-----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, P1EZlF+mgcB3Gepq944rcBMzqi8tG1ELDQP4KWw22DovejYHhL6n2M3yL2EOLjxo ODzq2Vb74lm+kKEkedOZRw== 0000950137-03-002982.txt : 20030515 0000950137-03-002982.hdr.sgml : 20030515 20030515142711 ACCESSION NUMBER: 0000950137-03-002982 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 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: 03703692 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 c77154e10vq.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ . Commission File Number 0-1349 Enesco Group, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-1864170 - ------------------------------------ ---------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 225 Windsor Drive, Itasca, Illinois 60143 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 630-875-5300 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x ] No [ ]
March 31, --------------------------- 2003 2002 ---------- ---------- Shares Outstanding: Common Stock with 13,964,245 13,827,008 Associated Rights
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 2003 AND DECEMBER 31, 2002 (IN THOUSANDS)
(UNAUDITED) MARCH 31, DECEMBER 31, 2003 2002 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,517 $ 17,418 Accounts receivable, net 48,916 54,347 Inventories 43,920 48,334 Prepaid expenses 1,745 2,491 Deferred income taxes and taxes receivable 7,029 7,586 --------- --------- Total current assets 113,127 130,176 --------- --------- PROPERTY, PLANT AND EQUIPMENT, AT COST: Property, plant and equipment 74,277 72,920 Less - accumulated depreciation (48,099) (46,691) --------- --------- Property, plant and equipment, net 26,178 26,229 --------- --------- OTHER ASSETS: Other 1,153 1,171 Deferred income taxes 22,235 22,209 --------- --------- Total other assets 23,388 23,380 --------- --------- TOTAL ASSETS $ 162,693 $ 179,785 ========= =========
The accompanying notes are an integral part of these condensed financial statements. 2 ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 2003 AND DECEMBER 31, 2002 (IN THOUSANDS)
(UNAUDITED) MARCH 31, DECEMBER 31, 2003 2002 --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes and loans payable $ -- $ -- Accounts payable 12,997 18,395 Federal, state and foreign income taxes 13,171 15,416 Accrued expenses: Payroll and commissions 1,188 4,412 Royalties 5,314 7,911 Post-retirement benefits 1,601 2,320 Other 5,285 5,623 --------- --------- Total current liabilities 39,556 54,077 --------- --------- LONG-TERM LIABILITIES: Post-retirement benefits 2,658 3,092 Deferred income taxes 678 703 --------- --------- Total long-term liabilities 3,336 3,795 --------- --------- SHAREHOLDERS' EQUITY: Common stock 3,154 3,154 Capital in excess of par value 46,897 47,148 Retained earnings 327,577 330,368 Accumulated other comprehensive loss (2,400) (2,712) --------- --------- 375,228 377,958 Less - shares held in treasury, at cost (255,427) (256,045) --------- --------- Total shareholders' equity 119,801 121,913 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 162,693 $ 179,785 ========= =========
The accompanying notes are an integral part of these condensed financial statements. 3 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 2002 --------- --------- Net revenues $ 46,137 $ 54,877 Cost of sales 27,627 30,708 --------- --------- Gross profit 18,510 24,169 Selling, distribution, general and administrative expenses 23,021 26,378 --------- --------- Operating loss (4,511) (2,209) Interest expense (49) (123) Interest income 170 98 Other income (expense), net (406) (311) --------- --------- Loss before income taxes and cumulative effect of a change in accounting principle (4,796) (2,545) Income tax benefit (2,005) (1,138) --------- --------- Loss before cumulative effect of a change in accounting principle (2,791) (1,407) Cumulative effect of a change in accounting principle, net of income taxes -- (29,031) --------- --------- Net loss (2,791) (30,438) Retained earnings, beginning of period 330,368 338,726 --------- --------- Retained earnings, end of period $ 327,577 $ 308,288 ========= ========= Loss per common share - basic and diluted: Loss before cumulative effect of a change in accounting principle $ (0.20) $ (0.10) ========= ========= Cumulative effect of a change in accounting principle, net of income taxes $ -- $ (2.10) ========= ========= Net loss $ (0.20) $ (2.20) ========= =========
The accompanying notes are an integral part of these condensed financial statements. 4 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (Unaudited) (In thousands)
OPERATING ACTIVITIES: 2003 2002 -------- -------- Net loss $ (2,791) $(30,438) Cumulative effect of a change in accounting principle, net of income taxes -- 29,031 Adjustments to reconcile net loss to net cash used by operating activities (2,116) (5,349) -------- -------- Net cash used by operating activities (4,907) (6,756) -------- -------- INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,306) (530) Proceeds from sales of property, plant and equipment 7 15 -------- -------- Net cash used by investing activities (1,299) (515) -------- -------- FINANCING ACTIVITIES: Net issuance (repayment) of notes and loans payable -- 2,012 Common stock issuance 367 341 -------- -------- Net cash provided by financing activities 367 2,353 -------- -------- Effect of exchange rate changes on cash and cash equivalents (62) (93) -------- -------- Decrease in cash and cash equivalents (5,901) (5,011) Cash and cash equivalents, beginning of period 17,418 7,932 -------- -------- Cash and cash equivalents, end of period $ 11,517 $ 2,921 ======== ========
The accompanying notes are an integral part of these condensed financial statements. 5 ENESCO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS A global leader in the gift, collectibles and home decor industry for 45 years, Enesco Group, Inc. (the "Company" or "Enesco") offers such notable product lines as Cherished Teddies, Mary Engelbreit, Border Fine Arts, Lilliput Lane and NICI, among others. The Company's award winning Precious Moments figurine collection is one of the top collectible lines throughout the world. Enesco distributes product worldwide and has wholly owned subsidiaries located in Hong Kong, Canada, France and the U.K. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial data as of March 31, 2003 and for the three months ended March 31, 2003 and March 31, 2002 has been prepared by Enesco, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in Enesco's Annual Report on Form 10-K for the year ended December 31, 2002. In the opinion of management, these Consolidated Condensed Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to interim period financial statements and reflect all adjustments necessary for a fair presentation of Enesco's financial position as of March 31, 2003, results of operations for the three months ended March 31, 2003 and March 31, 2002, and cash flows for the three months ended March 31, 2003 and March 31, 2002. The results of operations for interim periods are not necessarily indicative of the operating results for full fiscal years or any future period. The information in this report reflects all normal recurring adjustments and disclosures that are, in our 6 opinion, necessary to fairly present the results of operations and financial condition for the interim periods. REVENUE RECOGNITION 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 when a sale is recorded. 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. COMPUTATION OF LOSS PER SHARE Basic loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common shares and potential dilutive common shares outstanding during the period. Diluted loss per share is computed using the weighted-average number of common shares and excludes dilutive potential common shares outstanding, as their effect is antidilutive. Potential dilutive common share equivalents primarily consist of employee stock options and warrants calculated using the treasury stock method. PAYMENTS FOR INTEREST AND INCOME TAXES Enesco made cash payments for interest and income taxes as follows (in thousands):
Three Months Ended March 31 ----------------------- 2003 2002 ---- ---- Interest $ 49 $198 Income taxes $247 $515
7 ACCOUNTING FOR STOCK - BASED COMPENSATION At March 31, 2003, the Company has six stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had exercise prices equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
THREE MONTHS ENDED MARCH 31 -------------------------------- 2003 2002 -------- -------- Net income (loss) as reported $ (2,791) $(30,438) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (324) (302) -------- -------- Pro forma net income (loss) $ (3,115) $(30,740) ======== ======== Loss per share: Basic and diluted - as reported $ (0.20) $ (2.20) ======== ======== Basic and diluted - pro forma $ (0.22) $ (2.23) ======== ========
8 3. COMPREHENSIVE INCOME (LOSS): Other comprehensive income (loss) consists only of cumulative foreign currency translation adjustments. Comprehensive income (loss) for the three months ended March 31, 2003 and 2002 was as follows (in thousands):
Three Months Ended March 31 -------------------------------- 2003 2002 -------- -------- Net income loss $ (2,791) $(30,438) Other comprehensive income (loss): Cumulative translation adjustments (no tax effects) 312 (584) -------- -------- Comprehensive loss $ (2,479) $(31,022) ======== ========
