10-K
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THE TIMBERLAND COMPANY FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 1-9548
THE TIMBERLAND COMPANY
(Exact name of registrant as specified in its charter)
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DELAWARE 02-0312554
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 DOMAIN DRIVE
STRATHAM, NEW HAMPSHIRE 03885
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE, IS (603) 772-9500
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Class A Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Class A Common Stock of the
Registrant held by non-affiliates of the Registrant was approximately
$215,097,724 on March 15, 1995. For purposes of the foregoing sentence
the term "affiliate" includes each director and executive officer of
the Registrant. See Item 12 of this Form 10-K.
8,218,018 shares of Class A Common Stock and 2,735,381 shares of
Class B Common Stock of the Registrant were outstanding on March 15,
1995.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to security holders for
fiscal year ended December 31, 1994 are incorporated by reference in
Part I, Item 1 regarding foreign and domestic sales and Part II, Items
5, 6, 7 and 8 of this Report. Portions of the Registrant's definitive
Proxy Statement for the 1995 Annual Meeting of Stockholders to be filed
pursuant to Regulation 14A are incorporated by reference in Part III
of this Report.
The List of Exhibits appears on page 16 of this Report.
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PART I
ITEM 1. BUSINESS
OVERVIEW
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The Timberland Company was incorporated in Delaware on December 20,
1978, and is the successor to Abington Shoe Company, which was incorporated in
Massachusetts in 1933 (The Timberland Company, together with its subsidiaries,
is referred to herein as "Timberland" or the "Company," unless the context
requires otherwise). The Company designs, develops, manufactures and markets
men's and women's premium quality footwear, apparel and accessories under the
Timberland [Registered] brand. These products are sold primarily through
better-grade department stores and other retail stores in the United
States and in more than 60 countries worldwide. In addition, the Company
sells its products through specialty stores devoted exclusively to
Timberland [Registered] products which are operated by the Company or its
distributors in the United States, Europe, South America, Mexico and Asia and
through specialty stores in Australia and New Zealand owned by its distributor
in the Asia/Pacific region. Timberland also sells its products through
Company-operated factory stores in the United States, France, Germany and
Italy.
The Company has built its product lines to reflect classic rugged
styles which provide durability and quality. In marketing its products, the
Company has consistently emphasized the workmanship and detailing incorporated
into its products, which are designed to provide lasting protection from the
elements.
In early 1994, the Company continued its strategic decision implemented
in late 1993 to gain market share and to improve the price/value proposition
for the consumer by preemptively reducing prices on certain core footwear
products. Effective June 1, 1994, the Company assumed the distribution of its
own products in Italy and acquired certain assets of its Italian distributor.
In January 1995, the Company appointed Inchcape plc as the exclusive
distributor of Timberland products throughout most of the Asia/Pacific region.
This transaction included the sale to Inchcape plc of the Company's Australian
and New Zealand subsidiaries.
CURRENT PRODUCTS
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The Company's two major product categories are footwear (shoes and
boots) and apparel and accessories. The Company increased its sales to $637.5
million in 1994 from $418.9 million in 1993, an increase of 52.2%. During 1994,
net sales attributable to the footwear category totaled $513.5 million, as
compared to $349.5 million and $242.6 million in 1993 and 1992, respectively.
During 1994, net sales attributable to the apparel and accessories category
totaled $124.0 million, as compared to $69.4 million and $48.8 million in 1993
and 1992, respectively.
FOOTWEAR
In 1973, the first pair of waterproof "minibuck" leather boots under
the Timberland brand were produced. The Company currently offers a variety of
styles of boots for men and women, including classic work and sporting boots,
hiking boots and lightweight trail boots. The Company also offers men's and
women's shoes featuring handsewn construction, premium waterproof leather,
water resistant fabric uppers and selected use of waterproof fabric bootie
construction,
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as well as performance sandals for men and women. The Company's shoes are
based on classic styling and are designed for durability. In 1994, the Company
introduced a variety of new styles in each of its men's and women's lines of
boots and shoes, including its collection of weatherbucks, loafers, handsewn
casuals, boat shoes, bush hikers, performance sandals, weather boots and other
rugged casual styles.
During 1994, the Company also introduced a new line of footwear
products under the Timberland Work Division. These insulated, rugged boots,
some with steel-toed safety construction, are designed to fit the needs of
construction workers, carpenters, assembly-line workers and skilled workers in
other crafts and trades who require durable and comfortable footwear in their
work environments. Timberland [Registered] Work boots are currently sold in
the United States through leading consumer product retailers like J.C. Penney
and Sears.
In January 1995, the Company introduced its Active Comfort
Technology [trademark] (ACT [trademark]), a comfort system that combines
specially selected materials in a proprietary way that is designed to
aggressively wick moisture away from the skin to keep feet warm and dry.
The ACT system has been initially incorporated into the Company's high
performance hunting boots and is expected to be introduced into other
performance and core footwear products starting in the spring of 1996.
APPAREL AND ACCESSORIES
Timberland offers premium quality apparel, consisting of rugged
outerwear, sweaters, shirts, pants, shorts and skirts. Incorporated into such
products are premium waterproof leathers, waterproof fabric, rust-proof
hardware, canvas, denim, high quality specialty cotton, wool and other quality
performance materials. During 1994, the Company expanded its men's line of
rugged apparel to coordinate better with the Company's line of outerwear and
expanded its women's line of apparel to incorporate a broader range of colors,
fabrics and styles.
Timberland's accessories collection consists of luggage, briefcases,
handbags, belts, caps, hats, gloves and socks. For 1994, introductions in the
accessories collection included an expanded line of waterproof leather
handbags, travel bags and small leather goods.
TIMBERLAND'S STRATEGY
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During 1994, the Company pursued its strategy for growth by
capitalizing on its core business and continuing to expand its domestic and
international presence through building increased consumer awareness of the
Timberland [Registered] brand. Timberland believes its integrated
brand approach, which is based on showcasing Timberland brand apparel and
accessories together with its footwear products in specialty stores and concept
shops and corners, contributes to this strategy for growth. Specialty stores,
which are operated by the Company or its distributors, sell only major product
categories of Timberland [Registered] products. Concept shops or corners, which
are operated by third-parties, are areas of stores dedicated exclusively to the
presentation, merchandising and sale of Timberland products.
The Company continued to promote consumer demand for its products in
1994 through advertising campaigns which emphasized the workmanship and
detailing of its footwear, apparel and accessories and the protection these
products offer against the elements. Timberland believes
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that the premium quality, durability, functionality and classic styling of
its products, combined with its reputation for high-performance products and
increased consumer awareness of the Timberland [Registered] brand,
will continue to increase consumer demand for its products.
Advertising through print and television campaigns is used to present
Timberland as an integrated, world-class source of quality footwear, apparel
and accessories for the rugged outdoors. The Company reinforces this
advertising with a variety of in-store promotions, point-of-purchase displays,
a cooperative advertising program with its retailers, as well as retail
sales employee training programs focused on product knowledge, selling skills
and visual merchandising.
In the first half of 1994, the Company continued to reduce prices on
certain core footwear to improve the price/value proposition for the consumer
and to increase market share. The Company is currently evaluating the balance
between manufacturing its own products and utilizing independent manufacturing
alternatives to reduce costs while providing the consumer with premium quality
footwear at the best prices. See "Business--Manufacturing."
The Company intends to continue its growth through a combination of
internal development and the development of business relationships with
independent manufacturers, suppliers, distributors and retailers capable of
reinforcing the Company's image and standards. The Company may, from time to
time, consider the possibility of acquiring other companies which produce or
distribute quality footwear, apparel, accessories or related products which
complement the Company's existing product lines.
DISTRIBUTION
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UNITED STATES OPERATIONS
In 1994, 1993 and 1992, the Company generated 74%, 71% and 63%,
respectively, of its net sales in the United States. The Company's
strategy is to distribute its products through specialty stores and through
retailers who reinforce the Timberland image of quality, performance and
service. The Company's customer accounts within the United States range from
better-grade department stores and retail stores to sporting goods stores,
marinas and specialty retailers. The Company services these accounts through
a combination of field and corporate-based sales teams.
The Company has six showrooms servicing its wholesale customers. The
Company's principal showroom is located on Fifth Avenue in New York City. Its
regional showrooms are located in Atlanta, Chicago, Dallas, Denver and Seattle.
In 1994, the Company's domestic retail operations accounted for 9%
of net sales, compared to 8% in 1993 and 10% in 1992. The Company operates
15 Timberland [Registered] specialty stores located in Atlanta; Boston;
Chestnut Hill, Massachusetts; Chicago; Dallas; Newport, Rhode Island; New
York City; White Plains, New York; Los Angeles; San Francisco; Sausalito,
California; Farmington, Connecticut; St. Louis; Short Hills, New Jersey; and
Washington, D.C. The Company opened the specialty stores in Atlanta, Chestnut
Hill, St. Louis, Farmington, Los Angeles and Short Hills during 1994 and the
specialty store in
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White Plains in early 1995. All of the Company's specialty stores showcase
the Timberland [Registered] brand as an integrated source of footwear,
apparel and accessories. These stores also provide sales and consumer-trend
information which assist the Company in developing its marketing strategies,
including point of purchase materials. In addition, the training and customer
service programs established in the Company's specialty stores serve as a model
which may be adopted by the Company's other retail accounts. The Company also
operates 19 factory stores located in the United States which typically sell
factory-second and close-out product offerings to the public.
The Company carries material amounts of inventory in order to meet
delivery and any other requirement of its customers. At December 31, 1994, the
Company's inventory levels were $218.2 million, compared to $111.4 million at
December 31, 1993. Generally, inventory levels were higher in 1994 than in 1993
to meet a higher level of sales. However, the Company's inventory positions
were higher than anticipated because of sales growing at a slower rate than the
Company had expected and the Company's misforecasting of specific customer
demand at the unit product level. A majority of this inventory consists of
classic Timberland [Registered] models in oversupply that the Company expects
will be sold in the normal course of business.
The Company maintains distribution facilities in Portsmouth and
Hampton, New Hampshire; Wilmington, Massachusetts; and Danville, Kentucky. The
Danville distribution facility was established in 1994. Currently, orders are
filled primarily from the Company's Hampton, Wilmington and Danville
distribution facilities. The Company's distribution strategy is to control its
points of distribution in order to reduce costs and increase responsiveness to
consumer demand in the long-term.
INTERNATIONAL OPERATIONS
In 1994, international sales accounted for 26% of Timberland's net
sales, compared to 29% in 1993 and 37% in 1992. Timberland sells its products
internationally through distributors, commission agents and six of its
subsidiaries. The Company's subsidiaries located in England, France, Germany,
Spain and Austria and its domestic subsidiary servicing Italy provide sales,
administrative and, in certain instances, warehousing support for the sale of
Timberland [Registered] products to retailers in their respective
countries and, in certain instances, to distributors and commission agents in
other countries. These subsidiaries also operate seven Timberland [Registered]
specialty stores located in London; Milan; Munich; Dusseldorf; Vienna; Paris;
and Lyon, France and three factory stores in Vallauris, France; Baierbrunn,
Germany; and Pero, Italy. Additionally, the Company grants licenses to
operate specialty stores to certain third parties. Retail distribution of the
Company's products internationally also occurs through better-grade department
stores and other retail stores.
During 1994, the Company entered into a Distributorship Termination
Agreement with its Italian distributor, pursuant to which the Company
terminated the distributor's distribution rights and acquired certain of the
distributor's assets. Timberland assumed the distribution of its own products
in Italy effective June 1, 1994.
On January 26, 1995, the Company appointed Inchcape plc as the
exclusive distributor and retailer of Timberland [Registered] products
throughout most of the Asia/Pacific region for a ten-year term. The
transaction also included Inchcape's acquisition of Timberland's Australian and
New Zealand subsidiaries and future consideration provided to Inchcape for a
total sum of $24 million. The eight Timberland specialty stores and
departments leased in retail stores located in Australia and New Zealand are
owned and operated by Inchcape plc effective January 26, 1995.
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Reference is hereby made to the information set forth in footnote 10,
entitled "Industry Segment and Geographical Area Information," appearing in the
Company's 1994 Annual Report to Stockholders, which information is incorporated
herein by reference.
ADVERTISING AND MARKETING
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The Company's advertising campaigns are designed to increase consumer
brand awareness and emphasize that Timberland offers an integrated brand of
footwear, apparel and accessories products that provide lasting protection from
the elements. During 1994, the Company promoted the high quality, classic
rugged style, durability and functionality of its products through national and
regional advertising campaigns. On a national level, advertisements that
featured the ability of the Company's products to perform under extreme
conditions were placed in various active-lifestyle and sports-focused
periodicals. In addition, advertisements designed to motivate consumers'
social conscience and increase brand loyalty were featured in various national
periodicals.
The Company's regional and trade publications advertising campaigns
were built on the foundation of the national advertising campaigns and featured
advertisements in print media that emphasized the value of purchasing authentic
Timberland [Registered] products rather than products that attempt to imitate
Timberland's style and design or products that focus more on fashion trends
than on performance.
Internationally, the Company participates in a variety of direct and
cooperative advertising efforts. This advertising uses and adapts for the
international markets many of the same promotional themes that are used in the
United States.
In September 1994, the Company announced that it would no longer be the
principal sponsor of the Iditarod [Registered] sled dog race due to changing
business priorities. Currently, the Company supports programs dedicated to the
responsible care and humane treatment of dogs, particularly sled dogs.
Timberland continues to test its products in association with the
members of Team Timberland. Team Timberland consists of a select group of
individuals who support the Timberland Mission and--through either their
adventures facing the elements, athletic performance or civic activities--
serve as educational role models for making a positive difference in the
community and improving the environment in which we live.
SEASONALITY
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In 1994, as has traditionally been the case, the Company's sales were
higher in the last two quarters of the year than in the first two quarters.
The Company expects this sales trend to continue in 1995.
BACKLOG
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At December 31, 1994, Timberland's backlog of orders from its customers
was approximately $132 million, compared to $69 million at December 31, 1993.
While all orders in
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the backlog are subject to cancellation by customers, the Company expects that
the majority of such orders will be filled in 1995. The Company does not
believe that its backlog of orders at year end is representative of the orders
which will be filled during 1995 due to the shift towards "at once orders"
being adopted by many retailers.
MANUFACTURING
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During 1994, approximately 60% of the Company's footwear unit
volume was manufactured in the Company's leased facilities in
Tennessee, North Carolina, Puerto Rico and the Dominican Republic,
compared to 70% during 1993. The remainder of the Company's footwear unit
volume and all of its apparel and accessories were sourced from independent
manufacturers in Asia, Central America and the Caribbean, Europe, North America
and South America. The Company believes that utilizing independent
manufacturers provides greater production capacity and flexibility.
During 1994, the Company continued certain cost savings programs
implemented in 1993, such as modular manufacturing, to enhance materials
management and to reduce manufacturing cycle times. The Company believes that
further cost reductions can be obtained through better management of its
raw materials purchasing and with increased utilization of independent
manufacturers. The Company currently plans to retain an internal manufacturing
capability to continue to benefit from the experience and expertise it has
gained with respect to its manufacturing and research, design and development
activities conducted in connection with its manufacturing. The Company is
currently evaluating its manufacturing facilities and independent manufacturing
alternatives to determine the appropriate size and scope of its manufacturing
facilities to be more effective in delivering quality merchandise efficiently.
To the extent the Company manufactures outside the United States or is
dependent upon foreign operations with unaffiliated parties, the Company is
subject to the usual risks of doing business abroad. These risks potentially
include United States import restrictions, anti-dumping investigations,
political or labor disturbances, expropriation, acts of war and other similar
risks.
RAW MATERIALS
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The Company purchases its raw materials from a number of domestic and
foreign sources. In 1994, the Company increased its utilization of foreign
sources for supply of quality leather to reduce costs and to diversify its raw
materials purchases. Based on its experience, the Company expects to
consolidate its raw materials purchasing to fewer suppliers in 1995 than
in 1994. The Company has no reason to believe that leather will not continue
to be available from existing or alternative sources.
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TRADEMARKS AND TRADE NAMES; PATENTS; RESEARCH & DEVELOPMENT
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The Company's principal trade name is The Timberland Company and the
Company's principal trademarks are Timberland and [TREE LOGO], which have been
registered in the United States and in certain foreign countries. Other
Company trademarks or registered trademarks are HydroTech; Weathergear; More
Quality Than You May Ever Need; Where Is Your Outdoors?; Active Comfort
Technology; ACT; Toporelief; Topozoic; Boots, Shoes, Clothing, Wind, Water,
Earth & Sky; Wind, Water, Earth & Sky; Elements; Nothing Can Stop You; [GEAR
LOGO]; TBL 30; Timberland 1049; Trail Grip; and Tims. The Company regards its
trade name and trademarks as valuable assets and believes that they are
important factors in marketing its products, particularly in the case of the
Timberland [Registered] brand, which is essential to the Company's integrated
brand strategy. It is the policy of the Company to protect and defend
vigorously its trade name and trademarks against infringement under the laws of
the United States and other countries. In addition, the Company seeks to
protect and defend vigorously its patents, designs, copyrights and all other
proprietary rights under applicable laws.
The Company conducts research, design and development efforts for its
footwear, apparel and accessories. During 1994, the Company established an
advanced research, design and development team to create and bring new
concepts from the design stage to the marketplace in an expedient manner.
While Timberland considers itself a leader in product innovation, its expenses
relating to research, design and development have not represented a material
expenditure relative to other expenses of the Company.
Timberland tests a number of its products under actual field conditions
to evaluate performance characteristics, including testing by members of Team
Timberland. Through these and other relationships, Timberland is able to
measure the performance of its products in the outdoors and to obtain ideas for
improving its products' performance based upon the experience and
competitive needs of these athletes.
COMPETITION
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The Company does not believe that it has any major competitors who offer
a full complement of footwear, apparel and accessories which provide the same
quality and performance as Timberland's integrated brand. The Company does,
however, have a variety of separate major competitors in sales of its separate
lines of footwear, apparel and accessories.
The Company's footwear lines are marketed in a highly competitive
environment, and the footwear industry is subject to rapid changes in consumer
preference. Although the footwear industry is fragmented to a great degree,
many of the Company's competitors are larger and have substantially greater
resources than the Company, including athletic shoe companies, many of which
compete directly with the Company's products. In addition, the Company faces
competition from retailers that are establishing products under private labels
which compete with the Company's products.
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The Company has at least five major competitors in classic boot sales,
at least four major competitors in sport boot sales and at least six major
competitors in hiking boot and performance sandal sales. Boat shoes
produced by the Company face competition from at least five companies and other
casual shoes produced by the Company face competition from at least eight other
companies. The Company's major competitors for its footwear products
are located principally in the United States. Internationally, the Company
faces competition from many manufacturers of footwear. As in the United
States, some of these manufacturers attempt to imitate the Company's
styles.
The Company's line of men's apparel faces competition from at least
three major apparel companies in the United States and from a variety of major
apparel companies internationally. The Company's line of women's apparel faces
competition from at least four major apparel companies in the United States and
from several major apparel companies internationally.
The Company's men's and women's lines of footwear and apparel also face
competition from at least two direct mail companies in the United States.
The Company's accessories line faces competition from at least seven
major companies in the United States and from several major accessories
companies internationally.
Product performance and quality, including continuing technological
improvements, product identity through marketing and promotion, and product
design, styling and pricing are all important elements of competition in the
footwear, apparel and accessories markets served by the Company. Although
changing fashion trends generally affect demand for particular footwear,
apparel and accessories products, the Company believes that, because
Timberland [Registered] products are designed primarily for functionality and
performance, demand for Timberland products is less sensitive to changing
trends in fashion than is demand for other products that are designed
specifically to meet such trends.
ENVIRONMENTAL MATTERS
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Compliance with federal, state and local environmental regulations have
not had, nor are they expected to have, any material effect on the capital
expenditures, earnings or competitive position of the Company.
EMPLOYEES
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As of December 31, 1994, the Company had approximately 6,700 employees
worldwide. Management considers its employee relations to be good. None of
the Company's employees is represented by a labor union, and the Company has
never suffered a material interruption of business caused by labor
disputes.
ITEM 2. PROPERTIES
The Company owns a facility in Hampton, New Hampshire which served as the
Company's headquarters until November 1994 and currently is used for
warehousing and distribution of certain of the Company's products. In
connection with the purchase financing for such property, industrial revenue
bonds are outstanding in the principal amount of $5,345,000.
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These bonds are due in 2014 and bear interest at 6.20% through 1999
and thereafter at rates adjusted every five years, through maturity. These
bonds are collateralized by a mortgage on such real estate and by a security
interest on assets located there.
The Company also leases facilities in Danville, Kentucky and
Wilmington, Massachusetts, for the distribution of certain products, under
lease agreements which expire in January 1999 and April 1996, respectively.
In April 1994, the Company entered into a lease for property in Stratham,
New Hampshire, that has served, since November 1994, as its principal
executive offices. This lease expires in July 1999, with options to
extend the expiration. The Company considers its current headquarters
facilities adequate and suitable for its present needs. The Company leases
its production facilities, which are located in Mountain City, Tennessee;
Boone, North Carolina; Isabela, Puerto Rico; and Santiago, Dominican Republic.
These production facilities are occupied under 13 leasing arrangements which
expire at various times from November 1995 to February 1998. The Company is
currently evaluating the suitability of its production facilities for its
present and future needs. See "Business--Manufacturing."
The Company leases 15 domestic specialty stores, seven international
specialty stores, six domestic showrooms, 19 domestic factory stores, and
three international factory stores. See "Business--Distribution."
The Company's subsidiaries also lease office and warehouse spaces to meet
their individual requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various litigation and legal matters, including
United States customs claims, which have arisen in the ordinary course of
business. Management believes that the ultimate resolution of any existing
matter will not have a material adverse effect on the Company's financial
statements.
On June 21, 1994, the plaintiff in the stockholder lawsuit filed on
February 15, 1994, against the Company and one of its officers, agreed
voluntarily to withdraw the action, and the case was dismissed.
The Company and two of its officers and directors have been named as
defendants in two actions filed in the United States District Court for the
District of New Hampshire, one filed by Jerrold Schaffer on December 12, 1994,
and the other filed by Gershon Kreuser on January 4, 1995. The suits, which
are each brought by purchasers of the Company's Class A Common Stock ("Common
Stock"), allege that the defendants violated the federal securities laws by
making material misstatements and omissions in the Company's public filings and
statements in 1994. Specifically, the complaints allege that such statements
and omissions had the effect of artificially inflating the market price for the
Company's Common Stock until the disclosure by the Company on December 9, 1994,
of its expectation that results for the fourth quarter were not likely to meet
analysts' anticipated levels. The suits seek class action status, with the
SCHAFFER complaint embracing all purchasers of the Company's Common Stock
between October 25, 1994 and December 9, 1994, and the KREUSER
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complaint including such purchasers between February 15, 1994 and December 9,
1994. Damages are unspecified. The plaintiffs have filed a motion, assented
to by the defendants, to consolidate the two suits. The motion is pending
before the District Court.
While each action is in its preliminary stages, based on an initial
review, and after consultation with counsel, management believes the
allegations are without merit. Accordingly, management does not expect the
outcome of such litigation to have a material adverse effect on the financial
statements. The Company intends to defend these proceedings vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders through the solicitation of
proxies or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is submitted as to the executive officers of the
Company:
NAME AGE POSITION
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Sidney W. Swartz 59 Chairman of the Board, President, Chief Executive
Officer and Director
Jeffrey B. Swartz 35 Executive Vice President, Chief Operating Officer and Director
Keith D. Monda 48 Senior Vice President-Finance and Administration and Chief Financial Officer
Edmund J. Feeley 34 Senior Vice President-General Manager Footwear
Don S. Maurer 40 Senior Vice President-Worldwide Marketing
Gregory W. VanWormer 39 Senior Vice President-General Manager Apparel
Kenneth A. Snyder 47 Senior Vice President-Footwear Sales
Dennis W. Hagele 51 Vice President-Finance and Corporate Controller
(Chief Accounting Officer)
Jane E. Owens 41 Vice President and General Counsel
All executive officers serve at the discretion of the Board of Directors.
Sidney W. Swartz has served the Company as Chairman of the Board, Chief
Executive Officer and President since June 1986 when he and his family trust
became the then sole
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stockholders of the Company. During the prior 20 years, Mr. Swartz, as the
owner of 50% of the Company, was responsible for the manufacturing, marketing,
distribution and financial aspects of the Company.
