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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13057
POLO RALPH LAUREN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2622036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-318-7000
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 registrants were
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At November 5, 1998, 33,673,214 shares of the registrant's Class A Common Stock,
$.01 par value, were outstanding, 43,280,021 shares of the registrant's Class B
Common Stock, $.01 par value, were outstanding and 22,720,979 shares of the
registrant's Class C Common Stock, $.01 par value were outstanding.
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POLO RALPH LAUREN CORPORATION
INDEX TO FORM 10-Q
PART 1. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of September 26, 1998
(Unaudited) and March 28, 1998 ................................ 3
Consolidated Statements of Income for the three months
and six months ended September 26, 1998 and
September 27, 1997 (Unaudited) ................................ 4
Consolidated Statements of Cash Flows for the six
months ended September 26, 1998 and
September 27, 1997 (Unaudited) ................................ 5-6
Notes to Consolidated Financial Statements ...................... 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................. 11-18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders ............. 19-20
Item 5. Other Information ............................................... 20
Item 6. Exhibits and Reports on Form 8-K ................................ 21
2
POLO RALPH LAUREN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 26, MARCH 28,
1998 1998
----------- -----------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 46,530 $ 58,755
Accounts receivable, net of allowances of $12,558
and $12,447, respectively 170,453 149,120
Inventories 398,335 298,485
Deferred tax assets 24,448 24,448
Prepaid expenses and other 31,589 25,656
----------- -----------
TOTAL CURRENT ASSETS 671,355 556,464
Property and equipment, net 229,774 175,348
Deferred tax assets 14,199 14,213
Other assets, net 100,485 79,105
----------- -----------
$ 1,015,813 $ 825,130
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and acceptances payable - banks $ 79,600 $ --
Accounts payable 132,789 100,126
Income taxes payable 20,819 2,554
Accrued expenses and other 95,735 99,578
----------- -----------
TOTAL CURRENT LIABILITIES 328,943 202,258
Other noncurrent liabilities 45,885 38,546
Stockholders' equity
Common Stock
Class A, par value $.01 per share; 500,000,000 shares
authorized; 34,277,078 and 34,272,726 shares
issued, respectively 343 343
Class B, par value $.01 per share; 100,000,000 shares
authorized; 43,280,021 shares issued and outstanding 433 433
Class C, par value $.01 per share; 70,000,000 shares
authorized; 22,720,979 shares issued and outstanding 227 227
Additional paid-in-capital 448,031 447,918
Retained earnings 209,368 136,738
Treasury Stock, Class A, at cost (603,864 shares) (16,084) --
Unearned compensation (1,333) (1,333)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 640,985 584,326
----------- -----------
$ 1,015,813 $ 825,130
=========== ===========
See accompanying notes to financial statements.
3
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- -----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
Net sales $ 409,456 $ 372,660 $ 720,611 $ 628,072
Licensing revenue 61,503 48,486 104,787 81,018
Other income 3,847 2,208 8,185 3,914
---------- ----------- ----------- -----------
Net revenues 474,806 423,354 833,583 713,004
Cost of goods sold 241,095 215,075 417,256 358,073
---------- ----------- ----------- -----------
Gross profit 233,711 208,279 416,327 354,931
Selling, general and administrative expenses 148,783 132,375 293,747 250,283
---------- ----------- ----------- -----------
Income from operations 84,928 75,904 122,580 104,648
Interest (expense) income (676) 253 4 (2,509)
---------- ----------- ----------- -----------
Income before income taxes 84,252 76,157 122,584 102,139
Provision for income taxes 34,333 31,224 49,954 12,568
---------- ----------- ----------- -----------
Net income $ 49,919 $ 44,933 $ 72,630 $ 89,571
========== =========== =========== ===========
PRO FORMA (NOTE 2) - (UNAUDITED)
Historical income before income taxes $ 102,139
Pro forma adjustments other than income taxes 3,163
-----------
Pro forma income before income taxes 105,302
Pro forma provision for income taxes 43,173
-----------
Pro forma net income $ 62,129
===========
Net income per share - Basic and Diluted $ 0.50 $ 0.45 $ 0.73 $ 0.62
========== =========== =========== ===========
Common shares outstanding - Basic 99,826,960 100,222,444 100,011,047 100,222,444
========== =========== =========== ===========
Common shares outstanding - Diluted 99,878,242 100,222,444 100,151,156 100,222,444
========== =========== =========== ===========
See accompanying notes to financial statements.