4. GEOGRAPHIC OPERATING SEGMENTS: Enesco operates in the giftware and collectible wholesale industry, predominantly in two major geographic classifications (United States and International). The following table summarizes operations by geographic classification for the three months ended March 31, 2003 and 2002 (in thousands):
Three Months Ended March 31 -------------------------------- 2003 2002 -------- -------- NET SALES United States $ 28,574 $ 37,562 United States inter-company (216) (381) International 18,053 17,926 International inter-company (274) (230) -------- -------- Total consolidated $ 46,137 $ 54,877 ======== ======== OPERATING PROFIT (LOSS) United States $ (5,975) $ (3,592) International 1,464 1,383 -------- -------- Total consolidated $ (4,511) $ (2,209) -------- --------
9 Transfers between geographic operating segments are made at the market value of the merchandise transferred. No single customer accounted for 10% 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 amounts disclosed in Enesco's December 31, 2002 Annual Report and the basis of geographic classification of sales and operating profit has not changed in 2003. 5. OTHER INCOME (EXPENSE), NET: Other income (expense), net for the three months ended March 31, 2003 and 2002 consisted of the following (in thousands):
Three Months Ended March 31 -------------------------- 2003 2002 ----- ----- Foreign currency gain (loss) $ (2) $ 20 Loss on sale of fixed assets -- (1) Bank charges and other (404) (330) ----- ----- $(406) $(311) ----- -----
6. LOSS PER COMMON SHARE (BASIS OF CALCULATIONS): The number of shares used in the loss per common share computations for the three months ended March 31, 2003 and 2002 were as follows (in thousands):
Three Months Ended March 31 --------------------------- 2003 2002 ------ ------ Average common shares outstanding - basic 13,931 13,790 Dilutive effects of stock options and warrants -- -- ------ ------ Average shares outstanding - diluted 13,931 13,790 ====== ======
10 The average number of diluted shares outstanding for the three months ended March 31, 2003 and March 31, 2002 excludes common stock equivalents relating to options and warrants because there was a net loss and such common stock equivalents would have been antidilutive. Had Enesco reported a profit for the three months ended March 31, 2003 and March 31, 2002, the number of average shares outstanding-diluted would have increased by 267 thousand and 195 thousand, respectively. Additionally, options to purchase 1.8 million and 1.7 million shares were outstanding during 2003 and 2002, respectively, but were not included in the computation of diluted loss per share because the options' exercise price was greater than the average market price of the common shares. 7. FINANCIAL INSTRUMENTS: 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 derivative financial instruments. Enesco currently does not use derivative financial instruments for trading or speculative purposes. Enesco regularly monitors foreign currency exposures and ensures 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 eventual settlement of foreign currency transactions will be affected adversely by changes in exchange rates. Enesco hedges these exposures by entering into various short-term foreign exchange forward contracts. Derivative instruments are carried at fair value in the Condensed Consolidated Balance Sheets as a component of current assets or current liabilities. Changes in the fair value of foreign exchange forward contracts that meet the applicable hedging criteria 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 are recorded currently in income as cost of sales or foreign exchange gain or loss, as applicable. Hedging activities did not have a material impact on results of operations or financial condition during the three months ended March 31, 2003. 11 To manage foreign currency risk, as of March 31, 2003, Enesco had entered into forward exchange agreements with a notional value of $3.4 million that will mature within 158 days. These contracts include sales of British pounds sterling and purchases of U.S. dollars at an average exchange rate of 1.57, a sale of U.S. dollars and the purchase of British pounds sterling at an average exchange rate of 1.57 and sales of Euros and purchases of U.S. dollars at an average exchange rate of 1.07. The fair value of these contracts is not significant. As of March 31, 2003, Enesco had no outstanding interest bearing debt. 8. ACQUISITION On March 18, 2003, the Company announced an offer to purchase Bilston & Battersea Enamels plc, which is based in Bilston, West Midlands, England, through its European subsidiary, Enesco Holdings Limited. Bilston & Battersea Enamels manufactures and distributes giftware, home accessories and related products, including the high quality, hand-decorated enamels and sculptured boxes sold under the Halcyon Days Enamels and Halcyon Days Bonbonnieres brands. Bilston and Battersea Enamels generated sales of approximately $10 million worldwide in 2002 and expects similar sales for 2003. Enesco paid approximately $4 million in cash to acquire the company in April 2003. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENESCO GROUP, INC. THREE MONTHS ENDED MARCH 31, 2003 Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words "believes," "anticipates," "estimates," "expects," "projections," "projects," and words of similar meaning, constitute "forward-looking statements" within the meaning of Federal securities laws. These forward-looking statements 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. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described below under the heading "Risk Factors" and elsewhere in this Quarterly Report, and in other documents we file with the Securities and Exchange Commission. 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 filings under the Securities Exchange Act of 1934, Enesco undertakes no obligation 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. RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Condensed Financial Statements and accompanying notes. Estimates are used for, but not limited to, the accounting for allowances for doubtful accounts and sales returns, inventory valuations, goodwill impairments, contingencies, restructuring costs and other special charges and taxes. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgements, assumptions and estimates used in the preparation of the Consolidated Condensed Financial Statements. 13 The allowance for doubtful accounts is based on our assessments of the collectibility of specific customer accounts and the aging of accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are significantly different than our historical experience, estimates of the recoverability of amounts due could be affected. An allowance for sales returns is established based on historical trends in product returns. If future returns do not reflect historical trends, net revenues could be affected. Inventory purchases and commitments are based on future demand forecasts. If there is a sudden or significant decrease in demand for our products or there is a higher incidence of inventory obsolescence because of rapidly changing customer requirements, we may be required to decrease the carrying value of inventory and gross profit could be affected. Enesco has established accruals for tax payables and tax assessments. The accruals are included in current income taxes payable since it is uncertain as to when assessments may be made and paid. Enesco has filed and continues to file tax returns with a number of taxing authorities worldwide. While Enesco believes 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. To the extent accruals differ from assessments, or when the open tax years are closed, the accruals are adjusted through the provision for income taxes. The majority of open tax years become closed for assessments at the end of December for the particular open year. ACQUISITION OF BILSTON AND BATTERSEA In April of 2003, the Company finalized the purchase of Bilston and Battersea for approximately $4 million in cash. Bilston and Battersea manufactures and distributes giftware, home accessories and related products, including the high-end quality, hand decorated enamel boxes sold under the Halcyon Days Enamels and Halcyon Days Bononnieres brands. Bilston and Battersea generated revenues of approximately $10 million in 2002 and expects similar sales for 2003. NET REVENUE AND GROSS PROFIT Net sales in the first quarter of 2003 decreased by 16%, or $8.7 million, from the first quarter of 2002. The decrease in net sales for the first quarter of 2003 compared to the same period last year was primarily the result of decreased U.S. sales of the Precious Moments and Cherished Teddies 14 product lines. Enesco's Precious Moments lines represented approximately 34% of 2003 year to date sales compared to 43% for 2002. The Cherished Teddies lines represented approximately 10% of 2003 year to date sales compared to 11% for 2001. Net new orders of $68 million year to date for 2003 were down 8% versus the comparable period of 2002. Net open orders (backlog) of $40 million at March 31, 2003 were down approximately $7 million, or 16%, from the same point in time last year. Backlog represents orders received and approved by Enesco, subject to cancellation for various reasons, including credit considerations, product availability and customer requests. We believe the decrease in net new orders and backlog is mainly due to moving the annual spring