such closing is to be
canceled. Notwithstanding anything to the contrary appearing in this Agreement,
the Company may elect to reschedule a closing with respect to any given Accepted
Notes on not more than one occasion, unless Prudential shall have otherwise
consented in writing.
2A(9). FEES.
2A(9)(i). FACILITY FEE. At the time of the execution and
delivery of this Agreement by the Company and Prudential, the Company will
pay to Prudential in immediately available funds a fee (herein called the
"FACILITY FEE") in the amount of $50,000.
2A(9)(ii). ISSUANCE FEE. The Company will pay to Prudential in
immediately available funds a fee (herein called the "ISSUANCE FEE") on each
Closing Day in an amount equal to 0.15% of the aggregate principal amount of
Notes sold on such Closing Day.
2A(9)(iii). DELAYED DELIVERY FEE. If the closing of the purchase and
sale of any Accepted Note is delayed for any reason beyond the original Closing
Day for such Accepted Note, the Company will pay to Prudential (a) on the
Cancellation Date or actual closing date of such purchase and sale and (b) if
earlier, the next Business Day following 90 days after the Acceptance Day for
such Accepted Note and on each Business Day following 90 days after the prior
payment hereunder, a fee (herein called the "DELAYED DELIVERY FEE") calculated
as follows:
(BEY - MMY) X DTS/360 X PA
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per
annum of such Accepted Note, "MMY" means Money Market Yield, i.e., the yield per
annum on a commercial paper investment of the highest quality selected by
Prudential on the date Prudential receives notice of the delay in the closing
for such Accepted Note having a maturity date or dates the same as, or closest
to, the Rescheduled Closing Day or Rescheduled Closing Days (a new alternative
investment being selected by Prudential each time such closing is delayed);
"DTS" means Days to Settlement, i.e., the number of actual days elapsed from and
including the original Closing Day with respect to such Accepted Note (in the
case of the first such payment with respect to such Accepted Note) or from and
including the date of the next preceding payment (in the case of any subsequent
delayed delivery fee payment with respect to such Accepted Note) to but
excluding the date of such payment; and "PA" means Principal Amount, i.e., the
principal amount of the Accepted Note for which such calculation is being made.
In no case shall the Delayed Delivery Fee be less than zero. Nothing contained
herein shall obligate any Purchaser to purchase any Accepted Note on any day
other than the Closing Day for such Accepted Note, as the same may be
rescheduled from time to time in compliance with paragraph 2A(8).
2A(9)(iv). CANCELLATION FEE. If the Company at any time notifies
Prudential in writing that the Company is canceling the closing of the purchase
and sale of any Accepted Note, or if Prudential notifies the Company in writing
under the circumstances set forth in the last sentence of paragraph 2A(6) or the
penultimate sentence of paragraph 2A(8) that the closing of the purchase and
sale of such Accepted Note is to be canceled, or if the closing of the purchase
and sale of such Accepted Note is not consummated on or prior to the last day of
the Issuance Period (the date of any such notification, or the last day of the
Issuance Period, as the case may
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be, being herein called the "CANCELLATION DATE"), the Company will pay the
Purchasers in immediately available funds an amount (the "CANCELLATION FEE")
calculated as follows:
PI X PA
where "PI" means Price Increase, i.e., the quotient (expressed in decimals)
obtained by dividing (a) the excess of the ask price (as determined by
Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the bid
price (as determined by Prudential) of the Hedge Treasury Notes(s) on the
Acceptance Day for such Accepted Note by (b) such bid price; and "PA" has the
meaning ascribed to it in paragraph 2A(9)(iii). The foregoing bid and ask prices
shall be as reported by Bridge Telerate (or, if such data for any reason ceases
to be available through Bridge Telerate, any publicly available source of
similar market data). Each price shall be based on a U.S. Treasury security
having a par value of $100.00 and shall be rounded to the second decimal place.
In no case shall the Cancellation Fee be less than zero.
3. CONDITIONS OF CLOSING. The effectiveness of this Agreement on
the date of its execution by the Company and Prudential (such date being
hereinafter referred to as the "EFFECTIVE DATE"), and the obligation of any
Purchaser to purchase and pay for any Notes on any Closing Day, are subject (in
each case) to the satisfaction, on or before such Effective Date or Closing Day,
as the case may be, of the following conditions applicable thereto:
3A. CERTAIN DOCUMENTS. The Purchaser shall have received the
following, each dated the Effective Date or the applicable Closing Day, as
the case may be:
(i) With respect to any Closing Day, the Note(s) to be
purchased by such Purchaser.
(ii) With respect to (a) the Effective Date, certified copies of
the resolutions of the Board of Directors of the Company, authorizing the
execution and delivery of this Agreement, and of all documents evidencing
other necessary corporate action and governmental approvals, if any, with
respect to this Agreement, or (b) any Closing Day, certified copies of the
resolutions of the Board of Directors of the Company authorizing the
issuance of the Notes, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Agreement and the Notes.
(iii) With respect to (a) the Effective Date, a certificate of the
Secretary or an Assistant Secretary and one other officer of the Company,
certifying the names and true signatures of the officers of the Company
authorized to sign this Agreement and the Notes and the other documents to
be delivered hereunder, or (b) any Closing Day, a certificate of the
Secretary or an Assistant Secretary and one other officer of the Company
certifying that the certificate of such Person delivered pursuant to the
immediately preceding clause (a) continues to be true, current and correct
(except as specifically set forth therein, which modifications shall be
acceptable to the Purchasers).
(iv) With respect to (a) the Effective Date, certified copies of
the Certificate of Incorporation and By-laws of the Company, or (b) any
Closing Day, a certificate of the Secretary or an Assistant Secretary of
the Company certifying that the Certificate of Incorporation and By-laws
of the Company delivered pursuant to the immediately preceding clause (a)
continue to be in full force and effect and have not been modified or
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<PAGE> 12
amended in any respect (except as specifically set forth therein, which
modifications or amendments shall be in form and substance acceptable to
the Purchasers, and copies of which shall accompany such certificate).
(v) With respect to (a) the Effective Date, a favorable opinion
of Timothy F. Michno, Esq., General Counsel of the Company (or such other
counsel designated by the Company and acceptable to the Purchaser(s), and
(b) any Closing Day, a favorable opinion of Timothy F. Michno, Esq.,
General Counsel of the Company and Paul, Weiss, Rifkind, Wharton &
Garrison, special counsel to the Company (or such other counsel designated
by the Company and acceptable to the Purchaser(s)). Each such opinion
shall be satisfactory to such Purchaser and substantially in the form of
Exhibit E-1 (in the case of the Effective Date) or Exhibits E-2(A) and (B)
(in the case of any Closing Day) attached hereto and as to such other
matters as such Purchaser may reasonably request. The Company hereby
directs each such counsel to deliver such opinion, agrees that the
issuance and sale of any Notes will constitute a reconfirmation of such
direction, and understands and agrees that each Purchaser receiving such
an opinion will and is hereby authorized to rely on such opinion.
(vi) With respect to the Effective Date or any Closing Day, a good
standing certificate for the Company from the Secretary of State of New
York dated of a recent date and such other evidence of the status of the
Company as such Purchaser may reasonably request.
(vii) With respect to the Effective Date or any Closing Day,
certified copies of Requests for Information or Copies (Form UCC-11) or
equivalent reports listing all effective financing statements which name
the Company or any Subsidiary (under its present name and previous names)
as debtor and which are filed in the offices of the Secretaries of State
of New York, New Jersey and Florida, together with copies of such
financing statements.
(viii) With respect to the Effective Date or any Closing Day,
additional documents or certificates with respect to legal matters or
corporate or other proceedings related to the transactions contemplated
hereby as may be reasonably requested by such Purchaser.
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The
representations and warranties contained in this Agreement and those otherwise
made in writing by or on behalf of the Company in connection with the
transactions contemplated by this Agreement shall be true on and as of the
Effective Date or such Closing Day, as the case may be; there shall exist on the
Effective Date or such Closing Day, as the case may be, no Event of Default or
Default; the Company shall have performed or complied with all matters required
to be performed or complied with by it hereunder; there shall have been no
material adverse change in the business, financial condition or operations of
the Company and its Subsidiaries, taken as a whole, since January 31, 2000; and
the Company shall have delivered to such Purchaser an Officer's Certificate,
dated the Effective Date or such Closing Day, as the case may be, to each such
effect.
3C. PURCHASE PERMITTED BY APPLICABLE LAWS. On the Effective Date
and each Closing Day, the purchase of and payment for the Notes on the terms and
conditions herein provided (including the use of the proceeds of such Notes by
the Company) shall not
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violate any applicable law or governmental regulation (including, without
limitation, Section 5 of the Securities Act or Regulation T, U or X of the Board
of Governors of the Federal Reserve System) and shall not subject such Purchaser
to any tax (other than income taxes payable on the receipt of income), penalty,
liability or, in the reasonable judgment of such Purchaser, other onerous
condition under or pursuant to any applicable law or governmental regulation.
3D. APPROVALS AND CONSENTS. The Company shall have duly received
all material authorizations, consents, approvals, licenses, franchises, permits
and certificates by or of all United States federal, state and local
governmental authorities and any third parties necessary in connection with the
transactions contemplated hereby, including any consents required under the
Credit Agreement, and all thereof shall be in full force and effect on the
Effective Date or such Closing Day, as the case may be. Any consents from the
shareholders of the Company required to be obtained in connection with the
transactions contemplated herein shall have been obtained. The Company shall
have delivered an Officer's Certificate to such Purchaser, dated the Effective
Date or such Closing Day, as the case may be, to such effect.
3E. PAYMENT OF FEES. The Company shall have paid to Prudential
any fees due it pursuant to or in connection with this Agreement, including any
Facility Fee due pursuant to paragraph 2A(9)(i), any Issuance Fee due pursuant
to paragraph 2A(9)(ii) and any Delayed Delivery Fee due pursuant to paragraph
2A(9)(iii).
3F. INSURANCE CERTIFICATE. On the Effective Date, the Company
shall have delivered to Prudential the Officer's Certificate required by
paragraph 5E.
3G. SUBSIDIARY GUARANTEE. On the Effective Date, the Company
shall have delivered to Prudential the following:
(i) Guarantees, substantially in the form of Exhibit D, duly
authorized and executed by its Subsidiaries, SwissAm, Inc. ("SWISSAM"), a
New Jersey corporation, and Movado LLC ("MOVADO LLC"), a Delaware limited
liability company (formerly Movado Corporation, a Delaware corporation),
(ii) A certified copy of the resolutions of the respective Boards
of Directors of SwissAm, and Movado Group Delaware Holdings Corporation, a
Delaware corporation (as the sole member of Movado LLC), authorizing the
execution, delivery and performance of the Guarantee and of all documents
evidencing other necessary corporate action and government approval, if
any,
(iii) A certified copy of (i) the respective Certificates of
Incorporation and By-Laws of SwissAm and Movado Group Delaware Holdings
Corporation, a Delaware corporation, (ii) the Certificate of Conversion
changing the name of Movado Corporation to Movado LLC and (iii) the
Certificate of Formation of Movado LLC (together with any other
organizational documents of Movado LLC),
(iv) A certificate of the respective Secretaries or Assistant
Secretaries and one other officer of SwissAm and Movado Group Delaware
Holdings Corporation, a Delaware corporation, certifying the names and
true signatures of the respective officers thereof authorized to sign the
applicable Guarantee, and
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(v) A favorable opinion of counsel to SwissAm and Movado LLC,
satisfactory to Prudential and substantially in the form of Exhibit E-1.
4. PREPAYMENTS. The Shelf Notes shall be subject to the required
prepayments specified in paragraph 4A and the optional prepayments permitted by
paragraph 4B. The Shelf Notes may also be acquired or required to be purchased
under the circumstances set forth in paragraphs 4E and 4F. Any prepayment made
by the Company pursuant to any other provision of this paragraph 4 shall not
reduce or otherwise affect its obligation to make any required prepayment as
specified in paragraph 4A.
4A. REQUIRED PREPAYMENTS OF SHELF NOTES. Each Series of Shelf
Notes shall be subject to required prepayment, if any, set forth in the Notes
of such Series.
4B. OPTIONAL PREPAYMENT. The Notes of each Series shall be
subject to prepayment, in whole or from time to time in part (in an amount of at
least $1,000,000 and any larger integral multiples of $100,000), at the option
of the Company, at 100% of the principal amount so prepaid plus interest accrued
thereon to the prepayment date and the Yield-Maintenance Amount, if any, with
respect to each such Note; provided, however, that if any such prepayment is
made with Disposition Proceeds as contemplated by subparagraph (iii) of the
second paragraph of the definition of "DESIGNATED APPLICATIONS", such prepayment
shall be made at par plus interest accrued thereon to the prepayment date.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the
holder of each Note to be prepaid irrevocable written notice of such prepayment
not less than 10 Business Days prior to the prepayment date, specifying such
prepayment date, the aggregate principal amount of the Notes, and of the Notes
held by such holder, to be prepaid on such date and stating that such prepayment
is to be made pursuant to paragraph 4B. Notice of prepayment having been given
as aforesaid, the principal amount of the Notes specified in such notice,
together with interest thereon to the prepayment date and together with the
Yield-Maintenance Amount, if any, herein provided, shall become due and payable
on such prepayment date. The Company shall, on or before the day on which it
gives written notice of any prepayment pursuant to paragraph 4B, give telephonic
notice or notice by facsimile machine of the principal amount of the Notes to be
prepaid and the prepayment date to each holder of Notes which shall have
designated a recipient of such notices in the Purchaser Schedule attached hereto
or the applicable Confirmation of Acceptance or by notice in writing to the
Company.
4D. APPLICATION OF PREPAYMENTS. Upon any partial prepayment of
Notes of any Series pursuant to paragraph 4A or 4B, the principal amount to be
prepaid shall be applied pro rata to all outstanding Notes of such Series
(including for the purpose of this paragraph 4D only, all Notes prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or Affiliates other than by prepayment pursuant to paragraph 4A
or 4B) according to the respective unpaid principal amounts thereof.
4E. RETIREMENT OF NOTES. The Company shall not, and shall not
permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in
whole or in part prior to their stated final maturity (other than by prepayment
pursuant to paragraph 4A or 4B by purchase pursuant to paragraph 4F or upon
acceleration of such final maturity pursuant to paragraph 7A), or purchase or
otherwise acquire, directly or indirectly, Notes of any Series held by any
holder
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unless the Company or such Subsidiary or Affiliate shall have offered to prepay
or otherwise retire or purchase or otherwise acquire, as the case may be, the
same proportion of the aggregate principal amount of Notes of such Series held
by each other holder of Notes of such Series at the time outstanding upon the
same terms and conditions.
4F. PURCHASES OF NOTES BY THE COMPANY. (a) At any time after the
occurrence of a Purchase Event and prior to the expiration of the later of (x)
90 days after receipt of an Event Notice (as defined below) relating thereto and
(y) 15 days after receipt of an Other Holder Notice (as defined below), any
holder of a Note may deliver a notice (a "PURCHASE NOTICE") to the Company (x)
stating that it is electing to exercise its right to require the purchase by the
Company pursuant to this paragraph 4F of any or all of the Notes then held by it
(which shall not exceed the Retirement Fraction applicable to such holder's
Notes) and (y) specifying the period (which shall be at least 10 Business Days)
during which such purchase shall occur (which period shall commence not earlier
than 15 Business Days after the date on which such holder shall have delivered
such Purchase Notice to the Company), and in any such event the Company, on a
date in such period specified by the Company (which shall be the first Business
Day therein if the Company shall not specify another date), shall purchase the
Note or Notes then held by such holder in the amount specified in such Purchase
Notice (which shall not exceed the Retirement Fraction applicable to such
holder's Notes), without recourse, representation or warranty (other than a
statement as to the holder's full right, title and interest free of any Lien or
adverse claim in such Note or Notes and the holder's authority to sell such Note
or Notes), and such holder shall sell such Note or Notes to the Company at a
price, payable in immediately available funds by wire transfer to the accounts
specified in paragraph 11A or to such other account in the United States as may
be specified in such notice, in an amount equal to the then outstanding
principal amount thereof, together with interest accrued on such principal
amount to the date of purchase. In the event the Company shall be in receipt of
a Purchase Notice from more than one holder of Notes, without having effectuated
the purchase of Notes required by any such Purchase Notice, specifying purchase
periods with an overlapping day or days, it shall purchase the Notes relating to
such Purchase Notices simultaneously on the earliest overlapping date specified
in such Purchase Notices.
(b) Promptly, and in any event within 5 Business Days following
its receipt thereof and at least 5 Business Days prior to the date on which the
Company intends to purchase any Notes pursuant to subparagraph (a) above (the
"PURCHASE DATE") pursuant thereto, the Company will deliver to each holder of a
Note a copy of each Purchase Notice received by it pursuant to subparagraph (a)
of this paragraph 4F (an "OTHER HOLDER NOTICE").
(c) The Company covenants that it will deliver to each holder of
a Note promptly, and in any event within 5 Business Days following the
occurrence thereof, a notice of the occurrence of a Purchase Event, together
with a statement of the date of occurrence of such Purchase Event and a
reasonably detailed description of the facts and circumstances underlying such
occurrence known to it, and which specifies the applicable Retirement Fraction
and states that the Company is obligated, upon receipt of a Purchase Notice
described in subparagraph (a) of this paragraph 4F, to purchase Notes pursuant
to subparagraph (a) of this paragraph 4F (an "EVENT NOTICE").
4G. CANCELLATION OF NOTES. Any Notes acquired pursuant to
paragraph 4E or purchased pursuant to paragraph 4F or prepaid pursuant to
paragraph 4A or 4B, or otherwise acquired by or on behalf of the Company or a
Subsidiary, shall be canceled and shall not be
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reissued and shall not be deemed to be outstanding for any purpose of this
Agreement. Any Note held by any Affiliate of the Company shall not be deemed
outstanding for the purpose of determining the aggregate principal amount of
Notes outstanding for purposes of determining whether or not any specified
percentage of holders of outstanding Notes have given any consent or taken any
other action hereunder.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will
deliver to each holder of any Note in duplicate:
(i) as soon as practicable and in any event within 75
days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, consolidated statements of
operations and consolidated statements of changes in shareholders'
equity and cash flows of (a) the Company and its Restricted
Subsidiaries, and (b) the Company and its Unrestricted Subsidiaries
for such quarterly period and, in the case of the second and third
quarterly periods, for the period from the beginning of the current
fiscal year to the end of such quarterly period, and a consolidated
balance sheet of (a) the Company and its Restricted Subsidiaries,
and (b) the Company and its Unrestricted Subsidiaries as at the end
of such quarterly period, setting forth in each case in comparative
form figures for the corresponding period in the preceding fiscal
year, all in reasonable detail and satisfactory in form to the
Required Holder(s) (the detail and form reflected in the quarterly
financial statements identified in paragraph 8B being deemed
satisfactory as to consolidated statements) and certified by an
authorized financial officer of the Company, subject to changes
resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 120
days after the end of each fiscal year, consolidated and
consolidating statements of operations and consolidated statements
of changes in shareholders' equity and cash flows of the Company and
its Subsidiaries for such year, and a consolidated and consolidating
balance sheet of the Company and its Subsidiaries as at the end of
such year, setting forth in each case in comparative form
corresponding consolidated figures from the preceding annual audit,
all in reasonable detail and satisfactory in form to the Required
Holder(s) (the detail and form reflected in the annual financial
statements identified in paragraph 8B(i) being deemed satisfactory
as to consolidated statements) and, as to the consolidated
statements, reported on by independent public accountants of
recognized national standing selected by the Company whose report
shall be without limitation as to the scope of the audit and
satisfactory in substance to the Required Holder(s) (the substance
set forth in the reports accompanying the aforesaid annual financial
statements being deemed satisfactory) and, as to the consolidating
statements, certified by an authorized financial officer of the
Company;
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(iii) promptly upon transmission thereof, (a) copies of
all such financial statements, proxy statements, notices and reports
as it shall send to its public shareholders, (b) copies of all
registration statements (without exhibits) and all reports which it
publicly files with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the
Securities and Exchange Commission) (including, without limitation,
reports on Form 10-K and Form 10-Q not later than the date on which
the same are required to be filed) and (c) copies of all press
releases;
(iv) promptly upon receipt thereof and if such holder is
a Significant Holder, a copy of each other report submitted to the
Company or any Subsidiary by independent accountants in connection
with any annual, interim or special audit made by them of the books
of the Company or any Subsidiary which constitutes a "significant
subsidiary" within the meaning of Regulation S-X of the Securities
and Exchange Commission (including management letters submitted to
the board of directors of the Company or any such Subsidiary); and
(v) with reasonable promptness and if such holder is a
Significant Holder, such other information with respect to the
business, finances and affairs of the Company and its Subsidiaries
as such Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each holder of any Notes an Officer's
Certificate (a) demonstrating (with computations in reasonable detail)
compliance by the Company and its Subsidiaries with the provisions of paragraphs
6A, 6B, 6C, 6D, 6F, 6I and 6L, (b) specifying the circumstances of any
designation of Restricted Subsidiaries pursuant to paragraph 6K within the
preceding fiscal quarter, (c) containing a list of all reports, certificates and
other informational materials then being furnished to its lenders under any
credit agreement or loan agreement, (d) stating that there exists no Event of
Default or Default, or, if any Event of Default or Default exists, specifying
the nature and period of existence thereof and what action the Company has taken
or proposes to take with respect thereto and (e) if any of the Subsidiaries
included in such statements shall not be Restricted Subsidiaries, specifying the
adjustments which are necessary to permit the holders of the Notes to confirm
the foregoing calculations. Together with each delivery of financial statements
required by clause (ii) above, the Company will deliver to each record holder of
any Note (x) the Officer's Certificate required pursuant to paragraph 5E, and
(y) a certificate of the accountants referred to in said clause (ii) above
stating that, in making the audit necessary for their report on such financial
statements, they have obtained no knowledge of any Event of Default or Default,
or, if they have obtained knowledge of any Event of Default or Default,
specifying the nature and period of existence thereof. Such accountants,
however, shall not be liable to anyone by reason of their failure to obtain
knowledge of any Event of Default or Default, which Event of Default or Default
would not normally be disclosed or discovered in the course of an audit
conducted in accordance with generally accepted auditing standards. The Company
also covenants that promptly after any Responsible Officer obtains actual
knowledge that any existing state of facts or circumstances constitutes an Event
of Default or Default (and in any event within 5 Business Days of obtaining such
knowledge), it will deliver to each holder of any Note an Officer's Certificate
specifying the nature and period of existence thereof and what action the
Company has taken or proposes to take with respect thereto.
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5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that
it will, upon the request of the holder of any Note, provide such holder, and
any qualified institutional buyer permitted to purchase any Note under the terms
of this Agreement designated by such holder, such financial and other
information as such holder may reasonably determine to be necessary in order to
permit compliance with the information requirements of Rule 144A under the
Securities Act in connection with the resale of Notes, except at such times as
the Company is subject to the reporting requirements of section 13 or 15(d) of
the Exchange Act. For the purpose of this paragraph 5B, the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A under the
Securities Act.
5C. INSPECTION OF PROPERTY; BOOKS AND RECORDS. The Company
covenants that it will permit any Person designated in writing by any
Significant Holder, at the Company's expense while an Event of Default is
continuing and otherwise at such Significant Holder's expense, to visit and
inspect any of the properties of the Company and its Restricted Subsidiaries, to
examine the corporate books and financial records of the Company and its
Restricted Subsidiaries and make copies thereof or extracts therefrom and to
discuss the affairs, finances and accounts of any of such corporations with the
principal officers thereof or with its independent public accountants (and by
this provision the Company hereby agrees that it will make such officers
available for any such discussion and authorizes such accountants to discuss
such matters with such Person), all at such reasonable times, upon reasonable
notice, and as often as such Significant Holder may reasonably request. The
Company will maintain or cause to be maintained the books of record and account
of the Company and its Subsidiaries in good order in accordance with sound
business and financial practice and its financial statements (including those
required to be delivered pursuant to paragraph 5A) prepared in accordance with
generally accepted accounting principles.
5D. MAINTENANCE OF PROPERTIES. The Company will maintain or cause
to be maintained in good repair, working order and condition all properties used
in or necessary for the operation of the business of the Company and its
Restricted Subsidiaries (ordinary wear and tear excepted) and from time to time
will make or cause to be made all reasonable repairs, renewals and replacements
thereof, all to the extent material to the business and operations of the
Company and its Restricted Subsidiaries taken as a whole. The Company will
procure and maintain in full force and effect all franchises, certificates,
licenses, permits and other authorizations from governmental political
subdivisions or regulatory authorities and all patents, trademarks, service
marks, trade names, copyrights, licenses and other rights, in each case that are
necessary in any material respect for the ownership, maintenance and operation
of the business and operations of the Company and its Restricted Subsidiaries
taken as a whole.
5E. MAINTENANCE OF INSURANCE. The Company covenants that it and
each of its Restricted Subsidiaries will maintain with financially sound and
reputable insurers insurance against fire, explosion, hazards insured against by
extended coverage and liability for other hazards and risks, and insurance
against liability to Persons and for property damage, all to the extent and in
the manner as is customarily maintained by other companies of established
reputation operating comparable or similar businesses, and, on the Effective
Date, and together with each delivery of financial statements under clause (ii)
of paragraph 5A, it will deliver an Officer's Certificate setting forth a
summary schedule of such insurance in effect.
5F. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company will, and
will cause each of its Subsidiaries and each of its Affiliates that are
controlled by the Company or its
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Subsidiaries to, comply with, or operate pursuant to valid waivers of,
applicable Environmental Laws and Environmental Permits, including, without
limitation, to the extent required by applicable Environmental Laws or
Environmental Permits, conducting, on a timely basis, periodic tests and
monitoring for contamination of ground water, surface water, air and land and
for biological toxicity and completing proper, thorough and effective clean-up,
removal, remediation and/or restoration, except to the extent that failure so to
comply with any Environmental Law or Environmental Permit does not have a
material adverse effect on the business, financial condition or operations of
the Company and its Restricted Subsidiaries, taken as a whole, and, except that,
with respect to any testing, monitoring, clean-up, removal, remediation or other
such action required pursuant to such law or permits, neither the Company nor
any of its Subsidiaries or Affiliates shall be required to perform any such
action if the applicability or validity thereof is being contested in good faith
by appropriate proceedings and adequate reserves have been established in
accordance with generally accepted accounting principles.
5G. ERISA NOTICES. The Company covenants that it shall deliver to
each Significant Holder, promptly upon the Company or its Subsidiaries or any of
their respective ERISA Affiliates:
(i) giving or being required to give notice to the PBGC of any
"reportable event" (as defined in section 4043 of ERISA) with respect to
any Plan which might constitute grounds for a termination of such Plan
under Title IV of ERISA by the PBGC, or becoming aware that any plan
administrator of any Plan has given or is required to give notice of any
such "reportable event", a copy of the notice of such reportable event
given or which should have been given to the PBGC;
(ii) receiving notice of the Company's or an ERISA Affiliate's
complete or partial withdrawal from a Multiemployer Plan under Title IV of
ERISA, or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice;
(iii) receiving notice from the PBGC under Title IV of ERISA of its
intent to terminate, impose liability (other than for premiums under
section 4007 of ERISA) in respect of, or appoint a trustee to administer
any Plan, a copy of such notice;
(iv) applying for a waiver of the minimum funding standard under
section 412 of the Code, a copy of such application;
(v) giving notice to the PBGC of intent to terminate any Plan
under section 4041(c) of ERISA, a copy of such notice and other
information filed with the PBGC;
(vi) giving notice to the PBGC of withdrawal from any Plan
pursuant to section 4063 of ERISA, a copy of such notice; or
(vii) failing to make any required payment or required contribution
to any Plan or Multiemployer Plan or making any amendment to any Plan
which has resulted in the posting of a bond or other security, a
certificate of the chief financial officer or the chief accounting officer
of the Company setting forth details as to such occurrence and the action,
if any, which the Company is required to take.
