-----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, B07u9Z3FPTLCJ3LW6Y8V0bWM9I/P0gbOI53hOUA6F7AXhfjP9TLKObZ1WyhO6Irl SsQmlIutDPlSPY/kN/XMNw== 0000950137-01-502961.txt : 20010814 0000950137-01-502961.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950137-01-502961 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 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: 1934 Act SEC FILE NUMBER: 001-09267 FILM NUMBER: 1706644 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 c64464e10-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 June 30, 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 [ ] June 30, 2001 2000 ---- ---- Shares Outstanding: Common Stock with 13,727,741 13,577,032 Associated Rights 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 (UNAUDITED) (IN THOUSANDS) JUNE 30, DECEMBER 31, 2001 2000 ---- ---- ASSETS CURRENT ASSETS: Cash and certificates of deposit $ 7,424 $ 4,006 Accounts receivable, net 61,544 72,923 Inventories 66,048 60,491 Prepaid expenses 3,499 3,640 Current tax assets 11,968 12,095 -------- -------- Total current assets 150,483 153,155 -------- -------- PROPERTY PLANT AND EQUIPMENT: Property, plant and equipment, at cost 86,463 85,505 Less accumulated depreciation 58,804 56,256 -------- -------- Property, plant and equipment, net 27,659 29,249 -------- -------- OTHER ASSETS: Goodwill and other intangibles, net 34,421 35,564 Other 1,052 947 Deferred income taxes 12,175 12,564 -------- -------- Total other assets 47,648 49,075 -------- -------- TOTAL ASSETS $225,790 $231,479 ======== ======== The accompanying notes are an integral part of these condensed financial statements. 2 3 ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 (UNAUDITED) (IN THOUSANDS) JUNE 30, DECEMBER 31, 2001 2000 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes and loans payable $ 31,061 $ 14,000 Accounts payable 11,708 17,867 Federal, state and foreign income taxes 31,777 35,154 Accrued expenses Payroll and commissions 2,331 3,698 Royalties 5,527 7,747 Postretirement benefits 3,852 4,407 Other 11,027 11,351 --------- --------- Total current liabilities 97,283 94,224 --------- --------- LONG-TERM LIABILITIES: Postretirement benefits 5,028 6,065 Deferred income taxes 4,655 5,497 --------- --------- Total long-term liabilities 9,683 11,562 --------- --------- SHAREHOLDERS' EQUITY: Common stock 3,154 3,154 Capital in excess of par value 48,086 48,711 Retained earnings 331,480 337,615 Accumulated other comprehensive income (5,801) (4,388) --------- --------- 376,919 385,092 Less - shares held in treasury, at cost (258,095) (259,399) --------- --------- Total shareholders' equity 118,824 125,693 --------- --------- TOTAL LIABILITIES AND EQUITY $ 225,790 $ 231,479 ========= ========= The accompanying notes are an integral part of these condensed financial statements. 3 4 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000 ---- ---- Net revenues $ 67,329 $ 73,296 Cost of sales 35,158 43,059 -------- -------- Gross profit 32,171 30,237 Selling, distribution, general and administrative expenses 34,048 34,358 -------- -------- Operating profit (loss) (1,877) (4,121) Interest expense (669) (738) Interest income 78 811 Amortization of goodwill (487) (534) Other income (expense) (94) 521 -------- -------- Income (loss) before income taxes (3,049) (4,061) Income tax expense (benefit) (354) (1,625) -------- -------- Net income (loss) $ (2,695) $ (2,436) ======== ======== Earnings (Loss) Per Common Share: Basic and diluted $ (0.20) $ (0.18) ======== ========
The accompanying notes are an integral part of these condensed financial statements. 4 5 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000 ---- ---- Net revenues $ 130,074 $ 146,756 Cost of sales 69,386 82,489 --------- --------- Gross profit 60,688 64,267 Selling, distribution, general and administrative expenses 68,099 67,000 --------- --------- Operating profit (loss) (7,411) (2,733) Interest expense (1,241) (1,395) Interest income 200 964 Amortization of goodwill (976) (1,069) Other income (expense) (74) 446 --------- --------- Income (loss) before income taxes (9,502) (3,787) Income tax expense (benefit) (3,367) (1,515) --------- --------- Net income (loss) (6,135) (2,272) Retained earnings, beginning of period 337,615 326,305 Cash dividends, $.28 per share in 2000 - (3,783) --------- --------- Retained earnings, end of period $ 331,480 $ 320,250 ========= ========= Earnings (Loss) Per Common Share: Basic and diluted $ (0.45) $ (0.17) ========= =========
The accompanying notes are an integral part of these condensed financial statements. 5 6 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS)
2001 2000 ---- ---- OPERATING ACTIVITIES: Net income (loss) $ (6,135) $ (2,272) Adjustments to reconcile net income to net cash provided by operating activities (6,440) (225) -------- -------- Net cash provided (used) by operating activities (12,575) (2,497) -------- -------- INVESTING ACTIVITIES: Purchase of property, plant & equipment (1,615) (2,419) Proceeds from sales of property, plant & equipment - 75 -------- -------- Net cash provided (used) by investing activities (1,615) (2,344) -------- -------- FINANCING ACTIVITIES: Cash dividends - (3,783) Notes and loans payable 17,061 (251) Common stock issuance 679 737 -------- -------- Net cash provided (used) by financing activities 17,740 (3,297) -------- -------- Effect of exchange rate changes on cash and cash equivalents (132) (433) -------- -------- Increase (decrease) in cash and cash equivalents 3,418 (8,571) Cash and cash equivalents, beginning of year 4,006 10,819 -------- -------- Cash and cash equivalents, end of period $ 7,424 $ 2,248 ======== ========
The accompanying notes are an integral part of these condensed financial statements. 6 7 ENESCO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The consolidated condensed financial statements and related notes included in this report have been prepared by Enesco, without audit, except for the December 31, 2000 condensed balance sheet, which was included in Enesco's Annual Report on Form 10-K for the year ended December 31, 2000, filed 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. The information in this report reflects all normal recurring adjustments and disclosures that are, in our opinion, necessary to fairly present the results of operations and financial condition for the interim periods. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and related notes 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 and six months ended June 30, 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 and returns and allowances of $8.0 million at June 30, 2001 and $7.3 million at December 31, 2000. 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. 7 8 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. Revenues and cost of sales for the second quarter and first half of 2000 were restated by $1.6 million and $3.1 million, respectively, to include 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): Six Months Ended June 30 ------- 2001 2000 ---- ---- Interest $ 1,216 $ 1,498 Income taxes $ 432 $ 1,278 8 9 2. COMPREHENSIVE INCOME: Other comprehensive income consists only of cumulative foreign currency translation adjustments. Comprehensive income (loss) for the three and six months ended June 30, 2001 and 2000 was as follows (in thousands):
Three Months Ended Six Months Ended June 30 June 30 ------- ------- 2001 2000 2001 2000 ---- ---- ---- ---- Net income (loss) $(2,695) $(2,436) $(6,135) $(2,272) Other comprehensive income (loss): Cumulative translation adjustments (no tax effects) 433 (1,297) (1,413) (1,800) -------------------- --------------------- $(2,262) $(3,733) $(7,548) $(4,072) ==================== =====================
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 and six months ended June 30, 2001 and 2000 (in thousands):
Three Months Ended Six Months Ended March 31 June 30 -------- ------- 2001 2000 2001 2000 ---- ---- ---- ---- NET SALES: United States $ 49,091 $ 53,845 $ 95,297 $ 110,333 United States intercompany (467) (488) (1,191) (1,073) International 18,881 20,204 36,430 38,218 International intercompany (176) (265) (462) (722) ------------------------ ------------------------ Total consolidated $ 67,329 $ 73,296 $ 130,074 $ 146,756 ======================== ======================== OPERATING PROFIT (LOSS): United States $ (3,103) $ (5,166) $ (9,006) $ (4,888) International 1,226 1,045 $ 1,595 $ 2,155 ------------------------ ------------------------ Total consolidated $ (1,877) $ (4,121) $ (7,411) $ (2,733) ======================== ========================
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. 9 10 4. INVENTORY CLASSES: The major classes of inventories at June 30, 2001 and December 31, 2000 were as follows (in thousands): June 30, December 31, 2001 2000 ---- ---- Raw materials and supplies $ 686 $ 574 Work in progress 92 87 Finished goods in transit 8,040 9,483 Finished goods 57,230 50,347 ------------------------ $66,048 $60,491 ======================== 5. CORPORATE HEADQUARTERS CLOSING RESERVE: Enesco's corporate headquarters closing reserve, established in 1997, provided for severance and benefit payments due to terminated employees. During the first six months of 2001, the Company made $900 thousand of payments, which were charged against the corporate headquarters closing reserve. At June 30, 2001, $2.5 million remained in the reserve, the majority of which is for future severance payments. 6. OTHER INCOME (EXPENSE): Other income (expense) for the three and six months ended June 30, 2001 and 2000 consists of the following (in thousands): Three Months Ended Six Months Ended June 30 June 30 ------- ------- 2001 2000 2001 2000 ---- ---- ---- ---- Foreign currency gain (loss) $ 16 $ (76) $ 15 $(133) Gain (loss) on sale of fixed assets - (22) 1 (25) Miscellaneous (110) 619 (90) 604 ---------------- ---------------- $ (94) $ 521 $ (74) $ 446 ================ ================ 10 11 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. 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 calculated using the treasury stock method. The number of shares used in the earnings per share calculations for the three and six months ended June 30, 2001 and 2000 were as follows (in thousands): Three Months Ended Six Months Ended June 30 June 30 ------- ------- 2001 2000 2001 2000 ---- ---- ---- ---- Basic Average common shares outstanding 13,701 13,559 13,671 13,533 Diluted Stock options/warrants - - - - ----------------- ----------------- Average shares diluted 13,701 13,559 13,671 13,533 ================= ================= The average number of shares outstanding for 2001 and 2000 excluded the common stock equivalents relating to options and warrants since the impact of the reported net loss was antidilutive. Inclusion of the options and warrants would have increased the average shares outstanding for 2001 by approximately 1%. Also, the average shares outstanding for 2000 did not include common stock equivalents relating to options since the exercise price of all options exceeded the market price during the first half of 2000. 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 11 12 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 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 six months ended June 30, 2001. 9. DOMESTIC WORKFORCE REDUCTION: 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 were 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 AND SIX MONTHS ENDED JUNE 30, 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 Second quarter 2001 revenues were down approximately $6 million, or 8%, from the same period in 2000. Year to date sales for 2001 were down approximately $17 million, or 11%, from the year ago period. The majority of the revenue decline continues to be focused in United States card, gift and collectible channels. International sales for the second quarter of 2001 were down $1.2 million, or 6%, from the same period in 2000. Year to date international sales for 2001 were down $1.5 million, or 4%, from the year ago period. International sales for 2001 were unfavorably impacted by the strength of the U.S. dollar versus local currencies. If foreign currency denominated sales for 2001 were translated into United States dollars at 2000 exchange rates, sales for the second quarter and first half would have been higher by $1.1 million and $2.5 million, respectively. In other words, year to date 2001 international sales in local currencies were up compared to 2000. 