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UNITED STATES FORM 10-K ANNUAL REPORT For the fiscal year ended December 31, 2005 Commission File Number 1-6720 A. T. CROSS COMPANY Rhode Island 05-0126220 One Albion Road, Lincoln, Rhode Island 02865 Registrant's telephone number, including area code: (401) 333-1200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered: Class A Common Stock ($1 Par Value) American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ___ Yes _ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ___ Yes _ No 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 ___ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (S 229.405 of this Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. Large accelerated filer ___ Accelerated filer ___ Non-accelerated filer _ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ___ Yes _ No The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates as of July 2, 2005, the last business day of the registrant's most recently completed second fiscal quarter was $30.2 million. The number of shares outstanding of each of the registrant's classes of common stock as of March 1, 2006 was: Class A common stock - 13,365,437 Shares Class B common stock - 1,804,800 Shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement for the 2006 annual meeting of shareholders are incorporated by reference PART I Item 1. BUSINESS
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
(Address of principal executive offices)
(Zip Code)
chapter) 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]
into Part III of this report.
Business
The A.T. Cross Company has two reportable business segments: writing instruments and accessories ("WI&A"), and optical. The optical segment was established in 2003 with the acquisition of Costa Del Mar Sunglasses, Inc. For certain financial information with respect to these segments, see Note K to the Company's consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Writing Instruments and Accessories
We manufacture and market fine quality writing instruments under the Cross® brand consisting of ball-point pens, fountain pens, selectip rolling ball pens, which accommodate various types of refills, and mechanical pencils. We also manufacture and market a variety of refills for most of our product types. In addition to Cross branded writing instruments, we design and market writing instruments sold under the Penatia® and Omni® by Cross brands and a line of writing instruments sold under the licensed name of Bill Blass®. The Company is an original equipment manufacturer ("OEM") of writing instruments. In addition to writing instruments, we also design and market a variety of personal and business accessories including watches, sold primarily to the business gift market, precision reading glasses, desk sets, leather goods and key rings. The Company periodically launches new products.
Our writing instruments are offered in a variety of styles and materials at various price points. They are packaged and sold as individual units or in matching sets. The majority of the Company's writing instrument sales occur at suggested retail price points between approximately $10 and $50. We believe we are a market leader in the United States at these price points. Products in this price range include: Classic® Century®, Ion®, Tech3 and selected Century II and ATX® writing instruments. The Cross Townsend®, Verve™, Apogee™ and Century II lines as well as selected Classic Century writing instruments provide the Company a presence in the $55 to $300 price range. Certain Classic Century, Cross Townsend and Verve writing instruments are priced over $300. The Calais and Albion lines of writing instruments are sold exclusively to the Company's office superstore customers. The Penatia brand, w hich is not a "Cross" branded line of writing instruments, provides the Company a presence in the under $10 price range.
Watches are priced between $70 and $190, precision reading glasses are priced at $20 and the majority of business accessories are priced between $20 and $110.
The Company emphasizes styling, innovation, craftsmanship and quality in the design and production of all of its products. All Cross branded writing instruments carry a full warranty of unlimited duration against mechanical failure. Our watches are sold with a limited ten-year warranty, and business accessories are sold with a limited one-year warranty.
The Company's products are sold throughout the United States by our direct sales force and manufacturers' agents or representatives to approximately 5,600 retail and wholesale accounts. Retail accounts include: gift stores, department stores, jewelers, stationery, office supply and pen specialty stores, mass merchandisers and United States military post exchanges. Our wholesale accounts distribute the Company's products to retail outlets that purchase in smaller quantities. The Company's products are also sold to consumers in the United States, Canada and Hong Kong on the Company's website: www.cross.com. Advertising specialty representatives market the Company's writing instruments, accessories and watches in the United States to business accounts. Typically, such products are engraved or carry the purchaser's name or emblem and are used for gifts, sales promotions, incentive purposes or advertising.
Sales of the Company's products outside the United States during 2005 were made to foreign distributors and retailers worldwide by the Company and its wholly-owned subsidiaries.
Optical
The Company, through its wholly-owned subsidiary Costa Del Mar Sunglasses, Inc., designs, manufactures and markets premium, high-quality, polarized eyewear through its optical segment under the brand name Costa Del Mar®. Offered in more than 35 styles and 16 lens options at suggested retail price points between approximately $100 and $300, our eyewear is sold by employee representatives and manufacturer's agents to approximately 3,000 retail accounts throughout the United States. Retail accounts include optical and sunglass specialty shops, department stores and sporting goods retailers. Costa Del Mar sunglasses are sold with a lifetime warranty against defects in materials and workmanship.
2
Raw Materials
Raw materials for use in writing instruments are obtained from both domestic and foreign suppliers. Items such as certain fountain pen front sections, refills, coated caps and barrels, and some lacquer coatings are imported from Germany, Switzerland and France. Complete pencil mechanisms, certain refill components, leads, resin caps and barrels, some fountain pen front sections, cap components and certain coated shells are imported from Japan. Some rings, screw machine parts, pen mechanisms, molded components, and cap and barrel components and assemblies are imported from China.
The majority of component materials for the optical segment are imported from specialized manufacturers located in Europe and Japan.
To maintain the highest level of product quality, we rely on a limited number of domestic and foreign suppliers for certain raw materials and manufacturing technologies. The Company may be adversely affected in the event that these suppliers cease operations or if pricing terms become less favorable. The Company believes, but cannot be assured, that the raw materials currently supplied by these vendors could be obtained from other sources and that the manufacturing technologies could either be developed internally or that suitably similar technologies could be located.
Patents, Licenses and Trademarks
The Company, directly or through its subsidiaries, has certain writing instrument, timepiece, accessory and optical trademark registrations and/or pending trademark applications in the United States and many foreign countries, including but not limited to its principal trademark "CROSS" and the trademark "COSTA DEL MAR." The principal trademark "CROSS" is of fundamental importance to our business in general and the trademark "COSTA DEL MAR" is of fundamental importance to the optical segment. The Company, directly or through its subsidiaries, holds certain United States and foreign writing instrument patents and/or has filed United States and foreign patent applications covering products including, but not limited to, Cross Townsend, Morph®, Ion, Cross Matrix®, Verve, MicroPen and fountain pens and mechanical pencils and ball-point pen mechanisms. While we pursue a practice of seeking patent protection for novel inventions or designs, our business is not dependent upon obtaining and maintaining patents.
Seasonal Business
Retail demand for our writing instrument and accessory products is highest prior to Christmas and other gift-giving occasions. The Company historically has generated approximately one third of its annual sales in its fiscal fourth quarter. However, seasonal fluctuations have not materially affected continuous production of writing instrument products.
Costa Del Mar historically has generated its strongest sales in the first half of its fiscal year.
Working Capital Requirements
Writing instrument and sunglass inventory balances tend to be highest in anticipation of new product launches and before peak selling seasons. The Company offers, and may offer in the future, extended payment terms, primarily to domestic retail writing instrument customers, at certain points during the year, usually September through November. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report on Form 10-K.
Customers
The Company is not dependent upon any single customer for more than 10% of its consolidated revenues. The Company is dependent, however, on three large office supply accounts, Staples, Inc., OfficeMax, Inc. and Office Depot, Inc., for a significant portion of its revenue. In 2005, sales to this group were approximately 11% of consolidated revenues. The loss of one or more of these customers could have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report on Form 10-K.
Backlog of Orders
The backlog of orders is not a significant factor in the Company's business.
3
Competition
The writing instrument industry is competitive, in particular with respect to product quality, brand recognition and price. There are numerous manufacturers of ball-point, rolling ball and fountain pens, and mechanical pencils in the United States and abroad. Many of these manufacturers produce lower priced writing instruments than those produced by the Company. Although the Company is a major producer of ball-point, rolling ball and fountain pens, and mechanical pencils in the $10 to $50 price range, other writing instrument companies have significantly higher sales volumes from a broader product line across a wider range of prices or have greater resources as divisions of larger corporations. The Company emphasizes styling, innovation, craftsmanship and quality in the design and production of all of its products. All of the Company's Cross branded writing instruments carry a full warranty of unlimited duration against mechanical failure.
The sunglass market in the United States is estimated to be $2.1 billion at wholesale. The Company's optical segment under the brand name Costa Del Mar competes in the premium-priced ($50+ retail) sunglass market segment, which is estimated to be $1.3 billion at wholesale. Several other sunglass companies also compete in the premium segment. Costa Del Mar sunglasses are sold with a lifetime warranty against defects in materials and workmanship.
See also the "Risk Factors" in Item 1A of this Annual Report on Form 10-K.
Research and Development
The Company had expenditures for research and development of new products and improvement of existing products of approximately $1.8 million in 2005, $1.8 million in 2004 and $1.9 million in 2003. For additional discussion, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report on Form 10-K.
Environment
The Company believes it is in substantial compliance with all Federal, state and local environmental laws and regulations. The Company believes that future capital expenditures for environmental control facilities will not be material. See Item 3 "Legal Proceedings" and Note L to the Company's consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
Employees
The Company had approximately 704 employees worldwide at December 31, 2005.
International Operations and Export Sales
Approximately 48% of the Company's sales in 2005 were in foreign markets. The primary foreign markets are in Europe and Asia. Sales of the Company's products to foreign distributors are subject to import duties in many countries. The operations of the Company's foreign subsidiaries and branches are subject to the effects of currency fluctuations, the availability of United States dollar exchange, exchange control and other restrictive regulations. Undistributed earnings of our foreign subsidiaries generally are not subject to current United States Federal and state income taxes until such earnings are considered not permanently reinvested in the growth of business outside the United States. See Note J and Note K to the Company's consolidated financial statements in Item 8 of this Annual Report on Form 10-K. For the effect of foreign sales on the Company's results of operations, see "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Item 7 of this Annual Report on Form
10-K.
Availability of Securities and Exchange Commission Filings
The Company's website address is www.cross.com. The Company makes available free of charge, through the Investor Relations section of its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such materials have been electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). The Company includes its website address in this Annual Report on Form 10-K only as an inactive textual reference and does not intend it to be an active link to its website.
4
Executive Officers of the Company
The following are the executive officers of the Company (each of whom serves until his or her successor is elected and has qualified), their respective ages as of January 1, 2006 and their principal positions:
NAME |
AGE |
TITLE |
YEAR IN WHICH |
|
David G. Whalen |
(1) |
48 |
President and Chief Executive Officer |
1999 |
Kevin F. Mahoney |
(2) |
46 |
Vice President, Finance and Chief Financial Officer |
2005 |
Gary S. Simpson |
(3) |
54 |
Corporate Controller, Chief Accounting Officer |
1997 |
Tina C. Benik |
(4) |
46 |
Vice President, Legal and Human Resources |
2000 |
Stephen A. Perreault |
(5) |
58 |
Vice President, Operations |
1995 |
Joseph V. Bassi |
(6) |
53 |
Finance Director |
1997 |
Peter J. Canole |
(7) |
51 |
Vice President, Global Sales |
2004 |
Charles S. Mellen |
(8) |
42 |
Vice President, Global Marketing |
2005 |
Robin Boss Dorman |
(9) |
40 |
Vice President, Strategic Development |
2005 |
(1) |
Prior to becoming President and Chief Executive Officer in 1999, David G. Whalen was President, North |
(2) |
Prior to becoming Vice President, Finance and Chief Financial Officer in 2005, Kevin F. Mahoney was Director, |
(3) |
Prior to becoming Corporate Controller in 1997, Gary S. Simpson was the Controller, Lincoln Operations from |
(4) |
Prior to becoming Vice President, Legal and Human Resources; Corporate Secretary in 2000, Tina C. Benik |
(5) |
Prior to becoming Vice President, Operations in 1995, Stephen A. Perreault held various senior executive |
(6) |
Prior to becoming Finance Director in 1997, Joseph V. Bassi was Manager, Financial Planning from 1996 to |
(7) |
Prior to becoming Vice President, Global Sales in 2004, Peter J. Canole was Vice President, International from |
(8) |
Prior to becoming Vice President, Global Marketing in 2005, Charles S. Mellen was Vice President of Marketing |
(9) |
Prior to becoming Vice President, Strategic Development in 2005, Robin Boss Dorman was Vice President, |
Item 1A. |
RISK FACTORS |
The following section describes certain of the more prominent risks and uncertainties inherent in our operations. The risks and uncertainties below are those that we currently consider material; however, this section does not intend to discuss all possible risks and uncertainties that a company like Cross with broad international operations could experience. We are susceptible to macroeconomic downturns in the United States or abroad that may affect the general economic climate and the performance of our customers. Similarly, the price of our securities is subject to volatility due to fluctuations in general market conditions, differences in our results of operations from estimates and projections generated by the investment community, and other factors beyond our control. Further, there could be other risks and uncertainties that are not presently known to us or that may become more significant to us. You should read these Risk Factors in conjunction with the factors discussed elsewhere in this and other of our filings with the Securities and Exchange Commission and in materials incorporated by reference in these filings. We undertake no obligation to correct or update any forward-looking statements or statements of risk related thereto for any reason.
5
We depend on the success of new products.
Our ability to sustain profitability and restore growth in sales depends largely on consumer acceptance of numerous new products recently introduced and planned for introduction. Further, consumer preferences are continuously changing. The markets in which we sell are highly competitive, and there is no assurance that consumer acceptance will be realized to the degree necessary to generate growth in our sales and earnings.Our global manufacturing, sales and distribution operations make us susceptible to the risks of overseas operations.
We have sales offices and certain operations in more than seven countries worldwide and distributors in over 75 countries worldwide. In 2005, approximately 48% of our revenue came from sales to locations outside the United States. Operating internationally exposes us to changes in export controls and other laws or policies, as well as the general political and economic conditions, security risks, health conditions and possible disruptions in transportation networks, of the various countries in which we operate, which could result in an averse effect on our business and results of operations in such countries.Incorrect forecasts of customer demand could adversely affect our results of operations.
The Company manufactures product based on forecasts of customers' demands. These forecasts are based on multiple assumptions. If we inaccurately forecast customer demand by overestimating that demand, we may hold inadequate, excess or obsolete inventory that would reduce our profit margins and adversely affect our results of operations and financial condition.Our success depends on our ability to retain and recruit a sufficient number of qualified employees in a competitive environment.
Our success depends in part on our retention and recruitment of skilled personnel, including technical, distribution, sourcing, marketing, sales, management and staff personnel. There can be no assurance that we will be able to successfully retain and recruit the key personnel that we require.Our dependence on certain suppliers may leave us temporarily without adequate access to raw materials or products.
To maintain the highest level of product quality, we rely on a limited number of domestic and foreign suppliers for certain raw materials, manufacturing technologies and certain finished products. We may be adversely affected in the event that these suppliers cease operations or if pricing terms become less favorable. We believe, but cannot guarantee, that the raw materials currently supplied by these vendors could be obtained from other sources and that the manufacturing technologies could either be developed internally or that suitably similar technologies could be located. If we are unable to replace a key supplier we may face delays in delivering finished products according to our customers' demands, which could have an adverse effect on our financial performance.Overseas manufacturing makes us dependent upon the performance of our overseas partners.
As a result of our manufacturing initiative, we will manufacture a significant number of finished products in China. We expect that our manufacturing operations in China will be overseen and managed by a local manufacturing partner. Should that partner not perform as expected, or should the relationship between the parties deteriorate, there could be a material adverse effect on our operations. Despite our best efforts to maintain our strict quality standards, if the quality of our products is perceived to be affected by the initiative, our reputation may be harmed and we may lose future sales.We depend on certain accounts for a significant percentage of our sales.
The Company is dependent on three large office supply accounts, Staples, Inc., OfficeMax, Inc. and Office Depot, Inc., for approximately 11% of its consolidated revenues. The loss of one or more of these customers could have a material adverse effect on the Company. Further, there is no assurance that these accounts will maintain their current inventory levels.Unfavorable resolution of pending or future litigation matters could prove costly to us.
We are involved from time to time in litigation matters. An unfavorable resolution of pending litigation or future litigation could have a material adverse effect on our financial condition. Litigation may result in substantial costs and expenses and significantly divert the attention of our management regardless of the outcome. There can be no assurance that we will be able to achieve a favorable settlement of pending litigation or obtain a favorable resolution of litigation if it is not settled. In addition, current and future litigation, governmental proceedings or environmental matters could lead to increased costs or interruptions of our normal business operations.
6
Extension of the Cross brand beyond writing instruments may fail.
Because of the maturity of the fine writing instrument industry, our ability to achieve growth is dependent, in part, on our ability to extend the Cross brand beyond writing instruments. There is no assurance that consumers will accept the Cross brand outside of writing instruments, particularly business accessories and watches, at the level necessary to generate sustainable growth for us with these products, or that consumers will accept the design and price of these products. Because we have less institutional experience with product lines outside of writing instruments, and because the complementary product lines that we enter into, such as business accessories and watches, may be extremely competitive already, these brand extensions may not prove to be successful, adversely affecting future sales growth.Our effort to streamline operations may not generate the savings we anticipate.
We expect to generate cash from our streamlining of operations, some of which will be invested in our sales and marketing programs and other initiatives to generate growth. A significant portion of these savings has yet to be generated and is contingent on our ability to effectively transition a segment of our manufacturing overseas and on our ability to keep costs in other areas at acceptable levels. If we are unable to realize the anticipated cost savings of this streamlining, our results of operations would suffer.The diversification of our business may not be successful.
In order to generate growth outside of writing instruments, one of our strategic initiatives is to diversify outside of our core Cross branded product. Costa Del Mar was our first foray into this area of diversification. There can be no assurance that Costa Del Mar will continue to grow at its current levels or that we will find additional suitable targets for acquisition. If we do find a suitable acquisition target, we cannot assure you that we will be able to consummate a deal on terms satisfactory to us or that we will be able to successfully integrate those operations into our company. We also can not assure you that such a strategy will not divert our management's time and attention from development of our core branded products in a way that will adversely affect writing instrument or other Cross branded sales.
Item 2. |
PROPERTIES |
The Company owns and occupies approximately 269,000 square feet of manufacturing, warehouse and office space in Lincoln, Rhode Island. This facility, which is well maintained and in good repair, is utilized in manufacturing, distribution and administrative capacities of the Company's WI&A segment. The Company leases administrative facilities and/or warehouse space for its WI&A segment operations in France, the United Kingdom, The Netherlands, Spain, Germany, Japan, Taiwan, Hong Kong, Singapore and Lincoln, Rhode Island as well as retail facilities in Cambridge and Newton, Massachusetts.
The Company's optical segment leases an administrative and warehouse facility in Ormond Beach, Florida.
Item 3. |
LEGAL PROCEEDINGS |
The Company is named as one of approximately sixty defendants in a contribution suit brought by CCL/Unilever relating to the J.M. Mills Landfill Site, which is part of the Peterson/Puritan Superfund Site in Cumberland, Rhode Island. These complaints allege that the Company is liable under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") for contribution for past and future costs incurred at the Site. Past and future costs, excluding the required remedy, are currently estimated at $6 million to $7 million. No discovery has been taken to date.
The Company is involved in various other litigation and legal matters that have arisen in the ordinary course of business. To its knowledge, management believes that the ultimate resolution of any of those existing matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.
Item 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Not applicable.
7
PART II
Item 5. |
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
The Company's Class A common stock is traded on the American Stock Exchange (symbol: ATX). There is no established trading market for the Company's Class B common stock. At December 31, 2005, there were 1,283 shareholders of record of the Company's Class A common stock and two shareholders of record of the Company's Class B common stock. The weighted average numbers of total shares outstanding was 14,719,251 and 14,925,848 during 2005 and 2004, respectively. High and low sales prices of Class A common stock for the last two years were:
_____________ 2005___________ |
_____________ 2004___________ |
||||||
QUARTER |
HIGH |
LOW |
QUARTER |
HIGH |
LOW |
||
First |
$6.10 |
$4.96 |
First |
$7.08 |
$6.25 |
||
Second |
$6.09 |
$3.71 |
Second |
$6.74 |
$4.75 |
||
Third |
$5.07 |
$4.30 |
Third |
$5.59 |
$4.95 |
||
Fourth |
$4.92 |
$3.78 |
Fourth |
$5.80 |
$4.50 |
Dividend Information
The Company has not paid dividends to its stockholders since 1998 and does not plan to pay cash dividends in the foreseeable future. The Company intends to retain earnings, if any, to finance the growth of the Company. In addition the Company's line of credit facility restricts the Company from declaring cash dividends on its common stock.
Issuer Purchases of Equity Securities |
TOTAL |
AVERAGE |
TOTAL NUMBER |
MAXIMUM NUMBER |
||||
October 2, 2005 - October 29, 2005 |
- |
- |
- |
256,300 |
||||
October 30, 2005 - November 26, 2005 |
12,200 |
$4.15 |
12,200 |
244,100 |
||||
November 27, 2005 - December 31, 2005 |
17,800 |
$4.06 |
17,800 |
226,300 |
||||
Total |
30,000 |
$4.09 |
30,000 |
On October 23, 2002, the Company's Board of Directors authorized a plan to repurchase up to 10% of the Company's outstanding Class A common stock. Under this plan, the Company was authorized to purchase approximately 1.4 million shares of stock on the open market, subject to regulatory considerations, from time to time, depending on market conditions. At December 31, 2005, the Company had repurchased 1,173,700 shares under this plan for approximately $6.3 million at an average price per share of $5.41. In the fourth quarter of 2005, the Company purchased 30,000 shares for approximately $123,000 at an average price per share of $4.09.
Item 6. |
SELECTED FINANCIAL DATA |
Five-Year Summary |
2005 |
2004 |
2003 * |
2002 |
2001 |
|||||
OPERATIONS: (THOUSANDS OF DOLLARS) |
||||||||||
Net Sales |
$129,115 |
$129,480 |
$126,365 |
$118,226 |
$124,356 |
|||||
Income (Loss) Before Income Taxes |
573 |
(1,553 |
) |
2,218 |
6,687 |
2,538 |
||||
Income Tax Provision (Benefit) |
189 |
(698 |
) |
441 |
1,771 |
1,616 |
||||
Income (Loss) from Continuing Operations |
384 |
(855 |
) |
1,777 |
4,915 |
922 |
||||
Income from Discontinued Operations, Net |
- |
- |
- |
- |
58 |
|||||
Net Income (Loss) |
384 |
(855 |
) |
1,777 |
4,915 |
980 |
||||
PER SHARE DATA: (DOLLARS) |
||||||||||
Basic and Diluted Net Income (Loss) Per Share |
0.03 |
(0.06 |
) |
0.12 |
0.31 |
0.06 |
8
FINANCIAL POSITION: (THOUSANDS OF DOLLARS) |
2005 |
2004 |
2003 * |
2002 |
2001 |
|||||
Current Assets |
$ 73,590 |
$ 73,048 |
$ 76,712 |
$ 68,184 |
$ 72,805 |
|||||
Current Liabilities |
23,298 |
27,923 |
30,718 |
25,537 |
28,173 |
|||||
Working Capital |
50,292 |
45,125 |
45,994 |
42,647 |
44,632 |
|||||
Total Assets |
112,893 |
113,351 |
118,146 |
105,573 |
111,350 |
|||||
Retirement Plan Obligations |
10,505 |
8,310 |
5,214 |
4,847 |
5,059 |
|||||
Long-Term Debt, Less Current Maturities |
10,456 |
5,513 |
6,863 |
- |
- |
|||||
Accrued Warranty Costs |
1,457 |
1,603 |
1,936 |
1,888 |
3,541 |
|||||
Shareholders' Equity |
67,177 |
70,002 |
73,415 |
73,301 |
74,575 |
* Sales from the optical segment, established in April of 2003 with the acquisition of Costa Del Mar Sunglasses, Inc., were $8.9 million in 2003. The increases in total assets and long-term debt in 2003 are principally due to this acquisition.
Item 7. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Results of Operations
Overview
A.T. Cross Company is a leading designer and marketer of branded personal accessories including writing instruments, watches, precision reading glasses, personal and business accessories and sunglasses. The Company has been a manufacturer and marketer of fine quality writing instruments since 1846. Sold primarily under the Cross brand, ball-point, fountain and selectip rolling ball pens and mechanical pencils are offered in a variety of styles and finishes. Also under the Cross brand, the Company offers a line of watches, reading glasses and a variety of personal and business accessories. The Company offers a lower priced line of writing instruments and after-market refills under the brand name Penatia. We also offer writing instruments under licensed brands such as Bill Blass. The Company established an optical segment with the April 2003 acquisition of Costa Del Mar Sunglasses, Inc., a designer, manufacturer and marketer of high-quality polarized sungl asses.
The Company has been operating in a difficult economic environment in a mature and competitive category. Fiscal 2005 represented the fifth consecutive year in which the Company's core writing instrument and accessory segment reported a decline in sales. The Company has challenged itself to build upon its unique attributes in order to develop a vibrant, diversified and forward-looking company poised for sustainable growth and long-term profitability. Such attributes include a strong brand name, 159-year heritage, reputation for quality and craftsmanship, global distribution network and strong balance sheet. The Company established several strategic initiatives to build upon these attributes and overcome its challenges, including: becoming an innovative leader in the fine writing category, extending the Cross brand into new categories, developing avenues for diversification and streamlining its operating structure.
The Company is competing vigorously to build its position as the category leader in terms of product innovation, marketing and merchandising. For the sixth consecutive year, approximately 20% of writing instrument and accessory revenue was derived from new products. The Company defines new product sales as those sales generated in a product's first twenty-four months. In 2005, the Company launched several new product lines including Apogee, Tech3 and Avitar. Seasonal spring and fall colors for the ATX product line were also introduced. Four metallic colors were added to the Classic Century line. Two fashion oriented polka dot finishes were added to the Century II line. The Company also launched Calais and Albion, products marketed specifically for its office super store customers. New selections were also added to the licensed Bill Blass offerings.
In addition to bringing new products to the market, in 2005 a number of new marketing and merchandising programs were developed. A new marketing initiative was designed to present our products as contemporary accessories for everyday life. The "Pen Wall", a new display concept, was developed at our Boston area stores and will change the way the Cross brand is presented at select retail locations globally. Our website was enhanced, allowing consumers to shop for products in a number of convenient ways: by product collection, writing technology, price and occasion. The Company also launched its first direct to consumer mail catalog in 2005 and plans to expand this program in 2006.
The Company's sales force is organized around three major geographic regions: the Americas, Asia and Europe, Middle East and Africa ("EMEA"). Within each of these regions, the Company uses a combination of direct sales force, manufacturers' representatives and distributors that sell to carriage trade, corporate and national account customers. Corporate gift sales to business and industry began to strengthen in the second half of 2005 but still reported its second consecutive year of declining sales as the demand for writing instruments for general corporate promotional purposes continued to decline. The Company is attempting to offset this trend by focusing on developing programs marketed toward higher-priced incentive award programs.
9
The Cross brand has strong consumer awareness and, more importantly, consumers associate the Cross name with innovation, quality and style. The strong awareness of our name and the positive attributes associated with our brand supports the extension of the Cross brand into related personal accessory categories. The Company is moving into categories that allow us to further utilize our existing sourcing infrastructure and global distribution network. A priority for all of our brand extensions is to incorporate the quality, design and craftsmanship that consumers enjoy from Cross' fine writing instruments. We have done this with our Cross branded accessories, which was expanded and improved in 2005. In 2005, under a licensing agreement with Sun Optics, the Company launched a line of Cross branded precision reading glasses. Four styles were introduced, each featuring a contemporary, rimless design and available in the six most popular diopter powers in the United States. The Company's watch collection , expanded in 2004, now includes styles designed to bring the Cross brand to younger fashion-forward consumers. In 2005, readers, watches and business accessories comprised approximately 3% of WI&A sales. We have developed a foothold in these categories and look forward to further strengthening our presence in 2006.
The 2003 acquisition of Costa Del Mar has proven to be very successful. Since the Costa Del Mar acquisition, Cross has benefited from revenue diversification and a substantial contribution to the bottom line. In 2005, Costa Del Mar grew its business 30% through new product introductions and expanded distribution. Costa Del Mar upholds our commitment to delivering exceptional product, innovation and quality to our consumers. The Company continues to look for appropriate acquisitions that will add to top and bottom line growth.
In July 2003, we announced a corporate restructuring program, which involves streamlining our operations and transitioning the manufacturing of certain products overseas in order to reduce our cost structure. The savings we generate will be used to invest in growing our businesses while at the same time generating an appropriate level of profitability. Our corporate reorganization program has two components: administrative and manufacturing. On the administrative side, we streamlined our North American and European non-manufacturing operations and shifted resources to our marketing and selling functions. On the manufacturing side we have adopted a very deliberate process in order to maintain our strict quality standards. The first products moved offshore during 2004, more were transitioned in 2005 and the remaining are planned to be transitioned in 2006. The Company expects the restructuring program to be effectively complete by the end of 2006. This initiative is dependent on our complete satisfac tion that all product meets the high-quality standards that consumers expect from Cross. We believe these actions are necessary to preserve Cross's ability to remain a competitive, profitable company. We believe that this restructuring program will provide a more efficient operating structure that will allow us to focus more intensely on building and growing our accessory portfolio. For an analysis of the corporate restructuring program, see Note C to the Company's consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
Comparison of Fiscal 2005 with Fiscal 2004
The following chart details net sales performance by segment and operating unit:
(THOUSANDS OF DOLLARS) |
FISCAL 2005 |
FISCAL 2004 |
PERCENTAGE CHANGE |
|||
Writing Instruments and Accessories: |
||||||
Americas |
$ 51,835 |
$ 54,415 |
(4.7)% |
|||
Europe, Middle East and Africa |
36,406 |
38,401 |
(5.2)% |
|||
Asia |
18,274 |
18,486 |
(1.1)% |
|||
Other |
___3,039 |
___3,083 |
(1.4)% |
|||
Sub-total |
109,554 |
114,385 |
(4.2)% |
|||
Optical |
__19,561 |
__15,095 |
29.6% |
|||
Consolidated Net Sales |
$129,115 |
$129,480 |
(0.3)% |
Writing instruments and accessories revenue in the Americas declined $2.6 million, or 4.7 %. Sales to the national accounts in the United States, including the three office superstores, were essentially flat compared to 2004. Business gift sales in the United States, although improved in the second half of 2005, were 2.7% less than 2004 as demand for writing instruments for general corporate promotional purposes continues to decline. To offset this decline, the Company has expanded into the higher priced incentive gift market. United States retail sales to carriage trade accounts declined 4% in 2005 compared to 2004. Direct to consumer sales, including sales through the Company's website, the Company's toll free 800 number and the Company's retail stores, some of which resulted from our new consumer direct mail catalog, increased by 30% in 2005 compared to 2004. Sales in Latin America in 2005 increased 2.8% compared to 2004.
Sales in the Europe, Middle East and Africa region ("EMEA") declined 5.2% compared to fiscal 2004. Foreign exchange was unfavorable to EMEA sales results by approximately 1.3 percentage points as sales volume decreased approximately 3.9% for the full year. Declines in sales at the Company's subsidiary markets in the UK, France and Spain of 8.6%, 17.1% and 7.8%, respectively, were somewhat offset by increased sales in the Company's Eastern Europe, Middle East and Africa distributor markets.
10
Asia revenue of $18.3 million decreased 1.1% compared to fiscal 2004. Foreign exchange did not have a material impact on Asian sales in 2005 compared to 2004.
The optical segment, which consists of the Company's Costa Del Mar subsidiary, increased revenue by 29.6% in 2005 compared to 2004. This increase was due largely to a number of new product introductions made in 2005, expanded distribution on the west coast of the United States and the effect of a price increase in September 2005.
The following chart details gross profit margins for both the writing instruments and accessories segment as well as the consolidated gross profit margins:
Gross Profit Margins: |
FISCAL 2005 |
FISCAL 2004 |
PERCENTAGE POINT CHANGE |
|||
Writing Instruments and Accessories |
47.6% |
47.8% |
(0.2) |
|||
Consolidated |
48.7% |
48.5% |
0.2 |
Cost of goods sold in 2005 was decreased by approximately $1.7 million due to the impact of a liquidation of LIFO layers and increased by approximately $1.2 million for the inflationary impact on ending inventories accounted for on a LIFO basis. There were no liquidations in 2004 and the impact of inflation was nominal. In addition, lower inventory obsolescence provisions of approximately $0.5 million favorably affected margins in 2005 compared to 2004. Optical segment gross margin improved by 1.5 percentage points from 2004, primarily due to the positive effect of new product margins as well as a price increase implemented in September 2005.
Consolidated selling, general and administrative ("SG&A") expenses were approximately $56.0 million, 2.3% lower than 2004. SG&A expenses were 43.4% of net sales in 2005 compared to 44.3% of net sales in 2004. SG&A expenses for the WI&A segment were approximately $48.6 million, 4.8% less than 2004. Included in 2005 WI&A SG&A expense is $732,000 of credits related to the reversal of certain payroll tax and non-income based tax reserves established prior to 2005 that were determined to be no longer necessary. As a result of the restructuring program, the Company realized general and administrative savings, most of which have been reinvested in developing and launching new products and implementing our direct-to-consumer strategies; as well as covering the increased costs associated with employee benefits and Sarbanes-Oxley compliance. Optical segment SG&A expenses of $7.4 million were 17.8% higher than fiscal 2004. The majority of this increase was in selling expenses for sa les volume related items such a sales commissions and promotional spending.
Service and distribution ("S&D") expenses were approximately $3.0 million, or 2.3% of net sales, in both fiscal 2005 and 2004.
Research and development ("R&D") expenses were approximately $1.8 million in both fiscal 2005 and 2004.
Restructuring charges of $1.2 million were recorded in the Company's WI&A segment in fiscal 2005 compared to $2.3 million in fiscal 2004. These charges were related to the corporate restructuring program announced in July 2003. For an analysis of the corporate restructuring program, see Note C to the Company's consolidated financial statements in Item 8 of this Annual Report on Form10-K.
Interest and other (expense) income was $0.4 million of expense in fiscal 2005 compared to $0.1 million of income in fiscal 2004. Interest income in fiscal 2005 was $0.3 million compared to $0.7 million in 2004. In 2004, the Company recorded $0.4 million of interest income on the property tax settlement with the Town of Lincoln, Rhode Island. Interest expense was $0.2 million higher in 2005 due to the higher level of borrowings. The following chart details the major components of interest and other (expense) income:
(THOUSANDS OF DOLLARS) |
FISCAL 2005 |
FISCAL 2004 |
CHANGE |
||||
Interest Income |
$ 279 |
$ 687 |
$(408 |
) |
|||
Interest expense |
(586 |
) |
(413 |
) |
(173 |
) |
|
Other |
__(79 |
) |
_(178 |
) |
___99 |
||
Interest and Other (Expense) Income |
$(386 |
) |
$ 96 |
$(482 |
) |
In fiscal 2005, the Company's effective tax rate was 33.0% compared to 45.0% in fiscal 2004. In 2005, as a result of the American Jobs Creation Act of 2004, the Company revised its capital allocation and repatriation strategy in order to take advantage of the temporary reduction in the income tax rate for dividends. The 2005 income tax provision includes approximately $0.9 million of income taxes associated with the Company's repatriation of foreign earnings as provided for under the American Jobs Creation Act of 2004. For an analysis of income taxes see Note J to the Company's consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
As a result of the foregoing, the consolidated net income in fiscal 2005 was $0.4 million ($0.03 net income per share, basic and diluted) as compared to the fiscal 2004 net loss of $0.9 million ($0.06 net loss per share, basic and diluted).
11
Comparison of Fiscal 2004 with Fiscal 2003
The following chart details net sales performance by segment and operating unit:
(THOUSANDS OF DOLLARS) |
FISCAL 2004 |
FISCAL 2003 |
PERCENTAGE CHANGE |
|||
Writing Instruments and Accessories: |
||||||
Americas |
$ 54,415 |
$ 61,653 |
(11.7)% |
|||
Europe, Middle East and Africa |
38,401 |
34,613 |
10.9% |
|||
Asia |
18,486 |
16,782 |
10.2% |
|||
Other |
___3,083 |
___4,385 |
(29.7)% |
|||
Sub-total |
114,385 |
117,433 |
(2.6)% |
|||
Optical |
__15,095 |
___8,932 |
69.0% |
|||
Consolidated Net Sales |
$129,480 |
$126,365 |
2.5% |
Writing instruments and accessories revenue in the Americas region declined by $7.2 million, or 11.7%, in 2004. This decline was primarily due to an 11.2% decline in domestic sales, as our national accounts division declined by 20% in 2004 compared to 2003. Office superstore accounts, which are handled by the national accounts division, reduced their on hand inventory levels of Cross product by approximately 18% during the year. In addition, sell through of the Company's products was down 13% year on year.