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5H. PAYMENT OF TAXES AND CLAIMS. The Company will pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (a) all taxes, assessments and governmental charges (including claims
of the IRS and the PBGC and claims made at the insistence of the PBGC) levied or
imposed upon it or any ERISA Affiliate or any Code Affiliate or upon its or
their income, profits or property, (b) all lawful claims for labor, materials
and supplies, which, if unpaid, might by law become a Lien upon its or its
Subsidiaries, properties, and (c) all required installments under section 412(m)
of the Code and all other required payments under section 412 of the Code with
respect to any Plan maintained by the Company or any ERISA Affiliate; provided,
however, that, in the case of clause (a) and (b) above, the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim, the applicability or validity of which is being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established in accordance with generally accepted accounting
principles.
5I. CORPORATE EXISTENCE, ETC. Subject to the provisions of
paragraph 6F, the Company will at all times preserve and keep in full force and
effect its and its Restricted Subsidiaries, corporate existence, and will
qualify, and cause each of its Restricted Subsidiaries to qualify, to do
business in any jurisdiction where the failure to do so would have a material
adverse effect on the business, financial condition or operations of the Company
and its Restricted Subsidiaries taken as a whole.
5J. COMPLIANCE WITH LAWS, ETC. The Company will comply and cause
its Subsidiaries to comply with the requirements of all applicable laws, rules,
regulations and judicial or administrative orders and judgments of any court or
governmental authority (including those relating to environmental protection,
employee benefits and welfare and employee safety), the noncompliance with which
would materially adversely affect the business, financial condition or
operations of the Company and its Restricted Subsidiaries taken as a whole.
5K. COVENANT TO SECURE NOTES EQUALLY.
5K(1). The Company covenants that if it or any Restricted Subsidiary
shall create or assume any Lien upon any of its property or assets, whether now
owned or hereafter acquired, other than Liens permitted by the provisions of
paragraph 6B (unless prior written consent to the creation or assumption thereof
shall have been obtained pursuant to paragraph 11C), it will make or cause to be
made effective provision satisfactory in form and substance to the Required
Holder(s) (including, without limitation, opinions of counsel relating thereto)
whereby the Notes will be secured by such Lien equally and ratably with any and
all other Debt thereby secured so long as any such other Debt shall be so
secured. Securing the Notes as provided in this paragraph 5K(1) shall not permit
the existence of any Lien not permitted by paragraph 6B.
5K(2). The Company covenants that if at any time after the date of
this Agreement any Restricted Subsidiary guarantees or provides collateral in
any manner for any Indebtedness of the Company under the Credit Agreement, it
will simultaneously cause such Restricted Subsidiary to guarantee or provide
such collateral for the Notes equally and ratably with all Indebtedness
guaranteed or secured by such Restricted Subsidiary for so long as such
Indebtedness is guaranteed and pursuant to a guarantee substantially in the form
of Exhibit D hereto, together with an opinion of counsel substantially in the
form of paragraphs 1, 3 and 4 of
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Exhibit E-1 hereto. Upon the execution and delivery of such guarantee, such
Restricted Subsidiary shall become a Subsidiary Guarantor.
5L. COVENANT TO MAINTAIN BUSINESS. The Company covenants that
the Company and its Restricted Subsidiaries taken as a whole will engage
primarily in the Core Business.
6. NEGATIVE COVENANTS.
6A. MAINTENANCE OF CONSOLIDATED NET WORTH. The Company covenants
that it will not at the end of any fiscal quarter permit Consolidated Net Worth
to be less than the sum of (i) $125,000,000 and (ii) the Incremental Net Worth
Amount. As of any date of determination the "INCREMENTAL NET WORTH AMOUNT" shall
be an amount equal to the sum of 50% of Consolidated Net Income for all fiscal
years of the Company preceding or ending on such date of determination
(beginning with the fiscal year ending on or about February 1, 2001) in which
Consolidated Net Income is a positive number.
6B. LIMITATIONS ON LIENS. The Company covenants that neither it
nor any of its Restricted Subsidiaries will create, assume or suffer to exist
any Lien upon any of its Property or assets (including, without limitation, any
capital stock of a Restricted Subsidiary owned by the Company or any
Subsidiary), whether now owned or hereafter acquired and whether or not
provision is made for equally and ratably securing the Notes as provided in
paragraph 5K; provided, however, that the foregoing restriction and limitation
shall not apply to the following Liens:
(i) Liens for taxes, assessments or governmental charges
or levies not yet delinquent or which are being contested in good
faith by appropriate proceedings for which adequate reserves have
been established in accordance with, and as permitted by, paragraph
5H;
(ii) Liens imposed by law, such as carriers', landlords',
warehousemen's and mechanics' liens and other similar liens arising
in the ordinary course of business which secure payment of
obligations not more than 60 days past due or which are being
contested in good faith by appropriate proceedings as permitted by
paragraph 5H; Liens (other than ERISA Liens) arising out of pledges
or deposits under worker's compensation laws, unemployment
insurance, old age pensions, or other social security or retirement
benefits, or similar legislation; servitudes, easements,
rights-of-way, restrictions, minor defects or irregularities in
title and such other encumbrances or charges against real property
as are of a nature generally existing with respect to properties of
a similar character and which do not in any material way affect the
marketability of the same or interfere in any material way with the
use thereof in the business of the Company or its Restricted
Subsidiaries; and other Liens incidental to the conduct of the
Company's or any Restricted Subsidiary's business, or the ownership
of the Company's or its Restricted Subsidiaries' Property, provided,
that, in each case, such Liens (a) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit
(other than vendors, liens in respect of current accounts payable
not overdue and extended in the ordinary course of business) or the
payment of a deferred
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purchase price and (b) do not in the aggregate materially detract
from the value of the Property of the Company and its Restricted
Subsidiaries taken as a whole, or materially impair the use thereof
in the operation of the business of the Company and its Restricted
Subsidiaries taken as a whole;
(iii) Liens on property or assets of a Restricted
Subsidiary to secure obligations of such Restricted Subsidiary to
the Company or to a Wholly-owned Restricted Subsidiary;
(iv) subject to compliance with paragraph 6D, (a)
Capitalized Leases and (b) Liens (other than Liens permitted by
clause (iii) above) on Property existing at the time of acquisition
or placed on Property being acquired or constructed to secure the
purchase price or cost thereof or Debt incurred to finance such
purchase or construction, provided, that (w) in the case of any Lien
on Property existing at the time of acquisition, such Lien was not
created in contemplation of such acquisition, (x) the principal
amount of the Debt secured by such Lien shall not exceed the lesser
of (1) the cost of the Property subject thereto or (2) the fair
market value of such Property, (y) such Lien is confined to the
Property so acquired or constructed and (z) no Default or Event of
Default shall exist or result therefrom;
(v) Capitalized Leases and Liens existing on the date of
this Agreement securing Debt or securing certain other obligations
as described in Schedule 6B; and
(vi) other Liens (including any renewal or extension of
any Lien permitted under the preceding clauses (iv) and (v) if such
Lien is not extended to other Property), provided, that, after
incurrence of the Debt secured by such Lien, (y) Adjusted Priority
Debt shall not exceed 20% of Consolidated Total Capitalization and
(z) no Default or Event of Default shall exist or result therefrom.
6C. LIMITATIONS ON DEBT. The Company covenants that it will not,
and will not permit any of its Restricted Subsidiaries to, create, incur, assume
or otherwise become or be liable with respect to any Debt (collectively referred
to herein as an "incurrence" or "to incur" such Debt, all Debt of a Person
existing at the time it shall become a Restricted Subsidiary being deemed
incurred as of that time and all Debt owing by the Company or any Restricted
Subsidiary to any other Restricted Subsidiary being deemed to be incurred at the
time such "other Restricted Subsidiary" shall cease to be a Restricted
Subsidiary as defined herein), except:
(i) Debt represented by the Notes, the 1993 Notes and
the 1998 Notes;
(ii) Debt of any Restricted Subsidiary owing to the
Company or to a Restricted Subsidiary;
(iii) Current Debt of the Company or a Restricted
Subsidiary (subject to the limitations of paragraph 6D), provided no
such Current Debt shall be permitted to exist on any day after the
date hereof unless either
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(A) there shall have been a period of at least 30
consecutive days in the preceding period of 15 consecutive
calendar months (a "CURRENT DEBT COMPUTATION PERIOD") when
the aggregate amount of Consolidated Current Debt outstanding
on such date shall not have exceeded $20,000,000 at any time
during such Current Debt Computation Period (a "CLEAN DOWN
PERIOD"), or
(B) the aggregate amount of Consolidated Funded
Debt and Excess Current Debt shall not exceed 55% of the sum
of Consolidated Total Capitalization and Excess Current Debt;
and
(iv) other Funded Debt of the Company or a Restricted
Subsidiary (subject to the limitations of paragraph 6D) if at the
time of incurrence thereof and after giving effect thereto and to
the application of the proceeds thereof the aggregate amount of
Consolidated Funded Debt and Excess Current Debt shall not exceed
the sum of 55% of Consolidated Total Capitalization and Excess
Current Debt.
6D. LIMITATIONS ON PRIORITY DEBT. The Company covenants that
it will not permit, at any time, Priority Debt to exceed 20% of Consolidated
Total Capitalization.
6E. MERGER, CONSOLIDATION, SALE OR TRANSFER OF ASSETS. The
Company covenants that it will not, and will not permit any of its Restricted
Subsidiaries to, be a party to any merger, amalgamation, consolidation,
reorganization, reconstruction or arrangement with any other Person or sell,
lease or transfer or otherwise dispose of all or substantially all of its assets
to any Person, except that:
(i) subject to the provisions of clause (iv) below, as
applicable, any Subsidiary may merge or consolidate with the Company
or any one or more Wholly-owned Restricted Subsidiaries;
(ii) subject to the provisions of clause (iv) below, as
applicable, any Restricted Subsidiary or the Company may sell,
lease, transfer or otherwise dispose of any of its assets to the
Company or to any Wholly-owned Restricted Subsidiary, whether by
dissolution, liquidation or otherwise;
(iii) any Restricted Subsidiary may merge or consolidate
with, or sell, lease, transfer or otherwise dispose of all or
substantially all of its assets to, any other Person subject to the
provisions of paragraph 6F and paragraph 6G; and
(iv) the Company may merge or consolidate or amalgamate
with any other corporation, or enter into a plan of arrangement, or
sell, transfer, or otherwise dispose of all or substantially all of
its assets, provided that the Company shall be the continuing or
surviving corporation, or the continuing, surviving or acquiring
corporation shall be a corporation organized under the laws of any
State of the United States, the District of Columbia or Canada or a
province thereof or, subject to written consent by each holder of a
Note that is subject to limitations on foreign investments, under
the laws of another foreign jurisdiction or any local governmental
authority which shall expressly assume in
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writing (in an instrument satisfactory in form and substance to the
Required Holder(s)) all of the obligations of the Company under this
Agreement and the Notes;
provided, that at the time of such merger, consolidation, sale, transfer or
disposition and after giving effect thereto there shall exist no Default or
Event of Default; and provided, further, that in the case of the transactions
described in clause (iv) above, (a) the Company or the continuing, surviving or
acquiring corporation, as the case may be, could incur an additional $1 of
Funded Debt pursuant to the provisions of paragraph 6C(iv), (b) if such
continuing, surviving or acquiring corporation is a corporation organized under
the laws of Canada, the United Kingdom, Switzerland or any local governmental
authority of any of the aforesaid jurisdictions, provision satisfactory to the
Required Holder(s) shall be made in respect of any tax issues arising out of
such transaction, and (c) the Company shall have delivered to the holders of the
Notes an opinion of counsel satisfactory to the Required Holder(s) and an
Officer's Certificate each to the effect that the foregoing provisions have been
complied with.
6F. SALES OF ASSETS. The Company covenants that it will not, and
will not permit any of its Restricted Subsidiaries to, Dispose of its Property
(including, without limitation, subject to compliance with paragraphs 6G and 6I
as applicable, shares of capital stock of a Restricted Subsidiary and Property
Disposed of pursuant to a Sale and Lease-back Transaction) except:
(i) sales of inventory in the ordinary course of
business;
(ii) if no Default or Event of Default exists following
such Disposition
(a) Dispositions from any Restricted Subsidiary to
the Company or any other Restricted Subsidiary; and
(b) Dispositions of Property with an Asset
Percentage Value, when combined with the Asset Percentage
Value of any other Property Disposed pursuant to this clause
(b) during the preceding four consecutive fiscal quarters of
the Company, of not more than 10% and for consideration
representing the fair market value of such Property at the
time of such Disposition, provided, that, any such
Disposition or portion thereof shall be excluded from the
aforesaid Asset Percentage Value test if either (x) the
Disposition Proceeds arising from such Disposition are
applied immediately after receipt thereof to one or more of
the Designated Applications, or (y) an amount equal to the
Disposition Proceeds shall be available to the Company from
binding commitments (subject to no conditions which the
Company is unable to meet) from responsible financial
institutions pending application within a period of not more
than 180 days to one or more of the Designated Applications;
and provided, further that to the extent that the entire
Disposition Proceeds in respect of any Disposition are
applied only partially to the foregoing purposes, such
Disposition shall be disregarded for purposes of determining
such Asset Percentage Value to the extent of such
application; and
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(iii) any transaction involving the Company described in
and permitted pursuant to the provisions of paragraph 6E.
6G. DISPOSITION OF SUBSIDIARY STOCK. The Company covenants that
it will not, and will not permit any of its Restricted Subsidiaries to, issue,
sell or otherwise dispose of, or part with control of, any shares of capital
stock of any class of any Restricted Subsidiary, except to the Company or a
Wholly-owned Restricted Subsidiary (other than director's qualifying shares
required by law), and except that, subject in all events to the provisions of
paragraph 6F, all shares of capital stock of any Restricted Subsidiary at the
time owned by the Company and all Restricted Subsidiaries may be sold as an
entirety for a consideration which represents the fair value (as determined in
good faith by the Board of Directors) at the time of sale of the shares of
capital stock so sold, provided that at the time of such sale, such Restricted
Subsidiary shall not own, directly or indirectly, any shares of capital stock of
any other Restricted Subsidiary (unless all of the shares of stock of such other
Restricted Subsidiary owned, directly or indirectly, by the Company and all
Restricted Subsidiaries are simultaneously being sold as permitted by this
paragraph 6G).
6H. LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER
DISTRIBUTIONS. The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any of such
Restricted Subsidiaries (in any way which is material to the Company and its
Restricted Subsidiaries considered as a whole) to (i) pay dividends or make any
other distributions on its capital stock or any other interest or participation
in its profits owned by the Company or any of its Restricted Subsidiaries, or
pay any Debt owed by any of the Company's Restricted Subsidiaries to the Company
or to any other Restricted Subsidiary, (ii) make loans or advances to the
Company or to any other Restricted Subsidiary or (iii) transfer any of its
properties or assets to the Company or to any other Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of
applicable law, this Agreement, and those encumbrances or restrictions
identified in Schedule 6H.
6I. SALE AND LEASE-BACK TRANSACTIONS. The Company covenants that
it will not, and will not permit any of its Restricted Subsidiaries to, enter
into any Sale and Lease-Back Transaction with respect to any Property of the
Company or any Restricted Subsidiary ("SUBJECT PROPERTY"), whether such Subject
Property is now owned or hereafter acquired, unless no Default or Event of
Default is then existing, the Disposition Proceeds are received in cash and
(i) if the lease resulting from such Sale and Lease-back
Transaction is not a Capitalized Lease, such Disposition is
permitted under the terms of paragraph 6F, or
(ii) if the lease resulting from such Sale and Lease-back
Transaction is a Capitalized Lease, the terms of paragraphs 6C and
6D (substituting solely for purposes of this clause (ii) the term
"Adjusted Priority Debt" for "Priority Debt" in paragraph 6D) are
satisfied.
6J. TRANSACTIONS WITH AFFILIATES. Other than between or among
the Company and its Wholly-owned Restricted Subsidiaries, the Company
covenants that it will not, and will not permit any Restricted Subsidiary to,
directly or indirectly,
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(i) Dispose of any Property to any Affiliate,
(ii) merge or consolidate with, or purchase, acquire or
lease any Property from any Affiliate, or
(iii) otherwise deal with, in the ordinary course of
business or otherwise, any Affiliate, except (1) any Affiliate who
is a natural person may serve as an employee or director of the
Company or any Restricted Subsidiary and receive reasonable
compensation for his or her services in such capacity, (2) in
transactions (other than those identified in clause (iii) above)
which are pursuant to the reasonable requirements of the Company's
Core Business and which are on no less favorable terms to the
Company or such Restricted Subsidiary than would be the case with a
similar transaction with an unaffiliated Person negotiated at arm's
length and (3) those transactions described in Schedule 6J.
6K. SUBSIDIARIES. The Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary by furnishing to each holder of a Note an
Officer's Certificate as provided in paragraph 5A; provided that no such
designation shall be made if, after giving effect thereto, a Default or Event of
Default shall exist and the Company could not incur an additional $1 of Funded
Debt pursuant to the provisions of paragraph 6C(iv). No Unrestricted Subsidiary
shall own any shares of capital stock of any Restricted Subsidiary. All
Investments, Debt, Liens, Guarantees and other obligations which any
Unrestricted Subsidiary (the "SUBJECT SUBSIDIARY") may have, or be liable for,
shall be deemed made or incurred immediately after the time the Subject
Subsidiary shall become a Restricted Subsidiary of the Company. Dispositions by
the Company or a Restricted Subsidiary of any Debt of the Company or of any
other Restricted Subsidiary to any Person other than the Company or a Restricted
Subsidiary shall be deemed an incurrence of such Debt at the date of disposition
thereof.
6L. INTEREST COVERAGE RATIO. The Company will not permit the
Interest Coverage Ratio as of the last day of any fiscal quarter or the end
of any fiscal year to be less than 2.50 to 1.00.
7. DEFAULTS; REMEDIES.
7A. EVENTS OF DEFAULT. If any of the following events shall
occur and be continuing for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or come about or be effected by
operation of law or otherwise):
(i) the Company defaults (x) in the payment of any
principal of or Yield-Maintenance Amount in respect of any Note when
the same shall become due, either by the terms thereof or otherwise
as herein provided, or (y) in the performance of its obligation to
purchase any Note as provided in paragraph 4F; or
(ii) the Company defaults in the payment of any
interest on any Note for a period of 5 Business Days after the
same shall become due; or
(iii) the Company or any Restricted Subsidiary defaults
(whether as primary obligor or as guarantor or as surety) in any
payment of principal of or
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interest on any other Debt Obligation for money borrowed, any
Capitalized Lease Obligation, any Debt Obligation under a
conditional sale or other title retention agreement, any Debt
Obligation issued or assumed as full or partial payment for property
whether or not secured by a purchase money mortgage, or any Debt
Obligation under notes payable or drafts accepted representing
extensions of credit (any of the foregoing being herein called a
"PAYMENT DEFAULT") beyond any period of grace provided with respect
thereto; or the Company or any Restricted Subsidiary fails to
perform or observe any other agreement, term or condition contained
in any agreement under which any such Debt Obligation is created (or
if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other
event is to cause, or to permit the holder or holders of such Debt
Obligation (or a trustee or agent on behalf of such holder or
holders) at such time to cause, such Debt Obligation to become due
(or to be purchased by the Company or any Restricted Subsidiary)
prior to any stated maturity; provided, that the aggregate amount of
all Debt Obligations as to which such a Payment Default shall occur
and be continuing or such a failure or other event causing or
permitting acceleration (or repurchase by the Company or any
Restricted Subsidiary) shall occur and be continuing exceeds
$5,000,000 (or the equivalent amount in any foreign currency); or
(iv) any representation or warranty made by the Company
herein or by the Company or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be
false in any material respect on the date as of which made; or
(v) the Company fails to perform or observe any
agreement contained in the last sentence of paragraph 5A, in
paragraph 5I with respect to the Company's corporate existence or in
paragraph 6 and, in the case of paragraph 6, if such failure is
capable of remedy within 30 days, such failure shall continue
unremedied for a period of 30 days after the earlier of (x) notice
thereof from the holder of any Note and (y) the date any Responsible
Officer obtains actual knowledge thereof; or
(vi) the Company fails to perform or observe any other
agreement, term or condition contained herein, and any such failure
described in this clause (vi) shall continue unremedied for a period
of 30 days after the earlier of (x) notice thereof from the holder
of any Note and (y) the date any Responsible Officer obtains actual
knowledge thereof; or
(vii) the Company or any Significant Subsidiary Group
makes a general assignment for the benefit of creditors or admits in
writing its inability to pay its debts as such debts become due or
ceases or threatens to cease carrying on its business permanently;
or
(viii) any decree or order for relief in respect of the
Company or any Significant Subsidiary Group is entered under any
bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, composition,
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dissolution, winding up or liquidation or other similar law, whether
now or hereafter in effect (herein called the "BANKRUPTCY LAW"), of
any jurisdiction; or
(ix) the Company or any member of a Significant
Subsidiary Group petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator or similar official of the Company
or any Significant Subsidiary Group, or of any substantial part of
the assets of the Company or any Significant Subsidiary Group, or
commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings (other than proceedings for the voluntary
liquidation and dissolution of a Subsidiary) relating to the Company
or any Significant Subsidiary Group under the Bankruptcy Law of any
other jurisdiction or takes any corporate action to authorize any of
the actions described in this clause (ix); or
(x) any such petition or application is filed, or any
such proceedings are commenced, against the Company or any
Significant Subsidiary Group and the Company or any Subsidiary by
any act indicates its or their approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect
for more than 30 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or an encumbrancer takes possession
of, or a receiver or receiver manager is appointed over, all or
substantially all of the assets and the revenues of the Company; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Restricted Subsidiary
decreeing a split-up of the Company or such Restricted Subsidiary
which requires the divestiture of assets representing a substantial
part, or the divestiture of the stock of a Restricted Subsidiary
whose assets represent a substantial part, of the consolidated
assets of the Company and its Restricted Subsidiaries (determined in
accordance with generally accepted accounting principles) or which
requires the divestiture of assets, or stock of a Restricted
Subsidiary, which shall have contributed a substantial part of the
Consolidated Net Income of the Company and its Restricted
Subsidiaries (determined in accordance with generally accepted
accounting principles) for any of the three fiscal years then most
recently ended, and such order, judgment or decree remains unstayed
and in effect for more than 90 days; or
(xiii) a final judgment or judgments for the payment of
money aggregating in excess of $1,500,000 (or the equivalent amount
in any foreign currency) are rendered against one or more of the
Company and its Restricted Subsidiaries and which judgments are not,
within 90 days after entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within 90 days after the
expiration of any such stay; or
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(xiv) any "reportable event" as such term is defined in
section 4043 of ERISA occurs in connection with any Plan or trust
created thereunder for which the thirty day notice requirement has
not been waived under applicable regulations, or any event occurs
requiring the Company or any ERISA Affiliate to provide security to
a Plan under section 401(a)(29) of the Code; any "prohibited
transaction" occurs, as such term is defined in section 4975 of the
Code or in section 406 of ERISA, in connection with any Plan or any
trust created thereunder; any notice of intent to terminate a Plan
or Plans is filed under section 4041(c) of ERISA by the Company or
any ERISA Affiliate, any Plan administrator or any combination of
the foregoing; any proceedings are instituted by the PBGC to
terminate or to cause a trustee to be appointed to administer any
Plan; any partial or complete withdrawal is made by the Company or
an ERISA Affiliate from any Multiemployer Plan; any proceedings are
instituted by a fiduciary of any Plan against the Company or any
Code Affiliate to enforce section 515 of ERISA and such proceeding
shall not have been dismissed within 30 days thereafter; the Company
or a Code Affiliate fails to make a required installment under
section 412(m) of the Code or to pay any amount to the PBGC or to a
Plan under Title IV of ERISA on or before the due date; any
application is filed by the Company or a Code Affiliate for a waiver
of the minimum funding standard under section 412 of the Code or
section 302 of ERISA; or any "reorganization" (as defined in section
418 of the Code or Title IV ERISA) of any Plan which is a
Multiemployer Plan occurs; and each such instance individually, or
any two or more such instances in the aggregate, would result in
liability of the Company or any Code Affiliate or ERISA Affiliate to
the IRS, the PBGC or a Plan in an aggregate amount exceeding
$1,000,000; or
(xv) any Subsidiary Guaranty shall at any time after its
execution and delivery and for any reason cease to be in full force
and effect or shall be declared null and void, or the validity or
enforceability thereof shall be contested by any Subsidiary
Guarantor or any Subsidiary Guarantor shall deny it has any further
liability or obligation under its Subsidiary Guaranty or shall fail
to perform its obligations thereunder; or
(xvi) the Company or any Subsidiary Guarantor shall make,
or irrevocably or unconditionally agree to make, any accelerated or
non-scheduled payment or payments of all or a majority of Debt
Obligations outstanding under the Credit Agreement in connection
with any transaction or series of transactions that are anticipated
(or would be reasonably expected) to result in a reduction of the
capital stock of the Company owned by (a) Gedalio Grinberg, his
spouse, each of their estates and their issue, (b) Efraim Grinberg,
his spouse, each of their estates and their issue and (c) every
Person (other than an individual) "controlled" (as defined in the
definition of the term Affiliate set forth in paragraph 10B below)
by any of the foregoing, to less than 25% of the voting power of (i)
all outstanding capital stock of the Company and (ii) all
outstanding securities and rights that are then convertible into or
exchangeable for capital stock of the Company or upon the exercise
of which capital stock of the Company will be issued in respect of
such securities or rights;
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then (a) if such event is an Event of Default specified in clauses (viii), (ix)
or (x) of this paragraph 7A with respect to the Company, all of the Notes at the
time outstanding shall automatically become immediately due and payable at the
principal amount thereof together with interest accrued thereon without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company and (b) if such event is any other Event of Default, the
Required Holder(s) of the Notes of any Series may, at its or their option and in
addition to any right, power or remedy permitted by law or equity, by notice in
writing to the Company, declare all of the Notes of such Series to be, and all
of the Notes of such Series shall thereupon be and become, immediately due and
payable at the principal amount thereof, together with interest accrued thereon
and together with the Yield-Maintenance Amount, if any, with respect to each
Note of such Series, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Company; provided, that the Yield
Maintenance Amount, if any, with respect to each Note shall be due and payable
upon any such declaration only if (x) such event is an Event of Default
specified in any of clauses (i) to (vi), inclusive, or clauses (xi) to (xiv),
inclusive, of this paragraph 7A, (y) the holder or holders referred to in clause
(b) of this paragraph 7A shall have given to the Company, at least 10 Business
Days before such declaration, written notice stating its or their intention so
to declare such Notes to be immediately due and payable and identifying one or
more such Events of Default whose occurrence on or before the date of such
notice permits such declaration and (z) one or more of the Events of Default so
identified shall be continuing at the time of such declaration.