Jeffrey B. Swartz has served the Company as Executive Vice President since
March 1990 and Chief Operating Officer since May 1991. From June 1986 to
February 1990, Mr. Swartz served the Company in a variety of positions,
including Senior Vice President of International Operations, Vice
President-Operations/Manufacturing, Vice President-International and General
Manager of International Business. Jeffrey Swartz is the son of Sidney W.
Swartz.
Keith D. Monda joined the Company in December 1993 as Senior Vice
President-Finance and Administration and Chief Financial Officer. From May
1990 to December 1993, Mr. Monda was Executive Vice President of Finance and
Administration of J. Crew Group, Inc.; from July 1989 to May 1990, he was
Senior Vice President and Chief Financial Officer of Bunge Corporation (an
integrated food company); and from April 1986 to July 1989, he was Vice
President of Finance and Chief Financial Officer of the Chemical Division of
Pfizer, Inc.
Edmund J. Feeley joined the Company in February 1993 as Senior Vice
President-Manufacturing and Operations. Effective January 1, 1995, Mr. Feeley
became Senior Vice President-General Manager Footwear. From May 1990 to
January 1993, Mr. Feeley was a Principal of Booz, Allen and Hamilton, a general
management and consulting firm, where he had also been a Senior Associate
from May 1987 to April 1990.
Don S. Maurer joined the Company in June 1994 as Senior Vice
President-Worldwide Marketing. From July 1991 to May 1994, Mr. Maurer was
Senior Vice President and Director of Account Management of Mullen Advertising,
which has been Timberland's advertising and public relations agency since 1988.
From October 1989 to July 1991, Mr. Maurer was the Senior Vice President,
Director of Client Services for Margeotes, Fertitta and Weiss, New York.
Gregory W. VanWormer joined the Company in May 1994 as Senior Vice
President-Retail. Effective January 1, 1995, Mr. VanWormer became Senior
Vice President-General Manager Apparel. From August 1991 to April 1994, Mr.
VanWormer was the Vice President-General Merchandise Manager of G.H. Bass &
Co.; and from June 1988 to June 1991, he held the following positions with
C.M.L. Inc.: Vice President-General Merchandise Manager of Carroll Reed (a
retail company); and President of The Gokey Company (a retail, catalog and
manufacturing company).
Kenneth A. Snyder joined the Company in June 1990 as Divisional Vice
President of Domestic Sales. In February 1991, Mr. Snyder assumed the office
of Senior Vice President-Domestic Sales. Effective January 1, 1995, Mr. Snyder
became Senior Vice President-Footwear Sales. From October 1989 to May 1990,
Mr. Snyder was Vice President of Sales of New Balance Athletic Company; and
from November 1988 to September 1989, he was Vice President of Sales of Stride
Rite Corporation.
Dennis W. Hagele joined the Company in October 1994 as Vice President-
Finance and Corporate Controller (Chief Accounting Officer). From July 1993
to September 1994, Mr. Hagele was an independent financial consultant; and
from August 1981 to June 1993, he was Assistant Controller of Sara Lee
Corporation.
13
Jane E. Owens joined the Company in September 1992 as Vice President and
General Counsel. From June 1990 to August 1992, Ms. Owens was Counsel for
Reebok International Ltd.; and from March 1988 to June 1990, she was a partner
in the law firm of Gaston & Snow.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this item is included in the Registrant's
1994 Annual Report to Stockholders under the caption "Quarterly Market
Information and Related Matters" and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Registrant's
1994 Annual Report to Stockholders under the caption "Five Year Summary of
Selected Financial Data" and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is included in the Registrant's
1994 Annual Report to Stockholders under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in the Registrant's
1994 Annual Report to Stockholders and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information set forth under the caption,
"Executive Officers of the Registrant," in Item 4A of Part I of this report and
to information under the caption, "Information with Respect to Nominees" in the
Registrant's definitive proxy statement (the "Registrant's 1995 Proxy
Statement") relating to its 1995 Annual Meeting of Stockholders, to be filed
with the Commission within 120 days after the close of the Registrant's
fiscal year ended
14
December 31, 1994, which information is incorporated herein by reference.
Reference is also made to the information set forth in the Registrant's 1995
Proxy Statement with respect to compliance with Section 16(a) of the Exchange
Act, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption
"Executive Compensation," in the Registrant's 1995 Proxy Statement, which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the caption,
"Security Ownership of Certain Beneficial Owners and Management," in the
Registrant's 1995 Proxy Statement, which information is incorporated herein by
reference. For purposes of calculating the aggregate market value of the Class
A Common Stock on March 15, 1995, the shares owned by The Sidney W. Swartz 1982
Family Trust, The Swartz Foundation and The Sidney and Judith Swartz Charitable
Remainder Unitrust have not been considered to have been owned by an affiliate.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth under the caption,
"Certain Relationships and Related Transactions," in the Registrant's 1995
Proxy Statement, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
List of Financial Statements and Financial Statement Schedules.
(a)(1) Financial Statements. The following financial statements
appearing in the Company's Annual Report to Stockholders for the year ended
December 31, 1994, are incorporated by reference in this Form 10-K:
ANNUAL REPORT
PAGE
----
Independent Auditors' Report 16
Consolidated Balance Sheets as of December 31, 1994, 17
and December 31, 1993
15
For the years ended December 31, 1994, 1993 and 1992:
Consolidated Statements of Income 18
Consolidated Statements of Changes in Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
(a)(2) Financial Statement Schedules. The following additional financial
data should be read in conjunction with the Consolidated Financial Statements in
the Registrant's 1994 Annual Report to Stockholders:
FORM 10-K
PAGE
----
Report of Independent Public Accountants on Schedule F-1
Schedule VIII - Valuation and Qualifying Accounts F-2
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and have
therefore been omitted.
(b) No reports on Form 8-K were filed by the Company during the fourth
quarter of 1994.
(c) Listed below are all the Exhibits filed as part of this Report, some
of which are incorporated by reference from documents previously filed by
the Company with the Securities and Exchange Commission in accordance with
the provisions of Rule 12b-32 of the Securities Exchange Act of 1934, as
amended.
16
Exhibit Description
------- -----------
(3) Articles of incorporation and by-laws
3.1 Restated Certificate of Incorporation (1)
3.2 By-Laws, as amended February 19, 1993 (5)
(4) Instruments defining the rights of security holders, including indentures
(See also Exhibits 3.1 and 3.2)
4.1 Specimen stock certificate for shares of the Company's Class
A Common Stock (3)
(10) Material contracts
10.1 Agreement dated as of August 29, 1979
between The Timberland Company and
Sidney W. Swartz (1)
10.2 The Company's 1987 Stock Option Plan, as
amended September 10, 1993 (5)
10.3 The Company's 1991 Employee Stock
Purchase Plan (2)
10.4 The Company's 1991 Stock Option Plan
for Non-Employee Directors (3)
10.5 (a) The Timberland Company Long Term Incentive
Plan for Senior Management (5)
(b) The Timberland Company Long Term Incentive
Guidelines, filed herewith
10.6 The Timberland Company Annual Bonus Plan
for Exempt Employees (5)
10.7 The Timberland Retirement Earnings 401(k)
Plan and Trust Agreements, dated as of
February 1, 1991 (3)
10.8 The Timberland Company Profit Sharing Plan
and Trust Agreements, dated as of
January 1, 1991 (3)
17
EXHIBIT DESCRIPTION
------- -----------
10.9 (a) Lease dated March 23, 1987 between
The Outdoor Footwear Company and
Corporation Sublistatica, S.A. (1)
(b) Lease dated January 11, 1993 between
Thomas M. Moulton, Trustee of the
Fairview Nominee Trust, and The
Timberland Company (4)
(c) Lease dated January 11, 1993 between
Thomas M. Moulton, Trustee of the
Fairview Nominee Trust, and The
Timberland Company (4)
(d) Lease dated November 21, 1988 between
745 Associates and The Timberland
Company (4)
(e) (i) Lease dated July 20, 1992 among Louise
Minges, Mitchell Minges and
The Timberland Company (4)
(ii) Amendment dated July 16, 1993 to lease
dated July 20, 1992 among Louise Minges,
Mitchell Minges and The Timberland Company (5)
(f) Lease dated January 3, 1984 between the
Industrial Development Board of the County
of Johnson, Tennessee and The Timberland
Company, and subsequent amendments (4)
(g) Lease dated March 31, 1981 between the
Puerto Rico Industrial Development Company
and The Timberland Company (4)
(h) Lease dated September 7, 1992 between
Corporacion Zona Franca Industrial
De Santiago, Inc. and The Recreational
Footwear Company (4)
(i) Lease dated December 2, 1992 between
Corporacion Zona Franca Industrial
De Santiago, Inc. and The Recreational
Footwear Company (4)
(j) Lease dated as of February 1, 1994 between
Melville Corporation and The Timberland
Company (5)
18
EXHIBIT DESCRIPTION
------- -----------
(k) Lease dated as of June 29, 1993 between
Timberland Dominicana, S.A. and Santiago
Norte, S.A. (Pisano) Industrial Park (5)
(l) Lease dated as of November 30, 1993 between
Timberland Dominicana, S.A. and Santiago
Norte, S.A. (Pisano) Industrial Park (5)
(m) Lease dated as of December 16, 1993 between
Timberland Dominicana, S.A. and Santiago
Norte, S.A. (Pisano) Industrial Park (5)
(n) Lease dated March 8, 1993 between Watauga
Committee of 100, Inc. and The Timberland
Company (5)
(o) Lease dated as of March 31, 1993 between
Talbot Operations, Inc. and The Timberland
Company (5)
(p) (i) Sublease dated March 31, 1994 between
Hewlett-Packard Company and The Timberland
Company (6)
(ii) First Amendment, dated July 15, 1994,
of Sublease dated March 31, 1994, filed herewith
10.10 Amended and Restated Note Agreements dated
as of April 1, 1994 regarding $35,000,000 9.70%
Senior Notes due December 1, 1999 (6)
10.11 Termination of Credit Agreement among The
Timberland Company, certain banks and
Chase Manhattan Bank, N.A. as Agent, dated as of
December 15, 1994, filed herewith
10.12 Note Agreements dated as of April 1, 1994 regarding
$65,000,000 7.16% Senior Notes due April 15, 2000 (6)
10.13 (a) Credit Agreement dated as of May 4, 1994 among
The Timberland Company, certain banks listed
therein and Morgan Guaranty Trust Company of
New York, as Agent (6)
19
EXHIBIT DESCRIPTION
------- -----------
(b) Amendment No. 1 to Credit Agreement dated
December 15, 1994, filed herewith
10.14 Note Agreement dated as of December 15, 1994
regarding $106,000,000 8.94% Senior Notes
due December 15, 2001, filed herewith
(13) Annual Report to security holders
13. Portions of 1994 Annual Report to Stockholders as
incorporated herein by reference, filed herewith
(21) Subsidiaries
21. List of subsidiaries of the Registrant, filed herewith
(23) Consent of experts and counsel
23. The Consent of Deloitte & Touche LLP to the
incorporation by reference of their report included in
Registrant's 1994 Annual Report to Stockholders,
filed herewith
(27) Financial Data Schedule
27. Financial Data Schedule, filed herewith
20
------------------------
(1) Filed as an exhibit to Registration Statement on Form S-1, numbered
33-14319, and incorporated herein by reference.
(2) Filed on July 9, 1991, as an exhibit to Registration Statement on
Form S-8, numbered 33-41660, and incorporated herein by reference.
(3) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal
year-ended December 31, 1991, and incorporated herein by reference.
(4) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal
year-ended December 31, 1992, and incorporated herein by reference.
(5) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal
year-ended December 31, 1993, and incorporated herein by reference.
(6) Filed as an exhibit to the Quarterly Report on Form 10-Q for the fiscal
period ended July 1, 1994, and incorporated herein by reference.
21
Pursuant to paragraph 4(iii) of Item 601, Regulation S-K, the Registrant has
filed as Exhibits only the instruments defining the rights of holders of
long-term debt of the Registrant and its consolidated subsidiaries with respect
to which the total amount of securities authorized thereunder exceeds 10% of
the total assets of the Registrant and its subsidiaries on a consolidated
basis. The Registrant agrees to furnish to the Commission upon its request
copies of other instruments defining the rights of holders of long-term debt of
the Registrant and its subsidiaries, with respect to which the total amount
does not exceed 10% of such assets. The Registrant also agrees to furnish to
the Commission upon its request copies of any omitted schedule or exhibit to
any Exhibit filed herewith.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE TIMBERLAND COMPANY
March 29, 1995 By: /S/ Sidney W. Swartz
----------------------------
Sidney W. Swartz, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
-------------------------------------------------------------------------------------
Chairman of the Board, President,
/S/ Sidney W. Swartz Chief Executive Officer and Director March 29, 1995
------------------------ (Principal Executive Officer)
(Sidney W. Swartz)
Executive Vice President, Chief
/S/ Jeffrey B. Swartz Operating Officer and Director March 29, 1995
------------------------
(Jeffrey B. Swartz)
Senior Vice President-Finance
and Administration and Chief
/S/ Keith D. Monda Financial Officer March 29, 1995
------------------------
(Keith D. Monda)
Vice President and Corporate Controller
/S/ Dennis W. Hagele (Chief Accounting Officer) March 29, 1995
------------------------
(Dennis W. Hagele)
/S/ Robert M. Agate Director March 29, 1995
------------------------
(Robert M. Agate)
/S/ John F. Brennan Director March 29, 1995
------------------------
(John F. Brennan)
/S/ Abraham Zaleznik Director March 29, 1995
------------------------
(Abraham Zaleznik)
23
Item 14(d)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of The Timberland Company:
We have audited the consolidated financial statements of The Timberland
Company as of December 31, 1994 and 1993, and for the three years in the period
ended December 31, 1994, and have issued our report thereon dated February 9,
1995; such consolidated financial statements and report are included in your
1994 Annual Report to Stockholders and are incorporated herein by reference.
Our audits also included the consolidated financial statements schedule of
The Timberland Company, listed in Item 14. This financial schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such consolidated 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.
/S/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 9, 1995
F-1
24
SCHEDULE VIII
THE TIMBERLAND COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Additions
Balance at ----------------------------------- Deductions Balance at
Beginning Charged to Costs Charged to Net End
of Period and Expenses Other Accounts Write-Offs of Period
--------- ---------------- -------------- ----------- ----------
Description
-----------
Allowance for
doubtful accounts:
Year ended
December 31, 1994 $1,014 $1,938 - $248 $2,704
December 31, 1993 1,821 1,131 - 1,938 1,014
December 31, 1992 1,675 1,374 - 1,228 1,821
Group insurance
reserve:
Year ended
December 31, 1994 $1,319 $7,983 - $7,492 $1,810
December 31, 1993 1,401 5,752 - 5,834 1,319
December 31, 1992 1,127 3,946 - 3,672 1,401
-------------------------------------------------------
F-2
25
Timberland;[Tree Logo]; HydroTech; Weathergear; More Quality Than You May Ever
Need; Where Is Your Outdoors?; Active Comfort Technology; ACT; Toporelief;
Topozoic; Boots, Shoes, Clothing, Wind, Water, Earth & Sky; Wind, Water, Earth
& Sky; Elements; Nothing Can Stop You;[Gear Logo]; TBL 30; Timberland 1049;
Trail Grip; and Tims are trademarks or registered trademarks of The Timberland
Company.
Iditarod is a registered trademark of the Iditarod Trail Committee, Inc.
[Copyright]The Timberland Company 1995
All Rights Reserved.
26
EXHIBIT INDEX
(10) Material contracts
10.5 (b) The Timberland Company Long Term Incentive
Guidelines, filed herewith
10.9 (p) (ii) First Amendment, dated July 15, 1994, of
Sublease dated March 31, 1994, filed herewith
10.11 Termination of Credit Agreement among The
Timberland Company, certain banks and
Chase Manhattan Bank, N.A. as Agent, dated as of
December 15, 1994, filed herewith
10.13 (b) Amendment No. 1 to Credit Agreement dated
December 15, 1994, filed herewith
10.14 Note Agreement dated as of December 15, 1994
regarding $106,000,000 8.94% Senior Notes
due December 15, 2001, filed herewith
(13) Annual Report to security holders
13. Portions of 1994 Annual Report to Stockholders as
incorporated herein by reference, filed herewith
(21) Subsidiaries
21. List of subsidiaries of the Registrant, filed herewith
(23) Consent of experts and counsel
23. The Consent of Deloitte & Touche LLP to the
incorporation by reference of their report included in
Registrant's 1994 Annual Report to Stockholders, filed
herewith
(27) Financial Data Schedule
27. Financial Data Schedule, filed herewith
EX-10.5B
2
LONG TERM INCENTIVE GUIDELINES
1
Exhibit 10.5(b)
LONG TERM INCENTIVE GUIDELINES
------------------------------
The following Long Term Incentive Guidelines have been established to reward
The Timberland Company's (the "Company") senior management team members through
the award of stock options pursuant to the Company's 1987 Stock Option Plan.
- Employees eligible to receive stock options pursuant to these Guidelines will
include (i) the Chief Executive Officer and the Chief Operating Officer of
the Company; (ii) those employees of the Company who hold the title Senior
Vice President; (iii) those employees of the Company who hold the title Vice
President or who are Vice President level executive officers (i.e., job
grade 9); and (iv) such other employees, if any, of the Company or its
subsidiaries as the Compensation Committee may designate from time to time
(collectively, (i) - (iv) are "Eligible Employees").
- Management will recommend, for adoption by the Compensation Committee at its
September 9, 1994 meeting, a cumulative earnings per share target ("EPS
Target") for the four year period covering the years 1994 through 1997.
- Management will recommend that the Compensation Committee award stock
options to Eligible Employees on the following terms.
- The number of stock options recommended to be awarded will be based on
individual performance and a specified grade level. (Eligible employees
will be assigned a grade level (1 through 4) according to their level of
responsibility (1 being the highest level).) The grade level and individual
performance ratings of the Eligible Employees will be determined by the
Company's management, in its sole discretion, subject to the approval of the
Compensation Committee.
- The table below indicates the number of stock options which are recommended
to be awarded based on individual performance rating at the respective grade
levels.
----------------------------------------------------------------------------
Did Not Meet Meeting Some Meeting All Exceeding All
Level Expectations Expectations Expectations Expectations
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1 0 20,000 30,000 45,000
----------------------------------------------------------------------------
2 0 10,000 15,000 20,000
----------------------------------------------------------------------------
3 0 6,000 9,000 12,000
----------------------------------------------------------------------------
4 0 2,500 4,000 5,500
----------------------------------------------------------------------------
- Stock options awarded in accordance with these Guidelines would vest in four
equal annual installments of 25% each, beginning with the first anniversary
date of the grant (100% vesting would occur after four years). In the event
the cumulative EPS Target is attained (as determined by the Compensation
Committee in its sole discretion) prior to the end of the four year vesting
period: (i) full vesting will occur upon the attainment of such EPS Target
as so determined and (ii) the Compensation Committee will consider the grant
of additional stock options to Eligible Employees (see explanation below).
EXAMPLE:
A stock option to purchase 4,000 shares is awarded on September 9, 1994 with a
4 year cumulative EPS Target of $10.
The EPS Target is met ($10) on December 31, 1996, 2 years after the date of
award.
RESULT:
The 4,000 option shares are 100% vested on December 31, 1996 (after 2 years)
when the cumulative EPS Target is met. (1,000 shares would have vested at
September 9, 1995, 1,000 would have vested on September 9, 1996 and the balance
(2,000) vested early because the cumulative EPS Target was met prior to the end
of the four year vesting period.)
The Compensation Committee will consider awarding additional stock options
according to these Guidelines.
- The Compensation Committee, in its sole discretion, may establish new
cumulative EPS Targets for stock options awarded after September 9, 1994.
- All stock options will be awarded in accordance with all the terms and
conditions of the Company's 1987 Stock Option Plan.
EX-10.9PII
3
FIRST AMENDMENT OF SUBLEASE
1
EXHIBIT 10.9(p)(II)
FIRST AMENDMENT OF SUBLEASE
AGREEMENT, made as of the 15th day of July, 1994, between
Hewlett-Packard Company, a California corporation, having an
office at 2101 Gaither Road, Rockville, Maryland 20850
(hereinafter, "Sublessor") and The Timberland Company, a Delaware
corporation, having an office at 200 Domain Drive, Stratham, New
Hampshire 03885 (hereinafter "Sublessee").
WITNESSETH
WHEREAS:
A. Sublessor and Sublessee entered into a written sublease
dated as of March 31, 1994 (hereinafter, "Sublease"), covering
the sublease of the 246,000 square foot building located at and
known as 200 Domain Drive, Stratham, New Hampshire.
B. Sublessor and Sublessee desire to amend the Sublease.
NOW, THEREFORE, in consideration of the following mutual
terms, covenants and conditions, the Sublease is hereby amended
as follows:
FIRST: Paragraph 21. SUBLESSOR'S CONSTRUCTION ALLOWANCE
of the Sublease is hereby amended as follows:
(i) In the 3rd line of subparagraph (a), the words
"initial portion of" shall be inserted after
the word "which" and before the words "Sublessee's Work";
(ii) At the end of subparagraph (b), add the following
sentence: "The Initial Payment and each Additional
Payment made by the Sublessor shall begin to accrue
interest at the rate of six (6%) per cent per annum
from the date of each payment thereof by Sublessor
to Sublessee or Sublessor's contractors, subcontractors
and/or vendors, as the case may be."; and
(iii) In the 8th line of subparagraph (c), add the words
"and in any event on or before December 31, 1994."
at the end of the 1st sentence.
2
SECOND: The entire full paragraph appearing on page 27 of
the Sublease is hereby revised to read in its entirety as
" Sublessee shall pay to Sublessor (i) the total
amount of Sublessor's Construction Allowance, which
shall in no event exceed Three Million Five Hundred
Thousand and 00/100 ($3,500,000) Dollars, plus (ii)
the aggregate amount of accrued interest with respect
to the Initial Payment and each Additional Payment, as
provided for in subparagraph (b) above (the
"Contributed Amount") with interest thereon at the
rate of 6 percent (6%) per annum, in equal consecutive
monthly installments in advance on the 1st day of each
month commencing on the 1st day of the 1st month
following the month in which Sublessor makes Final
Payment to Sublessee and continuing on the 1st day of
every month thereafter through and including the month
of July, 1999 ( the "Payment Period"). The amount of
each monthly payment shall be calculated so as to
result in the full repayment by Sublessee of the
Contributed Amount, together with interest thereon at
the rate of six (6%) percent per annum, after payment
of all such monthly payments over the Payment Period.
Notwithstanding the foregoing, in the event Sublessor
has not disbursed any portion of Sublessor's
Construction Allowance (including Final Payment) by
December 31, 1994, Sublessor and Sublessee hereby
agree that the Payment Period shall be the period from
January 1, 1995 through July 1, 1999 and beginning on
January 1, 1995, Sublessee shall commence payment to
Sublessor of the entire disbursed portion of
Sublessor's Construction Allowance, together with
accrued interest as calculated above, upon the terms
and conditions set forth above."
THIRD: All the terms, covenants and conditions contained
in the Sublease, as modified by this First Amendment, shall
remain in full force and effect. Capitalized terms used herein
but not defined herein shall have the meanings as defined in the
Sublease.
3
IN WITNESS WHEREOF, this Agreement has been executed as of
the day and year first above written.
SUBLESSOR: Hewlett-Packard Company
By: /s/ Ann O. Baskins
--------------------------
SUBLESSEE: The Timberland Company
By: /s/ Keith D. Monda
--------------------------
CONSENT OF MASTER LESSOR:
The undersigned Master Lessor under the Master Lease hereby
consents to the foregoing First Amendment of Sublease.
As between Master Lessor and Sublessor, nothing herein or in
said Sublease shall relieve Sublessor of its obligations to
Master Lessor under said Master Lease or modify any of the terms
of said Master Lease. As between Master Lessor and Sublessee,
nothing herein shall modify the provisions of that certain
Subordination, Non-Disturbance and Attornment Agreement dated
March 31, 1994, between them, including without limitation the
provisions of Section 3 thereof.
Executed under seal this 3rd day of November, 1994.
