-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gn2hUqzdO5nZ2JOq2j/6PRwz/8ot9JuLrdwZKhNuQU15wYDn/vs56/EgUuSrR8h5 V7G1I9zw9169PxzU19/Czw== 0000950137-01-501583.txt : 20010516 0000950137-01-501583.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950137-01-501583 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENESCO GROUP INC CENTRAL INDEX KEY: 0000093542 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 041864170 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09267 FILM NUMBER: 1638938 BUSINESS ADDRESS: STREET 1: 333 WESTERN AVE CITY: WESTFIELD STATE: MA ZIP: 01085 BUSINESS PHONE: 4135623631 FORMER COMPANY: FORMER CONFORMED NAME: STANHOME INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY HOME PRODUCTS INC DATE OF NAME CHANGE: 19820513 10-Q 1 c62584e10-q.txt QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____. Commission File Number 0-1349 Enesco Group, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-1864170 - ------------------------------------ ---------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 225 Windsor Drive, Itasca, Illinois 60143 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 630-875-5300 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A (Former name, address and fiscal year, if changed since last report) - -------------------------------------------------------------------------------- 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 [ ] March 31, 2001 2000 ---- ---- Shares Outstanding: Common Stock with 13,653,809 13,531,755 Associated Rights 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (UNAUDITED) (IN THOUSANDS) MARCH 31, DECEMBER 31, 2001 2000 ---- ---- ASSETS CURRENT ASSETS: Cash and certificates of deposit $ 2,103 $ 4,006 Accounts receivable, net 56,533 72,923 Inventories 60,655 60,491 Prepaid expenses 3,309 3,640 Current tax assets 11,109 12,095 -------- -------- Total current assets 133,709 153,155 -------- -------- PROPERTY PLANT AND EQUIPMENT: Property, plant and equipment, at cost 85,831 85,505 Less accumulated depreciation 57,287 56,256 -------- -------- Property, plant and equipment, net 28,544 29,249 -------- -------- OTHER ASSETS: Goodwill and other intangibles, net 34,879 35,564 Other 948 947 Deferred income taxes 12,389 12,564 -------- -------- Total other assets 48,216 49,075 -------- -------- TOTAL ASSETS $210,469 $231,479 ======== ======== The accompanying notes are an integral part of these condensed financial statements. 2 3 ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (UNAUDITED) (IN THOUSANDS) MARCH 31, DECEMBER 31, 2001 2000 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes and loans payable $ 12,459 $ 14,000 Accounts payable 13,374 17,867 Federal, state and foreign income taxes 31,789 35,154 Accrued expenses Payroll and commissions 2,164 3,698 Royalties 4,640 7,747 Postretirement benefits 4,541 4,407 Other 10,622 11,351 --------- --------- Total current liabilities 79,589 94,224 --------- --------- LONG-TERM LIABILITIES: Postretirement benefits 5,569 6,065 Deferred income taxes 4,687 5,497 --------- --------- Total long-term liabilities 10,256 11,562 --------- --------- SHAREHOLDERS' EQUITY: Common stock 3,154 3,154 Capital in excess of par value 48,458 48,711 Retained earnings 334,175 337,615 Accumulated other comprehensive income (6,234) (4,388) --------- --------- 379,553 385,092 Less - shares held in treasury, at cost (258,929) (259,399) --------- --------- Total shareholders' equity 120,624 125,693 --------- --------- TOTAL LIABILITIES AND EQUITY $ 210,469 $ 231,479 ========= ========= The accompanying notes are an integral part of these condensed financial statements. 3 4 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000 ---- ---- Net revenues $ 62,745 $ 73,460 Cost of sales 34,228 39,430 --------- --------- Gross profit 28,517 34,030 Selling, distribution, general and administrative expenses 34,051 32,642 --------- --------- Operating profit (loss) (5,534) 1,388 Interest expense (572) (657) Interest income 122 153 Amortization of goodwill (489) (535) Other income (expense) 20 (75) --------- --------- Income (loss) before income taxes (6,453) 274 Income tax expense (benefit) (3,013) 110 --------- --------- Net income (loss) (3,440) 164 Retained earnings, beginning of period 337,615 326,305 Cash dividends, $.28 per share in 2000 - (3,782) --------- --------- Retained earnings, end of period $ 334,175 $ 322,687 ========= ========= Earnings Per Common Share: Basic and diluted $ (0.25) $ 0.01 ========= =========
The accompanying notes are an integral part of these condensed financial statements. 4 5 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS)
OPERATING ACTIVITIES: 2001 2000 ---- ---- Net income (loss) $ (3,440) $ 164 Adjustments to reconcile net income to net cash provided by operating activities 4,036 (176) -------- -------- Net cash provided (used) by operating activities 596 (12) -------- -------- INVESTING ACTIVITIES: Purchase of property, plant & equipment (1,059) (1,200) Proceeds from sales of property, plant & equipment - 74 -------- -------- Net cash provided (used) by investing activities (1,059) (1,126) -------- -------- FINANCING ACTIVITIES: Cash dividends - (3,782) Notes and loans payable (1,541) (893) Common stock issuance 217 509 -------- -------- Net cash used by financing activities (1,324) (4,166) -------- -------- Effect of exchange rate changes on cash and cash equivalents (116) (131) -------- -------- Increase (decrease) in cash and cash equivalents (1,903) (5,435) Cash and cash equivalents, beginning of year 4,006 10,819 -------- -------- Cash and cash equivalents, end of quarter $ 2,103 $ 5,384 ======== ========
The accompanying notes are an integral part of these condensed financial statements. 5 6 ENESCO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The consolidated condensed financial statements and related notes included this report have been prepared by Enesco, without audit, except for the December 31, 2000 condensed balance sheet, which came from Enesco's Annual Report on Form 10-K for the year ended December 31, 2000, under the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The information furnished reflects all normal recurring adjustments that are, in our opinion, necessary to a fair presentation of the results of operations and financial condition for the interim periods. Reclassifications were made to the 2000 financial statements to include shipping and handling costs billed to customers in revenues. Previously, shipping and handling costs billed to customers were netted against the related costs included in cost of sales. It is suggested that these condensed financial statements be read in conjunction with the financial statements and related notes to consolidated financial statements included in Enesco's Annual Report on Form 10-K for the year ended December 31, 2000. 1. ACCOUNTING POLICIES: Enesco's financial statements for the three months ended March 31, 2001 have been prepared in accordance with the accounting policies described in Note 1 to the December 31, 2000 consolidated financial statements included in our 2000 Annual Report on Form 10-K. We consider all highly liquid securities, including certificates of deposit with maturities of three months or less, when purchased, to be cash equivalents. Accounts receivable are stated net of reserves for uncollectible accounts, returns and allowances of $6.7 million at March 31, 2001 and $7.3 million at December 31, 2000. 6 7 Enesco recognizes revenue when title passes to its customers which generally occurs when merchandise is turned over to the shipper. A provision for anticipated merchandise returns and allowances is recorded based upon historical experience. Amounts billed to customers for shipping and handling are included in revenue. License and royalty fees received by Enesco are recognized as revenue when earned. Adoption of SAB 101 "Revenue Recognition" in the fourth quarter of 2000 and EITF 00-22 "Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future" in the first quarter of 2001 did not affect Enesco's accounting and reporting policies. In accordance with EITF 00-10 "Accounting for Shipping and Handling Fees and Costs" (which was adopted in the fourth quarter 2000) Enesco classifies shipping and handling costs billed to customers as revenue and the related costs are classified as cost of sales. Revenue and cost of sales for the first quarter of 2000 were restated to include the shipping and handling costs billed to customers. Adoption of SFAS 133 "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001 did not have a material impact on the results of operations or financial condition. Enesco paid cash for interest and taxes as follows (in thousands): Three Months Ended March 31 -------- 2001 2000 ---- ---- Interest $ 540 $ 570 Income taxes $ 76 $ 588 7 8 2. COMPREHENSIVE INCOME: The other comprehensive income consists only of cumulative translation adjustments. Comprehensive income (loss) for the three months ended March 31, 2001 and 2000 was as follows (in thousands):