Business gift sales in the United States in 2004 were 12% below 2003 as corporate demand for fine writing products declined due to competition from lower priced writing instrument products and other product categories.
Retail sales in the United States, consisting of sales to carriage trade customers and direct to consumer sales, primarily through the Company's website, increased 2% in 2004 compared to 2003. Sales through the Company's website, www.cross.com, increased 64%. However, this was partially offset by a 4.5% decline in sales to carriage trade retailers. Starting in mid-2003, the Company transitioned from manufacturers' sales representatives to a direct sales force. The sales results for the east coast sales force, which transitioned mid-2003, increased 13% in 2004 compared to 2003. Sales for the west coast, which transitioned early in 2004, were down 2% for the year, but showed improved results compared to 2003 for the second, third and fourth quarters. The central/southern region, in the midst of transition, performed poorly as did military accounts. The Company's manufacturers' sales representatives for collegiate accounts improved results by 26.5%.
The increase in sales in the EMEA region was largely due to the effects of foreign exchange as the weaker United States dollar versus the euro and pound sterling resulted in higher translated United States dollar sales in 2004. Foreign exchange was favorable to EMEA sales results by approximately 8.7 percentage points as sales volume increased approximately 2% for the full year. Sales to customers in our subsidiary markets in the United Kingdom, France, Germany and Ireland were up 18%, 28%, 8% and 13% respectively.
Asia revenue of $18.5 million in 2004 increased 10.2% compared to fiscal 2003 and increased by approximately 6% excluding the favorable effects of foreign exchange. Sales by our Hong Kong subsidiary increased 35% in 2004 as the Company launched a major effort in China to place Cross "shop-in-shops" in important stores in a number of large cities.
The Company's other sales consist of OEM sales of writing instruments and digital pens as well as its two retail test stores opened during 2004 in the greater Boston area. OEM sales decreased 40% compared to fiscal 2003 largely the result of a decline in the sales of digital pens for tablet PC products. Revenue from the Company's two retail test stores partially offset this decline.
The optical segment, which consists of the Company's Costa Del Mar subsidiary, increased revenue by 18% in fiscal 2004 compared to the comparable 2003 fiscal period. This increase was due to a number of new product introductions made in 2004 along with expanded distribution on the west coast of the United States.
The following chart details gross profit margins for both the writing instruments and accessories segment as well as the consolidated gross profit margins:
Gross Profit Margins: |
FISCAL 2004 |
FISCAL 2003 |
PERCENTAGE POINT CHANGE |
|||
Writing Instruments and Accessories |
47.8% |
50.7% |
(2.9) |
|||
Consolidated |
48.5% |
51.0% |
(2.5) |
Writing instrument and accessory margins were adversely affected by additional inventory obsolescence reserves recorded in the fourth quarter of 2004 for certain slow-moving or discontinued products as the Company streamlined its product offering for 2005. This higher provision for inventory obsolescence comprised 1.4 percentage points of the 2.9 percentage point decline in writing instruments and accessories gross margin. The remaining decline was largely attributable to the highly competitive market conditions, which affected margins throughout 2004. The optical segment's gross margin for fiscal 2004 had a slight, but favorable effect on the consolidated gross margin for the year.
12
Consolidated selling, general and administrative ("SG&A") expenses of approximately $57.4 million were $1.4 million, or 2.4%, higher than in 2003. SG&A expenses were 44.3% of net sales in both 2004 and 2003. SG&A expenses for WI&A of approximately $51.1 million were $0.8 million lower than fiscal 2003. The effect of foreign exchange in the WI&A segment resulted in approximately $1.6 million of higher SG&A expenses, which was more than offset by savings resulting from the Company's restructuring program. SG&A expenses for the optical segment were $6.3 million in fiscal 2004 and $4.1 million from the April 2003 acquisition date through January 3, 2004.
Service and distribution ("S&D") expenses of $3.0 million were $0.2 million higher than fiscal 2003 and are in line with the increase in revenue compared to fiscal 2003.
Research and development ("R&D") expenses of $1.8 million were $0.2 million lower than fiscal 2003. This was due primarily to more WI&A segment R&D work being outsourced than performed in-house. Offsetting this somewhat was an increase in R&D at the optical segment in support of the new product lines.
Restructuring charges of $2.3 million were recorded in the Company's WI&A segment in fiscal 2004 compared to $2.4 million in fiscal 2003. These charges were related to the corporate restructuring program announced in July 2003. For an analysis of the corporate restructuring program, see Note C to the Company's consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
A $1.0 million gain on disposition of asset held for sale was recorded in fiscal 2003 as a result of the 2003 sale of the Company's former manufacturing and distribution facility in Ireland, which was closed in 2001.
Consolidated interest income in fiscal 2004 was $0.7 million compared to $0.5 million in 2003. In 2004, the Company recorded $0.4 million of interest income on the property tax settlement with the Town of Lincoln, Rhode Island. In 2003, the Company recorded $156,000 of interest income on the value added tax claim settlement with the Spanish government. Excluding these one-time events, interest income in 2004 was 23% lower than 2003 due to the lower level of average invested funds on relatively flat average interest rates. The following chart details the major components of interest and other income (expense):
(THOUSANDS OF DOLLARS) |
FISCAL 2004 |
FISCAL 2003 |
CHANGE |
||||
Interest income |
$ 687 |
$ 526 |
$ 161 |
||||
Interest expense |
(413 |
) |
(291 |
) |
(122 |
) |
|
Unrealized loss on trading securities |
(19 |
) |
(105 |
) |
86 |
||
Other |
_(159 |
) |
_(196 |
) |
___37 |
||
Interest and Other Income (Expense) |
$ 96 |
$ (66 |
) |
$ 162 |
In fiscal 2004, the Company's effective tax rate was 45.0% compared to 19.9% in fiscal 2003. The increase in 2004 over the Federal statutory rate was primarily related to the reduction in the reserve for potential income tax exposures. In 2003, the rate was favorably affected by a benefit from foreign sourced income taxed at lower rates. For an analysis of income taxes see Note J to the Company's consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
As a result of the foregoing, the consolidated net loss in fiscal 2004 was $0.9 million ($0.06 net loss per share, basic and diluted) as compared to the fiscal 2003 net income of $1.8 million ($0.12 net income per share, basic and diluted).
Liquidity and Capital Resources
Historically, the Company's sources of liquidity and capital resources have been its cash, cash equivalents and short-term investments ("cash"), cash generated from operations and amounts available under the Company's line of credit. These sources have been sufficient in the past to support the Company's routine operating requirements, capital projects, restructuring, defined benefit retirement plan contributions, stock repurchase programs and debt service. The Company does not expect its future cash needs in 2006 to increase to the extent that these historical sources of liquidity and capital will not be sufficient to meet its needs.
The Company's cash balance of $11.1 million at the end of fiscal 2005 declined $4.4 million from the prior year, a result of many factors, the most significant of which are described in this section.
Accounts receivable increased approximately $1.9 million from the prior year. WI&A segment accounts receivable of $27.8 million increased approximately $0.7 million from the prior year while optical segment accounts receivable of $4.0 million increased by $1.2 million from a year ago. The Company offers a dating program, primarily to its domestic retail writing instrument customers, whereby they may either delay payment on certain third and fourth quarter purchases until January of the next year or earn a greater discount if payment is made earlier. The increase in both the writing instrument and optical segment accounts receivable was largely the result of the December 2005 sales increase compared to December 2004.
Total inventory of $15.0 million decreased by $0.5 million compared to year end 2004. WI&A segment inventory declined by $1.1 million, due to both the higher December 2005 sales volume and the Company's restructuring program. As part of the restructuring program, the Company has transferred ownership of certain raw material and
13
work-in-process inventory to its Chinese contract manufacturer in conjunction with the transition of product lines that are currently produced solely in China. At December 31, 2005 and January 1, 2005, approximately $4.6 million and $1.3 million, respectively, were owed to the Company for that inventory, and the related receivable balance is included in receivable from Chinese contract manufacturer. Optical segment inventory of $3.7 million increased $0.6 million in order to support anticipated increased sales volumes in the first quarter of 2006.
In fiscal 2005, approximately $1.2 million was paid as a result of a corporate restructuring program initiated in 2003. The amount paid since the inception of this program through the end of fiscal 2005 was $5.7 million. The total cost of this restructuring program is expected to be approximately $7.5 million incurred over the life of the program, assuming full implementation. The total cash portion of this restructuring program is expected to be approximately $7.5 million. As a result of the restructuring program, the Company realized general and administrative savings, most of which have been reinvested in developing and launching new products and implementing our direct-to-consumer strategies; as well as covering the increased costs associated with employee benefits and Sarbanes-Oxley compliance. The Company expects the restructuring program to be effectively complete by the end of 2006.
The Company's working capital was $50.3 million at the end of fiscal 2005, an increase of $5.2 million from fiscal 2004, and its current ratio at the end of fiscal 2005 and 2004 was 3.2:1 and 2.6:1, respectively. Operating cash flow was $0.4 million in fiscal 2005 compared to $6.2 million in fiscal 2004. This decrease was largely due to the effect of higher accounts receivable and the receivable due from our Chinese contract manufacturer at the end of 2005 compared to the end of 2004.
Additions to property, plant and equipment were approximately $4.3 million in fiscal 2005 and $4.5 million in 2004. In fiscal 2006, the Company expects capital expenditures to be approximately $6.0 million. Depreciation expense in 2006 is expected to be approximately $5.7 million.
On October 23, 2002, the Company's Board of Directors authorized a plan to repurchase up to 10% of the outstanding Class A common stock. Under this plan, the Company plans to purchase in total approximately 1.4 million shares of stock on the open market, subject to regulatory considerations, from time to time, depending on market conditions. In 2005, the Company repurchased 186,700 shares for approximately $1.0 million at an average price per share of $5.33. At December 31, 2005, the Company had repurchased 1,173,700 shares under this plan for approximately $6.3 million at an average price per share of $5.41.
The Company maintains a $20 million secured line of credit with a bank. Under this agreement, the Company has the option to borrow at various interest rates depending upon the type of borrowings made and the Company's consolidated leverage ratio. The unused and available portion of the Company's $20 million line of credit was $9.5 million at December 31, 2005.
The Company expects to make a cash contribution of approximately $1.1 million to its defined benefit retirement plan in 2006.
The Company expects fiscal 2006 research and development expenses to be approximately $2.5 million.
The Company believes that existing cash and funds from operations, supplemented as appropriate by the Company's borrowing arrangements, will be adequate to finance its foreseeable operating and capital requirements, the remaining requirements of the restructuring and stock repurchase plans and contributions to the defined benefit retirement plan. Should operating cash flows in 2006 not materialize as projected, the Company has a number of planned alternatives to ensure that it will have sufficient cash to meet its operating needs. These alternatives include implementation of strict cost controls on discretionary spending and delaying non-critical research and development, capital projects and completion of the stock repurchase plan.
At the end of fiscal 2005, cash available for domestic operations amounted to approximately $6.3 million, and cash held offshore for international operations amounted to approximately $4.8 million.
Contractual Obligations and Commercial Commitments
An interest rate swap agreement effectively fixes the rate on a portion of the Company's line of credit at 4.15%. The Company leases office and warehouse space and certain equipment under non-cancelable operating leases that expire through 2014. Future minimum lease payments under all non-cancelable leases and other contractual obligations at December 31, 2005 were approximately:
(THOUSANDS OF DOLLARS) |
TOTAL |
LESS THAN 1 YEAR |
1 TO 3 YEARS |
3 TO 5 YEARS |
MORE THAN 5 YEARS |
||||||
Long-Term Debt, Including Interest |
$11,824 |
$ - |
$11,824 |
$ - |
$ - |
||||||
Operating Leases |
4,192 |
1,538 |
1,738 |
461 |
455 |
||||||
Pension Plan Obligations |
1,125 |
1,125 |
- |
- |
- |
||||||
Capital Lease Obligations |
206 |
69 |
137 |
- |
- |
||||||
Purchase Obligations |
____93 |
___93 |
______- |
___- |
___- |
||||||
Total |
$17,440 |
$2,825 |
$13,699 |
$461 |
$455 |
14
Off Balance Sheet Arrangements
The Company has no material off balance sheet arrangements.
New Accounting Pronouncements
For a description of new accounting pronouncements that affect the Company and the status of the Company's implementation thereof, see the "New Accounting Pronouncements" section of Note A to the Company's consolidated financial statements in Item 8 of this Annual Report on Form 10-K. None are expected to have a material impact on the Company's consolidated financial position or results of operations.
Impact of Inflation and Changing Prices
The Company's operations are subject to the effects of general inflation as well as fluctuations in foreign currencies. Policies and programs are in place to manage the potential risks in these areas. The Company has generally been successful in controlling cost increases due to general inflation. The Company continues to review its number of suppliers in order to obtain lower costs and higher quality on many of its materials and purchased components. Steps taken in conjunction with restructuring efforts have reduced operating costs in its manufacturing operations.
The Company normally enters into foreign currency exchange contracts to economically hedge that portion of its net financial position exposed to foreign currency fluctuations.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosures of contingent liabilities. We evaluate our policies and estimates on an ongoing basis, including those related to tax contingencies, inventory obsolescence reserves, warranty reserves, impairment of assets, retirement obligations and revenue recognition. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We have identified the following policies as critical to an understanding of our results of operations and financial condition. This is not a comprehensive list of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management's judgment in its application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. For a discussion of our other accounting policies, see Note A "Significant Accounting Policies" to the Company's consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
Tax Contingencies.
We are subject to a variety of income and other non-income based taxes in numerous jurisdictions around the world. We are also periodically reviewed by tax authorities and positions we have taken with respect to the tax returns are subject to interpretation and negotiation. We provide for estimated tax contingencies that we believe are both probable and estimable. Our assessments are based on our understanding of the appropriate tax law, the estimated exposure and probability of a successful assessment by the taxing authorities. In 2005, net income was increased by approximately $0.6 million due to the reversal on non-income based tax reserves provided in prior years which were no longer deemed necessary due to the passing of statutes of limitation or as a result of updating our estimates. In addition, our income tax provision for 2005 was reduced by approximately $0.4 million for the impact of income tax contingencies that were resolved in the current year and the updating of our estimates.Inventory Reserves.
Our global inventories are carried at the lower of cost or market, which requires us to estimate reserves for both obsolescence and the market value we can expect to receive for our on hand inventory. Domestic WI&A segment inventories accounted for on a LIFO basis represent approximately one-third of total inventories. As a result, domestic WI&A finished goods inventories are carried significantly below their current cost and they can typically be realized at selling prices above their carrying value. Because we are required to produce our product with sufficient lead time to satisfy global distribution and expected demand during seasonal peak periods, we are subject to the risks of consumer acceptance of the products we have produced. We assess our need for obsolescence reserves based on a variety of factors including historical demand, future marketing plans and alte rnative uses for raw material and work-in-process.
15
Warranty Reserves.
The Company's Cross branded writing instruments are sold with a full warranty of unlimited duration against mechanical failure. Costa Del Mar sunglasses are sold with a lifetime warranty against defects in materials and workmanship. In establishing the accrual for warranty costs, management analyzes trends, measured over a period of several years, of several factors that impact the Company's cost to service the warranty. The most significant factors include: the operating costs of the service department, unit sales, the number of units that are returned for warranty repair and the cost of product repairs. The estimates affecting the warranty reserve are updated annually.Retirement Obligations.
The Company's pension benefits are calculated using actuarial concepts, within the framework of Statement of Financial Accounting Standard ("SFAS") No. 87 "Employer's Accounting for Pensions." Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and liability measurement. We evaluate these critical assumptions annually. Other assumptions involve demographic factors such as retirement, mortality, turnover and rate of compensation increases. The discount rate enables us to state expected future cash flow as a present value on the measurement date. The guideline for setting this rate is a high-quality long-term corporate bond rate. A lower discount rate increases the present value of benefit obligations and increases pension expense. We reduced our discount rate to 5.6% in 2005 from 5.85% in 2004 to reflect m arket interest rate conditions. To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. A lower expected rate of return on pension plan assets will increase pension expense. Our long-term expected return on plan assets was 8.25% in 2005 and 2004.Impairment Analysis.
The Company tests goodwill for impairment at least annually. The Company completed its impairment testing as of November 28, 2005 and determined that goodwill was not impaired. Management's estimates of fair values, projections of future cash flows and other factors are significant factors in testing goodwill for impairment. If these estimates or projections change in the future, the Company may be required to record an impairment charge. Approximately one-half of our goodwill is attributable to the WI&A segment. Our projections for the WI&A segment include significant improvements to our current results as we achieve the benefits of further restructuring and the migration of manufacturing operations to China.Revenue Recognition.
Revenue recognition requires estimates of product returns, term discounts and rebates at the time revenue is recognized. These estimates are based on customer communication and historical experience. Should these estimates change, there could be a material effect on revenue recognized.For additional information regarding management's estimates, see "Risk Factors" in Item 1A of this Annual Report on Form 10-K and the "Forward-Looking Statements" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report on Form 10-K.
Forward-Looking Statements
Statements contained herein that are not historical fact are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as "believes," "anticipates," "expects," "will" and similar expressions are intended to identify forward-looking statements, including but not limited to statements related to the introduction of new writing instrument products; the new direct to consumer initiatives; the performance of Cross branded non writing instrument products, including watches, precision readers and business accessories; the availability of necessary raw materials and manufacturing technologies; the continued performance of Costa Del Mar; innovation of the Company's programs; benefits of a streamlined operation; diversification of the business beyond writing instruments; anticipated compliance with laws and regulations (including but not limited to environmental laws ); and anticipated sufficiency of available working capital. The Company cautions that a number of important factors could cause the Company's actual results for fiscal 2006 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements involve a number of risks and uncertainties. For a discussion of certain of those risks, see "Risk Factors" in Item 1A of this Annual Report on Form 10-K.
16
Item 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is exposed to changes in interest rates and foreign currency exchange, primarily in its investments, line of credit and foreign currency transactions.
The Company maintains a $20 million secured line of credit with a bank. Under this agreement, the Company has the option to borrow at various interest rates depending upon the type of borrowings made and the Company's consolidated leverage ratio. The Company believes that changes in interest rates would not be material to its operations, due to its anticipated level of borrowings.
There was $10.5 million outstanding under the Company's new line of credit at December 31, 2005. There was $3 million outstanding under the Company's former line of credit at January 1, 2005.
The Company entered into an interest rate swap agreement that effectively fixes the interest rate on a portion of its line of credit at 4.15% per annum. At December 31, 2005, the notional value of the interest rate swap was $5.5 million.
The Company's foreign exchange exposure is generated primarily from its international operating subsidiaries. The Company seeks to minimize the impact of foreign currency fluctuations by hedging certain foreign currency denominated balance sheet positions with foreign currency forward exchange contracts and/or options. Most of these contracts are short-term, generally expire in one to three months and do not subject the Company to material market risk. The Company does not enter into foreign currency exchange transactions for speculative purposes.
Item 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX |
|||
PAGE |
|||
Report of Independent Registered Public Accounting Firm ............................................................... |
18 |
||
Consolidated Financial Statements of the A.T. Cross Company: |
|||
Consolidated Balance Sheets as of December 31, 2005 and January 1, 2005 ................ |
19 |
||
Consolidated Statements of Operations for the Years Ended |
|||
December 31, 2005, January 1, 2005 and January 3, 2004 ............................................... |
20 |
||
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended |
|||
December 31, 2005, January 1, 2005 and January 3, 2004 ............................................... |
20 |
||
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended |
|||
December 31, 2005, January 1, 2005 and January 3, 2004 ............................................... |
21 |
||
Consolidated Statements of Cash Flows for the Years Ended |
|||
December 31, 2005, January 1, 2005 and January 3, 2004 ............................................... |
22 |
||
Notes to Consolidated Financial Statements ............................................................................. |
23 - 35 |
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
A.T. Cross Company
Lincoln, Rhode Island
We have audited the accompanying consolidated balance sheets of A.T. Cross Company and subsidiaries (the "Company") as of December 31, 2005 and January 1, 2005, and the related statements of operations, comprehensive (loss) income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed at Item 15C. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statemen t presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and January 1, 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Boston, Massachusetts
March 21, 2006
18
CONSOLIDATED BALANCE SHEETS
A.T. CROSS COMPANY & SUBSIDIARIES
ASSETS |
DECEMBER 31, 2005 |
JANUARY 1, 2005 |
|||||||||||
Current Assets |
|||||||||||||
Cash and cash equivalents |
$ 11,073,921 |
$ 10,433,809 |
|||||||||||
Short-term investments |
- |
5,067,993 |
|||||||||||
Accounts receivable, less allowances for doubtful accounts of |
|||||||||||||
$1,007,000 in 2005 and $1,179,000 in 2004 |
31,843,941 |
29,986,283 |
|||||||||||
Inventories: |
Finished goods |
8,719,383 |
7,838,912 |
||||||||||
Work in process |
2,756,500 |
4,141,240 |
|||||||||||
Raw materials |
___ 3,559,596 |
___ 3,527,457 |
|||||||||||
15,035,479 |
15,507,609 |
||||||||||||
Deferred income taxes |
6,339,510 |
5,420,780 |
|||||||||||
Receivable from Chinese contract manufacturer |
4,637,022 |
1,267,124 |
|||||||||||
Other current assets |
___ 4,659,807 |
___ 5,364,674 |
|||||||||||
Total Current Assets |
73,589,680 |
73,048,269 |
|||||||||||
Property, Plant and Equipment |
|||||||||||||
Land and land improvements |
1,201,732 |
1,201,732 |
|||||||||||
Buildings |
16,729,559 |
16,635,130 |
|||||||||||
Machinery and equipment |
_ 111,486,024 |
_ 111,102,105 |
|||||||||||
129,417,315 |
128,938,967 |
||||||||||||
Less accumulated depreciation |
_ 107,724,723 |
_ 105,199,435 |
|||||||||||
Net Property, Plant and Equipment |
21,692,592 |
23,739,532 |
|||||||||||
Goodwill |
7,288,014 |
7,288,014 |
|||||||||||
Intangibles, Net |
4,809,444 |
4,935,570 |
|||||||||||
Deferred Income Taxes |
4,990,918 |
3,823,049 |
|||||||||||
Other Assets |
_____ 522,594 |
_____ 516,407 |
|||||||||||
Total Assets |
$112,893,242 |
$113,350,841 |
|||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||||||||
Current Liabilities |
|||||||||||||
Line of credit |
$ - |
$ 3,000,000 |
|||||||||||
Current maturities of long-term debt |
- |
1,350,000 |
|||||||||||
Accounts payable |
5,425,033 |
5,081,783 |
|||||||||||
Accrued compensation and related taxes |
4,591,878 |
4,171,714 |
|||||||||||
Accrued expenses and other liabilities |
11,075,823 |
12,305,213 |
|||||||||||
Retirement plan obligations |
1,736,005 |
1,709,267 |
|||||||||||
Restructuring liabilities |
273,326 |
288,853 |
|||||||||||
Income taxes payable |
____ 196,156 |
_____ 16,301 |
|||||||||||
Total Current Liabilities |
23,298,221 |
27,923,131 |
|||||||||||
Retirement Plan Obligations |
10,504,939 |
8,310,473 |
|||||||||||
Long-Term Debt, Less Current Maturities |
10,456,179 |
5,512,500 |
|||||||||||
Accrued Warranty Costs |
1,456,608 |
1,602,844 |
|||||||||||
Commitments and Contingencies (Note L) |
- |
- |
|||||||||||
Shareholders' Equity |
|||||||||||||
Common stock, par value $1 per share: |
|||||||||||||
Class A-authorized 40,000,000 shares, 16,455,099 shares issued and |
|||||||||||||
13,095,351 shares outstanding at December 31, 2005, and 16,347,082 |
|||||||||||||
shares issued and 13,174,034 shares outstanding at January 1, 2005 |
16,455,099 |
16,347,082 |
|||||||||||
Class B-authorized 4,000,000 shares, 1,804,800 shares issued and |
|||||||||||||
outstanding at December 31, 2005 and January 1, 2005 |
1,804,800 |
1,804,800 |
|||||||||||
Additional paid-in capital |
17,561,390 |
17,142,209 |
|||||||||||
Unearned stock-based compensation |
(769,044 |
) |
(791,774 |
) |
|||||||||
Retained earnings |
63,076,096 |
62,691,947 |
|||||||||||
Accumulated other comprehensive loss |
__ (4,802,962 |
) |
__ (2,039,060 |
) |
|||||||||
93,325,379 |
95,155,204 |
||||||||||||
Treasury stock, at cost, 3,359,748 shares in 2005 and |
|||||||||||||
3,173,048 shares in 2004 |
_ (26,148,084 |
) |
_ (25,153,311 |
) |
|||||||||
Total Shareholders' Equity |
__ 67,177,295 |
__ 70,001,893 |
|||||||||||
Total Liabilities and Shareholders' Equity |
$112,893,242 |
$113,350,841 |
|||||||||||
See notes to consolidated financial statements. |
19
CONSOLIDATED STATEMENTS OF OPERATIONS
A.T. CROSS COMPANY & SUBSIDIARIES
_______________________ YEARS ENDED_______________________ |
||||||||||
DECEMBER 31, 2005 |
JANUARY 1, 2005 |
JANUARY 3, 2004 |
||||||||
Net sales |
$129,114,878 |
$129,480,298 |
$126,365,475 |
|||||||
Cost of goods sold |
__ 66,204,804 |
__ 66,690,155 |
__ 61,889,832 |
|||||||
Gross Profit |
62,910,074 |
62,790,143 |
64,475,643 |
|||||||
Selling, general and administrative expenses |
56,021,004 |
57,368,038 |
56,014,123 |
|||||||
Service and distribution costs |
2,987,795 |
2,967,356 |
2,783,252 |
|||||||
Research and development expenses |
1,790,479 |
1,780,326 |
1,942,783 |
|||||||
Restructuring charges |
1,150,510 |
2,323,673 |
2,440,754 |
|||||||
Gain on disposition of asset held for sale |
________ - |
_________ - |
___ (988,569 |
) |
||||||
Operating Income (Loss) |
960,286 |
(1,649,250 |
) |
2,283,300 |
||||||
Interest and other (expense) income, net |
_ (386,754 |
) |
___ 95,683 |
____ (65,752 |
) |
|||||
Income (Loss) Before Income Taxe s |
573,532 |
(1,553,567 |
) |
2,217,548 |
||||||
Income tax provision (benefit) |
__ 189,383 |
__ (698,460 |
) |
___ 440,530 |
||||||
Net Income (Loss) |
$ 384,149 |
$ (855,107 |
) |
$ 1,777,018 |
||||||
Basic and Diluted Net Income (Loss) Per Share: |
||||||||||
Net Income (Loss) Per Share |
$0.03 |
$(0.06 |
) |
$0.12 |
||||||
Weighted Average Shares Outstanding: |
||||||||||
Denominator for Basic Net Income (Loss) Per Share |
14,719,251 |
14,925,848 |
15,080,115 |
|||||||
Effect of Dilutive Securities: |
||||||||||
Common stock equivalents |
___ 62,531 |
_______ -(A) |
___ 137,805 |
|||||||
Denominator for Diluted Net Income (Loss) Per Share |
14,781,782 |
14,925,848 |
15,217,920 |
|||||||
(A) |
106,254 incremental shares related to options or restricted stocks granted are not included due to the net loss since the effects of such shares would be anti-dilutive. |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
A.T. CROSS COMPANY & SUBSIDIARIES
_______________________ YEARS ENDED_______________________ |
|||||||||
DECEMBER 31, 2005 |
JANUARY 1, 2005 |
JANUARY 3, 2004 |
|||||||
Net Income (Loss) |
$ 384,149 |
$ (855,107 |
) |
$ 1,777,018 |
|||||
Other Comprehensive Income (Loss), Net of Tax: |
|||||||||
Foreign currency translation adjustments |
(937,448 |
) |
308,312 |
799,110 |
|||||
Unrealized (loss) gain on interest rate swap, net of tax |
|||||||||
(benefit) provision of ($5,535) and $38,038 and |
|||||||||
($32,503) |
(10,280 |
) |
70,642 |
(60,362 |
) |
||||
Minimum pension liability adjustment, net of tax |
|||||||||
benefit of ($1,028,723), ($979,391) and ($2,263) |
__ (1,816,174 |
) |
__ (2,089,820 |
) |
_____ (9,050 |
) |
|||
Comprehensive (Loss) Income |
$ (2,379,753 |
) |
$ (2,565,973 |
) |
$ 2,506,716 |
||||
See notes to consolidated financial statements. |
20
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
A.T. CROSS COMPANY & SUBSIDIARIES
COMMON STOCK |
ACCUMULATED |
|||||||||||||||||||||
SHARES & DOLLAR AMOUNT |
ADDITIONAL |
UNEARNED |
OTHER |
TOTAL |
||||||||||||||||||
AT $1 PAR VALUE |
PAID-IN |
STOCK-BASED |
RETAINED |
COMPREHENSIVE |
TREASURY STOCK |
SHAREHOLDERS' |
||||||||||||||||
CLASS A |
CLASS B |
CAPITAL |
COMPENSATION |
EARNINGS |
LOSS |
SHARES |
AMOUNT |
EQUITY |
||||||||||||||
Balances at December 28, 2002 |
$16,009,209 |
$1,804,800 |
$15,688,210 |
$(18,213 |
) |
$61,770,036 |
$(1,057,892 |
) |
2,366,048 |
$(20,895,341 |
) |
$73,300,809 |
||||||||||
Purchase of treasury stock |
494,500 |
(2,610,787 |
) |
(2,610,787 |
) |
|||||||||||||||||
Grant of restricted stock for future services |
50,000 |
212,500 |
(262,500 |
) |
- |
|||||||||||||||||
Stock option activity |
12,600 |
51,581 |
64,181 |
|||||||||||||||||||
Stock purchase plan |
5,368 |
22,289 |
27,657 |
|||||||||||||||||||
Amortization of unearned |
||||||||||||||||||||||
stock-based compensation |
126,130 |
126,130 |
||||||||||||||||||||
Foreign currency translation adjustments |
799,110 |
799,110 |
||||||||||||||||||||
Unrealized loss on interest rate swap |
(60,362 |
) |
(60,362 |
) |
||||||||||||||||||
Minimum pension liability adjustment |
(9,050 |
) |
(9,050 |
) |
||||||||||||||||||
Net income |
___________ |
_________ |
___________ |
________ |
__ 1,777,018 |
__________ |
_________ |
___________ |
__ 1,777,018 |
|||||||||||||
Balances at January 3, 2004 |
16,077,177 |
1,804,800 |
15,974,580 |
(154,583 |
) |
63,547,054 |
(328,194 |
) |
2,860,548 |
(23,506,128 |
) |
73,414,706 |
||||||||||
Purchase of treasury stock |
312,500 |
(1,647,183 |
) |
(1,647,183 |
) |
|||||||||||||||||
Grant of restricted stock for future services |
152,900 |
669,476 |
(822,376 |
) |
- |
|||||||||||||||||
Stock option activity |
99,810 |
412,424 |
512,234 |
|||||||||||||||||||
Stock purchase plan |
2,238 |
11,494 |
13,732 |
|||||||||||||||||||
Non-cash stock-based directors' fees |
14,957 |
74,235 |
89,192 |
|||||||||||||||||||
Amortization of unearned |
||||||||||||||||||||||
stock-based compensation |
185,185 |
185,185 |
||||||||||||||||||||
Foreign currency translation adjustments |
308,312 |
308,312 |
||||||||||||||||||||
Unrealized gain on interest rate swap |
70,642 |
70,642 |
||||||||||||||||||||
Minimum pension liability adjustment |
(2,089,820 |
) |
(2,089,820 |
) |
||||||||||||||||||
Net loss |
___________ |
_________ |
___________ |
________ |
___ (855,107 |
) |
__________ |
________ |
___________ |
___ (855,107 |
) |
|||||||||||
Balances at January 1, 2005 |
16,347,082 |
1,804,800 |
17,142,209 |
(791,774 |
) |
62,691,947 |
(2,039,060 |
) |
3,173,048 |
(25,153,311 |
) |
70,001,893 |
||||||||||
Purchase of treasury stock |
186,700 |
(994,773 |
) |
(994,773 |
) |
|||||||||||||||||
Grant of restricted stock for future services |
50,000 |
211,250 |
(261,250 |
) |
- |
|||||||||||||||||
Stock option activity |
40,000 |
136,250 |
176,250 |
|||||||||||||||||||
Stock purchase plan |
3,663 |
14,953 |
18,616 |
|||||||||||||||||||
Non-cash stock-based directors' fees |
14,354 |
56,728 |
71,082 |
|||||||||||||||||||
Amortization of unearned |
||||||||||||||||||||||
stock-based compensation |
283,980 |
283,980 |
||||||||||||||||||||
Foreign currency translation adjustments |
(937,448 |
) |
(937,448 |
) |
||||||||||||||||||
Unrealized loss on interest rate swap |
(10,280 |
) |
(10,280 |
) |
||||||||||||||||||
Minimum pension liability adjustment |
(1,816,174 |
) |
(1,816,174 |
) |
||||||||||||||||||
Net income |
___________ |
__________ |
___________ |
_________ |
____ 384,149 |
___________ |
_________ |
____________ |
____ 384,149 |
|||||||||||||
Balances at December 31, 2005 |
$16,455,099 |
$1,804,800 |
$17,561,390 |
$(769,044 |
) |
$63,076,096 |
$(4,802,962 |
) |
3,359,748 |
$(26,148,084 |
) |
$67,177,295 |
||||||||||
See notes to consolidated financial statements. |
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
A.T. CROSS COMPANY & SUBSIDIARIES
______________________ YEARS ENDED______________________ |
|||||||||||
CASH PROVIDED BY (USED IN) |
DECEMEBR 31, 2005 |
JANUARY 1, 2005 |
JANUARY 3, 2004 |
||||||||
Operating Activities: |
|||||||||||
Net income (loss) from operations |
$ 384,149 |
$ (855,107 |
) |
$ 1,777,018 |
|||||||
Adjustments to reconcile net income (loss) from |
|||||||||||
operations to net cash provided by operating activities: |
|||||||||||
Depreciation and amortization |
6,977,060 |
7,472,392 |
7,603,678 |
||||||||
Restructuring charges |
1,150,510 |
2,323,673 |
2,440,754 |
||||||||
Gain on disposition of asset held for sale |
- |
- |
(988,569 |
) |
|||||||
Provision for bad debts |
264,519 |
252,483 |
636,079 |
||||||||
Deferred income taxes |
(230,284 |
) |
(1,050,443 |
) |
246,424 |
||||||
Provision for accrued warranty costs |
239,653 |
175,420 |
119,807 |
||||||||
Stock-based directors' fees |
71,082 |
89,192 |
- |
||||||||
Unrealized (gains) losses on trading securities |
(27,881 |
) |
19,246 |
105,404 |
|||||||
Amortization of unearned stock-based compensation |
283,980 |
185,185 |
126,130 |
||||||||
Warranty costs paid |
(458,591 |
) |
(460,697 |
) |
(298,772 |
) |
|||||
Restructuring charges paid |
(1,162,790 |
) |
(3,019,743 |
) |
(3,033,542 |
) |
|||||
Reversal of payroll and non-income based tax reserves |
(832,000 |
) |
- |
- |
|||||||
Foreign currency transaction loss (gain) |
220,103 |
(78,411 |
) |
(8,996 |
) |
||||||
Changes in operating assets and liabilities: |
|||||||||||
Accounts receivable |
(3,143,350 |
) |
2,800,725 |
(2,095,283 |
) |
||||||
Inventories |
138,231 |
735,064 |
(102,704 |
) |
|||||||
Receivable from Chinese contract manufacturer |
(3,369,898 |
) |
(1,267,124 |
) |
- |
||||||
Other assets, net |
(254,914 |
) |
2,035,564 |
(2,126,619 |
) |
||||||
Accounts payable |
402,980 |
(2,035,317 |
) |
861,918 |
|||||||
Other liabilities, net |
__ (219,232 |
) |
_ (1,123,946 |
) |
_ (3,180,873 |
) |
|||||
Net Cash Provided by Operating Activities |
433,327 |
6,198,156 |
2,081,854 |
||||||||
Investing Activities: |
|||||||||||
Acquisition of Costa Del Mar, net of cash acquired |
- |
- |
(9,569,907 |
) |
|||||||
Additions to property, plant and equipment |
(4,288,166 |
) |
(4,527,994 |
) |
(4,110,164 |
) |
|||||
Purchases of short-term investments |
- |
(3,053,815 |
) |
(10,076,464 |
) |
||||||
Sales or maturities of short-term investments |
5,095,874 |
5,893,053 |
10,871,566 |
||||||||
Proceeds from disposition of asset held for sale |
_________ - |
__________ - |
__ 1,563,692 |
||||||||
Net Cash Provided by (Used in) Investing Activities |
807,708 |
(1,688,756 |
) |
(11,321,277 |
) |
||||||
Financing Activities: |
|||||||||||
Proceeds from issuance of long-term debt |
- |
- |
9,000,000 |
||||||||
Repayment of long-term debt |
(6,862,500 |
) |
(1,350,000 |
) |
(787,500 |
) |
|||||
Line of credit proceeds and repayments, net |
7,456,179 |
(155,000 |
) |
2,155,000 |
|||||||
Proceeds from sale of Class A common stock |
194,866 |
525,966 |
91,838 |
||||||||
Purchase of treasury stock |
__ (994,773 |
) |
_ (1,647,183 |
) |
_ (2,610,787 |
) |
|||||
Net Cash (Used in) Provided by Financing Activities |
(206,228 |
) |
(2,626,217 |
) |
7,848,551 |
||||||
Effect of exchange rate changes on cash and cash equivalents |
___ (394,695 |
) |
___ 255,491 |
___ 541,141 |
|||||||
Increase (Decrease) in Cash and Cash Equivalents |
640,112 |
2,138,674 |
(849,731 |
) |
|||||||
Cash and cash equivalents at beginning of year |
_ 10,433,809 |
__ 8,295,135 |
__ 9,144,866 |
||||||||
Cash and Cash Equivalents at End of Year |
$11,073,921 |
$10,433,809 |
$ 8,295,135 |
||||||||
SUPPLEMENTAL INFORMATION: |
|||||||||||
Non-cash financing activities: |
|||||||||||
Conversion of a portion of outstanding line of credit |
|||||||||||
to term note |
$ - |
$ - |
$ 9,000,000 |
||||||||
Income taxes paid (refunded), net |
719,000 |
880,000 |
(20,000 |
) |
|||||||
Interest paid |
586,000 |
407,000 |
290,000 |
||||||||
See notes to consolidated financial statements. |
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.T. CROSS COMPANY & SUBSIDIARIES
DECEMBER 31, 2005
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Nature of Operations:
The consolidated financial statements include the accounts of A.T. Cross Company and its subsidiaries (the "Company"). Upon consolidation, all material intercompany accounts and transactions are eliminated.The Company has two reportable business segments: writing instruments and accessories ("WI&A"), and optical.