FIRST ALTEX REALTY TRUST
BY: /s/ Raymond A. Caryl
--------------------------------
Hereunto duly authorized, as
Trustee and not Individually
BY: /s/ Barbara F. Caryl
--------------------------------
Hereunto duly authorized, as
Trustee and not Individually
BY: /s/ Edward F. Caryl
--------------------------------
Hereunto duly authorized, as
Trustee and not Individually
EX-10.11
4
TERMINATION OF CREDIT AGREEMENT
1
Exhibit 10.11
TERMINATION OF CREDIT AGREEMENT
This Agreement, dated as of December 12, 1994, is among The
Timberland Company, a Delaware corporation (the "Company"), each of the banks
which is signatory hereto (collectively the "Banks") and The Chase Manhattan
Bank, N.A., a national banking association organized under the laws of the
United States, as agent for the Banks (in such capacity, the "Agent").
W I T N E S S E T H
WHEREAS, the Company, the Banks and the Agent are parties to that certain
Credit Agreement, dated as of November 15, 1993, as amended from time to time
(the "Credit Agreement"). Unless otherwise defined, capitalized terms used
herein without definition shall have the meanings assigned to them in the
Credit Agreement; and
WHEREAS, the Company, the Banks and the Agent desire to terminate the
Credit Agreements and all other Bank Agreements (as defined below), upon
payment by the Company to the Agent and the Banks in full of all principal of
and interest on the Loans made by the Banks under the Notes and all other
amounts due under the Credit Agreement and all other Bank Agreements.
NOW, THEREFORE, in consideration of the premises and for other valuable
consideration received by each party to its full satisfaction, the Company,
the Banks and the Agent agree as follows:
ARTICLE I
Reference to Bank Agreements
Section 1.1 TERMINATED BANK AGREEMENTS. Reference is made to the following
agreements and instruments (collectively, the "Bank Agreements"):
(a) Credit Agreement;
(b) Three separate Notes dated November 23, 1993 in the aggregate
principal amount of $50,000,000 executed by the Company and issued to each of
the Banks in the amount of its respective Commitment Amount;
(c) Authorization Letter dated as of November 15, 1993 from the Company
to the Agent;
(d) All Borrowing Requests from the Company to the Agent;
(e) Letter Agreement dated as of September 23, 1993 between the Company
and the Agent as to the facility fee payable by the Company to the Agent;
(f) First Amendment to Credit Agreement dated as of April 11, 1994 among
the Company, the Agent and the Banks; and
2
(g) Second Amendment to Credit Agreement dated as of May 4, 1994 among
the Company, the Agent and the Banks.
ARTICLE II
Termination
Section 2.1 PAYMENT IN FULL. On December 15, 1994, the Company shall pay to
the Agent all principal of and interest on the Loans accrued and unpaid to
December 15, 1994, together with all fees and expenses of any nature described
in the Credit Agreement or the other Bank Agreements accrued and unpaid to the
date hereof, all in the total amount set forth in Exhibit A hereto, or on any
day thereafter together with the per diem amount set forth in Exhibit A (the
"Termination Amount").
Section 2.2 TERMINATION OF BANK AGREEMENTS. Upon payment by the Company to
the Agent of the Termination Amount: (a) the Credit Agreement and all other
Bank Agreements and the Commitments thereunder shall terminate and shall be of
no further force or effect and all other obligations of the Company to the
Banks and the Agent thereunder, including the Guaranty under the Credit
Agreement, shall be discharged in full, except (i) as provided in such Bank
Agreements to the extent that the Company's obligations under Sections 3.01,
3.05 and 12.03 of the Credit Agreement survive the repayment of the Loans and
the termination of the Commitments, and (ii) to the extent that under
applicable law the Company is entitled to be subrogated to the rights of the
Banks or the Agent under such Bank Agreements, which rights, if any, are
expressly preserved; and (b) the obligations of the Agent or the Banks to make
any further extensions of credit to the Company pursuant to the Credit
Agreement shall terminate.
ARTICLE III
Waiver
Section 3.1 WAIVER. The Banks and the Agent waive non-compliance by the
Company with Section 2.07 of the Credit Agreement and with the Notes to the
extent that the Company (a) repays principal of and interest on the Notes on a
date prior to the end of an Interest Period and (b) terminates its obligations
under the Credit Agreement and the Notes prior to the Termination Date.
ARTICLE IV
Further Assurances
Section 4.1 FURTHER ASSURANCES. The parties to this Agreement shall, upon
request and at the expense of the Company, take any and all action and execute
any and all documents reasonably necessary to effectuate the terms and intent
of this Agreement.
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ARTICLE V
Miscellaneous
Section 5.1 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
regard to the application of its conflicts of laws rules, and shall bind and
inure to the benefit of the successors and assigns of the parties hereto.
Section 5.2 COUNTERPARTS. This Agreement may be executed in several
counterparts and by the parties hereto on separate signature pages. Each
counterpart bearing, on one or more signature pages, the signatures of the
parties shall be an original but all of the counterparts together shall be
deemed to constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers, hereunto duly authorized,
all as of the date first above written.
THE TIMBERLAND COMPANY
By: /s/ Keith D. Monda
-------------------------------------
Name: Keith D. Monda
Title: Senior Vice President-Finance and
Administration and Chief Financial
Officer
AGENT:
THE CHASE MANHATTAN BANK, N.A.
By: /s/ A Neil Sweeny
-------------------------------------
Name: A. Neil Sweeny
Title: Vice President
BANKS:
THE CHASE MANHATTAN BANK, N.A.
By: /s/ A Neil Sweeny
-------------------------------------
Name: A. Neil Sweeny
Title: Vice President
FLEET BANK OF MASSACHUSETTS, N.A.
By: /s/ Deborah Lawrence
-------------------------------------
Name: Deborah Lawrence
Title: Vice President
IBJ SCHRODER BANK AND TRUST COMPANY
By: /s/ Kevin Madigan
-------------------------------------
Name: Kevin Madigan
Title: Vice President
-4-
EX-10.13B
5
AMENDMENT #1 TO CREDIT AGREEMENT
1
EXHIBIT 10.13(b)
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of December 15, 1994 among THE
TIMBERLAND COMPANY (the "Company"), the BANKS listed on the
signature pages hereof (the "Banks") and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S E T H :
WHEREAS, the parties hereto have heretofore
entered into a Credit Agreement dated as of May 4, 1994
(the "Agreement"); and
WHEREAS, the parties hereto desire to amend the
Agreement as provided herein to permit the issuance by the
Company of up to $106,000,000 aggregate principal amount of
its 8.94% Senior Unsecured Notes due December 2001;
NOW, THEREFORE, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless
otherwise specifically defined herein, each term used herein
which is defined in the Agreement shall have the meaning
assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and
each other similar reference contained in the Agreement
shall from and after the date hereof refer to the Agreement
as amended hereby.
SECTION 2. AMENDMENT OF SECTION 1.01 OF THE
AGREEMENT. Section 1.01 of the Agreement is hereby amended
by:
(a) amending the definitions of "Applicable
Percentage" "Borrowing Base" and "Permitted Long-Term
Debt" set forth therein to read in their entirety as
follows:
"'Applicable Percentage' means (i) for any
day on or prior to September 28, 1995, 115%, (ii)
for any day after September 28, 1995 and on or
2
prior to December 30, 1995, 105%, (iii) for any
day after December 30, 1995 and on or prior to
March 28, 1996, 100% and (iv) for any day after
March 28, 1996, 75%.";
"'Borrowing Base' means, for any day, an
amount equal to (i) 85% of the aggregate amount of
Eligible Receivables set forth in the Applicable
Certificate for such day plus (ii) if such day is
in the period, if any, designated by the Company
by not less than two days prior notice to the
Agent, of two consecutive Borrowing Base Periods
in the period of six consecutive Borrowing Base
Periods beginning in March and ending in September
of each year, inclusive, 20% of the Footwear
Inventory Component set forth in the Applicable
Certificate for such day less (iii) the sum of (A)
the aggregate principal amount of Permitted Long-
Term Debt (other than up to $75,000,000 in
aggregate principal amount of December 1994
Private Placement Debt) incurred on or after the
Effective Date and outstanding on such day and (B)
the aggregate principal amount of Permitted Short-
Term Debt outstanding on such day."; and
"'Permitted Long-Term Debt' means Debt (other
than Debt permitted under Section 5.08(b)) of the
Company or any of its Subsidiaries that (A) does
not mature or have any required sinking fund or
other required payments of principal (other than
(1) principal and interest on a standard mortgage
basis for mortgages with terms, at the time such
mortgages are entered into, of greater than 15
years and (2) the principal component of rental
payments with respect to not more than $5,000,000
of capitalized leases, the terms of which are not,
at the time such leases are entered into, less
than five years), any mandatory redemptions or
redemptions at the option of the holder thereof or
any required increases in the rate of interest
payable with respect thereto, in any such case
prior to the first anniversary of the Termination
Date or (B) consists of conventional construction
loans incurred to finance the construction of real
property improvements of the Company and its
Subsidiaries.";
(b) deleting the definition of "Chase Credit
Agreement" set forth therein; and
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3
(c) adding, in alphabetical sequence, new
definitions of "December 1994 Private Placement Debt"
and "1994 Private Placement Debt" to read in their
entirety as follows:
"`December 1994 Private Placement Debt' means
Debt in an aggregate principal amount of up to
$106,000,000 in respect of the Company's [8.94%
Senior Unsecured Notes due December 2001] issued
in December 1994."; and
"`1994 Private Placement Debt' means April
1994 Private Placement Debt and December 1994
Private Placement Debt.".
SECTION 3. AMENDMENT OF SECTION 5.07 OF THE
AGREEMENT. Section 5.07 of the Agreement is hereby amended
to read in its entirety as follows:
"Section 5.07. FIXED CHARGE COVERAGE RATIO. The
Fixed Charge Coverage Ratio for any period of four
consecutive fiscal quarters will not be less than (a)
2.0 to 1.0 for any such period ending on or prior to
December 31, 1995 and (b) 2.25 to 1.0 for any such
period ending thereafter.".
SECTION 4. AMENDMENT OF SECTION 5.08(a) OF THE
AGREEMENT. Section 5.08(a) of the Agreement is amended to
read in its entirety as follows:
"(a) Debt outstanding under this Agreement and
the Notes;".
SECTION 5. AMENDMENT OF SECTION 5.15 OF THE
AGREEMENT. Section 5.15 of the Agreement is hereby amended
to read in its entirety as follows:
"SECTION 5.15. RESTRICTIONS ON PREPAYMENTS OF AND
AMENDMENTS TO CERTAIN DEBT. (a) Except with the
proceeds of the issuance by the Company of (i)
Permitted Long-Term Debt the average-life-to maturity
of which is greater than that of the Debt being repaid
or prepaid, (ii) shares of its common stock or (iii) in
the case of Debt outstanding under any of the Note
Agreements, each dated as of September 30, 1989 and
between the Company and the Purchaser named in Schedule
I thereto (each a "Note Agreement"), refinancing
thereof permitted under Section 5.08(b), the Company
will not, and will not permit any of its Subsidiaries
to, voluntarily repay or prepay (A) any Debt
3
4
outstanding under any Note Agreement or (B) any 1994
Private Placement Debt.
(b) The Company will not consent to any amendment
of the amount or date of any required repayment or
prepayment of any Debt outstanding under any Note
Agreement or any 1994 Private Placement Debt, except
for an amendment of any such date to a date on or after
the earlier of (A) the date of such required repayment
or prepayment as in effect prior to such amendment and
(B) the first anniversary of the Termination Date.".
SECTION 6. AMENDMENT OF SECTION 10.05 OF THE
AGREEMENT. Section 10.05 of the Agreement is hereby amended
to read in its entirety as follows:
"SECTION 10.05. SUBROGATION. Upon making any
payment hereunder with respect to any Borrower other
than the Company, the Company shall be subrogated to
the rights of the payee against such Borrower with
respect to such payment; provided that the Company
shall not enforce any payment by way of subrogation
until all amounts of principal of and interest on the
Notes and all other amounts payable by the Borrowers
under this Agreement have been paid in full.".
SECTION 7. GOVERNING LAW. This Amendment shall
be governed by and construed in accordance with the laws of
the State of New York.
SECTION 8. COUNTERPARTS; EFFECTIVENESS. This
Amendment may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective on and as
of the date (the "Effective Date") upon which:
(a) the Agent shall have received duly executed
counterparts hereof signed by the Borrower and the
Required Banks (or, in the case of any party as to
which an executed counterpart shall not have been
received, the Agent shall have received telegraphic,
telex or other written confirmation from such party of
execution of a counterpart hereof by such party); and
(b) all principal of and interest on any Debt
outstanding under, and any fees payable under, the
Chase Credit Agreement (as defined in the Agreement
prior to the Effective Date) shall have been paid in
full and all commitments under such Chase Credit
Agreement shall have been terminated.
4
5
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed as of the date first
above written.
THE TIMBERLAND COMPANY
/S/ CARDEN N. WELSH
By___________________________
Title: Carden N. Welsh
Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
/S/ MICHAEL Y. LEDER
By___________________________
Title: Michael Y. Leder
Vice President
ABN AMRO BANK N.V.
/S/ JAMES E. DAVIS
By___________________________
Title: James E. Davis
Vice President
/S/ MONIQUE F. BAZOBERRY
By___________________________
Title: Monique F. Bazoberry
Corporate Banking Officer
THE FIRST NATIONAL BANK OF
BOSTON
/S/ THOMAS F. FARLEY, JR.
By___________________________
Title: Thomas F. Farley, Jr.
Director
BARCLAYS BANK PLC
By___________________________
Title:
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6
CHEMICAL BANK
/S/ BARRY K. BERGMAN
By___________________________
Title: Barry K. Bergman
Vice President
THE NORTHERN TRUST COMPANY
/S/ CURTIS C. TATHAM, III
By___________________________
Title: Curtis C. Tatham, III
Commercial Banking Officer
BANK HAPOALIM B.M.
/S/ NANCY J. LUSHAN
By___________________________
Title: Nancy J. Lushan
Vice President
/S/ AVIEL GUTHEIT
By___________________________
Title: Aviel Gutheit
First Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
/S/ MICHAEL Y. LEDER
By___________________________
Title: Michael Y. Leder
Vice President
6
EX-10.14
6
NOTE AGREEMENT
1
Exhibit 10.14
================================================================================
The Timberland Company
Note Agreement
Dated as of December 15, 1994
Re: $106,000,000 8.94% Senior Notes
due December 15, 2001
================================================================================
2
TABLE OF CONTENTS
(Not a part of the Agreement)
SECTION HEADING PAGE
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.......... 1
Section 1.1. Description of Notes..................... 1
Section 1.2. Commitment, Closing Date................. 1
Section 1.3. Other Agreements......................... 2
SECTION 2. PREPAYMENT OF NOTES.......................... 2
Section 2.1. No Required Prepayments.................. 2
Section 2.2. Optional Prepayments With Premium........ 2
Section 2.3. Prepayment on Failure of Holders to
Give Certain Consents.................... 2
Section 2.4. Notice of Prepayments.................... 3
Section 2.5. Allocation of Prepayments................ 3
Section 2.6. Direct Payment........................... 3
SECTION 3. REPRESENTATIONS.............................. 4
Section 3.1. Representations of the Company........... 4
Section 3.2. Representations of the Purchaser......... 4
SECTION 4. CLOSING CONDITIONS........................... 5
Section 4.1. Conditions............................... 5
Section 4.2. Waiver of Conditions..................... 5
SECTION 5. COMPANY COVENANTS............................ 6
Section 5.1. Corporate Existence, Etc. ............... 6
Section 5.2. Insurance................................ 6
Section 5.3. Taxes, Claims for Labor and Materials,
Compliance with Laws..................... 6
Section 5.4. Maintenance, Etc. ....................... 7
Section 5.5. Nature of Business....................... 7
Section 5.6. Current Ratio............................ 7
Section 5.7. Consolidated Tangible Net Worth.......... 7
Section 5.8. Limitations on Indebtedness.............. 7
Section 5.9. Fixed Charges Coverage................... 8
Section 5.10. Limitation on Liens...................... 8
Section 5.11. Restricted Payments...................... 10
Section 5.12. Sale and Leasebacks...................... 11
Section 5.13. Mergers, Consolidations and
Sales of Assets.......................... 11
Section 5.14. Guaranties............................... 14
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Section 5.15. Repurchase of Notes..................... 14
Section 5.16. Transactions with Affiliates............ 14
Section 5.17. Investments............................. 15
Section 5.18. Termination of Pension Plans............ 16
Section 5.19. Reports and Rights of Inspection........ 16
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR..... 20
Section 6.1. Events of Default....................... 20
Section 6.2. Notice to Holders....................... 21
Section 6.3. Acceleration of Maturities.............. 21
Section 6.4. Rescission of Acceleration.............. 22
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS............ 22
Section 7.1. Consent Required........................ 22
Section 7.2. Effect of Amendment or Waiver........... 23
SECTION 8. INTERPRETATION OF AGREEMENT................. 23
Section 8.1. Definitions............................. 23
Section 8.2. Accounting Principles................... 32
Section 8.3. Directly or Indirectly.................. 32
SECTION 9. MISCELLANEOUS............................... 32
Section 9.1. Registered Notes........................ 32
Section 9.2. Exchange of Notes....................... 32
Section 9.3. Loss, Theft, Etc. of Notes.............. 33
Section 9.4. Expenses, Stamp Tax Indemnity........... 33
Section 9.5. Powers and Rights Not Waived;
Remedies Cumulative..................... 33
Section 9.6. Notices................................. 33
Section 9.7. Successors and Assigns.................. 34
Section 9.8. Survival of Covenants and
Representations......................... 34
Section 9.9. Severability............................ 34
Section 9.10. Governing Law........................... 34
Section 9.11. Captions................................ 34
Signatures ................................................. 35
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ATTACHMENTS TO NOTE AGREEMENT:
Schedule I - Name and Address of Purchasers
Exhibit A - Form of 8.94% Senior Note due December 15, 2001
Exhibit B - Closing Certificate of the Company
Exhibit C - Description of Special Counsel's Closing Opinion
Exhibit D - Description of Closing Opinion of Counsel to the Company
-iii-
5
THE TIMBERLAND COMPANY
11 MERRILL INDUSTRIAL DRIVE
HAMPTON, NEW HAMPSHIRE 03842-5050
NOTE AGREEMENT
Re: $106,000,000 8.94% Senior Notes
Due December 15, 2001
Dated as of
December 15, 1994
To the Purchaser named In Schedule I
hereto which is a signatory of this
Agreement
Ladies and Gentlemen:
The undersigned, The Timberland Company, a Delaware corporation (the
"Company"), agrees with you as follows:
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.
Section 1.1. Description of Notes. The Company will authorize the
issue and sale of $106,000,000 aggregate principal amount of its 8.94% Senior
Notes (the "Notes") to be dated the date of issue, to bear interest from such
date at the rate of 8.94% per annum, payable semiannually in arrears on the
fifteenth day of each June and December in each year (commencing June 15,
1995) and at maturity and to bear interest on overdue principal (including any
overdue optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest at the rate
of 10.94% per annum after maturity, whether by acceleration or otherwise, until
paid, to be expressed to mature on December 15, 2001, and to be substantially in
the form attached hereto as Exhibit A. Interest on the Notes shall be computed
on the basis of a 360-day year of twelve 30-day months. The term "Notes" as
used herein shall include each Note delivered pursuant to this Agreement and
the separate agreements with the other purchasers named in Schedule I. You and
the other purchasers named in Schedule I are hereinafter sometimes referred to
as the "Purchasers".
Section 1.2. Commitment, Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to you, and you
agree to purchase from the Company, the aggregate principal amount of the Notes
set forth opposite your name in Schedule I hereto, at a price of 100% of the
principal amount thereof on the Closing Date hereinafter mentioned.
Delivery of the Notes will be made at the offices of Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against payment
therefor in Federal Reserve or
6
The Timberland Company Note Agreement
other funds current and immediately available at the principal office of The
Northern Trust Company, Chicago, Illinois in the amount of the purchase price
at 10:00 A.M., Chicago, Illinois time, on December 15, 1994 or such earlier date
as the Company shall specify by not less than five business days' prior written
notice to you (the "Closing Date"). The Notes delivered to you on the Closing
Date will be delivered to you in the form of registered Notes for the full
amount of your purchase (unless different denominations are specified by you),
registered in your name or in the name of such nominee as you may specify and
in substantially the form attached hereto as Exhibit A, all as you may specify
at any time prior to the date fixed for delivery.
Section 1.3. Other Agreements. Simultaneously with the execution
and delivery of this Agreement, the Company is entering into similar agreements
with the other Purchasers under which such other Purchasers agree to purchase
from the Company the principal amount of Notes set opposite such Purchasers'
names in Schedule I, and your obligation and the obligations of the Company
hereunder are subject to the execution and delivery of the similar agreements
by the other Purchasers. This Agreement and said similar agreements with the
other Purchasers are herein collectively referred to as the "Agreements". The
obligations of each Purchaser shall be several and not joint and no Purchaser
shall be liable or responsible for the acts of any other Purchaser.
SECTION 2. PREPAYMENT OF NOTES.
Section 2.1. No Required Prepayments. No mandatory prepayments of
principal of the Notes are scheduled to be made prior to their expressed
maturity date, and the Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity date except on the
terms and conditions and in the amounts and with the premium, if any, set forth
below in this [Section] 2.
Section 2.2. Optional Prepayments With Premium. Upon compliance
with [Section] 2.4, the Company shall have the privilege at any time and from
time to time of prepaying the outstanding Notes, either in whole or in part
(but if in part then in a minimum principal amount of $100,000) by payment of
the principal amount of the Notes, or portion thereof to be prepaid, and
accrued interest thereon to the date of such prepayment, together with a
premium equal to the Make-Whole Amount with respect to such principal amount
then to be prepaid.
Section 2.3. Prepayment on Failure of Holders to Give Certain
Consents. In the event that (i) the Company shall have determined in good
faith to enter into a transaction which will result in a violation of any the
provisions of [Section] 5.13, (ii) the Company shall have requested the holders
of the Notes in writing (accompanied by a reasonably detailed description of
the proposed transaction) to consent to such transaction, and (iii) the Company
shall not have received such consent from the holders of at least 51% of the
aggregate unpaid principal amount of the Notes then outstanding within 30 days
from the date of such request, then and in such event the Company may enter
into such transaction; provided that within 90 days after the expiration of
such 30-day period, the Company shall prepay all (but not less than all) of the
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7
The Timberland Company Note Agreement
Notes held by such holders who have failed to consent to such transaction. Any
such prepayment shall be made by payment of the principal amount of the Notes
being prepaid, and accrued interest thereon to the date of such prepayment,
together with a premium equal to the Make-Whole Amount with respect to such
principal amount then to be prepaid.
Section 2.4. Notice of Prepayments. The Company will give notice of
any prepayment of the Notes to each holder thereof not less than 30 days nor
more than 60 days before the date fixed for such optional prepayment specifying
(i) such date, (ii) the section of this Agreement under which the prepayment is
to be made, (iii) the principal amount of the holder's Notes to be prepaid on
such date, (iv) that a premium may be payable, (v) the date when such premium
will be calculated, and (vi) the accrued interest applicable to the prepayment.
Such notice of prepayment shall also certify all facts which are conditions
precedent to any such prepayment. Notice of prepayment having been so given,
the aggregate principal amount of the Notes specified in such notice, together
with the premium, if any, and accrued interest thereon shall become due and
payable on the date of consummation of the related transaction (in the case of
any prepayment pursuant to [Section] 2.3) or on the date specified in the
notice given pursuant to the first sentence of this [Section] 2.4 (in the case
of any other prepayment). Not later than the prepayment date the Company shall
provide each holder of a Note written notice of the amount of the premium
payable in connection with such prepayment, whether or not any premium is
payable, together with a reasonably detailed computation thereof.
Section 2.5. Allocation of Prepayments. All partial prepayments,
other than prepayments pursuant to [Section] 2.3, shall be applied on all
outstanding Notes ratably in accordance with the unpaid principal amounts
thereof.