Three Months Ended March 31 -------- 2001 2000 ---- ---- Net income (loss) $(3,440) $ 164 Other comprehensive income (loss): Cumulative translation adjustments (no tax effects) (1,846) (503) -------------------- Comprehensive income (loss) $(5,286) $ (339) ====================
3. GEOGRAPHIC OPERATING SEGMENTS: Enesco operates in one industry segment, predominately in two major geographic areas (United States and International). The following tables summarizes Enesco's operations by geographic area for the three months ended March 31, 2001 and 2000 (in thousands): Three Months Ended March 31 -------- 2001 2000 ---- ---- NET SALES: United States $ 46,206 $ 56,488 United States intercompany (724) (585) International 17,549 18,014 International intercompany (286) (457) ------------------------ Total consolidated $ 62,745 $ 73,460 ======================== OPERATING PROFIT (LOSS): United States $ (5,903) $ 278 International 369 1,110 ------------------------ Total consolidated $ (5,534) $ 1,388 ======================== 8 9 Transfers between geographic areas are made at the market value of the merchandise transferred. No single customer accounted for 5% or more of consolidated net sales. Export sales to foreign unaffiliated customers represent less than 10% of consolidated net sales. There were no material changes in assets from the amount disclosed in Enesco's December 31, 2000 Annual Report and the basis of geographic area measurement of sales and operating profit did not change in 2001. 4. INVENTORY CLASSES: The major classes of inventories at March 31, 2001 and December 31, 2000 were as follows (in thousands): March 31, December 31, 2001 2000 ---- ---- Raw materials and supplies $ 639 $ 574 Work in progress 101 87 Finished goods in transit 9,115 9,483 Finished goods 50,800 50,347 ------------------------- $60,655 $60,491 ========================= 5. CORPORATE HEADQUARTERS CLOSING RESERVE: Enesco's corporate headquarters closing reserve, which was established in 1997, provided for severance and benefits payments due to terminated employees. During the first quarter of 2001, the Company made $600 thousand of payments which were charged against the corporate headquarters closing reserve. At March 31, 2001, $2.8 million remained in the reserve, the majority of which is for future severance payments. 6. OTHER INCOME (EXPENSE): Other income (expense) for the three months ended March 31, 2001 and 2000 consists of the following (in thousands): Three Months Ended March 31 -------- 2001 2000 ---- ---- Foreign currency loss $ (1) $(57) Gain (loss) on sale of fixed assets 1 (3) Miscellaneous 20 (15) ------------------- $ 20 $(75) =================== 9 10 7. EARNINGS PER COMMON SHARE (BASIS OF CALCULATIONS): Basic earnings per common share are based on the average number of common shares outstanding during the period covered. Diluted earnings per common share assumes, in addition to the above, a dilutive effect of common share equivalents during the period. Common share equivalents represent dilutive stock options and warrants using the treasury stock method. The number of shares used in the earnings per share calculations for the three months ended March 31, 2001 and 2000 were as follows (in thousands): Three Months Ended March 31 -------- 2001 2000 ---- ---- Basic Average common shares outstanding 13,637 13,506 Diluted Stock options/warrants - - --------------------- Average shares diluted 13,637 13,506 ===================== The average number of shares outstanding for the first quarter of 2001 excluded the common stock equivalents of options and warrants since the impact on the reported net loss per share was antidilutive. Inclusion of the options and warrants would have increased the average shares outstanding by 86,000. The average shares outstanding for the first quarter of 2000 did not include common stock equivalents of options since the exercise price of all options exceeded the market price during the quarter. 10 11 8. DERIVATIVE FINANCIAL INSTRUMENTS: In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138. The Statement establishes accounting and reporting standards requiring that derivative instruments be recorded in the balance sheet as either an asset or a liability measured at its fair value. The Statement requires that changes in the fair value of derivatives be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows derivative gains and losses to offset related results on the hedged item in the income statement and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The adoption of SFAS No. 133 on January 1, 2001 did not have a material impact on the consolidated financial condition or results of operations of Enesco. Enesco operates globally with various manufacturing and distribution facilities and product sourcing locations around the world. Enesco may reduce its exposure to fluctuations in interest rates and foreign exchange rates by creating offsetting positions through the use of derivative financial instruments. Enesco currently does not use derivative financial instruments for trading or speculative purposes. Enesco regularly monitors its foreign currency exposures and ensures that the hedge contract amounts do not exceed the amounts of the underlying exposures. Enesco's current hedging activity is limited to foreign currency purchases and intercompany foreign currency transactions. The purpose of Enesco's foreign currency hedging activities is to protect Enesco from the risk that the eventual settlement of foreign currency transactions will be adversely affected by changes in exchange rates. Enesco hedges these exposures by entering into various short-term foreign exchange forward contracts. Under SFAS No. 133, the instruments are carried at fair value in the condensed consolidated balance sheet as a component of other current assets or other current liabilities. Changes in the fair value of foreign exchange forward contracts that meet the applicable hedging criteria of SFAS No. 133 are recorded as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. Changes in the fair value of foreign 11 12 exchange forward contracts that do not meet the applicable hedging criteria of SFAS No. 133 are recorded currently in income as cost of sales or foreign exchange gain or loss, as applicable. Enesco's hedging activities did not have a material impact on Enesco's results of operations or financial condition during the quarter ended March 31, 2001. 9. SUBSEQUENT EVENT: On May 3, 2001 Enesco reduced its workforce in the United States by 120 positions, or approximately 14%. This workforce reduction affected union, non-union, clerical and professional employees and will generate annual savings of approximately $8 million. One-time severance costs approximating $500 thousand will be recorded in the second quarter of 2001. 10. NEW PRESIDENT AND CEO: Daniel DalleMolle was elected as President and Chief Executive Officer (CEO) of Enesco as of March 28, 2001. Mr. DalleMolle succeeded interim CEO Anne-Lee Verville. The President and CEO position had been vacant since the resignation of Jeffrey A. Hutsell on June 27, 2000. Mr. DalleMolle was also appointed to Class II of the Board of Directors on March 28, 2001. His Board term will expire on April 24, 2003. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENESCO GROUP, INC. THREE MONTHS ENDED MARCH 31, 2001 The information set forth below should be read in conjunction with the unaudited consolidated condensed financial statements and notes thereto included in Part I - - Item 1 of the Quarterly Report and the Company's Annual Report on Form 10-K for the year ended December 31, 2000 which contains the audited financial statements and notes thereto for the years ended December 31, 2000, 1999, and 1998 and Management's Discussion and Analysis of Financial Condition and Results of Operations for those respective periods. RESULTS OF OPERATIONS: First quarter 2001 sales decreased 15% compared to the same period in 2000. The majority of the decline continues to be focused in the United States card, gift, and collectible channels. Unfilled orders at the beginning of the year were down $2 million, or 4%, compared to the same period last year and new orders for the first quarter of 2001 were down 25% compared to 2000. Enesco's Precious Moments lines represented approximately 45% of first quarter 2001 sales, compared to 43% in 2000 and the Cherished Teddies lines represented approximately 13% of 2001 sales, compared to 16% in 2000. Net international sales decreased 2% and represented 28% of this year's first quarter sales compared to 24% in 2000. Local currency international sales were translated into United States dollars at lower exchange rates in 2001 versus 2000. If the year-to-date 2001 local currency sales were translated into United States dollars at the 2000 exchange rates, sales would have been approximately $1.4 million higher in 2001. Unfilled orders (backlog) as of March 31, 2001, were down approximately $20 million, or 22%, compared to the same period last year. Orders received and approved by Enesco, 13 14 are subject to cancellation for credit considerations, inventory shortages and customer requests. The gross margin for the first quarter decreased compared to 2000 following the sales decrease. Enesco's gross profit margin expressed as a percentage of sales was 45% in 2001 compared to 46% in 2000. The decrease was due to lower margins in the United States due to product and sales channel mix, as all products and channels do not have the same gross margin. Selling, distribution, general and administrative expenses increased 4% in the first quarter of 2001 versus 2000 and represented 54% of net sales in 2001 and 44% in 2000. The increase was due mainly to one-time costs of $1.8 million related to the United States sales force reorganization announced in November, 2000. The one-time costs of $1.8 million consisted of commissions on orders placed before January 1, 2001 that were shipped in 2001, as well as the hiring and training costs for approximately 200 employees. The 2001 expenses were a higher percentage of sales mainly due to the impact of lower sales on fixed costs. Due to the above factors, the first quarter 2001 operating loss was $5.5 million compared to a $1.4 million operating profit last year with the majority of the decrease in the United States. To address declining sales and operating income, Enesco is embarking on several profit improvement initiatives. The first initiative was announced in May 2001 to reduce the workforce in the United States by 120 positions, or 14%. The one-time costs for this workforce reduction will approximate $500 thousand and the workforce reduction will generate annual savings of approximately $8 million. Additionally, Enesco will restructure its Operations, Marketing and Sales Departments to improve efficiencies in the supply chain and product development cycle. The workforce reductions and restructuring will immediately reduce costs and are expected to better position Enesco for future growth. INTEREST EXPENSE decreased in the first quarter of 2001 due to lower average borrowings and lower interest rates. Interest income was lower in the 2001 first quarter 14 15 due to lower cash balances. Amortization of goodwill decreased in the 2001 first quarter based on the completion of an asset's amortization period at the end of 2000. INCOME TAX benefit in the first quarter of 2001 was 46.7% of the pre-tax loss and the income tax provision for first quarter of 2000 was 40% of the pre-tax earnings. The higher effective rate reflects the impact of non-deductible expenses (goodwill) and the geographical mix of earnings. The actual effective tax rates are dependent upon numerous factors and actual results may vary. INTERNATIONAL ECONOMIES AND CURRENCY: The value of the U.S. dollar versus international currencies where Enesco conducts business impacts the results of these businesses. Fluctuations in the value of the U.S. dollar versus international currencies affect the U.S. dollar translation value of international currency denominated balance sheet items. The changes in the balance sheet dollar values due to international currency translation fluctuations are recorded as a component of shareholders' equity. In addition to the currency risks, Enesco's international operations, including sources of imported products, are subject to risks of doing business abroad, including reliance on third party overseas manufacturers, import or export restrictions and changes in economic and political climates. FINANCIAL CONDITION: Enesco has historically satisfied its capital requirements with internally generated funds and short-term loans. Working capital requirements fluctuate during the year and are generally greatest during the third quarter and lowest at the beginning of the first quarter. The major sources of funds in the first quarter of 2001 from operating activities were from depreciation, amortization, and lower accounts receivable due to lower sales. Accounts receivable days sales outstanding also decreased from 2000 due to more stringent domestic credit policies implemented in the third quarter of 2000. Accounts payable and accrued expenses decreased from year-end levels due to timing of payments and the impact of lower sales volumes. The corporate headquarters closing reserve at March 31, 2001 totaled $2.8 million, a decrease of $600 thousand from year-end. Due to the duration and timing of severance provisions and related benefits, the reserve will not be fully utilized until the first quarter of 2004. The reserve is expected to be utilized as 15 16 follows: $1.4 million for remainder of 2001, $800 thousand reduction in 2002, $500 thousand reduction in 2003 and $100 thousand reduction in 2004. Enesco has filed and continues to file tax returns with a number of taxing authorities worldwide. While we believe such filings have been and are in compliance with applicable laws, regulations and interpretations, positions taken are subject to challenge by the taxing authorities often for an extended number of years after the filing dates. Enesco has established accruals for tax assessments. These accruals are included in current income taxes payable since it is uncertain as to when assessments may be made and paid. Based upon Enesco's current liquid asset position and credit facilities, Enesco believes it has adequate resources to fund any such assessments. To the extent accruals differ from actual assessments or when the open tax years are closed, the accruals will be adjusted through the provision for income taxes. The majority of the open tax years become closed at the end of December for the particular open year. The major use of cash in investing activities in the first quarter of 2001 was for capital expenditures. Capital expenditures of $7 million are currently anticipated for 2001. The major use of cash in financing activities in the first quarter of 2001 was the reduction of short term debt. The principal sources of Enesco's liquidity are its available cash balances, cash from operations and available financing alternatives. In August 2000, Enesco entered into a $50 million revolving credit facility with Fleet National Bank to replace an existing credit facility. The Fleet credit agreement contains financial and operating covenants including restrictions on indebtedness and liens, selling property, repurchasing our stock and paying dividends. In addition, Enesco is