13 14 Unfilled orders (backlog) at the beginning of the year were down approximately $2 million, or 4%, compared to the year ago period. Net new orders for 2001, when compared to prior year, were down 11% for the second quarter and down 20% for the six-month period. Backlog at June 30, 2001 was down approximately $21 million, or 24%, from the same period last year. Orders received and accepted by Enesco are subject to cancellation for credit considerations, product availability and customer requests. Enesco's Precious Moments lines represented approximately 42% of 2001 year to date sales compared to 43% for 2000 and the Cherished Teddies lines represented approximately 14% of 2001 year to date sales compared to 16% for 2000. Gross margin for 2001 compared to 2000 increased $1.9 million, or 6%, for the second quarter and decreased $3.6 million, or 6%, for the first half. The 2000 results for the second quarter and year to date periods included a $2.9 million inventory write-down related to the termination of the Precious Moments acquisition. Gross profit margin for 2001 expressed as a percentage of sales, excluding the one-time $2.9 million charge in 2000, compares favorably with the margins for 2000. The improved gross margin for the second quarter (48% vs. 45%) and six-months (47% vs. 46%) reflects selected price increases as well as changes in product mix. Selling, distribution, general and administrative (SD&A) expenses decreased $310 thousand, or 1%, for the second quarter and increased $1.1 million, or 2%, for the six-month period of 2001 versus 2000. Results for 2001 included one-time charges totaling $2.8 million, comprised of $2.3 million ($500 thousand in the second quarter and $1.8 million in the first quarter) for the U.S. sales force reorganization and a $500 thousand (second quarter) severance provision for the May 2001 domestic work force reduction. Likewise, second quarter 2000 results included one-time charges of $2.2 million for the termination of the Precious Moments acquisition and $2.8 million for executive severance offset by a gain of $2.7 million on the termination of supplemental retirement plans. Exclusive of one-time items, SD&A costs for 2001 were up $980 thousand, or 3%, for the second quarter and up $589 thousand, or 1%, for the six months from the comparable 2000 periods. The increase from 2000 reflects $1.7 million of increased domestic bad debt expense that exceeded cost reductions. SD&A costs, excluding one-time items, were 49% of sales for the second quarter of 2001 and 50% for the first six months of 2001, compared to 44% for both periods in 2000. Enesco expects to report a reduction in recurring operating expenses for the balance of 2001. 14 15 The operating loss of $1.9 million for the second quarter of 2001 was $2.2 million better than the operating loss of $4.1 million for the year ago period. For the first six months of 2001 the operating loss of $7.4 million was $4.7 million worse than the $2.7 million loss reported for 2000. These variances are based on the operating items described in the preceding paragraphs. In the second quarter, Enesco initiated several courses of action aimed at improving operational performance and increasing shareholder value. The first initiative, announced in May 2001, reduced the U.S. workforce by 14% and will generate annual savings of approximately $8 million. One time costs associated with the workforce reduction totaled $500 thousand. Secondly, Enesco negotiated extended payment terms from certain vendors. Third, Enesco is in the process of restructuring its Operations, Marketing and Sales departments to generate efficiencies in the supply chain and product development cycle as well as improved customer service. Lastly, operating costs are being more closely scrutinized, unnecessary expenditures are being eliminated and all incremental spending must be cost-justified prior to being incurred. Interest expense for 2001 was lower for both the quarter and year to date periods due to lower average borrowings and lower interest rates. Lower interest income in 2001 is mainly due to a non-recurring $675 thousand second quarter 2000 amount related to an expired warranty term. Amortization of goodwill was lower for both the quarter and year to date period due to completion of an asset's amortization period at the end of 2000. Other expenses for 2001 are higher due to the non-recurring $625 thousand gain on an expired warranty term recorded in the second quarter of 2000. The income tax benefit for 2001 was 11.6% of the pre-tax loss for the second quarter and 35.4% of the pre-tax loss for the six-month period. The difference from the 40% rate for the three and six months periods in 2000 reflects the geographical mix of earnings and the impact of non-deductible goodwill amortization. The actual effective income 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 operating results. Fluctuations in the value of the U.S. dollar versus international currencies affect the U.S. dollar translation value of international currency denominated balance 15 16 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 six months 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 June 30, 2001 totaled $2.5 million, a decrease of $900 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 follows: $1.1 million for the remainder of 2001, $800 thousand in 2002, $500 thousand in 2003 and $100 thousand 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. 16 17 The major use of cash in investing activities in the first six months of 2001 was for capital expenditures. Capital expenditures of approximately $5 million are currently anticipated for 2001. Year to date capital expenditures for 2001 totaled $1.6 million. The major source of cash in financing activities in the first six months of 2001 was the increase in 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 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. Enesco further amended the credit agreement with Fleet National Bank in June 2001 and August 2001. The amended agreement includes an assignment of a $10 million interest to a participant bank, an increased revolving credit commitment to $35 million, increased credit capacity to $50 million including a letter of credit facility of $15 million, an extension of the facility termination date and mortgages on two parcels of domestic real estate. These modifications are not expected to have a material effect on Enesco's liquidity or the ability of Enesco to meet working capital requirements. Enesco is in the process of extending the existing facility or syndicating a new credit facility. Management expects the new or extended credit facility to be in place in September, 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. 17 18 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. Financial Accounting Standards (FAS) No. 141 "Business Combinations" and FAS 142 "Goodwill and Intangible Assets" were finalized on June 30, 2001. FAS 141 is not expected to have any impact on the historical financial statements of Enesco. We are evaluating the impact FAS 142 will have on Enesco's results of operations and financial position. 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: - 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; 18 19 - 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. 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 June 30, 2001 Enesco had entered into forward exchange agreements with a notional value of $3 million that will mature within 90 days. The fair value is not significant. 19 20 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Fifth Amendment to Amended and Restated Senior Revolving Credit Agreement 10.2 Borrower Note-LaSalle Bank 10.3 Back-up L/C and B/A Demand Note-Fleet National Bank 10.4 Mortgage, Assignment of Leases and Rents, and Security Agreement-Fleet National Bank 10.5 Sixth Amendment to Amended and Restated Senior Revolving Credit 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. 20 21 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: August 13, 2001 /s/ Daniel DalleMolle ----------------------------------------- Daniel DalleMolle President and Chief Executive Officer Date: August 13, 2001 /s/ Jeffrey W. Lemajeur ----------------------------------------- Jeffrey W. Lemajeur Chief Financial Officer 21 EX-10.1 3 c64464ex10-1.txt 5TH AMEND TO AMEND & RESTATED SENIOR REV CREDIT AG 1 EXHIBIT 10.1 FIFTH AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT AGREEMENT This FIFTH AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT AGREEMENT (the "Amendment") is made as of this 18th day of June, 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, as further amended by a Third Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of March 23, 2001, and as further amended by a Fourth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of April 6, 2001 (the "Credit Agreement"), pursuant to which the Bank has extended certain financial accommodations to the Borrower including those evidenced by a Borrower Note dated August 3, 2000 in the face amount of $50,000,000, a Back-Up L/C Demand Note dated November 27, 2000 in the face amount of $25,000,000 and a Back-Up F/X Demand Note dated November 27, 2000 in the face amount of $10,000,000. 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 further amended as follows: 1. The definition of "Advance" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Advance" means a borrowing hereunder consisting of (i) the aggregate amount of the several Loans of the same Type and, in the case of LIBOR Advances or Cost of Funds Advances, for the same Interest Period, made by the Bank to a Credit Party pursuant to Section 2.1, (ii) reimbursement obligations 2 arising in connection with foreign exchange transactions pursuant to section 2.1.A, or (iii) reimbursement obligations arising as a result of Letters of Credit and Bankers' Acceptances issued pursuant to Section 2.1.B. 2. The definition of "Back-Up L/C Demand Note" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Back-Up L/C and B/A Demand Note" means a promissory note, in substantially the form of Exhibit "A-4" hereto, duly executed by the Borrower and payable to the order of the Bank in the amount of the L/C and B/A Facility Limit, including any amendment, modification, renewal or replacement of such promissory note. 3. The following definitions are added to ARTICLE I: "Bankers' Acceptance" means drafts drawn by the Borrower or by the Bank on the Borrower's behalf to meet the applicable requirements of Regulation A of the Board of Governors of the Federal Reserve System and which are accepted by the Bank pursuant to 12 U.S.C. ss.372. "Bankers' Acceptance Financing" means the financing provided by the issuance of drafts by the Borrower on the Bank (subject to Borrowing Capacity), in the aggregate amount of up to the L/C and B/A Facility Limit, accepted by the Bank, endorsed by the Borrower, and sold by the Bank in the Bankers' Acceptance money markets, such drafts being due and payable at the end of the Bankers' Acceptance Maturity Period chosen by the Borrower. "Bankers' Acceptance Maturity Period" means with respect to any Bankers' Acceptance Financing, the period commencing on the Business Day such Bankers' Acceptance is issued and ending, as the Borrower may select, pursuant to Section 2.1.B. 4. The definition of "Borrower Note" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Borrower Note" means a promissory note, in substantially the form of Exhibit "A-1" hereto duly executed by the Borrower and payable to the order of the Bank or any Purchaser pursuant to Section 12.3 of this Agreement in the amount of such party's portion of the Commitment, including any amendment, modification, renewal or replacement of such promissory note. 5. The definition of "Borrowing Capacity" which appears in ARTICLE I is deleted in its entirety and replaced with the following: 3 "Borrowing Capacity" means the lesser of: (x) Fifty Million Dollars ($50,000,000), or (y) the sum of (i) eighty-five percent (85%) of Accounts Receivable of the Borrower, which Accounts Receivable are not Ineligible Accounts of the Borrower, plus (ii) until the Facility Termination Date, Fifteen Million Dollars ($15,000,000). 6. 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 $35,000,000 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. Notwithstanding the foregoing, the Bank shall, subject to Borrowing Capacity, make Loans of up to $10,000,000 Dollars in excess of the Commitment based upon availability under the L/C and B/A Facility Limit in an amount sufficient to fully cover, Dollar for Dollar, the amount of any such Loan in excess of the Commitment. Availability under the L/C and B/A Facility Limit shall be reduced, Dollar for Dollar, in an amount equal to any such Loan made by the Bank in excess of the Commitment. Loans of up to $10,000,000 Dollars in excess of the Commitment shall be evidenced by the Borrower Note dated August 3, 2000 in the original principal amount of $50,000,000 payable to the Bank and shall be subject to the interest rate provisions and other terms contained in ARTICLE II of the Agreement. 7. The following sentence is added to the end of the definition for the term "Facility Fee" which appears in ARTICLE I: "The Facility Fee shall also be charged against the aggregate outstanding amount of any Loan or Loans made by the Bank in excess of the Commitment, irrespective of Borrowing Capacity or aggregate outstanding Advances." 8. The definition of "L/C Facility" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "L/C and B/A Facility" is defined in Section 2.1.B. 3 4 9. The definition of "L/C Facility Limit" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "L/C and B/A 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 such Letters of Credit and Bankers' Acceptances outstanding), to issue Letters of Credit and permit Bankers' Acceptances up to an aggregate stated amount of all such Letters of Credit and Bankers' Acceptances outstanding at any given time of $15,000,000, minus the aggregate outstanding amount of any Loan or Loans made by the Bank in excess of the Commitment based upon availability under the L/C and B/A Facility Limit. 10. 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, the Mortgages and any Elections to Participate executed by the Borrower, the Borrowing Subsidiaries or any Guarantor in connection herewith. 11. The following definition for the term "Mortgages" is added to ARTICLE I: "Mortgages" mean each Mortgage, Assignment of Leases and Rents, and Security Agreement between the Borrower or any Subsidiary and the Bank relating to the grant of mortgages, assignments and security interests to the Bank in certain real property, personal property or fixtures of the Borrower or any such Subsidiary. 