Section 2.6. Direct Payment. Notwithstanding anything to the
contrary in this Agreement or the Notes, in the case of any Note owned by the
Purchaser or its nominee or owned by any other institutional holder who has
given written notice to the Company requesting that the provisions of this
Section shall apply, the Company will promptly and punctually pay when due the
principal thereof and premium, if any, and interest thereon, without any
presentment thereof directly to the Purchaser or such subsequent holder at the
address of the Purchaser set forth in Schedule I or at such other address as
the Purchaser or such subsequent holder may from time to time designate in
writing to the Company or, if a bank account is designated for the Purchaser on
Schedule I hereto or in any written notice to the Company from the Purchaser or
any such subsequent holder, the Company will make such payments in immediately
available funds to such bank account, marked for attention as indicated, or in
such other manner or to such other account of the Purchaser or such holder in
any bank in the United States as the Purchaser or any such subsequent holder
may from time to time direct in writing. No such notice shall be effective
with respect to any payment if such notice is given to the Company less than 14
days before the date of such payment. The holder of any Notes to which this
Section applies agrees that in the event it shall sell or transfer any such
Notes (i) it will, prior to the delivery of such Notes (unless it has already
done so), make a notation thereon of all principal, if any, prepaid on such
Notes and will also note thereon the date to which interest has been paid on
such Notes, and (ii) it will promptly notify the Company of the name and
address of the transferee of any Notes so
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8
The Timberland Company Note Agreement
transferred. With respect to Notes to which this Section applies, the Company
shall be entitled to presume conclusively that the original or such subsequent
institutional holder as shall have requested the provisions hereof to apply to
its Notes remains the holder of such Notes until (y) the Company shall have
received notice from the transferor of the transfer of such Notes, and of the
name and address of the transferee, or (z) such Notes shall have been presented
to the Company as evidence of the transfer.
SECTION 3. REPRESENTATIONS.
Section 3.1. Representations of the Company. The Company represents
and warrants that all representations set forth in the form of certificate
attached hereto as Exhibit B are true and correct as of the date hereof and are
incorporated herein by reference with the same force and effect as though
herein set forth in full.
Section 3.2. Representations of the Purchaser.
(a) Purchase for Investment. You represent, and in entering into
this Agreement the Company understands, that you are acquiring the Notes for
the purpose of investment and not with a view to the resale or distribution
thereof, and that you have no present intention of selling, negotiating or
otherwise disposing of the Notes; provided that the disposition of your
property shall at all times be and remain within your control.
(b) You represent and warrant that either:
(i) you are acquiring the Notes for your own account and
with your general corporate assets and not with the assets of any
separate account in which any employee benefit plan has any interest; or
(ii) (A) you are an insurance company, and
(1) a portion of the funds to be used to make
your investment hereunder constitutes plan assets
allocated to a separate account maintained by you, and
(2) the names of each employee benefit plan
whose assets in such account exceed ten percent of the
total assets or are expected to exceed ten percent of
the total assets of such account as of the date of such
investment (for the purposes of this [Section] 3.2(b)
(ii)(A)(2), all employee benefit plans maintained by
the same employer or employee organization are deemed
to be a single plan) have been disclosed in writing to
the Company; and
(B) the remaining portion of the funds used to
purchase the Notes does not constitute assets allocated to any
separate account maintained by you such that the application of
such funds constitutes a "prohibited transaction" under
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The Timberland Company Note Agreement
Section 406 of the Employee Retirement Income Security Act of
1974, as amended.
(c) You acknowledge that the Notes have not been registered under
the Securities Act of 1933, as amended, and you understand that the Notes must
be held indefinitely unless they are subsequently registered under said
Securities Act or an exemption from such registration is available. You have
been advised that the Company does not contemplate registering, and is not
legally required to register, the Notes under said Securities Act.
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions. Your obligation to purchase the Notes on
the Closing Date shall be subject to the performance by the Company of its
agreements hereunder which by the terms hereof are to be performed at or prior
to the time of delivery of the Notes and to the following further conditions
precedent:
(a) Closing Certificate. You shall have received a
certificate dated the Closing Date, signed by the President or a Vice
President of the Company substantially in the form attached hereto as
Exhibit B, the truth and accuracy of which shall be a condition to your
obligation to purchase the Notes proposed to be sold to you.
(b) Legal Opinions. You shall have received from Chapman
and Cutler, who are acting as your special counsel in this transaction,
and from Ropes & Gray, counsel for the Company, their respective
opinions dated the Closing Date, in form and substance satisfactory to
you, and covering the matters set forth in Exhibits C and D,
respectively, hereto.
(c) Related Transactions. The Company shall have
consummated the sale of the entire principal amount of the Notes
scheduled to be sold on the Closing Date pursuant to this Agreement
and the other agreements referred to in [Section] 1.3.
(d) Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Agreement, and
all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to you and your special counsel, and
you shall have received a copy (executed or certified as may be
appropriate) of all legal documents or proceedings taken in connection
with the consummation of said transactions.
Section 4.2. Waiver of Conditions. If on the Closing Date the
Company fails to tender to you the Notes to be issued to you on such date or if
the conditions specified in [Section] 4.1 have not been fulfilled, you may
thereupon elect to be relieved of all further obligations under this Agreement.
Without limiting the foregoing, if the conditions specified in [Section] 4.1
have not been fulfilled, you may waive compliance by the Company with any such
condition to such extent as you may in your sole discretion determine. Nothing
in
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The Timberland Company Note Agreement
this [Section] 4.2 shall operate to relieve the Company of any of its
obligations hereunder or to waive any of your rights against the Company.
SECTION 5. COMPANY COVENANTS.
From and after the Closing Date and continuing so long as any amount
remains unpaid on any Note:
Section 5.1. Corporate Existence, Etc. The Company will preserve
and keep in force and effect, and will cause each Restricted Subsidiary to
preserve and keep in force and effect, its corporate existence and all licenses
and permits reasonably necessary to the proper conduct of its business the
absence of which might materially and adversely affect the properties, business
or condition of the Company or of the Company and its Restricted Subsidiaries
taken as a whole, provided that the foregoing shall not prevent any transaction
permitted by [Section] 5.13.
Section 5.2. Insurance. The Company will maintain, and will cause
each Restricted Subsidiary to maintain, insurance coverage by financially sound
and reputable insurers accorded a rating by A.M. Best Company, Inc. of A:XII or
better at the time of the issuance of any such policy and in such forms and
amounts and against such risks as are customary for corporations of established
reputation engaged in the same or a similar business and owning and operating
similar properties; provided, however, that if, during the term of any such
insurance policy, the rating accorded the insurer shall be less than A:XII, the
Company will, on the date of renewal of any such policy (or, if such change in
rating shall occur within 90 days prior to such renewal date, within 90 days of
the date of such change in rating), obtain such insurance policy from an
insurer so rated.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with
Laws. The Company will promptly pay and discharge, and will cause each
Restricted Subsidiary promptly to pay and discharge, all lawful taxes,
assessments and governmental charges or levies imposed upon the Company or such
Restricted Subsidiary, respectively, or upon or in respect of all or any part
of the property or business of the Company or such Restricted Subsidiary, all
trade accounts payable in accordance with usual and customary business terms,
and all claims for work, labor or materials, which if unpaid might become a
Lien upon any property of the Company or such Restricted Subsidiary not
permitted by [Section] 5.10; provided the Company or such Restricted Subsidiary
shall not be required to pay any such tax, assessment, charge, levy, account
payable or claim if (i) the validity, applicability or amount thereof is being
contested in good faith by appropriate actions or proceedings which will
prevent the forfeiture or sale of any property of the Company or such
Restricted Subsidiary or any material interference with the use thereof by the
Company or such Restricted Subsidiary if such forfeiture, sale or interference
might have a material adverse effect on the properties, business or condition
of the Company or of the Company and its Restricted Subsidiaries taken as a
whole, and (ii) the Company or such Restricted Subsidiary shall set aside on
its books, reserves deemed by it to be adequate with respect thereto. The
Company will promptly comply and will cause each Restricted Subsidiary to
comply with all laws, ordinances or governmental rules and regulations to which
it is subject, including
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The Timberland Company Note Agreement
without limitation, the Occupational Safety and Health Act of 1970, the
Employee Retirement Income Security Act of 1974 and all laws, ordinances,
governmental rules and regulations relating to environmental protection in all
applicable jurisdictions, the violation of which would materially and adversely
affect the properties, business, prospects, profits or condition of the Company
and its Restricted Subsidiaries or would result in any Lien upon any material
property of the Company or any Restricted Subsidiary.
Section 5.4. Maintenance, Etc. The Company will maintain, preserve
and keep, and will cause each Restricted Subsidiary to maintain, preserve and
keep, its properties which are used or useful in the conduct of its business
(whether owned in fee or a leasehold interest) in good repair and working order
and from time to time will make all necessary and reasonable repairs,
replacements, renewals and additions so that at all times the efficiency
thereof shall be maintained, unless the failure to do so would not have a
material adverse effect on the properties, business or condition of the Company
or of the Company and its Restricted Subsidiaries taken as a whole.
Section 5.5. Nature of Business. Neither the Company nor any
Restricted Subsidiary will engage in any business if, as a result, the general
nature of the business, taken on a consolidated basis, which would then be
engaged in by the Company and its Restricted Subsidiaries would be
substantially changed from the general nature of the business engaged in by the
Company and its Restricted Subsidiaries on the date of this Agreement.
Section 5.6. Current Ratio. The Company will at all times keep and
maintain Consolidated Current Assets at an amount not less than 125% of
Consolidated Current Liabilities.
Section 5.7. Consolidated Tangible Net Worth. The Company will at
all times keep and maintain Consolidated Tangible Net Worth at an amount not
less than (i) for the fiscal quarter of the Company ending December 31, 1994,
the sum of $56,759,000 plus 25% of Consolidated Net Income for the nine-month
period ended September 30, 1994 (but without deduction in the case of a
deficit in Consolidated Net Income) and (ii) for each fiscal quarter
thereafter, the sum of (x) the amount required to be maintained during the
immediately preceding fiscal quarter of the Company, and (y) an amount equal
to 25% of Consolidated Net Income for such preceding fiscal quarter (but
without deduction in the case of a deficit in Consolidated Net Income).
Section 5.8. Limitations on Indebtedness. (a) The Company will not
and will not permit any Restricted Subsidiary to create, assume or incur or in
any manner be or become liable in respect of any Current Debt or Funded Debt,
except:
(1) the Notes;
(2) Current Debt and Funded Debt of the Company and its
Restricted Subsidiaries outstanding as of the date of this Agreement
and reflected in Annex B to Exhibit B attached hereto (including any
amendment, modification, or other change
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The Timberland Company Note Agreement
to the Current Debt and Funded Debt described in such Annex B and which
does not increase the principal amount thereof);
(3) Current Debt or Funded Debt of the Company, provided
that at the time of incurrence thereof and after giving effect thereto
and to the application of the proceeds thereof:
(i) Total Debt will not exceed 175% of Total
Equity, and
(ii) Net Income Available for Interest Charges for
the four immediately preceding fiscal quarters shall have been
at least 200% of Pro Forma Interest Charges for such period;
(4) Current Debt or Funded Debt of a Restricted Subsidiary
to the Company or to a Wholly-owned Restricted Subsidiary; and
(5) Current Debt or Funded Debt of a Restricted Subsidiary,
other than that permitted by [Section] 5.8(a)(4), provided that at the
time of incurrence thereof and after giving effect thereto and to the
application of the proceeds thereof, (i) Specified Debt does not
exceed 20% of Consolidated Tangible Net Worth, (ii) Total Debt does not
exceed 175% of Total Equity and (iii) Net Income Available for Interest
Charges for the four immediately preceding fiscal quarters shall have
been at least 200% of Pro Forma Interest Charges for such period.
(b) Any corporation which becomes a Restricted Subsidiary after the
date hereof shall for all purposes of this [Section] 5.8 be deemed to have
created, assumed or incurred at the time it becomes a Restricted Subsidiary all
Funded Debt and Current Debt of such corporation existing immediately after it
becomes a Restricted Subsidiary.
Section 5.9. Fixed Charges Coverage. The Company will keep and
maintain Net Income Available for Fixed Charges for each period of four
consecutive fiscal quarters at an amount which is not less than 150% of Fixed
Charges for such period.
Section 5.10. Limitation on Liens. The Company will not, and will
not permit any Restricted Subsidiary to, create or incur, or suffer to be
incurred or to exist, any Lien on its or their property or assets, whether now
owned or hereafter acquired, or upon any income or profits therefrom, to secure
any Indebtedness or transfer any property for the purpose of subjecting the
same to the payment of obligations in priority to the payment of its or their
general creditors, or acquire or agree to acquire, or permit any Restricted
Subsidiary to acquire, any property or assets upon conditional sales agreements
or other title retention devices, except:
(a) Liens for property taxes and assessments or
governmental charges or Liens securing claims or demands of mechanics
and material men, provided that such claims or demands are being
contested in a manner permitted by [Section] 5.3;
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The Timberland Company Note Agreement
(b) Liens of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which shall not have
expired, or in respect of which the Company or a Restricted Subsidiary
shall at any time in good faith be prosecuting an appeal or proceeding
for a review and in respect of which a stay of execution pending such
appeal or proceeding for review shall have been secured;
(c) Liens incidental to the conduct of business or the
ownership of properties and assets (including warehousemen's and
attorneys' Liens and statutory landlords' Liens) and Liens to secure
the performance of bids, tenders or trade contracts, or to secure
statutory obligations, surety or appeal bonds or other Liens of like
general nature incurred in the ordinary course of business and not in
connection with the borrowing of money, provided in each case, the
obligation secured is not overdue or, if overdue, is being contested
in good faith by appropriate actions or proceedings;
(d) Liens securing Indebtedness of a Restricted Subsidiary
to the Company or to another Restricted Subsidiary;
(e) Liens on property of a Restricted Subsidiary which
secure Specified Debt of such Restricted Subsidiary, provided that all
such Specified Debt shall have been incurred within the applicable
limitations provided in [Section] 5.8;
(f) Liens (including Capitalized Leases) (i) existing as of
the date of this Agreement and reflected in Annex B to Exhibit B
attached hereto, securing Indebtedness of the Company or any Restricted
Subsidiary outstanding on such date and (ii) securing refundings,
refinancings, restructurings or replacements of Indebtedness secured by
Liens (including Capitalized Leases) permitted by clause (i) of this
[Section] 5.10(f), provided that each such refunding, refinancing,
restructuring and replacement shall not exceed the total principal
amount of Indebtedness being refunded, refinanced, restructured or
replaced and such Indebtedness may not be secured by any additional
property of the Company and its Subsidiaries;
(g) Liens incurred after the date hereof (1) given to
secure the payment of the purchase price incurred in connection with
the acquisition of fixed assets useful and intended to be used in
carrying on the business of the Company or a Restricted Subsidiary,
including Liens existing on such fixed assets at the time of
acquisition thereof or at the time of acquisition by the Company or a
Restricted Subsidiary of any business entity then owning such fixed
assets, whether or not such existing Liens were given to secure the
payment of the purchase price of the fixed assets to which they attach
so long as they were not incurred, extended or renewed in contemplation
of such acquisition, provided that (i) the Lien shall attach solely to
the property acquired or purchased, (ii) at the time of acquisition of
such fixed assets, the aggregate amount remaining unpaid on all
Indebtedness secured by Liens on such fixed assets whether or not
assumed by the Company or a Restricted Subsidiary shall not exceed an
amount equal to 100% of the lesser of the total purchase price or fair
market value at the time of acquisition of such fixed assets (as
determined in good faith by the Board of Directors of the Company), and
(iii) all such Indebtedness shall have been incurred
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The Timberland Company Note Agreement
within the applicable limitations provided in [Section] 5.8 and (2)
given to secure refundings, refinancings, restructurings or
replacements of Indebtedness secured by Liens permitted by clause (1)
of this [Section] 5.10(g), provided that each such refunding,
refinancing, restructuring and replacement shall not exceed the total
principal amount of Indebtedness being refunded, refinanced,
restructured or replaced and such Indebtedness may not be secured by any
additional property of the Company and its Subsidiaries;
(h) Liens on documents and the underlying goods securing
obligations in respect of documentary letters of credit and bankers'
acceptances;
(i) Liens that may arise from the sale or transfer of
receivables pursuant to a Securitized Asset Transaction (as defined in
[Section] 5.13(d)(3));
(j) provided that no Default or Event of Default exists at
the time of creation thereof, other Liens on fixed assets (in addition
to those permitted by the foregoing provisions of this [Section] 5.10)
if, after giving effect thereto (and to the application of the proceeds
thereof), the aggregate amount of Specified Debt would not exceed 20%
of Consolidated Tangible Net Worth; and
(k) other Liens securing Funded Debt or Current Debt (in
addition to those permitted by the foregoing provisions of this
[Section] 5.10), provided that the Notes shall be equally and ratably
secured pursuant to agreements or instruments in form and substance
satisfactory to the Noteholders as evidenced by their prior written
consent thereto in accordance with the provisions of [Section] 7.1.
Section 5.11. Restricted Payments. The Company will not, except as
hereinafter provided:
(a) Declare any dividends, either in cash or property, on
any shares of its capital stock of any class (except dividends or
other distributions payable solely in shares of capital stock of the
Company); or
(b) Directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock of any
class or any warrants, rights or options to purchase or acquire any
shares of its capital stock, other than purchases, redemptions or
retirements of its capital stock in connection with any employee
benefit plans to the extent that the aggregate amount of such
purchases, redemptions and retirements during the fiscal year which
includes the date of the purchase, redemption or retirement in
question does not exceed the sum of (1) $100,000 plus (2) the proceeds
from sales of shares of the Company's capital stock in connection with
employee benefit plans during such fiscal year; or
(c) Make any other payment or distribution, either directly
or indirectly or through any Subsidiary, in respect of its capital
stock; or
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The Timberland Company Note Agreement
(d) make, or permit any Restricted Subsidiary to make, any
Restricted Investment;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options, and all such
other distributions and Restricted Investments being herein collectively called
"Restricted Payments"), if after giving effect thereto the aggregate amount of
Restricted Payments made during the period from and after December 31, 1988 to
and including the date of the making of the Restricted Payment in question,
would exceed the sum of (i) $33,879,500 plus (ii) 50% of Consolidated Net
Income for the period from and after December 31, 1993, computed on a
cumulative basis for said entire period (or if such Consolidated Net Income is
a deficit figure, then minus 100% of such deficit), plus (iii) the aggregate
net cash proceeds to the Company during such period from the sale of shares of
its capital stock or warrants, rights or option to purchase or acquire any
shares of its capital stock (other than any such sale in connection with
employee benefit plans), plus (iv) the aggregate amount of net proceeds
received by the Company and its Restricted Subsidiaries in connection with any
sale or disposition of Restricted Investments made during such period provided
that for the purposes of this [Section] 5.11 the amount of proceeds from the
sale or disposition of any Restricted Investment may not exceed the original
amount of such Restricted Investment.
The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 60 days after the date of declaration
thereof.
For the purposes of this [Section] 5.11 the amount of any Restricted
Payment declared, paid or distributed in property of the Company shall be
deemed to be the greater of the book value or fair market value (as determined
in good faith by the Board of Directors of the Company) of such property at the
time of the making of the Restricted Payment in question.
Section 5.12. Sale and Leasebacks. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any arrangement whereby the
Company or any Restricted Subsidiary shall sell or transfer any property owned
by the Company or any Restricted Subsidiary to any Person other than the
Company or a Restricted Subsidiary and thereupon the Company or any Restricted
Subsidiary shall lease or intend to lease, as lessee, the same property unless
(i) such property was constructed or installed for the Company or such
Restricted Subsidiary and is sold and leased back to the Company or such
Restricted Subsidiary within 18 months after such construction or installation,
and (ii) such sale by the Company or such Restricted Subsidiary and leaseback
to the Company or such Restricted Subsidiary would not violate the provisions
of [Section] 5.8 hereof.
Section 5.13. Mergers, Consolidations and Sales of Assets. (a) The
Company will not, and will not permit any Restricted Subsidiary to (i)
consolidate with or be a party to a merger with any other corporation or (ii)
sell, lease or otherwise dispose of all or any substantial part (as defined in
paragraph (d) of this Section) of the assets of the Company and its Restricted
Subsidiaries, provided, however, that:
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The Timberland Company Note Agreement
(1) any Restricted Subsidiary may merge or consolidate with
or into any other corporation so long as (i) in any merger or
consolidation involving the Company, the Company shall be the surviving
or continuing corporation and (ii) in any merger or consolidation
involving a corporation other than the Company, (x) the survivor shall
be a Restricted Subsidiary and the Minority Interests in the surviving
corporation, expressed as a percentage of the net worth of such
surviving corporation after giving effect to such merger or
consolidation, would not exceed the lesser of (I) 25% and (II) 10% plus
the Minority Interests in such Restricted Subsidiary on the date of
this Agreement or, if the Restricted Subsidiary is acquired or
designated after the date of this Agreement, on the date of such
acquisition or designation, and (y) aggregate Tangible Minority
Interests (as defined in paragraph (d) of this Section) in all
Restricted Subsidiaries after giving effect to such merger or
consolidation would not exceed 10% of Consolidated Tangible Net Worth;
(2) the Company may consolidate or merge with any other
corporation if (i) the surviving or continuing corporation is a
corporation organized under the laws of any state of the United
States, (ii) at the time of such consolidation or merger and after
giving effect thereto no Default or Event of Default shall have
occurred and be continuing, and (iii) after giving effect to such
consolidation or merger the surviving corporation would be permitted
to incur at least $1.00 of additional Funded Debt under the provisions
of [Section] 5.8(a)(3);
(3) any Restricted Subsidiary may sell, lease or otherwise
dispose of all or any substantial part of its assets to the Company or
any Wholly-owned Restricted Subsidiary;
(4) the Company or any Restricted Subsidiary may sell,
transfer or otherwise dispose of any Restricted Investment and any
shares of stock in any Unrestricted Subsidiary; and
(5) a Restricted Subsidiary may consolidate or merge with
any other corporation in a transaction permitted under the provisions
of [Section] 5.13(c).
(b) The Company will not permit any Restricted Subsidiary to issue
or sell any shares of stock of any class (including as "stock" for the purposes
of this [Section] 5.13, any warrants, rights or options to purchase or
otherwise acquire stock or other Securities exchangeable for or convertible
into stock) of such Restricted Subsidiary to any Person other than the Company
or a Wholly-owned Restricted Subsidiary, unless (i) such issue or sale does not
constitute a substantial part (as hereinafter defined) of the assets of the
Company and its Restricted Subsidiaries, and (ii) to the extent that (x) the
Minority Interests in such Restricted Subsidiary, expressed as a percentage of
the net worth of such Restricted Subsidiary after giving effect to such
issuance or sale would not exceed the lesser of (I) 25% and (II) 10% plus the
Minority Interests in such Restricted Subsidiary on the date of this Agreement
or, if such Restricted Subsidiary is acquired or designated after the date of
this Agreement, on the date of such acquisition or designation, and (y)
aggregate Tangible
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The Timberland Company Note Agreement
Minority Interests in all Restricted Subsidiaries after giving effect to such
issuance or sale would not exceed 10% of Consolidated Tangible Net Worth.
(c) The Company will not sell, transfer or otherwise dispose of any
shares of stock in any Restricted Subsidiary (except to qualify directors) or
any Indebtedness of any Restricted Subsidiary, and will not permit any
Restricted Subsidiary to sell, transfer or otherwise dispose of (except to the
Company or a Wholly-owned Restricted Subsidiary) any shares of stock or any
Indebtedness of any other Restricted Subsidiary, unless:
(1) either (x) such sale, transfer or disposition is made
within the limitations of [Section] 5.13(b), or (y) simultaneously with
such sale, transfer, or disposition, all shares of stock and all
Indebtedness (excluding any trade receivables) owed by such Restricted
Subsidiary at the time owned by the Company and by every other
Subsidiary shall be sold, transferred or disposed of as an entirety;
(2) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that such sale,
transfer or disposition is in the best interests of the Company;
(3) such stock and Indebtedness is sold, transferred or
otherwise disposed of to a Person, for consideration and on terms
reasonably deemed by the Board of Directors to be adequate and
satisfactory, provided that (i) the amount of any non-cash
consideration received by the Company or a Restricted Subsidiary shall
be determined in good faith by the Board of Directors of the Company, as
evidenced by a certificate of the president or any vice president of the
Company setting forth in reasonable detail the basis of such
determination and delivered to the Note Purchasers, which determination
shall, upon the written request of the holder or holders of not less
than 25% of the unpaid principal amount of the Notes, be subject to
verification by an independent appraiser designated and compensated by
the Company and not objected to by such holders, and (ii) any non-cash
consideration will be deemed a Restricted Investment made by the
Company or such Restricted Subsidiary on the date of such sale, transfer
or disposition in the amount of such valuation;
(4) except in the case of transactions permitted by
[Section] 5.13(b), the Restricted Subsidiary being disposed of shall
not have any continuing investment in the Company or any other
Restricted Subsidiary not being simultaneously disposed of; and
(5) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company
and its Restricted Subsidiaries.