retailer show from March in 2002 to April in 2003 and lower retail sales in the United States due to general economic conditions and continued consolidation in the card and gift channel. Gross profit for the first quarter of 2003 of $18.5 million was 40.1% of net sales as compared to first quarter 2002 gross profit of $24.2 million, which was 44.0% of net sales. The decrease in gross profit for the first quarter of 2003 as compared to 2002 was due to an inventory adjustment in 2003 of $1.4 million to write down slow moving products introduced in 2001, lower retail sales volumes, as well as changes in product and sales channel mix. Gross profit may be affected in the future by changes in vendor pricing, obsolescence charges, changes in shipment volume, price competition and changes in distribution channel, geographic or product mix. SELLING, DISTRIBUTION, AND GENERAL AND ADMINISTRATIVE EXPENSES Selling, distribution and general and administrative expenses (operating expenses) for the first quarter of 2003 were $23.0 million, or 49.9% of sales, compared to first quarter 2002 of $26.4 million, or 48.1% of sales. Operating expenses decreased by approximately $3.4 million year to date in 2003 from the prior year primarily due to the impact of numerous cost control measures including headcount reductions, showroom savings, catalog savings and decreased travel. The Company expects to see additional operating expense decreases during the remainder of 2003. OPERATING INCOME (LOSS) In the first quarter of 2003, Enesco incurred an operating loss of $4.5 million compared to an operating loss of $2.2 million in 2002. The $2.3 million increase in operating loss was the result of the $8.7 million decrease in sales, partially offset by lower operating expenses. 15 INTEREST AND OTHER INCOME (EXPENSE), NET Interest expense of $49 thousand for the first quarter of 2003 was $74 thousand less than the first quarter of 2002 due to lower average borrowings and lower interest rates. Interest income for the first quarter of 2003 is $170 thousand compared to $98 thousand in 2002 due to additional cash balances in 2003. Other expense, net, for the first quarter of 2003 is $406 thousand compared to $311 thousand in same quarter in 2002. Other expense, net, for the first quarter of 2003 is higher by $95 thousand due to increased bank charges and less foreign currency gains. PROVISION FOR INCOME TAXES The effective tax rate was 41.8% for the first quarter of 2003 and 44.7% for the first quarter of 2002, reflecting the geographical mix of earnings. The effective tax rate differs from the U.S. statutory rate primarily due to the varying tax rates of foreign jurisdictions. Our future effective tax rates could be affected if the mix of earnings varies in countries that have higher or lower statutory rates or if tax laws and regulations change. INTERNATIONAL ECONOMIES AND CURRENCIES We conduct business globally. Accordingly, our future results could be materially affected by a variety of uncontrollable and changing factors including, among others, foreign currency exchange rates; regulatory, political, or economic conditions in a specific country or region; trade protection measures and other regulatory requirements; and the effects of terrorist activity, armed conflict, epidemics and natural disasters. Any or all of these factors could have a material impact on our future results. As a global concern, we face exposure to movements in foreign currency exchange rates. These exposures may change over time and could have a material impact on our financial results and cash flows. Historically, our primary exposures have related to non dollar-denominated transactions in Canada and Europe, as well as dollar denominated inventory purchases by our international operating units. At the present time, we hedge only those currency exposures associated with certain assets and liabilities denominated in foreign currencies and periodically will hedge anticipated foreign currency cash flows. The hedging activity undertaken by Enesco is intended to offset the impact of 16 currency fluctuations on certain foreign currency transactions. See Note 7, "Financial Instruments", to the Consolidated Condensed Financial Statements for additional information. LIQUIDITY AND CAPITAL RESOURCES Enesco has historically satisfied working capital requirements with internally generated funds and short-term loans. Cash balances and working capital requirements fluctuate due to operating results, shipping cycles, accounts receivable collections, inventory management and timing of payments, among other factors. Working capital requirements fluctuate during the year and are generally greatest early in the fourth quarter and lowest early in the first quarter. For additional discussion, see the Risk Factors section below. Cash and cash equivalents were $11.5 million on March 31, 2003. Operating cash flows are a function of earnings (losses) plus non-cash expenses such as depreciation and our ability to manage working capital. Cash used by operating activities in the first quarter of 2003 was $4.9 million. The major uses of funds from operating activities were decreased accrued expenses of $6.9 million and decreased accounts payable of $5.4 million. These uses of cash were partially offset by operating cash provided by reductions in accounts receivable and inventory. 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. Cash used by investing activities in the first quarter of 2003 was $1.3 million, primarily due to computer hardware and software purchases related to implementation of a new domestic computer system planned to be completed by the end of 2003. 17 Cash provided by financing activities in the first quarter of 2003 was $367 thousand, due to the issuance of additional treasury stock shares. In August 2000, Enesco entered into a $50 million domestic revolving credit facility to replace an expiring revolving credit facility. The credit agreement contains financial and operating covenants including restrictions on incurring indebtedness and liens, selling property, repurchasing Enesco's shares and paying dividends. In addition, Enesco is required to satisfy minimum operating profit, fixed charge coverage ratio and leverage ratio tests at the end of each quarter. The credit agreement, as amended, grants a security interest in Enesco's domestic accounts receivable, inventory and real estate. In May 2002, the credit facility was further amended to extend the termination date to May 2003. Certain financial covenants were also modified. As of March 31, 2003, Enesco was in compliance with all covenants in the revolving credit facility. In January 2003, the security interest in Enesco's inventory was released. The size of the facility remains at $50 million. As of March 31, 2003, there were no amounts outstanding under the facility. In May 2003, the credit facility was further amended to extend the termination date to June 2003. At the same time, Enesco received a binding commitment letter for a new three year domestic $50.0 million unsecured revolving credit facility to replace the expiring revolving credit facility. The commitment letter terms and conditions contain financial and operating covenants including restrictions on incurring indebtedness and liens, acquisitions, selling property, repurchasing the Company's shares and paying dividends. In addition, Enesco is required to satisfy fixed charge coverage ratio and leverage ratio tests at the end of each quarter and a minimum annual operating profit covenant. Enesco expects to enter into the new revolving credit facility in June 2003. Enesco is not aware of any trends, events, demands, commitments or uncertainties that reasonably can be expected to have a material effect on liquidity and the ability to meet anticipated requirements for working capital and capital expenditures. We believe that our current cash and cash equivalents, cash generated from operations, and available financing will satisfy our expected working capital needs, capital expenditures and other liquidity requirements associated with our existing operations. In addition, there are no transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or requirements for capital resources. 