required to satisfy consolidated net worth, fixed charge coverage ratio and leverage ratio tests at the end of each quarter. In March 2001, Enesco agreed to modify its credit agreement with Fleet, which included a modification of the financial covenants. Enesco further agreed in April 2001, to modify the Fleet credit agreement to reduce the commitment to $25 million and to grant Fleet a security interest in inventory and accounts receivable. These modifications are not expected to have a material effect on Enesco's liquidity or the ability of Enesco to meet 16 17 working capital requirements. Enesco is in the early stages of syndicating a new credit facility. Management expects the new credit facility to be in place by July 31, 2001. CURRENT AND PENDING ACCOUNTING STANDARDS: EITF 00-14 "Accounting for Certain Sales Incentives" and EITF 00-25 "Vendor Income Statement Characterization of Consideration from a Vendor to Retailer" will become effective later this year. Enesco has determined that EITF 00-14 will not materially impact its results of operations and financial condition. The impact of EITF 00-25, while not expected to have a material impact, is currently under review. Adoption of SAB 101 "Revenue Recognition" in the fourth quarter of 2000 and EITF 00-22 "Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future" in the first quarter of 2001 did not affect Enesco's accounting and reporting policies. In accordance with EITF 00-10 "Accounting for Shipping and Handling Fees and Costs" (which was adopted in the fourth quarter 2000) Enesco classifies shipping and handling costs billed to customers as revenue and the related costs are classified as cost of sales. Revenue and cost of sales for the first quarter of 2000 were restated to include the shipping and handling costs billed to customers. Adoption of SFAS 133 "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001 did not have a material impact on the results of operations or financial condition. FORWARD LOOKING STATEMENTS: This Form 10-Q including all information incorporated by reference into this Form 10-Q, contains certain forward-looking statements within the meaning of the Federal securities laws. These forward-looking statements may include the words "believe," "expect," "plans" or similar words and are based in part on Enesco's reasonable expectations and are subject to a number of factors and risks, many of which are beyond Enesco's control. Enesco's future results may differ materially from its current results and actual results could differ materially from those projected in the forward-looking statements contained in, and incorporated by reference into, this Form 10-Q as a result of certain factors including, but not limited to, those set forth below. Readers should also carefully review any risk factors described in other documents that we file from time to time with the Securities and Exchange Commission: 17 18 - Our ability to manufacture, increase capacity, source and ship new and continuing product in a timely manner and consumers' acceptance of those products at prices that will be sufficient to profitably recover development, manufacturing, marketing, royalty and other costs of the products; - Economic conditions including retail sales, higher fuel prices, currency fluctuations and government regulation and other actions in the various markets in which we operate throughout the world; - The inventory policies of retailers, together with the increased reliance by retailers on quick response inventory management techniques, which increase the risk of underproduction of popular items, overproduction of less popular items and failure to achieve tight and compressed shipping schedules; - The impact of competition on revenues, margins and other aspects of Enesco's business, including the ability to secure, maintain and renew popular licenses and the ability to attract and retain talented employees in a competitive environment. In light of these uncertainties and risks, there can be no assurance that the forward-looking statements in this Form 10-Q will occur or continue in the future. Except for required, periodic filings under the Securities Exchange Act of 1934, Enesco undertakes no obligations to release publicly any revisions to these forward looking statements that may reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 18 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item either is set forth in Exhibit 13 to Enesco's Annual Report on Form 10-K for the year ended December 31, 2000, as updated by Note 8 to the Consolidated Condensed Financial Statements included in Item 1 herein, or is immaterial. To manage Enesco's foreign currency risk, as of March 31, 2001 Enesco had entered into forward exchange agreements with a notional value of $14.2 million, the majority of which matured on April 2, 2001. The fair value is not significant. 19 20 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Stockholders was held on April 26, 2001. (b)(c) The first matter voted upon at the meeting was the election of Directors. The members of Class III were standing for election to a three-year term expiring at the Annual Meeting in 2004. Upon motion duly made and seconded, it was voted to elect John F. Cauley, George Ditomassi and Anne-Lee Verville as Class III Directors for a three-year term expiring at the Annual Meeting in 2004 and until their successors are elected and qualified. The votes for each of the candidates were reported as follows: John F. Cauley For: 12,141,975 Withheld: 177,839 George M. Ditomassi For: 12,172,000 Withheld: 147,814 Anne-Lee Verville For: 11,428,538 Withheld: 891,276 In addition, the following directors continue to serve on the Board: Daniel DalleMolle, Eugene Freedman, Judith R. Haberkorn, Donna Brooks Lucas, Homer G. Perkins, Thane A. Pressman. The second matter voted upon at the meeting was the approval and ratification of the Board's appointment of Arthur Andersen LLP as independent accountants for 2001. Upon motion duly made and seconded, it was voted that the appointment by the Board of Directors at its February 28, 2001 meeting of Arthur Andersen LLP, independent certified public accountants, as independent accountants for the Company for its fiscal year ending December 31, 2001 be ratified and approved. The votes for the independent accountants were reported as follows: Arthur Andersen LLP For: 12,197,215 Against: 95,144 Abstain: 27,455 20 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Fourth Amendment to Amended and Restated Senior Resolving Credit Agreement 10.2 Daniel DalleMolle Employment Agreement (b) Reports on Form 8-K No reports on Form 8-K were filed by Enesco during the quarter for which this report is filed. All other items hereunder are omitted because either such item is inapplicable or the response to it is negative. 21 22 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENESCO GROUP, INC. (Registrant) Date: May 15, 2001 /s/ Daniel DalleMolle ----------------------------------------- Daniel DalleMolle President and Chief Executive Officer Date: May 15, 2001 /s/ Jeffrey W. Lemajeur ----------------------------------------- Jeffrey W. Lemajeur Chief Financial Officer 22 EX-10.1 2 c62584ex10-1.txt 4TH AMENDMENT TO AMENDED AND RESTATED SENIOR 1 EXHIBIT 10.1 FOURTH AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT AGREEMENT This FOURTH AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT AGREEMENT (the "Amendment") is made as of this 6th day of April, 2001, by and among ENESCO GROUP, INC., a Massachusetts corporation (the "Borrower"), the Borrowing Subsidiaries who may from time to time become a party to the Amended and Restated Senior Revolving Credit Agreement, and FLEET NATIONAL BANK, a national banking association (the "Bank"). RECITALS The Borrower and the Bank are parties to a certain Amended and Restated Senior Revolving Credit Agreement dated as of August 23, 2000, as amended by a First Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of November 27, 2000, as further amended by a Second Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of November 30, 2000, and as further amended by a Third Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of March 23, 2001 (the "Credit Agreement"), pursuant to which the Bank has extended certain financial accommodations to the Borrower including those evidenced by a Borrower Note in the face amount of $50,000,000 dated August 3, 2000, a Back-Up L/C Demand Note in the face amount of $25,000,000 dated November 27, 2000 and a Back-Up F/X Demand Note in the face amount of $10,000,000 dated November 27, 2000. The Borrower and the Bank have agreed to further modify the terms and provisions of the Credit Agreement, as more fully described and set forth hereinbelow. Capitalized terms not otherwise defined in this Amendment shall have their meanings as defined in the Credit Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower and the Bank agree that the Credit Agreement is amended as follows: 1. The definition of "Accounts Receivable," "Account" or "Accounts" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Accounts Receivable," "Account" or "Accounts" means a right to payment for goods sold or leased or for services rendered by Borrower or Subsidiaries, whether or not earned by performance, including all Accounts (as defined in the Uniform Commercial Code). 