(d) As used in this [Section] 5.13:
(1) A sale, lease or other disposition of assets (other
than Restricted Investments and investments in Unrestricted
Subsidiaries) shall be deemed to be a "substantial part" of the assets
of the Company and its Restricted Subsidiaries only if the book value
of such assets when added to the book value of all other assets sold,
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The Timberland Company Note Agreement
leased or otherwise disposed of by the Company and its Restricted
Subsidiaries (other than Securitized Asset Transactions and other
transactions in the ordinary course of business) during the same
fiscal year, exceeds 15% of the Consolidated Net Tangible Assets of the
Company and its Restricted Subsidiaries determined as of the end of the
immediately preceding fiscal year or contributed more than 15% of Net
Income Available for Interest Charges, during the next preceding three
fiscal years taken as a whole. Sales or other realization on
delinquent receivables shall not be included in any computation of
sales or other dispositions hereunder. Sales of assets shall not be
included in any computations under this paragraph (d) to the extent
that (x) the proceeds from such sale are applied to prepay the Notes
pursuant to [Section] 2.2 hereof, (y) the proceeds from such sale are
applied to the voluntary prepayment of Funded Debt, or (z) the proceeds
of such sale are applied, within one year of such sale, to the purchase
of other property useful and to be used in the business of the Company
and its Restricted Subsidiaries and, pending such application, are
maintained by the Company or any Restricted Subsidiary in a separate
segregated account.
(2) The term "Tangible Minority Interests" shall mean, with
respect to any Restricted Subsidiary, the amount that bears the same
relationship to Minority Interests in such Subsidiary as the
Consolidated Tangible Net Worth of such Subsidiary bears to the net
worth of such Subsidiary. For purposes of this definition, the
"Consolidated Tangible Net Worth" of a Restricted Subsidiary shall be
determined for such Subsidiary and its Restricted Subsidiaries in
accordance with the definitions set forth in [Section] 8.1, mutatis
mutandis.
(3) "Securitized Asset Transaction" shall mean a sale or
other transfer by any of the Company and its Restricted Subsidiaries of
receivables which were produced in the ordinary course of business and
not contingent upon any performance or product guarantee on the part of
the Company or any Restricted Subsidiary, which sale or transfer does
not involve the creation of any recourse obligation in respect thereof
on the part of the Company or any Restricted Subsidiary (other than
matters of title to, and the character of, the receivables so sold or
transferred).
Section 5.14. Guaranties. The Company will not and will not permit
any Restricted Subsidiary to become or be liable in respect of any Guaranty
except Guaranties by the Company and its Restricted Subsidiaries of the
obligations of any Person so long as the Company and/or the Restricted
Subsidiary guaranteeing such obligation could have incurred such obligation
within the limits of this Agreement, provided that such underlying obligation
shall be deemed to have been incurred by, and to be the continuing direct
obligation of, the guarantor for all purposes of this Agreement.
Section 5.15. Repurchase of Notes. Neither the Company nor any
Restricted Subsidiary or Affiliate, directly or indirectly, may repurchase or
make any offer to repurchase any Notes unless the offer has been made to
repurchase Notes, pro rata, from all holders of the Notes at the same time and
upon the same terms. In case the Company repurchases any Notes, such Notes
shall thereafter be canceled and no Notes shall be issued in substitution
therefor.
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The Timberland Company Note Agreement
Section 5.16. Transactions with Affiliates. The Company will not,
and will not permit any Restricted Subsidiary to, enter into or be a party to,
any transaction or arrangement with any Affiliate (including without
limitation, the purchase from, sale to or exchange of property with, or the
rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Restricted Subsidiary's business and upon fair and reasonable terms (as
determined in good faith by the Board of Directors of the Company) no less
favorable to the Company or such Restricted Subsidiary than would obtain in a
comparable arm's-length transaction with a Person other than an Affiliate.
Section 5.17. Investments. The Company will not, and will not permit
any Restricted Subsidiary to, make any investments in or loans, advances or
extensions of credit to, any Person, except:
(a) investments, loans, advances and extensions of
credit by the Company and its Restricted Subsidiaries in a
corporation which, after giving effect to such investment,
will be a Restricted Subsidiary;
(b) investments in commercial paper maturing in 270
days or less from the date of issuance which, at the time of
acquisition by the Company or any Restricted Subsidiary, is
accorded a rating of P-1 by Standard & Poor's Corporation or a
rating of A-1 by Moody's Investors Services, Inc.;
(c) investments in direct obligations issued or
guaranteed by the full faith and credit of the United States of
America, maturing, except in the case of investments made with
security deposits of rental customers, in twelve months or less
from the date of acquisition thereof;
(d) investments in certificates of deposit maturing
within one year from the date of origin or other obligations
(including repurchase agreements), issued by a bank or trust
company organized under the laws of the United States or any
state thereof, having capital, surplus and undivided profits
aggregating at least $250,000,000 and a long term deposit
rating of A or better from either Standard & Poor's Corporation
or Moody's Investors Service, Inc.;
(e) loans or advances not exceeding $1,000,000 in
the aggregate in the usual and ordinary course of business to
officers, directors and employees of the Company and its
Restricted Subsidiaries;
(f) Investments in money market preferred stock,
which, at the time of acquisition by the Company or any
Restricted Subsidiary, is accorded a rating of AA or better by
Standard & Poor's Corporation or a rating of Aa2 or better by
Moody's Investors Services, Inc.;
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The Timberland Company Note Agreement
(g) Investments in money market mutual funds having
total assets aggregating at least $1,000,000,000 or which
invests primarily in assets described in clauses (b), (c), (d)
and (f) of this [Section] 5.17;
(h) Investments in demand deposits and endorsements
for collection;
(i) Investments to the extent that the
consideration therefor consists of capital stock of the
Company; and
(j) Restricted Investments, subject to the
limitations of [Section] 5.11.
In valuing any investments, loans and advances for the purpose of
applying the limitations set forth in this [Section] 5.17 and [Section] 5.11
such investments, loans and advances shall be taken at the original cost
thereof, without allowance for any subsequent write-offs or appreciation or
depreciation therein, but less any amount repaid or recovered on account of
capital or principal.
For purposes of this [Section] 5.17, at any time when a corporation
becomes a Restricted Subsidiary, all investments of such corporation at such
time shall be deemed to have been made by such corporation, as a Restricted
Subsidiary, at such time.
Section 5.18. Termination of Pension Plans. The Company will not and
will not permit any Subsidiary to permit any employee benefit plan maintained
by it to be terminated in a manner which could result in the imposition of a
Lien on any property of the Company or any Subsidiary pursuant to Section 4068
of the Employee Retirement Income Security Act of 1974, as amended, if the
incurrence of such Lien would not be permitted by [Section] 5.10.
Section 5.19. Reports and Rights of Inspection. The Company will
keep, and will cause each Subsidiary to keep, proper books of record and
account in which full and correct entries will be made of all dealings or
transactions of or in relation to the business and affairs of the Company or
such Subsidiary, in accordance with generally accepted accounting principles
consistently applied (except for changes disclosed in the financial statements
furnished to you pursuant to this [Section] 5.19 and concurred in by the
independent public accountants referred to in [Section] 5.19(b) hereof), and
will furnish to you so long as you are the holder of any Note and to each other
institutional holder of the then outstanding Notes (in duplicate if so
specified below or otherwise requested):
(a) Quarterly Statements. As soon as available and
in any event within 55 days after the end of each quarterly
fiscal period (except the last) of each fiscal year, duplicate
copies of:
(1) consolidated and consolidating balance
sheets of the Company and its Restricted Subsidiaries
and of the Company and its consolidated Subsidiaries as
of the close of such quarter setting forth, in the case
of such consolidated statements, in comparative form
the amount for the end of the preceding fiscal year,
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The Timberland Company Note Agreement
(2) consolidated and consolidating
statements of income of the Company and its Restricted
Subsidiaries and of the Company and its consolidated
Subsidiaries for such quarterly period, setting forth,
in the case of such consolidated statements, in
comparative form the amount for the corresponding
period of the preceding fiscal year, and
(3) consolidated statements of cash flows
of the Company and its Restricted Subsidiaries and of
the Company and its consolidated Subsidiaries for the
portion of the fiscal year ending with such quarter,
setting forth in comparative form the amount for the
corresponding period of the preceding fiscal year,
all in reasonable detail and certified as complete and correct, by an
authorized financial officer of the Company, provided that so long as the
Company shall file a quarterly report on Form 10-Q or any similar form with the
Securities and Exchange Commission or any successor agency which contains the
information set forth in this paragraph (a), the requirements of this paragraph
(a) shall be satisfied by forwarding Form 10-Q to the holders of the Notes
within 55 days after the end of such quarterly fiscal period but, in any event,
within five days of filing such Form 10-Q with the Securities and Exchange
Commission, and provided, further that so long as the Unrestricted Subsidiaries
of the Company taken as a whole do not constitute a Significant Subsidiary, the
Company shall not be required to deliver to you financial statements of the
Company and its Restricted Subsidiaries referred to in paragraphs (1), (2) and
(3) of this [Section] 5.19(a);
(b) Annual Statements. As soon as available and in
any event within 110 days after the close of each fiscal year
of the Company, duplicate copies of:
(1) consolidated and consolidating balance
sheets of the Company and its Restricted Subsidiaries
and of the Company and its consolidated Subsidiaries as
of the close of such fiscal year, and
(2) consolidated and consolidating
statements of income and stockholders' equity and cash
flows of the Company and its Restricted Subsidiaries
and of the Company and its consolidated Subsidiaries
for such fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by an opinion
thereon of a firm of independent public accountants of recognized national
standing selected by the Company to the effect that the consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied (except for changes in application in which
such accountants concur) and present fairly the financial condition of the
companies reported on and that the examination of such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards and accordingly,
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The Timberland Company Note Agreement
includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances, provided that so long as the Company shall file an
annual report on Form 10-K or any similar form with the Securities
and Exchange Commission or any successor agency which contains the
information set forth in this paragraph (b), the requirements of
this paragraph (b) shall be satisfied by forwarding Form 10-K to the
holders of the Notes within 110 days after the end of such fiscal
year but, in any event, within five days of filing such Form 10-K
with the Securities and Exchange Commission, and provided further
that so long as the Unrestricted Subsidiaries of the Company taken
as a whole do not constitute a Significant Subsidiary, the Company
shall not be required to deliver to you financial statements of the
Company and its Restricted Subsidiaries referred to in paragraphs
(1) and (2) of this [Section] 5.19(b);
(c) Audit Reports. Promptly upon receipt thereof, one copy
of each interim or special audit made by independent accountants of
the books of the Company or any Restricted Subsidiary and any
management letter received from such accountants;
(d) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or
proxy statement sent by the Company to stockholders generally and of
each regular or periodic report, and any registration statement or
prospectus filed by the Company or any Subsidiary with any
securities exchange or the Securities and Exchange Commission or any
successor agency, and copies of any orders in any proceedings to
which the Company or any of its Subsidiaries is a party, issued by
any governmental agency, Federal or state, having jurisdiction over
the Company or any of its Subsidiaries;
(e) Requested Information. With reasonable promptness,
such other data and information as you or any such institutional
holder may reasonably request, provided, that with respect to any
data and information obtained by you as a result of any request
pursuant to this paragraph (e), you agree that, to the extent that
such data and information has not theretofore otherwise been
disclosed by or as authorized by the Company in such a manner as to
render such data and information no longer confidential, you will
use reasonable efforts (consistent with your established procedures)
to reasonably maintain (and cause persons referred to in (i) below
to maintain) the confidential nature of the data and information
therein contained; provided, that anything herein contained to the
contrary notwithstanding, you may, to the extent necessary, disclose
or disseminate such data and information to: (i) your employees,
agents, attorneys, and accountants who would ordinarily have access
to such data and information in the normal course of the performance
of their duties; (ii) such third parties as you may, in your
discretion, deem reasonably necessary or desirable in connection
with or in response to (x) compliance with any law, ordinance or
governmental order, regulation, rule, policy, subpoena,
investigation, regulatory authority request or request, or (y) any
order, decree, judgment, subpoena, notice of discovery or similar
ruling or pleading issued, filed, served or purported on its face to
be issued, filed or served (A) by or under authority of any court,
tribunal, arbitration board of any governmental or industry agency,
commission, authority,
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The Timberland Company Note Agreement
board or similar entity or (B) in connection with any proceeding,
case or matter pending (or on its face purported to be pending)
before any court, tribunal, arbitration board or any governmental
agency, commission, authority, board or similar entity; (iii) any
prospective purchaser, securities broker or dealer or investment
banker in connection with the resale or proposed resale by you of
any portion of the Notes who shall agree in writing to accept such
information subject to the provisions of this paragraph (e); (iv)
any Person holding your debt Securities who shall have requested to
inspect such information subject to the provisions of this paragraph
(e); (v) the National Association of Insurance Commissioners; and
(vi) any entity utilizing such information to rate or classify your
debt or equity Securities or to report to the public concerning the
industry of which you are a part; and, provided further, that you
shall not be liable to the Company or any other Person for damages
for any failure by you, despite your reasonable efforts so to do,
to comply with the provisions of this paragraph (e).
(f) Officers' Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized
financial officer of the Company stating that he has reviewed the
provisions of this Agreement and setting forth: (i) the information
and computations (in sufficient detail) required in order to
establish whether the Company was in compliance with the
requirements of [Section] 5.5 through [Section] 5.18, inclusive, at
the end of the period covered by the financial statements then being
furnished, and (ii) whether there existed as of the date of such
financial statements and whether, to the best of his knowledge,
there exists on the date of the certificate or existed at any time
during the period covered by such financial statements any Default
or Event of Default and, if any such condition or event exists on
the date of the certificate, specifying the nature and period of
existence thereof and the action the Company is taking and proposes
to take with respect thereto;
(g) Accountant's Certificates. Within the period provided
in paragraph (b) above, a certificate of the accountants who render
an opinion with respect to such financial statements, stating that
they have reviewed this Agreement and stating further, whether in
making their audit, such accountants have become aware of any
Default or Event of Default under any of the terms or provisions of
[Section] 5.6 through [Section] 5.14, inclusive, [Section] 5.17 or
[Section] 5.18 of this Agreement insofar as any such terms or
provisions pertain to or involve accounting matters or
determinations, and if any such condition or event then exists,
specifying the nature and period of existence thereof; and
(h) Unrestricted Subsidiaries. Within the respective
periods provided in paragraph (b) above, financial statements of the
character and for the dates and periods as in said paragraph (b)
provided covering Unrestricted Subsidiaries on a consolidated and
consolidating basis.
Without limiting the foregoing, the Company will permit you, so
long as you are the holder of any Note, and each institutional holder of the
then outstanding Notes (or such Persons as either you or such holder may
designate) to visit and inspect, under the
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The Timberland Company Note Agreement
Company's guidance, any of the properties of the Company or any Subsidiary, to
examine all their books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers, employees, and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss with you the finances and affairs of the Company
and its Subsidiaries) all at such reasonable times and as often as may be
reasonably requested. The Company shall not be required to pay or reimburse
you or any such holder for expenses which you or any such holder may incur in
connection with any such visitation or inspection.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
Section 6.1. Events of Default. Any one or more of the following
shall constitute an "Event of Default" as the term is used herein:
(a) Default shall occur in the payment of interest on any
Note when the same shall have become due and such default shall
continue for more than five days; or
(b) Default shall occur in the making of any payment of the
principal of any Note or the premium thereon at any date fixed for
prepayment; or
(c) Default shall occur in the making of any other payment
of the principal of any Note or the premium thereon at the expressed
or any accelerated maturity date; or
(d) Default shall be made in the payment of the principal
of or interest on any Indebtedness of the Company or any Restricted
Subsidiary for borrowed money in an aggregate principal amount in
excess of $1,000,000, as and when the same shall become due and
payable by the lapse of time, by declaration, by call for redemption
or otherwise, and such default shall continue beyond the period of
grace, if any, allowed with respect thereto; or
(e) Default or the happening of any event shall occur under
any indenture, agreement, or other instrument under which any
Indebtedness of the Company or any Restricted Subsidiary for
borrowed money in an aggregate principal amount in excess of
$1,000,000 may be issued and such default or event shall continue
for a period of time sufficient to permit the acceleration of the
maturity of any Indebtedness of the Company or any Restricted
Subsidiary outstanding thereunder; or
(f) Default shall occur in the observance or performance of
any covenant or agreement contained in [Section] 5.6 through
[Section] 5.15, inclusive, or [Section] 5.17 hereof; or
(g) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied within
30 days after notice thereof to the Company by the holder of any
Note; or
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The Timberland Company Note Agreement
(h) If any representation or warranty made by the Company
herein, or made by the Company in any statement or certificate
furnished by the Company in connection with the consummation of the
issuance and delivery of the Notes or furnished by the Company
pursuant hereto, is untrue in any material respect as of the date of
the issuance or making thereof; or
(i) The Company or any Significant Subsidiary which is a
Restricted Subsidiary becomes insolvent or bankrupt, is generally
not paying its debts as they become due or makes an assignment for
the benefit of creditors, or the Company or any Significant
Subsidiary which is a Restricted Subsidiary causes or suffers an
order for relief to be entered with respect to it under applicable
Federal bankruptcy law or applies for or consents to the appointment
of a custodian, trustee or receiver for the Company or such
Significant Subsidiary which is a Restricted Subsidiary or for the
major part of the property of either; or
(j) A custodian, trustee or receiver is appointed for the
Company or any Significant Subsidiary which is a Restricted
Subsidiary or for the major part of the property of either and is
not discharged within 30 days after such appointment; or
(k) Final judgment or judgments for the payment of money
aggregating in excess of $100,000 is or are outstanding against the
Company or any Significant Subsidiary which is a Restricted
Subsidiary or against any property or assets of either and any one
of such judgments has remained unpaid, unvacated, unbonded or
unstayed by appeal or otherwise for a period of 30 days from the
date of its entry; or
(l) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Significant Subsidiary which is a
Restricted Subsidiary and, if instituted against the Company or any
Significant Subsidiary which is a Restricted Subsidiary, are
consented to or are not dismissed within 60 days after such
institution.
Section 6.2. Notice to Holders. When any Event of Default described
in the foregoing [Section] 6.1 has occurred, or if the holder of any Note or
of any other evidence of Indebtedness of the Company gives any notice or takes
any other action with respect to a claimed default, the Company agrees to give
prompt notice of such event to all holders of the Notes then outstanding, such
notice to be in writing and sent by registered or certified mail or by
telegram.
Section 6.3. Acceleration of Maturities. When any Event of Default
described in paragraph (a), (b) or (c) of [Section] 6.1 has happened and is
continuing, any holder of any Note may declare its Notes to be, and its Notes
shall thereupon become, forthwith due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived. When any Event of Default described in paragraphs (a) through (h),
inclusive, and (k) of said [Section] 6.1 has happened and is continuing, the
holder or holders of 25% or more of the principal amount of Notes at the time
outstanding may, by
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The Timberland Company Note Agreement
notice in writing sent by registered or certified mail to the Company, declare
the entire principal and all interest accrued on all Notes to be, and all Notes
shall thereupon become, forthwith due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived. When any Event of Default described in paragraphs (i), (j) and (l) of
[Section] 6.1 has occurred, then all outstanding Notes shall immediately become
due and payable without presentment, demand or notice of any kind. Upon any or
all Notes becoming due and payable as a result of any Event of Default as
aforesaid, the Company will forthwith pay to the holders of such Notes the
entire principal and interest accrued on such Notes and, with respect to a
payment made as a result of an Event of Default described in paragraph (a),
(b), (c) or (f) of [Section] 6.1, and to the extent permitted by law,
liquidated damages for the loss of the bargain evidenced hereby in an amount
equal to the Make-Whole Amount. No course of dealing on the part of any
Noteholder nor any delay or failure on the part of any Noteholder to exercise
any right shall operate as a waiver of such right or otherwise prejudice such
holder's rights, powers and remedies. The Company further agrees, to the
extent permitted by law, to pay to the holder or holders of the Notes all costs
and expenses incurred by them in the collection of any Notes upon any default
hereunder or thereon, including reasonable compensation to such holder's or
holders' attorneys for all services rendered in connection therewith.
Section 6.4. Rescission of Acceleration. The provisions of
[Section] 6.3 are subject to the condition that if the principal of and accrued
interest on all or any outstanding Notes have been declared immediately due and
payable by reason of the occurrence of any Event of Default described in
paragraphs (a) through (h), inclusive, and (k) of [Section] 6.1, the holders of
51% in aggregate principal amount of the Notes then outstanding may, by written
instrument filed with the Company, rescind and annul such declaration and the
consequences thereof, provided that at the time such declaration is annulled
and rescinded:
(a) no judgment or decree has been entered for the payment
of any monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all
other sums payable under the Notes and under this Agreement (except
any principal, interest or premium on the Notes which has become due
and payable solely by reason of such declaration under [Section]
6.3) shall have been duly paid; and
(c) each and every other Default and Event of Default shall
have been made good, cured or waived pursuant to [Section] 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right
consequent thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
Section 7.1. Consent Required. (a) Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular
instance and either retroactively or
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The Timberland Company Note Agreement
prospectively), if the Company shall have obtained the consent in writing of
the holders of at least 51% in aggregate principal amount of outstanding Notes;
provided that without the written consent of the holders of all of the Notes
then outstanding, no such waiver, modification, alteration or amendment shall
be effective (i) which will change the time of payment of the principal of or
the interest on any Note or change the principal amount thereof or change the
rate of interest thereon, or (ii) which will change any of the provisions with
respect to optional prepayments, or (iii) which will change the percentage of
holders of the Notes required to consent to any such amendment, alteration or
modification or any of the provisions of this [Section] 7 or [Section] 6.
(b) So long as any outstanding Notes are owned by you, the Company
will not solicit, request or negotiate for or with respect to any proposed
waiver or amendment of any of the provisions of this Agreement or the Notes
unless each holder of the Notes (irrespective of the amount of Notes then owned
by it) shall be informed thereof by the Company and shall be afforded the
opportunity of considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with respect
thereto. Executed or true and correct copies of any waiver or consent effected
pursuant to the provisions of this [Section] 7.1 shall be delivered by the
Company to each holder of outstanding Notes forthwith following the date on
which the same shall have been executed and delivered by the holder or holders
of the requisite percentage of outstanding Notes. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by
way of supplemental or additional interest, fee or otherwise, to any holder of
the Notes as consideration for or as an inducement to the entering into by any
holder of the Notes of any waiver or amendment of any of the terms and
provisions of this Agreement unless such remuneration is concurrently paid, on
the same terms, ratably to the holders of all of the Notes then outstanding,
provided however, that if any holder of Notes fails to consent to a transaction
which will result in a violation of [Section] 5.13 hereof, and as a result of
such failure the Notes of such holder are prepaid pursuant to [Section] 2.3
hereof, such holder shall not be entitled to any remuneration pursuant to this
[Section] 7.1(b) in connection with the requested consent to such transaction.
Section 7.2. Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the holders of the Notes and shall be
binding upon them, upon each future holder of any Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation
not expressly amended or waived or impair any right consequent thereon.
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
Section 8.1. Definitions. Unless the context otherwise requires,
the terms hereinafter set forth when used herein shall have the following
meanings and the following definitions shall be equally applicable to both the
singular and plural forms of any of the terms herein defined:
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The Timberland Company Note Agreement
"Affiliate" shall mean any Person (other than a Restricted Subsidiary)
(i) which directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company or (iii) 5% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise.
"Capitalized Lease" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a balance sheet of the
lessee in accordance with generally accepted accounting principles.
"Capitalized Rentals" shall mean as of the date of any determination
the amount at which the aggregate Rentals due and to become due under all
Capitalized Leases under which the Company or any Restricted Subsidiary is a
lessee would be reflected as a liability on a consolidated balance sheet of the
Company and its Restricted Subsidiaries.
"Consolidated Current Assets" and "Consolidated Current Liabilities"
shall mean such assets and liabilities of the Company and its Restricted
Subsidiaries on a consolidated basis as shall be determined in accordance with
generally accepted accounting principles to constitute current assets and
current liabilities (including in current liabilities, in any event, Guaranties
of current liabilities of others), respectively.