18 The principal sources of Enesco's liquidity are its available cash balances, cash from operations and available financing. At March 31, 2003, Enesco had formal and informal unused lines of credit of approximately $53.1 million. The informal lines are bank lines that have no commitment fees. As of March 31, 2003, Enesco had no interest bearing debt outstanding. Fluctuations in the value of the U.S. dollar versus international currencies affect the U.S. dollar translation value of international currency denominated balance sheet items. The changes in the balance sheet dollar values due to international currency translation fluctuations are recorded as a component of shareholders' equity. RISK FACTORS Set forth below and elsewhere in this Report and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Report. The results of operations for any quarter or fiscal year are not necessarily indicative of results to be expected in future periods. Our operating results have been in the past, and will continue to be, subject to quarterly and annual fluctuations as a result of a number of factors. These factors include: - - Changes in economic conditions and specific market conditions - - The ability to secure, maintain and renew popular licenses, particularly our licenses for Precious Moments and Cherished Teddies - - Fluctuations in demand for our products - - Manufacturing lead times - - The effects of terrorist activity and armed conflict, that could cause a disruption in global economic activity, changes in logistics and security arrangements, particularly with respect to our reliance on manufacturing facilities in China - - The timing of orders, timing of shipments and our ability to meet customer demands - - Inventory levels and purchase commitments below or exceeding requirements based upon future demand forecasts - - Price and product competition in the giftware industry 19 - - The trend toward retail store consolidation in the card and gift channel in the United States - - Variations in sales channels, product costs or mix of products sold - - The geographical mix of our revenue and the associated impact on gross margin - - Our ability to achieve targeted cost reductions particularly in the United States' operations - - Actual events, circumstances, outcomes and amounts differing from judgments, assumptions and estimates used in determining the amounts of certain assets (including the amounts of related allowances), liabilities and other items reflected in our financial statements. As a consequence, operating results for a particular future period are difficult to predict. Any of the foregoing factors, or any other factors discussed elsewhere herein, could have a material adverse effect on our business, results of operations and financial condition. Gross margin may be adversely affected in the future by increases in vendor costs, excess inventory, obsolescence charges, changes in shipment volume, price competition and changes in channels of distribution or in the mix of products sold. Gross margin may also be impacted by geographic mix of product sold. Our ability to import products and satisfy customer orders on a timely basis is affected by the availability of, and demand for, quality production capacity abroad. We compete with other importers of giftware products for the foreign manufacturing sources that can produce high-quality products at affordable prices. While we believe that there are other manufacturing sources available for our product lines, any loss, disruption or substantial reduction of sourcing capability or shipping from one or more of our key manufacturing facilities could have a significant short-term adverse effect on our operations. We are subject to the following risks inherent in foreign manufacturing: fluctuations in currency exchange rates; labor, economic and political instability; the effects of terrorist activity, armed conflict and epidemics, causing disruption in global economic activity and changes in logistics and security arrangements; cost and capacity fluctuation and delays in transportation, dockage and materials handling; restrictive actions by foreign governments; nationalizations; the laws and policies of the United States affecting importation of goods, including duties, quotas and taxes. Since the terrorist attacks on September 11, 2001 and the outbreak of the SARS epidemic, the U.S. Customs Service has enacted various security procedures affecting the importation of goods. Such procedures could adversely affect the cost and timing of our receipt of goods from our foreign manufacturers. 20 In 2002, approximately 74% of our products were manufactured in, and imported from China. We anticipate that this percentage will remain the same or increase in the foreseeable future. China has joined the World Trade Organization and has been accorded permanent "Normal Trade Relations" status by the U.S. government. Various commercial and legal practices widespread in China, including the handling of intellectual properties and certain labor practices, as well as certain political and military actions taken or suggested by China, are under review by the U.S. government. China has been designated a Country of Particular Concern ("CPC") pursuant to the International Religious Freedom Act of 1998 ("IRFA"). The IRFA provides several specific retaliatory actions that could be taken by the U.S. government; none of which we believe would have a material impact on our business. The IRFA, however, also accords the President broad discretion in fashioning other or additional actions and, due to the breadth of the presidential powers under the IRFA, we are unable to predict what, if any, action the President could take in the future. Accordingly, conducting business with vendors located in China is subject to political uncertainties, the financial impact of which we are unable to estimate. To the extent China may have its exports or transaction of business with U.S. entities subject to political retaliation, the cost of Chinese imports could increase significantly and/or the ability to import goods from China may be materially impaired. In such an event, there could be an adverse effect on our operations until alternative arrangements for the manufacture of our product were made on economic, production and operational terms at least as favorable as those currently in effect. The principal competitive risks in the markets in which we presently compete and may compete in the future are: - - Performance - - Price - - Collectibility of our products - - Market presence - - New product introductions - - Product costs 21 - - Differentiation of new products from those of our competitors - - Time to market on new products LEGAL PROCEEDINGS We are a party to certain lawsuits in the normal course of our business. Litigation can be expensive, lengthy and disruptive to normal business operations. While we can not predict the eventual outcome of the proceedings, we do not believe that any of the current legal proceedings will have a material adverse effect on the consolidated financial statements of Enesco. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Enesco operates globally with various manufacturing and distribution facilities and product sourcing locations around the world. As such, Enesco is exposed to foreign exchange risk since purchases and sales are made in foreign currencies. In addition, Enesco is subject to interest rate risk on outstanding borrowings. 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. To manage foreign currency risk, as of March 31, 2003, Enesco had entered into forward exchange agreements with a notional value of $3.4 million that will mature within 158 days. These contracts include sales of British pounds sterling and the purchase of U.S. dollars at an average exchange rate of 1.57, and a sale of U.S. dollars and the purchase of British pounds sterling at an average exchange rate of 1.57. The fair value of these contracts is not significant. As of March 31, 2003, Enesco had no interest bearing debt outstanding 23 ITEM 4. CONTROLS AND PROCEDURES Within 90 days prior to the date of this Form 10-Q, Enesco carried out an evaluation, under the supervision and with the participation of Enesco's management, including Enesco's (i)Chief Executive Officer ("CEO") and (ii)Chief Financial Officer and Treasurer ("CFO"), of the effectiveness of the design and operation of Enesco's disclosure controls and procedures. Based on that evaluation, Enesco's management, including the CEO and CFO, concluded that Enesco's disclosure controls and procedures are operating effectively as designed. There have been no significant changes in Enesco's internal controls or in other factors that could significantly affect internal controls subsequent to the date Enesco carried out its evaluation. We are committed to a continuing process of identifying, evaluating and implementing improvements to the effectiveness of our disclosure and internal controls and procedures. Our management, including our CEO and CFO, does not expect that our controls and procedures will prevent all errors. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within Enesco have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in any control system, misstatements due to error or violations of law may occur and not be detected. 24 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Stockholders was held on April 24, 2003. (b) The matters voted upon at the meeting were (i) the election of Directors; (ii) the reincorporation of Enesco in the State of Illinois; (iii) amendments to the 1996 Stock Option Plan; and (iv) the ratification of KPMG LLP as Enesco's independent accountants for 2003. (i) The members of Class II were standing for election to a three-year term expiring at the Annual Meeting in 2006. Upon motion duly made and seconded, it was voted to elect Daniel DalleMolle, Eugene Freedman and Donna Brooks Lucas as Class II Directors for a three-year term expiring at the Annual Meeting in 2006 and until their successors are elected and qualified. The votes for each of the candidates were reported as follows: Daniel DalleMolle For: 11,518,742 Withheld: 1,223,976 Eugene Freedman For: 11,496,618 Withheld: 1,246,100 Donna Brooks Lucas For: 11,173,557 Withheld: 1,569,161 In addition, the following directors continue to serve on the Board: John F. Cauley, George R. Ditomassi, Anne-Lee Verville, Judith R. Haberkorn, Thane A. Pressman and Donald L. Krause. 