2. The definition of "Applicable Margin" (including the pricing grid and terms of pricing determination) which appears in ARTICLE I is deleted in its entirety and replaced with the following: 2 "Applicable Margin" for LIBOR Advances or Cost of Funds Advances means one hundred fifty basis points (1.50%). "Applicable Margin" for Alternate Base Rate Advances means zero basis points (0.00%). 3. The definition of "Borrowing Capacity" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Borrowing Capacity" means the lesser of: (x) Forty Million Dollars ($40,000,000), or (y) (i) the sum of eighty-five percent (85%) of Accounts Receivable of the Borrower for the months of April, May and June of 2001, (ii) the sum of seventy-five percent (75%) of Accounts Receivable of the Borrower for the month of July of 2001, and (iii) the sum of seventy percent (70%) of Accounts Receivable of the Borrower for each month thereafter, in each case, which Accounts Receivable are not Ineligible Accounts of the Borrower. 4. The definition of "Commitment" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Commitment" means the obligation of the Bank, subject to Borrowing Capacity, to make Loans not exceeding an aggregate principal amount of $25,000,000 for all such Loans outstanding at any time, or as set forth in any Notice of Assignment relating to any assignment that has become effective pursuant to Section 12.3.1, as such amount may be modified from time to time pursuant to the terms hereof. 5. The definition of "Cost of Funds Advance" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Cost of Funds Advance" means an Advance denominated in Dollars which bears interest at the Cost of Funds Rate. 6. The following definition for the term "Cost of Funds Rate" is added to ARTICLE I: "Cost of Funds Rate" means with respect to any Cost of Funds Advance, a rate per annum equal to the sum of (i) the Applicable Margin, plus (ii) the Cost of Funds. 2 3 7. The definition of "Facility Fee" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Facility Fee" means a per annum fee equal to twenty-five basis points (0.25%) payable quarterly in arrears by the Borrower to the Bank on the amount of the Commitment, irrespective of Borrowing Capacity or aggregate outstanding Advances. 8. The following additional subclauses (q) and (r) are added to the end of the definition of "Ineligible Accounts" which appears in ARTICLE I: (q) Any Account due from any Account Debtor not domiciled and having its principal place of business located in the United States. (r) Any Account in which the Bank does not hold a valid, duly perfected, first priority security interest. 9. The following definition for the term "Inventory is added to ARTICLE I: "Inventory" means and includes all present and future Inventory as defined in the Uniform Commercial Code, excluding raw materials, work in process, and all materials used or consumed in the Debtor's business; all such Inventory as now owned or hereafter acquired, anywhere located including, without limitation, with manufacturers or at warehouses, including any such returned or repossessed inventory or any such inventory in transit, all products of the accessions to such inventory, and all documents of title, whether negotiable or non-negotiable, representing any of the foregoing. 10. The definition of "L/C Facility Limit" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "L/C Facility Limit" means the obligation of the Bank pursuant to Section 2.1.B, subject to Borrowing Capacity (dollar for dollar based upon the aggregate stated amount of all Letters of Credit outstanding), to issue Letters of Credit up to an aggregate stated amount of all such Letters of Credit outstanding at any given time of $15,000,000. 11. The definition of "Loan Documents" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Loan Documents" means this Agreement, the Notes, the Guarantees, the Pledge Agreements, the Security Agreements and any 3 4 Elections to Participate executed by the Borrower, the Borrowing Subsidiaries or any Guarantor in connection herewith. 12. The following definition for the term "Security Agreements" is added to ARTICLE I: "Security Agreements" mean the Security Agreements between the Borrower or any Subsidiary and the Bank relating to the grant of security interests to the Bank in certain personal property of the Borrower or any such Subsidiary. 13. Section 2.1 which appears in ARTICLE II is deleted in its entirety and replaced with the following: "2.1. Commitment. From and including the date of this Agreement and prior to the Facility Termination Date, the Bank agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Credit Parties from time to time subject to Borrowing Capacity in an aggregate Dollar Amount not to exceed at any one time outstanding the amount of its Commitment. Subject to the terms of this Agreement, each Credit Party may borrow, repay and reborrow at any time prior to the Facility Termination Date. Unless earlier terminated in accordance with the terms and conditions of this Agreement, the Commitments to lend hereunder shall expire on the Facility Termination Date." 14. The first paragraph of Section 2.1.B which appears in ARTICLE II is deleted in its entirety and replaced with the following: "2.1.B. Letter of Credit Facility. From and including the date of this Agreement and prior to the Facility Termination Date, the Bank agrees, on the terms and conditions set forth in this Agreement, upon request of the Borrower, to issue Letters of Credit subject to the L/C Facility Limit with expiration dates of not later than 90 days beyond the Facility Termination Date (the "L/C Facility")." 15. Section 2.15 which appears in ARTICLE II is deleted in its entirety and replaced with the following: "2.15. Letters of Credit. Letters of Credit may be issued, extended or renewed at any time prior to the Facility Termination Date. A per annum fee equal to one-half of the then Applicable Margin for LIBOR Advances multiplied by the stated amount of the Letter of Credit to be issued shall be paid by the Borrower to the Bank in connection with the 4 5 issuance of each Letter of Credit. In addition, the Borrower shall pay to the Bank a fronting fee equal to one-eighth of one percent (0.125%) per annum on the amount of the Letter of Credit, plus all of the Bank's customary charges for processing, issuance and amendments to the Letter of Credit. All Letter of Credit fees and charges shall be payable on each Payment Date in arrears." 