"Consolidated Net Income" for any period shall mean the gross revenues
of the Company and its Restricted Subsidiaries for such period less all
expenses and other proper charges (including taxes on income), determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied and after eliminating earnings or losses attributable to
outstanding Minority Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of
investments or fixed or capital assets, to the extent any such gain
or loss constitutes an "extraordinary item" under generally
accepted accounting principles, and any taxes on such excluded
gains and any tax deductions or credits on account of any such
excluded losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(d) net earnings and losses of any corporation (other than
a Restricted Subsidiary), substantially all the assets of which
have been acquired in any manner, realized by such other
corporation prior to the date of such acquisition;
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The Timberland Company Note Agreement
(e) net earnings and losses of any corporation (other than
a Restricted Subsidiary) with which the Company or a Restricted
Subsidiary shall have consolidated or which shall have merged into
or with the Company or a Restricted Subsidiary prior to the date of
such consolidation or merger;
(f) net earnings of any business entity (other than a
Restricted Subsidiary) in which the Company or any Restricted
Subsidiary has an ownership interest unless such net earnings shall
have actually been received by the Company or such Subsidiary in
the form of cash distributions;
(g) any portion of the net earnings of any Restricted
Subsidiary which for any reason is unavailable for payment of
dividends to the Company or any other Restricted Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of
the equity in any Subsidiary at the date of acquisition thereof
over the amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any Securities
of the Company or any Restricted Subsidiary; and
(k) any reversal of any contingency reserve, except to the
extent that provision for such contingency reserve shall have been
made from income arising during such period.
"Consolidated Net Tangible Assets" shall mean as of the date of any
determination thereof the total amount of all Tangible Assets of the Company
and its Restricted Subsidiaries after deducting all Restricted Investments and
all items which in accordance with generally accepted accounting principles
would be included on the liability side of a consolidated balance sheet, except
deferred income taxes, deferred investment tax credits, capital stock of any
class, surplus, and Funded Debt.
"Consolidated Tangible Net Worth" shall mean, as of the date of any
determination thereof, Consolidated Net Tangible Assets less all outstanding
Funded Debt, deferred income taxes, deferred investment tax credits and
Minority Interests, all determined in accordance with generally accepted
accounting principles consolidating the Company and its Restricted
Subsidiaries.
"Current Debt" as of the date of any determination thereof shall mean
(i) all Indebtedness for money borrowed other than Funded Debt, (ii) all
Indebtedness with respect to documentary letters of credit and bankers'
acceptances, and (iii) Guaranties of Current Debt of others. "Consolidated"
when used as a prefix to any Current Debt shall mean the aggregate amount of
all such Current Debt of the Company and its Restricted Subsidiaries on a
consolidated basis eliminating intercompany items.
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The Timberland Company Note Agreement
"Default" shall mean any event or condition, the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default as defined in [Section] 6.1.
"Fixed Charges" for any period shall mean on a consolidated basis the
sum of (i) all Rentals (other than Rentals on Capitalized Leases) payable
during such period by the Company and its Restricted Subsidiaries, and (ii) all
Interest Charges during such period on all Indebtedness (including the interest
component of Rentals on Capitalized Leases) of the Company and its Restricted
Subsidiaries.
"Funded Debt" of any Person shall mean (i) all Indebtedness for
borrowed money or which has been incurred in connection with the acquisition of
assets in each case having a final maturity of one or more than one year from
the date of origin thereof (or which is renewable or extendible at the option
of the obligor for a period or periods of one or more than one year from the
date of origin, but excluding revolving lines of credit renewable or extendible
at the option of the obligor for a period or periods of one or more than one
year from the date of origin except to the extent such option shall have been
exercised), including all payments in respect thereof that are required to be
made within one year from the date of any determination of Funded Debt, whether
or not included in Consolidated Current Liabilities, (ii) all Capitalized
Rentals, and (iii) all Guaranties of Funded Debt of others. "Consolidated"
when used as a prefix to any Funded Debt shall mean the aggregate amount of all
such Funded Debt of the Company and its Restricted Subsidiaries on a
consolidated basis eliminating intercompany items.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, all obligations incurred through an agreement, contingent
or otherwise, by such Person: (i) to purchase such Indebtedness or obligation
or any property or assets constituting security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of such Indebtedness or
obligation, (y) to maintain working capital or other balance sheet condition or
otherwise to advance or make available funds for the purchase or payment of
such Indebtedness or obligation, or (iii) to lease property or to purchase
Securities or other property or services primarily for the purpose of assuring
the owner of such Indebtedness or obligation of the ability of the primary
obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to
assure the owner of the Indebtedness or obligation of the primary obligor
against loss in respect thereof. For the purposes of all computations made
under this Agreement, a Guaranty in respect of any Indebtedness for borrowed
money shall be deemed to be Indebtedness equal to the principal amount of such
Indebtedness for borrowed money which has been guaranteed, and a Guaranty in
respect of any other obligation or liability or any dividend shall be deemed to
be Indebtedness equal to the maximum aggregate amount of such obligation,
liability or dividend.
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The Timberland Company Note Agreement
"Indebtedness" of any Person shall mean and include all obligations of
such Person which in accordance with generally accepted accounting principles
shall be classified upon a balance sheet of such Person as liabilities of such
Person, and in any event shall include all (i) obligations of such Person for
borrowed money or which has been incurred in connection with the acquisition of
property or assets, (ii) obligations secured by any Lien upon property or
assets owned by such Person, even though such Person has not assumed or become
liable for the payment of such obligations, (iii) obligations created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person, notwithstanding the fact that the
rights and remedies of the seller, lender or lessor under such agreement in the
event of default are limited to repossession or sale of property, and (iv)
Capitalized Rentals under any Capitalized Lease. For the purpose of computing
the Indebtedness of any Person, there shall be excluded any particular
Indebtedness to the extent that, upon or prior to the maturity thereof, there
shall have been deposited with the proper depository in trust the necessary
funds (or evidences of such Indebtedness, if permitted by the instrument
creating such Indebtedness) for the payment, redemption or satisfaction of such
Indebtedness; and thereafter such funds and evidences of Indebtedness so
deposited shall not be included in any computation of the assets of such
Person.
"Interest Charges" for any period shall mean all interest and all
amortization of debt discount and expense on any particular Indebtedness for
which such calculations are being made. Computations of Interest Charges on a
pro forma basis for Indebtedness having a variable interest rate shall be
calculated at the rate in effect on the date of any determination.
"Lien" shall mean any mortgage, pledge, security interest, lien,
encumbrance or other charge of any kind on any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Make-Whole Amount" as at any date a payment thereof is due (the
"payment date") in connection with a payment or prepayment in respect of the
Notes shall mean the excess of (i) the present value as at the payment date of
the remaining principal and interest payments to become due in respect of that
portion of the principal amount of the Notes to be so paid or prepaid,
discounted semiannually at an annual rate which is equal to the Treasury Rate
plus 0.50% over (ii) the aggregate principal amount of the Notes then to be
paid or prepaid plus accrued interest on such principal amount. To the extent
that the Treasury Rate plus 0.50% at the time of determination of the
Make-Whole Amount is equal to or higher than 8.94%, the Make-Whole Amount is
zero. For purposes of any determination of the Make-Whole Amount:
(a) The applicable "Treasury Rate" means the
yield to maturity implied by the yields reported, as of 10:00 a.m.
(New York City time) on the business day next preceding the payment
date, on the display designated as "Page 678" on the Telerate
Service (or such other display as may replace "Page 678" on the
Telerate Service) for actively traded U.S. Treasury securities
having a maturity equal, or if such yields shall not be reported as
of such time or the yields reported as of such time shall not be
ascertainable, the yield to maturity of customarily-issued United
States Treasury obligations with a constant maturity (as compiled
by and published in the United States Federal Reserve Bulletin
H.15(519) or its successor publication for each of the two weeks
immediately preceding the payment date) most nearly equal to the
remaining Weighted Average Life to Maturity of the Notes as of the
business day next preceding the payment date. If no maturity
exactly corresponding to such remaining Weighted Average Life to
Maturity shall appear therein, yields for the two most closely
corresponding published maturities shall be calculated pursuant
to the foregoing sentence and the Treasury Rate shall be interpolated
from such yields on a straight-line basis (rounding to the
nearest month).
-27-
32
The Timberland Company Note Agreement
If such rates shall not have been so published, the Treasury
Rate in respect of such determination date shall be calculated
pursuant to the next preceding sentence on the basis of the
arithmetic mean of the arithmetic means of the secondary market ask
rates, as of approximately 3:30 P.M., New York City time, on the
last business days of each of the two weeks preceding the payment
date, for the actively traded U.S. Treasury security or securities
with a maturity or maturities most closely corresponding to such
Weighted Average Life to Maturity, as reported by three primary
United States Government securities dealers in New York City of
national standing selected in good faith by the Company.
(b) "Weighted Average Life to Maturity" with respect to the
Notes means, as at the payment date, the number of years obtained by
dividing the then Remaining Dollar-years of the Notes by the
outstanding principal amount of the Notes. The term "Remaining
Dollar-years" of the Notes means the product obtained by (i)
multiplying (A) the amount of each then remaining required principal
repayment (including repayment at final maturity), by (B) the number
of years (calculated to the nearest one-twelfth) which will elapse
between the time of determination and the date such required
repayment is due, and (ii) totaling all the products obtained in the
computations described in clause (i).
"Minority Interests" shall mean any shares of stock of any class of a
Restricted Subsidiary (other than directors' qualifying shares as required by
law, and other than shares of the Class A Stock of The Outdoor Footwear Company
so long as the number of outstanding shares of such Class A Stock do not exceed
50,000 at any time and the certificate of incorporation of The Outdoor Footwear
Company is not amended after the date hereof to increase the rights of the
holders of Class A Stock in the event of a liquidation of The Outdoor Footwear
Company) that are not owned by the Company and/or one or more of its Restricted
Subsidiaries. Minority Interests shall be valued by valuing Minority Interests
constituting preferred stock at the voluntary or involuntary liquidating value
of such preferred stock, whichever is greater, and by valuing Minority
Interests constituting common stock at the book value of capital and surplus
applicable thereto adjusted, if necessary, to reflect any changes from the book
value of such common stock required by the foregoing method of valuing Minority
Interests in preferred stock.
"Net Income Available for Fixed Charges" for any period shall mean the
sum of (i) Consolidated Net Income during such period plus (to the extent
deducted in determining Consolidated Net Income), (ii) all provisions for any
Federal, state or other income taxes
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33
The Timberland Company Note Agreement
made by the Company and its Restricted Subsidiaries during such period and
(iii) Fixed Charges of the Company and its Restricted Subsidiaries during such
period.
"Net Income Available for Interest Charges" for any period shall mean
the sum of (i) Consolidated Net Income during such period plus (to the extent
deducted in determining Consolidated Net Income), (ii) all provisions for any
Federal, state or other income taxes made by the Company and its Restricted
Subsidiaries during such period and (iii) Interest Charges during such period,
determined on a pro forma basis giving effect as of the beginning of such
period (x) to the disposition during such period of assets constituting a
substantial part of the assets of the Company and its Restricted Subsidiaries
taken as a whole, (y) to the acquisition or disposition during such period of
all or substantially all of the stock or assets of an entity or assets
consisting of a line of business of an entity, and (z) to the acquisition,
designation or disposition during such period of a Restricted Subsidiary;
provided, however, that any such determination of the amount to be included in
Consolidated Net Income on a pro forma basis taking into account the earnings
of an entity, the stock or assets of which have been acquired by the Company or
a Restricted Subsidiary, shall include only such amounts as are based on the
actual historical financial results of such entity during such period,
determined in accordance with generally accepted accounting principles.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.
"Pro Forma Interest Charges" for any period shall mean, as of the date
of any determination thereof, the maximum aggregate amount of Interest Charges
which would have become payable by the Company and its Restricted Subsidiaries
in such period determined on a pro forma basis giving effect as of the
beginning of such period to the incurrence of any Funded Debt (including
Capitalized Rentals) and the retirement of outstanding Funded Debt or
termination of any Capitalized Leases.
"Rentals" shall mean and include all fixed rents (including as such all
payments which the lessee is obligated to make to the lessor on termination of
the lease or surrender of the property) payable by the Company or a Restricted
Subsidiary, as lessee or sublessee under a lease of real or personal property,
but shall be exclusive of any amounts required to be paid by the Company or a
Restricted Subsidiary (whether or not designated as rents or additional rents)
on account of maintenance, repairs, insurance, taxes and similar charges. Fixed
rents under any so-called, "percentage leases" shall be computed solely on the
basis of the minimum rents, if any, required to be paid by the lessee
regardless of sales volume or gross revenues.
"Restricted Investments" shall mean all investments, loans and advances
existing on or made after the date of this Agreement of the Company and its
Restricted Subsidiaries other than investments, loans or advances permitted by
paragraphs (a) through (i), inclusive, of [Section] 5.17 hereof. The Company
and its Restricted Subsidiaries shall be deemed to have made a Restricted
Investment (i) to the extent of the equity of the Company and its Restricted
Subsidiaries in the net assets of a Restricted Subsidiary which has become an
Unrestricted
-29-
34
The Timberland Company Note Agreement
Subsidiary on the date that the Restricted Subsidiary becomes an Unrestricted
Subsidiary and (ii) to the extent of the value of any non-cash consideration
received by the Company and its Restricted Subsidiaries in connection with a
sale of stock or Indebtedness permitted by [Section] 5.13(c)(3) hereof.
"Restricted Subsidiary" shall mean any Subsidiary which is designated
as a Restricted Subsidiary on Annex A of the Closing Certificate or any other
Subsidiary (i) which is organized under the laws of the United States or any
State thereof, Canada, Cayman Islands, the Dominican Republic, France, Puerto
Rico, the United Kingdom, West Germany, Australia, Austria, Belgium, Denmark,
Finland, Republic of Ireland, Italy, Luxembourg, Netherlands, New Zealand,
Norway, Portugal, Spain, Sweden, Switzerland, and U.S. Virgin Islands; (ii)
which conducts substantially all of its business and has substantially all of
its assets within the United States, Canada, the Dominican Republic, France,
Puerto Rico, the United Kingdom, West Germany, Australia, Austria, Belgium,
Denmark, Finland, Republic of Ireland, Italy, Luxembourg, Netherlands, New
Zealand, Norway, Portugal, Spain, Sweden, Switzerland, and U.S. Virgin Islands;
(iii) of which more than 75% (by number of votes) of the Voting Stock is owned
by the Company and/or one or more Restricted Subsidiaries; and (iv) which is
designated a Restricted Subsidiary at the time it first becomes a Subsidiary,
provided, the Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary but only if (i) after giving effect to
such designation the Company and its Restricted Subsidiaries could incur $1 of
additional Consolidated Funded Debt and (ii) at the time of such designation
and after giving effect thereto no Default or Event of Default shall have
occurred and be continuing. Any Subsidiary which is designated by the Board of
Directors of the Company as a Restricted Subsidiary after having been an
Unrestricted Subsidiary may not be redesignated an Unrestricted Subsidiary. The
Company shall give prompt notice to the Noteholders of designation of a
Restricted Subsidiary.
"Security" shall have the same meaning as in Section 2(1)of the
Securities Act of 1933, as amended.
"Significant Subsidiary" shall mean any Subsidiary which meets any of
the following conditions:
(1) The Company's and its other Subsidiaries' investments
in and advances to the Subsidiary exceed 10 percent of the Consolidated
Tangible Net Worth of the Company and its Subsidiaries as of the end of
the most recently completed fiscal year; or
(2) The Company's and its other Subsidiaries' proportionate
share of the Consolidated Tangible Net Worth of the Subsidiary exceeds
10 percent of the Consolidated Tangible Net Worth of the Company and
its Subsidiaries as of the end of the most recently completed fiscal
year; or
(3) The Company's and its other Subsidiaries' equity in the
income from continuing operations before income taxes, extraordinary
items and cumulative effect
-30-
35
The Timberland Company Note Agreement
of a change in accounting principle of the Subsidiary exceeds 10
percent of such income of the Company and its Subsidiaries consolidated
for the most recently completed fiscal year.
"Specified Debt" shall mean, without duplication, any Indebtedness of
Restricted Subsidiaries which Indebtedness is permitted by [Section] 5.8(a)(5)
hereof and any Indebtedness of the Company secured by Liens permitted by
[Section] 5.10(j) hereof.
The term "subsidiary" shall mean, as to any particular parent
corporation, any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be owned by such parent corporation and/or one or more
corporations which are themselves subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a subsidiary of the Company.
"Tangible Assets" shall mean as of the date of any determination
thereof, the total amount of all assets of the Company and its Restricted
Subsidiaries (less depreciation, depletion and other properly deductible
valuation reserves) after deducting good will, patents, trade names, trade
marks, copyrights, franchises, experimental expense, organization expense,
unamortized debt discount and expense, deferred assets other than prepaid
insurance and prepaid taxes, the excess of cost of shares acquired over book
value of related assets and such other assets as are properly classified as
"intangible assets" in accordance with generally accepted accounting
principles.
"Total Debt" of the Company and its Restricted Subsidiaries as at any
date shall mean the sum of (i) Consolidated Funded Debt of the Company and its
Restricted Subsidiaries as at such date, plus (ii) the Average Outstanding
during the applicable Low Period. For purposes of this definition:
(a) "Average Outstanding" shall mean the average of the
unpaid principal amounts of Consolidated Current Debt of the Company
and its Restricted Subsidiaries outstanding at the close of business on
each day within a period of 30 consecutive days; and
(b) "Low Period" shall mean the period of 30 consecutive
days for which Average Outstanding is the lowest of any period of 30
consecutive days during the period of 15 consecutive months ending with
the date of determination of Total Debt.
"Total Equity" as at any date shall mean stockholders' equity
determined in accordance with generally accepted accounting principles
consolidating the Company and its Restricted Subsidiaries.
"Unrestricted Subsidiary" shall mean any Subsidiary which is not a
Restricted Subsidiary; provided, that the Board of Directors may designate any
Restricted Subsidiary as an Unrestricted Subsidiary but only if (i) the
Subsidiary so designated shall then own no Funded Debt or capital stock of any
Restricted Subsidiary, (ii) after giving effect to such designation, the
Company and its Restricted Subsidiaries could issue $1 of additional
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36
The Timberland Company Note Agreement
Consolidated Funded Debt and (iii) at the time of such designation and after
giving effect thereto no Default or Event of Default shall have occurred and be
continuing. Any Subsidiary which is designated by the Board of Directors of
the Company as an Unrestricted Subsidiary after having been a Restricted
Subsidiary may not be redesignated a Restricted Subsidiary. The Company shall
give prompt notice to the Noteholders of any designation of an Unrestricted
Subsidiary.
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares and, in the case of The Outdoor
Footwear Company, Class A Stock so long as such Class A Stock is excluded from
the definition of "Minority Interests") are owned by the Company and its
Wholly-owned Subsidiaries.
Section 8.2. Accounting Principles. Where the character or
amount of any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required to
be made for the purposes of this Agreement, the same shall be done in
accordance with generally accepted accounting principles, to the extent
applicable, except where such principles are inconsistent with the requirements
of this Agreement.
Section 8.3. Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person.
SECTION 9. MISCELLANEOUS.
Section 9.1. Registered Notes. The Company shall cause to be kept
at its principal office a register for the registration and transfer of the
Notes (hereinafter called the "Note Register"), and the Company will register
or transfer or cause to be registered or transferred, as hereinafter provided
and under such reasonable regulations as it may prescribe, any Note issued
pursuant to this Agreement.
At any time and from time to time the registered holder of any Note
which has been duly registered as hereinabove provided may transfer such Note
upon surrender thereof at the principal office of the Company duly endorsed or
accompanied by a written instrument of transfer duly executed by the registered
holder of such Note or its attorney duly authorized in writing.
The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof for all purposes of this
Agreement. Payment of or
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37
The Timberland Company Note Agreement
on account of the principal, premium, if any, and interest on any registered
Note shall be made to or upon the written order of such registered holder.
Section 9.2. Exchange of Notes;. At any time, and from time to time,
upon not less than ten days' notice to that effect given by the holder of any
Note initially delivered or of any Note substituted therefor pursuant to
[Section] 9.1, this [Section] 9.2 or [Section] 9.3, and, upon surrender of
such Note at its office, the Company will deliver in exchange therefor, without
expense to the holder, except as set forth below, Notes for the same aggregate
principal amount as the then unpaid principal amount of the Note so
surrendered, in the denomination of $100,000 or any amount in excess thereof as
such holder shall specify, dated as of the date to which interest has been paid
on the Note so surrendered or, if such surrender is prior to the payment of any
interest thereon, then dated as of the date of issue, payable to such Person or
Persons, or order, as may be designated by such holder, and otherwise of the
same form and tenor as the Notes so surrendered for exchange. The Company may
require the payment of a sum sufficient to cover any stamp tax or governmental
charge imposed upon such exchange or transfer.
Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
any Note, and in the case of any such loss, theft or destruction upon delivery
of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation upon surrender
and cancellation of the Note, the Company will make and deliver without expense
to the holder thereof, a new Note, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Note. If the Purchaser or any subsequent institutional
holder is the owner of any such lost, stolen or destroyed Note, then the
affidavit of an authorized officer of such owner, setting forth the fact of
loss, theft or destruction and of its ownership of the Note at the time of such
loss, theft or destruction shall be accepted as satisfactory evidence thereof
and no further indemnity shall be required as a condition to the execution and
delivery of a new Note other than the written agreement of such owner to
indemnify the Company.
Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of your reasonable out-of-pocket expenses in connection with
the preparation, execution and delivery of this Agreement and the transactions
contemplated hereby, including but not limited to the reasonable charges and
disbursements of Chapman and Cutler, your special counsel, duplicating and
printing costs and charges for shipping the Notes, adequately insured to you at
your home office or at such other place as you may designate, and all such
expenses relating to any amendment, waivers or consents pursuant to the
provisions hereof. The Company also agrees that it will pay and save you
harmless against any and all liability with respect to stamp and other taxes
(other than transfer taxes or taxes on income or revenues), if any, which may
be payable or which may be determined to be payable in connection with the
execution and delivery of this Agreement or the Notes, whether or not any Notes
are then outstanding. The Company agrees to protect and indemnify you against
any liability for any and all brokerage fees and commissions payable or claimed
to be payable to any Person in connection with the transactions contemplated by
this Agreement. You hereby
-33-
38
The Timberland Company Note Agreement
represent and warrant that you have not engaged any investment banker or broker
in connection with your purchase of the Notes.
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of the holder of any Note in the exercise of any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right, and the rights and remedies of the
holder of any Note are cumulative to and are not exclusive of any rights or
remedies any such holder would otherwise have, and no waiver or consent, given
or extended pursuant to [Section] 7 hereof, shall extend to or affect any
obligation or right not expressly waived or consented to.
Section 9.6. Notices. All communications provided for hereunder
shall be in writing and, if to you, delivered or mailed by registered or
certified mail, addressed to you at your address appearing on Schedule I
to this Agreement or such other address as you or the subsequent holder
of any Note initially issued to you, may designate to the Company in writing,
and if to the Company, delivered or mailed by registered or certified mail
to the Company at 200 Domain Drive, Stratham, New Hampshire 03885,
Attention: Chief Financial Officer or to such other address as the Company may
in writing designate to you or to a subsequent holder of the Note initially
issued to you. Notice shall be effective upon the earlier of (i) three business
days after such notice is sent or (ii) actual receipt of such notice.
Section 9.7. Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to your benefit
and to the benefit of your successors and assigns, including each successive
holder or holders of any Notes.
Section 9.8. Survival of Covenants and Representations. All
covenants, representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement and
the Notes.
Section 9.9. Severability. Should any part of this Agreement for any
reason be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in force and effect as
if this Agreement had been executed with the invalid portion thereof eliminated
and it is hereby declared the intention of the parties hereto that they would
have executed the remaining portion of this Agreement without including therein
any such part, parts, or portion which may, for any reason, be hereafter
declared invalid.
Section 9.10. Governing Law. This Agreement and the Notes issued
and sold hereunder shall be governed by and construed in accordance with
New York law.
Section 9.11. Captions. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
-34-
39
The execution hereof by you shall constitute a contract
between us for the uses and purposes hereinabove set forth, and
this Agreement may be executed in any number of counterparts,
each executed counterpart constituting an original but all
together only one agreement.