7B. RESCISSION OF ACCELERATION. At any time after any or all of
the Notes of any Series shall have been declared immediately due and payable
pursuant to paragraph 7A, the Required Holder(s) of the Notes of such Series
may, by notice in writing to the Company, rescind and annul such declaration and
its consequences if (i) the Company shall have paid all overdue interest on the
Notes of such Series, the principal of and Yield-Maintenance Amount, if any,
payable with respect to any Notes of such Series which have become due otherwise
than by reason of such declaration, and interest on such overdue interest and
overdue principal and Yield-Maintenance Amount at the rate specified in the
Notes of such Series, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due as a consequence of such declaration. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note of
any Series shall be declared immediately due and payable pursuant to paragraph
7A or any such declaration shall be rescinded and annulled pursuant to paragraph
7B, the Company shall forthwith give written notice thereof to the holder of
each Note of such Series at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall
occur and be continuing, the holder of any Note may proceed to protect and
enforce its rights under this Agreement and such Note by exercising such
remedies as are available to such holder in respect thereof under applicable
law, either by suit in equity or by action at law, or both, whether for specific
performance of any covenant or other agreement contained in this Agreement or in
aid of the exercise of any power granted in this Agreement. No remedy conferred
in this
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Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company
represents, covenants and warrants as follows:
8A. ORGANIZATION; AUTHORITY; ENFORCEABILITY. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business and, in the case of the Company, to enter into and perform
all of its obligations under this Agreement and the Notes and to issue and sell
the Notes and, in the case of each Subsidiary Guarantor, to enter into and
perform all of its obligations under its Subsidiary Guarantee. Each of the
Company and its Subsidiaries is duly licensed or qualified to do business as a
foreign corporation in each state where the failure to be so licensed or
qualified would have a material adverse effect on the business, financial
condition or operations of the Company and its Subsidiaries taken as a whole and
has all corporate power, licenses, franchises and other governmental
authorizations and approvals necessary to carry on its present business, with
respect to which the failure to possess would have a material adverse effect on
the business, financial condition or operations of the Company and its
Subsidiaries taken as a whole. Schedule 8A includes a correct list as to each of
the Company's Subsidiaries on the date hereof (i) its name, (ii) the
jurisdiction of its incorporation, (iii) its capital stock issued and
outstanding and the holders by percentage of that stock and (v)) whether it is a
Domestic or Foreign Subsidiary. This Agreement and each Subsidiary Guarantee
are, and the Notes when issued and delivered hereunder will be, legal, valid,
binding and enforceable obligations of the Company or such Subsidiary Guarantor,
as the case may be, except to the extent that such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors, rights generally and by general
equitable principles (regardless of whether enforcement is sought in equity or
at law).
8B. BUSINESS; FINANCIAL STATEMENTS. The Company has furnished
each Purchaser of any Notes with the audited consolidated and consolidating
balance sheets of the Company and Subsidiaries at January 31, 1999 and 2000 and
the related consolidated and consolidating statements of income and cash flows
and changes in shareholders' equity for each of the years in the three year
period ended January 31, 2000, all reported on by Price Waterhouse LLP or its
successor, PriceWaterhouseCooper; and the unaudited consolidated balance sheets
of the Company and Subsidiaries at October 31, 2000 and the related consolidated
and consolidating statements of income and cash flows and changes in
shareholders' equity for the nine months ended October 31, 2000 and 1999. The
financial statements referred to in this subparagraph (i) are herein
collectively referred to as the "HISTORICAL FINANCIAL STATEMENTS."
The Historical Financial Statements (including any related schedules
and/or notes) are true and correct in all material respects (subject, as to
interim statements, to changes resulting from audits and year-end adjustments)
and fairly present the consolidated financial position and the consolidated
results of the operations and consolidated cash flows of the corporations
described therein at the dates and for the periods shown, all in conformity with
generally accepted accounting principles applied on a consistent basis (except
as otherwise
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stated therein or in the notes thereto stated) throughout the periods involved.
None of the Company and its Subsidiaries has any contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments which are substantial and
material in amount in relation to the consolidated financial condition of the
Company, except as referred to or reflected or provided for in the Historical
Financial Statements. Since January 31, 2000, (i) there has been no change in
the assets, liabilities or condition (financial or otherwise) of the Company or
any of its Subsidiaries, other than changes which have not been, either in any
case or in the aggregate, materially adverse to the Company and its Subsidiaries
taken as a whole and (ii) neither the business, operations, affairs nor any of
the Properties or assets of the Company or any of its Subsidiaries have been
affected by any occurrence or development (whether or not insured against) which
has been, either in any case or in the aggregate, materially adverse to the
Company and its Subsidiaries taken as a whole.
8C. ACTIONS PENDING. There is no action or proceeding pending or
(to the best knowledge of the Company) threatened or (to the best knowledge of
the Company) investigation pending or threatened which questions the validity or
legality of or seeks damages in connection with this Agreement or any Subsidiary
Guarantee or any action taken or to be taken pursuant to this Agreement or any
Subsidiary Guarantee, and, except as set forth in Schedule 8C, there is no
action or proceeding pending or (to the best knowledge of the Company)
threatened or (to the best knowledge of the Company) investigation pending or
threatened which could reasonably be expected to result in any material adverse
change in the business, financial condition or operations of the Company and its
Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. Neither the Company nor any of its
Subsidiaries has outstanding any Debt except as permitted by paragraphs 6C and
6D. Schedule 8D correctly describes all secured and unsecured Debt of the
Company and its Subsidiaries outstanding, or for which the Company or any of its
Subsidiaries have commitments, on the date of this Agreement, and identifies the
collateral, if any, securing such Debt. There exists no default or temporary
waiver of default under the provisions of any instrument evidencing such Debt or
of any agreement relating thereto.
8E. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company
nor its Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
the business, operations or financial condition of the Company and its
Subsidiaries taken as a whole. Neither the execution nor delivery of this
Agreement, each Subsidiary Guarantee or the Notes hereunder, nor the offering,
issuance and sale of the Notes hereunder, nor fulfillment or any compliance with
the terms and provisions hereof and thereof will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
or result in any violation of, or result in the creation of any Lien upon any of
the properties or assets of the Company or any of its Subsidiaries pursuant to,
the charter or by-laws of the Company or any of its Subsidiaries, as the case
may be, any agreement (including any agreement with shareholders), instrument,
order, judgment, decree or arbitrator's award, or any statute, law, rule or
regulation, to which the Company or any of its Subsidiaries or their respective
properties is subject. The Company is not a party to, or otherwise subject to,
any contract or agreement (including its charter) which limits the amounts of,
or otherwise imposes restrictions on the incurring of, indebtedness of the type
to be evidenced by the Notes except as set forth in the agreements listed in
Schedule 8E, and the
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Company has received all consents necessary with respect to such agreements in
connection with the consummation of the transactions contemplated hereby.
8F. TITLE TO PROPERTIES. The Company has and each of its
Subsidiaries has (all to the extent material to the Company and its Subsidiaries
taken as a whole) good and marketable title to its respective real properties
(other than properties which it leases) and good title (or leasehold rights) to
all of its other respective material properties and assets, including the
properties and assets reflected in the consolidated balance sheet as at January
31, 2000 referred to in paragraph 8B (other than properties and assets disposed
of in the ordinary course of business or as set forth in Schedule 8F), subject
to no Lien of any kind except Liens not prohibited by paragraph 6B. All leases
necessary in any material respect for the conduct of the respective businesses
of the Company and its Subsidiaries are valid and subsisting and are in full
force and effect.
8G. PATENTS, LICENSES, FRANCHISES, ETC. The Company and its
Subsidiaries possess all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities and, all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary in any material respect for the ownership, maintenance and
operation of the properties and assets, as presently conducted, of the Company
and its Subsidiaries taken as a whole and neither the Company nor any of its
Subsidiaries is in violation of any thereof in any material respect. No event
has occurred which permits, or after notice or lapse of time (except expiration
of the stated term thereof), or both, would permit, the revocation or
termination of any such franchise, license, authorization or other right so as
to affect adversely in any material respect the business, financial condition or
operations of the Company and its Subsidiaries taken as a whole. All such
franchises, permits, licenses and other authorizations have been validly issued
or granted to the Company or a Subsidiary, and each such franchise, permit,
license or other authorization is valid and subsisting, in each case to the
extent necessary in any material respect for the conduct of the respective
businesses of the Company and its Subsidiaries taken as a whole. The Company and
its Subsidiaries are operating their respective businesses in material
compliance with the terms and conditions of such franchises, permits, licenses
and other authorizations and are in material compliance with all applicable
statutes, laws, rules and regulations, all to the extent material to the
business of the Company and its Subsidiaries taken as a whole.
8H. TAXES. The Company has and each of its Subsidiaries has filed
all federal, state and other income tax returns (and to the best of the
Company's knowledge all other tax returns) which are required to be filed, and
each has paid all income taxes (and to the best of its knowledge all other
material taxes) as shown on such returns and on all assessments received by it
to the extent that such taxes have become due, except such taxes as are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with generally accepted accounting
principles, and the Company has no knowledge of any basis for any further
material assessment to the Company and its Subsidiaries taken as a whole that
has not been adequately so provided for on the books of the Company.
8I. OFFERING OF NOTES. Neither the Company nor any agent acting
on its behalf has, directly or indirectly, offered the Notes or any similar
security of the Company for sale to, or solicited any offers to buy the Notes or
any similar security of the Company from, or
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otherwise approached or negotiated with respect thereto with, any Person other
than Prudential and not more than 10 other "qualified institutional buyers" as
such term is defined in Rule 144A under the Securities Act, and neither the
Company nor any agent acting on its behalf has taken or will take any action
which would subject the issuance or sale of the Notes hereunder to the
provisions of section 5 of the Securities Act or to the registration provisions
of any securities or Blue Sky law of any applicable jurisdiction.
8J. REGULATION U, ETC. Neither the Company nor any Subsidiary
owns or has any present intention of acquiring any "margin stock" as defined in
Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve
System (herein called "MARGIN STOCK"), exceeding in value 5% of Consolidated Net
Worth. None of the proceeds of the issuance of any Notes will be used, directly
or indirectly, for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any margin stock, or for the purpose of maintaining,
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any stock that is currently a margin stock and in any such case which
will constitute this transaction a violation of such Regulation U. Neither the
Company nor any agent acting on its behalf has taken or will take any action
which might cause this Agreement or the Notes to violate Regulation T,
Regulation U, Regulation X or any other regulation of the Board of Governors of
the Federal Reserve System or to violate Section 7 of the Exchange Act, in each
case as in effect now or as the same may hereafter be in effect.
8K. ERISA. (a) No accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived, exists
with respect to any Plan (other than a Multiemployer Plan). No liability to the
PBGC has been or is expected by the Company or any ERISA Affiliate to be
incurred with respect to any Plan (other than a Multiemployer Plan) by the
Company, any Subsidiary or any ERISA Affiliate which is or would be materially
adverse to the business, financial condition or operations of the Company and
its Subsidiaries, taken as a whole. Neither the Company, nor any Subsidiary nor
any ERISA Affiliate has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan which
is or would be materially adverse to the business, financial condition or
operations of the Company and its Subsidiaries, taken as a whole.
(b) Neither the Company nor any of its Subsidiaries has breached
the fiduciary rules of ERISA or engaged in any prohibited transaction in
connection with which the Company or any of its Subsidiaries or ERISA Affiliates
could be subjected to (in the case of any such breach) a suit for damages or (in
the case of any such prohibited transaction) with a civil penalty assessed under
section 502(i) of ERISA or a tax imposed by section 4975 of the Code, which
suit, penalty or tax, in any case, would be materially adverse to the business,
financial condition or operations of the Company and its Subsidiaries, taken as
a whole. Assuming the accuracy of each Purchaser's representations in paragraph
9B, the execution and delivery of this Agreement and the issuance and sale of
the Notes will be exempt from, or will not involve any transaction which is
subject to, the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
(c) There has been no reportable event (within the meaning of
section 4043(b) of ERISA) or any other event or condition with respect to any
Plan (other than a Multiemployer Plan) which presents a risk of termination of
any such Plan by the PBGC under circumstances which in any case could result in
liability which would be materially adverse to the
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business, financial condition or operations of the Company and its Subsidiaries,
taken as a whole.
(d) Except as described in Schedule 8K, the present value of all
vested accrued benefits under all Plans (other than Multiemployer Plans),
determined as of the end of the Company's most recently ended fiscal year on the
basis of reasonable actuarial assumptions, did not exceed the current value of
the assets of such Plans allocable to such vested accrued benefits. The terms
"present value", "current value", and "accrued benefit" have the meanings
specified in section 3 of ERISA.
(e) Neither the Company nor any of its Subsidiaries is or has
ever been obligated to contribute to any Multiemployer Plan.
8L. ENVIRONMENTAL COMPLIANCE. To the best knowledge of any
Responsible Environmental Officer, (i) the Company and its Subsidiaries have
complied at all times and in all respects with all applicable Environmental Laws
and all administrative orders, judgments, rulings and regulations relating to
protection of the Environment, except, in any such case, where failure to comply
would not result in a material adverse effect on the business, financial
condition or operations of the Company and its Subsidiaries, taken as a whole,
and (ii) neither the Company nor any of its Subsidiaries nor any other person or
entity for whose conduct either the Company or any Subsidiary is responsible,
are reasonably expected to have any liability, under any applicable
Environmental Laws, which, either in any case or in the aggregate, would be
materially adverse to the business, financial condition or operations of the
Company and its Subsidiaries, taken as a whole. Without limiting the foregoing,
except as described in Schedule 8L, no Responsible Environmental Officer has any
knowledge of the Release or Threat of Release of any Hazardous Material on, in,
under, or in the vicinity of the any of the properties owned, leased or operated
by the Company or any of its Subsidiaries that may be required to be remediated
under any applicable Environmental Law. No Lien has been imposed on any of the
properties owned or operated by the Company or any of its Subsidiaries by any
governmental agency at the federal, state, or local level in connection with the
presence on or off such property of any Hazardous Material, except as described
in Schedule 8L. Except as described in Schedule 8L, to the best knowledge of any
Responsible Environmental Officer, neither the Company nor any Subsidiary nor
any other person or entity for whose conduct either the Company or any
Subsidiary is responsible, has in the previous five years: (i) entered into or
been subject to any consent decree, compliance order, or administrative order
under any applicable Environmental Laws with respect to any of the properties
owned, leased or operated by the Company or any of its Subsidiaries or any
facilities or improvements or any operations or activities thereon, (ii)
received notice under the citizen suit provision of any applicable Environmental
Law in connection with any of the properties owned, leased or operated by the
Company or any of its Subsidiaries or any facilities or improvements or
operations or activities thereon; (iii) received any request for information,
written notice, demand letter, administrative inquiry, or formal or informal
complaint or claim with respect to environmental matters relating to any of the
properties owned or operated by the Company or any Subsidiary or any facilities
or improvements or operations or activities thereon that required or will
require any environmental investigation, environmental site assessment,
corrective action or environmental remediation; or (iv) been subject to or
threatened with any governmental or citizen enforcement action under any
applicable Environmental Laws with respect to any of the properties owned,
leased or operated by the Company or any of its Subsidiaries or any facilities
or improvements or operations or activities thereon. To the best knowledge of
any Responsible Environmental
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Officer, except as described in Schedule 8L, neither the Company nor any of its
Subsidiaries has any reason to believe that any of the above will be
forthcoming, the effect of which would have a material adverse effect on the
business, financial condition or operations of the Company and its Subsidiaries,
taken as a whole. The Company and its Subsidiaries have all Environmental
Permits necessary for all facilities, operations, activities, improvements, and
alterations, including past or ongoing improvements or alterations, at the
properties owned or operated by the Company or any of its Subsidiaries, except
where the failure to have such permits would not have a material adverse effect
on the business, financial condition or operations of the Company and its
Subsidiaries, taken as a whole.
8M. PROCEEDS OF FINANCING. The proceeds of the issuance of the
Shelf Notes will be used for general corporate purposes, refinancing existing
Company indebtedness and to finance certain capital expenditures of the Company,
as more particularly described in the applicable Request(s) for Purchase.
8N. GOVERNMENTAL CONSENT. Neither the nature of the Company or of
any Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
other action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the date of closing with the
Securities and Exchange Commission and/or state Blue Sky authorities) in
connection with the execution and delivery of this Agreement, the offering,
issuance, sale or delivery of the Notes or fulfillment of or compliance with the
terms and provisions hereof or of the Notes.
8O. COMPLIANCE; DEFAULT. The Company and its Subsidiaries and all
of their respective properties and facilities have complied at all times and in
all respects with all contractual obligations and all federal, state, local and
regional statutes, laws, ordinances and judicial or administrative orders,
judgments, rulings and regulations (including those relating to protection of
the environment) except where failure to comply, in the aggregate, would not
result in a material adverse effect on the business, financial condition or
operations of the Company and its Subsidiaries taken as a whole. No Default or
Event of Default exists as of the date hereof.
8P. INVESTMENT COMPANY ACT. The Company is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
8Q. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor
any of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
8R. FOREIGN ASSETS CONTROL REGULATIONS. None of the transactions
contemplated by this Agreement (including the use of proceeds of the sale of the
Notes) will result in a violation of any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended), or any ruling issued thereunder or any enabling
legislation or Presidential Executive Order granting authority therefor.
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8S. DISCLOSURE. Neither this Agreement nor any other document,
certificate or written statement furnished to any Purchaser by or on behalf of
the Company in connection herewith (including, without limitation, the
Historical Financial Statements, but excluding the financial projections
furnished to the Purchasers prior to the date hereof in connection with the
transactions contemplated hereby) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which they
were made, not misleading. There is no fact peculiar to the Company or any of
its Subsidiaries which materially adversely affects or in the future may (so far
as the Company can now reasonably foresee) materially adversely affect the
business, financial condition or operations of the Company and its Subsidiaries
taken as a whole, and which has not been set forth in this Agreement or in the
Historical Financial Statements. The financial projections furnished to the
Purchasers prior to the date hereof in connection with the transactions
contemplated hereby are reasonably based on the assumptions stated therein and
the best information available to the officers of the Company.
8T. HOSTILE TENDER OFFERS. None of the proceeds of the sale of
any Notes will be used to finance a Hostile Tender Offer.
9. REPRESENTATIONS OF THE PURCHASER. Each Purchaser
represents as follows:
9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes
to be purchased by it hereunder with a view to or for sale in connection with
any distribution thereof within the meaning of the Securities Act, provided that
the disposition of the Purchaser's property shall at all times be and remain
within its control.
9B. SOURCE OF FUNDS. The source of funds being used by such
Purchaser to pay the purchase price of the Notes to be purchased by such
Purchaser hereunder constitutes assets: (i) allocated to the "insurance company
general account" of such Purchaser (as such term is defined under Section V of
the United States Department of Labor's Prohibited Transaction Class Exemption
("PTCE") 95-60), and as of the date of the purchase of the Notes such Purchaser
satisfies all of the applicable requirements for relief under Sections I and IV
of PTCE 95-60, (ii) allocated to a separate account maintained by such Purchaser
in which no employee benefit plan, other than employee benefit plans identified
on a list which has been furnished by such Purchaser to the Obligors,
participates to the extent of 10% or more or (iii) of an investment fund, the
assets of which do not include assets of any employee benefit plan within the
meaning of ERISA. For the purpose of this Paragraph 9B, the terms "separate
account" and "employee benefit plan" shall have the respective meanings
specified in section 3 of ERISA.
10. DEFINITIONS AND ACCOUNTING MATTERS. For the purpose of this
Agreement, as used herein, the terms defined in paragraphs 10A and 10B (or
within the text of any other paragraph) shall have the respective meanings
specified therein and all accounting matters shall be subject to determination
as provided in paragraph 10C.
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to paragraph 4B or is
declared to be immediately due and
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payable pursuant to paragraph 7A, as the context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (as converted to reflect
the periodic basis on which interest on such Note is payable, if interest is
payable on other than a semi-annual basis) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal
of any Note, 0.50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the Business Day preceding
the Settlement Date with respect to such Called Principal, on the display
designated as "Page 678" on Bridge Telerate (or such other display as may
replace Page 678 on Bridge Telerate) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or (ii) if such yields shall not be
reported as of such time or the yields reported as of such time shall not be
ascertainable, the Treasury Constant Maturity Series yields reported, for the
latest day for which such yields shall have been so reported as of the Business
Day preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a constant
maturity equal to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if necessary, by (a)
converting U.S. Treasury bill quotations to bond-equivalent yields in accordance
with accepted financial practice and (b) interpolating linearly between yields
reported for various maturities. The Reinvestment Yield will be rounded to that
number of decimal places as appears in the Notes.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the
Called Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid pursuant
to paragraph 4B or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, a
premium equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (ii)
interest accrued thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield-Maintenance Amount shall
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in no event be less than zero.
10B. OTHER DEFINED TERMS.
"1993 NOTES" shall mean the $40,000,000 original principal amount of
6.56% Senior Notes due 2005 issued by the Company to Prudential on November 9,
1993.
"1998 NOTES" shall mean the $25,000,000 original principal amount of
6.90% Series A Senior Notes due 2010 issued by the Company to Prudential on
December 1, 1998.
"ACCEPTANCE" shall have the meaning specified in paragraph 2A(6).
"ACCEPTANCE DAY" shall have the meaning specified in paragraph
2A(6).
"ACCEPTANCE WINDOW" shall have the meaning specified in paragraph
2A(6).
"ACCEPTED NOTE" shall have the meaning specified in paragraph 2A(6).
"ADJUSTED PRIORITY DEBT" shall mean, without duplication, the sum
of: (i) all Priority Debt, (ii) all Debt of the Company or a Restricted
Subsidiary secured by a Lien permitted by clause (iv) or (vi) of paragraph 6B,
and (iii) all Attributable Debt.
"AFFILIATE" shall mean any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, the Company, (ii) which beneficially owns or holds five
percent (5%) or more of any class of the Voting Stock of the Company, (iii) five
percent (5%) or more of the Voting Stock (or in the case of a person which is
not a corporation, five percent (5%) or more of the voting equity interest) or
five percent (5%) of the ownership interests (other than limited partnership
interests) of which is beneficially owned or held by the Company and/or one or
more Subsidiaries or (iv) who is a director or an officer of the Company or a
Subsidiary. The term "CONTROL" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"ASSET PERCENTAGE VALUE" of any assets in connection with any
Disposition shall mean the percentage that the value of such assets (taken at
the higher of book value or the fair market value thereof as determined in good
faith by the Board of Directors of the Company) represents of the sum of (i)
Consolidated Total Assets and (ii) the excess, if any, of such assets' fair
market value over book value, as of the end of the fiscal quarter of the Company
immediately preceding the date of such Disposition.
"ASSET SALE ALLOCATION NOTICE" and "ASSET SALE RETIREMENT AMOUNT,"
shall have the respective meanings specified in the definition of "Designated
Applications."
"ATTRIBUTABLE DEBT" shall mean (i) in respect of any Sale and
Lease-Back Transaction which involves a Capitalized Lease, as of the time of
determination, the greater of (a) the fair market value of the Subject Property
and (b) the total obligation (discounted to present value at the rate of
interest implicit in the lease included in such transaction) of the lessee for
rental payments (other than amounts required to be paid on account of property
taxes as well as maintenance, repairs, insurance, assessments, utilities,
operating and labor costs and other items which do not constitute payments for
property rights) during the remaining portion of
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<PAGE> 40
the remaining term (including extensions which are at the option of the lessor)
of the lease included in such transaction (in the case of any lease which is
terminable by the lessee upon the payment of a penalty, such rental obligation
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated) and (ii) the average amount of Receivables outstanding
from time to time that have been sold by the Company or any of its Restricted
Subsidiaries under any Asset Securitization Program ("SUBJECT RECEIVABLES")
multiplied by the Receivables Fraction. The Receivables Fraction shall be a
fraction the denominator of which is 100% and the numerator of which is equal to
(x) the percentage of Subject Receivables as to which there is recourse to the
Company or a Restricted Subsidiary and/or (y) the percentage interest of the
Company and its Restricted Subsidiaries in the Subject Receivables. As used in
this definition and in the definition of Attributable Debt, "ASSET
SECURITIZATION PROGRAM" shall mean an agreement or a series of agreements
entered into by the Company or any of its Restricted Subsidiaries providing for
the sale of Receivables of the Company or any of its Restricted Subsidiaries,
and "RECEIVABLES" shall mean any accounts, contract rights and other forms of
obligation for the payment of money arising from the sale of goods or other
rendering of services by the Company or any of its Restricted Subsidiaries,
including those outstanding under any Asset Securitization Program of the
Company or any of its Restricted Subsidiaries.
"AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its
chief executive officer, its chief financial officer, any vice president of the
Company designated as an "Authorized Officer" of the Company in the Information
Schedule attached hereto or any vice president of the Company designated as an
"Authorized Officer" of the Company for the purpose of this Agreement in an
Officer's Certificate executed by the Company's chief executive officer or chief
financial officer and delivered to Prudential, and (ii) in the case of
Prudential, any officer of Prudential designated as its "Authorized Officer" in
the Information Schedule or any officer of Prudential designated as its
"Authorized Officer" for the purpose of this Agreement in a certificate executed
by one of its Authorized Officers. Any action taken under this Agreement on
behalf of the Company by any individual who on or after the date of this
Agreement shall have been an Authorized Officer of the Company and whom
Prudential in good faith believes to be an Authorized Officer of the Company at
the time of such action shall be binding on the Company even though such
individual shall have ceased to be an Authorized Officer of the Company, and any
action taken under this Agreement on behalf of Prudential by any individual who
on or after the date of this Agreement shall have been an Authorized Officer of
Prudential and whom the Company in good faith believes to be an Authorized
Officer of Prudential at the time of such action shall be binding on Prudential
even though such individual shall have ceased to be an Authorized Officer of
Prudential.
"AVAILABLE FACILITY AMOUNT" shall have the meaning specified in
paragraph 2A(1).
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii)
of paragraph 7A.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or a
Sunday, (ii) a day on which commercial banks in New York City are required or
authorized to be closed, and (iii) for purposes of paragraph 2A(3) only, a day
on which Prudential is not open for business.
"CANCELLATION DATE" shall have the meaning specified in paragraph
2A(9)(iv).
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"CANCELLATION FEE" shall have the meaning specified in paragraph
2A(9)(iv).
"CAPITAL STOCK" shall mean any and all shares of corporate stock of
the Company.
"CAPITALIZED LEASE" shall mean any lease under which the obligation
to make rental payments thereunder constitutes a Capitalized Lease Obligation.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation
which, under generally accepted accounting principles, would be required to be
capitalized on the books of the Company or any Restricted Subsidiary, in each
case taken at the amount thereof accounted for as indebtedness (net of interest
expense) in accordance with such principles.
"CLEAN DOWN PERIOD" shall have the meaning specified in paragraph
6C(iii).
"CLOSING DAY" shall mean, with respect to any Accepted Note, the
Business Day specified for the closing of the purchase and sale of such Accepted
Note in the Request for Purchase of such Accepted Note, provided that (i) if the
Company and the Purchaser which is obligated to purchase such Accepted Note
agree on an earlier Business Day for such closing, the "CLOSING DAY" for such
Accepted Note shall be such earlier Business Day, and (ii) if the closing of the
purchase and sale of such Accepted Note is rescheduled pursuant to paragraph
2A(8), the Closing Day for such Accepted Note, for all purposes of this
Agreement except references to "original Closing Day" in paragraph 2A(9)(iii),
shall mean the Rescheduled Closing Day with respect to such Accepted Note.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations and rulings promulgated thereunder.
"CODE AFFILIATE" shall mean each Person which together with the
Company or any of its Subsidiaries is treated as a "single employer" under
subsection (b), (c), (m) or (o) of section 414 of the Code.
"CONFIRMATION OF ACCEPTANCE" shall have the meaning specified in
paragraph 2A(6).
"CONSOLIDATED CURRENT DEBT" as of any date shall mean the aggregate
amount of Current Debt of the Company and its Restricted Subsidiaries (excluding
Debt permitted by clause (ii) of paragraph 6C) outstanding on that date.