4
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
----------------------------
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 72,630 $ 89,571
Adjustments to reconcile net income to net
cash provided by operating activities
Benefit from deferred income taxes -- (21,746)
Depreciation and amortization 22,142 12,472
Provision for losses on accounts receivable 435 435
Changes in deferrred liabilities 512 2,536
Other 195 (548)
Changes in assets and liabilities, net of acquisitions
Accounts receivable (21,717) 6,978
Inventories (97,696) (39,574)
Prepaid expenses and other (5,884) 6,343
Other assets (7,923) (5,522)
Accounts payable 30,438 (25,265)
Income taxes payable and accrued expenses and other 12,148 17,820
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,280 43,500
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net (72,407) (24,905)
Acquisition, net of cash acquired (6,981) (8,551)
Investments in joint venture -- (5,091)
Cash surrender value - officers' life insurance, net (1,409) (1,838)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (80,797) (40,385)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 113 268,797
Repurchases of common stock (16,084) --
Proceeds from (repayments of) short-term borrowings, net 79,600 (20,535)
Repayments of borrowings against officers' life insurance policies -- (4,901)
Repayments of long-term debt and subordinated notes (337) (134,743)
Payment of dividend and Reorganization notes -- (43,024)
Distributions paid to partners -- (44,855)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 63,292 20,739
--------- ---------
Net (decrease) increase in cash and cash equivalents (12,225) 23,854
Cash and cash equivalents at beginning of period 58,755 29,599
--------- ---------
Cash and cash equivalents at end of period $ 46,530 $ 53,453
========= =========
See accompanying notes to financial statements.
5
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
-----------------------------
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 1 $ 4,032
========= =========
Cash paid for income taxes $ 34,583 $ 19,105
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Foreign tax credits distributed to partners $ 509
=========
Fair value of assets acquired, excluding cash $ 14,868 $ 69,537
Less:
Cash paid 6,981 8,551
Promissory notes issued 5,000 --
Fair market value of common stock issued for acquisition -- 697
--------- ---------
Liabilities assumed $ 2,887 $ 60,289
========= =========
Fair market value of restricted stock grants $ 667
=========
See accompanying notes to financial statements.
6
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 26, 1998 AND SEPTEMBER 27, 1997 IS UNAUDITED)
1 BASIS OF PRESENTATION
(A) UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and in a manner consistent with that
used in the preparation of the March 28, 1998 audited consolidated
financial statements of Polo Ralph Lauren Corporation and subsidiaries
("Polo"). In the opinion of management, the accompanying consolidated
financial statements reflect all adjustments, consisting only of normal
and recurring adjustments, necessary for a fair presentation of the
financial position and results of operations and cash flows for the
periods presented.
Operating results for the six months ended September 26, 1998 and
September 27, 1997 are not necessarily indicative of the results that may
be expected for a full year. In addition, the unaudited interim
consolidated financial statements do not include all information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles. These
consolidated financial statements should be read in conjunction with the
Company's fiscal 1998 audited consolidated financial statements.
(B) BASIS OF PRESENTATION
Polo Ralph Lauren Corporation ("PRLC") was incorporated in Delaware
in March 1997. On June 9, 1997, the partners and certain of their
affiliates contributed to PRLC all of the outstanding stock of, and
partnership interests in, the entities which comprise the predecessor
group of companies in exchange for common stock of PRLC and promissory
notes (the "Reorganization"). The accompanying consolidated financial
statements for the six months ended September 27, 1997 include the
combined results of operations of Polo Ralph Lauren Enterprises, L.P.,
Polo Ralph Lauren, L.P. and subsidiaries and The Ralph Lauren Womenswear
Company, L.P. and subsidiaries (collectively, the "Predecessor Company")
through June 9, 1997 and the consolidated results of operations of Polo
thereafter (Polo, together with the Predecessor Company, is referred to
herein as the "Company"). The controlling interests of the Predecessor
Company were held by Mr. Ralph Lauren, with a 28.5% interest held by
certain investment funds affiliated with The Goldman Sachs Group, L.P.