THE TIMBERLAND COMPANY
By /s/ Carden N. Welsh
----------------------------------
Its Treasurer
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By /s/ Gail McDermott
----------------------------------
Its Senior Vice President
PRUCO LIFE INSURANCE COMPANY
By /s/ Gail McDermott
----------------------------------
Its Senior Vice President
HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT CRC
By /s/ Joseph H. Gareau
----------------------------------
Its Executive Vice President
HARTFORD FIRE INSURANCE COMPANY
By /s/ Joseph H. Gareau
----------------------------------
Its Executive Vice President
HARTFORD LIFE AND ACCIDENT
INSURANCE COMPANY
By /s/ Joseph H. Gareau
----------------------------------
Its Executive Vice President
-35-
40
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By /s/ Clint Woods
----------------------------------
Its Counsel
By /s/ Christopher J. Henderson
----------------------------------
Its Counsel
GREAT NORTHERN INSURED ANNUITY
CORPORATION
By /s/ William D. Koski
----------------------------------
Its Assistant Vice President
Investments
JOHN ALDEN LIFE INSURANCE COMPANY
By /s/ Richard S. Halligan
----------------------------------
Its Vice President Investments
CENTURY LIFE OF AMERICA
By: Century Investment
Management Co.
By /s/ Joseph P. Young
----------------------------------
Its Investment Officer
CUNA MUTUAL INSURANCE SOCIETY
By: Century Investment
Management Co.
By /s/ Joseph P. Young
----------------------------------
Its Investment Officer
THE OHIO CASUALTY INSURANCE COMPANY
By /s/ Richard B. Kelly
----------------------------------
Its Senior Investment Officer
-36-
41
Asset Allocation & Management
Company as Agent for
PHYSICIANS LIFE INSURANCE COMPANY
By /s/ Kathy R. Lange
----------------------------------
Its Senior Portfolio Manager
Asset Allocation & Management
Company as Agent for
FRONTEIR INSURANCE COMPANY
By /s/ Kathy R. Lange
----------------------------------
Its Senior Portfolio Manager
Asset Allocation & Management
Company as Agent for
GUARANTEE TRUST LIFE INSURANCE
COMPANY
By /s/ Kathy R. Lange
----------------------------------
Its Senior Portfolio Manager
Asset Allocation & Management
Company as Agent for
WORLD INSURANCE COMPANY
By /s/ Kathy R. Lange
----------------------------------
Its Senior Portfolio Manager
WASHINGTON NATIONAL INSURANCE
COMPANY
By /s/ C. Bruce Dunn
----------------------------------
Its Director of Investments
-37-
42
THE TIMBERLAND COMPANY
8.94% Senior Note
Due December 15, 2001
PPN:
No. R-
_____________, 19__
THE TIMBERLAND COMPANY, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to
or registered assigns
on the fifteenth day of December, 2001
the principal amount of
Dollars ($_______________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at
the rate of 8.94% per annum from the date hereof until maturity, payable
semiannually on the fifteenth of each June and December in each year,
commencing June 15, 1995, and at maturity. The Company agrees to pay
interest on overdue principal (including any overdue optional prepayment of
principal) and premium, if any, and (to the extent legally enforceable) on any
overdue installment of interest, at the rate of 10.94% per annum after maturity,
whether by acceleration or otherwise, until paid. Both the principal hereof
and interest hereon are payable at the principal office of the Company in
Hampton, New Hampshire in coin or currency of the United States of America
which at the time of payment shall be legal tender for the payment of public
and private debts.
This Note is one of the 8.94% Senior Notes due December 15, 2001 (the
"Notes") of the Company in the aggregate principal amount of $106,000,000
issued or to be issued under and pursuant to the terms and provisions of the
separate Note Agreements, each dated as of December 15, 1994 (the "Note
Agreements"), entered into by the Company with the original purchasers therein
referred to. This Note and the holder hereof are entitled equally and ratably
with the holders of all other Notes outstanding under the Note Agreements to
all the benefits and security provided for thereby or referred to therein.
Reference is hereby made to the Note Agreements for a statement of such rights
and benefits.
This Note and the other Notes outstanding under the Note Agreements may
be declared due prior to their expressed maturity dates, all in the events, on
the terms and in the manner and amounts as provided in the Note Agreements.
EXHIBIT A
(to Note Agreement)
43
The Notes are not subject to prepayment or redemption at the option of
the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Note Agreements.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
Payment of or on account of principal, premium, if any, and interest on this
Note shall be made only to or upon the order in writing of the registered
holder.
THE TIMBERLAND COMPANY
By ____________________________
Its
EX-13
7
PORTIONS OF 1994 ANNUAL REPORT
1
THE TIMBERLAND COMPANY
Exhibit 13
Five Year Summary of Selected Financial Data
SELECTED INCOME STATEMENT DATA
(Dollars in Thousands Except Per Share Data)
Years Ended December 31,
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------
Net Sales $637,545 $418,918 $291,368 $226,082 $196,319
Net Income 17,710 22,521 12,919 8,085 7,854
Earnings per Share 1.58 2.01 1.18 .75 .73
--------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA
(Dollars in Thousands)
December 31,
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------
Working Capital $266,529 $155,660 $ 94,427 $ 87,610 $ 88,196
Total Assets 473,264 290,611 194,117 177,470 170,076
Long-Term Debt 206,767 90,809 41,533 44,199 46,924
Stockholders' Equity 149,090 128,363 104,600 93,412 85,664
--------------------------------------------------------------------------------
thirteen
2
THE TIMBERLAND COMPANY
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discusses the Company's results of operations and liquidity and
capital resources. The discussion should be read in conjunction with The Year
in Review and the Consolidated Financial Statements and Related Notes.
RESULTS OF OPERATIONS
Years Ended December 31,
(Amounts in Thousands Except Per Share Data) 1994 % 1993 % 1992 %
------------------------------------------------------------------------------------------------------------------------------------
Net sales $637,545 100.0% $418,918 100.0% $291,368 100.0%
Gross profit 208,843 32.8 152,707 36.5 107,858 37.0
Total operating expenses 165,779 26.0 112,315 26.8 82,016 28.1
Operating income 43,064 6.8 40,392 9.6 25,842 8.9
Interest expense 15,052 2.4 6,252 1.5 5,528 1.9
Net income 17,710 2.8 22,521 5.4 12,919 4.4%
Earnings per share $ 1.58 $ 2.01 $ 1.18
Weighted average shares outstanding 11,209 11,206 10,922
----------------------------------------------------------------------------------------------------------------------------------
Net sales increased 52.2% to $637.5 million in 1994 from $418.9 million in
1993 and $291.4 million in 1992. The increases in 1994 and 1993 were the
result of unit volume growth in both of the Company's major categories--
footwear (shoes and boots) and apparel and accessories. Net sales of footwear
were $513.5 million in 1994, $349.5 million in 1993 and $242.6 million in 1992.
This represents a 46.9% increase in 1994 compared to a 44.1% increase in 1993.
Net sales attributable to apparel and accessories were $124.0 million in 1994,
$69.4 million in 1993 and $48.8 million in 1992. This represents a 78.5%
increase in 1994 compared to a 42.2% increase in 1993. Domestic sales were up
57.7% and 62.4% in 1994 and 1993, respectively, while international sales were
up 38.7% in 1994 and 12.2% in 1993.
The gross profit margin was 32.8% in 1994, 36.5% in 1993 and 37.0% in
1992. The decreases in the margin during the last two years were primarily
attributable to the price reductions instituted in late 1993 and early 1994 on
certain core footwear to gain market share. Fourth quarter results in 1994
were adversely affected by unusually warm weather conditions which resulted in
lower than anticipated sales of first quality winter footwear and apparel,
lower margins and lower operating income.
Operating expenses were $165.8 million or 26.0% of sales in 1994, $112.3
million or 26.8% of sales in 1993 and $82.0 million or 28.1% of sales in
1992. The comparative dollar increases reflect the significant growth in
revenue recognized by the Company and its continued investment in
infrastructure.
Operating income, which is pretax earnings before interest and other
expenses, was $43.1 million in 1994, $40.4 million in 1993 and $25.8 million
in 1992. As a percent of sales, operating income declined in 1994 to 6.8%
compared to 9.6% and 8.9% in 1993 and 1992, respectively. The decline in 1994
is primarily a result of the lower gross profit margin as discussed above.
Interest expense increased to $15.1 million in 1994 from $6.3 million in
1993 and $5.5 million in 1992. The increases primarily reflect higher debt
levels attributable to business growth and to support higher than anticipated
inventory levels in 1994. The increase in 1994 also reflects higher interest
rates.
During 1994, the Company entered into interest rate protection agreements
which limited the maximum base rate used to calculate the interest rate on
certain borrowings. The interest rate protection agreements expired on
December 31, 1994. The costs of these agreements was immaterial. The Company
may enter into similar agreements in the future.
The effective income tax rate was 37.0% in 1994, 34.0% in 1993 and 32.0%
in 1992. For an analysis of the changes in the effective tax rate, see the
Income Tax Note to the financial statements.
The Company believes that inflation has not had a significant overall
impact on its operations or liquidity over the past three years.
fourteen
3
THE TIMBERLAND COMPANY
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations during 1994 totaled $88.8 million compared to $26.7
million in 1993. Net cash used by operations was adversely affected by
increased levels of trade receivables and inventories. These increases are
primarily the result of the Company's growth, and with respect to inventories,
due to higher inventory positions than anticipated resulting from sales
growing at a slower rate than the Company had expected. The increase in
inventory was also caused by misforecasting specific customer demand at the
unit product level. A majority of this inventory consists of classic
Timberland [Registered] models in oversupply that the Company expects will be
sold in the normal course of business. Inventory turns were 2.3 times in 1994
compared to 2.7 times in 1993. Days sales outstanding at December 31, 1994
were 64 days compared to 68 days at December 31, 1993. The improvement in the
days sales outstanding primarily reflects an increase in retail sales as a
percentage of total sales. Wholesale days sales were comparable at the end
of 1994 and 1993.
Net cash used in investing activities in 1994 was $45.8 million, of which
$31.5 million represented additions to property, plant and equipment. Capital
expenditures amounted to $21.6 million in 1993. A significant portion of these
expenditures in 1994 and 1993 were for manufacturing machinery and equipment
to be used in cost reduction efforts, retail store additions, and information
systems inprovements. The Company is currently in the process of evaluating its
production facilities and sourcing alternatives in order to deliver
premium-quality products more efficiently and at lower costs.
In April 1994, the Company terminated its distributorship agreement in
Italy and acquired certain assets of the distributor for a total purchase
price of $14.1 million. The purchase price exceeded the fair market value of
tangible assets acquired by $9.0 million. Operating income was adversely
affected by this transaction due primarily to start-up costs.
During 1994, cash was provided from financing activities. In April
and December 1994, the Company completed private placements of senior
unsecured notes of $65 million and $106 million, respectively. The proceeds
from these private placements were principally used to repay existing
indebtedness. The Company also entered into a new credit agreement in May 1994
which provided for revolving credit loans of up to $125 million based on a
borrowing base formula. The committed amount available under the facility was
reduced to $91.6 million due to the December 1994 private placement. The
Company amended its credit agreement in March 1995 to increase the commitment
to $125 million. As a result of the increase in overall borrowing, the
Company's debt to capital ratio rose to 61% at December 31, 1994 compared to
44% at December 31, 1993.
Management believes that the Company's capital needs for 1995 will be met
through its credit facilities and cash flow from operations without the need
for additional permanent financing.
In January 1995, the Company appointed Inchcape plc as the exclusive
distributor of Timberland [Registered] products throughout most of the
Asia/Pacific region. The agreement included Inchcape's acquisition of the
Company's Australian and New Zealand subsidiaries and future consideration
provided to Inchcape for a total sum of $24 million. The transaction resulted
in a non-recurring pretax gain of approximately $7.4 million, or $.40 per
share, in the first quarter of 1995.
fifteen
4
THE TIMBERLAND COMPANY
Quarterly Market Information and Related Matters
The Company's Class A Common Stock is traded on the New York Stock Exchange
under the symbol TBL. There is no market for shares of the Company's Class B
Common Stock; however, shares of Class B Common Stock may be converted into
shares of Class A Common Stock on a one-for-one basis and shall automatically
be converted upon any transfer (except for estate planning transfers and any
transfer approved by the Board of Directors).
The following table presents the high and low closing sales prices of
the Company's Class A Common Stock for the past two years as reported by the
New York Stock Exchange.
1994 1993
High Low High Low
---------------------------------------------------------------------------------------------------------------------
First Quarter $60 1/4 $32 3/8 $34 1/2 $19 1/8
Second Quarter 43 1/4 33 7/8 38 1/4 29 5/8
Third Quarter 46 7/8 35 7/8 61 1/4 29 1/8
Fourth Quarter 36 20 1/4 85 47 3/8
---------------------------------------------------------------------------------------------------------------------
As of March 3, 1995, the number of record holders of the Company's Class
A Common Stock was approximately 909 and the number of record holders of the
Company's Class B Common Stock was eight. The closing sales price of the
Company's Class A Common Stock on March 3, 1995 was 24 5/8.
No cash dividends have ever been declared on either the Company's Class
A or Class B Common Stock and none are contemplated in the foreseeable future.
In addition, the Company's ability to pay cash dividends is limited pursuant to
various loan agreements. (See notes to the consolidated financial statements.)
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE TIMBERLAND COMPANY:
We have audited the accompanying consolidated balance sheets of The
Timberland Company and subsidiaries as of December 31, 1994 and 1993 and the
related statements of income, stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the companies at
December 31, 1994 and 1993, and the results of its operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 9, 1995
sixteen
5
THE TIMBERLAND COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
ASSETS 1994 1993
------------------------------------------------------------------------------------------------------------------------------------
Current assets
Cash and equivalents $ 6,381 $ 3,281
Accounts receivable, net of allowance for doubtful accounts
of $2,704 in 1994 and $1,014 in 1993 128,435 93,226
Inventories 218,219 111,380
Prepaid expenses 13,504 7,571
Deferred and refundable income taxes 7,112 5,625
------------------------------------------------------------------------------------------------------------------------------------
Total current assets 373,651 221,083
------------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost 110,650 79,145
Less - accumulated depreciation and amortization (42,417) (33,530)
------------------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 68,233 45,615
Excess of cost over fair value of net assets acquired, net 25,956 18,157
Other assets, net 5,424 5,756
------------------------------------------------------------------------------------------------------------------------------------
$473,264 $290,611
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Current liabilities
Notes payable $ 22,513 $ 10,061
Current maturities of long-term obligations 8,048 682
Accounts payable 37,035 32,526
Accrued expenses
Payroll and related 6,038 8,873
Interest and other 24,459 9,609
Income taxes payable 9,029 3,672
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 107,122 65,423
------------------------------------------------------------------------------------------------------------------------------------
Long-term obligations, less current maturities 206,767 90,809
------------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 10,285 6,016
------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued
Class A Common Stock, $.01 par value (1 vote per share); 30,000,000 shares authorized; - -
8,221,615 shares issued in 1994 and 7,630,556 shares in 1993 82 76
Class B Common Stock, $.01 par value (10 votes per share); 15,000,000 shares authorized;
2,737,121 shares issued in 1994 and 3,237,598 shares in 1993 27 32
Additional paid-in capital 57,756 55,805
Retained earnings 91,816 74,106
Cumulative translation adjustment (471) (1,536)
Less treasury stock at cost, 18,369 shares in 1994 and 18,513 in 1993 (120) (120)
------------------------------------------------------------------------------------------------------------------------------------
149,090 128,363
------------------------------------------------------------------------------------------------------------------------------------
$473,264 $290,611
------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
seventeen
6
THE TIMBERLAND COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the years Ended December 31, 1994, 1993 and 1992
(Amounts in Thousands Except Per Share Data)
1994 1993 1992
-------------------------------------------------------------------------------
Net sales $637,545 $418,918 $291,368
Cost of goods sold 428,702 266,211 183,510
-------------------------------------------------------------------------------
Gross profit 208,843 152,707 107,858
-------------------------------------------------------------------------------
Operating expenses
Selling 124,386 82,585 57,145
General and administrative 40,213 28,956 24,194
Amortization of goodwill 1,180 774 677
-------------------------------------------------------------------------------
Total operating expenses 165,779 112,315 82,016
-------------------------------------------------------------------------------
Operating income 43,064 40,392 25,842
-------------------------------------------------------------------------------
Other expense (income)
Interest expense 15,052 6,252 5,528
Other, net (100) 17 1,315
-------------------------------------------------------------------------------
Total other expense 14,952 6,269 6,843
-------------------------------------------------------------------------------
Income before income taxes 28,112 34,123 18,999
Provision for income taxes 10,402 11,602 6,080
-------------------------------------------------------------------------------
Net income $ 17,710 $ 22,521 $ 12,919
-------------------------------------------------------------------------------
Earnings per share $ 1.58 $ 2.01 $ 1.18
-------------------------------------------------------------------------------
Weighted average shares outstanding
and share equivalents 11,209 11,206 10,922
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
eighteen
7
THE TIMBERLAND COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
Class A Class B Additional Cumulative Consolidated
Common Common Paid-in Retained Translation Treasury Stockholders'
Stock Stock Capital Earnings Adjustment Stock Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1992 $75 $32 $53,293 $38,666 $1,346 $ - $ 93,412
Issuance of shares under employee
stock option and stock purchase
plans and other transactions - - 465 - - - 465
Net income - - - 12,919 - - 12,919
Translation adjustment - - - - (2,196) - (2,196)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 75 32 53,758 51,585 (850) - 104,600
Issuance of shares under employee
stock option and stock purchase
plans and other transactions 1 - 980 - - (120) 861
Tax benefit from stock option plans - - 1,067 - - - 1,067
Net income - - - 22,521 - - 22,521
Translation adjustment - - - - (686) - (686)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 76 32 55,805 74,106 (1,536) (120) 128,363
Issuance of shares under employee
stock option and stock purchse
plans and other transactions 6 (5) 1,566 - - - 1,567
Tax benefit from stock option plans - - 385 - - - 385
Net income - - - 17,710 - - 17,710
Translation adjustment - - - - 1,065 - 1,065
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $82 $27 $57,756 $91,816 $ (471) $(120) $149,090
------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
nineteen
8
THE TIMBERLAND COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992
(Dollars in Thousands)
1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $17,710 $22,521 $12,919
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Deferred income taxes 4,269 1,475 119
Depreciation and amortization 15,348 10,279 7,959
Increase (decrease) in cash from changes in working capital items,
net of effects of acquisition
Accounts receivable (36,614) (39,484) (6,210)
Inventories (101,009) (41,560) (13,892)
Prepaid expenses (4,995) (3,170) 202
Accounts payable 4,270 18,497 1,841
Accrued expenses 8,762 5,084 3,712
Income taxes 3,495 (320) (6,642)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (88,764) (26,678) 8
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (31,452) (21,645) (11,774)
Acquisition of Italian distributor (14,086) - -
Other, net (269) (2,234) 1,616
------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (45,807) (23,879) (10,158)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under short-term credit facilities 12,462 3,257 6,352
Proceeds from long-term obligations 173,990 50,000 -
Payments on long-term debt and capital lease obligations (50,682) (2,643) (2,711)
Issuance of common stock 1,567 981 465
Tax benefit from stock option plans 385 1,067 -
Purchase of treasury stock - (120) -
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 137,722 52,542 4,106
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (51) 76 (245)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 3,100 2,061 (6,289)
------------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of year 3,281 1,220 7,509
------------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 6,381 $ 3,281 $ 1,220
------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 13,688 $ 6,020 $ 5,699
Income taxes paid 2,648 9,346 12,356
------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
twenty
9
THE TIMBERLAND COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of The
Timberland Company and its subsidiaries (the "Company"). All intercompany
transactions have been eliminated in consolidation.
RECOGNITION OF REVENUE
Revenue is recognized upon shipment of product to customers.
RECLASSIFICATIONS
Certain 1993 and 1992 amounts have been relcassified to conform with the
current year presentation.
TRANSLATION OF FOREIGN CURRENCIES
The Company translates financial statements denominated in foreign
currency by translating balance sheet accounts at the end of period exchange
rate and income statement accounts at the average exchange rate for the
period. Translation gains and losses are recorded in stockholders' equity,
and transaction gains and losses are reflected in income.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The Company is exposed to foreign exchange risk when the Company sells
goods in local currencies through its foreign subsidiaries. Since the
Company's sourcing and production costs are primarily dollar based, the
Company's profit margin on these sales is exposed to exchange rate
fluctuations. It is the Company's policy to hedge a portion of this risk
through forward sales of foreign currencies, thereby locking in the future
exchange rate.
The following table illustrates the U.S. dollar equivalent, including
offsetting positions, of foreign exchange contracts at December 31, 1994 along
with maturity dates, net unrealized loss, and net unrealized loss deferred.
Contract Unrealized Unrealized Net Net Unrealized
Amount Maturity Gross Gross Unrealized (Loss)
($U.S. Equivalent) Date Gain (Loss) (Loss) Deferred
-----------------------------------------------------------------------------------------------------------------
Pound Sterling $15,463 1995 $ 68 $(261) $(193) $(201)
Deutsche Marks 18,141 1995 110 (379) (269) (130)
Frech Francs 15,948 1995 81 (310) (229) (198)
Italian Lire 12,126 1995 57 (198) (141) (121)
Australian $ 8,810 1995 - (31) (31) -
Spanish Peseta 8,010 1995 - (103) (103) (103)
New Zealand $ 1,596 1995 - (5) (5) -
------------------------------------------------------------------------------------------------------------------
$80,094 $316 $(1,287) $(971) $(753)
==================================================================================================================
The unrealized net gain (loss) deferred on such contracts as of December
31, 1993 and 1992 was approximately $(178) and $495, respectively. Unrealized
gains or losses are determined based on the difference between the settlement
and year end spot rates.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments with
high credit quality financial institutions thereby minimizing exposure to
concentrations of credit risk. Credit risk with respect to trade receivables is
limited due to the large number of customers comprising the Company's customer
base. The Company had an allowance for uncollectible accounts receivable of
$2,704 and $1,014 at December 31, 1994 and 1993, respectively.
CASH AND EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments which
have original maturities to the Company of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets or over the terms of the
related leases, if such periods are shorter. The principal estimated useful
lives are: building and improvements, 4 to 30 years; machinery and
equipment, 3 to 10 years; lasts, patterns and dies, 5 years.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over periods of 10, 15 and 40 years.
Accumulated amortization amounted to $5,818 and $4,639 at December 31, 1994
and 1993, respectively.
INCOME TAXES
In 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires an
asset and liability approach for financial accounting and reporting for
income taxes. In addition, future tax benefits, such as net operating loss
carryforwards, are recognized to the extent realization of such benefits is
more likely than not. The implementation of SFAS No. 109 did not have a
material impact on the 1993 financial statements.
EARNINGS PER SHARE
Earnings per share are calculated by dividing net income for each period
by the weighted average number of common shares outstanding and equivalents
during each period. Fully diluted earnings per share are not materially
different from primary earnings per share.
twenty-one
10
THE TIMBERLAND COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
2. ACQUISITION OF ITALIAN DISTRIBUTOR
In April 1994, the Company entered into a Distributorship Termination
Agreement (the "Agreement") with its Italian distributor, which terminated
all distribution rights of the distributor on May 31, 1994. In accordance
with the Agreement, the Company also acquired certain assets of the
distributor. Effective on the acquisition date, Timberland assumed the
distribution of its own products in Italy.
This transaction has been accounted for as a purchase and, accordingly,
the results of operations of the Company's Italian business have been
included in the consolidated statement of income from the acquisition date.
The results of the Italian operations are not significant to the consolidated
results of operations, and accordingly, pro forma data have been omitted. The
total purchase price of $14.1 million exceeds the fair value of net assets
acquired, consisting primarily of inventory, by $9.0 million. This excess is
being amortized on a straight line basis over 10 years.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
December 31,
1994 1993
------------------------------------------------------------------------------------------------------------------------------------
Carrying Carrying
or Contract Fair or Contract Fair
Amount Value Amount Value
------------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents (1) $ 6,381 $ 6,381 $ 3,281 $ 3,281
Notes payable (1) 22,513 22,513 10,061 10,061
Long-term obligations (2) 214,815 210,543 91,491 95,724
Foreign currency contracts (3) 80,094 81,065 30,801 30,783
------------------------------------------------------------------------------------------------------------------------------------
(1) The carrying amounts of cash and equivalents and notes payable approximate their fair values.
(2) The fair value of the Company's long-term obligations are estimated based on current rates available to the Company as of
December 31, 1994 and 1993, for debt of the same remaining maturities.
(3) The fair value of foreign currency contracts are estimated by obtaining the appropriate forward market rates as of
December 31, 1994 and 1993, respectively.