16. The following additional subsections are added to the end of Section 6.1: (xiii) promptly following the execution of this Amendment, and on an annual basis within 45 days following the end of each fiscal year of the Borrower, a schedule of Accounts Receivable of the Borrower by Account Debtor, such schedule to include any Account Debtor or Account Debtors liable to the Debtor on any Account or Accounts in the aggregate of $25,000 or more, together with the address of each such Account Debtor and such other information as may be reasonably requested by the Bank, all in form and substance acceptable to the Bank, and certified as true and correct by the Chief Financial Officer of the Borrower. (xiv) within 30 days after the close of each fiscal quarter of the Borrower, a summary schedule of Accounts Receivable of the Borrower, with aging, and such other information for Account Debtors as may be reasonably requested by the Bank, all in form and substance acceptable to the Bank, and certified as true and correct by the Chief Financial Officer of the Borrower. (xv) within 30 days after the close of each fiscal quarter of the Borrower, a complete schedule of Inventory of the Borrower by location, in form and substance acceptable to the Bank, and certified as true and correct by the Chief Financial Officer of the Borrower. 17. The following additional Subsection 7.15 is added to the end of ARTICLE VII: 7.15 The occurrence of any Event of Default under any of the Security Agreements. 18. EXHIBIT C-1 attached as a part of the Credit Agreement is deleted in its entirety and replaced with EXHIBIT C-1 attached as a part of this Amendment. 19. Except as amended, modified or supplemented by this Amendment, all of the terms, conditions, covenants, provisions, representations, warranties and conditions of the Credit Agreement shall remain in full force and effect and are 5 6 hereby acknowledged, ratified, confirmed and continued as if fully restated hereby. 20. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof or contained in the Credit Agreement. 21. It is the intention of the parties hereto that this Amendment shall not constitute a novation and shall in no way adversely affect or impair performance of the obligations of the Borrower under the Credit Agreement. 22. The Borrower hereby confirms and ratifies the obligations established under the Credit Agreement, as amended hereby. 23. This Amendment is to be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. 24. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties thereto may execute this Agreement by signing any such counterpart. This Amendment shall be effective when it has been executed by the Borrower and the Bank. [SIGNATURES APPEAR ON FOLLOWING PAGE] 6 7 IN WITNESS WHEREOF, the foregoing has been executed as an instrument under seal as of the date first above written. WITNESS: ENESCO GROUP, INC. By: /s/ Anne-Lee Verville ------------------------------------------- Print Name: Anne-Lee Verville ----------------------------------- Title: Interim CEO and President ---------------------------------------- By: /s/ Jeffrey W. Lemajeur ------------------------------------------- Print Name: Jeffrey W. Lemajeur ----------------------------------- Title: Chief Financial Officer ---------------------------------------- FLEET NATIONAL BANK By: Sheryl McQuade ------------------------------------------- Its Vice President ------------------------------------------- 7 EX-10.2 3 c62584ex10-2.txt DANIEL DALLEMOLLE EMPLOYMENT AGREEMENT 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 28th day of March, 2001, between Enesco Group, Inc., a Massachusetts corporation ("Employer"), and Daniel DalleMolle ("Employee"). WITNESSETH: WHEREAS, Employee and Employer desire to enter into this Agreement pertaining to the terms of the employment of the Employee by Employer; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Employment. Employer hereby agrees to employ Employee, and Employee hereby accepts such employment by Employer, upon the terms and conditions herein set forth. Employee shall serve as President and Chief Executive Officer of Employer. Although it is contemplated that Employee will undertake some travel as part of his duties, the primary place of employment shall be at Employer's principal offices, located at Itasca, Illinois. Employee also shall be elected to (a) the Board of Directors, thereafter to be reelected by the Shareholders of Employer, and (b) the Executive Committee of the Board. 2. Term. The initial term of the Agreement shall commence on March 28, 2001, and shall expire on March 31, 2003 unless sooner terminated as hereinafter provided. After expiration of the initial term, and subject to the termination provisions hereinafter contained, the Agreement may be renewed for additional one to five year periods by mutual written agreement of the parties. If the Board chooses not to renew the Employee's contract, the Employee will be entitled to severance as defined in the Section 6 below. 3. Duties. Employee will, during the term hereof (a) faithfully and diligently do and perform all such acts and duties and furnish such services as the Board of Directors of Employer shall direct, (b) do and perform all acts in the ordinary course of Employer's business (with such limits as the Board of Directors of Employer may prescribe) necessary and conducive to Employer's best interests, (c) execute all duties attendant to his office, and (d) devote his full time, energy, and skill to the business of Employer and to the promotion of Employer's best interests, except for vacations, holidays, holidays and absences made necessary because of illness and except that Employee may participate in the affairs of any governmental, educational or charitable institution, and serve as a member of the board of directors of other companies so long as the Board of Directors of Employer does not determine that such activities interfere with the business of Employer or diminish Employee's obligations under the Agreement. Employee's performance under this Agreement will be reviewed annually by the Board of Directors. 1 2 4. Compensation. Employer shall pay to Employee for all services to be performed by Employee during the term of the Agreement: (a) A base annual salary at the rate of $480,000 (Base Salary), payable in substantially equal periodic bi-weekly installments less applicable deductions in accordance with Employer's practices for other executives, as such practices may be determined from time to time. During January of each year, the Employee's compensation shall be considered for an annual review by the Board of Directors and Compensation Committee. (b) Employee shall be eligible for a bonus for each fiscal year of employment pursuant to his written objectives under the Management Incentive Plan for Employer's senior management, which is adopted annually by Employer's Board of Directors; provided that for 2001 the Employee will receive a minimum of 100% bonus pay out, which bonus payment will be at least $312,000, less applicable deductions. (c) Any additional or special compensation, such as incentive pay or bonuses, based upon Employee's performance, as the Board of Directors of Employer, in its discretion, may from time to time determine. (d) As of March 28, 2001, Employee shall be awarded an option for 300,000 shares of Enesco stock, with an exercise price of the closing price as of such date, with terms as if the option were granted under the 1996 Non-Qualified Stock Option Plan (Stock Option Grant). (e) On or before April 6, 2001, the Employee will receive a $140,000 signing bonus to reimburse Employee for certain lost compensation in connection with his change of employment, less applicable deductions. 5. Fringe Benefits. (a) Employee shall be eligible to participate in any incentive plans or arrangements ("Incentive Plans") that Employer may establish or practices it may follow for the benefit of its executives as in effect from time to time, and shall be entitled to receive any other bonus or discretionary compensation payments as Employer may determine from time to time. (b) Employee shall be entitled to paid vacations in accordance with Employer's customary vacation policy. Employee shall also be entitled to all paid holidays given by Employer to its other senior executives. (c) Employee and his dependents shall be entitled to participate in and receive benefits under any qualified or supplemental defined contribution retirement plan, health and dental plan, disability plan, survivor income plan, and life insurance plan or arrangement ("Benefits Plans"), and any additional or substitute Benefit Plans Employer 2 3 may make available in the future to its senior executives, subject to and on a basis consistent with the terms, conditions, and overall administration of such Benefit Plans. 