25 (ii) The reincorporation of Enesco Group, Inc. in the State of Illinois from the Commonwealth of Massachusetts was proposed for stockholder approval. Upon motion duly made and seconded, it was voted to reincorporate Enesco Group, Inc, in the State of Illinois. The vote was reported as follows: Reincorporation of Enesco Group, Inc. in Illinois For: 9,751,685 Against: 2,941,909 Abstain: 49,124 It is presently anticipated that the reincorporation merger will be consummated on or about June 30, 2003. (iii) Amendments to the 1996 Stock Option Plan (the "Plan") were proposed for stockholder approval. Upon motion duly made and seconded, it was voted to approve the amendments to the Plan. The vote was reported as follows: Amendments to The Plan For: 7,059,140 Against: 5,603,512 Abstain: 80,065 26 (iv) The ratification of KPMG LLP as Enesco's independent accountants for 2003 was proposed for stockholder approval. Upon motion duly made and seconded, it was voted to ratify KPMG LLP as Enesco's independent accountants for 2003. The vote was reported as follows: Ratification of KPMG LLP For: 12,601,222 Against: 103,939 Abstain 37,557 27 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Fifth Amendment dated as of May 5, 2003 to the License Agreement between Precious Moments, Inc. and Enesco Group, Inc. 10.2 Commitment Letter dated as of May 14, 2003 between Fleet National Bank and Enesco Group, Inc. 10.3 Ninth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of May 14, 2003 between Enesco Group, Inc. and Fleet National Bank 99.1 Statement of Chief Executive Officer Pursuant to Section 906 of the Sabanes-Oxley Act of 2002 99.2 Statement of Chief Financial Officer and Treasurer Pursuant to Section 906 of the Sabanes-Oxley Act of 2002 (b) Reports on Form 8-K (1) A Current Report on Form 8-K dated January 7, 2003 was filed with the SEC under Item 5 reporting that Thomas Bradley was elected as Chief Financial Officer of Enesco as of January 3, 2003. (2) A Current Report on Form 8-K dated February 10, 2003 was filed with the SEC under Item 5 reporting that Paul Perez, formerly Senior Vice President of Sales, Marketing and Product Development, left Enesco to pursue other opportunities. All other items hereunder are omitted because either such item is inapplicable or the response to it is negative. 28 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENESCO GROUP, INC. (Registrant) Date: May 15, 2003 /s/ Daniel DalleMolle ------------------------------------- Daniel DalleMolle President and Chief Executive Officer Date: May 15, 2003 /s/ Thomas F. Bradley ------------------------------------- Thomas F. Bradley Chief Financial Officer and Treasurer 29 CERTIFICATION UNDER EXCHANGE ACT RULES 13A-14 AND 15D-14 PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Daniel DalleMolle, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Enesco Group, Inc. (the "Registrant"). 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's Board of Directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Daniel DalleMolle ------------------------------- President and Chief Executive Officer 30 CERTIFICATION UNDER EXCHANGE ACT RULES 13A-14 AND 15D-14 PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas F. Bradley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Enesco Group, Inc. (the "Registrant"). 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's Board of Directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Thomas F. Bradley ------------------------------------- Chief Financial Officer and Treasurer 31 EX-10.1 3 c77154exv10w1.txt FIFTH AMENDMENT TO THE LICENSE AGREEMENT Exhibit 10.1 FIFTH AMENDMENT TO AGREEMENT THIS AMENDMENT TO AGREEMENT, dated this 5th day of May, 2003, between UNITED FEATURE SYNDICATE, INC., d.b.a. UNITED MEDIA, a New York corporation with its principal office at 200 Madison Avenue, 4th Floor, New York, New York 10016 ("UM"), as exclusive worldwide licensing representative of PRECIOUS MOMENTS, INCORPORATED, an Illinois corporation with its principal office at 2170 Point Boulevard, Suite 200, Elgin, Illinois 60123 ("Licensor"), and ENESCO GROUP, INC., a Massachusetts corporation with its principal office at 225 Windsor Drive, Itasca, Illinois 60143 ("Licensee"), is to evidence: WHEREAS, pursuant to an agreement dated July 1, 1993, Licensor granted Enesco Corporation, an Ohio corporation ("Enesco Ohio"), certain rights with respect to the PRECIOUS MOMENTS property; and WHEREAS, said agreement was amended by amendments dated December 29, 1997, and January 22, 1999 (said agreement, as amended, being hereinafter referred to as the "Agreement"); and WHEREAS, Enesco Ohio assigned the Agreement to Licensee effective January 21, 2000; and WHEREAS, since the Agreement was signed UM has become exclusive worldwide licensing representative of Licensor; and WHEREAS, the Agreement was further amended by amendments dated July 30, 2001, and December 19, 2002; and WHEREAS, the parties wish to amend the Agreement further in certain respects; NOW, THEREFORE, the Agreement is amended as follows: 1. Exhibits B-1 and B-2 are deleted and new Exhibits B-1 and B-2, attached hereto and made a part hereof, substituted therefor. 2. The following new paragraph 35 is added: "35. Extension of Cosmetic Product Side Letter. The October 22, 2002, side letter relating to this Agreement and dealing with Licensee's marketing of COSMETIC PRODUCTS to the toy department of Walgreen's (the `Cosmetic Products Side Letter') is hereby extended through January 31, 2004. The first date in paragraph 3 of the Cosmetic Products Side Letter is hereby changed from June 6, 2003, to February 6, 2004, and the second date in paragraph 3 of the Cosmetic Products Side Letter is hereby changed from June 30, 2003, to January 31, 2004. Except as expressly modified by this paragraph 35, all terms and conditions of the Cosmetic Products Side Letter shall remain in full force and effect." 3. The following new paragraph 36 is added: "36. Sales to Sam's Club; Possible Extension of Channels of Distribution to Include Sam's Club and/or Wholesale Clubs. "(a) Sam's Club Test Market. Notwithstanding the channels of distribution specified elsewhere in this Agreement, Licensee shall have the right to market selected Licensed Products to Sam's Club on a test market basis. Licensee shall not market any Licensed Product manufactured of porcelain bisque to Sam's Club as part of said test market unless such Licensed Product has been on the market for at least two years prior to Licensee's delivery of such Licensed Product to Sam's Club. "(b) Percentage Royalties; Possible Extension of Licensee's Channels of Distribution. Notwithstanding the provisions of subparagraph 4(a) of this Agreement, the percentage royalty payable by Licensee with respect to the Licensed Products sold to Sam's Club shall be 12% of the Net Wholesale Sales Price or FOB Sales Price, as applicable. Royalties payable by Licensee on sales of the Licensed Products to Sam's Club shall be credited against the Guaranteed Minimum Royalties payable by Licensee under this Agreement; however, Licensee acknowledges that if it wishes to go forward with the sale of the Licensed Products to Sam's Club and/or other warehouse clubs following the expiration of the authorization contained in this paragraph 36, it shall so notify UM and PMI in writing on or before December 31, 2003. If UM and PMI decide, in their sole discretion, that they are interested in adding Sam's Club and/or other warehouse clubs to Licensee's channels of distribution under this Agreement, the parties shall negotiate in good faith with respect to the terms and conditions of a possible amendment to this Agreement or a separate license agreement to cover Licensee's distribution of the Licensed Products to Sam's Club and/or other warehouse clubs after December 31, 2003, which terms and conditions may include, but will not be limited to, the term of Licensee's rights with respect to sales via said channel, a separate guarantee with respect to Licensee's sales via said channel, a separate marketing plan with respect to Licensee's sales via said channel, and such other terms and conditions as the parties deem necessary. "(c) Test Market Period. The test market period authorized by this paragraph 36 shall commence on the date of execution of the fifth amendment to this Agreement and remain in effect through December 31, 2003. Whether or not the Sam's Club and/or warehouse club channel of distribution will be added to Licensee's channels of distribution under this Agreement or made the subject of a separate license agreement after that date shall be in UM/PMI's sole discretion and contingent on the parties' negotiating and executing an amendment with respect to the addition of said channel of distribution under this Agreement or a separate license agreement with respect to said channel of distribution, as contemplated by subparagraph 36(b). "(d) UM and PMI Approval Necessary for Future Presentations to Retailers. Licensee agrees that it will not make any future presentation to any retailer with respect to a channel of distribution it does not possess under this Agreement without first obtaining the prior written approval of UM and PMI." 4. Except as expressly modified by this amendment, all terms and conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this fifth amendment to agreement as of the date set forth above. UNITED FEATURE SYNDICATE, INC., d.b.a. UNITED MEDIA, as exclusive worldwide licensing representative of PRECIOUS MOMENTS, INCORPORATED By /s/ Joshua Kislevitz ----------------------------------------- Joshua Kislevitz Title Senior Vice President ENESCO GROUP, INC. By /s/ Daniel DalleMolle ----------------------------------------- Daniel DalleMolle Title President and CEO EX-10.2 