"CONSOLIDATED FUNDED DEBT" as of any date shall mean the aggregate
amount of Funded Debt of the Company and its Restricted Subsidiaries (excluding
Debt permitted by clause (ii) of paragraph 6C) outstanding on that date.
"CONSOLIDATED NET INCOME" of the Company for any period means the
consolidated net income (loss) of the Company and its Subsidiaries for such
period, all determined in accordance with generally accepted accounting
principles consistently applied and after provisions for minority interests, but
not including in the computation of the foregoing any of the following:
(i) extraordinary gains or extraordinary losses;
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<PAGE> 42
(ii) net income or loss of any Person (other than a Restricted
Subsidiary) in which the Company or a Restricted Subsidiary has an
ownership interest unless, in the case of net income, such net income
has actually been received thereafter in cash by the Company or a
Restricted Subsidiary;
(iii) any portion of the net income of any Restricted
Subsidiary which for any reason is unavailable to pay dividends to the
Company or any Restricted Subsidiary by reason of legal or contractual
restrictions;
(iv) any aggregate net gain (in excess of any net losses)
exceeding $200,000 in any fiscal year arising from the sale, exchange
or other disposition of capital assets (such term to include all fixed
assets, whether tangible or intangible, all inventory sold in
conjunction with the disposition of fixed assets, and all securities);
(v) any write-up of any asset;
(vi) any gain or loss arising from the acquisition of any
securities of the Company or its Restricted Subsidiaries;
(vii) net income or gain (net of any loss) resulting from
discontinuing or disposing of operations, or prior period adjustments;
and
(viii) the income (or loss) of any Person accrued prior to the
date it becomes a Restricted Subsidiary.
"CONSOLIDATED NET WORTH" as of any date shall mean
shareholders' equity of the Company and its Restricted Subsidiaries as computed
as of that date in accordance with generally accepted accounting principles, but
in any event not including shareholders' equity in respect of Unrestricted
Subsidiaries at that date or any "comprehensive income adjustment" as the same
would otherwise be reflected therein.
"CONSOLIDATED TOTAL ASSETS" at any date means the consolidated
total assets of the Company and its Restricted Subsidiaries as would be shown on
a consolidated balance sheet of the Company and its Restricted Subsidiaries
prepared as of such date in accordance with generally accepted accounting
principles.
"CONSOLIDATED TOTAL CAPITALIZATION" as of any date shall mean
the sum of (x) Consolidated Funded Debt as of that date (less any Guarantees of
Debt of Persons other than the Company or a Restricted Subsidiary included
therein), (y) Consolidated Net Worth as of the end of the immediately preceding
fiscal quarter and (z) deferred taxes properly recorded on the books of the
Company and its Restricted Subsidiaries as of the end of the immediately
preceding fiscal quarter.
"CORE BUSINESS" shall mean the business of designing,
manufacturing and distributing watches, jewelry and other accessories, other
businesses reasonably related thereto or businesses that in the judgment of the
board of directors of the Company are derived from the exploitation by the
Company of its trademarks.
"CREDIT AGREEMENT" shall mean the Credit Agreement dated as of
June 22, 2000 among the Company, the Lenders signatory thereto, The Chase
Manhattan Bank, as
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Administrative Agent, Swingline Bank and Issuing Bank thereunder, Fleet Bank,
N.A., as Syndication Agent thereunder and The Bank of New York, as Documentation
Agent thereunder, as amended, together with any substitute or successor
agreement.
"CURRENT DEBT" shall mean without duplication any Debt
Obligation (other than Funded Debt) payable on demand or within a period of one
year from the date of determination thereof; provided that any obligation shall
be treated as Funded Debt regardless of its term, if such obligation is,
directly or indirectly, renewable or extendible by the debtor pursuant to the
terms thereof or of a revolving credit or similar agreement for a period that
lasts beyond the date that is more than one year from the date of determination.
"CURRENT DEBT COMPUTATION PERIOD" shall have the meaning
specified in paragraph 6C(iii).
"DEBT" shall mean Funded Debt and/or Current Debt.
"DEBT OBLIGATION" of any Person as of any date shall mean and
include without duplication (i) all indebtedness for money borrowed or evidenced
by notes, bonds, debentures or similar evidences of indebtedness of such Person,
(ii) all monies raised by or on behalf of such Person pursuant to any acceptance
credit or any discounted bills of exchange, (iii) Capitalized Lease Obligations
of such Person, (iv) indebtedness of such Person representing the deferred and
unpaid purchase price of any property or business or services, excluding (A)
trade payables constituting current liabilities, (B) current accounts payable
and current accrued liabilities incurred in the ordinary course of business and
(C) rental obligations arising from a lease that is not a Capitalized Lease, (v)
obligations of such Person in respect of reimbursement obligations under letters
of credit which have been drawn upon, other than letters of credit issued to
support trade payables, (vi) any obligation secured by a Lien on, or payable out
of the proceeds of production from, property of such Person, even though such
obligation shall not be assumed by such Person, (vii) all Attributable Debt of
such Person and (viii) all Guarantees by such Person (x) of obligations of
others similar to those listed in clauses (i) through (vii) above or (y) to the
transferee of any assets sold or otherwise disposed of that such assets will
have a certain minimum value to the transferee. In any case in which the maximum
amount of any Guarantee of a Debt Obligation cannot be determined by the
provisions of the instrument or agreement creating such Guarantee, the amount
thereof at any time shall be determined on the basis of the best available
reasonable estimate of the Company at the time as of which the amount thereof is
being determined.
"DELAYED DELIVERY FEE" shall have the meaning specified in
paragraph 2A(9)(iii).
"DESIGNATED APPLICATIONS" shall mean:
(i) the purchase of operating assets by the Company
for use in the Core Business, and/or
(ii) the permanent retirement of Funded Borrowings,
and/or
(iii) Permitted Investments so long as the proceeds
of such Investments are applied to one or more of the
preceding Designated Applications within a period of 180 days
after the relevant Disposition.
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The Company may allocate any portion of any Disposition Proceeds to the
retirement of Funded Borrowings only if it shall give notice of its election to
such effect to each holder of Notes (an "ASSET SALE ALLOCATION NOTICE")
specifying the amount to be so allocated (the "ASSET SALE RETIREMENT AMOUNT"),
provided only that
(i) such Asset Sale Allocation Notice shall constitute,
and shall state that it constitutes, a "Purchase EVENT" for the purpose
of paragraph 4F, and such Notice shall also contain a reasonably
detailed description of the Disposition giving rise to such Asset Sale
Allocation Notice and the allocation to the Notes as required by clause
(ii) below at the price specified in paragraph 4F;
(ii) each holder of Notes shall be entitled to cause the
Company to purchase the Notes held by such holder pursuant to paragraph
4F in the respective principal amounts which bear the same proportion
to the Asset Sale Retirement Amount as the principal amount of Notes
held by such holder bear to the aggregate principal amount of Funded
Borrowings outstanding on the date of the Asset Sale Allocation Notice
(the "RETIREMENT FRACTION"); and
(iii) nothing herein shall prohibit the Company from
prepaying Notes pursuant to the provisions of paragraph 4B in
connection with any such retirement of Funded Borrowings.
No retirement of Funded Borrowings required by the foregoing provisions may be
effected by any payment at maturity or pursuant to any mandatory sinking fund or
installment payment or any scheduled prepayment or purchase or analogous
provision applicable to any Funded Borrowings.
"DISPOSITION" shall mean the sale, lease, transfer or other disposition
of Property of the Company or any Restricted Subsidiary, and "DISPOSED OF" and
"DISPOSE" shall have meanings correlative to the foregoing.
"DISPOSITION PROCEEDS" shall mean the aggregate proceeds received by
the Company or a Restricted Subsidiary upon the Disposition of any Property,
after deducting from the amount of such proceeds:
(i) all costs and expenses of such Disposition,
(ii) all taxes incurred in respect of the Disposition, and
(iii) any amount actually paid by the Company or any such Restricted
Subsidiary to repay or discharge Debt secured by a Lien on
such Property other than Debt incurred in contemplation of the
Disposition of such Property.
Any proceeds to be paid subsequent to the consummation of such Disposition shall
be valued at the aggregate amount thereof discounted from the respective payment
dates therefor at the yield to maturity for such installment obligation. If the
amount of proceeds to be paid subsequent to such consummation cannot be
determined at the time of consummation or if there is uncertainty as to the
collectibility thereof (whether or not the amount of such proceeds can be so
determined), the Company shall estimate the amount and time of receipt thereof
in
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<PAGE> 45
good faith, consistent with the treatment in its financial statement of the
payment obligations in respect of such proceeds and the preceding sentence shall
then apply to such estimated amount. Any proceeds not consisting of cash or
promissory notes or other deferred payment obligations shall, for purposes of
this Agreement, be deemed to have been paid in cash in an amount equal to the
fair market value thereof in the good faith judgment of the Company.
"DOLLAR" or "$" shall mean a reference to United States
dollars.
"DOMESTIC SUBSIDIARY" shall mean any Subsidiary which is
incorporated under the laws of one of the states of the United States or the
District of Columbia, and the operating assets of which are located and the
principal business of which is carried on within the United States.
"EFFECTIVE DATE" shall have the meaning specified in paragraph
3.
"ENVIRONMENT" shall mean soil, surface waters, ground waters,
land stream sediments, surface or subsurface strata, and ambient air.
"ENVIRONMENTAL LAW" shall mean any law, regulation, rule or
ordinance at the federal, state or local level related to pollution, protection
of the environment or worker health and safety, whether or not previously
enforced, and, for purposes of complying in the future with such laws,
regulations, rules or ordinances, those that are subsequently enacted.
"ENVIRONMENTAL PERMITS" shall mean all permits, licenses and
other authorizations required under any applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA AFFILIATE" shall mean each trade or business (whether
or not incorporated) which, together with the Company, would be treated as a
single employer under section 4001(b) of ERISA.
"ERISA LIEN" shall mean a Lien created or otherwise imposed
under the provisions of ERISA.
"EVENT OF DEFAULT" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "DEFAULT" shall mean
any of such events, whether or not any such requirement has been satisfied.
"EVENT NOTICE" shall have the meaning specified in paragraph
4F(c).
"EXCESS CURRENT DEBT" as of any date of determination shall
mean (x) zero, if there shall have been a Clean Down Period in the Current Debt
Computation Period preceding such date and (y) in all other cases, an amount
equal to the aggregate principal amount of Consolidated Current Debt exceeding
$20,000,000 which is outstanding on such date.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
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"FACILITY" shall have the meaning specified in paragraph
2A(1).
"FACILITY FEE" shall have the meaning specified in paragraph
2A(9)(i).
"FOREIGN SUBSIDIARY" shall mean any Subsidiary that is not a
Domestic Subsidiary.
"FUNDED BORROWINGS" shall mean and include any Debt Obligation
of the Company or a Restricted Subsidiary described in clause (i) of the
definition of Funded Debt (excluding Debt permitted by clause (ii) of paragraph
6C and Debt which is subordinated in any manner to the Notes).
"FUNDED DEBT" shall mean and include without duplication, with
respect to the Company and its Restricted Subsidiaries consolidated in
accordance with generally accepted accounting principles,
(i) any Debt Obligation payable more than one
year from the date of incurrence thereof (including current
maturities thereof) and any obligation described in the
proviso to the definition of Current Debt; and
(ii) outstanding Preferred Stock of any
Restricted Subsidiary not owned by the Company directly or
indirectly through another Wholly-owned Restricted Subsidiary.
"GUARANTEE" shall mean, with respect to any Person, any direct
or indirect liability, contingent or otherwise, of such Person with respect to
any indebtedness, lease, dividend or other obligation or asset of another,
including, without limitation, any such obligation or asset directly or
indirectly guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business) or discounted or sold with recourse by such Person,
or in respect of which such Person is otherwise directly or indirectly liable,
including, without limitation, any such obligation or asset in effect guaranteed
by such Person through any agreement (contingent or otherwise) to purchase,
repurchase or otherwise acquire such obligation or asset or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), or to maintain the solvency or any balance sheet or other
financial condition of the obligor of such obligation or asset, or to make
payment for any products, materials or supplies or for any transportation or
services regardless of the non-delivery or non-furnishing thereof, in any such
case if the purpose or intent of such agreement is to provide assurance that
such obligation will be paid or discharged or the value of any asset maintained,
or that any agreements relating thereto will be complied with, or that the
holders of such obligation or asset will be protected against loss in respect
thereof. The term "Guarantee" used as a verb shall have a correlative meaning.
The amount of any Guarantee shall be equal to the outstanding principal amount
of the obligation guaranteed, the guaranteed value of the subject asset or such
lesser amount to which the maximum exposure of the guarantor shall have been
specifically limited.
"HAZARDOUS MATERIAL" shall mean any pollutant, toxic
substance, hazardous waste, hazardous material, hazardous substance, or oil as
defined in or pursuant to the Resource Conservation and Recovery Act, as
amended, the Comprehensive Environmental
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<PAGE> 47
Response, Compensation, and Liability Act, as amended, the Federal Clean Water
Act, or any other federal, state or local environmental law, regulation,
ordinance, rule, or by-law.
"HEDGE TREASURY NOTE(S)" shall mean, with respect to any
Accepted Note, the United States Treasury Note or Notes whose duration (as
determined by Prudential) most closely matches the duration of such Accepted
Note.
"HISTORICAL FINANCIAL STATEMENTS" shall have the meaning
specified in paragraph 8B.
"HOSTILE TENDER OFFER" shall mean, with respect to the use of
proceeds of any Note, any offer to purchase, or any purchase of, shares of
capital stock of any corporation or equity interests in any other entity, or
securities convertible into or representing the beneficial ownership of, or
rights to acquire, any such shares or equity interests, if such shares, equity
interests, securities or rights are of a class which is publicly traded on any
securities exchange or in any over-the-counter market, other than purchases of
such shares, equity interests, securities or rights representing less than 5% of
the equity interests or beneficial ownership of such corporation or other entity
for portfolio investment purposes, and such offer or purchase has not been duly
approved by the board of directors of such corporation or the equivalent
governing body of such other entity prior to the date on which the Company makes
the Request for Purchase of such Note.
"INTEREST COVERAGE RATIO" shall mean, as of any date of
determination, the ratio of (a) the sum of (i) Consolidated Net Income for the
Company and its Restricted Subsidiaries for the applicable period, plus (ii) all
amounts deducted in the computation thereof for such period on account of (1)
interest expense of the Company and its Restricted Subsidiaries on a
consolidated basis and (2) taxes imposed on or measured by income or excess
profits paid during such period, to (b) cash interest paid during such period by
the Company and its Restricted Subsidiaries on a consolidated basis for such
period; provided, that if such an interest payment on the Notes, the 1993 Notes
or the 1998 Notes is scheduled to be made on any non-Business Day and is instead
actually made on a succeeding day, and if a determination date (as contemplated
by paragraph 6L hereof) occurs on such non-Business Day or any subsequent day
prior to the date such payment is received, then such interest payment shall be
deemed to have been made on such determination date.
"INVESTMENT" shall mean and include all (i) investments in any
Person by stock purchase, capital contribution, loan, advance, Guarantee of
obligations of (other than any Guarantee of an obligation of the Company or a
Restricted Subsidiary) or creation or assumption of any other liability in
respect of any indebtedness (other than indebtedness of the Company or any
Restricted Subsidiary) of such Person and (ii) investments in any other
property.
"IRS" shall mean the Internal Revenue Service and any
successor governmental agency.
"ISSUANCE PERIOD" shall have the meaning specified in
paragraph 2A(2).
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, contractual deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention
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<PAGE> 48
agreement, any lease in the nature thereof, any bankers right of set-off, and
the filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction) or any other type of preferential
arrangement for the purpose, or having the effect, of protecting a creditor
against loss or securing the payment or performance of an obligation.
"MOVADO LLC" shall have the meaning specified in paragraph 3G.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a
"multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NOTES" shall have the meaning specified in paragraph 1A.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the
name of the Company by an Authorized Officer of the Company.
"OTHER HOLDER NOTICE" shall have the meaning specified in
paragraph 4F(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation and
any successor corporation or governmental agency.
"PERMITTED INVESTMENTS" shall mean:
(i) Investments in direct obligations of the
United States of America, or obligations of any
instrumentality or agency thereof, or obligations the payment
of which is unconditionally guaranteed by the United States of
America or any instrumentality or agency thereof (all of which
Investments shall mature within five years from the time of
acquisition thereof);
(ii) Investments maturing within three years from
the time of acquisition thereof in obligations of any State or
municipal government or obligations of any instrumentality or
agency thereof or obligations of any corporate issuer which,
at the time of acquisition, are rated A or better by Standard
& Poor's Corporation ("S&P") or A2 or better by Moody's
Investors Service, Inc. ("Moody's") (or if neither S&P nor
Moody's shall rate such obligations, an equivalent rating of
any other national rating agency of established reputation in
the United States); and
(iii) Investments in readily marketable commercial
paper which, at the time of acquisition, are rated A-2 or
better by S&P or Prime-2 or better by NCO/Moody's Commercial
Paper Division of Moody's and maturing within 270 days from
the time of acquisition thereof (or if neither S&P nor Moody's
shall rate such obligations, an equivalent rating of any other
national rating agency of established reputation in the United
States).
"PERSON" shall mean and include an individual, a partnership,
a joint venture, a corporation, limited liability company, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"PLAN" shall mean any "employee pension benefit plan" (as such
term is defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions
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<PAGE> 49
are or have been made, by the Company or any ERISA Affiliate.
"PREFERRED STOCK" shall mean any class of capital shares of
the Company or any of its Restricted Subsidiaries which is redeemable (other
than shares of Class A Common Stock, par value $0.01 per share, of the Company)
or which has a preference upon liquidation or in the payment of dividends over
the respective common shares of the Company or any of its Subsidiaries.
"PRIORITY DEBT" shall mean, without duplication, the sum of
(i) all Debt of Restricted Subsidiaries, other than (a) Debt owed to the
Company, (b) Guarantees of the Notes, the 1993 Notes and the 1998 Notes and (c)
Guarantees of the obligations of the Company under the Credit Agreement to the
extent the Notes share in such Guarantee, (ii) all Debt of the Company or any of
its Restricted Subsidiaries secured by a Lien (including Capitalized Leases),
other than (a) a Lien existing on Property at the time of acquisition thereof
and which meets the terms of clause (iv) of paragraph 6B, and (b) Liens
described in clause (iii) of paragraph 6B, and (iii) all Preferred Stock of
Restricted Subsidiaries not owned by the Company directly or indirectly through
a Wholly-owned Restricted Subsidiary.
"PROPERTY" shall mean and include all interests in property
and assets, whether tangible or intangible and whether real, personal or mixed.
"PRUDENTIAL" shall mean The Prudential Insurance Company of
America.
"PRUDENTIAL AFFILIATE" shall mean (i) any Person which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, Prudential, or (ii) any
investment fund, account or other vehicle for which Prudential (or any
Prudential Affiliate) acts as investment advisor or portfolio manager. As used
in the preceding clause (i), the term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"PURCHASE DATE" shall have the meaning specified in paragraph
4F(b).
"PURCHASE EVENT" shall mean the election by the Company to
retire Funded Borrowings in connection with a Disposition pursuant to paragraph
6F.
"PURCHASE NOTICE" shall have the meaning specified in
paragraph 4F(a).
"PURCHASERS" shall mean, with respect to any Accepted Notes,
Prudential and/or the Prudential Affiliate(s) which are purchasing such Accepted
Notes.
"RELEASE" shall mean any releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the Environment.
"REQUEST FOR PURCHASE" shall have the meaning specified in
paragraph 2A(4).
"REQUIRED HOLDER(S)" shall mean at any particular time the
holder or holders of at least 51% of the aggregate principal amount of the Notes
or of a Series of Notes, as the context may require, from time to time
outstanding.
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<PAGE> 50
"RESCHEDULED CLOSING DAY" shall have the meaning specified in
paragraph 2A(8).
"RESPONSIBLE ENVIRONMENTAL OFFICER" shall mean with respect to
the Company or any of its Subsidiaries, any Responsible Officer and any other
officer of the Company or such Subsidiary principally responsible for the
supervision and administration of environmental compliance or the supervision
and administration of the handling of Hazardous Material, including, without
limitation, all officers holding the titles set forth in Schedule 8L and any
Person who, regardless of title, is performing the duties of any such officers.
"RESPONSIBLE OFFICER" shall mean with respect to any
certificate, report, notice or information to be delivered or given hereunder or
knowledge of any Default or Event of Default hereunder, unless the context
otherwise requires, the president, chief executive officer, chief financial
officer, principal legal officer, principal accounting officer or treasurer of
the Company or other senior legal, accounting or financial officer of the
Company who in the normal performance of his or her operational duties would
have knowledge of the subject matter relating to such certificate, report,
notice, Default or Event of Default.
"RESTRICTED SUBSIDIARY" shall mean (x) any Domestic Subsidiary
and (y) any Foreign Subsidiary which is listed in Schedule 8A or which shall be
designated as a Restricted Subsidiary by the Board of Directors at a subsequent
date as provided in paragraph 6K.
"RETIREMENT FRACTION" shall have the meaning specified in the
definition of Designated Applications.
"SALE AND LEASE-BACK TRANSACTION" of a Person (a "TRANSFEROR")
shall mean any arrangement (other than between the Company and a Wholly-owned
Restricted Subsidiary or between Wholly-owned Restricted Subsidiaries) whereby
(a) Property has been or is to be Disposed of by such Transferor to any other
Person with the intention on the part of such Transferor of taking back a lease
of such Property pursuant to which the rental payments are calculated to
amortize the purchase price of such Property substantially over the useful life
of such Property, and (b) such property is in fact so leased by such Transferor
or an Affiliate of such Transferor.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SERIES" shall have the meaning specified in paragraph 1A.
"SHELF NOTES" shall have the meaning specified in paragraph
1A.
"SIGNIFICANT HOLDER" shall mean (x) Prudential, so long as
Prudential or any Prudential Affiliate shall hold (or be committed under this
Agreement to purchase) any Note and (y) any other holder of Notes holding by
itself or together with one or more of its affiliates Notes having an aggregate
principal amount of not less than 10% of the aggregate principal amount of the
Notes of any Series at the time outstanding.
"SIGNIFICANT SUBSIDIARY GROUP" shall mean any Subsidiary which
is, or any group of Subsidiaries all of which are, at any time of determination,
subject to one or more of the proceedings or conditions described in paragraph
7A(vii), (viii), (ix) or (x) and which Subsidiary or group of Subsidiaries, (x)
generated total revenues (or in the case of a recently formed or
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<PAGE> 51
acquired Subsidiary would have generated revenues on a pro forma basis) equal in
amount to more than 10% of the total consolidated revenues of the Company and
its Restricted Subsidiaries for the fiscal year most recently ended or (y) had
total assets equal in amount to more than 10% of Consolidated Total Assets as of
the end of the most recently ended fiscal quarter.
"SUBSIDIARY" shall mean any Person a majority of the total
combined voting power of all classes of Voting Stock of which shall, at the time
as of which any determination is being made, be owned or controlled by the
Company either directly or through Subsidiaries.
"SUBSIDIARY GUARANTEE" means a Guarantee substantially in the
form of Exhibit D granted by a Subsidiary of the Company in favor of the
Purchasers, guaranteeing the Company's performance of its obligations under this
Agreement and the Notes including, without limitation, the Guarantees executed
and delivered by Swissam and Movado LLC.
"SUBSIDIARY GUARANTOR" shall mean any Subsidiary of the
Company which has duly executed and delivered to the Purchasers a Subsidiary
Guarantee.
"SWISSAM" shall have the meaning specified in paragraph 3G.
"THREAT OF RELEASE" shall mean a substantial likelihood of a
Release which requires action to prevent or mitigate damage to the Environment
which may result from such Release.
"TRANSFEREE" shall mean any direct or indirect transferee of
all or any part of any Note purchased by the Purchaser under this Agreement.
"UNRESTRICTED SUBSIDIARY" shall mean any Foreign Subsidiary
not identified on Schedule 8A and any other Foreign Subsidiary until designated
as a Restricted Subsidiary in accordance with the provision of paragraph 6K.
"VOTING STOCK" shall mean, with respect to any Person, any
shares of stock of or other ownership interest in such Person whose holders are
entitled under ordinary circumstances to vote for the election of directors or
similar body of such Person (irrespective of whether at the time stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" shall mean any Restricted
Subsidiary all of the outstanding Capital Stock (or other equity interests) of
which (other than directors, qualifying shares, if any) is owned by the Company
either directly or indirectly through other Wholly-owned Restricted
Subsidiaries.
10C. ACCOUNTING TERMS AND DETERMINATIONS. (a) All
references in this agreement to "generally accepted accounting principles" shall
mean generally accepted accounting principles in effect in the United States at
the time of application thereof. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters required to be
furnished hereunder shall be prepared, in accordance with generally accepted
accounting principles, applied on a basis consistent with the most recent
audited consolidated financial statements of
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<PAGE> 52
the Company and its Subsidiaries (except as otherwise stated therein or in the
notes thereto) delivered pursuant to paragraph 5A(ii), or, if no such statements
have been so delivered, the most recent audited financial statements referred to
in paragraph 8B.
(b) All references herein to "the Company and its
Restricted Subsidiaries" for the purposes of computing the consolidated
financial position, results of operations or other balance sheet or financial
statement items shall be deemed to include only the Company and its Restricted
Subsidiaries as separate legal entities and, unless otherwise provided herein,
shall not include the position, operations, cash flows or other such items of
any other Person, whether by way of the equity method of accounting or otherwise
(whether or not, in any particular instance, such accounting treatment would be
in accordance with generally accepted accounting principles).
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as
any Purchaser shall hold any Note, it will make payments of principal of,
interest on and any Yield-Maintenance Amount payable with respect to such Note,
which comply with the terms of this Agreement, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to (i) the account or accounts of such Purchaser specified in the
Confirmation of Acceptance with respect to such Note or (ii) such other account
or accounts in the United States as such Purchaser may designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. Each Purchaser agrees that, before disposing of any Note, it
will make a notation thereon (or on a schedule attached thereto) of all
principal payments previously made thereon and of the date to which interest
thereon has been paid. The Company agrees to afford the benefits of this
paragraph 11A to any Transferee which shall have made the same agreement as the
Purchaser has made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save
Prudential, each Purchaser and any Transferee harmless against liability for the
payment of, all out-of-pocket expenses arising in connection with such
transactions (other than a transaction in which a Person becomes a Transferee),
including (i) all document production and duplication charges and the fees and
expenses of any special counsel engaged by the Purchaser or such Transferee in
connection with any subsequent proposed modification of, or proposed consent
under, this Agreement, whether or not such proposed modification shall be
effected or proposed consent granted (which shall be a single counsel
representing all the holders of the Notes and any local counsel retained by
them, unless there shall be a conflict in any such representation of all the
holders), and (ii) the costs and expenses, including attorneys' fees, incurred
by any Purchaser or such Transferee in enforcing (or determining whether or how
to enforce) any rights under this Agreement or the Notes or in responding to any
subpoena or other legal process or informal investigative demand issued in
connection with this Agreement or the transactions contemplated hereby or by
reason of any Purchaser's or such Transferee's having acquired any Note,
including without limitation costs and expenses incurred in any bankruptcy case.
The obligations of the Company under this paragraph 11B shall survive the
transfer of any Note or portion thereof or interest therein by any Purchaser or
any Transferee and the payment of any Note.