(collectively, the "GS Group"). The financial statements of PRLC have not
been included prior to the Reorganization because PRLC was a shell company
with no business operations.
7
The accompanying consolidated financial statements as of and for the
three months and six months ended September 26, 1998 and for the three
months ended September 27, 1997 include the results of operations of Polo.
The financial statements of the Predecessor Company have been
combined and included in the results for the six months ended September
27, 1997 because of their common ownership. The combined financial
statements have been prepared as if the entities comprising the
Predecessor Company had operated as a single consolidated group since
their respective dates of organization.
All significant intercompany balances and transactions have been
eliminated.
(C) INITIAL PUBLIC OFFERING
On June 17, 1997, the Company completed the sale of 11,170,000
shares of its Class A Common Stock at $26.00 per share in connection with
its initial public offering. The net proceeds to the Company from the
initial public offering, after deducting underwriting discounts and
commissions and offering expenses, aggregated $268.8 million.
2 SIGNIFICANT ACCOUNTING POLICIES
(A) PRO FORMA ADJUSTMENTS (UNAUDITED)
The pro forma statement of income data for the six months ended
September 27, 1997 presents the effects on the historical financial
statements of certain transactions as if they had occurred at March 30,
1997. The pro forma statement of income data reflects adjustments for: (i)
income taxes based upon pro forma pre-tax income as if the Company had
been subject to additional Federal, state and local income taxes,
calculated using a pro forma effective tax rate of 41.0%; and (ii) the
reduction of interest expense resulting from the application of a portion
of the net proceeds from the initial public offering to outstanding
indebtedness.
(B) NET INCOME PER SHARE (UNAUDITED)
Basic net income per share was calculated by dividing net income by
the weighted average number of shares outstanding during the period and
excluded any potential dilution. Diluted net income per share was
calculated similarly but includes potential dilution from the exercise of
stock options and awards. The weighted average number of shares
outstanding in the three months and six months ended September 26, 1998
and in the three months ended September 27, 1997 represents the actual
number of shares outstanding during such period. For comparison purposes
only, the weighted average number of shares outstanding immediately
following the completion of the initial public offering was considered to
be outstanding in the six months ended September 27, 1997.
(C) RECLASSIFICATIONS
For comparison purposes, certain prior period amounts have been
reclassified to conform to the current year's presentation.
8
(D) COMPREHENSIVE INCOME
Effective March 29, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME. This Statement establishes standards for reporting
of comprehensive income and its components in the financial statements.
For the three months and six months ended September 26, 1998 and September
27, 1997, comprehensive income was equal to net income.
(E) RECENTLY ISSUED PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. This Statement establishes standards for reporting
selected financial data and descriptive information about an enterprise's
reportable operating segments (as defined). This Statement also requires
the reconciliation of total segment information presented to the
corresponding amounts in the general purpose financial statements.
Additionally, SFAS No. 131 establishes standards for related disclosures
about products and services, geographic areas and major customers. The
required disclosures will be presented in the Company's Annual Report on
Form 10-K for the fiscal year ending April 3, 1999.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This Statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires the recognition of all derivatives as either
assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The accounting for changes
in the fair value of a derivative is dependent upon the intended use of
the derivative. SFAS No. 133 will be effective in the Company's first
quarter of the fiscal year ending April 1, 2000 and retroactive
application is not permitted. The Company has not yet determined whether
the application of SFAS No. 133 will have a material impact on the
Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public
Accountants' ("AICPA") Accounting Standards Executive Committee issued
Statement of Position No. 98-5 ("SOP 98- 5"), REPORTING ON THE COSTS OF
START-UP ACTIVITIES. SOP 98-5 requires that costs of start-up activities,
including organization costs, be expensed as incurred. SOP 98-5 will be
effective in the first quarter of the Company's fiscal year ending April
1, 2000. The Company has not yet determined whether the application of SOP
98-5 will have a material impact on the Company's financial position or
results of operations.