4 c77154exv10w2.txt COMMITMENT LETTER EXHIBIT 10.2 [LETTERHEAD OF FLEET NATIONAL BANK] May 14, 2003 Enesco Group, Inc. 225 Windsor Drive Itasca, IL 60143 Re: Amended and Restated Senior Revolving Credit Agreement with Fleet National Bank and LaSalle Bank National Association, as amended Ladies and Gentlemen: Reference is made to that certain Amended and Restated Senior Revolving Credit Agreement dated as of August 23, 2000 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, Fleet National Bank ("Fleet") and LaSalle Bank National Association ("LaSalle" and together with Fleet, the "Banks"), 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, as further amended by a Fifth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of June 18, 2001, as further amended by a Sixth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of August 2, 2001, as further amended by a Seventh Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of September 7, 2001, as further amended by an Eighth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of May 15, 2002, and as further amended by a Ninth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of the date hereof (the "Credit Agreement"). Capitalized terms not otherwise defined herein shall have their meanings as defined in the Credit Agreement. Enesco Group, Inc. May 14, 2003 Page 2 We are pleased to advise you of commitment by the Banks to extend the various credit accommodations made available to the Borrower by the Banks pursuant to the Credit Agreement in accordance with the terms and conditions set forth in the attached Summary Terms and Conditions attached hereto as Appendix A (the "Term Sheet") and in this letter (the "Commitment"). Capitalized terms used herein or in the Term Sheet, unless otherwise defined herein or in the Term Sheet, shall have their meanings as defined in the Credit Agreement. The terms and conditions of this Commitment are not limited to the Term Sheet. This Commitment is based upon our present understanding of the financial condition of the Borrower. As additional or changed facts and circumstances become known to us, we may impose additional terms and conditions. Those matters that are not covered by or made clear in the Term Sheet are subject to mutual agreement of the parties. This Commitment is conditional upon: (a) The preparation, execution and delivery of usual and customary legal documentation all in form and substance satisfactory to the Banks and the Banks' counsel including, without limitation, a Second Amended and Restated Senior Revolving Credit Agreement and the related Loan Documents incorporating substantially the terms and conditions outlined or referred to in this Commitment and the Term Sheet; (b) The accuracy and completeness of all representations made by and all information furnished by the Borrower, and compliance by the Borrower with the terms and conditions set forth in this Commitment and in the Term Sheet; (c) Payment in full of all fees, expenses and other amounts due and payable under the terms of this Commitment and the Term Sheet; and (d) The absence of any material adverse change in the financial condition, business or operations of the Borrower since the date of the financial statements and other financial information most recently delivered by the Borrower to the Banks. Enesco Group, Inc. May 14, 2003 Page 3 Through your acceptance of this Commitment, you hereby, jointly and severally, agree to pay or reimburse the Banks on demand for all costs and expenses incurred by the Banks in connection with this commitment and the transactions contemplated in the Term Sheet including, without limitation, legal fees and disbursements and other expenses incurred by the Banks in connection with our processing of the extension and amendment documentation, whether or not the transaction does in fact close. You also agree to pay all reasonable costs and expenses of the Banks (including, without limitation, reasonable fees and disbursements of counsel) incurred in connection with enforcement by the Banks of their rights and remedies hereunder. This Commitment is not assignable by operation of law or otherwise without the prior written consent of the Banks, and supersedes all other prior dealings between the Borrower and the Banks in connection with the Credit Agreement. The terms of this Commitment may not be waived, modified or in any way changed by implication, correspondence or otherwise unless such waiver, modification or change is made in the form of an amendment to this Commitment in writing and signed by all parties. If for any reason the transactions contemplated by this Commitment and the attached Term Sheet do not close by June 16, 2003, time being of the essence, this Commitment shall lapse and shall be of no further force or effect unless the time for closing is extended in writing by the Banks. This Commitment shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. This Commitment may be executed in any number of counterparts, each of which, when so executed, shall be deemed to be an original and all of which when taken together shall constitute one and the same Commitment. Delivery of an executed counterpart of a signature page to this Commitment by telecopier shall be effective as delivery of a manually executed counterpart of this Commitment. The obligations of the Borrower for fees, costs and expenses incurred by the Banks and governing law shall survive the expiration or termination of this Commitment. [SIGNATURES ON FOLLOWING PAGE] Enesco Group, Inc. May 14, 2003 Page 4 This Commitment shall become effective only upon your written acceptance hereto which must be returned to us not later than May 14, 2003, time being of the essence. Very truly yours, FLEET NATIONAL BANK By: /s/ Richard J. Zilewicz ----------------------------- Name: Richard J. Zilewicz Title: Regional President LASALLE BANK NATIONAL ASSOCIATION By: /s/ Hollis J. Griffin, Jr. ----------------------------- Name: Hollis J. Griffin, Jr. Title: Vice President ACCEPTED AND AGREED TO AS AN INSTRUMENT UNDER SEAL THIS 14TH DAY OF MAY, 2003. ENESCO GROUP, INC. By: /s/ Thomas F. Bradley ------------------------------------------ Name: Thomas F. Bradley Title: Chief Financial Officer & Treasurer By: /s/ Charles E. Sanders ------------------------------------------ Name: Charles E. Sanders Title: Assistant Treasurer APPENDIX A SUMMARY TERMS AND CONDITIONS BORROWERS: Enesco Group, Inc. and its wholly owned subsidiaries ("Enesco" or the "Borrower"). LENDER/AGENT: Fleet National Bank ("Fleet or Bank") LENDER/ASSIGNEE: LaSalle Bank National Association ("LaSalle"). CREDIT FACILITIES: A maximum amount of $50,000,000 in senior credit facilities consisting of the following: 1. A Committed Revolving Credit Facility (the "Revolver") in the maximum principal amount of $40.0 million. Notwithstanding the foregoing, the Bank shall, subject to Borrowing Capacity, make loans of up to $5.0 million in excess of the $40.0 million Commitment based upon availability under the Letter of Credit /Banker's Acceptance Facility Limit described in (2) below ("L/C and B/A Facility"). The $5.0 million component of the L/C and B/A Facility that may be used for working capital purposes will be referred to as the "Swing-line". Subject to Borrowing Capacity, up to $5.0 million of availability under the Revolver can be used for the purpose of issuing Letters of Credit or Banker's Acceptances under the same terms and conditions as the L/C and B/A Facility. Availability under the Revolver shall be reduced, Dollar for Dollar, in an amount equal to the amount of L/Cs or B/As issued under the Revolver. 2. A Committed L/C and B/A Facility in the maximum amount of $10.0 million, subject to Borrowing Capacity as defined below. Availability under the L/C and B/A Facility shall be reduced, Dollar for Dollar, in an amount equal to such advance made under the "Swing-line". BORROWING CAPACITY: Advances under the Credit Facilities 1 and 2 above will be subject to a Borrowing Base equal to the lesser of (i) $50,000,000, or (ii) 80% of "Eligible" Accounts Receivable, on a consolidated basis, as defined in the Credit Agreement. USE OF PROCEEDS: 1. To refinance the Borrower's existing revolving credit facility, for working capital or other general corporate purposes, including up to $15,000,000 for Permitted Acquisitions (hereinafter defined) and up to $5,000,000 for Permitted Dividends and Stock Repurchases. 