12. The definition of "Notes" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Notes" means, collectively, the Borrower Note, the Borrowing Subsidiary Note, the Back-Up F/X Demand Note and the Back-Up L/C and B/A Demand Note. 13. Section 2.1.B is deleted in its entirety and replaced with the following: 4 5 2.1.B. Letter of Credit/Bankers' Acceptance 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 (i) issue Letters of Credit, subject to the L/C and B/A Facility Limit, with expiration dates of not more than 90 days beyond the Facility Termination Date, and (ii) permit Bankers' Acceptances, subject to the L/C and B/A Facility Limit, with expiration dates for Bankers' Acceptances obtained in connection with Letters of Credit issued hereunder, up to an aggregate amount outstanding for such Bankers' Acceptances of up to $3,000,000, of not more than 150 days beyond the Facility Termination Date (the "L/C and B/A Facility"). The Letters of Credit shall be issued in accordance with the Bank's customary practices at the time of issuance, utilizing documentation prevailing at such times and, if drawn upon, amounts paid thereon shall be repaid by the Borrower upon demand, in full reimbursement to the Bank of all such amounts drawn upon under any Letter of Credit issued pursuant hereto, and in full payment of any such additional reimbursement obligations as may be contained in any documentation executed by the Borrower in conjunction with the issuance of such Letters of Credit. To the extent repayment of all amounts reimbursable to the Bank for drawings against Letters of Credit is not immediately made, the reimbursement obligations resulting from such drawings shall be evidenced by and subject to the terms of the Back-Up L/C and B/A Demand Note. Bankers' Acceptance Financing shall be in accordance with the Bank's usual and customary terms for the issuance, purchase and resale of Bankers' Acceptances. The L/C and B/A Facility established hereby may be used for the financing of drafts drawn by the Borrower or by the Bank on the Borrower's behalf to meet the requirements of a Bankers' Acceptance. Upon each extension of credit by the Bank to the Borrower pursuant to the Bank's obligation under a Bankers' Acceptance, the Borrower agrees to pay to the Bank agreed upon fees for issuance, plus the Bankers' Acceptances rate then being offered by the Bank upon the discount by the Bank of eligible Bankers' Acceptances for the amount and Bankers' Acceptance Maturity Period. In the event any Bankers' Acceptance remains outstanding beyond the Bankers' Acceptance Maturity Period, the Bank may charge the Borrower's account therefor and such charges shall be deemed to be Advances made under the L/C and B/A Facility and shall be evidenced by and subject to the L/C and B/A Demand Note. Interest on any Advance as a result of failure by the Borrower to immediately satisfy any reimbursement obligation arising as a result of any 5 6 Letter of Credit or Bankers' Acceptance issued hereunder, or as a result of any Bankers' Acceptance remaining outstanding beyond the Bankers' Acceptance Maturity Period, shall be evidenced by the Back-Up L/C and B/A Demand Note shall accrue at a rate equal to the Alternate Base Rate plus 2% per annum. 14. The first three lines of Section 6.1 are deleted in their entirety and replaced with the following: "6.1 Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Bank and to LaSalle Bank National Association ("LaSalle Bank"):" 15. Section 6.1(iii) is deleted in its entirety and replaced with the following: "(iii) Together with the financial statements required hereunder, a Compliance Certificate in substantially the form of Exhibit "C" hereto signed by the Borrower's Chief Financial Officer showing the calculations necessary to determine compliance with the requirements of Section 6.12 of this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof; and, within 15 days after the end of each month, a Borrowing Base Certificate in the form of Exhibit "C-1" hereto signed by the Borrower's Chief Financial Officer." 16. The following additional Subsection 7.16 is added to the end of ARTICLE VII: 7.16 The occurrence of any Event of Default under any of the Mortgages. 17. By executing this Amendment, the Borrower hereby consents, pursuant to Section 12.3.1 of the Credit Agreement, to assignment by the Bank to LaSalle Bank of a $10,000,000 Dollar interest in and to the Commitment, excluding any Loan or Loans made by the Bank in excess of the Commitment. 18. EXHIBIT "A-4" is deleted in its entirety and replaced by EXHIBIT "A-4" attached hereto. 19. 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. 20. Except as amended, modified or supplemented by this Amendment, all of the terms, conditions, covenants, provisions, representations, warranties and 6 7 conditions of the Credit Agreement shall remain in full force and effect and are hereby acknowledged, ratified, confirmed and continued as if fully restated hereby. 21. 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. 22. 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. 23. The Borrower hereby confirms and ratifies the obligations established under the Credit Agreement, as amended hereby. 24. This Amendment is to be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. 25. 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] 7 8 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/ Daniel DalleMolle ------------------------------------- Print Name: Daniel DalleMolle ----------------------------- Title: Chief Executive Officer ---------------------------------- By: /s/ Jeffrey W. Lemajeur ------------------------------------- Print Name: Jeffrey W. Lemajeur ----------------------------- Title: Chief Financial Officer ---------------------------------- FLEET NATIONAL BANK By: /s/ Sheryl McQuade ------------------------------------- Its Vice President ------------------------------------- Its EX-10.2 4 c64464ex10-2.txt BORROWER NOTE-LASALLE BANK 1 EXHIBIT 10.2 BORROWER NOTE Chicago, Illinois $10,000,000.00 June 26, 2001 Enesco Group, Inc., a Massachusetts corporation (the "Borrower"), promises to pay to the order of LaSalle Bank National Association (the "Lender") the sum of TEN MILLION DOLLARS ($10,000,000.00), or the then aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to Article II of the Amended and Restated Senior Revolving Credit Agreement hereinafter referred to (as the same may be amended, modified, supplemented and/or restated from time to time, the "Credit Agreement"), in U.S. Dollars in immediately available funds at the address of the Bank specified in the Credit Agreement (or such other place as may be required under the Credit Agreement), together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Credit Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Loans in full on the Facility Termination Date. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder. This Note is a Borrower Note issued pursuant to, and is entitled to the benefits of, the Senior Revolving Credit Agreement, dated as of August 3, 2000 among the Borrower, the Borrowing Subsidiaries from time to time party thereto, and the Bank, as amended and restated in its entirety by the Amended and Restated Senior Revolving Credit Agreement dated as of August 23, 2000, as further 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, as further amended by a Third Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of March 23, 2001, as further amended by a Fourth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of April 6, 2001, and as further amended by a Fifth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of even date herewith (as the same may be further amended, modified, supplemented and/or restated from time to time), and the Lender pursuant to an Assignment Agreement between the Lender and the Bank dated as of even date herewith, to which Credit Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Credit Agreement. This Note shall be governed by the internal laws (and not the law of conflicts) of the State of Illinois, United States of America. 2 This Borrower Note is executed as an instrument under seal as of the date first above written. ENESCO GROUP, INC. By: /s/ Daniel DalleMolle ------------------------------------- Print Name: Daniel DalleMolle ---------------------------- Title: Chief Executive Officer ---------------------------------- By: /s/ Jeffrey W. Lemajeur ------------------------------------- Print Name: Jeffrey W. Lemajeur ---------------------------- Title: Chief Financial Officer ---------------------------------- EX-10.3 5 c64464ex10-3.txt BACK-UP L/C & B/A DEMAND NOTE-FLEET NATIONAL BANK 1 EXHIBIT 10.3 BACK-UP L/C AND B/A DEMAND NOTE Springfield, Massachusetts $15,000,000.00 June 18, 2001 Enesco Group, Inc., a Massachusetts corporation (the "Borrower"), promises to pay, ON DEMAND, to the order of Fleet National Bank (the "Bank") the sum of FIFTEEN MILLION DOLLARS ($15,000,000.00), or the then aggregate unpaid principal amount of all Advances made by the Bank to or on behalf of the Borrower pursuant to Section 2.1.B of the Amended and Restated Senior Revolving Credit Agreement hereinafter referred to (as the same has been amended from time to time, or may be further amended, modified, supplemented and/or restated from time to time, the "Agreement"), in U.S. Dollars in immediately available funds at the address of the Bank specified in the Agreement (or such other place as may be required under the Agreement), together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement until paid in full. If not sooner demanded by the Bank, the Borrower shall pay the principal of and all accrued and unpaid interest on any Advances in full on the Facility Termination Date. The Bank shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Advance and the date and amount of each principal payment hereunder. This Note is the Back-Up L/C and B/A Demand Note issued pursuant to, and is entitled to the benefits of, the Senior Revolving Credit Agreement, dated as of August 3, 2000 among the Borrower, the Borrowing Subsidiaries from time to time party thereto, and the Bank, as amended and restated in its entirety pursuant to the Amended and Restated Senior Revolving Credit Agreement among the parties, dated as of August 23, 2000, as further 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, as further amended by a Third Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of March 23, 2001, as further amended by a Fourth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of April 6, 2001, and as further amended by a Fifth Amendment to Amended and Restated Senior Revolving Credit Agreement among the parties dated as of even date herewith, to which Agreement reference is hereby made for a statement of the terms and conditions governing this Note. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. This Note shall be governed by the internal laws (and not the law of conflicts) of The Commonwealth of Massachusetts, United States of America. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 2 This Back-Up L/C and B/A Demand Note is executed as an instrument under seal as of the date first above written. ENESCO GROUP, INC. By: /s/ Daniel DalleMolle ------------------------------------- Print Name: Daniel DalleMolle ---------------------------- Title: Chief Executive Officer ---------------------------------- By: /s/ Jeffrey W. Lemajeur ------------------------------------- Print Name: Jeffrey W. Lemajeur ---------------------------- Title: Chief Financial Officer ---------------------------------- EX-10.4 6 c64464ex10-4.txt MORTGAGE, ASSIGNMENT OF LEASES AND RENTS 1 EXHIBIT 10.4 PREPARED BY AND UPON RECORDING, RETURN TO: Mark D. Cress, Esquire Bulkley, Richardson and Gelinas, LLP 1500 Main Street, Suite 2700 Springfield, MA 01115 MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, AND SECURITY AGREEMENT between ENESCO GROUP, INC., as Mortgagor and FLEET NATIONAL BANK, as Mortgagee THIS MORTGAGE SECURES FUTURE OBLIGATIONS AND ADVANCES PURSUANT TO 205 ILCS 5/5d. 2 TABLE OF CONTENTS Page ---- 1. DEFINITIONS ....................................................... 3 2. PAYMENT AND PERFORMANCE OF OBLIGATIONS ............................ 4 3. PAYMENT OF TAXES, ETC ............................................. 4 4. CONDITION; USE; REPAIR; INSPECTION ................................ 5 5. INSURANCE ......................................................... 5 6. INSURANCE PROCEEDS ................................................ 7 7. EMINENT DOMAIN PROCEEDS ........................................... 8 8. SUBORDINATION ..................................................... 9 9. DELINQUENCY OF PAYMENTS; FEES AND CHARGES.......................... 9 10. LEASES AND RENTS .................................................. 9 11. ADDITIONAL SECURITY ............................................... 10 12. STATUS REPORT ..................................................... 10 13. WAIVER; REDEMPTION ................................................ 10 14. NOTICE ............................................................ 10 15. PRIORITY OF LIEN .................................................. 11 16. MAINTENANCE OF MORTGAGOR; TRANSFERS ............................... 11 17. BANKRUPTCY ........................................................ 11 18. EVENTS OF DEFAULT ................................................. 12 19. REMEDIES .......................................................... 12 20. MORTGAGEE'S RIGHT TO CURE DEFAULT ................................. 