The Company's WI&A segment designs, manufactures and markets writing instruments, business accessories and watches throughout the world and is an OEM of writing instruments. Writing instrument products are sold under the Cross brand as well as the Penatia and Omni by Cross brands and under the licensed name Bill Blass. They include ball-point pens, fountain pens, selectip rolling ball pens, mechanical pencils and writing instrument accessories such as refills and desk sets. In addition to writing instrument accessories, the Company offers personal accessory products including watches, precision reading glasses and leather goods.
The Company's optical segment designs, manufactures and markets sunglasses throughout the United States under the Costa Del Mar brand. The Company acquired Costa Del Mar in April 2003.
The accounting policies of the Company's segments are described in this summary of significant accounting policies. The Company evaluates segment performance based upon the profit or loss before income taxes. The Company's reportable segments are strategic business units that offer different product lines. They are managed separately, as each unit requires different technologies and marketing strategies.
Accounting for Estimates:
The preparation of financial statements, in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles"), requires the Company to make assumptions that affect the estimates reported in these consolidated financial statements. Actual results may differ from these estimates.Revenue Recognition:
Revenue from sales is recognized when the following criteria are met: persuasive evidence of an arrangement exists, title to the goods has passed to the customer, the sales price is fixed or determinable, and collection of the sales price is reasonably assured. Provisions are made at the time the related revenue is recognized for estimated product returns, term discounts and rebates.Cash Equivalents and Short-Term Investments:
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments are stated at fair value and consist of interest-bearing investments with a maturity of greater than three months when purchased. At January 1, 2005, short-term investments are classified as trading securities and include time deposits, commercial paper and United States Government Agency bonds. Gains or losses on trading securities, realized and unrealized, are included in interest and other (expense) income in the WI&A segment. At December 31, 2005 and January 1, 2005, approximately 53% and 24%, respectively, of the Company's cash, cash equivalents and short-term investments were on deposit with one financial institution.Marketable Equity Securities:
The Company carries its investments in marketable equity securities that are available-for-sale at fair value and includes them in other current assets. Unrealized holding gains and losses, net of the related tax effect, on such securities are included in accumulated other comprehensive (loss) income, which is reflected in shareholders' equity.Inventories:
Domestic writing instrument inventories are priced at the lower of last-in, first-out ("LIFO") cost or market. The remaining inventories are priced at the lower of first-in, first-out ("FIFO") cost or market.Marketing Support Costs:
The costs of marketing support, including advertising, are charged to expense as incurred and amounted to approximately $11.1 million, $12.5 million and $13.2 million for fiscal 2005, 2004 and 2003, respectively. Accrued marketing support expenses were approximately $2.3 million and $1.9 million at December 31, 2005 and January 1, 2005, respectively, and are included in accrued expenses and other liabilities.Reclassifications:
The Company changed the classification of certain previously reported amounts in the accompanying balance sheet as of January 1, 2005 related to the reporting of retirement plan obligations. The effect of the change was to decrease short-term retirement plan obligations by $8.3 million and increase long-term retirement plan obligations by the same amount. In addition, certain prior year amounts have been reclassified for consistent presentation with the current year.
23
Derivatives:
The Company has a program in place to manage foreign currency risk. As part of that program, the Company can enter into foreign currency exchange contracts to hedge anticipated foreign currency transactions or commitments, primarily purchases of materials and products from foreign suppliers, and certain foreign currency denominated balance sheet positions. The terms of the contracts are generally less than three months. Gains and losses on other contracts that do not qualify for hedge accounting are included in SG&A expenses. The Company does not enter into foreign currency exchange transactions for speculative purposes.The Company also uses an interest rate swap to manage its exposure to changing interest rates that result from variable rate debt. This swap effectively fixes the interest rate on a portion of the Company's line of credit at 4.15%.
Realized and unrealized gains and losses on contracts intended to hedge specific forecasted transactions or commitments, if any, that qualify for hedge accounting are deferred and recorded as a component of accumulated other comprehensive income (loss) and accounted for as part of the transaction. Contracts are recorded at fair value on the balance sheet as a component of other current assets or accrued expenses and other liabilities.
Property, Plant and Equipment, and Related Depreciation:
Property, plant and equipment are stated on the basis of cost. Provisions for depreciation are computed using a combination of accelerated and straight-line methods, which are intended to depreciate the cost of such assets over their estimated useful lives, which are as follows:
Buildings and Building Additions |
39 |
Years |
||
Building & Land Improvements, and Furniture & Fixtures |
8 to 10 |
Years |
||
Machinery & Equipment |
5 to 8 |
Years |
||
Leasehold Improvements |
4 to 7 |
Years |
||
Vehicles, Tooling and Desktop PCs |
3 to 4 |
Years |
Warranty Costs:
The Company's Cross branded writing instruments are sold with a full warranty of unlimited duration against mechanical failure. Accessories are sold with a one-year warranty against mechanical failure and defects in workmanship, and timepieces are warranted to the original owner to be free from defects in material and workmanship for a period of ten years. Costa Del Mar sunglasses are sold with a lifetime warranty against defects in materials and workmanship. Estimated warranty costs are accrued at the time of sale. The most significant factors in the estimation of warranty cost liabilities include the operating efficiency and related cost of the service department, unit sales and the number of units that are eventually returned for warranty repair. The current portions of accrued warranty costs were $463,000 and $535,000 at December 31, 2005 and January 1, 2005, respectively, and were recorde d in accrued expenses and other liabilities. The following chart reflects the activity in aggregate accrued warranty costs:
________________________ YEARS ENDED_______________________ |
|||||||||
(THOUSANDS OF DOLLARS) |
DECEMBER 31, 2005 |
JANUARY 1, 2005 |
JANUARY 3, 2004 |
||||||
Accrued Warranty Costs - Beginning of Year |
$2,138 |
$2,424 |
$2,523 |
||||||
Warranty costs paid |
(459 |
) |
(461 |
) |
(299 |
) |
|||
Warranty costs accrued |
454 |
554 |
471 |
||||||
Impact of changes in estimates and assumptions |
(214 |
) |
(379 |
) |
(351 |
) |
|||
Warranty liabilities assumed |
_____ - |
_____ - |
___ 80 |
||||||
Accrued Warranty Costs - End of Year |
$1,919 |
$2,138 |
$2,424 |
Basic and Diluted Net Income (Loss) Per Share:
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of total shares of Class A and Class B common stock outstanding during the year. Diluted net income (loss) per share is computed by dividing net income (loss) by diluted weighted average shares outstanding. Diluted weighted average shares reflect the dilutive effect, if any, of potential common shares. To the extent that their effect is dilutive, potential common shares include common stock options and restricted stock based on the treasury stock method.Long-Lived Assets:
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less the cost to sell.
24
Goodwill and Other Intangible Assets:
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill is accounted for using an impairment-only approach. Goodwill is tested for impairment annually or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Patents and trademarks are amortized on a straight-line basis over five years and are evaluated for impairment using the methodology described in SFAS No. 142. The required annual impairment tests for all segments were performed on November 28, 2005 and November 29, 2004. The Company concluded for all periods that goodwill was not impaired.Stock-Based Compensation:
The Company applies the intrinsic-value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for employee stock-based compensation and provides pro forma disclosures of the compensation expense determined under the fair value provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" as amended by SFAS No. 148. The Company's stock plans are described in Note I, "Omnibus Incentive Plan." No employee stock-based compensation cost is reflected in net income (loss) related to options granted under those plans for which the exercise or purchase price was equal to the market value of the underlying common stock on the date of grant. Deferred compensation is recorded on the date of grant if the exercise or purchase price of the stock award is less than the mark et value of the underlying common stock on the date of grant. Deferred compensation is expensed on a straight-line basis over the vesting period of the stock award. The following table reflects pro forma net income (loss) and net income (loss) per share had the Company elected to record expense for employee stock options under SFAS No. 123.
________________________ YEARS ENDED______________________ |
||||||||
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) |
DECEMBER 31, 2005 |
JANUARY 1, 2005 |
JANUARY 3, 2004 |
|||||
Net income (loss), as reported |
$ 384 |
$ (855 |
) |
$1,777 |
||||
Less stock-based compensation expense recognized, |
||||||||
net of tax |
187 |
102 |
101 |
|||||
Stock-based compensation expense as determined |
||||||||
under SFAS No. 123, net of tax |
_(326 |
) |
__(389 |
) |
_(987 |
) |
||
Pro Forma Net Income (Loss) |
$ 245 |
$(1,142 |
) |
$ 891 |
||||
Net Income (Loss) Per Share: |
||||||||
Basic and diluted - as reported |
$0.03 |
$(0.06 |
) |
$0.12 |
||||
Basic and diluted - pro forma |
$0.02 |
$(0.08 |
) |
$0.06 |
New Accounting Pronouncements:
In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement No. 151. "Inventory Costs," an amendment of APB Opinion No. 43, Chapter 4. This Statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. Statement No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe the adoption of Statement No. 151 will have a material effect on its consolidated financial position, results of operations or cash flows.In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment" ("SFAS No. 123R"). This Statement is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Statement requires entities to recognize stock compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards (with limited exceptions). In April 2005, the Securities and Exchange Commission extended the compliance date for SFAS No. 123R, making it effective at the beginning of the first annual reporting period, rather than the next reporting period, that begins after June 15, 2005, which for the Company is the fiscal year beginning January 1, 2006. The Company is pre sently evaluating the two methods of adoption allowed by SFAS No. 123R; the modified-prospective transition method and the modified-retrospective transition method.
In September 2005, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 04-13, "Accounting for Purchases and Sales of Inventory with the Same Counterparty" ("EITF 04-13"). EITF 04-13 establishes criteria to be applied in determining if arrangements for the purchase and sale of inventory with the same counterparty be viewed as a single exchange transaction or separate and independent transactions within the scope of APB Opinion No. 9. "Accounting for Nonmonetary Transactions," and if the nonmonetary exchanges of inventory should be recognized at fair value or historic carrying cost. This standard is effective for all new, modified or renewed arrangements beginning in the first interim or annual reporting period beginning after March 15, 2006. The Company does not believe that EITF No. 04-13 will have a material effect on its consolidated financial position or results of operations.
25
NOTE B - INVENTORIES
Domestic writing instrument inventories, approximating $5.4 million and $7.8 million at December 31, 2005 and January 1, 2005, respectively, are priced at the lower of LIFO cost or market. The remaining inventories are priced at the lower of FIFO cost or market. If the FIFO method of inventory valuation had been used for those inventories priced using the LIFO method, inventories would have been approximately $8.4 million and $8.8 million higher than reported at December 31, 2005 and January 1, 2005, respectively. During fiscal 2005, inventory quantities were reduced resulting in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of current purchases. The effect of this liquidation was to increase net income by approximately $1.1 million, or $0.08 per share, basic and diluted.
NOTE C - RESTRUCTURING CHARGES
In 2003, the Company announced a corporate restructuring program of its writing instrument and accessory segment designed to increase its competitiveness in the global marketplace by reducing operating costs and freeing additional capital for product development and diversification as well as marketing and brand development. As part of this program, a number of writing instrument manufacturing departments have been and continue to be moved offshore. Each succeeding step of the process is fully dependent on the newly sourced product achieving the high quality standards expected of every Cross product. Approximately 80 manufacturing positions in Lincoln, Rhode Island were affected in 2003 as part of the initial phase of this plan. In addition, approximately 80 global non-manufacturing positions were eliminated through 2004 as part of the program to consolidate and reduce administrative expenses. The Company expects to incur pre-tax restructuring charges of approximately $7.5 million over the life of th e program, assuming full implementation. Of this $7.5 million, approximately $5.4 million will be for severance and related expenses and approximately $2.1 million for professional fees and other, primarily legal and tax advisory fees and outplacement service charges. The Company expects the restructuring program to be effectively complete by the end of 2006. The following is a tabular presentation of the restructuring liabilities related to this plan:
(THOUSANDS OF DOLLARS) |
SEVERANCE & |
PROFESSIONAL |
TOTAL |
||||
Balances at December 28, 2002 |
$ - |
$ - |
$ - |
||||
Restructuring charges incurred |
1,997 |
444 |
2,441 |
||||
Cash payments |
(1,221 |
) |
(339 |
) |
(1,560 |
) |
|
Foreign exchange effects |
___ 32 |
____ - |
___ 32 |
||||
Balances at January 3, 2004 |
$ 808 |
$ 105 |
$ 913 |
||||
Restructuring charges incurred |
1,726 |
639 |
2,365 |
||||
Cash payments |
(2,258 |
) |
(722 |
) |
(2,980 |
) |
|
Foreign exchange effects |
___ (9 |
) |
___ - |
___ (9 |
) |
||
Balances at January 1, 2005 |
$ 267 |
$ 22 |
$ 289 |
||||
Restructuring charges incurred |
415 |
736 |
1,151 |
||||
Cash payments |
(429 |
) |
(734 |
) |
(1,163 |
) |
|
Foreign exchange effects |
___ (4 |
) |
___ - |
___ (4 |
) |
||
Balances at December 31, 2005 |
$ 249 |
$ 24 |
$ 273 |
In 2000, the Company's Board of Directors approved a plan to restructure the Company's domestic and international writing instrument operations. As a result, the Company recorded pre-tax restructuring charges of approximately $19.9 million in fiscal 2000 in the WI&A segment. As part of this restructuring plan, the Company consolidated all writing instrument manufacturing and distribution at its headquarters in Lincoln, Rhode Island, closed its Irish facility and reorganized its European operations. There was no change to the total estimated cost in 2003. In fiscal 2004, the final obligation of this restructuring plan was paid. The total cash portion of this restructuring plan was approximately $15.5 million. The following is a tabular presentation of the restructuring liabilities related to this plan:
(THOUSANDS OF DOLLARS) |
SEVERANCE & |
CONTRACTUAL |
TOTAL |
|||||
Balances at December 28, 2002 |
$ 71 |
$1,309 |
$1,380 |
|||||
Foreign exchange effects |
14 |
162 |
176 |
|||||
Cash payments |
__ (3 |
) |
(1,471 |
) |
(1,474 |
) |
||
Balances at January 3, 2004 |
$ 82 |
$ - |
$ 82 |
|||||
Change in estimate |
(41 |
) |
- |
(41 |
) |
|||
Foreign exchange effects |
(1 |
) |
- |
(1 |
) |
|||
Cash payments |
(40 |
) |
__ - |
(40 |
) |
|||
Balances at December 31, 2005 and January 1, 2005 |
$ - |
$ - |
$ - |
26
NOTE D - GOODWILL AND OTHER INTANGIBLE ASSETS
At December 31, 2005 and January 1, 2005, the carrying values of goodwill were approximately $7.3 million and $7.3 million, respectively. Other intangibles consisted of the following:
(THOUSANDS OF DOLLARS) |
____________DECEMBER 31, 2005____________ |
______________JANUARY 1, 2005______________ |
||||||||||||
GROSS |
ACCUMULATED |
OTHER |
GROSS |
ACCUMULATED |
OTHER |
|||||||||
Amortized: |
||||||||||||||
Trademarks |
$ 8,101 |
$7,186 |
$ 915 |
$ 7,727 |
$6,706 |
$1,021 |
||||||||
Patents |
__ 2,847 |
_ 2,353 |
_ 494 |
__ 2,615 |
_ 2,100 |
__ 515 |
||||||||
$10,948 |
$9,539 |
1,409 |
$10,342 |
$8,806 |
1,536 |
|||||||||
Not Amortized: |
||||||||||||||
Trade name |
_ 3,400 |
_ 3,400 |
||||||||||||
Total Other Intangibles, Net |
$4,809 |
$4,936 |
The Company amortizes patents and trademarks over an average five-year life. Amortization expense was approximately $733,000, $679,000 and $594,000 for fiscal years 2005, 2004 and 2003, respectively. The estimated future amortization expense for other intangibles remaining as of December 31, 2005 is as follows:
(THOUSANDS OF DOLLARS) |
2006 |
2007 |
2008 |
2009 |
||||
$ 645 |
$ 394 |
$ 249 |
$ 121 |
NOTE E - LINE OF CREDIT
In December 2005, the Company entered into a new secured revolving line of credit with a bank. This agreement was amended on January 7, 2006. Under the amended line of credit agreement, the bank agreed to make loans to the Company in an aggregate amount not to exceed $20 million, including up to $5 million equivalent in Eurocurrency loans denominated in pounds sterling or Euro ("Eurocurrency Loans") and up to $15 million of other committed loans to the Company ("Committed Loans") at any time. As part of the aggregate availability, the bank may also issue up to $3 million in letters of credit. Subject to the limits on availability and the other terms and conditions of the credit agreement, amounts borrowed under the facility may be borrowed, repaid without penalty and reborrowed by the Company. The facility matures and amounts outstanding must be repaid on December 20, 2007.
The interest rate for the Committed Loans will be, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) the higher of the federal funds rate plus 50 basis points or the bank's prime rate. The interest rate for any Eurocurrency Loans will be an interest settlement rate for deposits in pounds sterling or Euro plus an applicable margin. The applicable margin for LIBOR and Eurocurrency loans will be an amount between 1.50% and 2.25%, which amount will vary from time to time based upon the Company's consolidated leverage ratio.
Under the amended credit agreement, the Company has agreed to comply with certain affirmative and negative covenants. The most restrictive covenant restricts the Company from declaring cash dividends on its common stock. Amounts due under the credit agreement are guaranteed by certain of the domestic and foreign subsidiaries of the Company. Amounts due are also secured by a pledge of the assets of the Company and certain of its domestic subsidiaries.
At December 31, 2005, the outstanding balance of the Company's line of credit was $10.5 million, bearing an interest rate of approximately 7.25%, and the unused and available portion, according to the terms of the amended agreement, was $9.5 million.
At January 1, 2005, the Company maintained a $25 million unsecured line of credit with a bank. The outstanding balance of the Company's unsecured line of credit at January 1, 2005 was $3 million and the unused and available balance was $22 million. This agreement was replaced by the new credit agreement described above.
NOTE F - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ITEMS
(THOUSANDS OF DOLLARS) |
CUMULATIVE |
UNREALIZED |
MINIMUM |
ACCUMULATED |
|||||
Balances at January 1, 2005 |
$ 53 |
$ 10 |
$(2,102 |
) |
$(2,039 |
) |
|||
Current period change |
_ (938 |
) |
(10 |
) |
_ (1,816 |
) |
_ (2,764 |
) |
|
Balances at December 31, 2005 |
$(885 |
) |
$ - |
$(3,918 |
) |
$(4,803 |
) |
27
NOTE G - FINANCIAL INSTRUMENTS
The following table details the United States dollar equivalent of foreign exchange contracts outstanding at December 31, 2005 and January 1, 2005, along with maturity dates and any unrealized gain. The net unrealized gain is recorded in SG&A in the consolidated statements of operations, since the Company did not apply hedge accounting to these contracts.
(THOUSANDS OF DOLLARS) |
CONTRACT AMOUNT |
MATURITY |
UNREALIZED |
|||||
December 31, 2005 |
||||||||
Euro |
$ 8,118 |
2006 |
$ 3 |
|||||
Sterling |
4,873 |
2006 |
20 |
|||||
Hong Kong Dollar |
3,225 |
2006 |
- |
|||||
Taiwan Dollar |
__ 1,523 |
2006 |
__ - |
|||||
Total |
$17,739 |
$23 |
||||||
January 1, 2005 |
||||||||
Euro |
$13,618 |
2005 |
$51 |
|||||
Total |
$13,618 |
$51 |
Foreign currency exchange (losses) gains that are included in SG&A expenses approximated $(420,000), $29,000 and $(307,000) in fiscal 2005, 2004 and 2003, respectively.
In 2003, the Company entered into an interest rate swap agreement with an initial notional amount of $9 million and a term of five years. This swap effectively fixes the interest rate on a portion of the Company's line of credit at 4.15%. Amounts paid or received under this swap agreement are recorded as adjustments to interest expense. The net unrealized gain (loss) is recorded in interest and other (expense) income in the consolidated statements of operations. At December 31, 2005, the notional value of the interest rate swap was $5.5 million.
The fair value of forward foreign exchange contracts, based on quoted spot exchange rates, are reported in other current assets or accrued expenses and other liabilities. The fair value of cash, cash equivalents and short-term investments approximates the recorded amounts, due to the short period of time to maturity. The carrying amount of the line of credit, current maturities of long-term debt and long-term debt, less current maturities, approximates fair value as a result of the variable interest rate. The fair value of the swap agreement, based upon quoted market prices, was $122,000 and $16,000 at December 31, 2005 and January 1, 2005, respectively, and was reported in other current assets.
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan and a defined contribution retirement plan (consisting of a savings plan and a non-contributory profit sharing plan), which cover substantially all domestic employees. The Company's matching contributions to the savings plan are made all in cash and were approximately $541,000, $395,000 and $557,000 in fiscal 2005, 2004 and 2003, respectively. There were no profit sharing plan contributions during this three-year period. The Company maintains an unfunded excess defined benefit plan for certain key executives as well as a deferred compensation plan that is offered to certain key executives and non-employee directors. Employees of foreign subsidiaries generally receive retirement benefits from Company sponsored defined benefit or defined contribution plans or from statutory plans administered by governmental agencies in their countries. The Company does not provide its employees with any postretirement benefits other than those described a bove.
Benefits under the defined benefit plans are based on the employee's years of service and compensation, as defined. While there is no requirement under any of these plans to invest in the Company's stock, the defined contribution retirement plan offers the Company's stock as an investment option. The Company's funding policy is consistent with applicable local laws and regulations.
The following chart sets forth the defined benefit plans' combined funded status and amounts recognized in the Company's consolidated balance sheet at the end of each fiscal year:
28
(THOUSANDS OF DOLLARS) |
2005 |
2004 |
2003 |
|||||||
Change in Projected Benefit Obligation |
||||||||||
Benefit obligation at end of prior year |
$ 51,195 |
$ 45,074 |
$ 41,574 |
|||||||
Service cost |
1,515 |
1,489 |
1,480 |
|||||||
Interest cost |
2,815 |
2,845 |
2,684 |
|||||||
Curtailment gain |
- |
- |
(946 |
) |
||||||
Actuarial loss |
1,908 |
3,420 |
1,775 |
|||||||
Benefits paid |
(1,805 |
) |
(1,565 |
) |
(1,435 |
) |
||||
Other |
___ (102 |
) |
_____ (68 |
) |
_____ (58 |
) |
||||
Benefit Obligation at End of Year |
$ 55,526 |
$ 51,195 |
$ 45,074 |
|||||||
Change in Plan Assets |
||||||||||
Fair value of plan assets at end of prior year |
$ 34,353 |
$ 32,252 |
$ 29,385 |
|||||||
Actual return on plan assets |
1,720 |
2,509 |
3,614 |
|||||||
Employer contributions |
2,429 |
1,225 |
746 |
|||||||
Benefits paid |
(1,805 |
) |
(1,565 |
) |
(1,435 |
) |
||||
Administrative expenses paid |
___ (102 |
) |
_____ (68 |
) |
_____ (58 |
) |
||||
Fair Value of Plan Assets at End of Year |
$ 36,595 |
$ 34,353 |
$ 32,252 |
|||||||
Funded Status |
||||||||||
Deficiency of plan assets over projected benefit obligation |
$(18,931 |
) |
$(16,842 |
) |
$(12,822 |
) |
||||
Unrecognized net transition obligation |
56 |
71 |
68 |
|||||||
Unrecognized prior service cost |
58 |
147 |
194 |
|||||||
Unrecognized net actuarial loss |
_ 12,507 |
__ 9,722 |
__ 5,694 |
|||||||
Accrued Pension Cost (Included in Retirement Plan Obligations) |
$ (6,310 |
) |
$ (6,902 |
) |
$ (6,866 |
) |
||||
Amounts Recognized in the Statement of Position Consist of |
||||||||||
Prepaid benefit cost |
$ 760 |
$ 755 |
$ 1,104 |
|||||||
Accrued benefit cost |
(13,062 |
) |
(10,834 |
) |
(7,991 |
) |
||||
Intangible assets |
56 |
85 |
- |
|||||||
Accumulated other comprehensive loss |
__ 5,936 |
__ 3,092 |
_____ 21 |
|||||||
Net Recognized Amount |
$ (6,310 |
) |
$ (6,902 |
) |
$ (6,866 |
) |
||||
Accumulated Benefit Obligation |
$ 49,513 |
$ 46,472 |
$ 41,032 |
|||||||
Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets |
||||||||||
Projected Benefit Obligation |
$ 55,526 |
$ 51,195 |
$ 45,074 |
|||||||
Accumulated Benefit Obligation |
$ 49,513 |
$ 46,472 |
$ 41,032 |
|||||||
Fair Value of Plan Assets |
$ 36,595 |
$ 34,353 |
$ 32,252 |
|||||||
Components of Net Periodic Benefit Cost |
||||||||||
Service cost |
$ 1,515 |
$ 1,489 |
$ 1,480 |
|||||||
Interest cost |
2,815 |
2,845 |
2,629 |
|||||||
Expected return on plan assets |
(2,793 |
) |
(3,065 |
) |
(2,748 |
) |
||||
Amortization of transition asset |
6 |
4 |
2 |
|||||||
Amortization of prior service cost |
63 |
61 |
53 |
|||||||
Recognized net actuarial gain |
77 |
6 |
4 |
|||||||
Effect of curtailment |
_____ - |
______ - |
_____ (1 |
) |
||||||
Net Periodic Benefit Cost |
$ 1,683 |
$ 1,340 |
$ 1,419 |
|||||||
Assumptions: |
||||||||||
Weighted Average Assumptions Used to Determine Benefit Obligation |
||||||||||
Discount rate |
5.60% |
5.85% |
6.25% |
|||||||
Rate of compensation increase |
3.50% |
3.50% |
3.50% |
|||||||
Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost |
||||||||||
Discount rate |
5.85% |
6.25% |
6.50% |
|||||||
Expected return on plan assets |
8.25% |
8.25% |
8.50% |
|||||||
Rate of compensation increase |
3.50% |
3.50% |
3.50% |
29
In establishing the long-term rate of return on assets assumption of 8.25%, the Company indexed its targeted allocation percentage by asset category against the long-term expected returns for those asset categories. That weighted-average return approximates 8.25%. The Company monitors investment results of its pension plan managers against benchmarks such as the Standard & Poor's 500 Index and the Russell 2000 Growth Index for the equity portion of the portfolio and the Lehman Brothers Aggregate Bond Index for fixed income investments. Meeting or exceeding those benchmarks over time would provide a reasonable expectation of achieving the 8.25% assumption.
Plan Asset Information: |
TARGET |
ALLOCATION |
ALLOCATION |
||||
Equity securities |
60%-70% |
65.71% |
67.15% |
||||
Debt securities |
30%-40% |
33.85% |
25.47% |
||||
Real estate |
0% |
0.00% |
0.00% |
||||
Other |
__ 0% |
0.44% |
7.38% |
||||
100% |
100% |
100% |
The investment objective of the Plan is to exceed the actuarial long-term rate of return on assets assumption of 8.25%. To that end, it is Plan practice to invest the assets in accordance with the minimum and maximum ranges established for each asset category. These targeted asset allocation ranges have been established in accordance with the overall risk and return objectives of the portfolio. The Plan employs other risk management practices that stress diversification and liquidity. For equity investments, no more than 10% of the equity portfolio can be invested in one issuer and typically no more than 20% of equity assets can be invested in one industry. Shares must be listed on major stock exchanges to assure liquidity. Debt securities are similarly governed by risk management rules. No more than 5% of the total portfolio may be invested in one issuer (except the United States government), and no one issuer can exceed 5% of the outstanding shares of that issuer. There are also quality ratings associated with debt securities that the Plan managers must adhere to. Certain assets or transactions are prohibited in the management of Plan assets, such as commodities, real estate (except mutual funds or REITS), venture capital, private placements, purchasing securities on margin and short selling.
The Company expects to contribute $1,125,000 to its pension plan and $143,000 to its excess benefit plan in 2006.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
(THOUSANDS OF DOLLARS) |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 - 2015 |
||||||
$1,519 |
$1,563 |
$1,634 |
$1,797 |
$1,933 |
$12,476 |
NOTE I - OMNIBUS INCENTIVE PLAN (THE "OI PLAN")
The Company's OI Plan permits the Compensation Committee of the Board of Directors of the Company to grant various long-term incentive awards, generally equity based, to officers and key employees from one pool of reserved shares. The OI Plan provides for grants of awards, including but not limited to, Incentive Stock Options, at not less than the full market value on the date of grant (except in the case of a shareholder possessing more than 10% of the total combined voting power of all classes of Company stock, in which case the exercise price shall not be less than 110% of the fair market value on the date of grant) and Non-Qualified Stock Options, at an exercise price determined by the Compensation Committee; Stock Appreciation Rights, which are rights to receive an amount equal to the increase, between the date of grant and the date of exercise, in the fair market value of the number of shares of common stock subject to the Stock Appreciation Right; shares of Restricted Stock, which are common share s that have certain conditions attached to them that must be satisfied in order to have unencumbered rights to the Restricted Stock; and Performance Awards, which are awards in common shares or cash. The OI Plan has no definite expiration date but may be terminated by the Board of Directors at any time. Incentive Stock Options may not be granted for a term longer than ten years from the date of grant (five years in the case of a shareholder possessing more than 10% of the total combined voting power of all classes of Company stock). At December 31, 2005, there were 220,000 shares of Restricted Stock outstanding under the OI Plan. Compensation expense recognized for Restricted Stock under the OI Plan amounted to $283,980, $185,185 and $126,130 for fiscal 2005, 2004 and 2003, respectively. At December 31, 2005, there were 2,396,430 shares reserved and 578,087 shares available to be issued under the OI Plan.
30
Stock option activity during the three years ended December 31, 2005 was as follows:
Stock Option Plan: |
OPTIONS |
WEIGHTED AVERAGE |
SHARES |
|||||
Outstanding at December 28, 2002 |
2,488,862 |
$ 6.99 |
2,855,801 |
|||||
Restricted Stock Grants |
- |
- |
(50,000 |
) |
||||
Exercised |
(12,600 |
) |
$ 5.09 |
(12,600 |
) |
|||
Granted |
64,500 |
$ 6.11 |
- |
|||||
Canceled |
_(294,398 |
) |
$10.73 |
___(5,250 |
) |
|||
Outstanding at January 3, 2004 |
2,246,364 |
$ 6.48 |
2,787,951 |
|||||
Restricted Stock Grants |
- |
- |
(152,900 |
) |
||||
Director Retainers |
- |
- |
(14,957 |
) |
||||
Exercised |
(99,810 |
) |
$ 4.86 |
(99,810 |
) |
|||
Canceled |
_(213,408 |
) |
$ 7.76 |
__(19,500 |
) |
|||
Outstanding at January 1, 2005 |
1,933,146 |
$ 6.43 |
2,500,784 |
|||||
Restricted Stock Grants |
- |
- |
(50,000 |
) |
||||
Director Retainers |
- |
- |
(14,354 |
) |
||||
Exercised |
(40,000 |
) |
$ 5.09 |
(40,000 |
) |
|||
Granted |
70,000 |
$ 5.12 |
- |
|||||
Canceled |
(144,803 |
) |
$ 8.20 |
_______- |
||||
Outstanding at December 31, 2005 |
1,818,343 |
$ 6.27 |
2,396,430 |
The following chart contains summary information about the stock options outstanding at December 31, 2005:
_________________ OPTIONS OUTSTANDING_________________ |
_____ OPTIONS EXERCISABLE_____ |
||||||||||
RANGE OF |
NUMBER |
WEIGHTED AVERAGE |
WEIGHTED |
NUMBER |
WEIGHTED |
||||||
$ 4.34 - $ 4.50 |
29,275 |
5.78 |
$ 4.40 |
19,275 |
$ 4.34 |
||||||
$ 4.56 - $ 4.56 |
500,000 |
3.87 |
$ 4.56 |
500,000 |
$ 4.56 |
||||||
$ 4.69 - $ 5.06 |
24,600 |
4.11 |
$ 4.93 |
24,600 |
$ 4.93 |
||||||
$ 5.09 - $ 5.09 |
204,350 |
4.57 |
$ 5.09 |
204,350 |
$ 5.09 |
||||||
$ 5.23 - $ 6.06 |
253,696 |
5.50 |
$ 5.68 |
193,696 |
$ 5.83 |
||||||
$ 6.16 - $ 6.94 |
77,106 |
6.23 |
$ 6.28 |
68,776 |
$ 6.29 |
||||||
$ 7.11 - $ 7.11 |
295,001 |
6.56 |
$ 7.11 |
295,001 |
$ 7.11 |
||||||
$ 7.63 - $ 7.63 |
226,400 |
5.56 |
$ 7.63 |
226,400 |
$ 7.63 |
||||||
$ 9.69 - $ 9.97 |
194,309 |
1.87 |
$ 9.89 |
194,309 |
$ 9.88 |
||||||
$10.00 - $ 15.00 |
__ 13,606 |
0.96 |
$11.07 |
__ 13,606 |
$11.07 |
||||||
$ 4.34 - $ 15.00 |
1,818,343 |
4.72 |
$ 6.27 |
1,740,013 |
$ 6.31 |
The Company also has an Employee Stock Purchase Plan (the "ESP Plan"), allowing eligible employees, other than officers and directors, to purchase shares of the Company's Class A common stock at 10% less than the mean between the high and low prices of the stock on the date of purchase. A maximum of 320,000 shares is available under the ESP Plan, and the aggregate numbers of shares reserved and available for purchase under the ESP Plan were 95,045, 98,708 and 100,946 at December 31, 2005, January 1, 2005 and January 3, 2004, respectively.