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<PAGE> 53
11C. CONSENT TO AMENDMENTS. This Agreement may be amended,
and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of the Required
Holder(s) of the Notes of each Series except that, (i) with the written consent
of the holders of all Notes of a particular Series, and if an Event of Default
shall have occurred and be continuing, of the holders of all Notes of all
Series, at the time outstanding (and not without such written consents), the
Notes of such Series may be amended or the provisions thereof waived to change
the maturity thereof, to change or affect the principal thereof, or to change or
affect the rate or time of payment of interest on or any Yield-Maintenance
Amount payable with respect to the Notes of such Series, (ii) without the
written consent of the holder or holders of all Notes at the time outstanding,
no amendment to or waiver of the provisions of this Agreement shall change or
affect the provisions of paragraph 7A or this paragraph 11C insofar as such
provisions relate to proportions of the principal amount of the Notes of any
Series, or the rights of any individual holder of Notes, required with respect
to any declaration of Notes to be due and payable or with respect to any
consent, amendment, waiver or declaration, (iii) with the written consent of
Prudential (and not without the written consent of Prudential) the provisions of
paragraph 2A may be amended or waived (except insofar as any such amendment or
waiver would affect any rights or obligations with respect to the purchase and
sale of Notes which shall have become Accepted Notes prior to such amendment or
waiver), and (iv) with the written consent of all of the Purchasers which shall
have become obligated to purchase Accepted Notes of any Series (and not without
the written consent of all such Purchasers), any of the provisions of paragraphs
2A and 3 may be amended or waived insofar as such amendment or waiver would
affect only rights or obligations with respect to the purchase and sale of the
Accepted Notes of such Series or the terms and provisions of such Accepted
Notes. Each holder of any Note at the time or thereafter outstanding shall be
bound by any consent authorized by this paragraph 11C, whether or not such Note
shall have been marked to indicate such consent, but any Notes issued thereafter
may bear a notation referring to any such consent. No course of dealing between
the Company and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note. As used herein and in the Notes, the term "THIS AGREEMENT"
and references thereto shall mean this Agreement as it may from time to time be
amended or supplemented. No course of dealing between the Company and the holder
of any Note nor any delay in exercising any rights hereunder or under any Note
shall operate as a waiver of any rights of any holder of such Note. The Company
will not, directly or indirectly, solicit, request or obtain any proposed waiver
or amendment of or consent in respect of any of the provisions of this Agreement
or the Notes unless each holder shall be informed thereof by the Company and
shall be afforded an opportunity of considering the same information supplied by
the Company to any other holder of Notes. The Company will not, directly or
indirectly, pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, to any holder of Notes as
consideration for or as an inducement to the entering into by such holder of
Notes of any waiver or amendment of, or giving a consent in respect of, any of
the terms and provisions of this Agreement or any Note unless such remuneration
is concurrently paid, on the same terms, ratably to all such holders of Notes of
the same Series, whether or not any such holder shall have entered into any such
waiver or amendment or given any such consent. The Company will give prompt
written notice of the receipt and effect of each such waiver, amendment or
consent to all holders of the Notes. As used herein and in the Notes, the term
"THIS AGREEMENT" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES;
LOST NOTES.
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<PAGE> 54
The Notes are issuable as registered notes without coupons in denominations of
at least $2,500,000 and otherwise in integral multiples of $100,000. The Company
shall keep at its principal office a register in which the Company shall provide
for the registration of Notes and of transfers of Notes. Upon surrender for
registration of transfer of any Note at the principal office of the Company, the
Company shall, at its expense, execute and deliver one or more new Notes of like
tenor and of a like aggregate principal amount, registered in the name of such
Transferee or Transferees. At the option of the holder of any Note, such Note
may be exchanged for other Notes of like tenor and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the Note
to be exchanged at the principal office of the Company. Whenever any Notes are
so surrendered for exchange, the Company shall, at its expense, execute and
deliver the Notes which the holder making the exchange is entitled to receive.
Every Note surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the holder of such Note or such holder's attorney duly authorized in writing.
Any Note or Notes issued in exchange for any Note or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which were carried by
the Note so exchanged or transferred, so that neither gain nor loss of interest
shall result from any such transfer or exchange. Upon receipt of written notice
from the holder of any Note of the loss, theft, destruction or mutilation of
such Note and, in the case of any such loss, theft or destruction, upon receipt
of such holder's unsecured indemnity agreement, or in the case of any such
mutilation upon surrender and cancellation of such Note, the Company will make
and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Note is registered as the owner and holder of such Note for the
purpose of receiving payment of principal of, interest on and any
Yield-Maintenance Amount payable with respect to such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue, and the Company
shall not be affected by notice to the contrary. Subject to the preceding
sentence, the holder of any Note may from time to time grant participations in
such Note to any Person on such terms and conditions as may be determined by
such holder in its sole and absolute discretion, provided that any such
participation shall be in a principal amount of at least $500,000.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT. All representations and warranties contained herein or made in
writing by or on behalf of the Company in connection herewith shall survive the
execution and delivery of this Agreement and the Notes, the transfer by any
Purchaser of any Note or portion thereof or interest therein and the payment of
any Note, and may be relied upon by any Transferee, regardless of any
investigation made at any time by or on behalf of any Purchaser or any
Transferee. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between the Purchasers and the
Company and supersede all prior agreements and understandings relating to the
subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other
agreements in this Agreement contained by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto (including, without limitation, any Transferee)
whether so expressed or not.
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<PAGE> 55
11H. INDEPENDENCE OF COVENANTS. All covenants hereunder
shall be given independent effect so that if a particular action or condition is
prohibited by any one of such covenants, the fact that it would be permitted by
an exception to, or otherwise be in compliance within the limitations of,
another covenant shall not avoid the occurrence of a Default or Event of Default
if such action is taken or such condition exists.
11I. NOTICES. All written communications provided for
hereunder (other than communications provided for under paragraph 2) shall be
sent by first class mail or nationwide overnight delivery service (with charges
prepaid) and (i) if to any Purchaser, addressed as specified for such
communications in the Purchaser Schedule attached hereto (in the case of
Prudential) or the Purchaser Schedule attached to the applicable Confirmation of
Acceptance (in the case of any Prudential Affiliate) or at such other address as
any such Purchaser shall have specified to the Company in writing, (ii) if to
any other holder of any Note, addressed to it at such address as it shall have
specified in writing to the Company or, if any such holder shall not have so
specified an address, then addressed to such holder in care of the last holder
of such Note which shall have so specified an address to the Company and (iii)
if to the Company, addressed to it at Movado Group, Inc., 300 Tice Boulevard,
Woodcliff Lake, New Jersey 07675, Attention: Richard J. Cote, Executive Vice
President Finance and Administration, phone number (201) 460-3863, fax number
(201) 460-4880, with a copy to Movado Group, Inc., 125 Chubb Avenue, Lyndhurst,
NJ 07071, Attention: Timothy F. Michno, General Counsel, phone number (201)
460-3792, fax number (201) 460-4857, provided, however, that any such
communication to the Company may also, at the option of the Person sending such
communication, be delivered by any other means either to the Company at its
address specified above or to any Authorized Officer of the Company. Any
communication pursuant to paragraph 2 shall be made by the method specified for
such communication in paragraph 2, and shall be effective to create any rights
or obligations under this Agreement only if, in the case of a telephone
communication, an Authorized Officer of the party conveying the information and
of the party receiving the information are parties to the telephone call, and in
the case of a telecopier communication, the communication is signed by an
Authorized Officer of the party conveying the information, addressed to the
attention of an Authorized Officer of the party receiving the information, and
in fact received at the telecopier terminal the number of which is listed for
the party receiving the communication in the Information Schedule or at such
other telecopier terminal as the party receiving the information shall have
specified in writing to the party sending such information.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or interest on any Note that is due on a date other than a Business Day shall
be made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall not be included in the computation
of the interest payable on such Business Day.
11K. SATISFACTION REQUIREMENT. If any agreement,
certificate or other writing, or any action taken or to be taken, is by the
terms of this Agreement required to be satisfactory to any Purchaser or to the
Required Holder(s), the determination of such satisfaction shall be made by such
Purchaser or the Required Holder(s), as the case may be, in the sole and
exclusive judgment (exercised in good faith) of the Person or Persons making
such determination.
11L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
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<PAGE> 56
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
11M. SEVERABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
11N. DESCRIPTIVE HEADINGS. The descriptive headings of the
several paragraphs of this Agreement are inserted for convenience only and do
not constitute a part of this Agreement.
11O. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument.
11P. CONFIDENTIALITY. For the purposes of this paragraph,
"Confidential Information" means information delivered to the Purchaser by or on
behalf of the Company or any of its Subsidiaries in connection with the
transactions contemplated by or otherwise pursuant to this Agreement which is
proprietary in nature and which was clearly marked or labeled when received by
the Purchaser as being confidential information of the Company, provided that
such term does not include information (a) which was publicly known or otherwise
known to the Purchaser prior to the time of such disclosure, (b) which
subsequently becomes publicly known through no act or omission by the Purchaser
or any Person acting on its behalf or (c) which otherwise becomes known to the
Purchaser other than through disclosure by the Company or any of its
Subsidiaries. The Purchaser will use its best efforts hold in confidence and not
to disclose any Confidential Information, provided that the Purchaser may
deliver or disclose Confidential Information to (i) its and its Subsidiaries,
directors, officers, employees, agents, attorneys, financial advisors and other
professional advisors (to the extent such disclosure reasonably relates to the
administration of the investment represented by the Notes), (ii) any other
holder of any Note, (iii) any Person to which the Purchaser sells or offers to
sell such Note or any part thereof (if such Person has agreed in writing prior
to its receipt of such Confidential Information to be bound by the provisions of
this paragraph 11P, (iv) any Person to which the Purchaser sells or offers to
sell a participation in all or any part of such Note (if such Person has agreed
in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this paragraph 11P, (v) any Person from which the Purchaser
offers to purchase any security of the Company, (vi) any federal or state
regulatory authority having jurisdiction over the Purchaser, (vii) the National
Association of Insurance Commissioners (the "NAIC") or any similar organization
or (viii) any other Person to which such delivery or disclosure may be necessary
or appropriate (w) to effect compliance with any law, rule, regulation or order
applicable to the Purchaser (x) in response to any subpoena or other legal
process, (y) in connection with any litigation to which the Purchaser is a party
or (z) if an Event of Default has occurred and is continuing, to the extent the
Purchaser may reasonably determine such delivery and disclosure to be necessary
or appropriate in the enforcement of the rights and remedies under the Notes and
this Agreement. Any person entering into an agreement referred to in clause
(iii) or (iv) of this paragraph 11P is entitled to all the benefits of this
paragraph 11P.
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[SIGNATURE BLOCKS FOLLOW]
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<PAGE> 58
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement among the
Company and the Purchaser.
Very truly yours,
MOVADO GROUP, INC.
By_____________________________
Name:
Title:
The foregoing Agreement is hereby
accepted as of the date first above written.
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By______________________________
Name:
Title:
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<PAGE> 59
EXHIBIT A
[FORM OF SHELF NOTE]
MOVADO GROUP, INC.
SENIOR SERIES ___ NOTE
No. ___
ORIGINAL PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE:
INTEREST RATE:
INTEREST PAYMENT DATES:
FINAL MATURITY DATE:
PRINCIPAL PREPAYMENT DATES AND AMOUNTS:
FOR VALUE RECEIVED, the undersigned, MOVADO GROUP, INC. (herein called
the "Company"), a corporation organized and existing under the laws of the State
of New York, hereby promises to pay to ________________________, or registered
assigns, the principal sum of DOLLARS [on the Final Maturity Date specified
above] [, payable on the Principal Prepayment Dates and in the amounts specified
above, and on the Final Maturity Date specified above in an amount equal to the
unpaid balance of the principal hereof,] with interest (computed on the basis of
a 360-day year--30-day month) (a) on the unpaid balance thereof at the Interest
Rate per annum specified above, payable on each Interest Payment Date specified
above and on the Final Maturity Date specified above, commencing with the
Interest Payment Date next succeeding the date hereof, until the principal
hereof shall have become due and payable, and (b) on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of Yield
Maintenance Amount and any overdue payment of interest, payable on each Interest
Payment Date as aforesaid (or, at the option of the registered holder hereof, on
demand), at a rate per annum from time to time equal to the greater of (i) 2%
over the Interest Rate specified above or (ii) 2% over the rate of interest
publicly announced by Bank of New York from time to time in New York City as its
Prime Rate.
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Bank of New York in New York City or at
such other place as the holder hereof shall designate to the Company in writing,
in lawful money of the United States of America.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to a Note Purchase and Private Shelf Agreement, dated
as of March __, 2001 (herein called the "Agreement"), between the Company, on
the one hand, and The Prudential Insurance Company of America and each
Prudential Affiliate (as defined in the Agreement) which becomes party thereto,
on the other hand, and is entitled to the benefits thereof.
A-1
<PAGE> 60
This Note is subject to optional prepayment, in whole or from time to
time in part, on the terms specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for the then outstanding principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the
principal of this Note may be declared or otherwise become due and payable in
the manner and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings (if any) provided in the Agreement.
This Note is intended to be performed in the State of New York and
shall be construed and enforced in accordance with the internal law of such
State.
MOVADO GROUP, INC.
By:____________________________
Title:_________________________
A-2
<PAGE> 61
EXHIBIT B
[FORM OF REQUEST FOR PURCHASE]
MOVADO GROUP, INC.
Reference is made to the Note Purchase and Private Shelf Agreement (the
"Agreement"), dated as of March __, 2001 between Movado Group, Inc. (the
"Company"), on the one hand, and The Prudential Insurance Company of America
("Prudential") and each Prudential Affiliate which becomes party thereto, on the
other hand. Capitalized terms used and not otherwise defined herein shall have
the respective meanings specified in the Agreement.
Pursuant to Paragraph 2A(4) of the Agreement, the Company hereby makes
the following Request for Purchase:
1. Aggregate principal amount of
the Notes covered hereby
(the "Notes") : $___________
2. Individual specifications of the Notes:
<TABLE>
<CAPTION>
Principal
Final Prepayment Interest
Principal Maturity Dates and Payment
Amount(1) Date Amounts Period(2)
- --------- -------- ---------- ---------
<S> <C> <C> <C>
</TABLE>
3. Use of proceeds of the Notes:
4. Proposed day for the closing of the purchase and sale of the
Notes:
- ----------
(1) Minimum principal amount of $5,000,000.
(2) Specify quarterly or semi-annually.
B-1
<PAGE> 62
5. The purchase price of the Notes is to be transferred to:
<TABLE>
<CAPTION>
Name, Address
and ABA Routing Number of
Number of Bank Account
-------------- -------
<S> <C>
</TABLE>
6. The Company certifies (a) that the representations and
warranties contained in paragraph 8 of the Agreement are true
on and as of the date of this Request for Purchase except to
the extent of changes caused by the transactions contemplated
in the Agreement and (b) that there exists on the date of this
Request for Purchase no Event of Default or Default.
7. The Issuance Fee to be paid pursuant to the Agreement will be
paid by the Company on the closing date.
Dated: ____________________ MOVADO GROUP, INC.
By: _________________________
Authorized Officer
B-2
<PAGE> 63
EXHIBIT C
[FORM OF CONFIRMATION OF ACCEPTANCE]
MOVADO GROUP, INC.
Reference is made to the Note Purchase and Private Shelf Agreement (the
"Agreement"), dated as of March __, 2001 between Movado Group, Inc. (the
"Company"), on the one hand, and The Prudential Insurance Company of America
("Prudential") and each Prudential Affiliate which becomes party thereto, on the
other hand. All terms used herein that are defined in the Agreement have the
respective meanings specified in the Agreement.
Prudential or the Prudential Affiliate which is named below as a
Purchaser of Notes hereby confirms the representations as to such Notes set
forth in paragraph 9 of the Agreement, and agrees to be bound by the provisions
of paragraphs 2A(6) and 2A(8) of the Agreement relating to the purchase and sale
of such Notes and by the provisions of the penultimate sentence of paragraph 11A
of the Agreement.
Pursuant to paragraph 2A(6) of the Agreement, an Acceptance with
respect to the following Accepted Notes is hereby confirmed:
I. Accepted Notes: Aggregate principal amount $__________________
(A) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal prepayment dates and amounts:
(e) Interest rate:
(f) Interest payment period:
(g) Payment and notice instructions: As set forth on attached
Purchaser Schedule
(B) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal prepayment dates and amounts:
(e) Interest rate:
(f) Interest payment period:
(g) Payment and notice instructions: As set forth on attached
Purchaser Schedule
[(C), (D)..... same information as above.]
C-1
<PAGE> 64
II. Closing Day:
Dated: _____________________ MOVADO GROUP, INC.
By:_________________________
Title:______________________
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:_________________________
Vice President
[PRUDENTIAL AFFILIATE]
By:_________________________
Title:______________________
C-2
<PAGE> 65
EXHIBIT D
FORM OF GUARANTEE
REFERENCE IS HEREBY MADE to the Note Purchase and Private Shelf
Agreement dated as of March __, 2001 (which, as the same has heretofore been or
may hereafter be amended from time to time, will be called herein the "Note
Purchase Agreement") between Movado Group, Inc., a New York corporation (the
"Company"), The Prudential Insurance Company of America ("Prudential") and each
Prudential Affiliate (as defined therein) which becomes a party to the Note
Purchase Agreement (collectively, the "Purchasers"). All capitalized terms used
herein and not defined shall have the respective meanings ascribed to them in
the Note Purchase Agreement.
WHEREAS, pursuant to the terms and conditions of the Note Purchase
Agreement, the Purchasers have provided the Company with the Facility pursuant
to which the Purchasers may purchase up to $40,000,000 of Notes; and
WHEREAS, all the obligations and liabilities (whether now existing or
hereafter arising) of the Company under the Note Purchase Agreement (whether for
principal, interest, fees, Yield-Maintenance Amount, costs of enforcement or
otherwise) will be called herein the "Obligations"; and
WHEREAS, the Guarantor [is a Subsidiary of the Company and] has
obtained and expects to obtain substantial economic benefit from the issuance of
the Notes under the Note Purchase Agreement; and
WHEREAS, the execution and delivery of this guaranty by the Guarantor
is required pursuant to the terms of the Note Purchase Agreement;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Guarantor hereby agrees with the Purchasers
as follows:
1. The Guarantor hereby unconditionally guarantees to the
Purchasers that the Company will promptly pay, perform and observe all the
Obligations, and that all sums stated to be payable in, or which become payable
under, the Note Purchase Agreement by the Company will be promptly paid in full
when due, whether at stated maturity or earlier by reason of acceleration or
otherwise, and, in the case of one or more extensions of time of payment or
performance of any Obligation, that the same will be promptly paid or performed
(as the case may be) when due according to such extension, whether at stated
maturity or earlier by reason of acceleration or otherwise, irrespective of the
validity, regularity, or enforceability of the Note Purchase Agreement and
irrespective of any present or future law or order of any government (whether of
right or in fact and whether the Purchasers shall have consented thereto) or of
any agency thereof purporting to reduce, amend, restructure or otherwise affect
any Obligation of the Company or other obligor or to vary the terms of payment;
provided, however, that the liability of the Guarantor hereunder with respect to
the Obligations shall not exceed at any time 90% of Adjusted Net Worth (as
hereinafter defined). The term "Adjusted Net Worth" means the
<PAGE> 66
current Net Worth of the Guarantor, plus (as and when Net Worth increases) any
increase in such amount of Net Worth after the date hereof (without any decrease
for any reduction after the date hereof in current Net Worth as so increased).
The term "Net Worth" means the amount of all assets of the Guarantor, at a fair
valuation, less the total liabilities of the Guarantor (including contingent
liabilities other than the liabilities of the Guarantor under this guaranty).
2. The Guarantor agrees that, as among the Guarantors and the
Purchasers, the Obligations may be declared to be due and payable for purposes
of this guaranty notwithstanding any stay, injunction or other prohibition which
may prevent, delay or vitiate any such declaration as against the Company and
that, in the event of any such declaration (or attempted declaration), such
Obligations (whether or not due and payable by the Company) shall forthwith
become due and payable by the Guarantor for purposes of this guaranty. The
Guarantor further guarantees that all payments made by the Company to the
Purchasers of any Obligation will, when made, be final and agrees that if any
such payment is recovered from, or repaid by, any Purchaser in whole or in part
in any bankruptcy, insolvency or similar proceeding instituted by or against the
Company, this guaranty shall continue to be fully applicable to such Obligation
to the same extent as though the payment so recovered or repaid had never been
originally made on such Obligation.
3. This is a guaranty of payment and not of collection only.
4. The Guarantor hereby consents that from time to time, without
notice to or further consent of the Guarantor, the payment, performance or
observance of any or all of the Obligations may be waived or the time of payment
or performance thereof extended or accelerated, in whole or in part, or the
terms of the Note Purchase Agreement or any part thereof may be changed and any
collateral therefor may be exchanged, surrendered or otherwise dealt with as the
Required Holders may determine, and any of the acts mentioned in the Note
Purchase Agreement may be done, all without affecting the liability of the
Guarantor hereunder. The Guarantor hereby waives presentment of any instrument,
demand of payment, protest and notice of non-payment or protest thereof or of
any exchange, sale, surrender or other handling or disposition of such
collateral, and any requirement that any Purchaser exhaust any right, power or
remedy or proceed against the Company under the Note Purchase Agreement or
against any other person, under any other guaranty of, or security for, any of
the Obligations. The Guarantor hereby further waives any defense whatsoever
which might constitute a defense available to, or discharge of, the Company or a
guarantor. No payment by the Guarantor pursuant to any provision hereunder shall
entitle the Guarantor, by subrogation to the rights of any Purchaser or
otherwise, to any payment by the Company (or out of the property of the Company)
except after payment in full of all sums (including interest, Yield-Maintenance
Amount, costs and expenses) which may be or become payable by the Company to the
Purchasers at any time or from time to time.
5. This guaranty shall be a continuing guaranty, and any other
guarantor, and any other party liable upon or in respect of any Obligation
hereby guaranteed may be released without affecting the liability of any
Guarantor. The liability of the Guarantor hereunder shall be joint and several
with the liability of any other guarantor or other party upon or in respect of
the Obligations.
2
<PAGE> 67
6. Any Purchaser may assign its rights and powers hereunder, with
all or any of the Obligations, and, in the event of such assignment, the
assignee hereof or of such rights and powers, shall have the same rights and
remedies as if originally named herein.
7. Notice of acceptance of this guaranty and of the incurring of
any and all of the Obligations of the Company pursuant to the Note Purchase
Agreement is hereby waived. This guaranty and all rights, obligations and
liabilities arising hereunder shall be governed by and construed according to
the laws of the State of New York. Unless the context otherwise requires, all
terms used herein which are defined in the Uniform Commercial Code shall have
the meanings therein stated.
8. No provision of this guaranty may be modified or waived
without the prior written consent of the Required Holders.
9. Without limiting the rights of any Purchaser under any other
agreement, any financial accommodation (including, without limitation, interest
accruing at the agreed to contract rate after the commencement of any
bankruptcy, reorganization or similar proceeding) extended by the Guarantor to
or for the account of the Company, or in respect of which the Company may be
liable to the Guarantor in any capacity, is hereby subordinated to all the
Obligations, and such financial accommodation of the Guarantor to the Company,
if the Required Holders so request, shall be collected, enforced and received by
the Guarantor as trustee for the Purchasers and be paid over to the Purchasers
on account of the Obligations but without reducing or affecting in any manner
the liability of such Guarantor, or any other Guarantor, under the other
provisions of this guaranty.
10. The Guarantor hereby irrevocably submits to the jurisdiction
of any New York State or Federal court sitting in New York City in any action or
proceeding arising out of or relating to this guaranty, and the Guarantor hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such New York State or Federal court. The Guarantor
irrevocably consents to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to the Guarantor at its
address specified on the signature page hereof. The Guarantor agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this paragraph shall affect the rights of the
Purchasers to serve legal process in any other manner permitted by law or affect
the rights of the Purchasers to bring any action or proceeding against the
Guarantor or any of its property in the courts of any other jurisdiction. To the
extent that the Guarantor has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether from service or
notice, attachment prior to judgment, attachment in aid of execution, execution
or otherwise) with respect to itself or its property, the Guarantor hereby
irrevocably waives such immunity in respect of its Obligations under this
guaranty. The Guarantor hereby expressly waives any and every right to a trial
by jury in any action on or related to this guaranty, the Obligations or the
enforcement of either or all of the same, and does further expressly waive any
and every right to interpose any counterclaim in any such action or proceeding.
The Guarantor agrees to reimburse the Purchasers on demand for all reasonable
costs, expenses, and charges (including, without limitation, reasonable
attorneys' fees) incurred by the Purchasers in connection with any enforcement
of this guaranty.
3
<PAGE> 68
11. The rights, powers and remedies granted to the Purchasers
herein shall be cumulative and in addition to any rights, powers and remedies to
which the Purchasers may be entitled either by operation of law or pursuant to
the Note Purchase Agreement or any other document or instrument delivered or
from time to time to be delivered to any Purchaser in connection with the Note
Purchase Agreement.
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly
executed by its proper officer(s) this ____ day of ___________, 200__.
WITNESS: [NAME OF GUARANTOR]
____________________________ By:___________________________
Name:_______________________ Name:_________________________
Title:________________________
Address of Guarantor:
______________________________
______________________________
______________________________
4
<PAGE> 69
EXHIBIT E-1
[FORM OF OPINION OF COMPANY'S/SUBSIDIARY
GUARANTORS' COUNSEL, EFFECTIVE DATE]
[Effective Date]
The Prudential Insurance Company of America
c/o Prudential Capital Group
1114 Avenue of the Americas, 30th Floor
New York, NY 10036
Ladies and Gentlemen:
As General Counsel of Movado Group, Inc., a New York corporation (the
"Company"), SwissAm, Inc., a New Jersey corporation and a Subsidiary of the
Company ("SwisAm"), and Movado Corporation, a Delaware corporation and a
Subsidiary of the Company ("Movado Corp", and together with SwissAm, the
"Subsidiary Guarantors"; such Subsidiary Guarantors, collectively with the
Company, are referred to herein as the "Covered Parties"), I am familiar with
the Note Purchase and Private Shelf Agreement, dated as of March [ ], 2001 (the
"Agreement"), between the Company, on the one hand, and The Prudential Insurance
Company of America and each Prudential Affiliate which becomes a party thereto,
on the other hand, and the Subsidiary Guarantees to be executed and delivered by
the Subsidiary Guarantors on the Effective Date pursuant to the terms of the
Agreement (the "Covered Guarantees"), and have acted as counsel to each of the
Covered Parties in connection with the transactions contemplated by the
Agreement and such Covered Guarantees. Capitalized terms used and not otherwise
defined herein shall have the meanings provided in the Agreement. This letter is
being delivered to you in satisfaction of the conditions set forth in paragraphs
3A(v) and 3G(v) of the Agreement, and with the understanding you are entering
into the Agreement in reliance on the opinions expressed herein.
In this connection, I have examined such certificates of public
officials, certificates of officers of the Covered Parties and copies certified
to my satisfaction of corporate documents and records of the Covered Parties and
of other papers, and have made such other investigations, as I have deemed
relevant and necessary as a basis for my opinions hereinafter set forth. I have
relied upon such certificates of public officials and of officers of the Covered
Parties with respect to the accuracy of material factual matters contained
therein which were not independently established. With respect to the opinion
expressed in paragraph 4 below, I have also relied upon the representation made
by you in paragraph 9A of the Agreement.
<PAGE> 70
Based on the foregoing, it is my opinion that:
1. The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of New York. Each
Subsidiary Guarantor is a corporation duly organized and validly existing in
good standing under the laws of its jurisdiction of incorporation. Each Covered
Party has the corporate power to carry on their respective businesses as now
being conducted. Each Covered Party is duly qualified as a foreign corporation
and in good standing under the laws of each other jurisdiction in which the
failure to be so qualified would have a material adverse effect on the business,
financial condition or operations of the Company and its Subsidiaries taken as a
whole.