9
3 INVENTORIES
SEPTEMBER 26, MARCH 28,
1998 1998
Raw materials $ 19,110 $ 26,364
Work-in-process 10,954 12,406
Finished goods 368,271 259,715
-------- --------
$398,335 $298,485
======== ========
Merchandise inventories of $199.8 million and $130.9 million at
September 26, 1998 and March 28, 1998, respectively, were valued utilizing
the retail method and are included in finished goods.
10
POLO RALPH LAUREN CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO WHICH
ARE INCLUDED HEREIN AND THE COMPANY'S FISCAL 1998 AUDITED CONSOLIDATED FINANCIAL
STATEMENTS FILED WITH THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED MARCH
28, 1998. THE COMPANY UTILIZES A 52-53 WEEK FISCAL YEAR ENDING ON THE SATURDAY
NEAREST MARCH 31. ACCORDINGLY, FISCAL YEARS 1999 AND 1998 END ON APRIL 3, 1999
AND MARCH 28, 1998, RESPECTIVELY. DUE TO THE COLLABORATIVE AND ONGOING NATURE OF
THE COMPANY'S RELATIONSHIPS WITH ITS LICENSEES, SUCH LICENSEES ARE REFERRED TO
HEREIN AS "LICENSING PARTNERS" AND THE RELATIONSHIPS BETWEEN THE COMPANY AND
SUCH LICENSEES ARE REFERRED TO HEREIN AS "LICENSING ALLIANCES." NOTWITHSTANDING
THESE REFERENCES, HOWEVER, THE LEGAL RELATIONSHIP BETWEEN THE COMPANY AND ITS
LICENSEES IS ONE OF LICENSOR AND LICENSEE, AND NOT ONE OF PARTNERSHIP.
CERTAIN STATEMENTS CONTAINED IN THIS REPORT CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). SEE PART II. OTHER INFORMATION. ITEM 5. - "STATEMENT
REGARDING FORWARD-LOOKING DISCLOSURE."
OVERVIEW
The Company began operations in 1968 as a designer and marketer of premium
quality men's clothing and sportswear. Since inception, the Company, through
internal operations and in conjunction with its licensing partners, has grown
through increased sales of existing product lines, the introduction of new
brands and products, expansion into international markets and development of its
retail operations. The Company's net revenues are generated from its three
integrated operations: wholesale, retail and licensing alliances.
RESULTS OF OPERATIONS
The following discussion provides information and analysis of the
Company's results of operations for the three months and six months ended
September 26, 1998 compared to September 27, 1997. As a result of the Company's
initial public offering completed on June 17, 1997 and the use of a portion of
the net proceeds therefrom to reduce outstanding indebtedness, historical
interest expense for the six months ended September 26, 1998 and September 27,
1997 is not discussed below because such information is not meaningful. The
effect of income taxes for the six months ended September 26, 1998 and September
27, 1997 is also not discussed below because the historic taxation of the
operations of the Company is not meaningful with respect to periods following
the Reorganization.
11
The table below sets forth the percentage relationship to net revenues of
certain items in the Company's statements of income for the three months and six
months ended September 26, 1998 and September 27, 1997:
SEPT. 26, 1998 SEPT. 27, 1997
THREE SIX THREE SIX
MONTHS MONTHS MONTHS MONTHS
Net sales .................................. 86.2% 86.4% 88.0% 88.1%
Licensing revenue .......................... 13.0 12.6 11.5 11.4
Other income ............................... 0.8 1.0 0.5 0.5
----- ----- ----- -----
Net revenues ............................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Gross profit ............................... 49.2 49.9 49.2 49.8
Selling, general and administrative expenses 31.3 35.2 31.3 35.1
----- ----- ----- -----
Income from operations ..................... 17.9% 14.7% 17.9% 14.7%
===== ===== ===== =====
THREE MONTHS ENDED SEPTEMBER 26, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 27, 1997
NET SALES. Net sales increased 9.9% to $409.5 million in the three months
ended September 26, 1998 from $372.7 million in the three months ended September
27, 1997. Wholesale net sales increased 13.9% to $233.9 million in the three
months ended September 26, 1998 from $205.2 million in the corresponding period
of fiscal 1998. Wholesale growth primarily reflects volume-driven sales
increases in existing menswear and womenswear brands and the timing of menswear
product shipments to retailers. These unit increases were partially offset by
decreases in average selling prices resulting from changes in product mix.