The fair value of each stock option granted in fiscal 2005, 2004 and 2003 under the Company's OI Plan was estimated on the date of grant using the Black-Scholes option-pricing model. The following key assumptions were used to value options granted for each of the following fiscal years:
WEIGHTED AVERAGE |
AVERAGE |
VOLATILITY |
DIVIDEND |
|
2005 |
4.34% |
5.0 years |
29.44% |
0.0% |
2004 |
1.75% |
5.0 years |
32.00% |
0.0% |
2003 |
1.15% |
5.0 years |
38.34% |
0.0% |
The weighted average fair value per share of stock options granted during fiscal 2005 and 2003 was $1.74 and $2.14. No stock options were granted in fiscal 2004. It should be noted that the option-pricing model used was designed to value readily tradable stock options with relatively short lives. The options granted to employees are not tradable and have contractual lives of up to ten years unless employment is terminated. However, management believes that the assumptions used and the model applied to value the awards yield a reasonable estimate of the fair value of the grants made under the circumstances.
31
NOTE J - INCOME TAXES
The provision for income taxes consists of the following: |
2005 |
2004 |
2003 |
|||||
Currently Payable (Receivable): |
||||||||
Federal |
$ 67,882 |
$ (899,668 |
) |
$103,301 |
||||
State |
140,818 |
20,637 |
64,045 |
|||||
Foreign |
__ 83,290 |
__ 741,132 |
_ (24,746 |
) |
||||
291,990 |
(137,899 |
) |
142,600 |
|||||
Deferred: |
||||||||
Federal |
(159,446 |
) |
(367,800 |
) |
297,930 |
|||
Foreign |
___ 56,839 |
_ (192,761 |
) |
________ - |
||||
_ (102,607 |
) |
_ (560,561 |
) |
_ 297,930 |
||||
Total |
$ 189,383 |
$ (698,460 |
) |
$440,530 |
The reconciliation of income taxes computed at the statutory Federal income tax rate to the provision (benefit) for income taxes from operations is as follows:
Statutory Federal income tax provision (benefit) |
$ 195,001 |
$ (528,213 |
) |
$753,966 |
|||
State income tax expense, less Federal tax benefit |
84,447 |
13,621 |
42,270 |
||||
Foreign operations |
(222,866 |
) |
576,358 |
(413,994 |
) |
||
Net tax on Section 965 dividend |
861,158 |
- |
- |
||||
Accrual adjustment |
(370,306 |
) |
(586,412 |
) |
215,705 |
||
Benefit of export sales |
(229,266 |
) |
(200,000 |
) |
(212,318 |
) |
|
Miscellaneous |
_ (128,785 |
) |
___ 26,186 |
__ 54,901 |
|||
Income Tax Provision (Benefit) |
$ 189,383 |
$ (698,460 |
) |
$440,530 |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2005 and January 1, 2005 are presented below:
Current Deferred Tax Assets and Liabilities: |
2005 |
2004 |
|||||||
Assets: |
|||||||||
Additional costs inventoried for tax purposes and |
|||||||||
inventory reserves not deductible for tax purposes |
$ 3,224,260 |
$2,875,330 |
|||||||
Excess benefit plan |
986,565 |
915,622 |
|||||||
Accrued pension costs |
1,914,972 |
1,996,376 |
|||||||
Other |
__ 1,875,805 |
___ 958,307 |
|||||||
8,001,602 |
6,745,635 |
||||||||
Less valuation allowance |
_ (1,225,316 |
) |
__ (843,833 |
) |
|||||
Current Deferred Tax Assets |
6,776,286 |
5,901,802 |
|||||||
Liabilities: |
|||||||||
Current Deferred Tax Liabilities |
___ 436,776 |
___ 481,022 |
|||||||
Net Current Deferred Tax Asset |
$ 6,339,510 |
$5,420,780 |
|||||||
Long-Term Deferred Tax Assets and Liabilities: |
|||||||||
Assets: |
|||||||||
Intangible assets |
$ 1,939,971 |
$1,725,164 |
|||||||
Accrued warranty costs |
801,387 |
870,873 |
|||||||
Alternative minimum tax credit carryforward |
- |
833,707 |
|||||||
Net operating loss carryforward |
2,486,612 |
3,760,751 |
|||||||
Accrued pension costs |
2,018,219 |
989,496 |
|||||||
Other |
___ 212,495 |
___ 203,596 |
|||||||
7,458,684 |
8,383,587 |
||||||||
Less valuation allowance |
_ (2,467,766 |
) |
_ (3,626,023 |
) |
|||||
Long-Term Deferred Tax Assets |
4,990,918 |
4,757,564 |
|||||||
Liabilities: |
|||||||||
Property, plant and equipment, principally due to |
|||||||||
differences in depreciation |
- |
389,469 |
|||||||
Undistributed foreign earnings not indefinitely reinvested |
_________ - |
___ 545,046 |
|||||||
Long-Term Deferred Tax Liabilities |
_________ - |
___ 934,515 |
|||||||
Net Long-Term Deferred Tax Asset |
$ 4,990,918 |
$3,823,049 |
|||||||
Net Deferred Tax Asset |
$11,330,428 |
$9,243,829 |
32
At December 31, 2005 and January 1, 2005, undistributed earnings of foreign subsidiaries amounted to approximately $17.6 million and $39.1 million, respectively. These earnings could become subject to additional tax if they are remitted as dividends, if foreign earnings are lent to the Company or a United States affiliate or if the Company should sell its stock in the subsidiaries. The amount of additional taxes that might be payable on the undistributed foreign earnings of $17.6 million approximates $2.5 million. This amount has not been recorded because it is the Company's intention to permanently invest the remainder of the undistributed earnings of its foreign subsidiaries in the growth of business outside the United States. The American Jobs Creation Act of 2004 created Internal Revenue Code Section 965(a), which permits a temporary dividends-received deduction of 85% of the cash dividends received by a United States shareholder from controlled foreign corporations and invested in the United Stat es. Taxpayers may elect to apply the deduction to either the last tax year that begins before October 22, 2004 or the taxpayer's first tax year that begins during the one-year period beginning on October 22, 2004. The Company completed its analysis of this provision in the fourth quarter of 2005 and repatriated $20.7 million subject to the 85% dividends-received deduction. The tax effect of this repatriation was a charge to 2005 tax expense of approximately $0.9 million.
At December 31, 2005, the Company had state net operating loss carryforwards of approximately $20.7 million, which begin to expire in 2006. Net operating loss carryforwards for certain foreign subsidiaries were approximately $5.8 million for tax purposes. A portion of these losses will expire in 2007. A valuation allowance has been provided for the foreign and state net operating losses and temporary differences that are estimated to expire before they are utilized. The decrease of $0.8 million in the valuation allowance in fiscal 2005 primarily related to changes in the foreign net operating losses.
We are subject to income taxes in many jurisdictions around the world. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates for certain tax loss contingencies are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and accruals. Additional taxes assessed as a result of an audit or litigation could have a material effect on our income tax provision and net income in the period or periods in which the determination is made. We revise our estimates of such tax loss contingencies if and when appropriate. Changes made in fiscal 2005 and 2004 reflect changes in estimates due to better information, current actions by taxing authorities and the passing of statutes of limitation in certa in jurisdictions.
NOTE K - SEGMENT INFORMATION
The following chart sets forth segment information for the Company for the three fiscal years ended December 31, 2005:
(THOUSANDS OF DOLLARS) |
WRITING |
OPTICAL |
TOTAL |
||||
2005: |
|||||||
Revenues from external customers |
$109,554 |
$19,561 |
$129,115 |
||||
Depreciation and amortization |
6,763 |
214 |
6,977 |
||||
Segment (loss) profit |
(1,991 |
) |
2,564 |
573 |
|||
Restructuring charges |
1,151 |
- |
1,151 |
||||
Segment assets |
96,556 |
16,337 |
112,893 |
||||
Goodwill |
3,944 |
3,344 |
7,288 |
||||
Expenditures for long-lived assets |
4,492 |
403 |
4,895 |
||||
2004: |
|||||||
Revenues from external customers |
$114,385 |
$15,095 |
$129,480 |
||||
Depreciation and amortization |
7,291 |
181 |
7,472 |
||||
Segment (loss) profit |
(2,377 |
) |
823 |
(1,554 |
) |
||
Restructuring charges |
2,324 |
- |
2,324 |
||||
Segment assets |
99,222 |
14,129 |
113,351 |
||||
Goodwill |
3,944 |
3,344 |
7,288 |
||||
Expenditures for long-lived assets |
4,872 |
295 |
5,167 |
33
(THOUSANDS OF DOLLARS) |
WRITING |
OPTICAL |
TOTAL |
||||
2003: |
|||||||
Revenues from external customers |
$117,433 |
$ 8,932 |
$126,365 |
||||
Depreciation and amortization |
7,494 |
110 |
7,604 |
||||
Segment profit |
1,648 |
570 |
2,218 |
||||
Restructuring charges |
2,441 |
- |
2,441 |
||||
Segment assets |
106,969 |
11,177 |
118,146 |
||||
Goodwill |
3,944 |
3,464 |
7,408 |
||||
Expenditures for long-lived assets |
4,701 |
6,994 |
11,695 |
Geographic Information
(THOUSANDS OF DOLLARS) |
2005 |
2004 |
2003 |
|||||
NET SALES: |
||||||||
United States |
$ 67,554 |
$ 63,891 |
$ 65,074 |
|||||
Europe, Middle East and Africa |
36,440 |
38,439 |
34,613 |
|||||
Asia Pacific |
18,274 |
18,496 |
16,782 |
|||||
International Americas |
___ 6,847 |
___ 8,654 |
___ 9,896 |
|||||
Total Consolidated Net Sales |
$129,115 |
$129,480 |
$126,365 |
|||||
Revenues are attributed to countries based on the location of customers. |
||||||||
LONG-LIVED ASSETS: |
||||||||
United States |
$ 32,854 |
$ 34,564 |
$ 36,585 |
|||||
Foreign countries |
____ 936 |
___ 1,399 |
___ 1,723 |
|||||
Total Consolidated Long-Lived Assets |
$ 33,790 |
$ 35,963 |
$ 38,308 |
NOTE L - CONTINGENCIES
The Company is named as one of approximately sixty defendants in a contribution suit brought by CCL/Unilever relating to the J.M. Mills Landfill Site, which is part of the Peterson/Puritan Superfund Site in Cumberland, Rhode Island. These complaints allege that the Company is liable under CERCLA for contribution for past and future costs incurred at the Site. Past and future costs (excluding the required remedy) are estimated at $6 million to $7 million. Based upon our preliminary investigation there is no evidence to support a finding that the Company arranged for the disposal of hazardous substances at this Site. No discovery has been taken to date. At December 31, 2005, the Company had not established a liability for any environmental remediation relating to the J.M. Mills Landfill Site, as its potential liability, if any, is currently not estimable.
The Company is involved in various other litigation and legal matters that have arisen in the ordinary course of business. To its knowledge, management believes that the ultimate resolution of any of those existing matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.
NOTE M - COMMON STOCK
Holders of Class A common stock have the right to elect one-third of the number of directors from time to time fixed by the holders of Class A and Class B common stock voting together as a single class. Holders of Class B common stock have the right to elect the remaining directors. Class A and Class B common stock vote together as a single class to reserve shares to be issued pursuant to options granted with respect to the acquisition of assets or shares of another company under certain circumstances. Except as described above or as otherwise required by law, all voting power is vested in the holders of Class B common stock.
NOTE N - SHORT-TERM INVESTMENTS
At January 1, 2005, the Company had short-term investments consisting of time deposits, commercial paper and United States Government Agency bonds. These investments were classified as trading securities in accordance with SFAS No. 115 "Accounting for Certain Investments and Debt and Equity Securities." Realized and unrealized gains or losses on these trading securities are included in interest and other (expense) income. The following table details the net losses on trading securities at December 31, 2005 and January 1, 2005.
34
_______________YEARS ENDED_______________ |
|||||
(THOUSANDS OF DOLLARS) |
DECEMBER 31, 2005 |
JANUARY 1, 2005 |
|||
Net losses recognized on trading securities |
$(114 |
) |
$(126 |
) |
|
Less net losses recognized on trading securities sold |
_ (114 |
) |
__ (98 |
) |
|
Unrealized net losses on trading securities still held at reporting date |
$ - |
$ (28 |
) |
NOTE O - RECEIVABLE FROM CHINESE CONTRACT MANUFACTURER
As part of the restructuring program, the Company has transferred ownership of certain raw material and work-in-process inventory to its Chinese contract manufacturer in conjunction with the transition of product lines that are being produced solely in China. The receivable is being repaid by offsetting a portion of the amounts the Company owes the contract manufacturer for completed products it purchases. At December 31, 2005 and January 1, 2005, approximately $4.6 million and $1.3 million, respectively, were owed to the Company for that inventory.
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations for the years ended December 31, 2005 and January 1, 2005:
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) |
||||||||||||||||
2005: |
APRIL 2 |
JULY 2 |
OCTOBER 1 |
DECEMBER 31 |
||||||||||||
Net sales |
$29,559 |
$29,041 |
$29,068 |
$41,447 |
||||||||||||
Gross profit |
14,928 |
14,400 |
13,295 |
20,286 |
||||||||||||
Net (Loss) Income |
$ (508 |
) |
$ (463 |
) |
$ (1,003 |
) |
$ 2,358 |
(B) |
||||||||
Basic and Diluted Net (Loss) Income Per Share |
$(0.03 |
) |
$(0.03 |
) |
$(0.07 |
) |
$0.16 |
|||||||||
Weighted Average Shares Outstanding: |
||||||||||||||||
Denominator for Basic Net (Loss) Income Per Share |
14,768 |
14,705 |
14,729 |
14,737 |
||||||||||||
Effect of Dilutive Securities: |
||||||||||||||||
Common stock equivalents |
_____ - |
(A) |
_____ - |
(A) |
_____ - |
(A) |
____ 26 |
|||||||||
Denominator for Diluted Net (Loss) Income Per Share |
14,768 |
14,705 |
14,729 |
14,763 |
||||||||||||
2004: |
APRIL 3 |
JULY 3 |
OCTOBER 2 |
JANUARY 1 |
||||||||||||
Net sales |
$29,272 |
$29,115 |
$30,128 |
$40,965 |
||||||||||||
Gross profit |
15,793 |
14,457 |
13,925 |
18,615 |
||||||||||||
Net (Loss) Income |
$ (704 |
) |
$ (885 |
) |
$ (1,094 |
) |
$ 1,828 |
|||||||||
Basic and Diluted Net (Loss) Income Per Share |
$(0.05 |
) |
$(0.06 |
) |
$(0.07 |
) |
$0.12 |
|||||||||
Weighted Average Shares Outstanding: |
||||||||||||||||
Denominator for Basic Net (Loss) Income Per Share |
14,977 |
15,004 |
14,919 |
14,806 |
||||||||||||
Effect of Dilutive Securities: |
||||||||||||||||
Common stock equivalents |
_____ - |
(A) |
_____ - |
(A) |
_____ - |
(A) |
____ 43 |
|||||||||
Denominator for Diluted Net (Loss) Income Per Share |
14,977 |
15,004 |
14,919 |
14,849 |
||||||||||||
(A) |
No incremental shares related to options or restricted stocks granted are included due to the net loss in the quarter since the effect of such shares would be anti-dilutive. |
(B) |
During the quarter ended December 31, 2005, net income was increased by approximately $0.6 million due to the reversal of certain payroll tax and other non-income based tax reserves no longer deemed necessary. |
Item 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
35
Item 9A. |
CONTROLS AND PROCEDURES |
A |
Evaluation of Disclosure Controls and Procedures |
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act) as of the end of the period covered by this Annual Report. We have concluded that we have a material weakness, as defined by Public Company Accounting Oversight Board Auditing Standard No. 2, relating to the accounting for taxes. We reached this conclusion as a result of several significant audit and internal post closing adjustments in this area. Our plans to address this weakness include the evaluation of the levels and types of resources being allocated to the tax function as well as exploring available technology and process improvements.
In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2005, as a result of the material weakness in our internal controls over financial reporting described above, our disclosure controls and procedures were not effective with respect to our accounting for taxes. We have evaluated the impact of the internal control weakness described above. Based on our evaluation, we do not believe that the control weakness noted above led to any material misstatements in the consolidated financial statements included in this report.
B |
Changes in Internal Control over Financial Reporting |
No change in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the fourth quarter of our last fiscal year, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. |
OTHER INFORMATION |
None
36
PART III
Item 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
See "Election of Directors," "Corporate Governance," "Committees of the Board of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the registrant's definitive proxy statement for the 2006 annual meeting of shareholders, which sections are incorporated by reference herein. See also the "Executive Officers of the Company" section of "Business" in Item 1 of this Annual Report on Form 10-K.
We have a Code of Ethics and Business Conduct that applies to all of our employees, including our chief executive officer and senior financial and accounting officers. The text of our Code of Ethics and Business Conduct is posted in the Investor Relations section of our website, www.cross.com. Disclosure regarding any amendments to, or waivers from, provisions of our code of ethics and business conduct that apply to our chief executive officer and senior financial and accounting officers will be included in a Current Report on Form 8-K within four business days following the date of the amendment or waiver, unless website posting of such amendments or waivers is permitted by the rules of the American Stock Exchange, Inc.
Item 11. |
EXECUTIVE COMPENSATION |
See "Executive Compensation" in the registrant's definitive proxy statement for its 2006 annual meeting of shareholders, which section is incorporated by reference herein. Such incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K.
Item 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
See "Security Ownership of Certain Beneficial Owners and Management" in the registrant's definitive proxy statement for the 2006 annual meeting of shareholders, which section is incorporated by reference herein.
Equity Compensation Plan Information
The following table details the Company's equity compensation plans as of December 31, 2005:
(A) |
(B) |
(C) |
|||||
PLAN CATEGORY: |
NUMBER OF SECURITIES |
WEIGHTED AVERAGE |
NUMBER OF SECURITIES |
||||
Equity compensation plans |
|||||||
approved by security holders |
1,818,343 |
$ 6.27 |
578,087 |
||||
Equity compensation plans not |
|||||||
approved by security holders |
_______ - |
- |
______ - |
||||
Total |
1,818,343 |
$6.27 |
578,087 |
Item 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
See "Election of Directors" in the registrant's definitive proxy statement for the 2006 annual meeting of shareholders, which sections are incorporated by reference herein.
Item 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
See "Appointment of Independent Public Accountants" and "Principal Accounting Firm Fees" in the registrant's definitive proxy statement for the 2006 annual meeting of shareholders, which sections are incorporated by reference herein.
37
PART IV
Item 15. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
|||||
A |
(1) and |
The following consolidated financial statements of A.T. Cross Company and subsidiaries are |
||||
(2) |
incorporated by reference to Item 8 of this Annual Report on Form 10-K: |
|||||
Report of Independent Registered Public Accounting Firm |
||||||
Consolidated Balance Sheets as of December 31, 2005 and January 1, 2005 |
||||||
Consolidated Statements of Operations for the Years Ended December 31, 2005, |
||||||
January 1, 2005 and January 3, 2004 |
||||||
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended |
||||||
December 31, 2005, January 1, 2005 and January 3, 2004 |
||||||
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended |
||||||
December 31, 2005, January 1, 2005 and January 3, 2004 |
||||||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, |
||||||
January 1, 2005 and January 3, 2004 |
||||||
Notes to Consolidated Financial Statements |
||||||
(3) Listing of Exhibits |
||||||
EXHIBIT NUMBER |
DESCRIPTION |
|||||
(3.1) |
Restated Articles of Incorporation and By-laws (incorporated by reference to Exhibit (3) to the |
|||||
registrant's report on Form 10-K for the year ended December 31, 1980) |
||||||
(3.2) |
Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit (3) to the |
|||||
registrant's report on Form 10-K for the year ended December 31, 1994) |
||||||
(3.3) |
Amendment to By-laws adopted December 2, 1988 (incorporated by reference to Exhibit (3) to the |
|||||
registrant's report on Form 10-K for the year ended December 31, 1989) |
||||||
(3.4) |
Amendment to By-laws adopted February 6, 1992 (incorporated by reference to Exhibit (3) to the |
|||||
registrant's report on Form 10-K for the year ended December 31, 1991) |
||||||
(10.1) |
A.T. Cross Company Unfunded Excess Benefit Plan (as amended) (incorporated by reference to |
|||||
Exhibit (10.6) to the registrant's report on Form 10-K for the year ended December 31, 1994) * |
||||||
(10.2) |
A.T. Cross Company Executive Life Insurance Program (incorporated by reference to Exhibit (10.8) to |
|||||
the Registrant's report on Form 10-K for the year ended December 31, 1997) * |
||||||
(10.3) |
A.T. Cross Company Deferred Compensation Plan for Employee Officers and Directors (incorporated |
|||||
by Reference to Exhibit (10.4) to the registrant's report on Form 10-K for the year ended |
||||||
December 28, 2002) * |
||||||
(10.4) |
A.T. Cross Company Deferred Compensation Plan for Non-Employee Directors (incorporated by |
|||||
reference to Exhibit (10.5) to the registrant's report on Form 10-K for the year ended |
||||||
December 28, 2002) * |
||||||
(10.5) |
A.T. Cross Company Omnibus Incentive Plan (incorporated by reference to Exhibit (10) to the |
|||||
registrant's report on Form 10-Q for the quarterly period ended July 3, 2004) * |
||||||
(10.6) |
Executive Employment Contract - Peter J. Canole dated November 18, 2004 (incorporated by reference |
|||||
to Exhibit (10.8) to the registrant's report on Form 10-K for the year ended January 1, 2005 * |
||||||
(10.7) |
Executive Employment Contract - Charles S. Mellon dated November 21, 2004 (incorporated by |
|||||
reference to Exhibit (10.9) to the registrant's report on Form 10-K for the year ended January 1, 2005 * |
||||||
(10.8) |
Executive Employment Contract - Kevin F. Mahoney dated January 11, 2005 (incorporated by reference |
|||||
to Exhibit (10.10) to the registrant's report on Form 10-K for the year ended January 1, 2005 * |
||||||
(10.9) |
A.T. Cross Company Long Term Incentive Plan and Severance Program for senior management |
|||||
(incorporated by reference to the registrants report on Form 8-K filed October 25, 2005) * |
||||||
(10.10) |
A.T. Cross Company Incentive Compensation Plan - 2006 * |
|||||
(10.11) |
Credit Agreement with Bank of America, N.A., |
|||||
(11) |
Statement Re: Computation of Net (Loss) Income per Share - (incorporated by reference to the "Consol- |
|||||
idated Statements of Operations" financial statement in Item 8 of this Annual Report on Form 10-K) |
||||||
(21) |
A.T. Cross Company Subsidiaries, Branches and Divisions |
|||||
(31.1) |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||||
(31.2) |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||||
(32) |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||||
* Management contract, compensatory plan or arrangement |
||||||
B |
Exhibits - See Item A (3) above |
|||||
C |
Financial Statement Schedule - Schedule II Valuation and Qualifying Accounts |
38
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.
A.T. CROSS COMPANY (registrant) |
|
By /s/ |
RUSSELL A. BOSS _______(Russell A. Boss) Chairman |
Date: March 21, 2006 |
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 in the capacities and on the dates indicated:
SIGNATURE |
TITLE |
DATE |
/s/RUSSELL A. BOSS __________(Russell A. Boss) |
Chairman & Director |
March 21, 2006 |
/s/BRADFORD R. BOSS ________(Bradford R. Boss) |
Chairman Emeritus & Director |
March 21, 2006 |
/s/DAVID G. WHALEN __________(David G. Whalen) |
President & Director |
March 21, 2006 |
/s/KEVIN F. MAHONEY _________(Kevin F. Mahoney) |
Vice President |
March 21, 2006 |
/s/GARY S. SIMPSON __________(Gary S. Simpson) |
Corporate Controller |
March 21, 2006 |
/s/BERNARD V. BUONANNO, JR. (Bernard V. Buonanno, Jr.) |
Director |
March 21, 2006 |
/s/EDWARD J. COONEY _______(Edward J. Cooney) |
Director |
March 21, 2006 |
/s/GALAL P. DOSS ____________(Galal P. Doss) |
Director |
March 21, 2006 |
/s/TERRENCE MURRAY ________(Terrence Murray) |
Director |
March 21, 2006 |
_____________________________ (Andrew J. Parsons) |
Director |
|
/s/JAMES C. TAPPAN __________(James C. Tappan) |
Director |
March 21, 2006 |
39
Form 10-K Item 15C
A. T. Cross Company and Subsidiaries
Financial Statement Schedule
The following consolidated financial statement schedule of A.T. Cross Company and subsidiaries is in Item 15C:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or the information required therein has otherwise been disclosed in the consolidated financial statements referred to above, or are inapplicable, and therefore have been omitted.
Item 15C. |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS |
COLUMN A |
COLUMN B |
COLUMN C |
COLUMN D |
COLUMN E |
||||||
DESCRIPTION |
BALANCE AT |
CHARGED TO |
CHARGED |
DEDUCTIONS |
BALANCE |
|||||
Allowance for Doubtful Accounts: |
||||||||||
Year Ended December 31, 2005 |
$ 1,179,000 |
$ 264,519 |
$ - |
$ 436,519 |
$ 1,007,000 |
|||||
Year Ended January 1, 2005 |
$1,234,000 |
$252,483 |
$ - |
$307,483 |
$1,179,000 |
|||||
Year Ended January 3, 2004 |
$1,032,000 |
$636,079 |
$40,000 |
(A) |
$474,079 |
$1,234,000 |
(A) Relates to the acquisition of receivables.
40
Exhibit 10.10
A.T. Cross Company
Incentive Compensation Plan - 2006
Introduction
The following Incentive Plan (the "Plan") will be implemented for 2006. The purpose of the Plan is to drive participants towards achievement of corporate goals and to motivate, retain and reward participants. For 2006, the Plan will calculate incentive awards for all participants based on achieving annual corporate financial and individual objectives. For 2006, the corporate financial objective will be a combination of operating income before taxes (OIBT) and net sales targets. All other performance objectives and weighting of the corporate and individual bonus segments will be determined based on individual responsibilities (including but not limited to net sales, profit, programs and/or projects) and agreed upon by the President and CEO with the appropriate Vice President.
Performance Measures
OIBT is the primary driver of the award. The corporate incentive award will be established based on a funding matrix (example below) considering both OIBT and net sales.
The corporate incentive pool is created when certain levels of OIBT and net sales are achieved. The individual incentive pool is created when any individual objective is achieved. Based on the level of achievement, and considering the funding matrix, the pool will be created by multiplying the corporate payout multiple from the matrix for the achievement level by the base pay of participants and then by the target bonus level of participants.
Corporate Incentive Pool = |
||||||
Worldwide Revenue Achievement of Plan |
||||||
0 to $200 |
$200-$400 |
$400-$600 |
$600 + |
|||
Pre-Bonus |
Less than $15MM |
0% |
0% |
0% |
0% |
Percent |
OIBT |
$15MM - $25MM |
50% |
60% |
70% |
80% |
Of |
Achievement |
$25MM - $35MM |
80% |
90% |
100% |
110% |
Pool |
of Plan |
$35 MM + |
110% |
120% |
130% |
150% |
Funded |
Each individual objective will be evaluated on the following scale.
Modifier for Achievement of Individual Objectives |
||
Objective Rating |
Multiplier |
|
Did Not Achieve |
0.00 |
|
Achieved Most Results |
0.50 |
|
Achieved All Results |
1.00 |
|
Exceeded Some Results |
1.20 |
|
Exceeded All |
1.40 |
The Exceeded All rating will be reserved for use by the President/CEO and responsible Vice President. The ratings on each objective will be multiplied by the cash value of the individual objective and then totaled to calculate the individual objective bonus amount.
Eligibility
All executives and exempt staff with base pay greater than $60,000 who are actively employed on December 31st of the plan year are eligible to participate. The eligibility criteria are based on competitive market review.
Target Bonus Levels
Target bonus incentives will be expressed as a percentage of base salary earned during the year. Targets will be based on market data regarding competitive compensation levels. Minimum and maximum incentive levels will be determined by the size of the corporate incentive pool and performance on business unit/territory/region and individual/other goals. Incentive levels at threshold achievement will be approximately 10 percent of target and approximately 150 percent at maximum levels of achievement.
Base Salary Range ($000) |
Incentive Target Salary |
||
Level A |
$170 - $250 |
35% |
|
Level B |
$130 - $170 |
25% |
|
Level C |
$100 - $130 |
20% |
|
Level D |
$80 - $100 |
15% |
|
Level E |
$60 - $80 |
10% |
Payout of Plan Awards
Annual Incentive Awards will be distributed as soon as is practicable after the close of the fiscal year. Awards, if earned, will be a percent of base salary paid for such fiscal year. Base salary does not include any bonus payable under this Plan or any other incentive plan, any life insurance premiums, special compensation, pension benefits, profit sharing trust or Crossaver savings plan matching allocations.
Changes in Employment Status
Employees who are participants in the Plan for only part of a fiscal year may participate in the Plan for the period or periods of membership on a pro rata basis. Bonuses will be prorated for employees who participate in more than one bonus level during the year, considering all bonus levels. However, participants must be actively employed by the Company as of December 31 to be eligible for incentive awards relating to that year.
Disability or Death
For participants who become disabled (i.e., eligible for Company LTD benefits) or die while a member of the Plan, awards will be determined in a prorated manner to reflect the period of time the participant was an active member of the Plan. Payout will be made - at the time the normal payout would have been made - to the participant or participant's beneficiary(ies) if on file; otherwise, payment will be made to the participant's estate.
Administration
The Compensation Committee of the Board of Directors of A. T. Cross Company, whose decisions in all matters will be final, will administer the Plan. The Committee reserves the right, subject to the full Board's approval, to modify, amend, or discontinue this Plan at any time. Any changes or amendments to the Plan will not affect a participant's rights prior to the modification unless the participant provides written consent.
Participation in this Plan does not confer any right to continued employment by A. T. Cross. Similarly, selection for participation in any one year does not necessarily guarantee participation in future years. No member of the Compensation Committee shall have any personal liability in connection with the administration of the Plan.
Definitions
Operating Income Before Taxes (OIBT)
OIBT is defined as the pretax operating income excluding any adjustment for LIFO inventories, restructuring or other non-recurring items and before allowance for bonus payment under this plan. The corporate target will be approved by the Board of Directors considering the annual operating plan.
Net Sales
Net sales is defined as gross sales of the unit, less returns and allowances, cash discounts, and rebates.
Corporate Targets
Corporate targets include operations of A.T. Cross Company and subsidiaries, branches and divisions as of January 1, 2006 including Cross retail stores.
International Calculations
Participants who are located internationally will have their targets and actual results determined utilizing budgeted exchange rates. By utilizing budgeted exchange rates, there will be neither a favorable or unfavorable impact as a result of fluctuations in foreign exchange. Also, participants who operate in a single country will be measured using local currency, while participants who operate in multiple countries will be measured in United States dollars (utilizing budgeted exchange rates) on a consolidated basis.