2. The Agreement has been duly authorized by all requisite
corporate action and duly executed and delivered by authorized officers of the
Company, and constitutes valid obligations of the Company, legally binding upon
and enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
(b) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3. Each of the Covered Guarantees has been duly authorized by all
requisite corporate action and duly executed and delivered by authorized
officers of the Subsidiary Guarantor party thereto, and are valid obligations of
the Subsidiary Guarantor party thereto, legally binding upon and enforceable
against such Subsidiary Guarantor in accordance with their respective terms,
except as such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and (b) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
4. The execution and delivery of the Agreement and the Covered
Guarantees, the proposed offering, issuance and sale of Notes pursuant to the
Agreement, and fulfillment of and compliance with the respective provisions of
the Agreement and the Covered Guarantees do not conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
or result in any violation of, or result in the creation of any Lien upon any of
the properties or assets of the Company or any of its Subsidiaries pursuant to,
or require any authorization, consent, approval, exemption, or other action by
or notice to or filing with any court, administrative or governmental body or
other Person (other than routine filings after the date of issuance of any Notes
under the Agreement with the Securities and Exchange Commission and/or state
Blue Sky authorities) pursuant to, the charter or by-laws of the Company or any
of its Subsidiaries, any applicable law (including any securities or Blue Sky
law), statute, rule or regulation or (insofar as is known to me after having
made due inquiry with respect thereto) any agreement (including, without
limitation, any agreement listed in Schedule 8E to the Agreement), instrument,
order, judgment or decree to which the Company or any of its Subsidiaries is a
party or otherwise subject.
Very truly yours,
E-1-2
<PAGE> 71
EXHIBIT E-2(A)
[FORM OF OPINION OF COMPANY'S COUNSEL,
SHELF NOTE CLOSING DAY]
[Date of Closing]
[Name(s) and address(es) of
purchaser(s)]
Ladies and Gentlemen:
As General Counsel of Movado Group, Inc. (the "Company"), I am familiar
with the Note Purchase and Private Shelf Agreement, dated as of March [ ], 2001
(the "Agreement") between the Company, on the one hand, and The Prudential
Insurance Company of America and each Prudential Affiliate which becomes a party
thereto, on the other hand, pursuant to which the Company has issued to you
today Senior Series [____] Notes of the Company in the aggregate principal
amount of $ (the "Notes"). Capitalized terms used and not otherwise defined
herein shall have the meanings provided in the Agreement. This letter is being
delivered to you in satisfaction of the condition set forth in paragraph 3A(v)
of the Agreement and with the understanding that you are purchasing the Notes in
reliance on the opinions expressed herein.
In this connection, I have examined such certificates of public
officials, certificates of officers of the Company and copies certified to my
satisfaction of corporate documents and records of the Company and of other
papers, and have made such other investigations, as I have deemed relevant and
necessary as a basis for my opinions hereinafter set forth. I have relied upon
such certificates of public officials and of officers of the Company with
respect to the accuracy of material factual matters contained therein which were
not independently established. With respect to the opinion expressed in
paragraph 3 below, I have also relied upon the representation made by [each of
you] in paragraph 9A of the Agreement.
Based on the foregoing, it is my opinion that:
1. The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of New York. Each
Subsidiary Guarantor is a corporation duly organized and validly existing in
good standing under the laws of its jurisdiction of incorporation. The Company
and the Subsidiary Guarantors have the corporate power to carry on their
respective businesses as now being conducted. The Company and each Subsidiary
Guarantor is duly qualified as a foreign corporation and in good standing under
the laws of each other jurisdiction in which the failure to be so qualified
would have a material adverse effect on the business, financial condition or
operations of the Company and its Subsidiaries taken as a whole.
E-2(A)-1
<PAGE> 72
2. The Agreement and the Notes have been duly authorized by all
requisite corporate action and duly executed and delivered by authorized
officers of the Company, and are valid obligations of the Company, legally
binding upon and enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and (b) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3. The execution and delivery of the Agreement and the Notes, the
offering, issuance and sale of the Notes and fulfillment of and compliance with
the respective provisions of the Agreement and the Notes do not conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien upon any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, or require any authorization, consent, approval,
exemption, or other action by or notice to or filing with any court,
administrative or governmental body or other Person (other than routine filings
after the date hereof with the Securities and Exchange Commission and/or state
Blue Sky authorities) pursuant to, the charter or by-laws of the Company or any
of its Subsidiaries, any applicable law (including any securities or Blue Sky
law), statute, rule or regulation or (insofar as is known to me after having
made due inquiry with respect thereto) any agreement (including, without
limitation, any agreement listed in Schedule 8E to the Agreement), instrument,
order, judgment or decree to which the Company or any of its Subsidiaries is a
party or otherwise subject.
Very truly yours,
E-2(A)-2
<PAGE> 73
EXHIBIT E-2(B)
[FORM OF OPINION OF COMPANY'S OUTSIDE COUNSEL,
SHELF NOTE CLOSING DAY]
[Letterhead of _______________]
[Date of Closing]
[Name(s) and address(es) of
purchaser(s)]
Ladies and Gentlemen:
We have acted as counsel for Movado Group, Inc. (the "Company") in
connection with the Note Purchase and Private Shelf Agreement, dated as of March
[ ], 2001 (the "Agreement") between the Company, on the one hand, and The
Prudential Insurance Company of America and each Prudential Affiliate which
becomes a party thereto, on the other hand, pursuant to which the Company has
issued to you today Senior Series [ ] Notes of the Company in the aggregate
principal amount of $ (the "Notes"). Capitalized terms used and not
otherwise defined herein shall have the meanings provided in the Agreement. This
letter is being delivered to you in satisfaction of the condition set forth in
paragraph 3A(v) of the Agreement and with the understanding that you are
purchasing the Notes in reliance on the opinions expressed herein.
In this connection, we have examined such certificates of public
officials, certificates of officers of the Company and copies certified to our
satisfaction of corporate documents and records of the Company and of other
papers, and have made such other investigations, as we have deemed relevant and
necessary as a basis for our opinion hereinafter set forth. We have relied upon
such certificates of public officials and of officers of the Company with
respect to the accuracy of material factual matters contained therein which were
not independently established. With respect to the opinion expressed in
paragraph 3 below, we have also relied upon the representation made by [each of]
you in paragraph 9A of the Agreement.
Based on the foregoing, it is our opinion that:
1. The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of New York. Each
Subsidiary Guarantor is a corporation duly organized and validly existing in
good standing under the laws of its jurisdiction of incorporation. The Company
and the Subsidiary Guarantors have the corporate power to carry on their
respective businesses as now being conducted.
E-2(B)-1
<PAGE> 74
2. The Agreement and the Notes have been duly authorized by all
requisite corporate action and duly executed and delivered by authorized
officers of the Company, and are valid obligations of the Company, legally
binding upon and enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and (b) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3. It is not necessary in connection with the offering, issuance,
sale and delivery of the Notes under the circumstances contemplated by the
Agreement to register the Notes or the Subsidiary Guarantees under the
Securities Act or to qualify an indenture in respect of the Notes or the
Subsidiary Guarantees under the Trust Indenture Act of 1939, as amended.
4. The extension, arranging and obtaining of the credit
represented by the Notes do not result in any violation of regulation U, T or X
of the Board of Governors of the Federal Reserve System.
5. The execution and delivery of the Agreement and the Notes, the
offering, issuance and sale of the Notes and fulfillment of and compliance with
the respective provisions of the Agreement and the Notes do not require any
authorization, consent, approval, exemption, or other action by or notice to or
filing with any court, administrative or governmental body (other than routine
filings after the date hereof with the Securities and Exchange Commission and/or
state Blue Sky authorities) pursuant to, any applicable law (including any
securities or Blue Sky law), statute, rule or regulation or (insofar as is known
to us after having made due inquiry with respect thereto) any order, judgment or
decree to which the Company or any of its Subsidiaries is a party or otherwise
subject.
Very truly yours,
E-2(B)-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.22
<SEQUENCE>3
<FILENAME>y48189ex10-22.txt
<DESCRIPTION>LEASE
<TEXT>
<PAGE> 1
EXHIBIT 10.22
LEASE
FROM:
MACK-CALI REALTY, L.P.
LESSOR
TO:
LESSEE
MOVADO GROUP, INC.
BUILDING:
MACK CENTRE II
ONE MACK DRIVE
PARAMUS, NEW JERSEY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DESCRIPTION:.........................................................................3
-----------
2. TERM:................................................................................3
----
3. BASIC RENT:..........................................................................3
----------
4. USE AND OCCUPANCY:...................................................................3
-----------------
5. CARE AND REPAIR OF PREMISES/ENVIRONMENTAL:...........................................3
-----------------------------------------
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS:..............................................6
--------------------------------------
7. ACTIVITIES INCREASING FIRE INSURANCE RATES:..........................................6
------------------------------------------
8. ASSIGNMENT AND SUBLEASE:.............................................................6
-----------------------
9. COMPLIANCE WITH RULES AND REGULATIONS:..............................................10
-------------------------------------
10. DAMAGES TO BUILDING:................................................................10
-------------------
11. EMINENT DOMAIN:.....................................................................11
--------------
12. INSOLVENCY OF LESSEE:...............................................................11
--------------------
13. LESSOR'S REMEDIES ON DEFAULT:.......................................................11
----------------------------
14. DEFICIENCY:.........................................................................12
----------
15. SUBORDINATION OF LEASE:.............................................................12
----------------------
16. INTENTIONALLY OMITTED:..............................................................13
---------------------
17. RIGHT TO CURE LESSEE'S BREACH:......................................................13
-----------------------------
18. MECHANIC'S LIENS:...................................................................13
----------------
19. RIGHT TO INSPECT AND REPAIR:........................................................13
---------------------------
20. SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION:.............................13
------------------------------------------------------
21. INTERRUPTION OF SERVICES OR USE:....................................................14
-------------------------------
22. BUILDING STANDARD OFFICE ELECTRICAL SERVICE:........................................14
-------------------------------------------
23. ADDITIONAL RENT:....................................................................18
---------------
24. LESSEE'S ESTOPPEL:..................................................................22
-----------------
25. HOLDOVER TENANCY:...................................................................22
----------------
26. RIGHT TO SHOW PREMISES:.............................................................23
----------------------
27. LESSOR'S WORK - LESSEE'S DRAWINGS:..................................................23
---------------------------------
28. WAIVER OF TRIAL BY JURY:............................................................23
-----------------------
29. LATE CHARGE:........................................................................23
-----------
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
30. LESSEE'S INSURANCE:.................................................................24
------------------
31. NO OTHER REPRESENTATIONS:...........................................................25
------------------------
32. QUIET ENJOYMENT:....................................................................25
---------------
33. INDEMNITY:..........................................................................26
---------
34. ARTICLE HEADINGS:...................................................................26
----------------
35. APPLICABILITY TO HEIRS AND ASSIGNS:.................................................26
----------------------------------
36. OUTSIDE PARKING SPACES:.............................................................27
----------------------
37. LESSOR'S LIABILITY FOR LOSS OF PROPERTY:............................................27
---------------------------------------
38. PARTIAL INVALIDITY:.................................................................27
------------------
39. LESSEE'S BROKER:....................................................................27
---------------
40. PERSONAL LIABILITY:.................................................................27
------------------
41. NO OPTION:..........................................................................28
---------
42. DEFINITIONS:........................................................................28
-----------
43. LEASE COMMENCEMENT:.................................................................
------------------
44. NOTICES:............................................................................29
-------
45. ACCORD AND SATISFACTION:............................................................29
-----------------------
46. EFFECT OF WAIVERS:..................................................................29
-----------------
47. LEASE CONDITION:....................................................................29
---------------
48. MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE:.........................................29
------------------------------------------
49. LESSOR'S RESERVED RIGHT:............................................................30
-----------------------
50. CORPORATE AUTHORITY:................................................................30
-------------------
51. AFTER-HOURS USE:....................................................................30
---------------
52. LESSOR'S REPRESENTATIONS:...........................................................31
------------------------
</TABLE>
ii
<PAGE> 4
LEASE, is made the 21 day of December, 2000 between MACK-CALI REALTY, L.P.
("Lessor") whose address is c/o Mack-Cali Realty Corporation, 11 Commerce Drive,
Cranford, New Jersey 07016 and MOVADO GROUP, INC. ("Lessee") whose address is
125 Chubb Avenue, Lyndhurst, New Jersey 07071.
PREAMBLE
BASIC LEASE PROVISIONS AND DEFINITIONS
In addition to other terms elsewhere defined in this Lease, the following terms
whenever used in this Lease shall have only the meanings set forth in this
section, unless such meanings are expressly modified, limited or expanded
elsewhere herein.
1. ADDITIONAL RENT shall mean all sums in addition to Fixed Basic Rent
payable by Lessee to Lessor pursuant to the provisions of the Lease.
2. BASE PERIOD COSTS shall mean the following:
A. Base Operating Costs: Those Operating Costs incurred during the
period from July 1, 2001 to June 30, 2002.
B. Base Real Estate Taxes: Those Real Estate Taxes incurred during
the period from July 1, 2001 to June 30, 2002.
C. Base Utility and Energy Costs: Those Utility and Energy Costs
incurred during the period from July 1, 2001 to June 30, 2002.
Notwithstanding the foregoing Base Period Costs, Lessee shall have no
obligation to pay Lessee's Percentage (as hereinafter defined) of the
increased cost to Lessor over the Base Period Costs, during the first
lease year of the Term.
3. BUILDING shall mean Mack-Cali Centre II, located One Mack Drive,
Paramus, New Jersey.
4. BUILDING HOLIDAYS shall be those shown on Exhibit E.
5. BUILDING HOURS shall be Monday through Friday, 8:00 a.m. to 6:00 p.m.,
and on Saturdays from 8:00 a.m. to 1:00 p.m., but excluding those
holidays as set forth on Exhibit E attached hereto and made a part
hereof, except that Common Facilities, lighting in the Building and
Office Building Area shall be maintained for such additional hours as,
in Lessor's sole judgement, is necessary or desirable to insure proper
operating of the Building and Office Building Area, and, further,
notwithstanding the foregoing Building Hours, Lessee shall have access
to the Building, Office Building Area and the Premises with all Common
Facilities, lighting and HVAC for after-hours use, in accordance with
Article 51 hereof.
6. COMMENCEMENT DATE is July 1, 2001.
7. DEMISED PREMISES OR PREMISES shall be deemed to be 20,000 gross rentable
square feet on the third (3rd) floor as shown on Exhibit A hereto, which
includes an allocable share of the Common Facilities as defined in
Article 42(b).
8. EXHIBITS shall be the following, attached to this Lease and incorporated
herein and made a part hereof.
Rider A Option to Extend
Rider B Right of First Offer
Exhibit A Location of Premises
Exhibit A-1 Office Building Area
Exhibit B Rules and Regulations
Exhibit C Lessee's Work
Exhibit C-1 Air Conditioning &
Heating Design Standards
Exhibit D Cleaning Services
Exhibit E Building Holidays
Exhibit F Tenant Estoppel Certificate
Exhibit G Commencement Date Agreement
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<PAGE> 5
9. EXPIRATION DATE shall be June 30, 2013.
10. FIXED BASIC RENT shall mean the amounts set forth below, for the Term
payable, commencing on the Commencement Date (July 1, 2001), as follows:
<TABLE>
<CAPTION>
Lease Years Yearly Rate: Monthly Installment:
<S> <C> <C>
1-4 $495,000.00 $41,250.00
5-8 $535,000.00 $44,583.33
9-12 $575,000.00 $47,916.67
</TABLE>
11. LESSEE'S BROKER shall mean Alexander Summer LLC.
12. LESSEE'S PERCENTAGE shall be 5.74% subject to adjustment as provided for
in Article 42(d).
13. OFFICE BUILDING AREA is as set forth on Exhibit A-1.
14. PARKING SPACES shall mean a total of two hundred twenty-nine (229)
spaces, of which twenty-nine (29) spaces shall be assigned (14 in front
of the Building and 15 in the rear) and marked as set forth on Exhibit
A-1 and two hundred (200) of which shall be unassigned.
15. PERMITTED USE shall be general office use and for no other purpose,
provided that Lessee shall also be permitted to maintain a customer
service window for drop-off and pick- up of watches and may also use
part of the Premises for a "Company store."
16. SECURITY DEPOSIT shall be none.
17. TERM shall mean twelve (12) years from the Commencement Date, unless
extended pursuant to any option contained herein.
18. LESSEE'S CONSTRUCTION PERIOD shall be defined as the period of time
prior to the Commencement Date in which the Lessee takes possession of
the Premises in order to complete Lessee's Construction in accordance
with Exhibit C attached hereto and made part hereof. Lessee's
Construction Period shall commence on the date of full execution and
delivery of this Lease, and end at 11:59 p.m. on June 30, 2001. All
terms and conditions contained in the Lease, except for those applicable
to the payment of Fixed Basic Rent and Additional Rent, shall apply
during Lessee's Construction Period.
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<PAGE> 6
W I T N E S S E T H
For and in consideration of the covenants herein contained, and
upon the terms and conditions herein set forth, Lessor and Lessee agree as
follows:
1. DESCRIPTION:
Lessor hereby leases to Lessee, and Lessee hereby hires from Lessor, the
Premises as defined in the Preamble which includes an allocable share of
the Common Facilities (together with the non-exclusive right to use the
Common Facilities as described below), as shown on the plan or plans,
initialed by the parties hereto, marked Exhibit A attached hereto and
made part of this Lease in the Building as defined in the Preamble,
(hereinafter called the "Building") which is situated on that certain
parcel of land (hereinafter called "Office Building Area") as described
on Exhibit A-1 attached hereto and made part of this Lease, together
with the right to use in common with other lessees of the Building,
their invitees, customers and employees, those public areas of the
Common Facilities as hereinafter defined. The Premises are a portion of
a larger premises, as shown on Exhibit A (the "Larger Premises"), and
Lessee shall have the right to use said Larger Premises during the Term.
All terms and conditions contained in this Lease, except for those
applicable to the payment of Fixed Basic Rent and Additional Rent, shall
apply to Lessee's use of the Larger Premises.*
2. TERM:
The Premises are leased for a term to commence on the Commencement Date,
and to end at 12:00 midnight on the Expiration Date, all as defined in
the Preamble.
3. BASIC RENT:
The Lessee shall pay to the Lessor during the Term, the Fixed Basic Rent
as defined in the Preamble (hereinafter called "Fixed Basic Rent")
payable in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and
private debts. The Fixed Basic Rent shall accrue at the Yearly Rate as
defined in the Preamble and shall be payable, in advance, on the first
day of each calendar month during the Term at the Monthly Installments
as defined in the Preamble, except that a proportionately lesser sum may
be paid for the first and last months of the Term of this Lease if the
Term commences on a day other than the first day of the month, in
accordance with the provisions of this Lease herein set forth. Lessor
acknowledges receipt from Lessee of the first monthly installment by
check, subject to collection, for Fixed Basic Rent for the first month
of the Lease Term. Lessee shall pay Fixed Basic Rent, and any Additional
Rent as hereinafter provided, to Lessor at Lessor's above stated
address, or at such other place as Lessor may designate in writing,
without demand and without counterclaim, deduction or set off, except as
otherwise expressly set forth herein.*
4. USE AND OCCUPANCY:
Lessee shall use and occupy the Premises for the Permitted Use as
defined in the Preamble.
Lessee hereby acknowledges that it is necessary and reasonable to
prevent smoking by Lessee, Lessee's employees, agents and invitees in
unauthorized areas of the Building or Common Facilities in violation of
relevant fire and safety laws and regulations and to prevent fire
hazards within the Premises.*
5. CARE AND REPAIR OF PREMISES/ENVIRONMENTAL:
(a) Lessee shall commit no act of waste and shall take good care of the
Premises and the fixtures and appurtenances therein (except for any
repairs and maintenance to be performed by Lessor hereunder), and shall,
in the use and occupancy of the Premises, conform to all laws, orders
and regulations of the federal, state and municipal governments or any
of their
3
<PAGE> 7
departments affecting Lessee's use of the Premises and with any and all
environmental laws, orders and regulations resulting from the Lessee's
use of the Premises, this covenant to survive the expiration or sooner
termination of the Lease. Lessor shall, subject to the same being
included in Operating Costs, make all necessary repairs to the Premises,
Common Facilities and the structural elements of the Building, the
Building Systems and all capital repairs to the Building and to the
assigned parking areas, if any, except where the repair has been made
necessary by misuse or neglect by Lessee or Lessee's agents, servants,
visitors or licensees, in which event Lessor shall nevertheless make the
repair but Lessee shall pay to Lessor, as Additional Rent, immediately
upon demand, the reasonable costs therefor. All improvements made by
Lessee to the Premises (excluding Lessee's improvements described in the
next sentence), which are so attached to the Premises, shall become the
property of Lessor upon installation. Not later than the last day of the
Term, Lessee shall, at Lessee's expense, remove all Lessee's personal
property and those improvements made by Lessee which have not become the
property of Lessor, including trade fixtures, cabinetwork, movable
paneling, partitions and the like; repair all injury done by or in
connection with the installation or removal of said property and
improvements; and surrender the Premises in good condition, reasonable
wear and damage by fire, the elements, casualty or other cause not due
to the misuse or neglect by Lessee, Lessee's agents, servants, visitors
or licensees excepted. All other property of Lessee remaining on the
Premises after the last day of the Term of this Lease shall be
conclusively deemed abandoned and may be removed by Lessor, and Lessee
shall reimburse Lessor for the reasonable cost of such removal. Lessor
may have any such property stored at Lessee's risk and expense.*
ENVIRONMENTAL
(b) COMPLIANCE WITH ENVIRONMENTAL LAWS. Lessee shall, at Lessee's
own expense, promptly comply with each and every federal, state,
county and municipal environmental law, ordinance, rule,
regulation, order, directive and requirement, now or hereafter
existing ("Environmental Laws"), applicable to Lessee, Lessee's
operations at the Premises, or all of them.*
(c) ISRA COMPLIANCE. Lessee shall, at Lessee's own expense, comply
with the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq.,
the regulations promulgated thereunder and any amending and
successor legislation and regulations ("ISRA") relating to
Lessee's use of the Premises.*
(d) INFORMATION TO LESSOR. At no expense to Lessor, Lessee shall
promptly provide all information and sign all documents
reasonably requested by Lessor with respect to compliance with
Environmental Laws.*
(e) LESSOR AUDIT. Lessee shall permit Lessor and its representatives
access to the Premises, from time to time, upon at least five
(5) days prior written notice, at mutually convenient times, to
conduct an environmental assessment, investigation and sampling,
all at Lessor's own expense unless the presence of Contaminants
or a violation of Environmental Laws is disclosed which is the
result of acts or omissions of Lessee or Lessee's
Representatives, in which event the environmental assessment,
investigation and/or sampling shall be at Lessee's expense .*
(f) LESSEE REMEDIATION. Should any assessment, investigation or
sampling reveal the existence of any spill, discharge or
placement of Contaminants in, on, under, or about, or migrating
from or onto the Premises, the Building or the Office Building
Area, as a result of the action or omission of Lessee or a
"Lessee Representative", then, Lessee shall, at Lessee's own
expense, in accordance with Environmental Laws, undertake all
action reasonably required by Lessor and/or any governmental
authority, including, without limitation, promptly obtaining and
delivering to Lessor an unconditional No Further Action Letter.
For purposes of this Article, the term "Lessee's Representative"
shall mean any shareholder, officer, director, member, partner,
employee, agent, licensee, assignee, sublessee or invitee of
Lessee, or any third party under Lessee's control other than
Lessor, and other than another lessee of the Building, or a
shareholder, officer, director, member, partner, employee,
agent, licensee, assignee, sublessee or invitee of such other
lessee. In no event shall any of Lessee's remedial action
involve engineering or institutional controls, a groundwater
classification exception area or well restriction area, and
Lessee's remedial action
4
<PAGE> 8
shall meet applicable remediation standards for soil, surface
water, groundwater and drinking water. Promptly upon completion
of all required investigatory and remedial activities, Lessee
shall, at Lessee's own expense, to Lessor's reasonable
satisfaction, restore the affected areas of the Premises, the
Building or the Office Building Area, as the case may be, from
any damage or condition caused by the investigatory or remedial
work.*
(g) ENVIRONMENTAL QUESTIONNAIRE. Upon Lessor's request,
contemporaneously with the signing and delivery of this Lease,
and thereafter upon renewal of the lease, if at all, Lessee
shall complete, execute and deliver to Lessor an environmental
questionnaire in form and substance reasonably satisfactory to
Lessor.*
(h) ENVIRONMENTAL DOCUMENTS AND CONDITIONS. For purposes of this
Article, the term "Environmental Documents" shall mean all
environmental documentation concerning the Building or the
Office Building Area, of which the Premises is a part, or its
environs, in the possession or under the control of Lessee,
including, without limitation, plans, reports, correspondence
and submissions. During the term of this Lease and subsequently,
promptly upon receipt by Lessee or Lessee's Representatives,
Lessee shall deliver to Lessor all Environmental Documents
delivered to or generated by or on behalf of Lessee, whether
currently or hereafter existing. In addition, Lessee shall
promptly notify Lessor of any environmental condition of which
Lessee has knowledge, which may exist in, on, under, or about,
or may be migrating from or onto the Building or the Office
Building Area.*
(i) LESSOR'S RIGHT TO PERFORM LESSEE'S OBLIGATIONS. Notwithstanding
anything to the contrary set forth in this Lease, in the event,
pursuant to this Lease, Lessee is required to undertake any
sampling, assessment, investigation or remediation with respect
to the Premises, the Building or the Office Building Area, as
the case may be, then, at Lessor's discretion, if Lessee fails
to do so within then (10) days after written notice from Lessor,
Lessor shall have the right, upon notice to Lessee, to perform
such activities at Lessee's expense, and all reasonable sums
incurred by Lessor shall be paid by Lessee, as Additional Rent.*
(j) INDEMNITY. Lessee shall indemnify, defend and hold harmless
Lessor, Lessor's officers, directors, shareholders, employees
and personal or legal representatives from and against any and
all claims, liabilities, losses, damages, penalties and costs,
foreseen or unforeseen, including, without limitation, counsel,
engineering and other professional or expert fees, which an
indemnified party may incur to the extent resulting from
Lessee's failure to comply with Lessee's obligations under this
Article. Notwithstanding anything to the contrary contained
herein, Lessee shall have no liability or responsibility
whatsoever for any claims, liabilities, losses, damages,
penalties or costs arising out of or in connection with any
condition existing on the date hereof or created by the acts or
omissions of Lessor or any of its officers, directors,
shareholders, employees, contractors or representatives.*
(k) SURVIVAL. This Article shall survive the expiration or earlier
termination of this lease. Lessee's failure to abide by the
terms of this Article shall be restrainable or enforceable, as
the case may be, by injunction.
(l) INTERPRETATION. The obligations imposed upon Lessee under
subparagraphs (a) through (j) above are in addition to and are
not intended to limit, but to expand upon, the obligations
imposed upon Lessee under this Article 5. As used in this
Article, the term "Contaminants" shall include, without
limitation, any regulated substance, toxic substance, hazardous
substance, hazardous waste, pollution, pollutant, contaminant,
petroleum, asbestos or polychlorinated biphenyls, as defined or
referred to in any Environmental Laws. Where a law or regulation
defines any of these terms more broadly then another, the
broader definition shall apply.