13 21. FORECLOSURE SALE .................................................. 13 22. WARRANTY OF TITLE ................................................. 14 23. INDEMNIFICATION/SUBROGATION ....................................... 14 24. HAZARDOUS SUBSTANCES .............................................. 15 25. OTHER AGREEMENTS .................................................. 15 26. RESERVE REQUIREMENTS .............................................. 15 27. AMENDMENTS ........................................................ 16 28. MISCELLANEOUS ..................................................... 16 i 3 MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, AND SECURITY AGREEMENT THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, AND SECURITY AGREEMENT (the "MORTGAGE") is made as of the of June, 2001 between ENESCO GROUP, INC. (the "MORTGAGOR"), a Massachusetts corporation, having a principal place of business located at 225 Windsor Drive, Itasca, Illinois 60143, and FLEET NATIONAL BANK as "Agent" (the "MORTGAGEE"), a national banking association having a usual place of business at One Monarch Place, Springfield, Massachusetts 01102. Reference is made to the following facts: WHEREAS, the Mortgagor is the Borrower under the terms of an Amended and Restated Senior Revolving Credit Agreement dated as of August 23, 2000 between the Mortgagor and the Mortgagee, 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, as further amended by Third Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of March 23, 2001, as further amended by a Fourth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of April 6, 2001, and as further amended by a Fifth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of even date herewith (as the same may be further amended or restated from time to time, the "Credit Agreement"), pursuant to which the Mortgagee has, subject to the terms and conditions set forth therein, made certain credit facilities available to the Mortgagor including those evidenced by a Borrower Note dated August 3, 2000 in the face amount of $50,000,000, a Back-Up L/C Demand Note dated November 27, 2000 in the face amount of $25,000,000, and a Back-Up F/X Demand Note dated November 27, 2000 in the face amount of $10,000,000 (collectively, the "Notes"). All capitalized terms used herein and not otherwise defined herein shall have their meanings as defined in the Credit Agreement; and WHEREAS, as security for the payment of all liabilities and the performance of all obligations of the Mortgagor to the Mortgagee including, without limitation, all liabilities and obligations of the Mortgagor to the Mortgagee pursuant to the Credit Agreement and the Notes, the Mortgagor has agreed to execute and deliver this Mortgage and grant the assignments and security interests to the Mortgagee hereinafter described; and WHEREAS, the Mortgagor desires to secure the following liabilities and obligations (collectively, the "Obligations") of the Mortgagor to the Mortgagee: (i) the payment of all principal, interest and other payments due under the terms of the Credit Agreement, the Notes, this Mortgage and the other Loan Documents up to a maximum principal amount of FIFTY MILLION DOLLARS ($50,000,000). It is the intention of the parties hereto that this Mortgage shall secure not only existing indebtedness or advances made prior to or contemporaneously with the execution hereof, but also (x) all future Advances made by the Mortgagee under the Credit Agreement, the Notes, this Mortgage and the other Loan Documents, whether such Advances are obligatory or to be made at the option of the Mortgagee, or otherwise, (y) all additional Advances made by the Mortgagee following any increase in the amount of the lending commitments or other direct or contingent indebtedness under the Credit Agreement, this Mortgage or the other Loan Documents as a result of an amendment of the Credit Agreement, this Mortgage or the other Loan Documents, and (z) any and all additional amounts and/or interest which the Mortgagor is required to pay to the Mortgagee under the Credit Agreement, the Notes, this Mortgage or the other Loan Documents, to the same extent as if such future or additional advances were made and additional amounts and/or interest were incurred on the date hereof; and 1 4 (ii) the payment, performance, discharge and satisfaction of every covenant, agreement, warranty, representation, undertaking and condition contained in this Mortgage, the Credit Agreement, or the other Loan Documents, and all other documents now or hereafter executed by the Mortgagor incident to the Credit Agreement, this Mortgage or the other Loan Documents, or any amendment, extension, modification, replacement or re-casting of any one or more of the same; and (iii) all costs and expenses now or hereafter incurred by the Mortgagee in respect of this Mortgage, the Credit Agreement, or any other Loan Document and all other agreements (now or hereafter existing) between the Mortgagor and, the Mortgagee including, without limitation, all attorneys' fees and all costs and expenses incurred by the Mortgagee which costs and expenses are directly or indirectly related to the Mortgagee's efforts to collect or enforce any of the Obligations or to exercise or enforce any of the Mortgagee's rights, remedies or powers under this Mortgage, the Indenture, the other Loan Documents or any other agreement (now or hereafter existing) between the Mortgagor and the Mortgagee including all court and litigation costs and expenses. NOW, THEREFORE, to secure the Obligations and for consideration paid, the Mortgagor hereby grants, assigns, mortgages and warrants to the Mortgagee, with MORTGAGE COVENANTS the Mortgagor's entire right, title and interest now owned or hereafter acquired in and to the real property (the "Real Property") located respectively at (i) 225 Windsor Drive, Itasca, Illinois, and (ii) One Enesco Plaza, Elk Grove Village, Illinois, as more fully described on EXHIBIT A attached hereto, together with the Mortgagor's entire right, title and interest, now owned or hereafter acquired, in and to the following: (a) All Improvements (as hereinafter defined), and the rents, issues and profits therefrom; (b) All rights, licenses, permits, approvals, contracts, easements now or hereafter appurtenant thereto, and all other rights of the Mortgagor of whatever kind or nature, whether running covenants or otherwise now or hereafter appurtenant to the Real Property; (c) Any other estate, title or interest in the Real Property or Improvements, and in the streets and ways adjacent thereto, to the extent now owned or hereafter acquired by the Mortgagor; (d) All assignments of lease or subleases (the "Leases") now existing or hereafter entered into by the Mortgagor with respect to all or any portion of the Real Property and Improvements, and all the rents, issues, profits, revenues, and other income received or receivable by the Mortgagor under and by virtue of such Leases; (e) That certain equipment and machinery which could be construed to be fixtures on the Real Property, whether now owned or hereafter acquired by the Debtor including, without limitation, all heating, air conditioning, lighting and power equipment; sprinkler systems; pipes; pumps; tanks; motors; generators; conduits; switchboards; plumbing, lifting, cleaning, fire prevention, fire extinguishing, and ventilating apparatus; boilers, furnaces, oil burners or units thereof; elevators; escalators; shades; awnings; screens; storm doors and windows; cabinets; partitions; ducts and compressors; carpeting; draperies; plants and shrubbery; together with all attachments and additions thereto, substitutions therefor, and replacements and component parts thereof, whether now or hereafter attached to or used or to be used or considered fixtures on the Real Property; and (f) All proceeds of the conversion, voluntary or involuntary, of all or any portion of the above-described property into cash, negotiable instruments or other instruments for the payment of money, 2 5 chattel paper, security agreements, documents or liquidated claims, including, without limitation, all insurance proceeds and all awards arising out of eminent domain proceedings or other proceedings similar thereto. The above-described Real Property and Improvements, and other rights described in (a), (b), (c) and (d) above, together with any and all additions thereto or replacements thereof, and together with all such property described in (e) and (f) above, insofar as such property is, or can by agreement of the parties be made, a part of the realty, are herein referred to as the "Real Estate." All such property described in (e) and (f) above is hereinafter referred to as the "Collateral". The Collateral and the Real Estate are collectively referred to as the "Property", or such portion thereof as is appropriate to the context in which the term "Property" is used. It is intended that this Mortgage shall serve as a security agreement granting Mortgagee a security interest in all of the Property not classified as real property under applicable law, but including fixtures, in accordance with the terms of the Uniform Commercial Code as adopted in the State of Illinois (the "UCC"), as amended, modified or restated from time to time. As to all such property, Mortgagee shall have, without limitation, all of the rights and remedies of a secured party under the UCC. The recordation of this Mortgage shall also constitute a fixture filing in accordance with the provisions of the UCC. Mortgagor covenants and agrees to execute promptly upon request such financing statements as Mortgagee may require from time to time, to cause same to be filed in the appropriate jurisdiction, and to take such other actions as Mortgagee may require in order to perfect the security interest created by this Mortgage. It is further intended that this Mortgage shall serve as a present and absolute assignment of all of the Mortgagor's right, title and interest in and to the Real Property, provided that, so long as there shall exist no Event of Default (as hereinafter defined) hereunder, Mortgagor shall have the right to the use and enjoyment of the Real Property. In no event shall the foregoing assignment operate to place any liability on Mortgagee for the maintenance, care, operation or condition of the Real Property until such time, if any, as Mortgagee shall take possession and control of the Real Property. The Mortgagor covenants, warrants and agrees with the Mortgagee as follows: 1. Definitions. As used in this Mortgage, unless the context otherwise requires, the following terms shall have the following meanings: "Governmental Approvals" shall mean all approvals, certifications, consents, licenses, permits, authorizations and other official action required to be issued or taken by any Governmental Authorities for or with respect to the matter with respect to which such term is used, including, without limitation all applicable environmental, hazardous substances/materials, air and water pollution, land use, flood hazard, coastal zone, waterways, wetlands, building, fire safety, health, planning, subdivision, and zoning by-laws, rules, regulations, permits and approvals. "Governmental Authorities" shall mean all federal, state, county and municipal governments and all governmental and quasi-governmental agencies, authorities, boards, commissions, bureaus, departments, authorities, officials and officers thereof, now or hereafter having jurisdiction over the Mortgagor, the Real Estate, or the matter or the party with respect to which such term is used. "Improvements" shall mean the existing buildings on the Real Estate and all improvements of every kind now or hereafter made to the Real Estate. 3 6 "Laws and Other Governmental Requirements" shall mean all laws, statutes, ordinances, orders, rules, regulations and requirements now in effect or at any time hereafter enacted or issued by any Governmental Authorities which are applicable to the Mortgagor, the Real Estate, or the matter or party with respect to which such terms are used. "Leases" shall mean any lease or leases by assignment or otherwise, or sublease or subleases, for all or a portion of the Improvements or the Property now or hereafter in effect entered into by the Mortgagor and a lessee or sublessee from time to time in accordance with the Collateral Assignment and the other Loan Documents. "Other Applicable Requirements" shall mean all mortgages, deeds of trust, leases, bank loans, credit agreements, contracts, understandings, instruments, agreements, covenants, conditions and restrictions, public or private, now in effect or hereafter arising which are applicable to or which are binding on the Mortgagor, the Real Estate, the business or activity conducted thereon, or the matter or party with respect to which such terms are used, or to which the party with respect to which such terms are used is a party or by which such party may be bound or affected. 2. Payment and Performance of Obligations. The Mortgagor shall make all payments and perform all obligations under the Credit Agreement, the Notes, this Mortgage and all other Loan Documents. 3. Payment of Taxes, Etc. 1. Unless the subject of a good faith dispute where adequate reserves have been established by the Mortgagor, the Mortgagor shall pay before the same become delinquent (and shall provide, by such time, evidence of such payment, satisfactory to the Mortgagee) all "taxes and other charges" payable by Mortgagor, if applicable or related to the Property, and all other taxes, charges, sewer use fees, water rates and assessments of every name and nature, whether or not assessed against the Mortgagor, if applicable or related to the Property, or any interest therein, or the debt, obligation or any agreement secured hereby, or the disbursement or the application of the proceeds thereof. 