4. INVENTORIES
Inventories consist of the following:
December 31,
1994 1993
------------------------------------------------------------------------------------------------------------------------------------
Raw materials $ 19,806 $ 11,108
Work-in-process 13,137 13,060
Finished goods 185,276 87,212
------------------------------------------------------------------------------------------------------------------------------------
$218,219 $111,380
------------------------------------------------------------------------------------------------------------------------------------
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31,
1994 1993
------------------------------------------------------------------------------------------------------------------------------------
Land and improvements $ 649 $ 649
Building and improvements 29,739 17,500
Machinery and equipment 65,252 49,337
Lasts, patterns and dies 15,010 11,659
------------------------------------------------------------------------------------------------------------------------------------
$110,650 $79,145
------------------------------------------------------------------------------------------------------------------------------------
6. INCOME TAXES
The components of the provision for income taxes are as follows:
Year Ended December 31,
1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
------------------------------------------------------------------------------------------------------------------------------------
Federal $5,713 $1,548 $6,687 $ 935 $6,356 $(2,887)
State 1,984 713 2,131 1,233 2,514 (193)
Puerto Rico 289 122 416 171 454 281
Foreign 33 - 29 - (445) -
------------------------------------------------------------------------------------------------------------------------------------
$8,019 $2,383 $9,263 $2,339 $8,879 $(2,799)
------------------------------------------------------------------------------------------------------------------------------------
The deferred tax provision consists of the following:
Year Ended December 31,
1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------------
(Increase) decrease in reserves
not currently deductible $(1,111) $ 719 $(2,709)
Tax depreciation over (under) book
depreciation and amortization 2,624 177 (239)
Puerto Rico tollgate taxes 122 172 281
Undistributed foreign earnings 849 1,355 (47)
Other, net (101) (84) (85)
------------------------------------------------------------------------------------------------------------------------------------
$ 2,383 $2,339 $(2,799)
------------------------------------------------------------------------------------------------------------------------------------
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11
THE TIMBERLAND COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
The provision for income taxes differs from the amount computed using the
statutory federal income tax rate of 35% in 1994 and 1993 and 34% in 1992 due
to the following:
Year Ended December 31,
1994 1993 1992
--------------------------------------------------------------------------------------------------------------
Federal income tax at
statutory rate $ 9,839 35.0% $11,943 35.0% $6,460 34.0%
Federal tax exempt operations
in Puerto Rico (1,834) (6.5) (2,562) (7.5) (2,985) (15.7)
State taxes, net of applicable
federal benefit 1,753 6.2 2,187 6.4 552 2.9
Purchase accounting
adjustments 271 1.0 271 .8 230 1.2
Losses of foreign subsidiaries 450 1.6 335 1.0 2,395 12.6
Foreign sales corporation (335) (1.2) (574) (1.7) (508) (2.7)
Other, net 258 .9 2 - (64) (.3)
--------------------------------------------------------------------------------------------------------------
Total provision for
income taxes $10,402 37.0% $11,602 34.0% $6,080 32.0%
--------------------------------------------------------------------------------------------------------------
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities at December 31,
1994 and 1993, cconsist of the following:
1994 1993
Assets Liabilities Assets Liabilities
--------------------------------------------------------------------------------------------------------------
Current
Inventories $1,479 $ - $1,554 $ -
Receivable allowances 2,216 - 1,229 -
Intercompany profit elimination 2,355 - 1,681 -
Other 1,062 - 762 -
--------------------------------------------------------------------------------------------------------------
7,112 - 5,226 -
--------------------------------------------------------------------------------------------------------------
Non-current
Accelerated depreciation
and amortization - (3,570) - (946)
Puerto Rico tollgate taxes - (1,351) - (1,229)
Undistributed foreign earnings - (5,364) - (3,841)
Net operating loss carry-forwards 2,718 - 2,499 -
Less valuation allowance (2,718) - (2,499) -
--------------------------------------------------------------------------------------------------------------
- (10,285) - (6,016)
--------------------------------------------------------------------------------------------------------------
$7,112 $(10,285) - $(6,016)
==============================================================================================================
The valuation allowance at December 31, 1994 of $2,718 includes $538 which
arose during the current year. The valuation allowance relates to
foreign net operating loss carryforwards that may not be realized.
Deferred and refundable income taxes includes no refundable income taxes
at December 31, 1994 and $399 at December 31, 1993.
The Company's consolidated income before taxes included earnings from its
subsidiary in Puerto Rico, which are substantially exempt from Puerto Rico
and federal income taxes under an exemption which expires in 2002. However,
if the earnings were remitted to Timberland, they would be subject to a
Puerto Rico tollgate tax not to exceed 10%. Deferred tollgate taxes have
been provided on all of the accumulated earnings of the subsidiary in Puerto
Rico. Deferred income taxes are also provided on the undistributed earnings
of Timberland's foreign subsidiaries.
Losses before income taxes from foreign operations were $(1,285),
$(835) and $(5,563) for the years ended December 31, 1994, 1993 and 1992,
respectively. At December 31, 1994, the Company had $7,766 of foreign
operating loss carryforwards available to offset future foreign taxable
income. Of these operating loss carryforwards, $1,591 will expire in 1996,
$2,020 will expire in 1997 and $234 will expire in 1998.
On August 10, 1993, the United States House and Senate Budget
Conference Committee enacted the Omnibus Budget Reconciliation Act of 1993
(the "Act"). As required under Financial Accounting Standard No. 109, the
Company recorded the effect of the Act on its deferred and currently payable
tax liabilities as of December 31, 1993. The effect of adopting the Act on
the Company's financial statements was not material either as to the
cumulative effect upon adoption or as to the full year 1993.
7. NOTES PAYABLE
On May 4, 1994, the Company entered into a new unsecured committed revolving
credit agreement (the "Agreement") with a group of banks through May 30,
1996, that currently provides for revolving credit loans of up to $91,600,
subject to a borrowing base formula. At December 31, 1994, the amount
available under this formula was approximately $49,200, of which $5,000
was outstanding at year end. Under the terms of the Agreement, the Company
may borrow at interest rates which are based upon the lender's cost of
funds (6.25% at December 31, 1994). The Agreement was amended in March
1995 to increase the commitment to $125,000 and to extend the term through
February 1997.
The Agreement provides for a facility fee of 3/8% per annum on the daily
average aggregate amount of the commitment and places limitations on the
payment of dividends (based on a long-term debt to consolidated net worth
covenant) and the incurrence of additional debt, and also contains
certain other financial and operational covenants.
twenty-three
12
THE TIMBERLAND COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
In addition to the above Agreement, the Company has the ability to
borrow a maximum of $18,000 for its European subsidiaries under uncommitted
lines of credit, which provide for interest based upon the lender's cost of
funds (5.38% to 8.63% at December 31, 1994). No amounts were outstanding at
December 31, 1994.
Additionally, the Company had uncommitted lines of credit available
from certain banks totaling $20,000 at December 31, 1994, of which $17,500 was
outstanding at year end. Borrowings under these lines are at prevailing money
market rates (6.39% at December 31, 1994). These arrangements may be terminated
at any time at the option of the banks or the Company.
The balance outstanding under all short-term borrowing arrangements was
$22,513 and $10,061 at December 31, 1994 and December 31, 1993, respectively.
The maximum short-term borrowings at any month-end were $119,200,
$52,679 and $33,874 during 1994, 1993 and 1992, respectively. Average
borrowings under all short-term credit arrangements were $65,790 in 1994,
$37,596 in 1993 and $16,997 in 1992. The weighted average interest rates were
5.38%, 4.16% and 5.88% in 1994, 1993 and 1992, respectively.
8. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
December 31,
1994 1993
----------------------------------------------------------------------------
Senior Notes - December 1994 $106,000 $ -
Senior Notes - April 1994 65,000 -
Credit agreement - November 1993 - 50,000
Senior Notes - December 1989 35,000 35,000
Industrial revenue bonds 5,345 5,345
Other 2,990 -
Capitalized lease obligations (Note 9) 480 1,146
----------------------------------------------------------------------------
214,815 91,491
Less - current maturities (8,048) (682)
----------------------------------------------------------------------------
$206,767 $90,809
----------------------------------------------------------------------------
On December 15, 1994, the Company finalized a private placement with a
group of lenders for $106,000 of senior unsecured notes (the "December Notes").
The December Notes bear interest at a fixed rate of 8.94% per annum and mature
on December 15, 2001. The proceeds were used principally to repay existing
indebtedness.
On April 15, 1994, the Company finalized a private placement with a
group of lenders for $65,000 of senior unsecured notes (the "April Notes")
maturing on April 15, 2000. The April Notes bear interest at a fixed rate of
7.16% per annum. The proceeds were used to repay existing short-term debt and
for general corporate purposes.
Both the December Notes and the April Notes place limitations on the
payment of dividends and the incurrence of additional debt, and also require
maintenance of certain operational and financial covenants.
Also on December 15, 1994, the Company terminated a $50,000 credit
agreement provided by a group of banks which would have had an expiration date
of May 15, 1999. A portion of the proceeds raised by the December Notes were
used to repay this facility in full. The Company currently has no further
obligations under this agreement.
The unsecured senior notes issued in the amount of $35,000 bear
interest at a rate of 9.70% and mature on December 1, 1999. Commencing
December 1, 1995, annual redemption payments of $7,000 are required until
maturity. The note agreement places limitations on the payment of cash
dividends and contains other financial and operational covenants.
Effective December 1, 1994, the industrial revenue bonds bear interest
at 6.20% through November 30, 1999, at which time the rate will be reset for
another five-year period. The bonds mature in 2014. According to the terms of
the agreement, at every five-year anniversary date, beginning in 1989 and
continuing through to the maturity date, the Company is required to repurchase
any bonds tendered by the bondholders at face value. The most recent
anniversary date occurred in November 1994 prior to the 1994 rate reset.
The bonds are collateralized by a mortgage on the real estate and specified
equipment at the Company's Hampton, NH distribution center and contain
financial and operational covenants and limitations similar to the credit
agreement described in Note 7. Additionally, the Company has obtained an
irrevocable standby letter of credit which secures the outstanding
principal of the bonds through 1999.
The Company's long-term obligations at December 31, 1994, excluding
capitalized lease obligations, are scheduled to become due as follows:
-----------------------------------------------------------------------------
1995 $ 7,568
1996 7,620
1997 7,659
1998 7,699
1999 7,428
Thereafter 176,361
-----------------------------------------------------------------------------
$214,335
-----------------------------------------------------------------------------
twenty-four
13
THE TIMBERLAND COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
9. LEASE COMMITMENTS
The Company leases its corporate headquarters facility, manufacturing
facilities, retail stores, showrooms and equipment under noncancellable
operating and capital leases expiring at various dates through 2015. The
approximate minimum rental commitments under all noncancellable leases as of
December 31, 1994, are as follows:
Capital Operating
------------------------------------------------------------------------------
1995 $499 $11,253
1996 - 10,558
1997 - 9,816
1998 - 8,967
1999 - 6,568
Thereafter - 26,274
------------------------------------------------------------------------------
Total minimum lease payments 499 $73,436
Less - amount representing interest (19) -------
--------------------------------------------------------
Present value of net minimum lease payments 480
Less - current maturities (480)
--------------------------------------------------------
$ -
--------------------------------------------------------
In 1994, the Company entered into an operating lease for its corporate
headquarters facility. The lease expires in July 1999 and has a fixed annual
rental rate of $700.
Most of the leases for retail space provide for renewal options, contain
normal escalation clauses and require the Company to pay real estate taxes,
maintenance and other expenses. The aggregate base rent obligation for a lease
is expensed on a straight-line basis over the term of the lease.
Property and accumulated depreciation on equipment held under capital
leases were $3,421 and $2,718, respectively, at December 31, 1994 and $5,156
and $3,423, respectively, at December 31, 1993.
Rental expense for all operating leases was $9,726, $7,490 and $6,635
for the years ended December 31, 1994, 1993 and 1992, respectively.
10. INDUSTRY SEGMENT AND GEOGRAPHICAL AREA INFORMATION
The Company operates in a single industry segment which includes the
designing, manufacturing and marketing of footwear, apparel and accessories.
The following summarizes the Company's operations in different geographical
areas for the years ended December 31, 1994, 1993 and 1992, respectively.
Adjustments
United Other and
1994 States Europe Foreign Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated
customers $504,630 $123,304 $ 9,611 $ - $637,545
Transfers between
geographical areas 78,195 - 34,530 (112,725) -
------------------------------------------------------------------------------------------------------------------------------------
$582,825 $123,304 $44,141 $(112,725) $637,545
------------------------------------------------------------------------------------------------------------------------------------
Operating income $ 41,231 $ 3,008 $ 1,615 $ (2,790) $ 43,064
------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets at
December 31, 1994 $468,637 $132,199 $22,140 $(149,712) $473,264
------------------------------------------------------------------------------------------------------------------------------------
1993
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated
customers $340,811 $ 71,927 $ 6,180 $ - $418,918
Transfers between
geographical areas 42,388 - 20,872 (63,260) -
------------------------------------------------------------------------------------------------------------------------------------
Operating income $383,199 $ 71,927 $27,052 $ (63,260) $418,918
------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets at $ 35,282 $ 709 $ 1,953 $ 2,448 $ 40,392
------------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 $301,949 $ 53,888 $15,336 $ (80,562) $290,611
------------------------------------------------------------------------------------------------------------------------------------
1992
------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated
customers $232,748 $ 54,891 $ 3,729 $ - $291,368
Transfers between
geographical areas $ 27,441 - 11,735 (39,176) -
------------------------------------------------------------------------------------------------------------------------------------
$260,189 $ 54,891 $15,464 $ (39,176) $291,368
------------------------------------------------------------------------------------------------------------------------------------
Operating income
(loss) $ 31,465 $ (4,055) $ (788) $ (780) $ 25,842
------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets at
December 31, 1992 $199,618 $ 37,612 $ 9,911 $ (53,024) $194,117
------------------------------------------------------------------------------------------------------------------------------------
twenty-five
14
THE TIMBERLAND COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
Export sales from the United States to unaffiliated customers,
principally to European distributors, amounted to 6%, 10% and 17% of
consolidated net sales for the years ended December 31, 1994, 1993 and 1992,
respectively.
11. STOCKHOLDERS' EQUITY
The Company's Class A and Class B Common Stock are identical in all
respects except that shares of Class A Common Stock carry one vote per share
while the shares of Class B Common Stock carry ten votes per share. In
addition, holders of Class A Common Stock have the right, voting separately as
a class, to elect 25% of the directors of the Company and vote together with
the holders of Class B Common Stock for the remaining directors. During 1994,
500,477 shares of Class B Common Stock was converted to Class A Common Stock.
12. STOCK AND EMPLOYEE BENEFIT PLANS
Under its 1987 Stock Option Plan (the "1987 Plan"), as amended in
May 1993, the Company has reserved 1,600,000 shares of Class A Common Stock
for the granting of stock options to its employees. Pursuant to the terms of
the 1987 Plan, grants may be made by the Board of Directors from time to
time, but no grant shall be made ten years after the adoption of the 1987
Plan. The option price per share shall not be less than the fair market
value of stock at the time such option is granted in the case of options
intended to qualify as "incentive" stock options under the Internal Revenue
Code of 1986, as amended, and shall not be less than 50% of such fair market
value in the case of "non-qualified" stock options for employees who are
subject to Section 16 of the Securities Exchange Act of 1934, as amended.
To date, all options have been granted at fair market value. Options which
have been granted to date under the 1987 Plan become exercisable in equal
installments over four years beginning one year after the grant date. In
addition to the 1987 Plan, the Company has, on occasion, granted
"non-qualified" stock options at fair market value to non-employees to
purchase Class A Common Stock.
Under its 1991 Stock Option Plan for Non-Employee Directors (the "1991
Plan), the Company has reserved 100,000 shares of Class A Common Stock for the
granting of stock options to eligible non-employee directors of the Company.
Under the terms of the 1991 Plan, option grants are awarded on a predetermined
basis, and no grant can be made after November 15, 2001. The exercise price of
options granted under the 1991 Plan shall be the fair market value of the
stock on the date of grant, and the options become exercisable in equal
installments over four years beginning one year after the grant date.
Options for 292,344 and 182,480 shares were exercisable under all option
arrangements at December 31, 1994 and 1993 respectively. Under the existing
Plans there were 253,112 and 818,616 shares available for future grants at
December 31, 1994 and 1993 respectively.
The following summarizes transactions under all stock option arrangements
for the years ended December 31, 1994, 1993 and 1992:
Number Per Share
of Shares Option Price
----------------------------------------------------------------------------------
January 1, 1992 391,435 $ 6.38 - 12.00
Granted 185,680 13.38 - 18.88
Exercised (45,196) 6.38 - 9.25
Cancelled (89,386) 6.38 - 15.25
----------------------------------------------------------------------------------
December 31, 1992 442,533 6.38 - 18.88
Granted 434,655 26.00 - 83.25
Exercised (56,113) 6.38 - 15.25
Cancelled (66,389) 6.38 - 56.00
----------------------------------------------------------------------------------
December 31, 1993 754,686 6.38 - 83.25
Granted 693,125 21.38 - 46.63
Exercised (59,551) 6.38 - 32.00
Cancelled (127,621) 6.38 - 83.25
----------------------------------------------------------------------------------
December 31, 1994 1,260,639 $ 6.38 - 83.25
==================================================================================
Pursuant to the terms of its 1991 Employee Stock Purchase Plan (the "Plan"),
the Company is authorized to issue up to an aggregate of 100,000 shares of
its common stock to eligible employees electing to participate in the Plan.
Eligible employees may contribute, through payroll withholdings, from 2% to
10% of their regular base compensation during six-month participation periods
beginning January 1 and July 1 of each year. At the end of each
participation period, the accumulated deductions are applied toward the
purchase of Class A Common Stock at a price equal to 85% of the market price
at the beginning or end of the participation period, whichever is lower.
Employee purchases amounted to 31,016 shares in 1994, 24,340 shares in
1993 and 17,592 shares in 1992 at prices ranging from $7.76 to $34.43. At
December 31, 1994, 18,498 shares were available for future purchases.
twenty-six
15
THE TIMBERLAND COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
The Company maintains a contributory 401(k) Retirement Earnings Plan (the
"401(k) Plan") for eligible salaried and hourly employees who are at least 21
years of age with six or more months of service. Under the provisions of the
401(k) Plan, employees may contribute between 2% and 10% of their base salary
up to certain limits. The 401(k) Plan provides for Company matching
contributions not to exceed 2% of the employee's compensation or, if less,
50% of the employee's contribution. Vesting of the Company contribution
begins at 25% after one year of service and increases by 25% each year until
full vesting occurs. The Company's contribution expense was $334 in 1994,
$252 in 1993 and $207 in 1992.
The Company maintains a non-contributory profit sharing plan for eligible
hourly employees not covered by the 401(k) Plan who are at least 21 years of
age with one or more years of service. Contributions are at the discretion of
the Company and fully vest to the employee upon completing three years of
service. The Company's contribution expense was $ 360 in 1994, $320 in 1993
and $260 in 1992.
13. LITIGATION
The Company is involved in litigation and various legal matters,
including U.S. Customs claims, which have arisen in the ordinary course of
business. Management believes that the ultimate resolution of any existing
matter will not have a material effect on the Company's consolidated financial
statements.
On June 21, 1994, the plaintiff in the stockholder lawsuit filed on
February 15, 1994 against the Company and one of its officers agreed
voluntarily to withdraw the action, and the case was dismissed.
The Company and two if its officers and directors have been named as
defendants in two actions filed in the United States District Court for the
District of New Hamphsire. The suits, which are each brought by purchasers of
the Company's Class A Common Stock, allege that the defendants violated the
federal securities laws by making material misstatements and omissions in the
Company's public filings and statements in 1994. Specifically, the complaints
allege that such statements and omissions had the effect of artificially
inflating the market price for the Company's Class A Common Stock until the
disclosure by the Company on December 9, 1994, of its expectation that results
for the fourth quarter were not likely to meet analysts' anticipated levels.
The suits seek class action status, with one complaint including all purchasers
of the Company's Class A Common Stock between October 25,1994 and December 9,
1994, and the other complaint including such purchasers between February 15,
1994 and December 9, 1994. Damages are unspecified. The plaintiffs in both
suits have filed a motion, assented to by the defendants, to consolidate the
two suits. The motion is pending before the District Court.
While each action is in its preliminary stages, based on an initial
review, and after consultation with counsel, management believes the
allegations are without merit. Accordingly, management does not expect the
outcome of such litigation to have a material adverse effect on the
consolidated financial statements. The Company intends to defend these
proceedings vigorously.
14. SUBSEQUENT EVENT
On January 26, 1995, the Company appointed Inchcape plc ("Inchcape") as
the exclusive distributor of Timberland [Registered] products throughout most
of the Asia/Pacific region. The agreement included Inchcape's acquisition of
the Company's Australian and New Zealand subsidiaries for the total sum of $24
million, which resulted in a non-recurring pretax gain of approximately $7.4
million, in the first quarter of 1995. In 1994, net sales of the Company's
Australian and New Zealand subsidiaries combined accounted for less than 2% of
total consolidated net sales.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the quarterly results of operations for
the years ended December 31, 1994 and 1993, respectively:
Quarter Ended
1994 April 1 July 1 September 30 December 31
------------------------------------------------------------------------------------------------------
Net sales $108,093 $126,944 $222,148 $180,360
Gross profit 32,491 40,149 76,480 59,723
Net income (Loss) (1,619) 145 16,329 2,855
Earnings per share (.14) .01 1.45 .26
======================================================================================================
1993 April 2 July 2 October 1 December 31
------------------------------------------------------------------------------------------------------
Net sales $ 70,606 $ 84,849 $140,261 $123,202
Gross profit 27,467 30,586 49,846 44,808
Net income 2,332 1,912 11,241 7,036
Earnings per share .21 .17 1.01 .62
======================================================================================================
twenty-seven
EX-21
8
LIST OF SUBSIDARIES OF THE REGISTRANT
1
Exhibit 21
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
THE OUTDOOR FOOTWEAR COMPANY DELAWARE
THE TIMBERLAND FINANCE COMPANY DELAWARE
THE TIMBERLAND WORLD TRADING COMPANY DELAWARE
TIMBERLAND EUROPE, INC. DELAWARE
TIMBERLAND INTERNATIONAL SALES CORPORATION U.S. VIRGIN ISLANDS
TIMBERLAND DIRECT SALES, INC. DELAWARE
TIMBERLAND RETAIL, INC. DELAWARE
TIMBERLAND MANUFACTURING COMPANY DELAWARE
TIMBERLAND AVIATION, INC. DELAWARE
TIMBERLAND SCANDINAVIA, INC. DELAWARE
TIMBERLAND INTERNATIONAL, INC. DELAWARE
TIMBERLAND S.A.R.L. FRANCE
THE TIMBERLAND WORLD TRADING GMBH GERMANY
TIMBERLAND (U.K.) LIMITED UNITED KINGDOM
TIMBERLAND GMBH AUSTRIA
TIMBERLAND ESPANA, S.A. SPAIN
THE RECREATIONAL FOOTWEAR COMPANY
(DOMINICANA), S.A. DOMINICAN REPUBLIC
COMPONENT FOOTWEAR DOMINICANA, S.A. DOMINICAN REPUBLIC
TIMBERLAND FOOTWEAR & CLOTHING COMPANY INC.
LES VETEMENTS & CHAUSSURES TIMBERLAND INC. CANADA
THE RECREATIONAL FOOTWEAR COMPANY GRAND CAYMAN ISLANDS
EX-23
9
CONSENT OF DELOITTE & TOUCHE LLP
1
Exhibit 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-67128, 33-56913, 33-50998, 33-17552, 33-41660 and 33-19183 of The Timberland
Company on Forms S-8 and Registration Statement No. 33-56921 on Form S-3 of our
reports dated February 9, 1995, appearing in and incorporated by reference in
the Annual Report on Form 10-K of The Timberland Company for the year ended
December 31, 1994.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 27, 1995
EX-27
10
FINANCIAL DATA SCHEDULE
5
YEAR
DEC-31-1994
DEC-31-1994
6,381
0
128,435
2,704
218,219
373,651
110,650
42,417
473,264
107,122
206,767
109
0
0
148,981
473,264
637,545
637,545
428,702
428,702
1,180
0
15,052
28,112
10,402
17,710
0
0
0
17,710
1.58
0