Retail sales increased by 4.9% to $175.6 million in the three months ended
September 26, 1998 from $167.4 million in the corresponding period in fiscal
1998. Of this increase, $21.0 million is attributable to the opening of three
new Polo stores and 14 new outlet stores in fiscal 1999 and the benefit of three
months of operations for three new Polo stores and ten new outlet stores opened
in fiscal 1998. Comparable store sales for the three months ended September 26,
1998 decreased by 7.6% largely due to the following: (i) the effects of a more
challenging economic environment; (ii) lower tourism, most notably in the
Company's West Coast and Hawaiian stores; (iii) issues encountered during a
conversion of one of the Company's retail merchandising systems; and (iv)
unseasonably warm weather conditions throughout the United States during the
start of the fall selling season as well as other weather issues and store
closings. Although the Company corrected its system's conversion issues during
its second fiscal quarter, it believes that retail sales will continue to be
negatively impacted by the general economic uncertainty experienced during the
quarter. The Company anticipates that some of these factors affecting its retail
operations will continue for the foreseeable future. See Part II. Other
Information. Item 5. "Statement Regarding Forward-Looking Disclosure."
Comparable store sales represent net sales of stores open in both reporting
periods for the full portion of such periods. At September 26, 1998, the Company
operated 31 Polo stores and 89 outlet stores.
12
LICENSING REVENUE. Licensing revenue increased 26.8% to $61.5 million in
the three months ended September 26, 1998 from $48.5 million in the
corresponding period of fiscal 1998. This increase is primarily attributable to
an overall increase in sales of existing licensed products, particularly Lauren,
Chaps and Polo Jeans, and the Company's continued expansion and growth in
international markets.
GROSS PROFIT. Gross profit as a percentage of net revenues remained at
49.2% in the three months ended September 26, 1998 and September 27, 1997.
Licensing revenue, which has no associated cost of goods sold, increased as a
percentage of net revenues to 13.0% in the three months ended September 26, 1998
from 11.5% in the corresponding period in fiscal 1998. This improvement was
offset by decreases in wholesale and retail gross margins. Wholesale margins
decreased slightly primarily due to higher off-price sales to reduce inventory
levels and changes in product mix. Retail margins also decreased slightly due to
higher promotional/point of sale markdowns.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased by $16.4 million to $148.8 million in
the three months ended September 26, 1998 from $132.4 million in the
corresponding period of fiscal 1998. The increase in SG&A expenses is
principally due to increased volume-related expenses to support the revenue
growth as well as increased depreciation expense associated with the Company's
shop-within-shop development program and continued investment in organizational
infrastructure. Despite these increases, SG&A expenses as a percentage of net
revenues were 31.3% in both periods.
INTEREST EXPENSE. Interest expense increased to $0.7 million in the three
months ended September 26, 1998 from interest income of $0.3 million in the
corresponding period of fiscal 1998. This increase is due to an increase in
working capital borrowing requirements, primarily for inventory, in the three
months ended September 26, 1998. The additional working capital requirements for
inventory were primarily driven by the overall growth of the business.
INCOME TAXES. The effective income tax rate was approximately 41.0% for
the three months ended September 26, 1998 and September 27, 1997.
SIX MONTHS ENDED SEPTEMBER 26, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 27,
1997
NET SALES. Net sales increased 14.7% to $720.6 million in the six months
ended September 26, 1998 from $628.1 million in the six months ended September
27, 1997. Wholesale net sales increased 20.4% to $403.8 million in the six
months ended September 26, 1998 from $335.4 million in the corresponding period
of fiscal 1998. Wholesale growth primarily reflects increased menswear sales
resulting from the timing of shipments to retailers and volume-driven sales
increases in existing menswear and womenswear brands. These unit increases were
partially offset by decreases in average selling prices resulting from changes
in product mix. Retail sales increased by 8.3% to $316.8 million in the six
months ended September 26, 1998 from $292.6 million in the corresponding period
in fiscal 1998. Of this increase, $36.0 million is attributable to the opening
of two new Polo stores (net of one store closing) and 17 new outlet stores (net
of one store closing) in fiscal 1999 and the benefit of six
13
months of operations for three new Polo stores and ten new outlet stores opened
in fiscal 1998. Comparable store sales for the six months ended September 26,
1998 decreased by 4.0% largely due to the following: (i) the effects of a more
challenging economic environment; (ii) lower tourism, most notably in the
Company's West Coast and Hawaiian stores; (iii) issues encountered during a
conversion of the Company's retail merchandising systems; and (iv) unseasonably
warm weather conditions throughout the United States during the start of the
fall selling season as well as other weather issues and store closings.