2. Further, the Mortgagor shall pay when due all fees and charges incurred incident to the loan transaction described in the Credit Agreement secured by this Mortgage, the assurance of the security represented by this Mortgage, and the enforcement of this Mortgage, the Credit Agreement, the other Loan Documents, and any other obligation secured by this Mortgage. 3. The undertakings of the Mortgagor contained in this Paragraph 3 with respect to items other than the payment of real estate taxes, sewer use fees, water rates, and assessments, shall survive the payment of all Obligations secured hereby; however, after an acknowledgment of the satisfaction of the Obligations, or a discharge of this Mortgage, this Mortgage shall not be security for the performance of such undertakings, notwithstanding the survival of the same; but, thereafter, the Mortgagee shall look solely to the Mortgagor, personally, for the performance of such undertakings. 4 7 4. In the event of the enactment after this date of any Laws and Other Governmental Requirements requiring the Mortgagee to pay all or any part of the taxes, assessments, charges or liens herein required to be paid by the Mortgagor, or changing in any way the taxation of mortgages or debts secured by mortgages or the manner of collection of taxes, so as to affect this Mortgage or the obligations secured hereby then the Mortgagor, upon demand by Mortgagee, shall pay such taxes or assessments, or reimburse Mortgagee therefor; provided, however, that if in the opinion of counsel for Mortgagee (i) it might be unlawful to require Mortgagor to make such payment or (ii) the making of any such payment might result in the imposition of interest beyond the maximum amount permitted by law, then the Mortgagee may elect to declare all of the indebtedness secured hereby to be due and payable sixty (60) days from the giving of such notice. 4. Condition; Use; Repair; Inspection. 1. The Mortgagor shall diligently and continuously from the date hereof shall keep the Property in good order, repair and condition, damage from casualty expressly not excepted, and shall not permit or commit waste on the Real Estate, nor remove or alter anything which constitutes a part of the Property without the consent of the Mortgagee, other than removals or alterations in the ordinary course of Mortgagor's business which do not have a material affect on the value of the Property. 2. The Property shall be maintained, operated and used in accordance with all Governmental Approvals and Laws and other Governmental Requirements and all Other Applicable Requirements. To the fullest extent permissible according to law, and without limiting any other rights or remedies of the Mortgagee, the Mortgagor unconditionally, absolutely and irrevocably agrees to defend, hold harmless and indemnify the Mortgagee and each of its officers, employees, agents and contractors against all damages (including consequential damages), claims, costs, losses and liabilities, including attorney's fees, suffered or incurred by the Mortgagee on account of the violation of any Governmental Approvals, Laws and Other Governmental Requirements, or any Other Applicable Requirements or the imposition by any Governmental Authority of a lien, attachment or other encumbrance on any part of the Property. The foregoing indemnification shall survive satisfaction of the Obligations and the release or assignment of this Mortgage. All construction on, improvements to, and alterations of the Real Estate shall comply with, and each and every part of the Property shall be maintained and used in accordance with, all Governmental Approvals, Laws and other Governmental Requirements, and all Other Applicable Requirements. 3. The Mortgagee shall have and is hereby granted the right to enter and to have access at reasonable times during business hours to the Real Estate and the Collateral (and all books and records relating to the use, operation, construction or management thereof) without interfering unduly with Mortgagor's business operations to determine whether the Mortgagor is in compliance with its obligations under this Mortgage and the other Loan Documents. 5 8 5. Insurance. 1. Mortgagor shall obtain and maintain on the Improvements now situated on, and the Personal Property located at, the Real Property, or which may hereafter be erected or placed thereon, and all other real, mixed or personal property now or hereafter encumbered by the lien of this Mortgage physical hazard insurance on an "all risks" basis with a Replacement Cost Endorsement, an Increased Cost of Construction Endorsement and an Agreed Amount Endorsement, covering the perils of fire, flood (if in a flood hazard zone), earthquakes (if in an earthquake zone), boiler and machinery (to include major components of HVAC systems if not already included in the above coverage) and such other equipment as Mortgagee may require, and extended coverage in an amount at least equal to the current fair market value of the Property and not less than the "Full Replacement Cost" of the Improvements and Personal Property. "Full Replacement Cost" shall mean the cost of replacing the Improvements and Personal Property without deduction for physical depreciation. 2. Mortgagor shall obtain and maintain commercial general liability insurance against claims for personal injury (to include, without limitation, bodily injury and personal and advertising injury) and property damage liability, all on an occurrence basis, if available, with such coverages as Mortgagee may request with a general aggregate limit of not less than $2,000,000, an aggregate limit of not less than $2,000,000, and a combined single "per occurrence" limit of not less than $1,000,000 for bodily injury, property damage and medical payments. 3. Mortgagor shall obtain and maintain rent loss or business interruption coverage in a minimum amount of not less than eighteen (18) months gross rentals from the Property, including without limitation, all payments due under any lease and the salaries and expenses of key personnel required for the operation of the Property for a period of not less than eighteen (18) months. 4. During the course of any construction or repair of any Improvements on the Real Property, the insurance required by clause (a) above shall be written on a builders risk, completed value, non-reporting form, meeting all of the terms required by clause (a) above, covering the total value of work performed, materials, equipment, machinery and supplies furnished, existing structures, and temporary structures being erected on or near the Real Property, including coverage against collapse and damage during transit or while being stored off-site, and containing a soft costs (including loss of rents) coverage endorsement and a permission to occupy endorsement. 5. Mortgagor shall obtain and maintain flood insurance if at any time the Improvements are located in any federally designated "special hazard area" (including any area having special flood, mudslide and/or flood-related erosion hazards, and shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map published by the Federal Emergency Management Agency as Zone A, AO, A1-30, AE, A99, AH, V0, V1-30, VE, V, M or E) and the broad form flood coverage required by clause (a) above is not available, in an amount equal to the full replacement cost or the maximum amount then available under the National Flood Insurance Program. 6 9 6. During the course of any construction or repair of any Improvements on the Real Property, Mortgagor shall obtain and maintain owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the insurance required by clause (d) above. 7. Mortgagor shall obtain and maintain employer's liability insurance. 8. Mortgagor shall obtain and maintain umbrella liability insurance with limits of not less than $5,000,000 to be in excess of the limits of the insurance required by clauses (b), (f) and (g) above, with coverage at least as broad as the primary coverages of the insurance required by clauses (b), (f) and (g) above, with any excess liability insurance to be at least as broad as the coverages of the lead umbrella policy. All such policies shall be endorsed to provide defense coverage obligations. 9. All liability coverages shall insure Mortgagee as an additional insured, and all other forms of insurance shall insure Mortgagee as first mortgagee. All insurance policies shall be written by a company qualified to do business in the State of Illinois which has an A.M. Best Company's Key Rating Guide Class A VII category designation or higher and shall provide for not less than thirty (30) days' written notice to Mortgagee prior to modification or cancellation. The policy shall not contain a co-insurance clause or other clause limiting the amount of coverage under any conditions except for standard deductibles. Mortgagor shall notify, instruct and authorize the companies issuing all policies to make any and all loss drafts thereunder payable to Mortgagee. Mortgagee may on behalf of Mortgagor adjust and compromise any claims under such insurance and collect and receive proceeds thereof and is hereby irrevocably appointed attorney in fact for Mortgagor coupled with an interest, for such purposes, and may deduct from such proceeds any expense reasonably incurred by it. If any sum of money shall become payable under such policy or policies of insurance and is used for the purpose of rebuilding or repairing the damaged Property, or for any other purposes, Mortgagee shall not be deemed to have thereby waived or impaired any equity or statutory lien or right under or by virtue of this Mortgage. 10. Mortgagor shall deliver to Mortgagee the originals, or if the originals are not available, certified copies, of all insurance policies required hereunder. 11. In the event of loss or physical damage to the Property, Mortgagor shall give immediate written notice thereof to Mortgagee and Mortgagee may make proof of loss if the same is not made promptly by Mortgagor. All right, title, and interest of Mortgagor in and to any insurance policies and the proceeds therefrom are assigned to Mortgagee including unearned premiums. All proceeds deposited with Mortgagee, may, at the option of Mortgagee, be applied in the payment of the amount secured hereby in such order as Mortgagee may determine without prepayment penalty or premium or be released to Mortgagor, in whole or in part, upon conditions satisfactory to Mortgagee. 7 10 12. Mortgagor shall deliver to Mortgagee notices of payment dates and proof of payment of premiums on all insurance policies as well as such certificates and proof of insurance as Mortgagee shall reasonably request. 13. Any such insurance coverage may be maintained under blanket insurance policies meeting all of the criteria set forth herein. 14. Unless Mortgagor provides Mortgagee with evidence of the insurance coverage required by this Mortgage, Mortgagee may purchase insurance at Mortgagor's expense to protect Mortgagee's interests in the Property. This insurance may, but need not, protect Mortgagor's interests. The coverage that Mortgagee purchases may not pay any claim that Mortgagor may make or any claim that is made against Mortgagor in connection with the Property. Mortgagor may later cancel any insurance purchased by Mortgagee, but only after providing Mortgagee with evidence that Mortgagor has obtained insurance as required by this Mortgage. If Mortgagee purchases insurance for the Property, Mortgagor will be responsible for the costs of that insurance, including interest and any other charges Mortgagee may impose in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to Mortgagor's total outstanding balance or obligation. The costs of the insurance may be more than the cost of insurance Mortgagor may be able to obtain on its own. 6. Insurance Proceeds. 1. The Mortgagor agrees to give immediate notice to the Mortgagee of any material fire, damage or other casualty to all or any part of the Property. 2. In case of any material damage or destruction to the Property, or any other casualty, all proceeds of any hazard insurance shall be made payable to Mortgagee and may be applied towards any outstanding Obligations of Mortgagor hereunder, provided however, so long as there has been no Event of Default hereunder, Mortgagee shall release such proceeds to Mortgagor to be applied by Mortgagor to the restoration or replacement of the property which was the subject of such loss provided that: 1. Mortgagor shall have demonstrated to the reasonable satisfaction of Mortgagee that the Property will be restored to substantially its previous condition or will be replaced by a substantially identical property; 2. the Mortgagee shall have received, if so requested, a favorable opinion from Mortgagor's counsel satisfactory in scope and form to the Mortgagee, as to the Mortgagee's having a prior security interest in and valid first lien on such restored and replaced property; and 3. such proceeds shall be distributed by Mortgagee in the manner in which Mortgagee customarily distributes construction loan proceeds. 8 11 3. Notwithstanding anything in this Paragraph 6 to the contrary, if the insurer denies liability to the Mortgagor or if the insurance proceeds are insufficient to complete the required repairs and restoration, the Mortgagor shall not be relieved of any obligation under Paragraph 4 of this Mortgage, whether or not the proceeds of insurance are applied to or toward the indebtedness secured hereby. 