(m) Lessor represents and warrants that as, of the date hereof, to
the best of Lessor's knowledge, neither the Office Building
Area, the Building nor the Premises nor any portion thereof
contains, and will not contain, as of the date that possession
of the Premises is delivered to Lessee, any unlawful quantities
of asbestos or Contaminants except as may be set forth in the
Phase I Environmental Site Assessment dated
5
<PAGE> 9
December 10, 1997, prepared by Environmental Waste Management
Associates, LLC, a copy of which has been provided to Lessee
(the "Phase I"), and that the Office Building Area, the Building
and the Premises comply, and as of the date that possession of
the Premises is delivered to the Lessee will comply, except as
may be set forth in the Phase I, with all Environmental Laws
applicable to the Premises, the Building and Office Building
Area. Notwithstanding anything to the contrary contained herein,
(i) Lessor shall be responsible for all costs, including, but
not limited to, those resulting from monitoring, removal,
remediation, clean-up or compliance, incurred with respect to
any Contaminants existing in, or under the Office Building Area
or any part thereof as of the date the Premises are delivered to
Lessee, or which are thereafter deposited, released or
discharged thereon or therein by Lessor or its agents, employees
or contractors, and (ii) Lessor shall indemnify, defend and
shall hold harmless Lessee and its officers, directors,
employees, agents, representatives and contractors from and
against any and all costs, claims, suits, causes of action,
losses, injury or damage, including without limitation, personal
injury damage (including death), damage to property as well as
any and all sums paid for settlement or claims, reasonable
attorney's fees, consultant and expert fees, arising out of or
associated with such Contaminants so existing or deposited,
released or discharged by Lessor, its agents, employees or
contractors.*
Lessee shall have no liability or obligation with respect to any
violation of any Environmental Laws existing on the date hereof
or the date possession of the Premises is delivered to Lessee or
which thereafter arises by reason of the acts or omissions of
Lessor, or its agents, employees or contractors.*
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS:
Lessee shall not, without first obtaining the written consent of Lessor,
make any structural or Building Systems alterations, additions or
improvements in, to or about the Premises. Building Systems shall mean
any structural, life safety, plumbing, electrical, heating, ventilation
or air conditioning system or its components. Lessee shall not, without
first obtaining the written consent of Lessor, which shall not be
unreasonably withheld or delayed, make any non-Building Systems
alterations, additions or improvements or other alterations, additions
or improvements which require a building permit, in, to or about the
Premises. Notwithstanding anything hereinabove to the contrary, Lessee
may, upon notification to Lessor, perform any non-Building Systems
alterations, additions or improvements or other alterations, additions
or improvements for which a building permit is not required, provided
the aggregate cost of same is less than fifty thousand dollars
($50,000.00), without prior consent of Lessor.*
7. ACTIVITIES INCREASING FIRE INSURANCE RATES:
Lessee shall not do or suffer anything to be done on the Premises which
will increase the rate of fire insurance on the Building.
8. ASSIGNMENT AND SUBLEASE:
Provided Lessee is not in default of any provisions of this Lease beyond
applicable notice and cure periods, Lessee may assign this lease or
sublease all or any portion of the Premises to any party subject to the
following:*
1. a. In the event Lessee desires to assign this Lease or
sublease all or part of the Premises to any other party, the
terms and conditions of such assignment or sublease shall be
communicated to the Lessor in writing no less than thirty (30)
days prior to the effective date of any such sublease or
assignment, and, prior to such effective date, the Lessor shall
have the option, exercisable in writing to the Lessee, to: (i)
sublease such space from Lessee at the lower rate of (a) the
rental rate per rentable square foot of Fixed Basic Rent and
Additional Rent then payable pursuant to this
6
<PAGE> 10
Lease or (b) the terms set forth in the proposed sublease, (ii)
recapture in the case of subletting, that portion of the
Premises to be sublet or all of the Premises in the case of an
assignment ("Recapture Space") so that such prospective
sublessee or assignee shall then become the sole Lessee of
Lessor hereunder, or (iii) recapture the Recapture Space for
Lessor's own use and the within Lessee shall be fully released
from any and all obligations hereunder with respect to the
Recapture Space. Lessor shall not have the right to recapture
Recapture Space in the case of a sublease for less than 10,000
square feet for a sublease term which expires prior to the last
three years of the Term of this lease, and Lessee shall not have
the right to extend the term of any sublease to end during the
last three years of the Term of this lease (or enter into a new
sublease with the sublessee or an affiliate of the sublessee
which shall expire during the last three years of the Term)
which was not subject to Lessor's recapture right.*
b. In the event that the Lessor elects not to recapture the Lease
or relet the Premises as hereinabove provided, the Lessee may
nevertheless assign this Lease or sublet the whole or any
portion of the Premises, subject to the Lessor's prior written
consent, which consent shall not be unreasonably withheld,
delayed or conditioned, on the basis of the following terms and
conditions:*
i. The Lessee shall provide to the Lessor the name and
address of the assignee or sublessee.
ii. The assignee or sublessee shall assume, by written
instrument, all of the obligations of this Lease
accruing from and after the date of the assignment or
sublease, and a copy of such assumption agreement shall
be furnished to the Lessor within ten (10) days of its
execution. Any sublease shall expressly acknowledge that
said sublessee's rights against Lessor shall be no
greater than those of Lessee. Lessee further agrees that
notwithstanding any such subletting, no other and
further subletting of the Premises by Lessee or any
person claiming through or under Lessee shall or will be
made except upon compliance with and subject to the
provisions of this Article 8.
iii. Each sublease shall provide that it is subject and
subordinate to this Lease and to the matters to which
this Lease is or shall be subordinate, and that in the
event of default by Lessee under this Lease, Lessor may,
at its option, take over all of the right, title and
interest of Lessee, as sublessor, under such sublease,
and such sublessee shall, at Lessor's option, attorn to
Lessor pursuant to the then executory provisions of such
sublease, except that Lessor shall not (i) be liable for
any previous act or omission of Lessee under such
sublease or, (ii) be subject to any offset not expressly
provided in such sublease which theretofore accrued to
such sublease to which Lessor has not specifically
consented in writing or by any previous prepayment of
more than one month's rent.
iv. The Lessee and each assignee shall be and remain liable
for the observance of all the covenants and provisions
of this Lease, including, but not limited to, the
payment of Fixed Basic Rent and Additional Rent reserved
herein, through the entire Term of this Lease, as the
same may be renewed, extended or otherwise modified.
v. The Lessee and any assignee shall promptly pay to Lessor
fifty percent (50%) of any consideration received for
any assignment and/or fifty percent (50%) of all of the
rent, as and when received, in excess of the Rent
required to be paid by Lessee for the area sublet
computed on the basis of an average square foot rent for
the gross square footage Lessee has leased, but net of
brokerage commission and tenant improvements incurred by
Lessee in connection with such assignment and/or
subletting.*
vi. In any event, the acceptance by the Lessor of any rent
from the assignee or from any of the subtenants or the
failure of the Lessor to insist upon a strict
performance of any of the terms, conditions and
covenants herein shall not
7
<PAGE> 11
release the Lessee herein, nor any assignee assuming
this Lease, from any and all of the obligations herein
during and for the entire Term of this Lease.
vii. In Lessor's reasonable judgment, the proposed assignee
or subtenant is engaged in a business or activity, and
the Premises, or the relevant part thereof, will be used
in a manner, which (a) is in keeping with the then
standard of the Building and (b) is limited to the use
of the Premises as general offices.
viii. Provided Lessor has comparable space available in the
Building, the proposed assignee or subtenant shall be an
entity which is not then an occupant of any part of the
Building.*
ix. Provided Lessor has comparable space available in the
Building, the proposed assignee or subtenant is not an
entity or a person with whom Lessor is or has been,
within the preceding nine (9) month period, negotiating
to lease space in the Building.*
x. There shall not be more than five (5) occupants in the
Premises (i.e. Lessee and 4 subtenants or 5
subtenants).*
xi. Lessee shall not publicly advertise the subtenancy for
less than the then current market rent per rentable
square foot for the Premises as though the Premises were
vacant.*
xii. Lessee shall not have (a) publicly advertised the
availability of the Premises without prior notice to and
approval by Lessor, which approval shall not be
unreasonably withheld or delayed, nor shall any
advertisement state the name (as distinguished from the
address) of the Building.
xiii. The proposed occupancy shall not, in Lessor's reasonable
opinion, increase the density of population using the
Demised Premises to exceed one (1) person per 250 gross
rentable square feet of space or exceed the parking
allocation presently provided for in this Lease;
xiv. The proposed assignee or subtenant shall only use the
Premises for the Permitted Use and shall not be engaged
in any of the following:*
(a) educational, including but not limited to,
instructional facilities and correspondence
schools;
(b) employment agencies;
(c) model agencies;
(d) photographic studios or laboratories;
(e) spas, health, physical fitness or exercise
salons;
(f) small loan offices;
(g) real estate brokerage or real estate sales
offices open to the general public or
construction offices;
(h) medical or dental facilities, including
professional offices, treatment facilities,
dispensaries or laboratories;
(i) federal, state or local government offices;
(j) so-called boiler room operations;
(k) retail stock brokerage offices which are open to
the general public; and
(l) religious organizations making facilities
available to congregations for uses other than
business purposes.*
xv. The proposed assignee or subtenant shall not be
entitled, directly or indirectly, to diplomatic or
sovereign immunity and shall be subject to the service
of process in, and the jurisdiction of, the state courts
of New Jersey.
xvi. Lessee acknowledges that its sole remedy with respect to
any assertion that Lessor's failure to consent to any
sublet or assignment is unreasonable shall be the remedy
of specific performance and Lessee shall have no other
claim or cause of action against Lessor as a result of
Lessor's actions in refusing to
8
<PAGE> 12
consent thereto.*
c. If Lessee is a corporation other than a corporation whose stock
is listed and traded on a nationally recognized stock exchange,
the provisions of Sub-section a. shall apply to a transfer
(however accomplished, whether in a single transaction or in a
series of related or unrelated transactions) of stock (or any
other mechanism such as, by way of example, the issuance of
additional stock, a stock voting agreement or change in
class(es) of stock) which results in a change of control of
Lessee as if such transfer of stock (or other mechanism) which
results in a change of control of Lessee were an assignment of
this Lease, and if Lessee is a partnership or joint venture,
said provisions shall apply with respect to a transfer (by one
or more transfers) of an interest in the distributions of
profits and losses of such partnership or joint venture (or
other mechanism, such as, by way of example, the creation of
additional general partnership or limited partnership interests)
which results in a change of control of such a partnership or
joint venture, as if such transfer of an interest in the
distributions of profits and losses of such partnership or joint
venture which results in a change of control of such partnership
or joint venture were an assignment of this Lease; but said
provisions shall not apply to, and Lessor's consent shall not be
required for transactions with an entity into or with which
Lessee is merged or consolidated or to which all or
substantially all of Lessee's assets are transferred or to any
corporation which controls or is controlled by Lessee or is
under common control with Lessee or to any transfer of stock
(however and by any mechanism accomplished) of Lessee where
Lessee is a corporation whose stock is publicly traded, provided
that in the event of such merger, consolidation or transfer of
all or substantially all of Lessee's assets (i) the successor to
Lessee has a net worth computed in accordance with generally
accepted accounting principles at least equal to the net worth
of Lessee immediately prior to such merger, consolidation or
transfer, and (ii) proof reasonably satisfactory to Lessor of
such net worth shall have been delivered to Lessor at least 10
days prior to the effective date of any such transaction. *
d. In the event that any or all of Lessee's interest in the
Premises and/or this Lease is transferred by operation of law to
any trustee, receiver, or other representative or agent of
Lessee, or to Lessee as a debtor in possession, and subsequently
any or all of Lessee's interest in the Premises and/or this
Lease is offered or to be offered by Lessee or any trustee,
receiver, or other representative or agent of Lessee as to its
estate or property (such person, firm or entity being
hereinafter referred to as the "Grantor"), for assignment,
conveyance, lease, or other disposition to a person, firm or
entity other than Lessor (each such transaction being
hereinafter referred to as a "Disposition"), it is agreed that
Lessor has and shall have a right of first refusal to purchase,
take, or otherwise acquire, the same upon the same terms and
conditions as the Grantor thereof shall accept upon such
Disposition to such other person, firm, or entity; and as to
each such Disposition the Grantor shall give written notice to
Lessor in reasonable detail of all of the terms and conditions
of such Disposition within twenty (20) days next following its
determination to accept the same but prior to accepting the
same, and Grantor shall not make the Disposition until and
unless Lessor has failed or refused to accept such right of
first refusal as to the Disposition, as set forth herein.
Lessor shall have sixty (60) days next following its receipt of
the written notice as to such Disposition in which to exercise
the option to acquire Lessee's interest by such Disposition, and
the exercise of the option by Lessor shall be effected by notice
to that effect sent to the Grantor; but nothing herein shall
require Lessor to accept a particular Disposition or any
Disposition, nor does the rejection of any one such offer of
first refusal constitute a waiver or release of the obligation
of the Grantor to submit other offers hereunder to Lessor. In
the event Lessor accept such offer of first refusal, the
transaction shall be consummated pursuant to the terms and
conditions of the Disposition described in the notice to Lessor.
In the event Lessor rejects such offer of first refusal, Grantor
may consummate the Disposition with such other person, firm, or
entity; but any decrease in price of more than two percent (2%)
of the price sought from Lessor or any change in the terms of
payment for such Disposition shall constitute a new transaction
requiring a further option of first refusal to be given to
Lessor hereunder.
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<PAGE> 13
e. Without limiting any of the provisions of Articles 12 and 13, if
pursuant to the Federal Bankruptcy Code (herein referred to as
the "Code"), or any similar law hereafter enacted having the
same general purpose, Lessee is permitted to assign this Lease
notwithstanding the restrictions contained in this Lease,
adequate assurance of future performance by an assignee
expressly permitted under such Code shall be deemed to mean the
deposit of cash security in an amount equal to the sum of one
year's Fixed Basic Rent plus an amount equal to the Additional
Rent for the calendar year preceding the year in which such
assignment is intended to become effective, which deposit shall
be held by Lessor for the balance of the Term, without interest,
as security for the full performance of all of Lessee's
obligations under this Lease, to be held and applied in the
manner specified for security in Article 16.
f. Except as specifically set forth above, no portion of the
Premises or of Lessee's interest in this Lease may be acquired
by any other person or entity, whether by assignment, mortgage,
sublease, transfer, operation of law or act of the Lessee, nor
shall Lessee pledge its interest in this Lease or in any
security deposit required hereunder.
9. COMPLIANCE WITH RULES AND REGULATIONS:
Lessee shall observe and comply with the rules and regulations
hereinafter set forth in Exhibit B attached hereto and made a part
hereof and with such further reasonable rules and regulations as Lessor
may prescribe, on written notice to the Lessee, for the safety, care and
cleanliness of the Building and the comfort, quiet and convenience of
other occupants of the Building. Lessor shall enforce the Rules and
Regulations consistently and in a nondiscriminatory manner against all
lessees in the Building. Lessee shall not place a load upon any floor of
the Premises exceeding the floor load per square foot area which it was
designed to carry and which is allowed by law. Lessor reserves the right
to prescribe the weight and position of all safes, business machines and
mechanical equipment. Such installations shall be placed and maintained
by Lessee, at Lessee's expense, in settings sufficient, in Lessor's
judgement, to absorb and prevent vibration, noise and annoyance.*
10. DAMAGES TO BUILDING:
If the Building is damaged by fire or any other cause to such extent the
cost of restoration, as reasonably estimated by Lessor, will equal or
exceed twenty-five percent (25%) of the replacement value of the
Building (exclusive of foundations) just prior to the occurrence of the
damage, then Lessor may, no later than the sixtieth (60th) day following
the date of damage, give Lessee a notice of election to terminate this
Lease, provided Lessor similarly gives such notice to the other tenants
occupying collectively no less than fifty (50%) percent of the space of
the Building, or if the Premises shall not be reasonably usable for the
purpose for which they are leased hereunder for a period in excess of
seven (7) months from the date of the damage, then Lessee may, no later
than the sixtieth (60th) day following the date of damage, give Lessor a
notice of election to terminate this Lease. In either said event of
election, this Lease shall be deemed to terminate on the thirtieth
(30th) day after the giving of said notice, and Lessee shall surrender
possession of the Premises within a reasonable time thereafter, and the
Fixed Basic Rent, and any Additional Rent, shall be apportioned as of
the date of said surrender and any Fixed Basic Rent or Additional Rent
paid for any period beyond said date, or such earlier date as of which
the Premises became unusable by reason of such casualty, shall be repaid
to Lessee. If the cost of restoration shall not entitle Lessor to
terminate this Lease, or if, despite the cost, Lessor does not elect to
terminate this Lease, Lessor shall restore the Building and the Premises
with reasonable promptness within seven (7) months after the date of the
damage, subject to Force Majeure, and, provided Lessor delivers an
architect's or engineer's certificate that restoration can be completed
within seven (7) months and, in fact, Lessor completes restoration
within seven (7) months from the date of the damage, Lessee shall have
no right to terminate this Lease. Lessor need not restore fixtures and
improvements owned by Lessee.*
In any case in which use of the Premises is affected by any damage to
the Building, there shall be either an abatement or an equitable
reduction in Fixed Basic Rent, depending on
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<PAGE> 14
the period for which and the extent to which the Premises are not
reasonably usable for the purpose for which they are leased hereunder.
The words "restoration" and "restore" as used in this Article 10 shall
include repairs. If the damage results from the gross negligence or
intentional misconduct of the Lessee, Lessee's agents, servants,
visitors or licensees, Lessee shall not be entitled to any abatement or
reduction in Fixed Basic Rent, except to the extent of any rent
insurance received by Lessor.*
11. EMINENT DOMAIN:
If Lessee's use of the Premises or parking (unless alternate parking is
provided) is materially affected due to the taking by eminent domain of
(a) the Premises or any part thereof or any estate therein; or (b) any
other part of the Building; then, in either event, this Lease shall
terminate on the date when title vests pursuant to such taking. The
Fixed Basic Rent, and any Additional Rent, shall be apportioned as of
said termination date and any Fixed Basic Rent or Additional Rent paid
for any period beyond said date, shall be repaid to Lessee. Lessee shall
not be entitled to any part of the award for such taking or any payment
in lieu thereof, but Lessee may file a separate claim for any taking of
fixtures and improvements owned by Lessee which have not become the
Lessor's property, and for moving expenses, provided the same shall, in
no way, affect or diminish Lessor's award. In the event of a partial
taking which does not effect a termination of this Lease but does
deprive Lessee of the use of a portion of the Premises, there shall
either be an abatement or an equitable reduction of the Fixed Basic
Rent, and an equitable adjustment reducing the Base Period Costs as
hereinafter defined depending on the period for which and the extent to
which the Premises so taken are not reasonably usable for the purpose
for which they are leased hereunder.*
12. INSOLVENCY OF LESSEE:
Either (a) the appointment of a receiver to take possession of all or
substantially all of the assets of Lessee, or, (b) a general assignment
by Lessee for the benefit of creditors, or, (c) any action taken by
Lessee or by a third party and not dismissed within sixty (60) days
under any insolvency or bankruptcy act, shall constitute a default of
this Lease by Lessee, and Lessor may terminate this Lease forthwith and
upon notice of such termination Lessee's right to possession of the
Premises shall cease, and Lessee shall then quit and surrender the
Premises to Lessor but Lessee shall remain liable as hereinafter
provided in Article 14 hereof.*
13. LESSOR'S REMEDIES ON DEFAULT:
If Lessee defaults in the payment of Fixed Basic Rent, or any Additional
Rent hereunder, or defaults in the performance of any of the other
covenants and conditions hereof or permits the Premises to become
deserted, abandoned or vacated, Lessor may give Lessee notice of such
default, and if Lessee does not cure any Fixed Basic Rent or Additional
Rent default within ten (10) days or other default within twenty (20)
days after giving of such notice (or if such other default is of such
nature that it cannot be completely cured within such period, if Lessee
does not commence such curing within such twenty (20) days and
thereafter proceed with reasonable diligence and in good faith to cure
such default), then Lessor may terminate this Lease on not less than ten
(10) days notice to Lessee, and on the date specified in said notice,
Lessee's right to possession of the Premises shall cease but Lessee
shall remain liable as hereinafter provided. If this Lease shall have
been so terminated by Lessor pursuant to Articles 12 or 13 hereof,
Lessor may at any time thereafter resume possession of the Premises by
any lawful means and remove Lessee or other occupants and their effects.
Lessee shall pay to Lessor, on demand, such expenses as Lessor may
incur, including, without limitation, court costs and reasonable
attorney's fees and disbursements, in enforcing the performance of any
obligation of Lessee under this Lease.*
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<PAGE> 15
14. DEFICIENCY:
(a) In any case where Lessor has recovered possession of the
Premises by reason of Lessee's default, Lessor may, at Lessor's option,
occupy the Premises or cause the Premises to be redecorated, altered,
divided, consolidated with other adjoining premises or otherwise changed
or prepared for reletting, and may relet the Premises or any part
thereof, as agent of Lessee or otherwise, for a term or terms to expire
prior to, at the same time as or subsequent to, the original Expiration
Date of this Lease, at Lessor's option and receive the rent therefor.
Rent so received shall be applied first to the payment of such expenses
as Lessor may have incurred in connection with the recovery of
possession, redecorating, altering, dividing, consolidating with other
adjoining premises, or otherwise changing or preparing for reletting,
and the reletting, including brokerage and reasonable attorney's fees,
and then to the payment of damages in amounts equal to the Fixed Basic
Rent and Additional Rent hereunder and to the costs and expenses of
performance of the other covenants of Lessee as herein provided. Lessee
agrees, in any such case, whether or not Lessor has relet, to pay to
Lessor damages equal to the Fixed Basic Rent and Additional Rent from
the date of such default to the date of expiration of the term demised
and other sums herein agreed to be paid by Lessee, less the net proceeds
of the reletting, if any, received by Lessor during the remainder of the
unexpired term hereof, as ascertained from time to time, but any such
surplus shall reduce the amount recoverable from Lessee as damages, and
the same shall be payable by Lessee on the several rent days above
specified. Lessee shall not be entitled to any surplus accruing as a
result of any such reletting. In reletting the Premises as aforesaid,
Lessor may grant rent concessions, and Lessee shall not be credited
therewith. No such reletting shall constitute a surrender and acceptance
or be deemed evidence thereof. If Lessor elects, pursuant hereto,
actually to occupy and use the Premises or any part thereof during any
part of the balance of the Term as originally fixed or since extended,
there shall be allowed against Lessee's obligation for rent or damages
as herein defined, during the period of Lessor's occupancy, the
reasonable value of such occupancy, not to exceed, in any event, the
Fixed Basic Rent and Additional Rent herein reserved and such occupancy
shall not be construed as a release of Lessee's liability hereunder.*
(b) Alternatively, in lieu of the remedy provided in subparagraph
(a) above, in any case where Lessor has recovered possession of the
Premises by reason of Lessee's default, Lessor may at Lessor's option,
and at any time thereafter, and without notice or other action by
Lessor, and without prejudice to any other rights or remedies it might
have hereunder or at law or equity, become entitled to recover from
Lessee, as Damages for such breach, in addition to such other sums
herein agreed to be paid by Lessee, to the date of re-entry, expiration
and/or dispossess, an amount equal to the difference between the Fixed
Basic Rent and Additional Rent reserved in this Lease from the date of
such default to the date of Expiration of the original Term demised and
the then fair and reasonable rental value of the Premises for the same
period. Said Damages shall become due and payable to Lessor immediately
upon such breach of this Lease and without regard to whether this Lease
be terminated or not, and if this Lease be terminated, without regard to
the manner in which it is terminated. In the computation of such
Damages, the difference between an installment of Fixed Basic Rent and
Additional Rent thereafter becoming due and the fair and reasonable
rental value of the Premises for the period for which such installment
was payable shall be discounted to the date of such default at the rate
of not more than six percent (6%) per annum.
Lessee hereby waives all right of redemption to which Lessee or any
person under Lessee might be entitled by any law now or hereafter in
force.
Lessor's remedies hereunder are in addition to any remedy allowed by
law.
Lessor will use reasonable commercial efforts to mitigate its damages in
the event of Lessee's default, which for purposes of this section shall
mean the Premises shall be listed as available for leasing.*
15. SUBORDINATION OF LEASE:
This Lease shall, at Lessor's option, or at the option of any holder of
any underlying lease or holder of any mortgages or trust deed, be
subject and subordinate to any such underlying
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<PAGE> 16
leases and to any such mortgages or trust deed which may now or
hereafter affect the real property of which the Premises form a part,
and also to all renewals, modifications, consolidations and replacements
of said underlying leases and said mortgages or trust deed provided,
that Lessor shall obtain a nondisturbance agreement from the current
holder of any such underlying lease, mortgage or trust deed and shall
use commercially reasonable efforts to obtain a non-disturbance
agreement from any future holder of any such underlying lease, mortgage
or trust deed. Any expenses charged by the mortgagee in connection with
the obtaining of the aforesaid agreement shall be paid by Lessee.
Although no instrument or act on the part of Lessee shall be necessary
to effectuate such subordination, Lessee will, nevertheless, execute and
deliver such further reasonable and customary instruments confirming
such subordination of this Lease as may be desired by the holders of
said mortgages or trust deed or by any of the lessor's under such
underlying leases. Lessee hereby appoints Lessor attorney-in-fact,
irrevocably, to execute and deliver any such instrument for Lessee if
Lessee fails to do so within ten (10) days after Lessor's demand. If any
underlying lease to which this Lease is subject terminates, Lessee
shall, on timely request, attorn to the owner of the reversion.*
16. INTENTIONALLY OMITTED.
17. RIGHT TO CURE LESSEE'S BREACH:
If Lessee breaches any covenant or condition of this Lease following any
required notice and the applicable cure period, if any, Lessor may, on
reasonable notice to Lessee (except that no notice need be given in case
of emergency), cure such breach at the expense of Lessee and the
reasonable amount of all expenses, including attorney's fees, incurred
by Lessor in so doing (whether paid by Lessor or not) shall be deemed
Additional Rent payable on demand.*
18. MECHANIC'S LIENS:
Lessee shall, within thirty (30) days after notice from Lessor,
discharge or satisfy by bonding or otherwise any mechanic liens for
materials or labor claimed to have been furnished to the Premises on
Lessee's behalf.*
19. RIGHT TO INSPECT AND REPAIR:
Lessor may enter the Premises but shall not be obligated to do so
(except as required by any specific provision of this Lease) at any
reasonable time on reasonable prior notice to Lessee, accompanied by a
representative of Lessee (except that no prior notice need be given in
case of emergency, in which event, however, Lessor will use reasonable
efforts to contact Lessee's director of security (or other designated
Lessee personnel) by telephone or pager as soon as reasonably
practicable under the circumstances at such numbers as Lessee shall have
provided to Lessor) for the purpose of inspection or the making of such
repairs, replacement or additions in, to, on and about the Premises or
the Building, as Lessor deems necessary or desirable. Lessee shall have
no claims or cause of action against Lessor by reason thereof. In no
event shall Lessee have any claim against Lessor for interruption of
Lessee's business, however occurring, including but not limited to that
arising from the negligence of Lessor, its agents, servants or invitees,
or from defects, errors or omissions in the construction or design of
the Premises and/or the Building, including the structural and
non-structural portions thereof. Lessor shall use reasonable efforts to
minimize interference with the conduct of Lessee's business at the
Premises.*
20. SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION:
Subject to intervening laws, ordinances, regulations and executive
orders, Lessor agrees to furnish, except on holidays, as set forth on
Exhibit E attached hereto and made a part hereof:*
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<PAGE> 17
a. The cleaning services, as set forth on Exhibit D attached hereto
and made a part hereof, and subject to the conditions therein
stated. Except as set forth on Exhibit D, Lessee shall pay the
cost of all other cleaning services required by Lessee.
b. Heating, ventilating and air conditioning (herein "HVAC") as
appropriate for the season, and as set forth on Exhibit C-1,
attached hereto and made a part hereof, together with Common
Facilities lighting and electric energy all during Building
Hours, as defined in the Preamble.
c. Cold and hot water for drinking and lavatory purposes.
d. Elevator service during Building Hours (if the Building contains
an elevator or elevators for the use of the occupants thereof)
plus at least one (1) elevator available seven days a week,
twenty-four hours a day (including holidays).*
e. Restroom supplies and exterior window cleaning when reasonably
required.
f. Notwithstanding the requirements of Exhibit C-1 (as to HVAC) or
D or any other provision of this Lease, Lessor shall not be
liable for failure to furnish any of the aforesaid services when
such failure is due to Force Majeure, as hereinafter defined.