LICENSING REVENUE. Licensing revenue increased 29.3% to $104.8 million in
the six months ended September 26, 1998 from $81.0 million in the corresponding
period of fiscal 1998. This increase is primarily attributable to an overall
increase in sales of existing licensed products, particularly Chaps, Lauren and
Polo Jeans, and the Company's continued expansion and growth in international
markets.
GROSS PROFIT. Gross profit as a percentage of net revenues increased
slightly to 49.9% in the six months ended September 26, 1998 from 49.8% in the
corresponding period of fiscal 1998. This improvement was primarily attributable
to an increase in licensing revenue, which has no associated cost of goods sold,
as a percentage of net revenues to 12.6% in the six months ended September 26,
1998 from 11.4% in the corresponding period in fiscal 1998. Additionally, retail
gross margins increased slightly due to an improved initial mark-up. These
improvements were offset by a decrease in wholesale gross margins due to higher
off-price sales to reduce inventory levels and changes in product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased by
$43.4 million to $293.7 million in the six months ended September 26, 1998 from
$250.3 million in the corresponding period of fiscal 1998. The increase in SG&A
expenses is principally due to increased volume-related expenses to support the
revenue growth as well as increased depreciation expense associated with the
Company's shop-within-shops development program and continued investment in
organizational infrastructure. Despite these increases, SG&A expenses as a
percentage of net revenues remained constant at approximately 35.2%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements primarily derive from working capital
needs, construction and renovation of shop-within-shops, retail expansion and
other corporate activities. The Company's main sources of liquidity are cash
flows from operations and credit facilities.
14
Net cash provided by operating activities decreased to $5.3 million in the
six months ended September 26, 1998 from $43.5 million in the comparable period
in fiscal 1998. This reduction was driven by increases in accounts receivable
and inventories primarily due to timing (i.e., shipments and customer
remittances) and the overall growth of the business. These decreases were offset
by changes in trade accounts payable as a result of the timing of payments. Net
cash used for investing activities increased to $80.8 million in the six months
ended September 26, 1998 from $40.4 million in the comparable period in fiscal
1998 principally due to higher capital expenditures. Net cash provided by
financing activities increased to $63.3 million in the six months ended
September 26, 1998 from $20.7 million in the comparable period in fiscal 1998.
This increase primarily reflects the utilization of short-term borrowings
against the Company's Credit Facility (as defined below) offset by repurchases
of common stock in the six months ended September 26, 1998.
On June 9, 1997, the Company entered into a credit facility with a
syndicate of banks which consists of a $225.0 million revolving line of credit
available for the issuance of letters of credit, acceptances and direct
borrowings and matures on December 31, 2002 (the "Credit Facility"). Borrowings
under the Credit Facility bear interest, at the Company's option, at a Base Rate
equal to the higher of: (i) the Federal Funds Rate, as published by the Federal
Reserve Bank of New York, plus 1/2 of one percent; and (ii) the prime commercial
lending rate of The Chase Manhattan Bank in effect from time to time, or at the
London Interbank Offered Rate plus an interest margin. The agreement contains
customary representations, warranties, covenants and events of default,
including covenants regarding maintenance of net worth and leverage ratios,
limitations on indebtedness and incurrences of liens, and restrictions on sales
of assets and transactions with affiliates. Additionally, the agreement provides
that an event of default will occur if Mr. Lauren and related entities fail to
maintain a specified minimum percentage of the voting power of the Company's
common stock. As of September 26, 1998, the Company had $79.6 million
outstanding in direct borrowings and was contingently liable for $20.8 million
in outstanding letters of credit under the Credit Facility. The weighted average
interest rate on amounts outstanding under the Credit Facility on September 26,
1998 was 8.5%.