Exhibit 10.11
CREDIT AGREEMENT
Dated as of December 21, 2005
among
A.T. CROSS COMPANY,
as the Borrower,
BANK OF AMERICA, N.A.,
as Administrative Agent,
and
L/C Issuer,
BANK OF AMERICA, N.A. (London Branch),
as UK Lender
and
The Other Lenders Party Hereto
4019304v5
TABLE OF CONTENTS |
|||
Section |
Page |
||
ARTICLE I. |
DEFINITIONS AND ACCOUNTING TERMS ................................................... |
1 |
|
1.01 |
Defined Terms ....................................................................................................... |
1 |
|
1.02 |
Other Interpretive Provisions ................................................................................ |
25 |
|
1.03 |
Accounting Terms ................................................................................................. |
26 |
|
1.04 |
Rounding ............................................................................................................... |
26 |
|
1.05 |
Times of Day .......................................................................................................... |
26 |
|
1.06 |
Letter of Credit Amounts ....................................................................................... |
26 |
|
1.07 |
Conversion of Foreign Currencies ......................................................................... |
27 |
|
ARTICLE II |
THE COMMITMENTS AND CREDIT EXTENSIONS ...................................... |
27 |
|
2.01 |
Committed Loans ................................................................................................... |
27 |
|
2.02 |
Borrowings, Conversions and Continuations of Committed Loans ...................... |
28 |
|
2.03 |
[Reserved] .............................................................................................................. |
30 |
|
2.04 |
Letters of Credit ...................................................................................................... |
30 |
|
2.05 |
[Reserved] .............................................................................................................. |
38 |
|
2.06 |
Prepayments ........................................................................................................... |
38 |
|
2.07 |
Termination or Reduction of Commitments........................................................... |
39 |
|
2.08 |
Repayment of Loans ............................................................................................... |
39 |
|
2.09 |
Interest .................................................................................................................... |
40 |
|
2.10 |
Fees ......................................................................................................................... |
40 |
|
2.11 |
Computation of Interest and Fees ........................................................................... |
41 |
|
2.12 |
Evidence of Debt .................................................................................................... |
41 |
|
2.13 |
Payments Generally; Administrative Agent's Clawback ....................................... |
42 |
|
2.14 |
Sharing of Payments by Lenders ........................................................................... |
44 |
|
ARTICLE III |
TAXES, YIELD PROTECTION AND ILLEGALITY ........................................ |
44 |
|
3.01 |
Taxes ...................................................................................................................... |
44 |
|
3.02 |
Illegality ................................................................................................................. |
46 |
|
3.03 |
Inability to Determine Rates .................................................................................. |
47 |
|
3.04 |
Increased Costs; Reserves on Eurodollar Rate Loans ........................................... |
47 |
|
3.05 |
Compensation for Losses ....................................................................................... |
49 |
|
3.06 |
Mitigation Obligations; Replacement of Lenders .................................................. |
50 |
|
3.07 |
Survival .................................................................................................................. |
50 |
|
3.08 |
Required Costs ....................................................................................................... |
50 |
|
ARTICLE IV |
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS ................................ |
51 |
|
4.01 |
Conditions of Initial Credit Extension .................................................................... |
51 |
|
4.02 |
Conditions to all Credit Extensions ........................................................................ |
52 |
|
ARTICLE V |
REPRESENTATIONS AND WARRANTIES ...................................................... |
53 |
|
5.01 |
Existence, Qualification and Power; Compliance with Laws ................................ |
53 |
|
5.02 |
Authorization; No Contravention ........................................................................... |
53 |
|
5.03 |
Governmental Authorization; Other Consents ....................................................... |
54 |
|
5.04 |
Binding Effect ........................................................................................................ |
54 |
|
5.05 |
Financial Statements; No Material Adverse Effect; No Internal Control Event ... |
54 |
|
5.06 |
Litigation ................................................................................................................ |
55 |
|
5.07 |
No Default .............................................................................................................. |
55 |
|
5.08 |
Ownership of Property; Liens ................................................................................ |
55 |
i
4019304v5
5.09 |
Environmental Compliance ............................................................................ |
55 |
5.10 |
Insurance ......................................................................................................... |
55 |
5.11 |
Taxes ............................................................................................................... |
56 |
5.12 |
ERISA Compliance ......................................................................................... |
56 |
5.13 |
Subsidiaries; Equity Interests .......................................................................... |
56 |
5.14 |
Margin Regulations; Investment Company Act; Public Utility Holding |
|
Company Act .................................................................................................. |
57 |
|
5.15 |
Disclosure ....................................................................................................... |
57 |
5.16 |
Compliance with Laws ................................................................................... |
57 |
5.17 |
Intellectual Property; Licenses, Etc. ............................................................... |
57 |
ARTICLE VI |
AFFIRMATIVE COVENANTS .................................................................... |
58 |
6.01 |
Financial Statements ....................................................................................... |
58 |
6.02 |
Certificates; Other Information ....................................................................... |
59 |
6.03 |
Notices ............................................................................................................ |
61 |
6.04 |
Payment of Obligations .................................................................................. |
61 |
6.05 |
Preservation of Existence, Etc ........................................................................ |
61 |
6.06 |
Maintenance of Properties .............................................................................. |
52 |
6.07 |
Maintenance of Insurance ............................................................................... |
52 |
6.08 |
Compliance with Laws ................................................................................... |
52 |
6.09 |
Books and Records ......................................................................................... |
52 |
6.10 |
Inspection Rights ............................................................................................ |
52 |
6.11 |
Use of Proceeds .............................................................................................. |
63 |
6.12 |
Additional Guarantors .................................................................................... |
63 |
6.13 |
Mortgages ....................................................................................................... |
63 |
ARTICLE VII |
NEGATIVE COVENANTS ........................................................................... |
63 |
7.01 |
Liens ............................................................................................................... |
64 |
7.02 |
Investments ..................................................................................................... |
65 |
7.03 |
Indebtedness ................................................................................................... |
65 |
7.04 |
Fundamental Changes .................................................................................... |
67 |
7.05 |
Dispositions .................................................................................................... |
67 |
7.06 |
Restricted Payments ....................................................................................... |
68 |
7.07 |
Change in Nature of Business ........................................................................ |
69 |
7.08 |
Transactions with Affiliates ........................................................................... |
69 |
7.09 |
Burdensome Agreements ................................................................................ |
69 |
7.10 |
Use of Proceeds ............................................................................................. |
69 |
7.11 |
Financial Covenants ........................................................................................ |
69 |
7.12 |
Capital Expenditures ....................................................................................... |
70 |
7.13 |
Anti-Terrorism Law ........................................................................................ |
70 |
7.14 |
Embargoed Person .......................................................................................... |
70 |
7.15 |
Restriction on Excluded Subsidiaries; Loan Party Assets .............................. |
71 |
ARTICLE VIII. |
EVENTS OF DEFAULT AND REMEDIES ................................................. |
71 |
8.01 |
Events of Default ............................................................................................ |
71 |
8.02 |
Remedies Upon Event of Default .................................................................... |
73 |
8.03 |
Application of Funds ....................................................................................... |
73 |
ARTICLE IX |
ADMINISTRATIVE AGENT ........................................................................ |
74 |
9.01 |
Appointment and Authority ............................................................................ |
74 |
9.02 |
Rights as a Lender ........................................................................................... |
75 |
9.03 |
Exculpatory Provisions ................................................................................... |
75 |
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9.04 |
Reliance by Administrative Agent .......................................................................... |
76 |
9.05 |
Delegation of Duties ................................................................................................ |
76 |
9.06 |
Resignation of Administrative Agent ...................................................................... |
76 |
9.07 |
Non-Reliance on Administrative Agent and Other Lenders .................................... |
77 |
9.08 |
[Reserved] ................................................................................................................ |
77 |
9.08 |
Administrative Agent May File Proofs of Claim ..................................................... |
77 |
ARTICLE X |
MISCELLANEOUS ................................................................................................ |
78 |
10.01 |
Amendments, Etc .................................................................................................... |
78 |
10.02 |
Notices; Effectiveness; Electronic Communication ............................................... |
79 |
10.03 |
No Waiver; Cumulative Remedies ......................................................................... |
81 |
10.04 |
Expenses; Indemnity; Damage Waiver ................................................................... |
81 |
10.05 |
Payments Set Aside ................................................................................................. |
83 |
10.06 |
Successors and Assigns ........................................................................................... |
83 |
10.07 |
Treatment of Certain Information; Confidentiality ................................................. |
86 |
10.08 |
Right of Setoff ......................................................................................................... |
87 |
10.09 |
Interest Rate Limitation ........................................................................................... |
87 |
10.10 |
Counterparts; Integration; Effectiveness ................................................................. |
88 |
10.11 |
Survival of Representations and Warranties ........................................................... |
88 |
10.12 |
Severability .............................................................................................................. |
88 |
10.13 |
Replacement of Lenders ......................................................................................... |
88 |
10.14 |
Governing Law; Jurisdiction; Etc ........................................................................... |
89 |
10.15 |
Waiver of July Trial ................................................................................................ |
90 |
10.16 |
USA PATRIOT Act Notice .................................................................................... |
90 |
10.17 |
ENTIRE AGREEMENT ........................................................................................ |
91 |
10.18 |
Judgment Currency ................................................................................................. |
91 |
SIGNATURES ..................................................................................................................................... |
S-1 |
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SCHEDULE AND EXHIBIT INDEX
Schedules
Schedule 1: Post Closing Deliveries and Conditions
Schedule 2.01: Commitments and Applicable Percentages
Schedule 5.05: Supplement to Interim Financial Statements
Schedule 5.06:Litigation
Schedule 5.13: Subsidiaries and Other Equity Investments
Schedule 5.17: Intellectual Property Matters
Schedule 7.01 Existing Liens
Schedule 7.02: Investments
Schedule 7.03: Existing Indebtedness
Schedule 10.02: Administrative Agent's Office; Certain Addresses for Notices
Schedule 10.06: Processing and Recordation Fees
Exhibits
Exhibit A-1: Form of Committed Loan Notice
Exhibit A-2: Form of Eurocurrency Loan Notice
Exhibit D: Form of Notes
Exhibit E: Form of Compliance Certificate
Exhibit F: Form of Assignment and Assumption
Exhibit G: Form of Guaranty
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CH&S DRAFT 12/15/05
CH&S REDRAFT 12/20/05
CH&S REDRAFT 12/21/05
CREDIT AGREEMENT
This CREDIT AGREEMENT ("Agreement") is entered into as of December 21, 2005, among A. T. CROSS COMPANY, a Rhode Island corporation having an address at One Albion Road, Lincoln, Rhode Island, 02864 (the "Borrower") as borrower of Committed Loans, A.T. CROSS LIMITED, a corporation organized under the laws of England and Wales (company number 1410574) whose registered office is at Concorde House, Concorde Street, Luton, Bedfordshire, LU2 OJD, ("Cross UK") as borrower of Eurocurrency Loans, each lender from time to time party hereto (collectively, together with the UK Lender, the "Lenders") BANK OF AMERICA, N.A., as Administrative Agent and L/C Issuer and BANK OF AMERICA, N.A. (London Branch) as UK Lender.
The Borrower has requested that the Lenders provide a revolving credit facility, and the Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms.
As used in this Agreement, the following terms shall have the meanings set forth below:
"ACH Transactions" means any cash management or related services (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by Bank of America, N.A. or its Affiliates for the account of the Borrower or its Subsidiaries.
"Administrative Agent" means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
"Administrative Agent's Office" means the Administrative Agent's address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.
"Administrative Questionnaire" means an administrative questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
"Aggregate Commitments" means the Commitments of all the Lenders providing Committed Loans to make Committed Loans and the UK Lender to make Eurocurrency Loans which aggregate amount on the date hereof is Thirty Million Dollars ($30,000,000) which consists of Five Million Dollars ($5,000,000) Dollar Equivalent Commitments for Eurocurrency Loans and Twenty-Five Million Dollars ($25,000,000) Commitments for Committed Loans
4019304v5
which amount automatically and without notice or any further action reduces to Fifteen Million Dollars ($15,000,000) on January 6, 2006, and after such date the Aggregate Commitments shall equal an aggregate amount of Twenty Million Dollars ($20,000,000) as such amount may be further reduced as provided herein.
"Agreement" means this Credit Agreement.
"Anti-Terrorism Laws" any laws relating to terrorism or money laundering, including the Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act, and the laws administered by OFAX.
"Applicable Percentage" means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender's Commitment at such time. If the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
"Applicable Margin" shall mean, for each category below, the percentage set forth under the relevant column heading below:
Level |
Consolidated |
Commitment |
Applicable Margin for |
Letter of |
Applicable Margin for |
I |
Less than |
0.25% |
1.50% |
1.50% |
0.00% |
II |
Greater than |
0,25% |
1.75% |
1.75% |
0.00% |
III |
Greater than |
0.25% |
2.00% |
2.00% |
0.00% |
IV |
Greater than |
0.25% |
2.25% |
2.25% |
0.00% |
For the period commencing on the Closing Date and ending on the third (3`d) Business Day after the Administrative Agent's receipt, pursuant to Section 6.01(b), of the Officer's Certificate for the Borrower's fiscal quarter ending March 31, 2006, a per annum percentage equal to that specified for Level III above, and thereafter as of any date, so long as no Default or
2
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Event of Default exists and is continuing and subject to the terms of this definition, the applicable per annum percentage set forth above; provided, that if any Default or Event of Default exists and is continuing the applicable per annum percentage shall be that specified for Level IV above. Changes in the Applicable Margin resulting from changes in the Consolidated Leverage Ratio shall become effective on the date (the "Adjustment Date") that is three (3) Business Days after the date on which financial statements are delivered to the Administrative Agent pursuant to Section 6.01(b) and shall remain in effect until the next change to be effected pursuant to this paragraph; provided that interest rate reductions shall become final only on the basis of the Borrower's annual audited financial statements and (a) in the event that such annual audited financial statements establish that the Borrower was not entitled to a rate reduction which was previously granted, the Borrower shall, upo n written demand by the Administrative Agent, repay to the Administrative Agent an amount equal to the excess of (i) interest at the rate which should have been charged based on such annual audited financial statement(s) and (ii) the rate actually charged on the basis of the Borrower's quarterly financial statement(s) and (b) in the event that such annual audited financial statements establish the Borrower was entitled to a rate reduction which was previously not granted, the Agent shall, upon written demand by the Borrower, apply the excess of (i) the rate actually charged on the basis of the Borrower's quarterly financial statement(s) and (ii) interest at the rate which should have been charged based on such annual audited financial statement(s), to the payment of principal outstanding; provided, that in the event that the Borrower fails to provide any financial statements or Officer's Certificate on a timely basis in accordance with Section 6.01(b), the per annum percentage shall be that specified for Level IV above until delivered, and any interest rate increase payable as a result thereof shall be retroactively effective to the date on which the financial statements or Officer's Certificate, as the case may be, should have been received by the Administrative Agent in accordance with Section 6.01(b) and the Borrower shall pay any amount due as a result thereof upon written demand from the Administrative Agent . In addition, at all times while an Event of Default shall have occurred and be continuing, the per annum percentage specified in Level IV above shall apply. Each determination of the Consolidated Leverage Ratio pursuant to the grid above shall be made in a manner consistent with the determination thereof pursuant to Section 6.01(b).
"Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
"Assignee Group" means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
"Assignment and Assumption" means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b), and accepted by the Administrative Agent, in substantially the form of Exhibit F or any other form approved by the Administrative Agent.
"Attributable Indebtedness" means, on any date, (a) in respect of any capital lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that
3
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would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital lease.
"Audited Financial Statements" means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2004, and the related consolidated statements of income or operations, shareholders' equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto.
"Availability Period" means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.07, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.
"Bank of America" means Bank of America, N.A. and its successors.
"Bank Product Agreements" means those certain agreements entered into from time to time by the Borrower or its Subsidiaries in connection with any of the Bank Products.
"Bank Product Obligations" means all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by the Borrower or its Subsidiaries to Bank of America, N.A. or its Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that the Borrower is obligated to reimburse to Administrative Agent or any Lender as a result of Administrative Agent or such Lender purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to the Borrower or its Subsidiaries pursuant to the Bank Product Agreements.
"Bank Products" means any service or facility extended to the Borrower or its Subsidiaries by Bank of America, N.A., or any Affiliate of Bank of America, N.A., including: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) foreign currency exchange agreements or other foreign currency agreements or arrangements.
"Bank Product Reserves" means, as of the date of determination, the amount of reserves that Agent has established (based upon Bank of America's or its Affiliate's reasonable determination of the credit exposure in respect of then extant Ba zk Products), for Bank Products then provided or outstanding.
"Base Rate" means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 112 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate."The "prime rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.
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"Base Rate Committed Loan" means a Committed Loan that is a Base Rate Loan.
"Base Rate Loan" means a Loan that bears interest based on the Base Rate.
"Borrower" has the meaning specified in the introductory paragraph hereto.
"Borrower Materials" has the meaning specified in Section 6.02.
"Borrowing" means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of Eurodollar Rate Committed Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01 and in the case of the Eurocurrency Sublimit, Eurocurrency Loans.
"Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent's Office is located and, if such day relates to any Eurodollar Rate Loan, or any Eurocurrency Loan means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
"Capital Expenditure" means for any period, expenditures by the Borrower and its Subsidiaries determined on a consolidated basis, that in accordance with GAAP are or should be included in "property, plant and equipment" or in a similar fixed asset account on its balance sheet.
"Cash Collateralize" has the meaning specified in Section 2.04(0.
"Cash Equivalents" mean, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Goverment or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-I from S&P or at least P-I from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances mat uring within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in such regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's.
"Change in Law" means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof
5
4019304v5
by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.
"Change of Control" means an event or series of events by which:
(a) any "person" or "group" (as such terms are used in Sections l3(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire (such right, an "option right"), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 20% or more of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any o ption right);
(b) during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a resul t of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors); or
(c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Borrower, or control over the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such Person or group has the right to acquire pursuant to any option right) representing 20% or more of the combined voting power of such securities.
"Charge Over Shares" The Charge Over Shares to be dated on or prior to the Closing Date, from Cross Europe in favor of the Administrative Agent with respect to 66% of the share capital as collateral security for Committed Loans of each of the Foreign Subsidiaries and Cross
6
4019304v5
UK and the Charge over Shares, to be dated on or prior to the Closing Date, from Cross Bermuda in favor of the Agent with respect to the share capital of Cross Europe, each in form and substance satisfactory to the Lenders and the Agent and all of the share capital as collateral security for Eurocurrency Loans.
"Closing Date" means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01.
"Code" means the Internal Revenue Code of 1986.
"Commitment" means, as to each Lender, other than the UK Lender, its obligation to (a) make Committed Loans to the Borrower pursuant to Section 2.01(a), and (b) purchase participations in L/C Obligations in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 and as to the UK Lender, to make Eurocurrency Loans to the Cross UK pursuant to Section 2.01(b) or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
"Committed Lender" means, a lender which has a Commitment to make Committed Loans.
"Committed Loan" has the meaning specified in Section 2.01.
"Committed Loan Notice" means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Committed Loans, pursuant to Section 2,02(a)(i), which, if in writing, shall be substantially in the form of Exhibit A.
"Compliance Certificate" means a certificate substantially in the form of Exhibit E.
"Consolidated Debt Service Coverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated EBITDA for the period of the four prior fiscal quarters ending on such date minus (i) income taxes paid in cash by the Borrower and its Subsidiaries during such period minus (ii) cash dividends or distributions paid during such period minus (iii) Capital Expenditures (excluding one time capital expenditures relating to the Borrower's establishing a place of business in Taiwan, China made on or prior to December 31, 2005 not to exceed $1,000,000 and excluding Capital Expenditures made with the proceeds of insurance received by the Borrower) minus (iv) all payments made for the redemption, repurchase or other acquisition of any of the capital stock of the Borrower to (b) (i) Consolidated Interest Charges plus (ii) all principal of Indebtedness paid during such period (other than voluntary repayments of principal for such period and other than principa l payments made during such period on the Preexisting Term Loan), including, without limitation, the payment of the principal component of any payments in respect of Capital Leases.
"Consolidated EBITDA" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, an amount equal to Consolidated Net Income for such period plus (a) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated
7
4019304v5
Interest Charges for such period, (ii) the provision for Federal, state, local and foreign income taxes payable by the Borrower and its Subsidiaries for such period, (iii) depreciation and amortization expense (iv) any extra ordinary losses (v) restructuring charges up to $1,000,000 in the aggregate for the Borrower's fiscal year ending December 31, 2005 and up to $1,500,000 in the aggregate for the Borrower's fiscal year ending December 31, 2006 (provided any add back for any restructuring charge shall be taken in the quarter during which such restructuring charge is assessed), (vi) all non-cash expenses associated with the LIFO treatment of Inventory (vii) non-cash charges related to compensation expense minus (b) the following: (i) any extraordinary gains to the extent increasing Consolidated Net Income and (ii) all non-cash items increasing Consolidated Net Income for such period including, without limitation, all non-cash increases associated with the LIFO treatment of Inventory.
"Consolidated Funded Indebtedness" means, as of any date of determination, for the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all direct obligations arising under letters of credit (including standby and commercial), bankers' acceptances, bank guaranties, surety bonds and similar instruments, (d) all obligations in respect of the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business), (e) Attributable Indebtedness in respect of capital leases and Synthetic Lease Obligations, (f) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (e) above of Persons other than the Borrower or any Subsidiary, and (g) all Indebtedness of the types referred to in clauses (a) through (f) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which the Borrower or a Subsidiary is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to the Borrower or such Subsidiary.
"Consolidated Interest Charges" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses of the Borrower and its Subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, and (b) the portion of rent expense of the Borrower and its Subsidiaries with respect to such period under capital leases that is treated as interest in accordance with GAAP.
"Consolidated Leverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDA for the period of the four fiscal quarters most recently ended.
"Consolidated Net Income" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the net income of the Borrower and its Subsidiaries (excluding extraordinary gains but including extraordinary losses) for that period.
"Consolidated Tangible Net Worth" means, as of any date of determination, for the Borrower and its Subsidiaries on a consolidated basis, Shareholders' Equity of the Borrower and
8
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its Subsidiaries on that date minus the Intangible Assets of the Borrower and its Subsidiaries on that date.
"Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
"Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Costa Del Mar" means Costa Del Mar Sunglasses, Inc., a corporation organized under the laws of the State of Florida.
"Credit Extension" means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
"Cross Asia Pacific" means A.T. Cross (Asia Pacific) Ltd., a corporation organized under the laws of the British Virgin Islands [?].
"Cross Bermuda" means A.T. Cross Limited, a corporation organized under the laws of the Republic of Ireland with a seat of management in Bermuda.
"Cross Canada" means A.T. Cross (Canada) Inc., a corporation organized under the laws of [which province in Canada?].
"Cross China" means a wholly-owned Subsidiary of the Borrower which will conduct its principal business in the Peoples Republic of China.
"Cross Europe" means A.T. Cross Europe Ltd., a corporation organized under the laws of England and Wales.
"Cross Germany" means A.T. Cross Deutschland, GmbH, a corporation organized under the laws of Germany.
"Cross Holland" means A.T. Cross Benelux By, a corporation organized under the laws of the Netherlands.
"Cross International" means A.T.X. International, Inc., a corporation organized under the laws of the State of Rhode Island.
"Cross Japan" means Cross Company of Japan Ltd., a corporation organized under the laws of Japan.
"Cross Retail" means Cross Retail Ventures, Inc., a corporation organized under the laws of the State of Rhode Island.
9
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"Cross Spain" means A.T. Cross Iberia, a corporation organized under the laws of Spain. "Cross UK" shall the meaning specified in the introduction paragraph hereto.
"Debenture" means the Debenture dated or to be dated on or prior to the Closing Date, between Cross UK and the Administrative Agent and in form and substance satisfactory to the Lenders and the Administrative Agent.
"Debtor Relief Laws" means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
"Default" means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
"Default Rate" means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Margin applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurodollar Rate Loan, or a Eurocurrency Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Margin) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Margin plus 2% per annum.
"Defaulting Lender" means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.
"Disposition" or "Dispose" means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any properly by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
"Dollar" and "$" mean lawful money of the United States.
"Dollar Equivalent" of any amount means, at the time of determination thereof, (a) if such amount is expressed in Dollars, such amount, (b) if such amount is expressed in Euro, the equivalent of such amount in Dollars determined by using the rate of exchange quoted by the UK Lender in London at 11:00 a.m. London time, on the date of determination, to major banks in London for the spot purchase in the London foreign exchange market of such amount of Dollars with Euro, and (c) if such amount is expressed in Sterling, the equivalent of such amount in Dollars determined by using the rate of exchange quoted by the UK Lender in London at 11:00
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a.m. London time, on the date of determination, to major banks in London for the spot purchase in the London foreign exchange market of such amount of Dollars with Sterling.
"Domestic Subsidiary" means any Subsidiary that is organized under the laws of any political subdivision of the United States.
"Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, and (ii) unless an Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, "Eligible Assignee" shall not include the Borrower or any of the Borrower's Affiliates or Subsidiaries.
"Environmental Laws" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
"Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
"Equity Interests" means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063
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of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.
"Euro" means the single currency of the Participating Member States. "Eurocurrency" means Euro or Sterling.
"Eurocurrency Loan(s)" means a loan denominated in Eurocurrency.
"Eurocurrency Loan Notice" means a notice of (a) a Eurocurrency Borrowing or (b) the continuation of a Eurocurrency Loan pursuant to Section 2.02(a)(ii), which, if in writing, shall be substantially in the form of Exhibit A.
"Eurocurrency Loan Limit" means a Dollar Equivalent of up to $5,000,000 of Eurocurrency Loans. The Eurocurrency Loan Limit is part of, and not in addition to, the Aggregate Commitments.
"Eurocurrency Rate" for any Interest Period with respect to any Eurocurrency Loan:
(a) the rate per annum equal to the rate determined by the UK Lender to be the offered rate that appears on page 3750 of the Telerate screen (or any successor thereto) (or such other page of the Telerate as is customary for the Euro or Sterling) that displays an average British Bankers Association Interest Settlement Rate for deposits in Euro (for delivery on the first day of such Interest Period) if a Euro denominated loan and for deposits in Sterling (for delivery on the first day of such Interest Period) if a Sterling denominated loan with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m., London time, two (2) Business Days prior to the first day of such Interest Period for a Euro denominated Loan and on the first day of such Interest Period if a Sterling denominated Loan, or
(b) if the rate referenced in the preceding clause (a) does not appear on such page or service or such page or service shall not be available, the rate per annum equal to the rate determined by the UK Lender to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Euro (for delivery on the first day of such Interest Period) if a Euro denominated loan and for deposits in Sterling (for delivery on the first day of such Interest Period) if a Sterling denominated loan with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m., London time, two (2) Business Days
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prior to the first day of such Interest Period for a Euro denominated loan and on the first day of such Interest Period if a Sterling denominated loan, or
(c) if the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum deter mined by the UK Lender as the rate of interest at which deposits in Euro or Sterling, as the case may be, for delivery on the first day of such Interest Period in the same day funds in the approximate amount of the Eurocurrency Loan being made, continued or converted by the UK Lender and with a term equivalent to such Interest Period that would be offered to the UK. Lender for the applicable Eurocurrency in the London interbank Eurocurrency market at its request at approximately 11:00 a.m., London time, two (2) Business Days prior to such Interest Period for a Euro denominated loan and on the first day of such Interest Period if a Sterling denominated loan.
The determination of the Eurocurrency Rate by the UK Lender shall be conclusive in the absence of manifest error.
"Eurocurrency Reserve Requirements" means for any days as applied to a Eurocurrency Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System.
"Eurodollar Rate" means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate ("BBA LIBOR"), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the "Eurodollar Rate" for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to s uch Interest Period would be offered by Bank of America's London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.
"Eurodollar Rate Committed Loan" means a Committed Loan that bears interest at a rate based on the Eurodollar Rate.
"Eurodollar Rate Loan" means a Eurodollar Rate Committed Loan.
"Event of Default" has the meaning specified in Section 8.01.
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"Excluded Subsidiaries" means Cross Spain, Cross Canada, Cross Holland and Cross Germany.
"Excluded Taxes" means, with respect to the Administrative Agent, any Lender, the LIC Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located and (e) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender's failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(4, except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.01(a).
"Executive Order" means Executive Order No. 13224 (effective September 24, 2001).
"Federal Funds Rate" means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.
"Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" any Subsidiary of the Borrowers that is not a Domestic Subsidiary.
"FRB" means the Board of Governors of the Federal Reserve System of the United States.
"Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
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"GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
"Governmental Authority" means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
"Guarantee" means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in pari), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term "Guarantee" as a verb has a corresponding meaning.
"Guarantors" means, collectively, Cross International, Costa Del Mar and Cross Retail.
"Guaranty" means the Guaranty made by the Guarantors in favor of the Administrative Agent and the Lenders, substantially in the form of Exhibit G.
"Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
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"Indebtedness" means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers' acceptances, bank guaranties, surety bonds and similar instruments;
(c) net obligations of such Person under any Swap Contract;
(d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in each case, not past due for more than 60 days after the date on which such trade account payable was created);
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f) capital leases and Synthetic Lease Obligations;
(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and
(h) all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any capital lease or Synthetic Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnitees" has the meaning specified in Section 10.04(b).
"Information" has the meaning specified in Section 10.07.
"Intangible Assets" means assets that are considered to be intangible assets under GAAP, including customer lists, goodwill, computer software, copyrights, trade names, trademarks,
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patents, franchises, licenses, unamortized deferred charges, unamortized debt discount and capitalized research and development costs.
"Interest Payment Date" means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Rate Loan or a Eurocurrency Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan, the last Business Day of each March, June, September and December and the Maturity Date.
"Interest Period" means as to each Eurodollar Rate Loan, and each Eurocurrency Loan the period commencing on the date such Eurodollar Rate Loan or Eurocurrency Loan, as the case may be, is disbursed or converted to or continued as a Eurodollar Rate Loan or a Eurocurrency Loan, as the case may be, and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Committed Loan Notice or Eurocurrency Loan Notice, as the case may be, provided that:
(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Rate Loan, or a Eurocurrency Loan such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period pertaining to a Eurodollar Rate Loan or a Eurocurrency Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Maturity Date.
"Internal Control Event" means a material weakness in, or fraud that involves management or other employees who have a significant role in, the Borrower's internal controls over financial reporting, in each case as described in the Securities Laws.
"Investment" means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
"IP Rights" has the meaning specified in Section 5.17.
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"IRS" means the United States Internal Revenue Service.
"ISP" means, with respect to any Letter of Credit, the "International Standby Practices 1998" published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).
"Issuer Documents" means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower or in favor the L/C Issuer and relating to any such Letter of Credit.
"Judgment Currency" has the meaning specified in Section 10.18.
"Laws" means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
"L/C Advance" means, with respect to each Lender, such Lender's funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage.
"L/C Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing.
"L/C Credit Extension" means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
"L/C Issuer" means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.
"L/C Obligations" means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be "outstanding" in the amount so remaining available to be drawn.
"Lender" means the Committed Lenders, the L/C Issuer and the UK Lender.
"Lending Office" means, as to any Lender, the office or offices of such Lender described as such in such Lender's Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
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"Letter of Credit" means any standby letter of credit issued hereunder. A Letter of Credit may be a commercial letter of credit or a standby letter of credit.
"Letter of Credit Application" means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
"Letter of Credit Expiration Date" means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).
"Letter of Credit Fee" has the meaning specified in Section 2.04(i).
"Letter of Credit Sublimit" means an amount equal to $3,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
"Lincoln Mortgage" has the meaning specified in Section 6.13.
"Loan" means an extension of credit by a Lender to the Borrower under Article II which may be either a Committed Loan or a Eurocurrency Loan.
"Loan Documents" means this Agreement, each Note, each Issuer Document, the Guaranty, the Security Documents, the Negative Pledge, the Lincoln Mortgage and each other agreement, document or instrument executed by the Borrower or any of its Subsidiaries in connection therewith as each may be amended, modified or supplemented from time to time.
"Loan Parties" means, collectively, the Borrower and each Guarantor.
"Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or condition (financial or otherwise) of the Borrower or the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (e) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.
"Maturity Date" means December 20, 2007, unless sooner due and payable after acceleration or otherwise.
"Moody's" means Moody's Investor Services, Inc.
"Multiemployer Plan" means any employee benefit plan of the type described in Section 400l(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is
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obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
"Negative Pledge" means the negative pledge dated or to be dated on or prior to the Closing Date between the Borrower and the Administrative Agent and in form and substance satisfactory to the Lenders and the Administrative Agent regarding certain real property having an address at One Albion Way, Lincoln, Rhode Island to be recorded with the real estate records with the applicable Registry of Deeds.
"Note" means a promissory note made by the Borrower and Cross UK in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit D.
"Obligations" means all advances to, and all debts, liabilities, obligations, covenants and duties of, and all unpaid principal of and interest due from any Loan Party and Cross UK arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, including without limitation, any Reimbursement Obligation and any obligation under any Specified Swap Agreement or any other document made, delivered or given in connection herewith or therewith (including all fees, charges and disbursements of counsel to the Administrative Agent or any Lender) under the Loan Documents and any indemnities or other reimbursement obligations contained in any of the Loan Documents, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or Cross UK or any Affiliate thereof under any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding and all Bank Product Obligations.
"Off-Balance Sheet Liabilities" means, with respect to any Person as of any date of determination thereof, without duplication and to the extent not included as a liability on the consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP: (a) with respect to any asset securitization transaction (including any accounts receivable purchase facility) (i) the unrecovered investment of purchasers or transferees of assets so transferred, and (ii) any other payment, recourse, repurchase, hold harmless, indemnity or similar obligation of such Person or any of its Subsidiaries in respect of assets transferred or payments made in respect thereof, other than limited recourse provisions that are customary for transactions of such type and that neither (x) have the effect of limiting the loss or credit risk of such purchasers or transferees with respect to payment or performance by the obligors of the assets so transferred nor (y) impair the characterization of the transaction as a true sale under applicable Laws (including Debtor Relief Laws); (b) the monetary obligations under any financing lease or so-called "synthetic," tax retention or off balance sheet lease transaction which, upon the application of any Debtor Relief Law to such Person or any of its Subsidiaries, would be characterized as indebtedness; (c) the monetary obligations under any sale and leaseback transaction which does not create a liability on the consolidated balance sheet of such Person and its Subsidiaries; or (d) any other monetary obligation arising with respect to any other transaction which (i) is characterized as indebtedness for tax purposes but not for accounting purposes in accordance with GAAP or (ii) is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheet of such Person and its Subsidiaries (for purposes of this clause (d), any transaction structured to provide tax
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deductibility as interest expense of any dividend, coupon or other periodic payment will be deemed to be the functional equivalent of a borrowing).
"Organization Documents" means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
"Other Taxes" means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.
"Outstanding Amount" means (i) with respect to Committed Loans, including, without limitation, Eurocurrency Loans, on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans, including, without limitation, Eurocurrency Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.
"Participant" has the meaning specified in Section 10.06(d).
"Participating Member States": means the member states of the European Communities that adopt or have adopted the Euro as their lawful currency in accordance with the legislation of the European Union relating to the European Monetary Union.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.
"Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
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"Plan" means any "employee benefit plan" (as such term is defined in Section 3(3) of ERISA) established by the Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.
"Platform" has the meaning specified in Section 6.02.
"Post Closing Deliveries and Conditions" shall have the meaning specified in Schedule I attached hereto.
"Preexisting Term Loan" means that certain term loan evidenced by that certain promissory note dated June 20, 2003 in the original principal amount of $9,000,000 made by the Borrower and Cross International naming the Fleet Precious Metals, Inc., as payee.
"Register" has the meaning specified in Section 10.06(c).
"Registered Public Accounting Firm" has the meaning specified in the Securities Laws and shall be independent of the Borrower as prescribed by the Securities Laws.
"Related Parties" means, with respect to any Person, such Person's Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person's Affiliates.
"Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.
"Request for Credit Extension" means (a) with respect to a Borrowing which is not a Eurocurrency Loan, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to a Borrowing which is a Eurocurrency Loan, or continuation of a Eurocurrency Loan, a Eurocurrency Loan Notice and (c) with respect to an L/C Credit Extension, a Letter of Credit Application.
"Required Lenders" means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments (and so long as Bank of America London Branch is the UK Lender their Commitment will be added to the Bank of America Commitment for purposes of determinations among the Lenders) or, if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02., Lenders holding in the aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lender's risk participation and funded participation in L/C Obligations being deemed "held" by such Lender for purposes of this definition); provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
"Responsible Officer" means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan
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Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
"Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to the Borrower's stockholders, partners or members (or the equivalent Person thereof).
"Sarbanes-Oxley" means the Sarbanes-Oxley Act of 2002.
"Satisfaction of the Post Closing Deliveries and Conditions" has the meaning specified in Section 2.06(d).
"SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
"Securities Laws" means the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the Public Company Accounting Oversight Board, as each of the foregoing may be amended and in effect on any applicable date hereunder.
"Security Agreements" the several Security Agreements dated or to be dated on or prior to the Closing Date, and those subsequently executed in accordance with Section 6.12, between the Borrower and its wholly owned Domestic Subsidiaries and the Administrative Agent and in form and substance satisfactory to the Lenders and the Administrative Agent.
"Security Documents" the Guaranties, the Security Agreements, the Patent Assignments, the Trademark Assignments, the Debenture, the Charge over Shares, and the Stock Pledge Agreements, and any other documents or instruments from time to time securing any of the Obligations or evidencing such security.
"Shareholders' Equity" means, as of any date of determination, consolidated shareholders' equity of the Borrower and its Subsidiaries as of that date determined in accordance with GAAP.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Corporation.
"Specified Swap Agreement" means any Swap Contract entered into by the Borrower or ay of its Subsidiaries and any Lender or any Affiliate thereof.
"Sterling" means pounds sterling as lawful currency of the United Kingdom of Great Britain and Northern Ireland.
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"Stock Pledge Agreement" means the Stock Pledge Agreement dated or to be dated on or prior to the Closing Date, between the Borrower and the Administrative Agent and in form and substance satisfactory to the Lenders and the Administrative Agent which shall include a pledge of 100% of the capital stock of all Domestic Subsidiaries and of 66% of the capital stock of all Foreign Subsidiaries.
"Subsidiary" of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a "Subsidiary" or to "Subsidiaries" shall refer to a Subsidiary or Subsidiaries of the Borrower.
"Swap Contract" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the Interna tional Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement.
"Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-tomarket value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
"Synthetic Lease Obligation" means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
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"Taxes" means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
"Threshold Amount" means $500,000.
"Total Outstandings" means the aggregate Outstanding Amount of all Loans and all L/C Obligations.
"Type" means a Base Rate Loan or a Eurodollar Rate Loan.
"Unfunded Pension Liability" means the excess of a Pension Plan's benefit liabilities under Section 4001(a)(16) of ER1SA, over the current value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
"UK Lender" means the Bank of America, N.A. (London Branch) and any replacement or successor therefor which has a Commitment to make Eurocurrency Loans hereunder.
"United States" and "U.S." mean the United States of America.
"Unreimbursed Amount" has the meaning specified in Section 2.04(c)(i)
1.02 Other Interpretive Provisions.
With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person's successors and assigns, (iii) the words "herein ," "hereof' and "hereunder," and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time,
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and (vi) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including;" the words "to" and "until" each mean "to but excluding;" and the word "through" means "to and including."
(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
1.03 Accounting Terms.
Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.
(b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
1.04 Rounding.
Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.05 Times of Day.
Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
1.06 Letter of Credit Amounts.
Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount
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thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
1.07 Conversion of Foreign Currencies.
(a) Consolidated Leverage Ratio. For purposes of calculating the Consolidated Leverage Ratio, any Indebtedness denominated in any currency other than Dollars shall be calculated using the Dollar Equivalent thereof as of the date of the applicable statements on which such Indebtedness is reflected.
(b) Dollar Equivalents. The Administrative Agent shall determine the Dollar Equivalent of any amount as required hereby (whether to determine compliance with any covenants specified herein or otherwise), and a determination thereof by the Administrative Agent shall be conclusive absent manifest error. The Administrative Agent may, but shall not be obligated to, rely on any determination made by any Loan Party in any document delivered to the Administrative Agent. The Administrative Agent may determine or redetermine the Dollar Equivalent of any amount on any date either in its reasonable discretion or upon the reasonable request of any Lender, LIC Issuer or the UK Lender.
ARTICLE II.
THE COMMITMENTS AND CREDIT EXTENSIONS
2.01 Committed Loans.
(a) Subject to the terms and conditions set forth herein, each Lender with a Commitment to make Committed Loans severally agrees to make loans to the Borrower (such loans to the Borrower collectively referred to as a "Committed Loan") as provided in Section 2.01(a) from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender's Commitment; provided, however, that after giving effect to any Borrowing for a Committed Loan, (i) the Total Outstandings shall not exceed the Aggregate Commitments for Committed Loans, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender's Applicable Percentage of the Outstanding Amount of all L/C Obligations shall not exceed such Lender's Commitment for Committed Loans. Within the limits of each Lender's Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow unde r this Section 2.01(a), prepay under Section 2.06., and reborrow under this Section 2.01(a). Committed Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein.