7. Eminent Domain Proceeds. 1. Immediately upon obtaining knowledge of the institution of any proceedings for the condemnation of all of any part of the Property or the whole or any part of the buildings, structures and improvements located on the Real Estate, Mortgagor will notify Mortgagee of the pendency of such proceedings. Mortgagee may participate in any such proceedings, and Mortgagor shall from time to time deliver to Mortgagee all instruments requested by it to permit such participation. Mortgagor shall, at its expense, diligently prosecute any such proceeding and shall consult with the Mortgagee, its attorneys and experts and cooperate with them in any defense of any such proceedings. 2. In case of any condemnation for public use or public injury to the Property, all awards of damages on account of such condemnation shall be applied, at Mortgagee's discretion, towards any outstanding Obligations of Mortgagor hereunder, provided however, so long as there has been no Event of Default hereunder, Mortgagee shall release such proceeds to Mortgagor to be applied by Mortgagor to the restoration or replacement of the property which was the subject of such condemnation provided that: 1. Mortgagor shall have demonstrated to the reasonable satisfaction of Mortgagee that the Property will be restored to substantially its previous condition or will be replaced by a substantially identical property; 2. the Mortgagee shall have received, if so requested, a favorable opinion from Mortgagor's counsel satisfactory in scope and form to the Mortgagee, as to the Mortgagee's having a prior security interest in and valid first lien on such restored and replaced Property; and 3. such proceeds shall be distributed by Mortgagee in the manner in which Mortgagee customarily distributes construction loan proceeds. 3. In the event eminent domain proceeds are released to the Mortgagor for the restoration of the Property as provided above and such proceeds are not sufficient to permit the complete restoration of the Property, the Mortgagor shall nevertheless fully restore the Property and shall supply any deficiency in the eminent domain proceeds with its own funds. 8. Subordination. If this Mortgage, by its terms, is now, or at any time, subject or subordinate to a prior mortgage, the Mortgagor shall not, without the consent of the Mortgagee, agree to the modification, amendment or extension of the terms or conditions of such prior mortgage. Notwithstanding the foregoing, nothing in this paragraph 8 shall be deemed 9 12 a waiver of Mortgagee's rights to prohibit the existence of any prior mortgages on the Premises. 9. Delinquency of Payments; Fees and Charges. If the payment of any installment on account of principal or interest due under Credit Agreement is delinquent for five (5) business days or more, the Mortgagor shall pay, in addition to any other sums due under this Mortgage (and without the Mortgagee's other remedies on account of such delinquency) additional interest as provided in the Credit Agreement. Further, the Mortgagor shall pay when due all fees and charges incurred incident to the Loans and secured by this Mortgage, the assurance of the security represented by this Mortgage, and the enforcement of this Mortgage and any other Obligation secured by this Mortgage. 10. Leases and Rents. 1. As part of the consideration for making the Loan, Mortgagor has absolutely and unconditionally assigned and transferred to Mortgagee all of Mortgagor's right, title and interest in and to the Leases and the Revenues, including those now due, past due or to become due by virtue of any Lease for the occupancy or use of all or any part of the Property. 2. Mortgagor agrees that neither the foregoing assignment of Leases and Revenues, nor the exercise of any of Mortgagee's rights and remedies under Paragraph 19 hereof shall be deemed to make Mortgagee a Mortgagee-in-possession or otherwise responsible or liable in any manner with respect to the Leases, the Property or the use, occupancy, enjoyment or operation of all or any portion thereof, unless and until Mortgagee, in person or by agent, assumes actual possession thereof. Nor shall the appointment of any receiver for the Property by any court at the request of Mortgagee or by agreement with Mortgagor, or the entering into possession of any part of the Property by such receiver, be deemed to make Mortgagee a Mortgagee-in-possession or otherwise responsible or liable in any manner with respect to the Leases, the Property or the use, occupancy, enjoyment or operation of all or any portion thereof. 3. If Mortgagee or a court-appointed receiver enters upon, takes possession of and maintains control of the Property pursuant to Paragraph 19 hereof, all Revenues thereafter collected shall be applied first to the costs of taking control of and managing the Property and collecting the Revenues, including, but not limited to, reasonable attorneys' fees actually incurred, receiver's fees, premiums on receiver's bonds, costs of repairs to the Property, premiums on insurance policies, Impositions and other charges on the Property, and the costs of discharging any obligation or liability of Mortgagor as landlord, lessor or licensor of the Property and then to the Obligations. Mortgagee or the receiver shall have access to the books and records used in the operation and maintenance of the Property and shall be liable to account only for those Revenues actually received. Mortgagee shall not be liable to Mortgagor, anyone claiming under or through Mortgagor or anyone having an interest in the Property by reason of anything done or left undone by Mortgagee pursuant to Paragraph 19 hereof. If the Revenues are not sufficient to meet the costs of taking control of and managing the Property and collecting the Revenues, any monies expended by Mortgagee for such 10 13 purposes shall become a portion of the Obligations. Unless Mortgagee and Mortgagor agree in writing to other terms of payment, such amounts shall be payable upon notice from Mortgagee to Mortgagor requesting payment thereof and shall bear interest from the date of disbursement at the Default Rate (as defined in the Credit Agreement), unless payment of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate which may be collected from Mortgagor under applicable law. The entering upon and taking possession of and maintaining of control of the Property by Mortgagee or the receiver pursuant to the terms of this Mortgage and the application of Revenues as provided herein shall not cure or waive any Event of Default or invalidate any other right or remedy of Mortgagee hereunder. 11. Additional Security. Upon Mortgagee's request, the Mortgagor will assign to the Mortgagee to the extent assignable, as additional security for the Obligations, the Mortgagor's interests in all agreements, contracts, licenses and permits, now or hereafter outstanding, affecting the Property, such assignments to be made by instruments in form satisfactory to the Mortgagee and, without limitation, authorizing the Mortgagee in the event of foreclosure, to sell and assign such interest to the purchaser at foreclosure, but no such assignment shall be construed as a consent by the Mortgagee to any lease, agreement, contract, license or permit so assigned, or to impose upon the Mortgagee any obligations with respect thereto. The Mortgagor hereby irrevocably appoints the Mortgagee its true and lawful attorney-in-fact, coupled with an interest, with full power of substitution, to execute, acknowledge and deliver any such assignment on behalf of the Mortgagor which the Mortgagor fails or refuses to do. 12. Status Report. From time to time, on the request of the Mortgagee, the Mortgagor shall furnish a written statement, signed and, if requested, acknowledged, setting forth the amount of the indebtedness which the Mortgagor acknowledges to be due under the Loan and under this Mortgage, specifying any claims of offset or defense which the Mortgagor asserts against the Obligations and the then state of facts relative to the condition of the Property. 13. Waiver; Redemption. Whether or not for additional interest or other consideration paid or payable to the Mortgagee, no forbearance on the part of the Mortgagee or extension of the time for the payment or performance of the whole or any part of the Obligations, whether oral or in writing, or any other indulgence given by the Mortgagee to the Mortgagor or to any other party claiming any interest in or to the Property, shall operate to release or in any manner affect the original liability of the Mortgagor, or the priority of this Mortgage or to limit, prejudice or impair any right of the Mortgagee, including, without limitation, the right to realize upon the security, or any part thereof, for the Obligations, notice of any such extension, forbearance or indulgence being hereby waived by the Mortgagor, and all those claiming by, through or under the Mortgagor; and no consent or waiver, express or implied, by the Mortgagee to or of any default by the Mortgagor shall be construed as a consent or waiver to or of any further default in the same or any other term, condition, covenant or provision of this Mortgage or of the Obligations. In case redemption is had by the Mortgagor after foreclosure proceedings have begun, the Mortgagee shall be entitled to collect all costs, charges and expenses incurred up to the time of redemption. 11 14 14. Notice. Wherever notice, demand or a request may properly be given to the Mortgagor under this Mortgage, the same shall always be sufficient to serve as a notice, demand or request hereunder if in writing and (i) hand delivered, (ii) delivered to a recognized private express delivery service for overnight delivery or (iii) posted in the United States mail by registered or certified mail, return receipt requested, addressed in any such case to the Mortgagor at the address given in this Mortgage as the Mortgagor's address or to the business address of the Mortgagor last known to the Mortgagee hereof. Any such notice, demand or request shall be treated as having been given upon hand delivery to such address or one (1) day after deposit with such delivery service or the United States mails. A notice so addressed shall always be a sufficient notice, notwithstanding a change in the ownership of the equity of redemption of the Real Estate, whether or not consented to by the Mortgagee. Where more than one person constitutes the Mortgagor, one notice sent to the address given in this Mortgage as the Mortgagor's address or the last known business address of any one of them shall constitute sufficient notice to all. 15. Priority of Lien. 1. Except for real estate taxes and assessments until any delinquency therein (delinquency, with reference to such taxes and assessments being hereby defined, for the purposes of this Mortgage, as meaning the time when, on the non-payment thereof, interest or penalties commence to accrue), the Mortgagor shall not create or to permit any encumbrance on the Property even if such encumbrance is inferior to this Mortgage. The foregoing prohibition shall include Leases. 2. Without limiting the generality of the provisions of Subparagraph above, the Mortgagor shall keep the Property free from any attachments, lis pendens or mechanics', materialmen's or other liens or encumbrances of any kind other than those approved by the Mortgagee, whether such liens or encumbrances be prior or subordinate to this Mortgage. Without limitation, the filing of a notice of federal or state tax lien with the Mortgagee or at the office at which, by law, such notice is to be filed to be effective against the Real Estate, whether or not such lien applies, in terms, to the Real Estate shall be a breach of this Paragraph. Without limitation, the Mortgagor shall pay and discharge all claims for labor done and material and services furnished to or performed upon the Property, and shall take all other steps necessary to prevent the assertion of claims of liens against the Property or any part thereof or any right or interest therein. Nothing herein contained shall require the Mortgagor to pay any claims for labor, materials, or services that the Mortgagor in good faith disputes and that the Mortgagor, at its own expense, is currently and diligently contesting; provided, however, that the Mortgagor shall, not later than fifteen (15) days after Mortgagor's receipt of notice, or Mortgagor's acquiring actual knowledge, whichever occurs earlier, of the filing of any claim of lien that is disputed or contested by Mortgagor with respect to the Property, post a bond sufficient to dissolve or release such claim of lien, or take such other action as may be requested or approved by the Mortgagee to dissolve or release such claim of lien. 12 15 16. Maintenance of Mortgagor; Transfers. The Mortgagor shall not convey, transfer, assign, encumber, pledge or otherwise dispose of any legal, equitable or beneficial interest in the Mortgagor or the Property or any part thereof, or otherwise voluntarily or by operation of law transfer any legal or equitable interest in the Real Estate or in the equity of redemption in the Real Estate, or any part thereof. In the event any of such interests are transferred or conveyed as aforesaid, then, at the option of the Mortgagee, the Obligations shall become due and payable without demand or notice. 17. Bankruptcy. 