6. Termination. (a) Employee shall have the right at any time during the term of this Agreement to terminate his employment with the Employer upon giving ninety (90) days written notice of said termination to Employer. In the event of termination of his employment by Employee for any reason, Employer shall have no further liability hereunder from and after the date of termination other than the payment of all compensation (base salary and bonus, if any, payable in accordance with the terms of the Management Incentive Plan) to Employee or his heirs or his personal representatives for all periods prior to such termination. (b) Employer shall have the right at any time during the term of this Agreement to terminate the employment of Employee with Employer upon giving notice to Employee. In the event of termination of his employment by Employer for any reason other than "good cause," Employer shall continue to pay Employee an amount equal to his Base Salary for twenty-four (24) months, plus two bonus payments under the Management Incentive Plan of an amount equal to a 100% bonus payout (payable at the normal times that bonuses are paid under the Management Incentive Plan), subject to Employee's execution of Employer's standard form of Release, and Employer shall have no further liability to Employee. The Employee may choose to receive his severance of twenty-four (24) months of base pay and two (100%) bonus payments in one lump sum. In addition, the Employee may exercise any stock options that have vested in accordance with the terms of the Stock Option Grant. For purposes of the preceding sentence, "good cause" shall be deemed to exist if, and only if: (i) Employee shall engage, during the performance of his duties hereunder in acts or omissions constituting dishonesty, intentional breach of fiduciary obligation, moral turpitude, willful misconduct, intentional wrongdoing or malfeasance; (ii) Employee shall be convicted of a criminal violation involving fraud, dishonesty or moral turpitude; or (iii) Employee shall materially breach the Agreement other than by engaging in acts or omissions enumerated in clauses (i) and (ii) above), and such breach by its nature, is incapable of being cured, or such breach remains uncured for more than ten (10) days following receipt by Employee of written notice from Employer specifying the nature of the breach and demanding the cure thereof. 3 4 7. Death. If Employee dies during the term of the Agreement, Employer agrees to pay to a beneficiary designated in writing by Employee, an amount equal to Employee's aggregate Base Salary (at the rate then in effect) for a period of twelve (12) months from the date of death and an amount equal to the annual average of Employee's bonus payments for the two calendar years preceding the year of death. Such payments shall be made at the same times as they would have been made to Employee if he were alive and employed by Employer. Any death benefits payable under this Paragraph 7 are in addition to any other benefits due to Employee or his beneficiaries or dependents from Employer. 8. Disability. If during the term of this Agreement Employee incurs a Disability, Employee's obligation to perform his services hereunder will terminate and in such event Employer agrees: (a) to continue to pay Employee his Base Salary (at the rate then in effect) during a period equal to the lesser of twelve (12) months from the date of onset of such Disability or the balance of the term of this Agreement (the "Disability Period"); (b) to pay to Employee during the Disability Period the bonus provided pursuant to Paragraph 4(b) of this Agreement; and (c) during the Disability Period to continue to cover Employee and his dependents under all health, dental, disability, accident and life insurance plans or arrangements made available by Employer in which Employee or his dependents were participating immediately prior to the date of onset of such Disability as if Employee continued to be an employee of Employer; provided that, if participation in any one or more of such plans and arrangements is not possible under the terms thereunder, Employer will provide substantially identical benefits. Notwithstanding the foregoing, any payments to Employee pursuant to subparagraphs (a) and (b) above shall be reduced by the amount of any disability benefits otherwise payable to Employee under any disability program(s) maintained by Employer. If Employee is receiving benefits hereunder and his Disability ceases, his benefits under this Paragraph 8 shall terminate. For purposes of the Agreement, the term "Disability" will have the same meaning as in Employer's long-term disability plan, or if no such plan exists shall mean a physical or mental disability, as determined by an independent physician selected with the approval of both Employer and Employee, which will render Employee incapable of performing his duties under the Agreement for 60 days or more within any 365-day period. 4 5 9. Noncompetition. In consideration of Employee's employment hereunder, Employee hereby agrees that during the initial or any renewal term of the Agreement and for a period of two years thereafter, he will not, singly, jointly, or as a member, employee, or agent of any partnership or as an officer, agent, employee, director or stockholder, or inventor of any other corporation or entity, or in any other capacity, directly or indirectly: (a) own, manage, operate, participate in, perform services for or otherwise carry on, assist or be connected with a Competing Business doing business anywhere within the respective territories in which Employer's business is then carried on (provided that the foregoing shall not apply to any corporation, partnership or other entity in which Employee (and/or his spouse and/or children) only owns an ownership interest of one percent (1%) or less and exercises not more than one percent (1%) of the voting control); (b) solicit or contact (or assist in any solicitation or contact of) any customer of Employer with a view toward inducing the purchase of a Competing Product or otherwise diverting business from Employer; (c) induce or attempt to persuade any employee or agent of Employer to terminate such employment or agency relationship or violate the terms of any agreement with Employer; or (d) induce or attempt to persuade any customer or supplier of Employer to terminate or materially change such relationship; For purposes of this Agreement. "Competing Products" means products, processes or services of any person or organization other than Employer, in existence or under development, which are substantially the same as or which perform the same function or otherwise compete with any products, processes, or services developed, manufactured or sold by Employer during the time of the Employee's employment with the Employer or about which Employee acquires Confidential Information through his relationship with Employer, including, but not limited to, the creation, manufacturing, marketing and distribution of giftware, collectibles and home decor product. "Competing Business" means any person or organization engaged in, or planning to become engaged in, research, development, production, distribution, marketing, providing or selling of a Competing Product. 