(b) Subject to the terms and conditions set forth herein, the UK Lender agrees to make Eurocurrency Loans to Cross UK as provided in Section 2.01(b) from time to time, on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding the UK Lender's Commitment; provided, however, that after giving effect to any Borrowing for a Eurocurrency Loan, the Total Outstandings shall not exceed the Eurocurrency Loan Limit. During the Availability Period, and, subject to the terms and conditions hereof, the Borrower agrees that Cross UK may borrow under this Section 2.01(b), prepay under Section 2.06 and reborrow under this Section 2.01(b).
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2.02 Borrowings, Conversions and Continuations of Committed Loans.
(a)
(i) Each Borrowing other than in Eurocurrency, each conversion of Committed Loans from one Type to the other, and each continuation of Eurodollar Rate Committed Loans shall be made upon the Borrower's irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Committed Loans or of any conversion of Eurodollar Rate Committed Loans to Base Rate Committed Loans, and (ii) on the requested date of any Borrowing of Base Rate Committed Loans; provided, however, that if the Borrower wishes to request Eurodollar Rate Committed Loans having an Interest Period other than one, two, three or six months in duration as provided in the definition of "Interest Period", the applicable notice must be received by the Administrative Agent not later than 11:00 a.m. four Business Days p rior to the requested date of such Borrowing, conversion or continuation, whereupon the Administrative Agent shall give prompt notice to the Lenders of such request and determine whether the requested Interest Period is acceptable to all of them. Not later than 11:00 a.m., three Business Days before the requested date of such Borrowing, conversion or continuation, the Administrative Agent shall notify the Borrower (which notice may be by telephone) whether or not the requested Interest Period has been consented to by all the Lenders. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Committed Loans shall be in a principal amount of $1,000,000 or a whole multiple of $250,000 in excess thereof. Each Borrowing of or conversion to Base Rate Committed Loans shall be in a principal amount of $250,000 or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Committed Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Eurodollar Rate Committed Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rat e Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Committed Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Committed Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month.
(ii) Each Borrowing in Eurocurrency and each continuation of a Borrowing in Eurocurrency shall be made upon the Cross UK's irrevocable notice to the Administrative Agent appropriately completed and signed by a Responsible Officer of Cross UK. Such notice may not be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. London Time (i) five Business Days prior to the requested date of any Borrowing of, or continuation of any Eurocurrency Loans, Each Borrowing of or continuation of
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Eurocurrency Loans shall be in a principal amount of $500,000 or a whole multiple of $250,000 in excess thereof. Each Eurocurrency Loan Notice shall specify (i) whether Cross UK is requesting a Eurocurrency Loan, or a continuation of a Eurocurrency Loan, (ii) the requested date of the Borrowing or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Eurocurrency Loans to be borrowed or continued, and (iv) the duration of the Interest Period with respect thereto. If Cross UK fails to give a timely written notice requesting a continuation, then the applicable Eurocurrency Loans shall have an Interest Period of one month. If Cross UK requests a Borrowing of, or continuation of Eurocurrency Loans in any such Eurocurrency Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month.
(b)
(i) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a Borrowing for a Committed Loan each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent's Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice, Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administ rative Agent either by (i) crediting the account of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided, however, that if, on the date the Committed Loan Notice with respect to such Borrowing is given by the Borrower, there are L/C Borrowings outstanding, then the proceeds of such Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to the Borrower as provided above.
(ii) Following receipt of a Eurocurrency Loan Notice, the UK Lender shall subject to satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4,01) make the amount of its Eurocurrency Loan available to Cross UK either by (i) crediting an account of Cross UK on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds.
(c)
(i) Except as otherwise provided herein, a Eurodollar Rate Committed Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Committed Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Committed Loans without the consent of the Required Lenders.
(ii) Except as otherwise provided herein, a Eurocurrency Loan may be continued or converted only on the last day of an Interest Period for such Eurocurrency Loan. During the existence of a Default no Eurocurrency Loans may be requested.
(d)
(i) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Committed
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Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of America's prime rate used in determining the Base Rate promptly following the public announcement of such change.
(ii) The UK Lender shall promptly notify Cross UK of the interest rate applicable to any Interest Rate Period for Eurocurrency Loans upon determination of such interest rate.
(e)
After giving effect to all Borrowings, conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than five Interest Periods in effect with respect to Committed Loans. After giving effect to all Eurocurrency Loans and all continuations thereof, there shall not be more than three Interest Periods in effect with request to Eurocurrency Loans.
2.03 [Reserved]
2.04 Letters of Credit.
(a) The Letter of Credit Commitment.
(i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the Lenders set forth in this Section 2.04, (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrower, and to amend Letters of Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor drawings under the Letters of Credit; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower and any drawings thereunder; provided, that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the amount set forth in Section 2.01(a) will not be exceeded and (y) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower's ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. All Letters of Credit issued hereunder shall be denominated in Dollars.
(ii) The L/C Issuer shall not issue any Letter of Credit, if:
(A) the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance, unless the Required Lenders have approved such expiry date; or
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(B) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date.
(iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the LIC Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;
(B) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer;
(C) except as otherwise agreed by the Administrative Agent and the L/C Issuer, such Letter of Credit is in an initial stated amount less than $100,000, in the case of a commercial Letter of Credit, or $1500,000j, in the ease of a standby Letter of Credit;
(D) such Letter of Credit is to be denominated in a currency other than Dollars; or
(E) a default of any Lender's obligations to fund under Section 2.04(cl exists or any Lender is at such time a Defaulting Lender hereunder, unless the L/C Issuer has entered into satisfactory arrangements with the Borrower or such Lender to eliminate the L/C Issuer's risk with respect to such Lender.
(iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof.
(v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
(vi) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in
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Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term "Administrative Agent" as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer,
(b) Procedures for Issuance and Amendment of Letters of Credit.
(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in ease of any drawing thereunder; and (G) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the L/C Issuer may require. Additionally, the Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.
(ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower (or the applicable Subsidiary) or enter into the applicable amendment, as the ease may be, in each case in accordance with the L/C Issuer's usual and customary business practices. Immediately upon th e issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk participation in such Letter
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of Credit in an amount equal to the product of such Lender's Applicable Percentage times the amount of such Letter of Credit.
(iii) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
(c) Drawings and Reimbursements Funding of Participations.
(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the Borrower and the Administrative Agent thereof. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an "Honor Date"), the Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the Unreimbursed drawing (the "Unreimbursed Amount"), and the amount of such Lender's Applicable Percentage thereof. In such event, the Borrower shall be deemed to have requested a Committed Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the princi pal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Aggregate Commitments and the conditions set forth in Section 4.02 (other than the delivery of a Committed Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.04(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.
(ii) Each Lender shall upon any notice pursuant to Section 2.04(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer at the Administrative Agent's Office in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.04(c)(iii), each Lender that so makes funds available shall be deemed to have made a Base Rate Committed Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the LIC Issuer.
(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Committed Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender's payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.04(c)(ii) shall be deemed payment in respect of its participation in
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such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.04.
(iv) Until each Lender funds its Committed Loan or L/C Advance pursuant to this Section 2.04(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender's Applicable Percentage of such amount shall be solely for the account of the L/C Issuer.
(v) Each Lender's obligation to make Committed Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.04(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, the Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender's obligation to make Committed Loans pursuant to this Section 2.04(c) is subject to the conditions set forth in Section 4.02 (other than delivery by the Borrower of a Committed Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.
(vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(ii), the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the L/C Issuer in accordance with banking industry rules on interbank compensation. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.
(d) Repayment of Participations.
(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender's L/C Advance in respect of such payment in accordance with Section 2.04(c), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Percentage thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's L/C Advance was outstanding) in the same funds as those received by the Administrative Agent.
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(ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.04(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the LIC Issuer its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
(e) Obligations Absolute. The obligation of the Borrower to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:
(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;
(ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or
(v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any Subsidiary.
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower's instructions or other irregularity, the Borrower will immediately notify the L/C
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Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.
(f) Role of L/C Issuer. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Documen t. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrower's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through (v) of Section 2.04(e); provided, however, that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves wer e caused by the L/C Issuer's willful misconduct or gross negligence or the L/C Issuer's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.
(g) Cash Collateral. Upon the request of the Administrative Agent, (i) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, the Borrower shall, in each case, immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations. Sections 2.06 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this Section 2.04, Section 2.06 and Section 8.02(c), "Cash Collateralize" means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the L/C Issuer (which documents are hereby consented to by the Lenders). Derivatives of such term have corresponding meanings. The Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, a security interest in all such cash, deposit
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accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts at Bank of America.
(h) Applicability of ISP and UCP. Unless otherwise expressly agreed by the L/C Issuer and the Borrower when a Letter of Credit is issued, (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce at the time of issuance shall apply to each commercial Letter of Credit.
(i) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage a Letter of Credit fee (the "Letter of Credit Fee") (i) for each commercial Letter of Credit equal to the Applicable Margin per annum times the daily amount available to be drawn under such Letter of Credit, and (ii) for each standby Letter of Credit equal to the Applicable Margin times the daily amount available to be drawn under such Letter of Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. Letter of Credit Fees shall be (i) computed on a quarterly basis in arrears and (ii) due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Let ter of Credit Expiration Date and thereafter on demand. If there is any change in the Applicable Margin during any quarter, the daily amount available to be drawn under each standby Letter of Credit shall be computed and multiplied by the Applicable Margin separately for each period during such quarter that such Applicable Margin was in effect. Notwithstanding anything to the contrary contained herein, upon the request of the Required Lenders, while any Event of Default exists, all Letter of Credit Fees shall accrue at the Default Rate.
(j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. The Borrower shall pay directly to the L/C Issuer for its own account a fronting fee of _____________ with respect to each Letter of Credit, at the rate per annum specified in the Fee Letter, computed on the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears Such fronting fee shall be due and payable on the tenth Business Day after the end of each March, June, September and December in respect of the most recently-ended quarterly period (or portion thereof, in the case of the first payment), commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. In addition, the Borrower shall pay direc tly to the L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
(k) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.
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(l) Letters of Credit Issued for Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower shall be obligated to reimburse the L/C Issuer hereunder for any and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account of Subsidiaries inures to the benefit of the Borrower, and that the Borrower's business derives substantial benefits from the businesses of such Subsidiaries.
2.05 [Reserved].
2.06 Prepayments.
(a)
(i) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 11:00 am. (A) three Business Days prior to any date of prepayment of Eurodollar Rate Committed Loans and (B) on the date of prepayment of Base Rate Committed Loans; (ii) any prepayment of Eurodollar Rate Committed Loans shall be in a principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof; and (iii) any prepayment of Base Rate Committed Loans shall be in a principal amount of $250,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed Loans to be prepaid. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender's Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Applicable Percentages.
(ii) Cross UK may, upon notice to the UK Lender, at any time or from time to time voluntarily prepay Eurocurrency Loans, in whole or in part, without premium or penalty, provided that (i) such notice must be received by the UK Lender not later than 11:00 a.m. and shall specify the date and the amount of such prepayment (A) three Business Days prior to any date of prepayment; (ii) any prepayment shall be in a principal amount of $500,000 or a whole multiple of $250,000 in excess thereof or, if less, the entire principal amount thereof then outstanding; provided, further that that if a Eurocurrency Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, Cross UK shall also pay any amounts owing pursuant to Section 3.05. If any such Notice of Prepayment is given, the amount specified in such Notice of Prepayment shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid.
(b) If for any reason the Total Outstandings of Committed Loans at any time exceed the Aggregate Commitments for Committed Loans then in effect, the Borrower will immediately prepay Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess; provided, however, that the Borrower shall not be required to Cash Collateralize the L/C Obligations pursuant to this Section 2.06(b) unless after the prepayment in full of the
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Committed Loans the Total Outstandings exceed the Aggregate Commitments for Committed Loans then in effect.
(c) If for any reason, including, without limitation fluctuation in currency rates at any time, the Total Outstandings of Eurocurrency Loans at any time exceed the Dollar Equivalent of $5,000,000, then Cross UK and the Borrower, jointly and severally, will immediately prepay Eurocurrency Loans in an aggregate amount equal to such excess.
(d) The Borrower, and to the extent any Borrowings are of Eurocurrency Loans, Cross UK, jointly and severally, will, on or before January 6, 2006, if the Post Closing Deliveries and Conditions have not been delivered and satisfied, in the sole discretion of the Administrative Agent, (collectively, the "Satisfaction of the Post Closing Deliveries and Conditions") prepay the Committed Loans and the Eurocurrency Loans so that the Total Outstandings of the Loans are equal to or less than $20,000,000. Neither the Borrower nor Cross UK will be permitted to borrow any additional amounts hereunder and it shall constitute an Event of Default hereunder if the Satisfaction of the Post Closing Deliveries and Conditions has not occurred on or before January 22, 2006. Until the Satisfaction of the Post Closing Deliveries and Conditions, the L/C Issuer will not issue any Letter of Credit.
2.07 Termination or Reduction of Commitments.
The Borrower may, upon notice to the Administrative Agent, terminate the Aggregate Commitments, or from time to time permanently reduce the Aggregate Commitments; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $500,000 or any whole multiple of $250,000 in excess thereof, (iii) the Borrower shall not terminate or reduce the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Aggregate Commitments, and (iv) if, after giving effect to any reduction of the Aggregate Commitments or the Letter of Credit Sublimit exceeds the amount of the Aggregate Commitments, such Sublimit shall be automatically reduced by the amount of such excess. The Administrative Agent will promptly notify the Lenders of any such notice of termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate Commitments shall be applied to the Commitment of each Lender according to its Applicable Percentage. All fees accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination.
2.08 Repayment of Loans.
The Borrower shall repay to the Lenders, which have made Committed Loans, on the Maturity Date the aggregate principal amount of Committed Loan outstanding on such date which are not Eurocurrency Loans, and the Borrower and Cross UK, jointly and severally, shall repay to the UK Lender on the Maturity Date the aggregate amount of Eurocurrency Loans outstanding on such date.
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2.09 Interest.
(a)
(i) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Committed Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Margin; (ii) each Base Rate Committed Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Margin.
(ii) Subject to the provisions of subsection (b) below, each Eurocurrency Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurocurrency Rate for such Interest Period plus the Applicable Margin.
(b)
(i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iii) Upon the request of the Required Lenders, while any Event of Default exists, the Borrower shall pay interest on the principal amount of all outstanding Committed Loans and all its other Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Upon the request of the UK Lender, while any Event of Default exists, Cross UK shall pay interest on the principal amount of all outstanding Eurocurrency Loans and all of its other Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iv) Accrued and unpaid interest on past due amounts {including interest on past due interest) shall be due and payable upon demand.
(c)
Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
2.10 Fees.
In addition to certain fees described in subsections (i) and (j) of Section 2.04:
(a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a commitment fee equal to
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the Applicable Margin times the actual daily amount by which the Aggregate Commitments for all Committed Loans and Eurocurrency Loans exceed the sum of (i) the Outstanding Amount of all Committed Loans plus (ii) the Outstanding Amount of Eurocurrency Loans plus (iii) the Outstanding Amount of L/C Obligations. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date. The commitment fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Margin during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Margin separately for each period during such quarter that such Applicable Margin w as in effect.
(b) Other Fees. The Borrower shall pay to the Administrative Agent $75,000 on the Closing Date as a closing fee, which amount shall be fully earned on the Closing Date and shall not be refundable for any reason whatsoever.
2.11 Computation of Interest and Fees.
All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America's "prime rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All computations of interest for Eurocurrency Loans denominated in Sterling shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.13(a), bear interest for one day. Each determination by the Administrative Agent o f an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
2.12 Evidence of Debt
(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Len der (through the Administrative Agent) a Note, which shall evidence such Lender's Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse
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thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.
(b) In addition to the accounts and records referred to in subsection (a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
2.13 Payments Generally; Administrative Agent's Clawback.
(a) General. All payments to be made by the Borrower and Cross UK shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower and Cross UK hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent's Office in Dollars and in immediately available funds not later than 2:00 p.m. Boston time on the date specified herein and in the case of Eurocurrency Loans, to the UK Lender at the UK Lender's office in the Dollar Equivalent of the applicable Eurocurrency in immediately available funds not later than 2:00 p.m. London time on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender's Lending Office. All payments re ceived by the Administrative Agent or the UK Lender, respectively, after 2:00 p.m. Boston or London time, respectively, shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower or Cross UK shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(b)
(i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Committed Borrowing of Eurodollar Rate Loans (or, in the case of any Committed Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Committed Borrowing) that such Lender will not make available to the Administrative Agent such Lender's share of such Committed Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2,02 (or, in the case of a Committed Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing of Committed Loans available to the Administrative Agent, the n the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank
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compensation and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing of Committed Loans to the Administrative Agent, then the amount so paid shall constitute such Lender's Committed Loan included in such Borrowing of Committed Loans. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(ii) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the L/C Issuer, as the ease may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrativ e Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.
(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article H, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest,
(d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Committed Loans, to fund participations in Letters of Credit and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Committed Loan, to fund any such participation or to make any payment under Section 10.04(cl on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under Section 10.04(c).
(e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any
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Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
2.14 Sharing of Payments by Lenders.
If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Committed Loans or Eurocurrency Loans made by it, or the participations in L/C Obligations held by it resulting in such Lender's receiving payment of a proportion of the aggregate amount of such Committed Loans or participations and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Committed Loans and subparticipations in L/C Obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Committed Loans and other amounts owing them, < U>provided, that:
(i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(ii) the provisions of this Section shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans or subparticipations in L/C Obligations to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
ARTICLE III.
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower or Cross UK hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if the Borrower or Cross UK shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent,
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Lender, the L/C Issuer or the UK Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or Cross UK shall make such deductions and (iii) the Borrower or Cross UK shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.
(b) Payment of Other Taxes by the Borrower. Without limiting the provisions of subsection (a) above, the Borrower or Cross UK shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) Indemnification by the Borrower. The Borrower and Cross UK shall indemnify the Administrative Agent, each Lender, the L/C Issuer and the UK Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender, the L/C Issuer or the UK Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, the L/C Issuer (with a copy to the Administrative Agent ) or the UK Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, the L/C Issuer or the UK Lender, shall be conclusive absent manifest error.
(d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower or Cross UK to a Governmental Authority, the Borrower or Cross UK shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) Status of Lenders. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.
Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and
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from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:
(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,
(ii) duly completed copies of Internal Revenue Service Form W-8ECI,
(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a "bank" within the meaning of section 881(c)(3)(A) of the Code, (B) a "10 percent shareholder" of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a "controlled foreign corporation" described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or
(iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made.
(f) Treatment of Certain Refunds. If the Administrative Agent, any Lender or the L/C Issuer determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent, such Lender or the L/C Issuer, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the L/C Issuer in the event the Administrative Agent, such Lender or the L/C Issuer is required to repay such refund to such Governmental Authority. This subsection shall not be construed to require the Administrative Agent, any Lender or the L/C Issuer to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.
3.02 Illegality.
If any Lender of, including without limitation, the UK Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office or the UK Lender to make, maintain or fund Eurodollar Rate Loans or Eurocurrency Loans, respectively, or to determine or charge interest rates based upon the Eurodollar Rate or the Eurocurrency Rate, or any Governmental Authority has imposed
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material restrictions on the authority of such Lender or the UK Lender to purchase or sell, or to take deposits of, Dollars, Euros or Sterling, as the case may be, in the London interbank market, then, on notice thereof by such Lender or the UK Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Committed Loans to Eurodollar Rate Committed Loans or the UK Lender to make any Eurocurrency Loans shall be suspended until such Lender or the UK Lender, as the case may be, notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain su ch Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans or upon demand from the UK Lender prepay all such Eurocurrency Loans either on the last day of the Interest Period therefor, if the UK Lender may lawfully continue to maintain such Eurocurrency Loans to such day, or immediately, if the UK Lender may not lawfully continue to maintain such Eurocurrency Loan. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
3.03 Inability to Determine Rates.
If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Committed Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Committed Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of su ch notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Committed Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein.
3.04 Increased Costs; Reserves on Eurodollar Rate Loans.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e)) or the L/C Issuer or the UK Lender;
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(ii) subject any Lender, the L/C Issuer or the UK Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit, any Eurodollar Rate Loan or the UK Lender made by it, or change the basis of taxation of payments to such Lender, the L/C Issue or the UK Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 101 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the L/C Issuer); or
(iii) impose on any Lender, the L/C Issuer or the UK Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan) or the UK Lender to maintain any Eurocurrency Loan, or to increase the cost to such Lender or the UK Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer or the UK Lender , the Borrower will pay to such Lender or the L/C Issuer or the UK Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issue or the UK Lender, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender or the L/C Issuer or the UK Lender determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lender's or the L/C Issuer's holding company or the UK Lender, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or the L/C Issuer's capital or on the capital of such Lender's or the L/C Issuer's holding company or the UK Lender, if any, as a consequence of this Agreement, the Commitments of such Lender or the UK Lender or the Loans made by, or participations in Letters of Credit held by, such Lender or the UK Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lender's or the L/C Issuer's holding company or the UK Lender could have achieved but for such Change in Law (taking into consideration such Lender's or the L/C Issuer's policies and the policies of such Lender's o r the L/C Issuer's holding company with respect to capital adequacy) or the UK Lender, then from time to time the Borrower will pay to such Lender or the L/C Issuer or the UK Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lender's or the L/C Issuer's holding company or the UK Lender for any such reduction suffered.
(c) Certificates for Reimbursement, A certificate of a Lender or the L/C Issuer or the UK Lender setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its holding company or the UK Lender, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error.
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The Borrower shall pay such Lender or the L/C Issuer or the UK Lender, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender or the LIC Issuer or the UK Lender to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender's or the LIC Issuer's or the UK Lender's right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender or the L/C Issuer or the UK Lender pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than six months prior to the date that such Lender or the L/C Issuer or the UK Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the L/C Issuer's or the UK Lender's intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).
(e) Reserves on Eurodollar Rate Loans or Eurocurrency Loans. The Borrower shall pay to each Lender, as long as such Lender or the UK Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"), additional interest on the unpaid principal amount of each Eurodollar Rate Loan or Eurocurrency Loan equal to the actual costs of such reserves allocated to such Loan by such Lender or the UK Lender (as determined by such Lender or the UK Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least 10 days' prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender or the UK Lender. If a Lender or the UK Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additi onal interest shall be due and payable 10 days from receipt of such notice.
3.05 Compensation for Losses.
Upon demand of any Lender (with a copy to the Administrative Agent) or the UK Lender from time to time, the Borrower and, if relating to a Eurocurrency Loan, Cross UK, jointly and severally with the Borrower, shall promptly compensate such Lender or the UK Lender for and hold such Lender or the UK Lender harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or
(c) any assignment of a Eurodollar Rate Loan or a Eurocurrency Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.13;
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including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower and, if relating to a Eurocurrency Loan, Cross UK, jointly and severally with the Borrower, shall also pay any customary administrative fees charged by such Lender and the UK Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrower to the Lenders or the UK Lender under this Section 3.05, each Lender and the UK Lender shall be deemed to have funded each Eurodollar Rate Committed Loan on the Eurocurrency Loan, as the case may be, made by it at the Eurodollar Rate on the Eurocurrency Rate, as the case may be, for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Committed Loan or such Eurocurrency Loan was in fact so funded.
3.06 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3,02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3,01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lende r. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) Replacement of Lenders. If any Lender requests compensation under Section 3,04, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrower may replace such Lender in accordance with Section 10.13.
3.07 Survival.
All of the Borrower's obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.
3.08 Required Costs.
Cross UK and the Borrowers, jointly and severally, shall pay to the UK Lender, upon demand all UK Mandatory Bank of England costs and charges and all FSA Costs customarily charged or assessed by the UK Lender for commercial loans of the character provided herein.
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ARTICLE IV.
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
4.01 Conditions of Initial Credit Extension.
The obligation of the L/C Issuer and each Lender, including without limitation, the UK Lender, to make its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent:
(a) The Administrative Agent's receipt of the following, each of which shall be originals or telecopies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:
(i) executed counterparts of the Loan Documents, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower;
(ii) a Note executed by the Borrower in favor of each Lender requesting a Note;
(iii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party;
(iv) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each of the Borrower and each of its Subsidiaries is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;
(v) a favorable opinion of Edwards Angell Palmer and Dodge, LLP, counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, in form and substance satisfactory to the Administrative Agent addressing such matters concerning the Loan Parties and the Loan Documents as the Required Lenders may reasonably request;
(vi) a certificate of a Responsible Officer of each Loan Party either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;
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(vii) a certificate signed by a Responsible Officer of the Borrower certifying (A) that the conditions specified in Sections 4.02(a) and Q) have been satisfied, and (B) that there has been no event or circumstance since June 30, 2005 that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect; and (C) a calculation of the Consolidated Leverage Ratio as of the last day of the fiscal quarter of the Borrower most recently ended prior to the Closing Date;
(viii) a duly completed Compliance Certificate as of the last day of the fiscal quarter of the Borrower ended on September 30, 2005, signed by a Responsible Officer of the Borrower;
(ix) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect; and
(x) such other assurances, certificates, documents, consents or opinions as the Administrative Agent, the L/C Issuer, the UK Lender or the Required Lenders reasonably may require.
(b) Any fees required to be paid on or before the Closing Date shall have been paid.
(c) Unless waived by the Administrative Agent, the Borrower shall have paid all fees, charges and disbursements of counsel to the Administrative Agent to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent).
Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
4.02 Conditions to all Credit Extensions.
The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type, or a continuation of Eurodollar Rate Committed Loans) is subject to the following conditions precedent:
(a) The representations and warranties of the Borrower and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this Section 4.02, the representations and
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warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01.
(b) No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.
(c) The Administrative Agent and, if applicable, the L/C Issuer or the UK Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.
Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type or a continuation of Eurodollar Rate Committed Loans) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent and the Lenders that:
5.01 Existence, Qualification and Power; Compliance with Laws.
Each Loan Party and each Subsidiary thereof (a) is duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, (c) is duly qualified and is licensed and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license, and (d) is in compliance with all Laws; except in each case referred to in clause (b)(i), (c) or (d), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
5.02 Authorization; No Contravention.
The execution, delivery and performance by each Loan Party and Cross UK of each Loan Document to which such Person is party, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law. Each Loan Party and each Subsidiary thereof is in compliance with all Contractual Obligations referred to in clause (b)(i), except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
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5.03 Govern mental Authorization; Other Consents.
No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party or Cross UK of this Agreement or any other Loan Document.
5.04 Binding Effect.
This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party and Cross UK that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party and Cross UK, enforceable against each Loan Party that is party thereto in accordance with its terms.
5.05 Financial Statements; No Material Adverse Effect; No Internal Control Event.
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.
(b) The unaudited consolidated and consolidating balance sheet of the Borrower and its Subsidiaries dated September 30, 2005, and the related consolidated and consolidating statements of income or operations, shareholders' equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments. Schedule 5.05 sets forth all material indebtedness and other liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the date of such financial statements, including liabilities for taxes, material commitments and Indebtedness.
(c) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
(d) Since the date of the Audited Financial Statements, no Internal Control Event has occurred.
(e) The consolidated operating budget which shall have included without limitation a consolidated and consolidating forecasted balance sheet and statements of income and cash flows
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of the Borrower and its Subsidiaries delivered pursuant to Section 6.01(c) were prepared in good faith on the basis of the assumptions stated therein, which assumptions the Borrower believes were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower's best estimate of its future financial performance.
5.06 Litigation.
There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against the Borrower or any of its Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby, or (b) either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect provided, the Borrower is involved in the litigation set forth on Schedule 5.06 which, if adversely determined, would not have a Material Adverse Effect.
5.07 No Default.
Neither the Borrower nor any Subsidiary is in default under or with respect to any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
5.08 Ownership of Property; Liens.
Each of the Borrower and each Subsidiary has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The property of the Borrower and its Subsidiaries is subject to no Liens, other than Liens permitted by Section 7.01.
5.09 Environmental Compliance.
The Borrower and its Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof the Borrower has reasonably concluded that such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.10 Insurance.
The properties of the Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts (after giving effect to any self-insurance compatible with the following standards), with such deductibles and
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covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or the applicable Subsidiary operates.
5.11 Taxes.
The Borrower and its Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Borrower or any Subsidiary that would, if made, have a Material Adverse Effect. Neither any Loan Party nor any Subsidiary thereof is party to any tax sharing agreement.
5.12 ERISA Compliance.
(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of the Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. The Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Borrower nor any ER1SA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.
5.13 Subsidiaries; Equity Interests.
The Borrower has no Subsidiaries other than those specifically disclosed in Part (a) of Schedule 5.13, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by a Loan Party in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens. The Borrower has no equity investments
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in any other corporation or entity other than those specifically disclosed in Part (b) of Schedule 5.13. All of the outstanding Equity Interests in the Borrower have been validly issued, and are fully paid and nonassessable.
5.14 Margin Regulations; Investment Company Act; Public Utility Holding Company Act.
(a) The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.
(b) None of the Borrower, any Person Controlling the Borrower, or any Subsidiary (i) 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," within the meaning of the Public Utility Holding Company Act of 1935, or (ii) is or is required to be registered as an "investment company" under the Investment Company Act of 1940.
5.15 Disclosure.
The Borrower has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Bo rrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
5.16 Compliance with Laws.
Each of the Borrower and each Subsidiary is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
5.17 Intellectual Property; Licenses, Etc.
The Borrower and its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, "IP Rights") that are reasonably necessary for the
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operation of their respective businesses, without conflict with the rights of any other Person, To the best knowledge of the Borrower, no material slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Borrower or any Subsidiary infringes upon any rights held by any other Person. Except as specifically disclosed in Schedule 5.17, no claim or litigation regarding any of the foregoing is pending or, to the best knowledge of the Borrower, threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
ARTICLE VI.
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, and 6.03) cause each Subsidiary to:
6.01 Financial Statements.
Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated and consolidating statements of income or operations, shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by (i) a report and opinion of a Registered Public Accounting Finn of nationally recognized standing reasonably acceptable to the Required Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards and applicable Securities Laws and shall not be subject to any "going concern" or like qualification or exception or any qualification or exception as to the scope of such audit and (ii) an at testation report of such Registered Public Accounting Firm as to the Borrower's internal controls pursuant to Section 404 of Sarbanes-Oxley, if applicable, expressing a conclusion to which the Required Lenders do not reasonably object, and such consolidating statements to be certified by a Responsible Officer of the Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its Subsidiaries;
(b) as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated and consolidating statements of income or operations, shareholders' equity and cash flows for such fiscal quarter and for the portion of the Borrower's fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, such consolidated statements to be certified by a Responsible Officer of the
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Borrower as fairly presenting the financial condition, results of operations, shareholders' equity and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes and such consolidating statements to be certified by a Responsible Officer of the Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its Subsidiaries; and
(c) as soon as available, but in any event at least 30 days after the end of each fiscal year of the Borrower, a consolidated operating budget which shall include, without limitation, a consolidated and consolidating forecasted balance sheet and statements of income and cash flows of the Borrower and its Subsidiaries on a monthly basis, prepared on a basis consistent with the budget delivered by the Borrower to its Board of Directors and consistent with past practice or otherwise in form satisfactory to the Administrative Agent. .
6.02 Certificates; Other Information.
Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) concurrently with the delivery of the financial statements referred to in Section 6.01(a), a certificate of its independent certified public accountants certifying such financial statements and stating that in making the examination necessary therefor no knowledge was obtained of any Default under the financial covenants set forth herein or, if any such Default shall exist, stating the nature and status of such event;
(b) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by a Responsible Officer of the Borrower;
(c) promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of the Borrower by independent accountants in connection with the accounts or books of the Borrower or any Subsidiary, or any audit of any of them;
(d) promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Borrower, and copies of all annual, regular, periodic and special reports and registration statements which the Borrower may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, and not otherwise required to be delivered to the Administrative Agent pursuant hereto;
(e) promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party or any Subsidiary thereof pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section 6.02; and
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(f) promptly, and in any event within five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U,S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof; and
(g) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request.
Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower's website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrower's behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(b) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
The Borrower hereby acknowledges that (a) the Administrative Agent will make available to the Lenders and the L/C Issuer materials and/or information provided by or on behalf of the Borrower hereunder (collectively, "Borrower Materials") by posting the Borrower Materials on IntraLinks or another similar electronic system (the "Platform") and (b) certain of the Lenders may be "public-side" Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Borrower or its securities) (each, a "Public Lender"). The Borrower hereby agrees that (w) all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked "PUBLIC" which, at a minimum, shall mean that the word "PUBLIC" shall appear prominently on the first page thereat (x) by marking Borrower Materials "PUBLIC," the Borrower shall be deemed to have authorized the Administrative Agent, the L/C Issuer and the Lenders to treat such Borrower Materi als as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section
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10.07); (y) all Borrower Materials marked "PUBLIC" are permitted to be made available through a portion of the Platform designated "Public Investor;" and (z) the Administrative Agent shall be entitled to treat any Borrower Materials that are not marked "PUBLIC" as being suitable only for posting on a portion of the Platform not designated "Public Investor,"
6.03 Notices.
Promptly notify the Administrative Agent and each Lender:
(a) of the occurrence of any Default;
(b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws;
(c) of the occurrence of any ERISA Event;
(d) of any material change in accounting policies or financial reporting practices by the Borrower or any Subsidiary; and
(e) of the occurrence of any Internal Control Event.
Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto, Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
6.04 Payment of Obligations.
Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.
6.05 Preservation of Existence, Etc.
(a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 7.04 or 7.05; (b) take all reasonable action to maintain all rights, privileges, permits,
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licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.
6.06 Maintenance of Properties.
(a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.
6.07 Maintenance of Insurance.
Maintain with financially sound and reputable insurance companies not Affiliates of the Borrower, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons and providing for not less than 30 days' prior notice to the Administrative Agent of termination, lapse or cancellation of such insurance.
6.08 Compliance with Laws.
Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, it, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
6.09 Books and Records.
Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Borrower or such Subsidiary, as the case may be.
6.10 Inspection Rights.
Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, as often as may be reasonably desired, and to conduct commercial finance exams twice during each fiscal year, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided, however, that when an Event of Default exists the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the
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expense of the Borrower at any time during normal business hours and without advance notice, provided, further, that so long as a Default or Event of Default exists and is continuing the Administrative Agent may conduct commercial finance exams as frequently as the Administrative Agent determines.
6.11 Use of Proceeds.
Use the proceeds of the Credit Extensions for general corporate purposes not in contravention of any Law or of any Loan Document.
6.12 Additional Guarantors.
Notify the Administrative Agent at the time that any Person becomes a Domestic Subsidiary, and promptly thereafter (and in any event within [30] days), cause such Person to (a) become a Guarantor by executing and delivering to the Administrative Agent a counterpart of the Guaranty or such other document as the Administrative Agent shall deem appropriate for such purpose, and (b) deliver to the Administrative Agent documents of the types referred to in clauses (iii) and (iv) of Section 4,01(a) and favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in clause (a)), all in form, content and scope reasonably satisfactory to the Administrative Agent.
6.13 Mortgages.
On or before March 31, 2006, the Borrower shall deliver a fully executed mortgage (the "Lincoln Mortgage"), in form and substance satisfactory to the Administrative Agent, in recordable form, for that certain real property, which is the Borrower's chief executive office and principal place of business having an address at One Albion Way, Lincoln, Rhode Island, and in connection therewith shall deliver to the Administrative Agent on or before March 15, 2006 each of the following : (i) a title insurance commitment issued by the title company acceptable to the Administrative Agent insuring the first lien priority of the Lincoln Mortgage subject only to those permitted exceptions acceptable to the Administrative Agent and with such endorsements thereto as required by the Administrative Agent with each of the standard exceptions deleted which will be issued in such form upon the recording of the Lincoln Mortgage, (ii) an environmental site assessment report in form and substance satisfactory to the Adminis trative Agent from a company acceptable to the Administrative Agent, (iii) evidence such as a certificate of occupancy that such property may be used and operated, (iv) a legal opinion in form and substance satisfactory to the Administrative Agent which will be issued in such form upon the recording of the Lincoln Mortgage and (iv) such other documents, certificates or information reasonably required by the Administrative Agent.