1. The Mortgagor shall not file a petition or any application for relief, extension, moratorium or reorganization under any bankruptcy, insolvency or debtor's relief law, or make an assignment for the benefit of creditors or enter into any trust mortgage arrangement, so-called, or consent to the appointment of a receiver of any of the property of the Mortgagor. 2. The Mortgagor shall not permit any petition under any bankruptcy, insolvency or debtor's relief law filed against it to remain undischarged for a period of more than forty-five (45) days after the filing thereof, nor shall the Mortgagor (and any general partner of such partnership) permit the continuation of any receivership proceedings instituted against it for more than a period of sixty (60) days after the commencement thereof. 18. Events of Default. The occurrence of any of the following events shall be deemed an "Event of Default" or "Default" hereunder: 1. Default shall be made in the due and punctual payment of any principal of or premium, if any, or interest on any of the Obligations as and when the same shall become due and payable (whether at maturity or at a date fixed for any prepayment or installment or by declaration or acceleration or otherwise) and such default shall continue beyond the expiration of the applicable period of grace, if any; or 2. Any other default shall be made in the due performance or observance of any provision of this Mortgage, any other Loan Document or of any other Obligation, or any Event of Default (as defined or provided in the Credit Agreement) shall occur. 19. Remedies. 1. Upon the occurrence of an Event of Default or a Default, the Mortgagee may (but shall not be required), at its option and without notice, exercise any or all of the following remedies: 1. declare the entire indebtedness of the Mortgagor immediately due and payable without notice; 2. either in person or by agent, with or without bringing any action or proceeding, enter upon and take possession of the Property, or any part thereof, in its own name, to operate, manage and control the Property and conduct the business thereof and do any acts which it deems necessary or desirable to preserve the value, marketability or rentability of the Property, or part thereof or interest 13 16 therein, increase the income therefrom or protect the security hereof. The entering upon and taking possession of the Property shall not cure or waive any default or notice of default hereunder; 3. take such steps to protect and enforce its rights whether by action, suit or proceeding in equity or at law for the specific performance of any covenant, condition or agreement in this Mortgage, or the other Loan Documents, or in aid of the execution of any power herein granted, or for any foreclosure pursuant to the Illinois Mortgage Foreclosure Act 735 ILCS 5/15 (et. seq.) (the "Act") or otherwise, or for the enforcement of any other appropriate legal or equitable remedy or otherwise as the Mortgagee shall elect; 4. exercise any and all of the rights and remedies of a secured party under the Uniform Commercial Code in force in the state in which the Property is located; 5. cure the Default as provided in Paragraph 20 below; and 6. take such other actions or proceedings as the Mortgagee deems necessary or advisable to protect its interest in the Property. 2. In addition to the foregoing remedies, after the happening of any Event of Default and during its continuance, or upon the commencement of any proceedings to foreclose this Mortgage or to enforce the specific performance hereof or in aid thereof or upon the commencement of any other judicial proceeding to enforce any right of the Mortgagee, the Mortgagee shall be entitled, as a matter of right, if it shall so elect, without the giving of notice to any other party and without regard to the adequacy or inadequacy of any security for the Obligations, forthwith either before or after declaring the unpaid principal of the Loans to be due and payable, to the appointment of a receiver or receivers of the Property or any part thereof and of all the earnings, revenues, rents, issues, profits and income thereof. Notwithstanding the appointment of any receiver, liquidator or trustee of the Mortgagor, or of any of its property, or of the Property or any part thereof, the Mortgagee shall be entitled to retain possession and control of all property now or hereafter held under this Mortgage. 3. The Mortgagee may, at the Mortgagee's option, foreclose this Mortgage for any portion of the debt or any other sums secured hereby which are then due and payable, subject to the continuing lien of this Mortgage for the balance of the secured debt not then due. 4. Such remedies shall continue until all such Events of Default have been cured by Mortgagor and all foreclosure or other proceedings which shall have been commenced are completed, and such remedies may be exercised individually, sequentially or in concert. All of the rights and remedies of the Mortgagee set forth in this Mortgage and the other Loan Documents are cumulative and not exclusive of one another and may be exercised in any order, and the exercise of one shall not be construed to be a waiver of any of the others. Such remedies are also cumulative and not exclusive of any and all other remedies now or hereafter available to the Mortgagee under any law or in equity or otherwise. The resort to any remedy provided for 14 17 hereunder or under any other instrument given in connection with the financing arrangement secured hereby or provided for by law shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies. No delay or omission to exercise any right or power shall impair such right or power or constitute a waiver of any Default or Event of Default or acquiescence therein; and each such right and power may be exercised as often as deemed expedient. 20. Mortgagee's Right to Cure Default. If there shall be any breach in any condition or covenant of this Mortgage, the Mortgagee shall have the right, but without any obligation so to do, to cure such default for the account of the Mortgagor and, to the fullest extent permissible according to law, apply any funds credited by or due from the Mortgagee to the Mortgagor against the same (without any obligation first to enforce any other rights of the Mortgagee, including, without limitation, any rights under the Credit Agreement or this Mortgage, or any guaranty thereof, and without prejudice to any such rights). Without limiting the generality of the foregoing, the Mortgagor hereby authorizes the Mortgagee to pay all taxes, sewer use fees, water rates and assessments, with interest, costs and charges accrued thereon, which may at any time be a lien upon the Property, or any part thereof; to pay the premiums for any insurance required hereunder; or to incur and pay reasonable expenses in protecting its rights hereunder and the security hereby granted; to pay any balance due under any security agreement on any articles, fixtures and equipment included as a part of the Property; and the payment of all amounts so expended or incurred shall be considered advances under the Credit Agreement and shall be secured hereby as fully and effectively as any other obligation of the Mortgagor secured hereby; and, to the fullest extent permissible according to law, to apply to any of these purposes or to the repayment of any amounts so paid by the Mortgagee any sums paid on the Loan by the Mortgagor as interest or otherwise. 21. Foreclosure Sale. 1. At any foreclosure sale, any combination, or all, of the Property or other security given to secure the Obligations, may be offered for sale for one total price, and the proceeds of such sale accounted for in one account without distinction between the items of security or without assigning to them any proportion of such proceeds, the Mortgagor hereby waiving the application of any doctrine of marshalling and inverse order of alienation; and, in case the Mortgagee, in the exercise of the remedies of foreclosure herein given, elects to sell in parts or parcels, said sales may be held from time to time, and the power shall not be fully executed until all of the Property or other security not previously sold shall have been sold. Without limiting the foregoing, at any one or more sales the Mortgagee may in its sole discretion elect which portion or all, and in which order, the Property or other security given to secure the Obligations shall be offered for sale. 2. If the provisions of the Uniform Commercial Code as in force in the state in which the Property is located (the "Uniform Commercial Code") are applicable to any part of the Property which is sold in combination with or as a part of the Real Estate, or any part thereof, at one or more foreclosure sales, any notice required under such provisions shall be fully satisfied by the notice given in execution 15 18 of the remedies set forth herein with respect to the Real Estate or any part thereof. 3. Mortgagor acknowledges that the transaction of which this Mortgage is a part is a transaction which does not include either agricultural real estate (as defined in Section 15.1201 of the Act) or residential real estate (as defined in Section 15-1219 of the Act) and, to the fullest extent permitted by law, hereby voluntarily and knowingly waives its rights to reinstatement and redemption as allowed under Section 15-1601 (b) of the Act and, to the fullest extent permitted by law, the benefits of all present and future valuation, appraisement, homestead, exemption, stay, redemption and moratorium laws under any state or federal law. 4. In the event that any provision in this Mortgage shall be inconsistent with any provision of the Act, the provisions of the Act shall take precedence over the provisions of this Mortgage, but shall not invalidate or render unenforceable any other provision of this Mortgage that can be construed in a manner consistent with the Act. Furthermore, if any provision of this Mortgage shall grant to Mortgagee any rights or remedies upon an Event of Default by default of Land Trust, Beneficiary, or any Guarantor which are more limited than the rights that would otherwise be vested in Mortgagee under the Act in the absence of said provision, Mortgagee shall be vested with the rights granted in the Act to the full extent permitted by law. 22. Warranty of Title. The Mortgagor warrants that it is the sole owner and holder of the Property and has good right, full power and lawful authority to mortgage, assign and transfer the Property in the manner contemplated hereby. 23. Indemnification/Subrogation. 1. The Mortgagor will indemnify and hold harmless the Mortgagee from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatever kind or nature, and will reimburse the Mortgagee for all costs and expenses, including attorneys' fees, growing out of or resulting from the exercise by the Mortgagee of any right or remedy granted to it under this Mortgage. In no event shall the Mortgagee be liable for any manner or thing in connection with this Mortgage other than to account for monies actually received by and in accordance with the terms hereof. 2. Should the proceeds of the Loan or any amount paid or advanced hereunder by Mortgagee, be used directly or indirectly to pay off, discharge or satisfy, in whole or in part, any lien or encumbrance upon the Property on a parity with or superior to the lien hereof, then as additional security hereunder, the Mortgagee shall be subrogated to any and all rights, equal or superior titles, liens and equities owned or claimed by any owner or holder of said outstanding liens, charges and indebtedness, regardless of whether said liens, charges and indebtedness are acquired by assignment or have been released of record by the holder thereof upon payment. 16 19 24. Hazardous Substances. 1. Warranties and Indemnification. Mortgagor shall comply with all the terms and provisions of that certain Environmental Indemnity Agreement, by Mortgagor in favor of Mortgagee dated on or about the date hereof (the "ENVIRONMENTAL INDEMNITY"). 2. Survival, Assignability, and Transferability. 1. The warranties and representations set forth in this Paragraph 24 and the Environmental Indemnity shall survive the payment and performance of the Obligations and any exercise by Mortgagee of any remedies under this Mortgage, including without limitation, the power of sale, or any other remedy in the nature of foreclosure, and shall not merge with any deed given by Mortgagor to Mortgagee in lieu of foreclosure or any deed under a power of sale. 2. It is agreed and intended by Mortgagor and Mortgagee that the warranties and representations set forth above in this Paragraph 24 and the Environmental Indemnity may be assigned or otherwise transferred by Mortgagee to its successors and assigns and to any subsequent purchasers of all or any portion of the Property by, through or under Mortgagee, without notice to Mortgagor and without any further consent of Mortgagor. To the extent consent to any such assignment or transfer is required by law, advance consent to any such assignment or transfer is hereby given by Mortgagor in order to maximize the extent and effect of such warranties, representations and indemnification. 25. Other Agreements. As set out above, this Mortgage is also given as security for the performance of all covenants and agreements contained in the Loan Documents, including without limitation the Credit Agreement. The Mortgagor agrees that the Credit Agreement (and all other Loan Documents) are incorporated herein by reference and made a part hereof. The Mortgagor agrees faithfully to perform and observe all of its obligations under the terms of the Credit Agreement and the Loan Documents. It is agreed that the agreements contained in this Mortgage and the agreements contained in the other Loan Documents are intended to be supplemental obligations; however, where irreconcilable conflict exists, the provisions of the Credit Agreement shall govern. 