2. To issue Letters of Credit and permit Bankers' Acceptances. SUBSIDIARY GUARANTIES/ The Credit Facilities shall be unconditionally STOCK PLEDGE: guaranteed by certain of the Material Domestic Subsidiaries of the Borrower as determined by the Lender. In addition, 65% of the outstanding capital stock of the Borrower's future material 1st tier foreign subsidiaries, as determined by the Lenders, shall be pledged to the Lender. Additionally, not more than 40% of the Borrower's consolidated total assets or 40% of the Borrower's consolidated revenues shall be in existing subsidiaries which are either not a guarantor or the stock of which is not pledged as set forth above. CLOSING DATE: A mutually agreeable date targeted for on or before June 16, 2003. FINAL MATURITY DATE: Three years from the Closing Date. AVAILABILITY: Advances under the Revolver may be borrowed, repaid, and reborrowed from the Closing Date Enesco Group, Inc. May 14, 2003 Page 6 through the Facility Termination Date, subject to the advance rate. L/C's and B/A's may be issued, extended and renewed at any time prior to the Facility Termination Date. No L/C shall have an expiration date that is more than ninety days beyond the Facility Termination Date and no B/A shall have an expiration date that is more than one hundred and fifty days beyond the Facility Termination Date. L/C and B/A issues will reduce availability under the Revolving Credit. MANDATORY PREPAYMENTS: Mandatory prepayment of the Revolver (with concurrent reduction in commitment) shall be required from the net proceeds of asset sales (other than in the ordinary course of business and in amounts greater than $5MM) and net cash proceeds from equity or new debt offerings. LIBOR and Cost of Funds loans may be subject to a make whole provision under the circumstances of prepayment. DOCUMENTATION: The credit facilities will be evidenced by a credit agreement, note, guarantees, and other loan documents mutually satisfactory to the Borrower and the Lenders. SECURITY: Unsecured with an exclusive double negative pledge on all tangible and intangible assets, subject to existing agreements on terms and conditions mutually acceptable to the Borrower and the Bank. INTEREST RATES: (i) LIBOR, adjusted for eurocurrency liability reserves (ii) Alternate Base Rate (iii) Cost of Funds The "Alternate Base Rate" means the greater of (i) the prime rate of interest announced by Fleet National Bank from time, or (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum changing when and as said rate changes. All interest in Alternate Base Rate loans will be calculated on an actual / 365 day basis. "LIBOR" means the applicable London Interbank Offered Rate for deposits in U.S. Dollars appearing on Reuters Screen as of 11:00 a.m. (London Time) two business days prior to the first day of the applicable interest period, adjusted for eurocurrency liability reserves. All interest will be calculated on an actual / 360 day basis. "Cost of Funds" means the rate determined by Fleet National Bank, in its sole discretion, to be its cost of funds, changing when and as said rate changes. All interest in Cost of Funds rate loans will be calculated on an actual / 360 day basis. INTEREST PERIOD: LIBOR loans will be available for interest periods of one, two, three, six months, or one year. Cost of Funds loans will be available for interest periods of overnight up to one week. INCREASED COSTS: The Credit Agreement will contain customary provisions regarding availability, increased costs (including capital cost increases imposed by regulatory authorities), illegality and early payment. INTEREST For Alternate Base Rate and Cost of Funds PAYMENTS/MINIMUM DRAW: loans the end of each fiscal quarter. For Libor loans at the end of each Interest Period, or quarterly, if earlier. No Minimum Draw shall apply unless/until required by Lenders as a result of a change in administrative procedures, with reasonable notice given to Borrower. PRICING: Pricing for the Revolver and the Swingline will be at the rate, expressed in basis points per annum, Enesco Group, Inc. May 14, 2003 Page 7 in accordance with the following pricing grid. Pricing for the Loans is based on a relationship pricing model, with consideration for all credit and non-credit service revenue earned by the respective Lenders. Pricing adjustments may be negotiated based on meaningful changes in current service revenue levels.
LEVEL 1 LEVEL 2 LEVEL 3___ FUNDED DEBT/EBITDA < 1.3:1 1.3:1<1.5:1 1.5:1<2.00:1 - UNUSED FEE 25bps 25bps 25bps LIBOR/COST OF FUNDS + 100bps 140bps 175bps ALTERNATE BASE RATE 0bps 0bps 0bps ALL-IN DRAWN 100bps 140bps 175bps
Notwithstanding the Pricing Grid, for the period following the Closing Date through the delivery of the compliance certificate for the fiscal quarter ending June 30, 2003, pricing would not be lower than Level 1. Funded Debt/EBITDA ratios will mirror the Funded Debt/EBITDA covenant calculation hereinafter defined. COMMITMENT FEE: The Borrower shall pay a Commitment Fee to the Bank equal to $180,000 on the Revolver and L/C Facility Commitment, of which 70% would be for the account of Fleet and 30% would be for the account of LaSalle. The Commitment Fee will be paid over a three year period at a rate of $100,000 at closing, $50,000 in year 2 and $30,000 in year 3, charged on the anniversary date of the Commitment. CANCELLATION/TERMINATION: The Commitment may be reduced by $1,000,000 increments upon request by the Borrower after providing reasonable notice to the Bank. UNUSED FEE: A per annum fee payable on the unused Commitment, payable quarterly in arrears, at a rate that is in accordance with the grid set forth above. LATE FEE: If the entire amount of any required principal or interest is not paid in full within 10 days after the same is due, the Borrower shall pay the Bank a late fee equal to 5% of the required payment. DEFAULT RATE: The Borrower will pay a Default Rate of Interest equal to the rate otherwise applicable to such interest Period plus 2% per annum. REPRESENTATIONS AND WARRANTIES The Credit Agreement shall contain representations and warranties with respect to the Borrower and its subsidiaries which are customary in transactions of this nature including, without limitation, representations and warranties with respect to: absence of material adverse change; absence of default or unmatured default; corporate existence and standing; authorization and validity; no conflict; government consent; financial statements; taxes; litigation and contingent obligations; subsidiaries; ERISA; accuracy of information; Regulation U, T and X; material agreements; compliance with laws; ownership of property and environmental matters. These representations and warranties will be subject to customary materiality limitations. Enesco Group, Inc. May 14, 2003 Page 8 COVENANTS The Agreement will have customary covenants including without limitation, limitations on change of control, consolidations and mergers, acquisitions, sale of assets, ERISA, investments, indebtedness, liens, guarantees and other contingent liabilities, dividends, distributions and retirement of stock, loans and advances, transactions with affiliates, changes in line of business, operating leases, sale leasebacks, prohibition on granting other Lenders negative lien covenants, customary affirmative covenants including without limitation, inspection of records and assets, notice of default, taxes, insurance, compliance with laws, maintenance of properties etc. and the following: REPORTING REQUIREMENTS: o Annual certified audited and consolidated financial statements of the Borrower and its consolidated subsidiaries due within 90 days after each fiscal year, prepared by an independent auditing firm of recognized national standing; o Quarterly management certified unaudited consolidated financial statements of the Borrower and its consolidated subsidiaries due within 45 days after each of the first three fiscal quarters, and o Quarterly compliance certificates signed by the Assistant Treasurer or Chief Financial Officer and delivered with the financial statements. o Quarterly Summary Accounts Receivable Aging including a Schedule of specifically dated Receivables, and Inventory Schedule by location including a summary of Inventory Reserve delivered with the financial statements. o Monthly Borrowing Base Certificates signed by the Assistant Treasurer or Chief Financial Officer and a Summary Accounts Receivable aging within 15 days of month end. o Borrowing Base Certificate will require detail on A/R by domicile i.e.: Domestic, Canadian, International. o Annual consolidated balance sheet, income statement, and cash flow budgets prepared by management, with quarterly detail. o Other information as may be reasonably requested from time to time by the Lender. o Copy of Annual management letter, if one is prepared. PERMITTED The Borrower may use the Facility to make ACQUISITIONS/DIVIDENDS/STOCK non-hostile acquisitions, acquire a REPURCHASES: controlling interest in a joint venture, as well as pay dividends or make stock repurchases, provided the following conditions are met: o Aggregate cash purchase price for all acquisitions not to exceed $15,000,000 during a fiscal year. o Dividends and Stock Repurchases, in the aggregate on a combined basis, shall be limited to $5,000,000. o Dividends and Stock Repurchases may not exceed the Borrower's profitability for the trailing 12 month period prior to the period in which the dividend/stock repurchase event is occurring. o At the time thereof the Borrower must demonstrate that (i) there is no Default or Unmatured Default and (ii) the proposed acquisition and borrowing will not result in any default under the Facility. o The acquired entity shall become a Guarantor under the Facility, or in the case of an acquisition resulting in a 1st tier foreign subsidiary, a 65% stock pledge will be offered. o The business acquired is in the same line of business as the Borrower. o The joint venture interest is consolidated for financial reporting purposes with the Borrower under Agreement Accounting Principles. o The Borrower is in pro forma compliance with the financial covenants for the twelve-month period ending on the last day of the Borrower's most recently completed fiscal quarter as if such other acquisition had occurred on the first day of such twelve-month period. Enesco Group, Inc. May 14, 2003 Page 9 o Indebtedness incurred (other than borrowings under the Facility) or assumed in conjunction with any acquisition must be unsecured subject to the other indebtedness basket (limited to $5MM with foreign banks for acquired foreign subsidiaries only) and on terms acceptable to the Lender. o After giving effect to such acquisition, the representations and warranties set forth in the Credit Agreement shall be true and correct in all material respects. o Compliance with laws and regulations and review of acquisition documents and due diligence, in each case satisfactory to the Agent. FINANCIAL COVENANTS: Fixed Charge Coverage- The Borrower shall be required to maintain a minimum Fixed Charge Coverage Ratio as calculated for the four consecutive fiscal quarters most recently ended of not less than: o 2.25 to 1.00, tested quarterly at this limit through the quarters ending June 30, 2003, September 30, 2003 and December 31, 2003. The calculation is based on rolling four-quarter EBITDA less capex (including acquisition or joint venture investments net of balance sheet cash applied), total cash taxes paid (to the extent amounts paid exceed $5MM), dividends and stock repurchases, plus/minus joint venture share income/losses divided by gross interest expense plus principal paid on long term debt. Funded Indebtedness/EBITDA- The Borrower shall have a ratio of quarterly Funded Indebtedness/EBITDA, as calculated for the four consecutive fiscal quarters most recently ended of not greater than: o 2.00:1.00, tested quarterly at this limit, through the fiscal quarters ending June 30, 2003, September 30 and December 31, 2003; Annual Operating Profit- The Borrower shall have a minimum operating profit of $7,500,000 for the fiscal year ending December 31, 2003. Covenants set forth herein are for the fiscal year ended 12/31/03. Covenants will be required to be reset for each commitment year based upon the financial budget provided on or before May 15 of the subsequent commitment years 2004 and 2005. Failure to agree to financial covenants by this date, based upon similar standards established for 2003, will constitute a default. CONDITIONS PRECEDENT: A closing for the proposed financing is subject to, but not limited to, the following customary conditions precedent: Borrowing certificates, legal opinions, accuracy of representations and warranties, no default certificate, corporate resolutions, no material adverse change, etc. Closing will further be conditional upon payment of all obligations under existing loan facility under the August 23, 2000 credit agreement in which LaSalle is a Assignee. DEFAULTS The Agreement will have customary defaults including, but not limited to, defaults for nonpayment of principal when due, nonpayment of interest and fees within 5 business days, material misrepresentations, default in the performance of any negative covenant, default in performance of any other term or covenant for 30 days, bankruptcy or insolvency, ERISA, change in ownership Enesco Group, Inc. May 14, 2003 Page 10 or control, cross-default to any indebtedness for the Borrower, or any subsidiary which default would permit the holders of such indebtedness to cause such indebtedness to become due prior to its stated maturity. OTHER MATTERS PARTICIPATION: The Lender shall have the unrestricted right at any time and from time to time, and without the consent of or notice to Borrower or Guarantors, to grant to one or more banks or other financial institutions (each a "Participant") participating interests in any or all of the loans held by the Lender. In the event of any such grant by the Lender of a participating interest to a Participant, whether or not upon notice to Borrower, the Lender shall remain responsible for the performance of its obligations under the Facility and Borrower shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations under the Facility. The Lender may furnish any information concerning the Borrower in its possession from time to time to prospective Participants, provided that the Lender shall require any such prospective Participant to agree in writing to maintain the confidentiality of such information. LEGAL FEES/ INDEMNIFICATION: The Borrower agrees to reimburse or pay the Bank for all reasonable costs, fees and expenses, whether incurred prior to or subsequent to closing, in the preparation, negotiation, or execution of the Facility. The Borrower will indemnify and hold harmless the Bank, and its respective affiliates, directors, officers, employees against all losses, costs, expenses (including reasonable fees, charges and disbursements of counsel) incurred in respect of the financing contemplated hereby or the use or proposed use of proceeds thereof (except to the extent resulting from the gross negligence or willful misconduct of the indemnified party.) An estimate of legal fees will be provided to the Borrower in advance of closing. GOVERNING LAW: Commonwealth of Massachusetts. COUNSEL TO AGENT Bulkley, Richardson and Gelinas, LLP EX-10.3 5 c77154exv10w3.txt 9TH AMEND. TO AMENDED/RESTATED SR. REVOLV. CR. AG. EXHIBIT 10.3 NINTH AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT AGREEMENT This NINTH AMENDMENT TO AMENDED AND RESTATED SENIOR REVOLVING CREDIT AGREEMENT (the "Amendment") is made as of this 14th day of May, 2003, 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, FLEET NATIONAL BANK, a national banking association in its capacity as Agent and a Bank ("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, as further amended by a Fifth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of June 18, 2001, as further amended by a Sixth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of August 2, 2001, as further amended by a Seventh Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of September 7, 2001, and as further amended by an Eighth Amendment to Amended and Restated Senior Revolving Credit Agreement dated as of May 15, 2002 (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 26, 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. Payment and performance of all Obligations of the Borrower to the Banks are secured by a Security Agreement dated April 6, 2001 (the "Security Agreement"), by a certain Mortgage, Assignment of Leases and Rents and Security Agreement dated June 18, 2001 with respect to certain properties located in DuPage County and Cook County, Illinois (the "Mortgages") and by the other Loan Documents as defined in the Credit Agreement. The Borrower and the Banks have agreed to further modify the terms and provisions of the Credit Agreement and to ratify and confirm that all Obligations of the Borrower to the Banks continue to be evidenced and secured by the Loan Documents, all 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 the term "Facility Termination Date" that appears in ARTICLE I is deleted in its entirety and replaced with the following: "Facility Termination Date" means June 16, 2003. 2. 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. 3. 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. 4. 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 the validity or priority of any lien on any collateral granted, pledged or mortgaged as security for the payment and performance of the liabilities and obligations of the Borrower under the Credit Agreement and other Loan Documents. 5. The Borrower hereby confirms and ratifies the obligations established under the Credit Agreement and other Loan Documents, as amended hereby, and the continuing and continuous security interests, pledges and mortgages in, of and to all collateral granted pursuant to the Credit Agreement and other Loan Documents. 6. This Amendment is to be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. 7. 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] 2 IN WITNESS WHEREOF, the foregoing has been executed as an instrument under seal as of the date first above written. WITNESS: ENESCO GROUP, INC. /s/ M. Frances Durden By: /s/ Thomas F. Bradley - ------------------------- -------------------------------- Print Name: Thomas F. Bradley ------------------------ Title: Chief Financial Officer and Treasurer ----------------------------- By: /s/ Charles E. Sanders -------------------------------- Print Name: Charles E. Sanders ------------------------ Title: Assistant Treasurer ----------------------------- FLEET NATIONAL BANK By: /s/ Richard J. Zilewicz - ------------------------- -------------------------------- Its Regional President LASALLE BANK NATIONAL ASSOCIATION /s/ K. Kim Allen By: /s/ Hollis J. Griffin, Jr. - ------------------------- -------------------------------- Its Vice President 3 EX-99.1 6 c77154exv99w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 STATEMENT OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Enesco Group, Inc. (the "Company") for the quarterly period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel DalleMolle, the President and Chief Executive Officer of the Company, certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company. May 15, 2003 By: /s/ Daniel DalleMolle ------------------------------------- President and Chief Executive Officer EX-99.2 7 c77154exv99w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.2 STATEMENT OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Enesco Group, Inc. (the "Company") for the quarterly period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas F. Bradley, the Chief Financial Officer and Treasurer of the Company, certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company. May 15, 2003 By: /s/ Thomas F. Bradley ------------------------------ Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----