10. Confidentiality. Employee acknowledges that preservation of a continuing business relationship between Employer and its subsidiaries and its respective customers, representatives and employees is of critical importance to the continued business success of Employer, that it is the policy of Employer and its subsidiaries to guard 5 6 as confidential the Confidential Information defined below, and that as Chief Executive Officer Employee will acquire Confidential Information and personal relationships with customers and prospective customers, which relationships may constitute Employer's primary relationships with such customers and prospective customers. In view of the foregoing, Employee agrees that, except as required for the performance of his duties under this Agreement, he will not during the initial or any renewal term of the Agreement and thereafter, without the prior written consent of Employer, use for the benefit of himself or any third party or disclose to any third party any Confidential Information. Employee further agrees that if his employment by Employer is terminated for any reason, he will not take with him but will leave with Employer all records and papers and all matter of whatever nature which contains Confidential Information. For purposes of this Agreement, "Confidential Information" means any information, including any plan, drawing, specification, pattern, procedure, design, device, list or compilation, which relates to the present or planned business of Employer which has not been disclosed publicly by authorized representatives of Employer. Confidential Information may include, for example, inventions, marketing and sales plans or programs; customer and supplier information and lists; financial data; purchasing and pricing information; product engineering information; technological know-how; designs, plans or specifications regarding products and materials; manufacturing processes and techniques; regulatory approval strategies; computer programs, data, formulae and compositions; service techniques and protocols; and new product strategies, plans and designs. Confidential Information also includes all information received by Employer under an obligation of confidentiality to a third party. 11. Patent and Trade Secret Agreement. (a) Employee will promptly report to Employer all discoveries, inventions or improvements of whatsoever nature conceived or made by him at any time he was employed by Employer. All such discoveries, inventions and improvements which are applicable in any way to Employer's business shall be the sole and exclusive property of Employer. (b) Whenever requested by Employer, whether during or subsequent to his employment by Employer, Employee agrees to execute any papers Employer may deem necessary for the protection of its interest in said discoveries, inventions, and improvements, trade secrets and confidential information, including written assignments of inventions to Employer. (c) The covenants set forth in this Paragraph 11 are made by Employee in consideration of the employment, or continuing employment of, and the compensation paid to, Employee during his employment by Employer. 12. Remedies. Employee acknowledges that the services to be rendered by him hereunder are of a special, unique and extraordinary character, that it would be likely to be highly injurious to Employer or its successors in interest with respect to the resulting disruption in their management, and by reason of the foregoing Employee 6 7 consents and agrees that if, during the term of the Agreement he violates any provisions of the Agreement, Employer or its successors in interest shall be entitled, in addition to any other remedies that they may have, including money damages, to an injunction to be issued by a court of competent jurisdiction, restraining him from committing or continuing any violation of the Agreement. If, at any time, Employee violates, to any material extent, any of the covenants or agreements set forth in Paragraphs 9, 10 and 11 of this Agreement, Employer shall have the right to immediately terminate all of its obligations to make any further payments under the Agreement. 13. Assignment. Neither Employee nor Employer may assign the Agreement, except that Employer's obligations hereunder shall be binding legal obligations of any successor to all or substantially all of Employer's business by purchase, merger, consolidation, or otherwise. 14. Employee Assignment. No interest of Employee or his spouse or any other beneficiary under the Agreement, or any right to receive any payment or distribution hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind, nor may such interest or right to receive a payment or distribution be taken, voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, Employee or his spouse or other beneficiary, including claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings. 15. Benefits Unfunded. All rights of Employee and his spouse or other beneficiary under the Agreement shall at all times be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of Employer for payment of any amounts due hereunder. Neither Employee nor his spouse or other beneficiary shall have any interest in or rights against any specific assets of Employer, and Employee and his spouse or other beneficiary shall have only the rights of a general unsecured creditor of Employer. 16. Wavier. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of the Agreement to be performed by the other party shall be deemed a waiver of any other provisions or conditions at the same time or at any prior or subsequent time. 17. Applicable Law. The Agreement shall be construed and interpreted in all respects pursuant to the laws of the State of Illinois (without regard to principles of conflicts of laws) applicable to contracts made and to be performed within such State. 18. Entire Agreement. The Agreement contains the entire Agreement between Employer and Employee and supersedes any and all previous agreements, written or oral, between the parties relating to the subject matter hereof. No amendment or modification of the terms of the Agreement shall be binding upon either of the parties hereto unless reduced to writing and signed by each of the parties hereto. 7 8 19. Counterparts. The Agreement may be executed in counterparts, each of which shall be deemed an original. 20. Severability. In the event any provision of the Agreement is held illegal or invalid, the remaining provisions of the Agreement shall not be affected thereby. 21. Successors. The Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives and successors. 22. Notices. Notices required under the Agreement shall be in writing and shall be deemed duly given on the first business day after the day of sending by national next-day courier service, upon confirmation of delivery by telecopy or five business days after mailing by registered mail, return receipt requested, to the following addresses or phone numbers or to such other address or phone number as the party being notified may have previously furnished to the others by written notice: If to Employer: Anne-Lee Verville, Chairman of the Board Enesco Group Inc. 225 Windsor Drive Itasca, Illinois 60143 630-875-5300 With a copy to: General Counsel Enesco Group, Inc. 225 Windsor Drive Itasca, Illinois 60143 630-875-5300 630-875-8464 (telecopy) If to Employee: Mr. Daniel DalleMolle Chief Executive Officer Enesco Group Inc. 225 Windsor Drive Itasca, Illinois 60143 630-875-5300 With a copy to: Ron Parizek Byrne Nadborne & Associates 206 S. Jefferson Chicago, Illinois 60661 312-454-1500 8 9 23. Arbitration. Except as to any matters in respect to which Employer elects to proceed in accordance with the provisions of Paragraph 12 hereof, any controversy or claim arising out of the Agreement, or breach hereof, shall be settled by arbitration in the City of Chicago pursuant to the rules and procedures of J.A.M.S. Endispute before a single arbitrator. The arbitrator's determination shall be final and binding upon all parties and judgement upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 24. Board Approval. The right and obligations of Employer under the Agreement are contingent upon the approval or ratification by its Board of Directors of the execution of the Agreement on its behalf. 25. Withholding. Employer may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law. 26. Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of the Agreement. IN WITNESS WHEREOF, Employer and Employee have executed this Agreement as of the day and year first above written. Enesco Group, Inc. By: /s/ Anne-Lee Verville -------------------------------------- Anne-Lee Verville Chairman of the Board Employee: /s/ Daniel DalleMolle ------------------------------------- Daniel DalleMolle 9 -----END PRIVACY-ENHANCED MESSAGE-----