ARTICLE VII.
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly:
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7.01 Liens.
Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following:
(a) Liens pursuant to any Loan Document;
(b) Liens existing on the date hereof and listed on Schedule 7.01 and any renewals or extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased, (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.03(b);
(c) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person;
(e) pledges or deposits in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;
(f) deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
(h) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h);
(i) Liens securing Indebtedness permitted under Section 7.03(e); provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition; and
(j) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of customs duties in connection with the importation of goods.
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7.02 Investments.
Make any Investments, except:
(a) Investments held by the Borrower or such Subsidiary in the form of Cash Equivalents;
(b) advances to officers, directors and employees of the Borrower and Subsidiaries in an aggregate amount not to exceed $50,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes;
(c) Investments of the Borrower in any wholly-owned Guarantor and Investments of any wholly-owned Guarantor in the Borrower or in another wholly-owned Guarantor;
(d) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;
(e) Guarantees permitted by Section 7.03;
(f) intercompany Investments by any Loan Party in any other Loan Party;
(g) intercompany Investments after the date hereof by any Loan Party in any Foreign Subsidiary other than Cross China and the Excluded Subsidiaries, in an aggregate amount of up to $250,000 during any fiscal year;
(h) Investments in Cross China consisting of up to, in the aggregate, $250,000 in cash and $1,300,000 book value of equipment located in China on the date hereof and up to $500,000 for each fiscal year 2006 and 2007; or
(i) Investments on the date hereof set forth on Schedule 7.02.
7.03 Indebtedness.
Create, incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Indebtedness outstanding on the date hereof and listed on Schedule 7,03 and any refinancings, refundings, renewals or extensions thereof; provided that (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and (ii) the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no
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less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;
(c) Guarantees of the Borrower or any Subsidiary in respect of Indebtedness otherwise permitted hereunder of the Borrower or any wholly-owned Subsidiary or any other Guarantor;
(d) obligations (contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a "market view;" and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;
(e) Indebtedness of the Borrower or any Guarantor in respect of capital leases and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(i); provided, however, that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed $500,000;
(f) Indebtedness of any Foreign Subsidiary, other than an Excluded Subsidiary, in respect of capital leases and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(i); provided, however, that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed $250,000;
(g) Indebtedness owing from any Loan Party to any other Loan Party; provided that any indebtedness to any Loan Party is subordinated on terms and conditions satisfactory to the Administrative Agent in right of payment to all Indebtedness of the Loan Parties under the Loan Documents;
(h) Indebtedness from Cross Japan to Cross UK in an aggregate principal amount not to exceed $3,000,000 as such principal amount is reduced by prepayments thereof, provided that the promissory note evidenced such Indebtedness is pledged to and delivered to the Administrative Agent by Cross UK and no reborrowings are permitted thereunder;
(i) Indebtedness from Cross Canada to Cross UK in an aggregate principal amount not to exceed $200,000 as such principal amount is reduced by repayments thereof, provided that the promissory note evidencing such Indebtedness is pledged and delivered to the Administrative Agent by Cross UK and no reborrowings are permitted thereunder; and
(j) unsecured Indebtedness of the Borrower or any Guarantor in an aggregate principal amount not to exceed $500,000 at any time outstanding.
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7.04 Fundamental Changes.
Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default exists or would result therefrom:
(a) any Subsidiary may merge with (i) the Borrower, provided that the Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries, provided that when any wholly-owned Subsidiary Guarantor is merging with another Subsidiary, the wholly-owned Subsidiary Guarantor shall be the continuing or surviving Person; and
(b) any Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another Subsidiary; provided that if the transferor in such a transaction is a wholly-owned Subsidiary Guarantor, then the transferee must either be the Borrower or a wholly-owned Subsidiary Guarantor.
(c) any Excluded Subsidiary, at the Borrower's option, may be wound up and dissolved;
(d) any Foreign Subsidiary other than Cross UK may be merged, consolidated or amalgamated into any other Foreign Subsidiary other than Cross UK or an Excluded Subsidiary; and
(e) any Excluded Subsidiary may (i) be merged with or into any other Subsidiary of the Borrower provided that the Excluded Subsidiary is not the surviving entity or (ii) make a Disposition of its assets to any other Subsidiary of the Borrower pursuant to a transaction of liquidation or dissolution.
7.05 Dispositions.
Make any Disposition or enter into any agreement to make any Disposition, except:
(a) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business;
(b) Dispositions of inventory in the ordinary course of business;
(c) Dispositions of equipment or real property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property;
(d) Dispositions of property by any Subsidiary to the Borrower or to a wholly-owned Subsidiary; provided that if the transferor of such property is a Guarantor, the transferee thereof must either be the Borrower or a Guarantor;
(e) Dispositions permitted by Section 7.04,;
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(f) non-exclusive licenses of IP Rights in the ordinary course of business and substantially consistent with past practice for terms not exceeding five years;
(g) Dispositions by the Borrower and its Subsidiaries not otherwise permitted under this Section 7.05; provided that (i) at the time of such Disposition, no Default shall exist or would result from such Disposition and (ii) the aggregate book value of all property Disposed of in reliance on this clause (g) in any fiscal year shall not exceed $500,000;
(h) Disposition by the Borrower of up to $1,300,000 book value of equipment to Cross China and up to $500,000 book value of equipment to Cross China for each fiscal year 2006 and 2007;
(i) Disposition of the Capital Stock of any Excluded Subsidiary; and
(j) Disposition by the Borrower of accounts receivable from Cross Japan, Cross Asia Pacific and Cross UK as account debtors to Cross Bermuda provided that such accounts receivable are sold at par or at a discount of no more than 5%.
provided, however, that any Disposition pursuant to clauses (a) through (k) shall be for fair market value.
7.06 Restricted Payments.
Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, or issue or sell any Equity Interests, except that, so long as no Default shall have occurred and be continuing at the time of any action described below or would result therefrom:
(a) each Subsidiary may make Restricted Payments to the Borrower, the Guarantors and any other Person that owns an Equity Interest in a Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made, provided that Cross UK may not make any Restricted Payments;
(b) the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person provided such Equity Interests are pledged to the Administrative Agent so that the Administrative Agent has at all times a pledge of 100% of the issued and outstanding Equity Interests of each Guarantor and 66% of the issued and outstanding Equity Interests of all Foreign Subsidiaries other than the Excluded Subsidiaries;
(c) the Borrower and each Subsidiary may purchase, redeem or otherwise acquire Equity Interests issued by it with the proceeds received from the substantially concurrent issue of new shares of its common stock or other common Equity Interests; and
(d) so long as no Default or Event of Default has occurred and is continuing, the Borrower may redeem its capital stock pursuant to a program to be approved by the Required Lenders in their sole discretion, an aggregate amount of up to $1,000,000 in any fiscal year of the Borrower.
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7.07 Change in Nature of Business.
Engage in any material line of business substantially different from those lines of business conducted by the Borrower and its Subsidiaries on the date hereof or any business substantially related or incidental thereto.
7.08 Transactions with Affiliates.
Enter into any transaction of any kind with any Affiliate of the Borrower, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm's length transaction with a Person other than an Affiliate, provided, however, any Foreign Subsidiary may not enter into a transaction with the Borrower or any Guarantor unless expressly permitted in Section 7.01, through Section 7.07 hereof.
7.09 Burdensome Agreements.
Enter into any Contractual Obligation (other than this Agreement or any other Loan Document) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to the Borrower or any Guarantor or to otherwise transfer property to the Borrower or any Guarantor, (ii) of any Subsidiary to Guarantee the Indebtedness of the Borrower or (iii) of the Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person; provided, however, that this clause (iii) shall not prohibit any negative pledge incurred or provided in favor of any holder of Indebtedness permitted under Section 7.03(e) solely to the extent any such negative pledge relates to the property financed by or the subject of such Indebtedness; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person.
7.10 Use of Proceeds.
Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
7.11 Financial Covenants.
(a) Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth at any time to be less than the sum of (i) $47,000,000, (ii) an amount equal to 50% of the Consolidated Net Income earned in each full fiscal quarter ending after December 31, 2005 (with no deduction for a net loss in any such fiscal quarter) and (iii) an amount equal to 50% of the aggregate increases in Shareholders' Equity of the Borrower and its Subsidiaries after the date hereof by reason of the issuance and sale of Equity Interests of the Borrower or any Subsidiary (other than issuances to the Borrower or a wholly-owned Subsidiary), including upon any conversion of debt securities of the Borrower into such Equity Interests.
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(b) Consolidated Debt Service Ratio. Permit the Consolidated Debt Service Coverage Ratio as of the end of any fiscal quarter of the Borrower to be less than 1.50:1.00.
(c) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio at any time during any period of four fiscal quarters of the Borrower to be greater than 2.50:1.00.
7.12 Capital Expenditures. Make or become legally obligated to make any Capital Expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations), except for capital expenditures in the ordinary course of business not exceeding, in the aggregate for the Borrower and the Guarantors in excess of $7,000,000 during each fiscal year; provided, that the Borrower and the Guarantor shall not make Capital Expenditures in excess of $3,000,000 for any asset or assets which are or will be located outside of the United States provided., further, that so long as no Default has occurred and is continuing or would result from such expenditure, any portion of any amount set forth above, if not expended in the fiscal year for which it is permitted above, may be carried over for expenditure in the next following fiscal year.
7.13 Anti-Terrorism Law.
Knowingly, with the intent to violate the Executive Order or any other Anti-Terrorism Law, (i) conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in Section 7.14, (ii) deal in, or otherwise engage in any transaction relating to, any property or interest in property prohibited pursuant to the Executive Order or any other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.
7.14 Embargoed Person.
Cause or permit (a) any of the funds or properties of the Loan Parties or any of their Subsidiaries that are used to repay the Loans to constitute property of, or be beneficially owned directly or indirectly by, any person subject to sanctions or trade restrictions under United States law ("Embargoed Person" or "Embargoed Persons") that is identified on (1) the "List of Specially Designated Nationals and Blocked Persons" maintained by OFAC and/or on any other similar list maintained by OFAC pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. SS 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or Requirement of Law promulgated thereunder, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by a Requirement of Law, or the Loans made by the Lenders or the UK Lender would be in violation of a Requirement of L aw, or (2) the Executive Order, any related enabling legislation or any other similar Executive Orders or (b) any Embargoed Person to have any direct or indirect interest, of any nature whatsoever in the Loan Parties, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by a Requirement of Law or the Loans are in violation of a Requirement of Law.
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7.15 Restriction on Excluded Subsidiaries; Loan Party Assets.
(a) If an Excluded Subsidiary, shall not engage in any business other than in incidental sales of Inventory of the Borrower and its Subsidiaries.
(b) Remove from the United States, without making a Disposition permitted hereunder, any assets in excess of equipment having a book value of, in the aggregate, $500,000 in any fiscal year.
ARTICLE VIII.
EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default.
Any of the following shall constitute an Event of Default:
(a) Non-Payment.. The Borrower or any other Loan Party or Cross UK fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation, or (ii) within three days after the same becomes due, any interest on any Loan or on any L/C Obligation, or any fee due hereunder, or (iii) within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or
(b) Specific Covenants. The Borrower fails to perform or observe any term, covenant or agreement contained in any of Section 6.01, 6.02, 6.03, 6.05., 6.10,, 6.11, or 6.12 or Article VII; or
(c) Other Defaults. Any Loan Party or Cross UK fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or
(d) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party or Cross UK herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading when made or deemed made; or
(e) Cross-Default. (i) The Borrower or any Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to caus e, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to
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repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which the Borrower or any Subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by the Borrower or such Subsidiary as a result thereof is greater than the Threshold Amount; or
(f) Insolvency Proceedings, Etc. Any Loan Party or any of its Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or
(g) Inability to Pay Debts; Attachment. (i) The Borrower or any Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or
(h) Judgments. There is entered against the Borrower or any Subsidiary (i) a final judgment or order for the payment of money in an aggregate amount exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 10 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or
(i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or
(j) invalidity of Loan Documents. Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and
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effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document; or
(k) Change of Control. There occurs any Change of Control or
(l) Post Closing Deliveries,. The Satisfaction of the Post Closing Deliveries and Conditions has not occurred on or before January 22, 2006.
8.02 emedies Upon Event of Default.
If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:
(a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower;
(c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and
(d) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;
provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.
8.03 Application of Funds.
After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:
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First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer (including fees and time charges for attorneys who may be employees of any Lender or the L/C Issuer) and the UK Lender and amounts payable under Article III), ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, L/C Borrowings and other Obligations, ratably among the Lenders, the L/C Issuer and the UK Lender in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans and L/C Borrowings, ratably among the Lenders, the L/C Issuer and the UK Lender in proportion to the respective amounts described in this clause Fourth held by them;
Fifth, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
Subject to Section 2.04(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
ARTICLE IX.ADMINISTRATIVE AGENT
9.01 Appointment and Authority.
Each of the Lenders and the L/C Issuer hereby irrevocably appoints Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuer, and the Borrower shall not have rights as a third party beneficiary of any of such provisions.
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9.02 Rights as a Lender.
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
9.03 Exculpatory Provisions.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01, and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or the L/C Issuer.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set
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forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
9.04 Reliance by Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
9.05 Delegation of Duties.
The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
9.06 Resignation of Administrative Agent.
The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuer and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders and the L/C Issuer, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall
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nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the L/C Issuer directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor's appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administr ative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent's resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 10,04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.
9.07 Non-Reliance on Administrative Agent and Other Lenders.
Each Lender and the LIC Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the LIC Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
9.08 [Reserved]
9.09 Administrative Agent May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or LIC Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, LIC Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the LIC Issuer and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the LIC Issuer and the Administrative Agent and their respective agents and counsel and all other amounts due
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the Lenders, the L/C Issuer and the Administrative Agent under Sections 2.04(i) and (j), 2.10 and 10.04) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuer to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuer, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.10 and 10.04.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
ARTICLE X.
MISCELLANEOUS
10.01 Amendments, Etc.
No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:
(a) waive any condition set forth in Section 4.01(a) without the written consent of each Lender;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment or mandatory prepayment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) or any scheduled or mandatory reduction of the Aggregate Commitments hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause [(iv) I(v)j of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; provided, however, that only the consent of the
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Required Lenders shall be necessary to amend the definition of "Default Rate" or to waive any obligation of the Borrower to pay interest or Letter of Credit Fees at the Default Rate;
(e) change Section 2.14 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender; [or]
(f) change any provision of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
10.02 Notices; Effectiveness; Electronic Communication.
(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by teleeopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i) if to the Borrower, the Administrative Agent or the L/C Issuer, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and
(ii) if to the UK Lender, to the address, telecopier number, electronic mail address or telephone number specified on Schedule 10.02.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by teleeopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
(b) Electronic Communications. Notices and other communications to the Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the
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Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(c) The Platform. THE PLATFORM IS PROVIDED "AS IS" AND "AS AVAILABLE." THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the "Agent Parties") have any liability to the Borrower, any Lender, the L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower's or the Administrative Agent's transmission of Borrower Materia ls through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to the Borrower, any Lender, the L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(d) Change of Address, Etc. Each of the Borrower, the Administrative Agent, the L/C Issuer and the UK Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower, the Administrative Agent and the L/C Issuer. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name,
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telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.
(e) Reliance by Administrative Agent, L/C Issuer and Lenders. The Administrative Agent, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices and UK Lender Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, the L/C Issuer, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
10.03 No Waiver; Cumulative Remedies.
No failure by any Lender, the L/C Issuer or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
10.04 Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the L/C Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Lender or the L/C Issuer (including the fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or the L/C Issuer), in connection with the enforceme nt or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) ndemnification by the Borrower The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the L/C Issuer, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities
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and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof} and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted fro m the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee's obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.
(c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the L/C Issuer or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the L/C Issuer or such Related Party, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the L/C Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or L/C Issuer in connectio n with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the
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transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e) Payments. All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.
(f) Survival. The agreements in this Section shall survive the resignation of the Administrative Agent and the L/C Issuer and the UK Lender, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.
10.05 Payments Set Aside.
To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent, the L/C Issuer or any Lender, or the Administrative Agent, the L/C Issuer or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required {including pursuant to any settlement entered into by the Administrative Agent, the L/C Issuer or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender and the LIC Issuer severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplica tion) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
10.06 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor any other Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon an y Person (other than the
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parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the LIC Issuer and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders,. Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection and (b), participations in LIC Obligations) at the time owing to it); provided that
(i) except in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if "Trade Date" is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met;
(ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loans or the Commitment assigned;
(iii) any assignment of a Commitment must be approved by the Administrative Agent, unless the Person that is the proposed assignee is itself a Lender (whether or not the proposed assignee would otherwise qualify as an Eligible Assignee); and
(iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount, if any, required as set forth in Schedule 10.06, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its
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obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.
(c) Register. The Administrative Agent, actrng solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent's Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by each of the Borrower and the L/C Issuer at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change t o the Loan Documents is pending, any Lender may request and receive from the Administrative Agent a copy of the Register.
(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower's Affiliates or Subsidiaries) (each, a "Participant") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender's participations in L/C Obligations) owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.13 as though it were a Lender.
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(e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.01(e) as though it were a Lender.
(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g) Electronic Execution of Assignments. The words "execution," "signed," "signature," and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
10.07 Treatment of Certain Information; Confidentiality.
Each of the Administrative Agent, the Lenders and the L/C Issuer agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates' respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (I) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender, the L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.
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For purposes of this Section, "Information" means all information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary, provided that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Each of the Administrative Agent, the Lenders and the L/C Issuer acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Federal and state securities Laws.
10.08 Right of Setoff.
If an Event of Default shall have occurred and be continuing, each Lender, the L/C Issuer and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the obligations of the Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender or the L/C Issuer, irrespective of whether or not such Lender or the L/C Issuer shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Loan Party may be contingent or unmatured or are owed to a br anch or office of such Lender or the L/C Issuer different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
10.09 Interest Rate Limitation.
Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non usurious interest permitted by applicable Law (the "Maximum Rate"). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person
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may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
10.10 Counterparts; Integration; Effectiveness.
This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.
10.11 Survival of Representations and Warranties.
All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
10.12 Severability.
If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
10.13 Replacement of Lenders.
If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, if any Lender is a Defaulting Lender or if any other circumstance exists hereunder that gives the Borrower the right to replace a Lender as a party
88
4019304v5
hereto, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:
(a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b);
(b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter; and
(d) such assignment does not conflict with applicable Laws.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
10.14 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS.
(b) SUBMISSION TO JURISDICTION. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS SITTING IN SUFFOLK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF MASSACHUSETTS, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MASSACHUSETTS STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT 1N 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 PROVID ED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN
89
4019304v5
DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) WAIVER OF VENUE. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
10.15 Waiver of Jury Trial.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
10.16 USA PATRIOT Act Notice.
Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act {Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other
90
4019304v5
information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act.
10.17 ENTIRE AGREEMENT.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
10.18 Judgment Currency.
For the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in Dollars, in Euro or in Sterling into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which the accordance with normal banking procedures the Administrative agent could purchase Dollars or Euro or Sterling, as the case may be, with such other currency at the spot rate of exchange quoted by the Administrative Agent at 11:00 a.rn., Boston time, the Business Day preceding that on which final judgment is given for the purchase of Dollars, Euro or Sterling for delivery two (2) Business Days thereafter. The obligation of the Borrower in respect of any such sum due from it to the Administrative Agent, the UK Lender or any other Lender hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than that in which shall sum is denomina ted in accordance with the applicable provisions of this Agreement (the "Agreement Currency"), but discharged only to the extent that on the Business Day following receipt by the Administrative Agent of any sum adjusted to be so due in the Judgment Currency, the Administrative Agent may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Administrative Agent or UK Lender in the Agreement Currency, the Borrower agrees, as a separate obligating and notwithstanding any such judgment, to indemnify the Administrative Agent or the Person to whom such obligation was owing against such lost.
91
4019304v5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
A.T. CROSS COMPANY |
|
By: KEVIN F. MAHONEY |
|
Name: Kevin F. Mahoney |
|
Title: CFO |
S-1
Credit Agreement
Signature Page
A.T. CROSS LIMITED |
|
By: KEVIN F. MAHONEY |
|
Name: Kevin F. Mahoney |
|
Title: Director |
S-2
Credit Agreement
Signature Page
BANK OF AMERICA, N.A., as |
|
By: CHRISTOPHER S. ALLEN |
|
Name: Christopher S. Allen |
|
Title: Senior Vice President |
S-3
Credit Agreement
Signature Page
BANK OF AMERICA, N.A., |
|
By: CHRISTOPHER S. ALLEN |
|
Name: Christopher S. Allen |
|
Title: Senior Vice President |
S-4
Credit Agreement
Signature Page
BANK OF AMERICA, N.A., |
|
By: KEITH THOMAS |
|
Name: Keith Thomas |
|
Title: Vice President |
S-5
Credit Agreement
Signature Page
SCHEDULE I |
|||
POST CLOSING DELIVERIES AND CONDITIONS |
|||
Each of the following items shall be performed, completed and/or delivered in a form and substance satisfactory to Bank of America and its counsel. |
|||
1. |
Completion of due diligence. |
||
2. |
Deliver of stock certificates, updated stock and stock powers in blank for each of the following entities: |
||
a. |
A.T.X. International, Inc. |
||
b. |
Costa Del Mar Sunglasses, Inc. |
||
c. |
Cross Retail Ventures, Inc. |
||
d. |
A. T. Cross Limited (BDA/Ireland) |
||
e. |
A. T. Cross (Europe) Ltd. |
||
f. |
A. T. Cross Limited |
||
g. |
Cross Company of Japan, Ltd. |
||
h. |
A. T. Cross (Asia Pacific) Ltd |
||
3. |
Deliver Control Agreement in a form reasonably acceptable to Bank of America's counsel for each of the following entities: |
||
a. |
A. T. CROSS Company |
||
b. |
A.T.X. International, Inc. |
||
c. |
Costa Del Mar Sunglasses, Inc. |
||
d. |
Cross Retail Ventures, Inc. |
||
4. |
Deliver and finalize all Perfection Certificates. |
||
5. |
Rectify Perfection Certificate Intellectual Property Schedules with search results |
||
6. |
Deliver Certificate of Insurance naming Bank of America as Loss Payee. |
||
7. |
Obtain Landlord Waivers for each of the following locations: |
||
a. |
Concorde House, Concorde Street, Luton, Bedfordshire, England |
||
b. |
100 Higginson Avenue, Cumberland/Lincoln, Rhode Island |
||
c. |
123 N. Orchard Street, Bldg, 6, Ormond Beach, Florida |
||
d. |
1-41-21, Kaigan, Minato-ku, Tokyo, Japan |
||
8. |
Deliver lien searches for each of the entities set forth below. All liens must be acceptable to Bank of America. |
||
a. |
A. T. CROSS Company |
||
b. |
A. T. Cross (Europe) Ltd. |
||
c. |
A.T.X. International, Inc. |
1
d. |
Costa Del Mar Sunglasses, Inc. |
||
e. |
Cross Retail Ventures, Inc. |
||
f. |
A. T. Cross Limited (BDA/Ireland) |
||
g. |
A. T. Cross Benelux BV |
||
h. |
A. T. Cross Limited |
||
i. |
Cross Company of Japan, Ltd. |
||
j. |
A. T. Cross Deutschland GmbH |
||
k. |
A. T. Cross (Asia Pacific) Ltd. |
||
9. |
Deliver Officer's Certificates with all attachments thereto for each of the following entities: |
||
a. |
A. T. CROSS Company |
||
b. |
A. T. Cross (Europe) Ltd. |
||
c. |
A.T.X. International, Inc. |
||
d. |
Costa Del Mar Sunglasses, Inc. |
||
e. |
Cross Retail Ventures, Inc. |
||
f. |
A. T. Cross Limited (BDA/Ireland) |
||
g. |
A. T. Cross Benelux BV |
||
h. |
A. T. Cross Limited |
||
i. |
Cross Company of Japan, Ltd. |
||
j. |
A. T. Cross Deutschland GmbH |
||
k. |
A. T. Cross (Asia Pacific) Ltd. |
||
10. |
Deliver legal opinions of Edwards, Angell, Palmer and Dodge LLP and Cross UK counsel that cover all matters requested by Bank of America and its counsel |
||
11. |
Deliver Officer's Solvency Certificates for each of the following entities: |
||
a. |
A. T. CROSS Company |
||
b. |
A. T. Cross (Europe) Ltd. |
||
c. |
A.T.X. International, Inc. |
||
d. |
Costa Del Mar Sunglasses, Inc. |
||
e. |
Cross Retail Ventures, Inc. |
||
f. |
A. T. Cross Limited (BDAIIreland) |
||
g. |
A. T. Cross Benelux BV |
||
h. |
A. T. Cross Limited |
||
i. |
Cross Company of Japan, Ltd. |
2
j. |
A. T. Cross Deutschland GmbH |
||
k. |
A. T. Cross (Asia Pacific) Ltd. |
||
12. |
Deliver evidence of payoff of Wachovia facility for Costa Del Mar Sunglasses, Inc. (guaranteed by A. T. CROSS Company). |
||
13. |
Deliver long-form legal existence and good standing certificates and certificates of foreign qualification from each principal business jurisdiction for each of the following entities: |
||
a. |
A. T. CROSS Company |
||
b. |
A. T. Cross (Europe) Ltd. |
||
c. |
A.T.X. International, Inc. |
||
d. |
Costa Del Mar Sunglasses, Inc. |
||
e. |
Cross Retail Ventures, Inc. |
||
f. |
A. T. Cross Limited (BDA/Ireland) |
||
g. |
A. T, Cross Limited |
||
h. |
Cross Company of Japan, Ltd. |
||
i. |
A. T. Cross (Asia Pacific) Ltd. |
||
14. |
Deliver all remaining schedules required by the Credit Agreement: |
||
a. |
Schedule 5.05 |
||
b. |
Schedule 5.06 |
||
c. |
Schedule 5.13 |
||
d. |
Schedule 5.17 |
||
e. |
Schedule 7.01 |
||
f. |
Schedule 7.02 |
||
g. |
Schedule 7.03 |
||
h. |
Schedule 10.02 (additional notice information, if required) |
3
Schedule 5.05
Supplement to Interim Financial Statements
The interim financial statements of Borrower and its Subsidiaries delivered to Lenders on or about even date herewith reflect all material indebtedness and other liabilities, direct or contingent, of Borrower and its consolidated Subsidiaries as of the date of such interim financial statements, including liabilities for taxes, material commitments and Indebtedness.
Schedule 5.06
Litigation
1.
Unilever Bestfoods and CCL Custom Manufacturing, Inc. v. American Steel & Aluminum Corporation; et al.; CCL Custom Manufacturing, Inc. v. Arkwright Incorporated, et al. Consolidated: C.A. No. 01 496ML. United States District Court for the District of Rhode Island. A.T. Cross Company is names as one of approximately sixty defendants in a contribution suit brought by the Plaintiffs relating to the J.M. Mills Landfill site, which is part of the Peterson/Puritan Superfund site in Cumberland, Rhode Island. These complaints allege that A.T. Cross Company is liable under the Comprehensive Environmental Response, Compensation, and Liability Act for contribution for past and future costs incurred at the site. Past and future costs, excluding the required remedy, are estimated at approximately $7 million. In the second quarter of 2005, A.T. Cross Company received a settlement demand of approximately $600,000 from the Plaintiffs to resolve all claims related to the current litigation. A.T. Cross Company does not currently believe that the information provided to date supports the Plaintiff's demand.
2.
Thomas W. Nielson v. A.T. Cross Company. Civil Action No. 2:03CV00586CTS, U.S. District Court, District of Utah, Central Division. This is a patent infringement/trade dress misappropriation suit against A.T. Cross Company, in which the Plaintiff alleges that A.T. Cross Company's ION product (covered by U.S. Patent No. 6,273,627 issued 8/14/01) infringes Plaintiff's patent and/or was developed based upon trade secrets which A.T. Cross Company misappropriated from Plaintiff. A hearing on A.T. Cross Company's motion for summary judgment is scheduled for February 9, 2006. The case was dismissed on February 1, 2006. The Plaintiff filed a Motion to Reconsider on February 3, 2006.
3.
A.T. Cross Company v. Silvon Software, Inc., U.S. D.C. (District of RI) C.A. No.
06-06-T. This case alleges breach of contract, misrepresentation and breach of warranty arising out of the sale of Silvon Software, Inc. to A.T. Cross Company of an integrated computer software package that failed to operate as warranted and represented.
4.
A.T. Cross Company and A.T.X. International, Inc. v. ProInnovative, Inc. and Edward C. Leand d/b/a/ Advanced Advertising Products, U.S.D.C. (District of RI) C.A. No. 06-
20S. This case alleges patent infringement, trade dress infringement and unfair competition arising out of the defendants' sale of a product which is a close copy of the ION pen sold by the plaintiffs.
Schedule 5.12(e)(i)
ERISA Compliance
As of January 1, 2005, the unfunded pension liability of the A.T. Cross Company Pension Plan was $2,786,059.
Schedule 5.13
Subsidiaries and Other Equity Investments
Part (a). Subsidiaries.
Subsidiary |
Type of Organization |
Ownership Interest of Borrower |
A.T.X. International, Inc. |
Corporation |
100% |
Costa Del Mar Sunglasses, Inc. |
Corporation |
100%
|
Cross Retail Ventures, Inc. |
Corporation |
85% |
A.T. Cross Limited ("Bermuda") |
Corporation |
100%
|
A.T. Cross (Benelux) B.V. |
Corporation |
100% |
A.T. Cross (Canada) Inc. |
Corporation |
100% |
A.T. Cross Iberia, S.L. |
Corporation |
100% |
A.T. Cross (Europe) Ltd. ("Europe") |
Corporation |
Borrower holds 100% of the equity interests in Bermuda, which holds 100% of the equity interests in Europe |
A.T. Cross Limited |
Corporation |
Borrower holds 100% of the equity interests in Bermuda, which holds 100% of the equity interests in Europe, which holds 100% of the equity interests in this Subsidiary. |
Cross Company of Japan, Ltd. |
Corporation |
Borrower holds 100% of the equity interests in Bermuda, which holds 100% of the equity interests in Europe, which holds 100% of the equity interests in this Subsidiary. |
A.T. Cross Deutschland GmbH |
Corporation |
Borrower holds 100% of the equity interests in Bermuda, which holds 100% of the equity interests in Europe, which holds 100% of the equity interests in this Subsidiary. |
A.T. Cross (Asia Pacific) Limited |
Corporation |
Borrower holds 100% of the equity interests in Bermuda, which holds 100% of the equity interests in Europe, which holds 100% of the equity interests in this Subsidiary. |
A.T. Cross Writing Instruments & Accessories Company, Ltd.* |
Corporation |
100% |
Part (b). Other Equity Investments.
None.
*This entity is still in the process of being formed.
Schedule 5.17
Intellectual Property Matters
1.
Thomas W. Nielson v. A.T. Cross Company. Civil Action No. 2:03CV00586CTS, U.S. District Court, District of Utah, Central Division. This is a patent infringement/trade dress misappropriation suit against A.T. Cross Company, in which the Plaintiff alleges that A.T. Cross Company's ION product (covered by U.S. Patent No. 6,273,627 issued 8/14/01) infringes Plaintiff's patent and/or was developed based upon trade secrets which A.T. Cross Company misappropriated from Plaintiff. A hearing on A.T. Cross Company's motion for summary judgment is scheduled for February 9, 2006. The case was dismissed on February 1, 2006. The Plaintiff filed a Motion to Reconsider on February 3, 2006.
2.
A.T. Cross Company v. Silvon Software, Inc., U.S.D.C. (District of RI) C.A. No. 06-06-T. This case alleges breach of contract, misrepresentation and breach of warranty arising out of the sale by Silvon Software, Inc. to A.T. Cross Company of an integrated computer software package that failed to operate as warranted and represented.
3.
A.T. Cross Company and A.T.X. International, Inc. v. ProInnovative, Inc. and Edward C. Leand d/b/a Advanced Advertising Products, U.S.D.C. (District of RI) C.A. No. 06-20S. This case alleges patent infringement, trade dress infringement and unfair competition arising out of the defendants' sale of a product which is a close copy of the ION pen sold by the plaintiffs.
Schedule 7.01
Existing Liens
Entity |
Liens |
A.T. Cross Company |
|
Order of Approval recorded in Book 746 at Page 217
|
|
A.T.X. International, Inc. |
|
Costa Del Mar Sunglasses, Inc. |
|
Cross Retail Ventures, Inc. |
|
A.T. Cross Limited |
|
A.T. Cross (Benelux) B.V. |
|
A.T. Cross (Canada) Inc. |
|
A.T. Cross Iberia, S.L. |
|
A.T. Cross (Europe) Ltd. |
|
A.T. Cross Limited |
|
Cross Company of Japan, Ltd. |
|
A.T. Cross Deutschland GmbH |
|
A.T. Cross (Asia Pacific) Limited |
|
A.T. Cross Writing Instruments & Accessories Company, Ltd. |
|
*This Financing Statement relates to certain trash removal equipment owned by Hanna Paper Recycling, Inc. ("Hanna") and placed on the property of A.T. Cross Company. A.T. Cross Company is not indebted to Hanna under any lease or other financing arrangement.