Lessor shall not be liable, under any circumstances, including,
but not limited to, that arising from the negligence of Lessor,
its agents, servants or invitees, or from defects, errors or
omissions in the construction or design of the Premises and/or
the Building, including the structural and non-structural
portions thereof, for loss of or injury to Lessee or to
property, however occurring, through or in connection with or
incidental to the furnishings of, or failure to furnish, any of
the aforesaid services or for any interruption to Lessee's
business, however occurring.
21. INTERRUPTION OF SERVICES OR USE:
Interruption or curtailment of any service maintained in the Building or
at the Office Building Area, if caused by Force Majeure, as hereinafter
defined, or the presence of Contaminants or a violation of Environmental
Law shall not entitle Lessee to any claim against Lessor or to any
abatement in rent, and shall not constitute a constructive or partial
eviction, unless Lessor fails to take measures as may be reasonable
under the circumstances to restore the service without undue delay. If
the Premises are rendered untenantable in whole or in part, for a period
of five (5) consecutive business days, other than caused by misuse or
neglect by Lessee, or Lessee's agents, servants, visitors or licensees,
there shall be a proportionate abatement of Rent from and after said
fifth (5th) consecutive business day and continuing for the period of
such untenantability. In no event, shall Lessee be entitled to claim a
constructive eviction from the Premises unless Lessee shall first have
notified Lessor in writing of the condition or conditions giving rise
thereto, and if the complaints be justified, unless Lessor shall have
failed, within a reasonable time after receipt of such notice, to
remedy, or commence and proceed with due diligence to remedy such
condition or conditions, all subject to Force Majeure as hereinafter
defined.*
22. BUILDING STANDARD OFFICE ELECTRICAL SERVICE:
The cost of electric current which is supplied by the Lessor for use by
the Lessee in the Premises (including the cost of electric current which
is supplied to the Larger Premises), other than for heating or air
conditioning purposes, shall be reimbursed to the Lessor, as set forth
in this Article 22, which the parties intend as equivalent to the terms,
classification and rates normally charged by the public utilities
corporation serving that part of the municipality where the subject
Premises are located, provided, however, that Lessee shall have the
right, at its sole expense to install an electric submeter in the
Premises to measure Lessee's use of electric current, in which event
electricity shall be supplied to the Premises in accordance with
subparagraphs h through p of this Article .*
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<PAGE> 18
a. From and after the Commencement Date, Lessee agrees to pay as
Additional Rent an estimated electrical charge of $.10 per
square foot per month, payable on the first day of each and
every month, until such time as an electrical survey can be
performed pursuant to Article 22(b) below.
b. Lessee agrees that an independent electrical engineering
consultant shall make a survey of electric power demand of the
electric lighting fixtures and the electric equipment of Lessee
used in the Premises (and Larger Premises) to determine the
average monthly electric consumption thereof, and the costs of
said survey shall be borne by Lessee. The findings of said
consultant as to the average monthly electric consumption of
Lessee shall, unless objected to by Lessee within forty-five
(45) days after Lessee's receipt of same, be conclusive and
binding on Lessor and Lessee. After Lessor's consultant has
submitted its report, Lessee shall pay to Lessor, within ten
(10) days after demand therefor by Lessor, the amount (based on
the monthly consumption found by such consultant) as owing from
the Lease Term's Commencement Date, and the then expired months,
to include the then current month adjusted for the estimated
electrical charges already paid pursuant to Article 22(a). On
the first day of every month thereafter, Lessee shall pay, in
advance, the amount set forth as the monthly consumption in said
report. Said amounts shall be treated as Additional Rent due
hereunder. Proportionate sums shall be payable for periods of
less than a full month if the Term commences or ends on any
other than the first or last day of the month. If Lessee objects
to said findings, Lessee shall nevertheless pay and continue to
pay the amount determined by Lessor's consultant until the issue
is finally resolved, but Lessee may, at its expense, seek the
services of an independent electrical consultant who shall make
a survey as provided above. If Lessor's and Lessee's consultant
cannot agree as to Lessee's consumption within thirty (30) days
of Lessee's consultant's findings either Lessor or Lessee may
request the American Arbitration Association in Somerset, New
Jersey to appoint an electrical engineering consultant whose
decision shall be final and binding on Lessor and Lessee, and
whose cost shall be shared equally. Upon the issue being finally
resolved, any overpayment made by Lessee shall be promptly
refunded, and, in the event Lessee's average monthly
consumption, as finally determined, is less than eighty (80%)
percent of the amount originally estimated by Lessor's
consultant, then Lessor shall pay the cost for both consultants
and reimburse Lessee its reasonable out of pocket expenses
incurred in connection with such objection.*
c. In the event that there shall be an increase or decrease in the
rate schedule (including surcharges or demand adjustments), of
the public utility for the supply of Building Standard Office
Electrical Service, or the imposition of any tax with respect to
such service or increase in any such tax following the Lease
Term's commencement, the Additional Rent payable hereunder shall
be adjusted equitably to reflect the increase or decrease in
rate or imposition or increase in the aforesaid tax. All
computations shall be made on the basis of Lessee's surveyed
usage as if a meter exclusively measuring such usage to the
Premises (and Larger Premises) was in place.
d. Lessee covenants that it shall notify Lessor promptly upon the
introduction of any office equipment or lighting different from
that on the Premises (or Larger Premises) as of Lessor's
electrical survey or in addition to the aforesaid equipment or
lighting on the Premises (or Larger Premises) as of said survey
the use of which, in any event, should be reasonably expected to
materially increase Lessee's electricity consumption in excess
of the amount estimated as provided in Section 22(b) hereof.
Lessee shall also notify Lessor if it occupies any portion of
the Larger Premises in addition to that occupied by Lessee as of
Lessor's electrical survey. The introduction of any such new or
different equipment or lighting or the occupancy of any
additional portion of the Larger Premises shall be cause for, at
Lessor's election, a resurveying of the Premises at Lessee's
expense. Lessor reserves the right, upon prior written notice to
lessee, at mutually convenient times, to inspect the Premises to
insure compliance with this provision.*
e. Lessor shall not be liable in any way to Lessee for any loss,
damage or expense which Lessee may sustain or incur as a result
of any failure, defect or change in the quantity or character of
electrical energy available for redistribution to the Premises
pursuant to this Article 22 nor for any interruption in the
supply, and Lessee agrees that such
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<PAGE> 19
supply may be interrupted on prior written notice to Lessee for
inspection, repairs and replacement and, with such notice as may
be practicable under the circumstances, in emergencies. In any
event, the full measure of Lessor's liability for any
interruption in the supply due to Lessor's acts or omissions
shall be an abatement of Fixed Basic Rent and Additional Rent,
unless Lessor fails to take such measures as may be reasonable
under the circumstances to restore such service without undue
delay. In no event shall Lessor be liable for any business
interruption suffered by Lessee.*
f. Lessor, at Lessee's expense, shall furnish and install all
replacement lighting tubes, lamps, ballasts and bulbs required
in the Premises. Lessee, however, shall have the right to
furnish and/or install any or all of the items mentioned in this
Article 22(f).
g. Lessee's use of electrical service as contemplated herein shall
be during Building Hours, and any use in excess of said Building
Hours shall result in an adjustment as set forth in Article
22(a) hereof to reflect such additional consumption.
h. If Lessee elects to install a submeter(s) to measure Lessee's
use of electricity in the Premises during the Term, in
accordance with the provisions of paragraph a. of this Article,
the following shall be applicable:
(i) The term "Electric Rate" shall mean the Service
Classification pursuant to which Lessor purchases electricity
from the utility company servicing the Building, provided,
however, at no time shall the amount payable by Lessee for
electricity be less than Lessor's Cost per Kilowatt and Cost per
Kilowatt Hour (as such terms are hereinafter defined), and
provided further that in any event, the Electric Rate shall
include all applicable surcharges, and demand, energy, fuel
adjustment and time of day charges (if any), taxes and other
sums payable in respect thereof.
(ii) The term "Cost per Kilowatt Hour" shall mean the total
cost for electricity incurred by Lessor to service the Building
during a particular time period (including all applicable
surcharges, and energy, fuel adjustment and time of day charges
(if any), taxes and other sums payable in respect thereof)
divided by the total kilowatt hours purchased by Lessor during
such period.
(iii) The term "Cost per Kilowatt" shall mean the total cost
for demand incurred by Lessor to service the Building during a
particular time period (including all applicable surcharges,
demand, and time of day charges (if any), taxes and other sums
payable in respect to thereof) divided by the total kilowatts
purchased by Lessor during such period.
i. (i) Lessor shall supply electricity to service the Premises on a
submetered basis, and Lessee shall pay to Lessor, as additional
rent, the sum of (y) an amount determined by applying the
Electric Rate or, at Lessor's election, the Cost per Kilowatt
Hour and Cost per Kilowatt, to Lessee's consumption of and
demand for electricity within the Premises as recorded on the
submeter or submeters servicing the Premises, and (z) Lessor's
administrative charge of 7% of the amount referred to in clause
(y) above, if and to the extent same is permitted by legal
requirements (such combined sum being hereinafter called
"Submeter Electric Rent"). Except as set forth in the foregoing
clause (z), Lessor will not charge Lessee more than the Electric
Rate or, at Lessor's election, the Cost per Kilowatt and Cost
per Kilowatt Hour for the electricity provided pursuant to this
paragraph.
(ii) Where more than one submeter measures the electric service
to Lessee, the electric service rendered through each submeter
shall be computed and billed separately in accordance with the
provisions hereinabove set forth.
(iii) Lessee shall pay to Lessor, on account of the Submeter
Electric Rent payable pursuant to this paragraph (c), the annual
sum of $1.20 per square foot of gross rentable square feet
("Estimated Submeter Electric Rent"), subject to the adjustments
on the first day of each and every calendar month of the term
(except that if the first day of the term is other than the
first day of a calendar month, the first monthly installment,
prorated to the end of said calendar month, shall be payable on
the first day of the first full calendar month).
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(iv) From time to time during the term, the Estimated Submeter
Electric Rent may be adjusted by Lessor on the basis of either
Lessor's reasonable estimate of Lessee's electric consumption
and demand (if at any time the submeter(s) servicing the
Premises are inoperative) or Lessee's actual consumption of and
demand for electricity as recorded on the submeter(s) servicing
the Premises, and, in either event, the Electric Rate or Cost
per Kilowatt and Cost per Kilowatt Hour then in effect.
(v) Subsequent to the end of each calendar year during the Term
of this lease, or more frequently if Lessor shall elect, Lessor
shall submit to Lessee a statement of the Electric Submeter Rent
for such year or shorter period together with the components
thereof, as set forth in clause (i) of this paragraph (c)
("Submetered Electric Statement"). To the extent that the
Estimated Submeter Electric Rent paid by Lessee for the period
covered by the Submetered Electric Statement shall be less than
the Submeter Electric Rent as set forth on such Submeter
Electric Statement, Lessee shall pay Lessor the difference
within 30 days after receipt of the Submeter Electric Statement.
If the Estimated Submeter Electric Rent paid by Lessee for the
period covered by the Submeter Electric Statement shall be
greater than the Submeter Electric Rent as set forth on the
Submeter Electric Statement, such difference shall be credited
against the next required payment(s) of Estimated Submeter
Electric Rent. If no Estimated Submeter Electric Rent payment(s)
shall thereafter be due, Lessor shall pay such difference to
Lessee.
(vi) For any period during which the submeter(s) servicing the
Premises are inoperative, the Submeter Electric Rent shall be
determined by Lessor, based upon its reasonable estimate of
Lessee's actual consumption of and demand for electricity, and
the Electric Rate or Cost per Kilowatt and Cost per Kilowatt
Hour then in effect.
j. If Lessor discontinues furnishing electricity to the Premises
pursuant to paragraph h of this Article, Lessee shall make its
own arrangements to obtain electricity directly from the utility
company furnishing electricity to the Building (and Lessor shall
not discontinue furnishing electricity until Lessee has had
ample opportunity to make such arrangements). The cost of such
service shall be paid by Lessee directly to such utility
company. Lessor shall permit its electric feeders, risers and
wiring serving the Premises to be used by Lessee, to the extent
available, safe and capable of being used for such purpose. All
meters and all additional panel boards, feeders, risers, wiring
and other conductors and equipment which may be required to
enable Lessee to obtain electricity of substantially the same
quality and character, shall be installed by Lessor at Lessee's
cost and expense.*
k. Bills for electricity supplied pursuant to subparagraph i of
this Article shall be rendered to Lessee at such times as Lessor
may elect but not less frequently than quarterly. Lessee's
payments for electricity supplied in accordance with
subparagraph i of this Article shall be due and payable within
30 days after delivery of a statement therefor, by Lessor to
Lessee. If any tax is imposed upon Lessor's receipts from the
sale of electricity to Lessee by legal requirements, Lessee
agrees that, unless prohibited by such legal requirements,
Lessee's Percentage of such taxes shall be included in the bills
of, and paid by Lessee to Lessor, as additional rent.*
l. Lessor's failure during the term to prepare and deliver any
statements or bills under this Article, or Lessor's failure to
make a demand under this Article, shall not in any way be deemed
to be a waiver of, or cause Lessor to forfeit or surrender, its
rights to collect any amount of additional rent which may become
due pursuant to this Article. Lessee's liability for any amounts
due under this Article shall survive the expiration or sooner
termination of the term.
m. Lessee's failure or refusal, for any reason, to utilize the
electrical energy provided by Lessor, shall not entitle Lessee
to any abatement or diminution of Fixed Basic Rent or additional
rent, or otherwise relieve Lessee from any of its obligations
under this lease.
n. If either the quantity or character of the electrical service is
changed by the utility company supplying electrical service to
the Building or is no longer available or suitable for Lessee's
requirements, or if there shall be a change, interruption or
termination of electrical service due to a failure or defect on
the part of the utility
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company, no such change, unavailability, unsuitability, failure
or defect shall constitute an actual or constructive eviction,
in whole or in part, or entitle Lessee to any payment from
Lessor for any loss, damage or expense, or to abatement or
diminution of Fixed Basic Rent or additional rent, or otherwise
relieve Lessee from any of its obligations under this lease, or
impose any obligation upon Lessor or its agents. Lessor will use
reasonable efforts to insure that there is no interruption in
electrical service to Lessee, but in no event shall Lessor be
responsible for any failures of the utility providing such
service or the negligence or other acts of third parties causing
any such interruption.
o. Lessee shall not make any electrical installations, alterations,
additions or changes to the electrical equipment or appliances
in the Premises without prior written consent of Lessor in each
such instance, which consent shall not be unreasonably withheld
or delayed. Lessee shall comply with the rules and regulations
applicable to the service, equipment, wiring and requirements of
Lessor and of the utility company supplying electricity to the
Building. Lessee agrees that its use of electricity in the
Premises will not exceed the capacity of existing feeders to the
Building or the risers or wiring installations therein and
Lessee shall not use any electrical equipment which, in Lessor's
judgment, will overload such installations or interfere with the
use thereof by other Lessees in the Building. If, in Lessor's
judgment, after consultation with an electrical consultant,
Lessee's electrical requirements necessitate installation of an
additional riser, risers or other proper and necessary equipment
or services, including additional ventilating or
air-conditioning, the same shall be provided or installed by
Lessor at Lessee's expense, which shall be chargeable and
collectible as additional rent and paid within 30 days after the
rendition to Lessee of a bill therefor.*
p. If, after Lessee's initial installation work, (i) Lessee shall
request the installation of additional risers, feeders or other
equipment or service to supply its electrical requirements and
Lessor shall determine that the same are necessary and will not
cause damage or injury to the Building or the Premises or cause
or create a dangerous or hazardous condition or entail excessive
or unreasonable alterations, repairs or expense or interfere
with or disturb other Lessees or occupants of the Building, or
(ii) Lessor shall determine that the installation of additional
risers, feeders or other equipment or service to supply Lessee's
electrical requirements is necessary, then and in either of such
events Lessor shall cause such installations to be made, at
Lessee's sole cost and expense and Lessee shall pay Lessor for
such installations, as additional rent, within 30 days after
submission of a statement therefor.
23. ADDITIONAL RENT:
It is expressly agreed that Lessee will pay in addition to the Fixed
Basic Rent provided in Article 3 hereof, an Additional Rent to cover
Lessee's Percentage as defined in the Preamble, of the increased cost to
Lessor, for each of the categories enumerated herein, over the "Base
Period Costs", as defined in the Preamble for said categories.
a. OPERATING COST ESCALATION -- If the Operating Costs incurred by
Lessor for the Building in which the Premises are located and
Office Building Area for any Lease Year or Partial Lease Year
during the Lease Term shall be greater than the Base Operating
Costs (adjusted proportionately for periods less than a Lease
Year), then Lessee shall pay to Lessor, as Additional Rent,
Lessee's Percentage of all such excess Operating Costs.
Operating Costs shall include, by way of illustration and not of
limitation the following costs incurred by Lessor for the
Building and the Office Building Area: personal property taxes;
management fees consistent with those charged by owners of
comparable buildings in the Borough of Paramus; labor directly
attributable to the Building, including all wages and salaries;
social security taxes, and other taxes which may be levied
against Lessor upon such wages and salaries; supplies; repairs
and maintenance; maintenance and service contracts; painting;
wall and window washing; laundry and towel service; tools and
equipment (which are not required to be capitalized for federal
income tax purposes); fire and other insurance; trash removal;
lawn care; snow removal and all other items properly
constituting direct operating costs according to standard
accounting practices (hereinafter
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collectively referred to as the "Operating Costs"), but not
including depreciation of Building or equipment; interest;
income or excess profits taxes; costs of maintaining the
Lessor's corporate existence; franchise taxes; any expenditures
required to be capitalized for federal income tax purposes,
unless said expenditures are for the purpose of reducing
Operating Costs within the Building and Office Building Area, or
those which under generally applied real estate practice are
expensed or regarded as deferred expenses or are required under
any governmental or quasi-governmental law, statute, ordinance,
rule, order, requirements or regulation, in which event the
costs thereof amortized over their useful life shall be
included. The Base Operating Costs shall as be as defined in the
Preamble. Notwithstanding anything hereinabove to the contrary,
the following items shall be excluded from Operating Costs: (1)
cost of improvements and services paid for or made for new or
existing lessees or occupants of the Building (including Lessee)
and/or any credits granted in lieu thereof and in addition
therefor; (2) cost of any repairs made by Lessor to remedy
damage to the extent caused by or resulting from the acts or
omissions of Lessor, its agents, contractors, licensees or
employees or of other lessees in the Building; (3) legal or
brokerage or finder's or appraisal fees or other fees, leasing
commissions, advertising and promotional expenses and other
costs incurred in leasing or attempting to lease any portion of
the Building or in connection with defaults by present or prior
lessees or occupants or in connection with placing or
refinancing any mortgages or underlying leases on the Building
or Office Building Area; (4) funds given to any lessees in cash,
by credit or offset or otherwise, and the cost of any work done
for any lessees in connection with the leasing of space in the
Building; (5) cost of any items to the extent Lessor is or is
entitled to be reimbursed by insurance (or would have been
reimbursable had a reasonably prudent Lessor maintained
insurance coverage), or otherwise compensated, including direct
reimbursement by any Lessee for specific services performed for
such Lessee (other than under operating expense escalation
provisions of its lease); (6) that portion of any salary, fee or
cost paid to an individual having a familial relationship
including by marriage or to a corporation or other entity
affiliated with Lessor (i.e., controlling, controlled by or
under common control with Lessor) that is in excess of the
amount which would be paid in the absence of such relationship;
(7) financing and refinancing costs with respect to any
indebtedness of Lessor, whether secured or unsecured, including
legal and accounting fees and expenses, prepayment penalties and
interest and amortization payments in connection therewith; (8)
rent and additional rent under any ground or underlying lease
(except to the extent that any additional rent thereunder would
otherwise qualify as an Operating Cost hereunder); (9)
franchise, gross receipts, rent, unincorporated business,
estate, transfer, mortgage, inheritance and income taxes imposed
upon Lessor and any present or future taxes similar to the
foregoing excluded items (other than sales taxes on items or
services otherwise includible in Operating Expenses); (10) costs
incurred in connection with the transfer or disposition of
direct or indirect ownership interests in the Building, Land or
Lessor including, without limitation, attorneys' fees and
expenses; (11) costs of repairs or restoration necessitated by
condemnation; (12) costs incurred in connection with the making
or enforcement of leases or resolution of disputes with lessees,
including, without limitation, court costs, attorneys' fees and
disbursements in connection with any summary proceedings to
dispossess any lessee; (13) fines, judgments or awards against
Lessor; (14) costs resulting from Lessor's default under any
lease or mortgage or other agreement; (15) items to the extent
actually reimbursed to Lessor or to which Lessor is entitled to
be reimbursed pursuant to any warranties or guarantees or any
other source; (16) wages, salaries and other compensation paid
to employees of the Building above the grade of building
manager; (17) lease takeover or take-back costs incurred by
Lessor in connection with leases in the Building; (18) to the
extent any costs includible in Operating Costss are incurred
with respect to both the Building and other properties
(including, without limitation, salaries, fringe benefits and
other compensation of Lessor's personnel who provide services to
both the Building and other properties), there shall be excluded
from Operating Costs a fair and reasonable percentage thereof
which is properly allocable to such other properties; (19) cost
of any judgment, settlement, or arbitration award resulting from
any liability of Lessor that is the result of negligence,
willful misconduct, default or fraud and all expenses incurred
in connection therewith; (20) the cost of providing any service
provided by managing agents of comparable office buildings in
Bergen County, New Jersey that is customarily included in
management fees and management fees in excess of those
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normally incurred for comparable buildings; (21) the cost of
acquiring or replacing any separate electrical meter Lessor may
provide to any of the lessees in the Building; (22) costs
relating to withdrawal liability or unfunded pension liability;
(23) cost of installing, operating, maintaining and repairing
any specialty facility such as an observatory, broadcasting
facilities, luncheon club, athletic or recreational club, child
care facility, auditorium, cafeteria or dining facility,
conference center or similar facilities; (24) interest, fine,
penalty or other late charges payable by Lessor and incurred as
a result of late payments, except to the extent the same was
incurred with respect to a payment part or all of which was the
responsibility of Lessee hereunder and with respect to which
Lessee did not make a payment in a timely fashion or did not
make the same at all; (25) compensation paid to clerks,
attendants or other persons in commercial concessions operated
by Lessor; (26) costs of acquiring, leasing, insuring,
restoring, removing or replacing (i) sculptures, (ii) paintings,
and (iii) other objects of art located within or outside the
Building, except for the cost of routine maintenance of such
objects in the public areas in the Building; (27) costs incurred
in connection with physically adding space to, or building
additional stories on, the Building or its plazas, or adding
buildings or other structures adjoining the Building, or
connecting the Building to other structures adjoining the
Building; (28) costs incurred in connection with the acquisition
or sale of air rights or transferable development rights; (29)
costs paid or incurred in connection with the removal,
replacement, enclosure, encapsulation or other treatment of any
hazardous materials or substances; (30) cost of electricity and
overtime HVAC furnished to the Premises or any other leasable
space in the Building whether or not leased to lessees; (31)
costs (including, without limitation, any taxes or assessments)
of any revenue generating signs or displays; (32) costs incurred
in connection with any concourse or any plaza connecting the
Building to any other building in excess of those costs
equitably allocable to the Building; (33) expenditures for
repairing and/or replacing any defect in any work performed by
Lessor, its agents, contractors or employees in or to the
Building or its appurtenances (including any sidewalks and
parking areas); (34) the cost of any work or services in excess
of those Lessor is required to furnish, without charge, to
Lessee; (35) any payments or credits actually received by Lessor
for recyclable materials and waste paper for a particular year
within the Term shall be deducted from Operating Costs for such
year; (36) bad debt losses.*
b. FUEL, UTILITIES AND ELECTRIC COST ESCALATION (hereinafter
referred to as "Utility and Energy Costs") -- If the Utility and
Energy Costs, including any fuel surcharges or adjustments with
respect thereto, incurred for water, sewer, gas, electric, other
utilities and heating, ventilating and air conditioning for the
Building, to include all leased and leasable areas (not
separately billed or metered within the Building) and Common
Facilities electric, lighting, water, sewer and other utilities
for the Building and Office Building Area, for any Lease Year or
Partial Lease Year, during the Term, shall be greater than the
Base Utility and Energy Costs (adjusted proportionately for
periods less than a Lease Year), then Lessee shall pay to Lessor
as Additional Rent, Lessee's Percentage as hereinafter defined,
of all such excess Utility and Energy Costs. As used in this
Article 23, the Base Utility and Energy Costs shall be as
defined in the Preamble.
c. TAX ESCALATION -- If the Real Estate Taxes for the Building and
Office Building Area at which the Premises are located for any
Lease Year or Partial Lease Year, during the Lease Term, shall
be greater than the Base Real Estate Taxes (adjusted
proportionately for periods less than a Lease Year), then Lessee
shall pay to Lessor as Additional Rent, Lessee's Percentage as
hereinafter defined, of all such excess Real Estate Taxes.
Lessor represents that to the best of its knowledge the Building
is fully assessed.*
As used in this Article 23(c), the words and terms which follow
mean and include the following:
i. "Base Real Estate Taxes" shall be as defined in the
Preamble.
ii. "Real Estate Taxes" shall mean the property taxes and
assessments imposed upon the Building and Office
Building Area, or upon the rent, as such,
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payable to the Lessor by tenants occupying any space in
the Office Building Area, including, but not limited to,
real estate, city, county, village, school and transit
taxes, or taxes, assessments, or charges levied, imposed
or assessed against the Building and Office Building
Area by any other taxing authority, whether general or
specific, ordinary or extraordinary, foreseen or
unforeseen. If due to a future change in the method of
taxation, any franchise, income or profit tax shall be
levied against Lessor in substitution for, or in lieu
of, or in addition to, any tax which would otherwise
constitute a Real Estate Tax, such franchise, income or
profit tax shall be deemed to be a Real Estate Tax for
the purposes hereof; conversely, any additional real
estate tax hereafter imposed in substitution for, or in
lieu of, any franchise, income or profit tax (which is
not in substitution for, or in lieu of, or in addition
to, a Real Estate Tax as hereinbefore provided) shall
not be deemed a Real Estate Tax for the purposes hereof.
d. LEASE YEAR -- As used in this Article 23, Lease Year shall mean
a calendar year. Any portion of the Term which is less than a
Lease Year as hereinbefore defined, that is, from the
Commencement Date through the following December 31, and from
the last January 1, falling within the Term to the end of the
Term, shall be deemed a "Partial Lease Year". Any reference in
this Lease to a Lease Year shall, unless the context clearly
indicates otherwise, be deemed to be a reference to a Partial
Lease Year if the period in question involves a Partial Lease
Year.
e. PAYMENT -- At any time, and from time to time, after the
establishment of the Base Period Costs for each of the
categories referred to above, Lessor shall advise Lessee in
writing of Lessee's Percentage share with respect to each of the
categories as estimated for the next twelve (12) month