26. Reserve Requirements. If any law or regulation (including without limitation Regulations D or K of the Board of Governors of the Federal Reserve System), whether presently in force or hereafter enacted or promulgated, or any interpretation thereof by any Governmental Authority shall: 1. modify or deem applicable any reserve, special deposit or similar requirement against any asset held by, or deposits with or for the account of, or loans by, or any other commitment or acquisition of funds, for advances by, the Mortgagee; or 2. impose on the Mortgagee any other condition regarding this Mortgage or any of the other Loan Documents; 17 20 and if the result of any of the foregoing is to increase the cost to the Mortgagee of making or maintaining the Loan secured hereby over the cost that would have been applicable had there been no such law, regulation or interpretation in effect, then, upon demand, the Mortgagor shall pay to the Mortgagee such additional amount (as shall be determined in the sole discretion of the Mortgagee) as shall compensate for such increased cost. 27. Amendments. If the payment of the indebtedness secured by this Mortgage or any part thereof is extended or varied or if any part of the security therefore is released, all persons now or at any time hereafter liable therefor, or interested in the Real Estate, shall be held to assent to such extension, variation or release, and their liability and the lien and all provisions hereof shall continue in full force, the right of recourse, if any, against all such persons being expressly reserved by the Mortgagee, notwithstanding such extension, variation or release. Any person or entity taking a junior mortgage or other lien upon the Property or any interest therein, shall take said lien subject to the rights of Mortgagee herein to amend, modify, and supplement this Mortgage and the other Loan Documents and to vary the rate of interest and the method of computing the same, and to impose additional fees and other charges, and to extend the maturity of said indebtedness, and to grant partial releases of the lien of this Mortgage, in each and every case without obtaining the consent of the holder of such junior lien and without the lien of this Mortgage losing its priority over the rights of any such junior lien. Nothing contained in this section, however, shall be construed as waiving any provision contained herein which provides, among other things, that it shall constitute an Event of Default if the Property is sold, conveyed, or encumbered. 28. Miscellaneous. 1. If at any time any law or court decree prohibits the performance of any obligation undertaken herein by the Mortgagor, or provides that any amount to be paid hereunder by the Mortgagor must be credited against the Mortgagor's obligations under the Credit Agreement, the Mortgagee shall have the right, on thirty (30) days' prior notice to the Mortgagor, to require payment in full of the entire indebtedness secured hereby. 2. Any provision contained in this Mortgage, the Credit Agreement or elsewhere notwithstanding, the Mortgagee shall not be entitled to receive or collect, nor shall the Mortgagor be obligated to pay, interest on any of the monies secured hereby in excess of the maximum rate of interest permitted by the laws of the state applicable thereto, and if any such provision shall ever be construed or held to permit the collection or to require the payment of any amount of interest in excess of that permitted by the laws of the state applicable thereto, the provisions of this paragraph shall control and shall override any contrary or inconsistent provision in this Mortgage, the Credit Agreement or elsewhere. The intention of the parties is to conform strictly to the usury laws now in force and every instrument relating to payment of any of the monies secured hereby shall be held subject to reduction to the amount allowed under said usury laws as now or hereafter construed by the courts having jurisdiction. 3. Mortgagor acknowledges and agrees that (a) the proceeds of the Loan will be used in conformance with subparagraph (1)(1) of Section 4 of the Interest Act (815 ILCS 205/0.01 et seq.), (b) the 18 21 obligations secured hereby constitute a business loan which comes within the purview of said Section 4, and (c) the loan evidenced by the Note is an exempted transaction under the Truth-in-Lending Act, 15 U.S.C. Sec. 1601 et seq. 4. All of the Mortgagee's rights and remedies set forth in this Mortgage and the Loan Documents are cumulative and not exclusive of one another and may be exercised in any order, and the exercise of one shall not be construed to be a waiver of any of the others. Such remedies are also cumulative and not exclusive of any and all other remedies available to the Mortgagee. The resort to any remedy provided for hereunder or under any other instrument given in connection with the construction loan financing secured hereby or provided for by law shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies. 5. If the Mortgagee shall have proceeded to invoke any right, remedy or recourse permitted under this Mortgage or any other obligation of the Mortgagor, and shall thereafter elect to discontinue or abandon the same for any reason, the Mortgagee shall have the unqualified right to do so and in such event the Mortgagor and the Mortgagee shall be restored to their former positions with respect to the Obligations. In such case this Mortgage, all other obligations, and all rights, remedies and recourse of the Mortgagee shall continue as if the same had not been invoked. 6. No waiver at any time of any of the provisions or conditions of this Mortgage or of any other obligation of the Mortgagor shall be construed as a waiver of any other of the conditions or provisions of this Mortgage or of any of such obligations, nor shall such waiver in any instance be construed as a waiver of the same provision or condition in other or subsequent instances. A consent or approval given by the Mortgagee in one instance shall not render such consent or approval unnecessary in future instances. 7. This Mortgage may not be waived, changed or discharged orally, but only by an agreement in writing and signed by the party against whom enforcement of any waiver, change or discharge is sought and any oral waiver, change or discharge of any provision of this Mortgage by a representative of any party shall be without authority and of no force and effect. 8. If any term or provision of this Mortgage or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Mortgage or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Mortgage shall be valid and shall be enforced to the fullest extent permitted by law. 9. Paragraph headings in this Mortgage are for convenience and reference only and the words and phrases contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of any of the provisions herein. 10. The Loans secured by this Mortgage were negotiated in the Commonwealth of Massachusetts and the laws of the Commonwealth of 19 22 Massachusetts shall govern the construction, interpretation, validity and legal effect of this Mortgage and the rights and duties of the parties hereunder, except the laws of the state in which the Property is located shall govern the procedures for enforcing the rights and remedies of the Mortgagee hereunder. 11. The word "Mortgagor", as used herein, shall mean the person or persons named at the beginning of this instrument as the Mortgagor, any subsequent owner or owners of the equity of redemption of the Real Estate, and any guarantor, jointly and/or severally, of the obligations of the Mortgagor hereunder or under the Credit Agreement or other Loan Documents. Where more than one person constitutes the entities constituting the Mortgagor, provisions in this Mortgage with reference to bankruptcy or insolvency or the like shall refer to each of the persons who is at that time one of the Mortgagor, so that if, for example, but without limitation, any person who is one of the Mortgagor (or is a partner, trustee or joint venturer in an entity which is one of the entities constituting the Mortgagor) shall file a petition in bankruptcy, such filing shall be treated as a breach of condition of this Mortgage. 12. The word "Mortgagee", as used herein, shall mean the Mortgagee named at the beginning of this instrument, its successors and assigns, and any subsequent holder or holders of this Mortgage. Notwithstanding any other provisions of this Agreement, the rights of the parties hereunder are subject to the provisions of the Credit Agreement including the provisions thereof pertaining to the rights and responsibilities of the Mortgagee as trustee thereunder. 13. All of the rights of the Mortgagee hereunder shall inure to the benefit of its successors and assigns, and all the covenants and agreements of the Mortgagor herein contained shall be binding upon the Mortgagor and its permitted successors and assigns; and, where more than one person or entity constitutes the Mortgagor the liability of such persons or entities under this Mortgage for the obligations set forth herein shall be joint and several. [SIGNATURES ON FOLLOWING PAGE] 20 23 Executed as a sealed instrument as of the date first above written. MORTGAGOR: ENESCO GROUP, INC. By: /s/ Jeffrey W. Lemajeur --------------------------------- Name: Jeffrey W. Lemajeur Title: Chief Financial Officer 21 EX-10.5 7 c64464ex10-5.txt 6TH AMEND TO AMEND & RESTATED SENIOR REV CREDIT AG 1 EXHIBIT 10.5 SIXTH AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT AGREEMENT This SIXTH AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT AGREEMENT (the "Amendment") is made as of this 2nd day of August, 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 ("Fleet") and LaSalle Bank National Association ("LaSalle" and together with Fleet, the "Banks"). RECITALS The Borrower and the Banks 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, as further amended by a Third Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of March 23, 2001, as further amended by a Fourth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of April 6, 2001, and as further amended by a Fifth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of June 18, 2001 (the "Credit Agreement"), pursuant to which the Banks have extended certain financial accommodations to the Borrower including those evidenced by a Borrower Note dated August 3, 2000 in the face amount of $50,000,000 payable to Fleet, a Borrower Note dated June 18, 2001 in the face amount of $10,000,000 payable to LaSalle, a Back-Up L/C and B/A Demand Note dated June 18, 2001 in the face amount of $15,000,000 payable to Fleet and a Back-Up F/X Demand Note dated November 27, 2000 in the face amount of $10,000,000 payable to Fleet. The Borrower and the Banks 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 Banks agree that the Credit Agreement is further amended as follows: 1. The definition of "Facility Termination Date" which appears in ARTICLE I is deleted in its entirety and replaced with the following: "Facility Termination Date" means September 7, 2001. 2 2. The first paragraph of Section 2.1.B is deleted in its entirety and replaced with the following: 2.1.B. Letter of Credit/Bankers' Acceptance Facility. From and including the date of this Agreement and prior to the Facility Termination Date, Fleet agrees, on the terms and conditions set forth in this Agreement, upon request of the Borrower, to (i) issue Letters of Credit, subject to the L/C and B/A Facility Limit, with expiration dates of not more than 90 days beyond the Facility Termination Date, and (ii) permit Bankers' Acceptances, subject to the L/C and B/A Facility Limit, with expiration dates for Bankers' Acceptances obtained in connection with Letters of Credit issued hereunder, up to an aggregate amount outstanding for such Bankers' Acceptances of up to $5,000,000, of not more than 150 days beyond the Facility Termination Date (the "L/C and B/A Facility"). 3. 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. 4. 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 hereby acknowledged, ratified, confirmed and continued as if fully restated hereby. 5. 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. 6. 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. 7. The Borrower hereby confirms and ratifies the obligations established under the Credit Agreement, as amended hereby. 8. This Amendment is to be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. 9. 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 Banks. [SIGNATURES ON FOLLOWING PAGE] 3 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/ Daniel DalleMolle ------------------------------------- Print Name: Daniel DalleMolle ---------------------------- Title: Chief Executive Officer ---------------------------------- By: /s/ Jeffrey W. Lemajeur ------------------------------------- Print Name: Jeffrey W. Lemajeur ---------------------------- Title: Chief Financial Officer ---------------------------------- FLEET NATIONAL BANK By: /s/ Sheryl McQuade ------------------------------- Its Vice President LASALLE BANK NATIONAL ASSOCIATION By: Tracy L. Harper ------------------------------- Its Assistant Vice President -----END PRIVACY-ENHANCED MESSAGE-----