Schedule 7.02
Investments
None
Schedule 7.03
Existing Indebtedness
Entity |
Indebtedness |
A.T. Cross Company |
|
A.T.X. International, Inc. |
|
Costa Del Mar Sunglasses, Inc. |
|
Cross Retail Ventures, Inc. |
|
A.T. Cross Limited |
|
A.T. Cross (Benelux) B.V. |
|
A.T. Cross (Canada) Inc. |
|
A.T. Cross Iberia, S.L. |
|
A.T. Cross (Europe) Ltd. |
|
A.T. Cross Limited |
|
Cross Company of Japan, Ltd. |
|
A.T. Cross Deutschland GmbH |
|
A.T. Cross (Asia Pacific) Limited |
|
A.T. Cross Writing Instruments & Accessories Company, Ltd. |
|
B. Inter-Company Indebtedness:
[See spreadsheet attached hereto]
NET INTERCOMPANY ACCOUNT BALANCES
A. T. Cross Company and Subsidiaries
NOVENBER 2005
Receiving Company |
Paying Company |
$ |
||
& Amount |
& Amount |
Variance |
||
LC |
US$ |
LC |
US$ |
|
France |
UK |
|
||
|
|
|
|
- |
UK |
France |
|
||
217,170 |
$ 372,294 |
317,496 |
$ 372,296 |
(2) |
UK |
Benelux |
|
||
|
|
2,026,983 |
$ 2,376,840 |
(2,376,840) |
Benelux |
UK |
|
||
2,117,965 |
$ 2,483,526 |
62,234 |
$ 106,688 |
2,376,838 |
Benelux |
France |
|
||
1,620 |
$ 1,900 |
1,620 |
$ 1,899 |
1 |
France |
Benelux |
|
||
|
|
|
|
- |
UK |
Iberia |
|
||
12 |
$ 21 |
|
|
21 |
Iberia |
UK |
|
||
55,255 |
$ 64,792 |
37,806 |
$ 64,811 |
(19) |
UK |
Germany |
|
||
308,535 |
$ 528,922 |
2,219,762 |
$ 2,602,894 |
(2,073,972) |
Germany |
UK |
|
||
2,771,862 |
$ 3,250,285 |
686,177 |
$ 1,176,314 |
2,073,971 |
Benelux |
Hong Kong |
|
||
2,015 |
$ 2,362 |
|
|
2,362 |
Hong Kong |
Benelux |
|
||
|
|
|
|
- |
Iberia |
Benelux |
|
||
|
|
- |
$ - |
- |
Benelux |
Iberia |
|
||
|
|
|
|
- |
UK |
Cross |
|
||
|
|
|
|
- |
Cross |
UK |
|
||
|
$ 11,425,085 |
6,664,577 |
$ 11,425,085 |
(0) |
|
|
|
|
|
Iberia |
Cross |
|
||
- |
$ - |
|
|
- |
Cross |
Iberia |
|
||
- |
$ - |
- |
$ - |
- |
France |
Cross |
|
||
|
$ - |
|
|
- |
Cross |
France |
|
||
- |
$ - |
- |
$ - |
- |
Germany |
Cross |
|
||
- |
$ - |
- |
$ - |
- |
Cross |
Germany |
|
||
|
$ (665,176) |
567,266 |
$ (665,176) |
0 |
Benelux |
Cross |
|
||
- |
$ - |
- |
$ - |
- |
Cross |
Benelux |
|
||
|
|
|
|
- |
|
|
|
|
|
Euro HQ |
Asia / Pacific |
|
||
|
$ 28,800 |
|
$ 28,800 |
- |
Asia / Pacific |
Euro HQ |
|
||
|
$ 1,000 |
|
$ 1,000 |
- |
Euro HQ |
Cross |
|
||
|
|
|
|
- |
Cross |
Euro HQ |
|
||
|
$ 28,800 |
|
$ 28,800 |
- |
CCJ |
Hong Kong |
|
||
108,900 |
$ 910 |
|
|
910 |
Hong Kong |
CCJ |
|
||
182,653 |
$ 23,556 |
2,633,406 |
$ 22,015 |
1,541 |
CCJ |
Taiwan |
|
||
362,120 |
$ 3,027 |
108,754 |
$ 3,241 |
(214) |
Taiwan |
CCJ |
|
||
100,423 |
$ 2,993 |
341,794 |
$ 2,857 |
136 |
CCJ |
Cross |
|
||
|
|
|
|
- |
Cross |
CCJ |
|
||
|
$ 93,081 |
(18,500,128) |
$ (154,661) |
247,742 |
Hong Kong |
Taiwan |
|
||
212,313 |
$ 27,381 |
870,609 |
$ 25,944 |
1,437 |
Taiwan |
Hong Kong |
|
||
|
|
|
|
- |
Hong Kong |
Cross |
|
||
293,364 |
$ 37,834 |
|
|
37,834 |
Cross |
Hong Kong |
|
||
|
$ 4,372,244 |
37,764,393 |
$ 4,870,360 |
(498,116) |
Taiwan |
Cross |
|
||
|
|
|
|
- |
Cross |
Taiwan |
|
||
|
$ 1,601,051 |
52,400,915 |
$ 1,561,547 |
39,504 |
Singapore |
Cross |
|
||
1,033 |
$ 610 |
|
|
610 |
Cross |
Singapore |
|
||
|
$ 796,375 |
1,462,253 |
$ 863,607 |
(67,231) |
Singapore |
Hong Kong |
|
||
8,093 |
$ 4,780 |
35,420 |
$ 4,568 |
212 |
Hong Kong |
Singapore |
|
||
291,624 |
$ 37,610 |
65,180 |
$ 38,495 |
(885) |
Australia |
Cross |
|
||
|
|
|
|
- |
Cross |
Australia |
|
||
|
$ 55,672 |
75,662 |
$ 55,672 |
0 |
Hong Kong |
Australia |
|
||
|
|
|
|
- |
Australia |
Hong Kong |
|
||
- |
$ - |
- |
$ - |
- |
Cross |
Canada |
|
||
|
$ 1,208,722 |
|
|
1,208,722 |
Canada |
Cross |
|
||
1,240,307 |
$ 1,060,711 |
|
$ 2,269,433 |
(1,208,722) |
Cross |
Head Office |
|
||
|
$ (17,773,795) |
|
|
(17,773,795) |
Head Office |
Cross |
|
||
|
$ 17,773,794 |
|
|
17,773,794 |
Head Office |
Euro HQ |
|
||
|
$ 111,743 |
|
$ 111,743 |
- |
Euro HQ |
Head Office |
|
||
|
|
|
|
- |
Cross |
Retail Venture |
|
||
|
$ 3,113,065 |
|
$ 3,113,065 |
- |
Retail Venture |
Cross |
|
||
|
|
|
|
- |
Cross |
International |
|
||
|
$ 26,113,181 |
|
|
26,113,181 |
International |
Cross |
|
||
|
$ 11,358,212 |
|
$ 37,471,393 |
(26,113,181) |
Cross |
Costa Del Mar |
|
||
|
$ 1,017,976 |
|
$ 1,018,274 |
(298) |
Costa Del Mar |
Cross |
|
||
|
$ (1,666) |
|
$ (1,665) |
(1) |
TOTAL |
$ 68,561,679 |
|
$ 68,796,139 |
$ (234,460) |
|||
ENTRY: |
|||||||
Cash |
- |
(75,801) |
|||||
Trade Accounts Receivable |
(26,832) |
||||||
Intercompany Receivables |
(68,561,679) |
(1,244) |
|||||
Inventory |
123,821 |
(48,020) |
|||||
Other Current Assets |
- |
- |
|||||
Accounts Payable |
10,664 |
(39,501) |
|||||
Intercompany Payables |
68,796,139 |
||||||
Accrued Expenses |
- |
(247,740) |
|||||
Income Taxes Payable |
|||||||
Net Sales |
568,089 |
||||||
Cost of Goods Sold |
(436,522) |
116,173 |
|||||
SG&A - selling |
67,577 |
||||||
Foreign Exchange |
______ |
||||||
10,664 |
|||||||
====== |
SCHEDULE 10.02
ADMINISTRATIVE AGENT'S OFFICE;
CERTAIN ADDRESSES FOR NOTICES
Borrower:
A.T. Cross Company
One Albion Road
Lincoln, Rhode Island 02865
Attention: Kevin F. Mahoney, CFO
Telephone: 401-333-1200
Telecopier: 401-334-2861
Electronic Mail: kmahoney@cross.com
Website Address: www.cross.com
with a copy to:
A.T. Cross Company
One Albion Road
Lincoln, Rhode Island 02865
Attention: Office of General Counsel
Telephone: 01-333-1200
Telecopier: 401-333-3912
ADMINISTRATIVE AGENT:
Administrative Agent's Office
Bank of America, N.A.
100 Federal Street
Mail Code: MA5-100-07-06
Boston, Massachusetts 02110
Attention: Christopher S. Allen
Telephone: 617-434-2493
Telecopier: 617-434-1279
Electronic Mail: christoper.s.allen@bankofamerica.com
Account No.:
Ref:_________________________
ABA# 111000012
L/C ISSUER:
Bank of America, N.A.
100 Federal Street
Mail Code: MA5-100-07-06
Boston, Massachusetts 02110
Attention: Christopher S. Allen
Telephone: 617-434-2493
Telecopier: 617-434-1279
1
Electronic Mail: christoper.s.allen@bankofamerica.com
UK LENDER:
Bank of America, N.A.
5 Canada Square
London, E14 5AQ, United Kingdom
Attention: Keith Thomas
Telephone: + 44 (0) 20 7174 5834
Telecopier: + 44 (0) 20 7174 6436
Electronic Mail: keith.thomas@bankofamerica.com
Account No.:
Ref: ____________________
ABA# 111000012
2
EXHIBIT A-1
FORM OF COMMITTED LOAN NOTICE
Date: ___________, _____
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of December __, 2005 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement;" the terms defined therein being used herein as therein defined), among A. T. Cross Company, a Rhode Island corporation (the "Borrower"), A. T. Cross (UK) Ltd., a corporation organized under the laws of England and Wales ("Cross UK"), the Lenders from time to time party thereto, Bank of America, N.A. as Administrative Agent and L/C Issuer, and Bank of America, N.A. (London Branch) as UK Lender.
The undersigned hereby requests (select one):
___ A Borrowing of Committed Loans |
___A conversion or continuation of Loans |
1. On __________________________ (a Business Day).
2. In the amount of $____________________
3. Comprised of __________________________[Type of Committed Loan requested]
4. For Eurodollar Rate Loans: with an Interest Period of ________ months.
The Committed Borrowing, if any, requested herein complies with the provisos to the first sentence of Section 2.01 of the Agreement.
A. T. CROSS COMPANY
By: ________________________________
Name: ______________________________
Title: _______________________________
A -1
Form of Committed Loan Notice
EXHIBIT A-2
FORM OF EUROCURRENCY LOAN NOTICE
Date: ___________, _____
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of December __, 2005 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement;" the terms defined therein being used herein as therein defined), among A. T. Cross Company, a Rhode Island corporation (the "Borrower"), A. T. Cross (UK) Ltd., a corporation organized under the laws of England and Wales ("Cross UK"), the Lenders from time to time party thereto, Bank of America, N.A. as Administrative Agent and L/C Issuer, and Bank of America, N.A. (London Branch) as UK Lender.
The undersigned hereby requests (select one):
___ A Borrowing of Committed Loans |
___A conversion or continuation of Loans |
1. On ____________________________ (a Business Day).
2. In the amount of $_____________________.
3. With an Interest Period of ________ months.
The Committed Borrowing, if any, requested herein complies with the provisos to the first sentence of Section 2.01 of the Agreement.
A. T. CROSS (UK) LTD.
By: _________________________________
Name: ______________________________
Title: _______________________________
A -2
Form of Eurocurrency Loan Notice
EXHIBIT D
FORM OF NOTE
FOR VALUE RECEIVED, A. T. Cross Company, a Rhode Island corporation (the "Borrower"), hereby promises to pay to Bank of America, N.A. or registered assigns (the "Lender"), and for all Eurocurrency Loans evidenced by this Note, the Borrower and A. T. Cross (UK) Ltd., a corporation organized under the laws of England and Wales (the "UK Borrower"), jointly and severally, promise to pay to the Lender, in accordance with the provisions of the Agreement (as hereinafter defined), the principal amount of each Loan from time to time made by the Lender to the Borrower or to the UK Borrower under that certain Credit Agreement, dated as of December __, 2005 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement;" the terms defined therein being used herein as therein defined), among the Borrower, the UK Borrower, the Lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent and L/C Issuer, and Bank of America, N.A. (London Branch) as UK Lender.
The Borrower promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan, and the Borrower and the UK Borrower, jointly and severally, promise to pay interest on the unpaid principal amount of each Eurocurrency Loan from the date of such Eurocurrency Loan, until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agent's Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.
This Note is one of the Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. This Note is also entitled to the benefits of the Guaranty and the Security Documents. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Loans made by the Lender or the UK Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender or the UK Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.
The Borrower and the UK Borrower, each for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
D -1
Form of Note
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
A T. CROSS COMPANY
By: ___________________________________
Name: _________________________________
Title:___________________________________.
A T. CROSS (UK) LTD.
By: ___________________________________
Name: _________________________________
Title: __________________________________
D -2
Form of Note
LoanS
AND PAYMENTS with respect thereto
Date |
Type of Loan Made |
Amount of Loan Made |
End of Interest Period |
Amount of Principal or Interest Paid This Date |
Outstanding Principal Balance This Date |
Notation Made By |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
D -3
Form of Note
EXHIBIT E
form of
COMPLIANCE CERTIFICATEFinancial Statement Date:____________,_____
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of December ___, 2005 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement;" the terms defined therein being used herein as therein defined), among A. T. Cross Company, a Rhode Island corporation (the "Borrower"), A. T. Cross (UK) Ltd., a corporation organized under the laws of England and Wales ("Cross UK"), the Lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent and L/C Issuer, and Bank of America, N.A. (London Branch) as UK Lender.
The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the _____________________________ of the Borrower, and that, as such, he/she is authorized to execute and deliver this Certificate to the Administrative Agent on the behalf of the Borrower, and that:
[Use following paragraph 1 for fiscal year-end financial statements]
1. Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of the Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.
[Use following paragraph 1 for fiscal quarter-end financial statements]
1. Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of the Borrower ended as of the above date. Such financial statements fairly present the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.
2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower during the accounting period covered by the attached financial statements.
3. A review of the activities of the Borrower during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrower performed and observed all its Obligations under the Loan
E -1
Form of Compliance Certificate
Documents, and to the best knowledge of the undersigned during such fiscal period, the Borrower performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default has occurred and is continuing.
4. The representations and warranties of the Borrower contained in Article V of the Agreement, and any representations and warranties of the Borrower that are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Compliance Certificate, the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered.
5. The financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the date of this Certificate.
6. The Borrower hereby represents and warrants that the Consolidated Leverage Ratio for the fiscal quarter ended _____________ is ________ and the Applicable Margin under the Agreement for the period is: Level ___ [insert Level I, II, III or IV as applicable]
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
______________________,__________.
A. T. CROSS COMPANY
By: ___________________________________
Name: _________________________________
Title: __________________________________
E -2
Form of Compliance Certificate
For the Quarter/Year ended ___________________("Statement Date")
SCHEDULE 2
to the Compliance Certificate
($ in 000's)
I. Section 7.11(a) - Consolidated Tangible Net Worth.
A.
A. |
Actual Consolidated Tangible Net Worth at Statement Date: |
||
1. |
Shareholders' Equity: |
$___________ |
|
2. |
Intangible Assets: |
$___________ |
|
3. |
Consolidated Tangible Net Worth (Line I.A1 less Line I.A.2): |
$___________ |
|
B. |
50% of Consolidated Net Income for each full fiscal quarter ending after December 31, 2005 (no reduction for losses): |
$___________ |
|
C. |
50% of increases in Shareholders' Equity after date of Agreement from issuance and sale of Equity Interests (including from conversion of debt securities): |
$___________ |
|
D. |
Minimum required Consolidated Tangible Net Worth |
$___________ |
|
E. |
Excess (deficient) for covenant compliance (Line I.A - I.D): |
$___________ |
|
II. Section 7.11 (b) - Consolidated Debt Service Ratio.
A. |
Consolidated EBITDA for four consecutive fiscal quarters ending on above date ("Subject Period"): |
||
1. |
Consolidated Net Income for Subject Period: |
$___________ |
|
2. |
Consolidated Interest Charges for Subject Period: |
$___________ |
|
3. |
Provision for income taxes for Subject Period: |
$___________ |
|
4. |
Depreciation expenses for Subject Period: |
$___________ |
|
5. |
Amortization expenses for Subject Period: |
$___________ |
|
6. |
Extraordinary losses: |
$___________ |
|
7. |
Restructuring charges or expenses: |
$___________ |
|
8. |
Non-cash expenses associated with LIFO treatment of Inventory: |
$___________ |
|
9. |
Non-cash charges related to compensation expense: |
$___________ |
|
10. |
Extraordinary gains to the extent: |
$___________ |
|
11. |
Non-cash items increasing Consolidated Net Income: |
$___________ |
E -3
Form of Compliance Certificate
12. |
Consolidated EBITDA (Lines II.A.1 + 2 + 3 + 4 + 5 + 6 +7 + 8 + 9 - 10 - 11): |
$___________ |
|
B. |
Income taxes paid in cash: |
$___________ |
|
C. |
Cash dividends or distributions: |
$___________ |
|
D. |
Capital Expenditures: |
$___________ |
|
E. |
Consolidated Interest Charges for Subject Period: |
$___________ |
|
F. |
Principal of Indebtedness paid during Subject Period: |
$___________ |
|
G. |
Consolidated Interest Coverage Ratio (Line II.A.12 - Line II.B.- Line II.C - Line II.D) ¸ (Line II.E + Line II.F): |
$___________ |
|
Minimum required: 1.25 to 1.00 |
III. Section 7.11 (c) - Consolidated Leverage Ratio.
A. |
Consolidated Funded Indebtedness at Statement Date: |
$___________ |
B. |
Consolidated EBITDA for Subject Period (Line II.A.12 above): $_______ |
|
C. |
Consolidated Leverage Ratio (Line III.A ¸ Line III.B): |
________ to 1 |
Maximum permitted: 2.50 to 1.00 |
IV. Section 7.12 -- Capital Expenditures.
A. |
Capital expenditures made during fiscal year to date: |
$___________ |
B. |
Capital expenditures that could have made during prior fiscal year but which were not made: |
$___________ |
C. |
Maximum permitted capital expenditures |
$___________ |
D. |
Excess (deficient) for covenant compliance (Line IV.C - IV.A), provided Line IV.E is < $1,000,000: |
$___________ |
E. |
Capital expenditures made for any asset or assets which are or will be located outside of the United States |
$___________ |
E -4
Form of Compliance Certificate
For the Quarter/Year ended ___________________("Statement Date")
SCHEDULE 3
to the Compliance Certificate
($ in 000's)
Consolidated EBITDA
(in accordance with the definition of Consolidated EBITDA
as set forth in the Agreement)
Consolidated |
|
|
|
|
Twelve |
Consolidated |
|||||
+ Consolidated Interest Charges |
|||||
+ income taxes |
|||||
+ depreciation expense |
|||||
+ amortization expense |
|||||
+ extraordinary losses |
|||||
+ restructuring charges or expenses (if applicable) |
|||||
+ non-cash expenses associated with the LIFO treatment of Inventory |
|||||
+ non-cash charges related to compensation expense |
|||||
-extraordinary gain |
|||||
- non-cash items increasing Consolidated Net |
E -5
Form of Compliance Certificate
Income |
|||||
= Consolidated EBITDA |
E -6
Form of Compliance Certificate
EXHIBIT F
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (this "Assignment and Assumption") is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the "Assignor") and [Insert name of Assignee] (the "Assignee"). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (the "Credit Agreement"), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor's rights and obligations as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including, without limitation, the Letters of Credit and the Swing Line Loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as,
the "Assigned Interest"). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.1. Assignor: ______________________________
2. Assignee: ______________________________ [and is an
Affiliate/Approved Fund of [identify Lender]]
3. Borrower(s): A. T. Cross Company, a Rhode Island corporation
A. T. Cross (UK) Ltd., a corporation organized under the laws of England and Wales
4. Administrative Agent: Bank of America, N.A., as the administrative agent under the Credit Agreement
5. Credit Agreement: Credit Agreement, dated as of December __, 2005, among the Borrower, A. T. Cross (UK) Ltd., the Lenders from time to time party thereto, Bank of
F -1
Form of Assignment and Assumption
America, N.A., as Administrative Agent and L/C Issuer, and Bank of America, N.A. (London Branch) as UK Lender.
6. Assigned Interest:
Facility Assigned |
Aggregate |
Amount of |
Percentage |
CUSIP Number |
_____________ |
$________________ |
$________________ |
______________% |
|
_____________ |
$________________ |
$________________ |
______________% |
|
_____________ |
$________________ |
$________________ |
______________% |
[7. Trade Date: __________________]
Effective Date: __________________, 20__ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR]
By: _____________________________
Title:
ASSIGNEE
[NAME OF ASSIGNEE]
By: _____________________________
Title:
[Consented to and] Accepted:
BANK OF AMERICA, N.A., as
Administrative Agent
By: _________________________________
Title:
[Consented to:]
By: _________________________________
Title:
F -2
Form of Assignment and Assumption
ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
[___________________]
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1. Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement (subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 6.01 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assig nment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a Foreign Lender, attached hereto is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
F -3
Form of Assignment and Assumption
2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.
3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of The Commonwealth of Massachusetts.
F -4
Form of Assignment and Assumption
EXHIBIT G
CH&S DRAFT 12/16/05
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT, (this "Agreement") is made as of the ___ day of December, 2005, by _______________, _______________ ("Guarantor"), to Bank of America, N.A. as Administrative Agent (the "Agent") under the Credit Agreement dated as of the date hereof (as amended and restated by and through the date hereof and as may be further amended, restated, modified and/or supplemented from time to time, the "Credit Agreement"). Capitalized terms used in this Agreement and not otherwise defined shall have the same meanings herein as in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, Guarantor owns one hundred percent (100%) of the outstanding capital stock of ______________ (the "Company"); and
WHEREAS, Guarantor and the Agent and other Lenders from time to time party thereto, have entered into the Credit Agreement, pursuant to which the Lenders have agreed, subject to the terms and conditions set forth therein, to make advances and term loans to the Borrower (collectively, the "Loans");
WHEREAS, the obligations of the Lender to enter into the Credit Agreement, and the obligations of the Lender to make the Loans, are subject to the condition, among others, that Guarantor execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the willingness of the Lender to make the Loans to the Borrower, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by Guarantor, Guarantor hereby agrees as follows:
1. Guaranteed Obligations; Limitation.
(a) Guarantor does hereby irrevocably, unconditionally guarantee, as primary obligor and not merely as surety, the due and punctual payment and performance by the Borrower of the following obligations to the Lenders (individually, a "Guaranteed Obligation" and collectively the "Guaranteed Obligations"):
(i) principal of and premium, if any, and interest on the Loans (including, without limitation, the payment of interest, and other amounts that would accrue and become due but for the filing of a petition in bankruptcy or the operation of the automatic stay under Section 362(a) of Title 11 of the United States Code, as amended (the "Bankruptcy Code")); and
(ii) any and all other Obligations, and any and all other obligations of the Borrower to the Agent and the Lenders under the Credit Agreement or the other Loan Documents, all as amended from time to time and whether executed on or after the date hereof, whether for principal, interest, fees, premiums, expenses, indemnification or otherwise.
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2. Payment Under Guaranty. Upon failure by the Borrower punctually to pay or perform any Guaranteed Obligation when due (whether at maturity, at a date fixed for any payment or prepayment thereof or upon acceleration or otherwise), after the expiration of any applicable grace period, the Agent may make written demand upon Guarantor for the full payment and/or performance of the Guaranteed Obligations, and Guarantor binds and obliges itself to make such payment or performance forthwith upon such demand.
GUARANTOR ACKNOWLEDGES THAT ALL GUARANTEED OBLIGATIONS SHALL, TO THE FULLEST EXTENT PERMISSIBLE UNDER ANY LAW NOW OR HEREAFTER APPLICABLE HERETO, BE CONCLUSIVELY PRESUMED TO HAVE BEEN CREATED IN RELIANCE ON THIS AGREEMENT.
3. Waiver of Demands, Notices, Diligence, etc. Guarantor hereby assents to all of the terms and conditions of the Guaranteed Obligations and waives, to the extent permitted by applicable law:
(a) each of:
(i) demand for the payment of the principal of any Guaranteed Obligation or of any claim for interest or any part thereof (other than the demand provided for in Section 2 hereof);
(ii) notice of (A) the occurrence of a default or an event of default and (B) any forbearance or waiver by the Lenders of any Guaranteed Obligation;
(iii) protest of the nonpayment of the principal of any Guaranteed Obligation or of any claim for interest or any part thereof;
(iv) notice of presentment, demand (other than the demand provided for in Section 2 hereof) and protest;
(v) notice of any indulgences or extensions granted to the Borrower or any successor to the Borrower or any person or party which shall have assumed the obligations of the Borrower;
(vi) any requirement of diligence or promptness on the part of the Lenders in the enforcement of any of its rights under the provisions of any Guaranteed Obligation or this Agreement;
(vii) any enforcement of any Guaranteed Obligation;
(viii) any right which Guarantor might have to require the Agent or the Lenders to marshall or proceed against any other guarantor of the Guaranteed Obligations or to realize on any Collateral therefor; and
(ix) any and all notices of every kind and description which may be required to be given by any statute or rule of law in any jurisdiction;
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(b) all rights and benefits under any applicable law purporting to reduce Guarantor's obligations in proportion to the obligation of the principal or providing that the obligation of a surety or guarantor must neither be larger nor in any other respect more burdensome than that of the principal;
(c) the benefit of any statute of limitations affecting the Guaranteed Obligations or Guarantor's liabilities hereunder or under any other law now or hereafter applicable hereto;
(d) any rights, defenses and other benefits that Guarantor may have by reason of (i) any failure of the Agent to hold a commercially reasonable public or private foreclosure sale or to otherwise comply with applicable law in connection with a disposition of any collateral for the Guaranteed Obligations; (ii) any election of remedies made by the Lender under the Uniform Commercial Code, as adopted in Massachusetts or in any other state in which Collateral may be located or whose laws are otherwise deemed to govern the terms of this Guaranty Agreement; or (iii) any protection afforded pursuant to the antideficiency or similar other laws of Massachusetts, any other state in which Collateral may be located or any other state limiting or discharging the Borrower's indebtedness or purporting to limit the amount of any deficiency judgment; and
(e) any rights, defenses, claims or benefits waived in Section 4 hereof.
The waivers and other provisions set forth in this Section 3 and in Section 4 shall be effective notwithstanding the fact that the Borrower ceases to exist by reason of its liquidation, merger, consolidation voluntary or involuntary dissolution or otherwise.
4. Obligations of Guarantor Unconditional; Continuing and Irrevocable Guaranty.
(a) All payments hereunder shall be made free and clear of any and all deductions, withholdings or setoffs, including any and all deductions, withholdings or setoffs on account of taxes. The liability of Guarantor hereunder is independent of and not in consideration of or contingent upon the liability of the Company to the Lenders and a separate action or actions may be brought and prosecuted against Guarantor, whether or not any action is brought or prosecuted against the Company and regardless of whether the Company is joined in any such action or actions. This Agreement shall be construed as a continuing, absolute and unconditional guaranty of payment (and not merely of collection) without regard to:
(i) the legality, validity or enforceability of the Credit Agreement or any other Loan Document or any of the other Guaranteed Obligations, any lien of the Agent on any item of Collateral or any other guaranty;
(ii) any defense (other than payment), deduction (including deductions for taxes), withholding, setoff or counterclaim that may now or at any time hereafter be available to the Company, Guarantor or other obligor against, and any right of setoff at any time held by, the Agent or the Lenders;
(iii) any claim arising out of or relating to any amendment (including amendments which increase the amount of Loans made or available to the
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Borrower thereunder), extension or other modification of the Credit Agreement or any other Loan Document consented to by the Lender, and Guarantor acknowledges and agrees that the Lender shall be entitled to amend, extend, forbear under, waive any Default or Event of Default or take any other action deemed advisable in the sole discretion of the Lender with respect to the Credit Agreement and the other Loan Documents; or
(iv) any other circumstance whatsoever, legal or equitable, (with or without notice to or knowledge of Guarantor), whether or not similar to any of the foregoing, that constitutes, or might be construed to constitute, an equitable or legal discharge of or defense to payment available to the Borrower, Guarantor or other obligor under the Credit Agreement or other Loan Documents or under applicable law, including the Bankruptcy Code, or in any other instance.
Any payment or other circumstance that operates to toll any statute of limitations applicable to any Guaranteed Obligations shall also operate to toll the statute of limitations applicable to Guarantor. The obligations of Guarantor under this Agreement shall not be affected by any action taken under any Guaranteed Obligation in the exercise of any right or remedy therein conferred, or by any failure or omission on the part of the Agent to enforce any right given thereunder or hereunder or any remedy conferred thereby or hereby, or by any release of any security or any other guaranty at any time existing for the benefit of any Guaranteed Obligation, or by the merger or consolidation of the Borrower, or by the sale, lease or transfer by the Borrower to any person of any or all of its properties.
(b) This is a continuing guaranty of the Guaranteed Obligations and may not be revoked and shall not otherwise terminate until the date on which the Guaranteed Obligations have been paid and performed in full in cash, and the obligations of the Lenders to make Loans under the Credit Agreement shall have terminated.
5. Subordination of Claims of Guarantor; Waiver of Subrogation and Certain Other Rights. Any claims against the Guarantor or any other guarantor under the Credit Agreement or any other Person from time to time party to the Credit Agreement as "Borrower" or "Guarantor" (collectively, the "Loan Parties" and each a "Loan Party") to which Guarantor may be or become entitled (including, without limitation, claims by subrogation or otherwise by reason of any payment or performance by Guarantor in satisfaction and discharge, in whole or in part, of its obligations under this Agreement) shall be and hereby are made subject and subordinate to the prior payment in full in cash or performance in full of the Guaranteed Obligations. WITHOUT LIMITING THE FOREGOING, GUARANTOR WAIVES ANY AND ALL RIGHTS OF SUBROGATION, INDEMNITY, CONTRIBUTION OR REIMBURSEMENT, AND ANY AND ALL BENEFITS OF AND RIGHT TO ENFORCE ANY POWER, RIGHT OR REMEDY THAT THE LENDER MAY NOW OR HEREAFTER HAVE IN RESPECT OF THE GU ARANTEED OBLIGATIONS AGAINST THE BORROWER, GUARANTOR OR ANY OTHER LOAN PARTY OR OTHER OBLIGOR, ANY AND ALL BENEFITS OF AND RIGHTS TO PARTICIPATE IN ANY COLLATERAL, NOW OR HEREAFTER HELD BY THE LENDER, AND ANY AND ALL OTHER RIGHTS AND CLAIMS (AS DEFINED IN THE BANKRUPTCY CODE) GUARANTOR MAY HAVE AGAINST THE LENDER, THE BORROWER, ANY OTHER LOAN PARTY OR ANY OTHER OBLIGOR, UNDER
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APPLICABLE LAW OR OTHERWISE, AT LAW OR IN EQUITY, BY REASON OF ANY PAYMENT HEREUNDER OR OTHERWISE, UNLESS AND UNTIL THE GUARANTEED OBLIGATIONS SHALL HAVE BEEN INDEFEASIBLY PAID IN FULL IN CASH. Without limitation of the foregoing, Guarantor shall exercise no voting rights, shall file no claim, shall waive any election pursuant to Section 1111(b) of the Bankruptcy Code and shall not participate or appear in any bankruptcy or insolvency case involving the Borrower with respect to the Guaranteed Obligations unless and until all the Guaranteed Obligations shall have been in full in cash in cash. If, notwithstanding the foregoing, any amount shall be paid to Guarantor on account of any such rights at any time, such amount shall be held in trust for the benefit of the Lenders and shall forthwith be paid to the Agent to be held as collateral for or credited and applied in reduction of the Guaranteed Obligations in accordance with the terms of the Credit Agreement.
6. Representations and Warranties of Guarantor. In order to induce the Lenders to enter into the Credit Agreement and to induce the Lenders to make the Loans to the Borrower thereunder, Guarantor represents and warrants that:
(a) This Agreement constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of creditors' rights generally.
(b) Guarantor hereby acknowledges that it has reviewed and caused its counsel to review copies of, and is fully familiar with, this Agreement, the Credit Agreement, the other Security Documents and each of the other Loan Documents executed and delivered by the Borrower and the other Loan Parties. Guarantor warrants and agrees that each representation, warranty and waiver set forth in this Agreement is made with Guarantor having full knowledge of its significance and consequences and after having consulted with counsel of its own choosing and that, under the circumstances, each such waiver is in the best interest of Guarantor in furtherance of its business plan, is reasonable and should not be found contrary to public policy or law.
Guarantor acknowledges and agrees that any breach of any representation, warranty or covenant of Guarantor in this Agreement may constitute an Event of Default under the Credit Agreement and under each of the other Loan Documents.
7. Set-off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default, the Agent is hereby authorized, to the extent not prohibited by applicable law, without prior notice to Guarantor or to any other Person, any such notice being expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by the Lender to or for the credit or the account of Guarantor, against and on account of the obligations and liabilities of Guarantor to the Agent under this Agreement then due and payable, irrespective of whether the Lender shall have made any demand hereunder. The Agent agrees to promptly notify Guarantor after any such set off and application, provided, however, that the failure to give such notice shall not affect the validity of such set off and application.
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8. Reinstatement. This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any amount received by the Lenders in respect of the Guaranteed Obligations is rescinded or must otherwise be restored or returned by the Lender upon the insolvency, bankruptcy, dissolution (voluntary or involuntary), liquidation or reorganization of the Borrower, Guarantor, or upon the appointment of an intervenor or conservator of, or trustee or similar official for, the Borrower, Guarantor or any other Loan Party or any substantial part of any of their respective properties, or otherwise, all as though said payments had not been made.
9. Notices. All notices and other communications to Guarantor or the Agent hereunder shall be in writing and shall be personally delivered or mailed by telegraphic, telex or facsimile transmission, reputable overnight courier or first class mail, postage prepaid, as follows:
(a) If to the Agent:
Bank of America, N.A.
_________________
Boston, Massachusetts 02110
Attention: Christopher S. Allen
Title: Senior Vice President
Facsimile No. (617) 434-1297
with a copy to:
James R. Kane, Esq.
Choate, Hall & Stewart LLP
Two International Place
Boston, Massachusetts 02110
Facsimile No.: 617-248-4000
(b) If to Guarantor:
______________________
______________________
______________________
______________________
______________________
Attn: ____________________
Facsimile No.: ____________
or to such other address or addresses as the party to whom such notice is directed may have designated in writing to the other parties hereto. A notice shall be deemed to have been duly given and made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof.
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10. Miscellaneous; Successors; Counterparts; Severability.
(a) This Agreement shall inure to the benefit of and be binding upon the Agent, the Lenders and Guarantor and their respective successors and assigns, and the term "Lender" shall be deemed to include any other holder or holders of any of the Guaranteed Obligations. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which shall be an original, but all of which together shall constitute one instrument. References herein to this "Agreement" shall be deemed references to this Agreement as amended, modified and/or supplemented from time to time.
(b) All covenants under this Agreement shall be given independent effect so that if a particular action or condition is not permitted by any such covenant, the fact that it would be permitted by another covenant, by any exception thereto, or otherwise within the limitations thereof, shall not avoid the occurrence of a Default or Event of Default if such action is taken or such condition exists.
(c) None of the parties to this Agreement shall be deemed to be the drafter of this Agreement, and this Agreement shall not be interpreted in favor of or against any party hereto on such basis.
(d) No claim shall be made by Guarantor against the Lenders or the Affiliates, directors, officers, employees or agents of the Lenders for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or under any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and Guarantor waives, releases and agrees not to sue upon any claim for any such damages.
11. Governing Law; Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT, INCLUDING THE VALIDITY HEREOF AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. GUARANTOR, TO THE EXTENT THAT IT MAY LAWFULLY DO SO, HEREBY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, AS WELL AS TO THE JURISDICTION OF ALL COURTS TO WHICH AN APPEAL MAY BE TAKEN FROM SUCH COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ANY OF ITS OBLIGATIONS HEREUNDER OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY, AND EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY SUCH COURTS. GUARANTOR FURTHER AGREES THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY OF SUCH COURTS SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED PERSON ALLY OR BY CERTIFIED MAIL TO IT AT ITS ADDRESS AS PROVIDED IN SECTION 9 HEREOF OR
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AS OTHERWISE PROVIDED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. GUARANTOR IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING INSTITUTED BY OR AGAINST IT IN RESPECT OF ITS OBLIGATIONS HEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, the parties have executed this Guaranty Agreement as a sealed instrument as of the date first above written.
[_____________________]
By:_______________________________________
Title
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Exhibit 21
Form 10-K Item 15A (3) Exhibit 21
A. T. Cross Company
Subsidiaries, Branches and Divisions
A.T. Cross (Asia Pacific) Limited |
A.T. Cross (Asia Pacific) Limited |
A.T. Cross (Asia Pacific) Limited |
A.T. Cross Benelux B.V. |
A.T. Cross Company |
A.T. Cross Deutschland GmbH |
A.T. Cross Limited |
A.T. Cross Limited |
A.T.X. International, Inc. |
Costa Del Mar Sunglasses, Inc. |
Cross Company of Japan, Ltd. |
Cross Retail Ventures, Inc. |
Exhibit 31.1
FORM OF 302 CERTIFICATION
I, David G. Whalen, certify that:
1. |
I have reviewed this annual report on Form 10-K of A.T. Cross Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting. |
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Date: March 21, 2006 |
DAVID G. WHALEN_____ |
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David G. Whalen |
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President and Chief Executive Officer |
Exhibit 31.2
FORM OF 302 CERTIFICATION
I, Kevin F. Mahoney, certify that:
1. |
I have reviewed this annual report on Form 10-K of A.T. Cross Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting. |
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Date: March 21, 2006 |
KEVIN F. MAHONEY_____ |
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Kevin F. Mahoney |
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Chief Financial Officer |
Exhibit 32
FORM OF 906 CERTIFICATION
The certification set forth below is being submitted in connection with the Annual Report on Form 10-K for the year ended December 31, 2005 (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code.
David G. Whalen, the Chief Executive Officer and Kevin F. Mahoney, the Chief Financial Officer of A.T. Cross Company, each certifies that, to the best of his knowledge:
1. |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
2. |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of A.T. Cross Company. |
Date: March 21, 2006 |
DAVID G. WHALEN_____ |
|
David G. Whalen |
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Chief Executive Officer |
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KEVIN F. MAHONEY____ |
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Kevin F. Mahoney |
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Chief Financial Officer |
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