The Company is currently exploring opportunities to increase efficiency
and productivity and reduce its cost structure in order to streamline operations
and to better service its long-term strategic objectives. The successful
implementation of this initiative could favorably affect future results, but
reduce net income in the short-term. See Part II. Other Information. Item 5. -
"Statement Regarding Forward-Looking Disclosure."
Capital expenditures were $72.4 million and $24.9 million in the six
months ended September 26, 1998 and September 27, 1997, respectively. The
increase in capital expenditures represents primarily expenditures associated
with the Company's shop-within-shops development program which includes new
shops, renovations and expansions, as well as expenditures incurred in
connection with the expansion of the Company's retail operations. Additionally,
capital expenditure increases reflect the purchase by the Company of a
distribution center in North Carolina for $16.0 million which it had been
previously leasing. The Company plans to invest approximately $120.0 million,
net of landlord incentives, over the current fiscal year in its retail stores,
including flagship stores and expansion of its distribution facility, the
shop-within-shops development program and other capital projects. See Part II.
Other Information. Item 5. - "Statement Regarding Forward-Looking Disclosure."
15
In March 1998, the Board of Directors authorized the repurchase, subject
to market conditions, of up to $100.0 million of the Company's Class A Common
Stock. Share repurchases under this plan will be made from time to time in the
open market over a two-year period which commenced April 1, 1998. Shares
acquired under the repurchase program will be used for stock option programs and
for other corporate purposes. As of September 26, 1998, the Company had
repurchased 603,864 shares of its Class A Common Stock at an aggregate cost of
$16.1 million.
Management believes that cash from ongoing operations and funds available
under the Credit Facility will be sufficient to satisfy the Company's current
level of operations, capital requirements, stock repurchase program and other
corporate activities for the next twelve months. Additionally, the Company does
not intend to pay dividends on its Common Stock in the next twelve months. See
Part II. Other Information. Item 5. - "Statement Regarding Forward-Looking
Disclosure."
SEASONALITY OF BUSINESS
The Company's business is affected by seasonal trends, with higher levels
of wholesale sales in its second and fourth quarters and higher retail sales in
its second and third quarters. These trends result primarily from the timing of
seasonal wholesale shipments to retail customers and key vacation travel and
holiday shopping periods in the retail segment. As a result of the growth in the
Company's retail operations and licensing revenue, historical quarterly
operating trends and working capital requirements may not accurately reflect
future performances. In addition, fluctuations in sales and operating income in
any fiscal quarter may be affected by the timing of seasonal wholesale shipments
and other events affecting retail.
EXCHANGE RATES
Inventory purchases from contract manufacturers in the Far East are
primarily denominated in United States dollars; however, purchase prices for the
Company's products may be affected by fluctuations in the exchange rate between
the United States dollar and the local currencies of the contract manufacturers,
which may have the effect of increasing the Company's cost of goods sold in the
future. During the last two years, exchange rate fluctuations have not had a
material impact on the Company's inventory cost. Additionally, certain
international licensing revenue could be materially affected by currency
fluctuations. From time to time, the Company hedges certain exposures to foreign
currency exchange rate changes arising in the ordinary course of business.
16
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This Statement establishes standards for
reporting selected financial data and descriptive information about an
enterprises' reportable operating segments (as defined). This Statement also
requires the reconciliation of total segment information presented to the
corresponding amounts in the general purpose financial statements. Additionally,
SFAS No. 131 establishes standards for related disclosures about products and
services, geographic areas and major customers. The required disclosures will be
presented in the Company's Annual Report on Form 10-K for the fiscal year ending
April 3, 1999.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires the recognition of all derivatives as either assets or liabilities in
the statement of financial position and measurement of those instruments at fair
value. The accounting for changes in the fair value of a derivative is dependent
upon the intended use of the derivative. SFAS No. 133 will be effective in the
Company's first quarter of fiscal year ending April 1, 2000 and retroactive
application is not permitted. The Company has not yet determined whether the
application of SFAS No. 133 will have a material impact on the Company's
financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants'
("AICPA") Accounting Standards Executive Committee issued Statement of Position
No. 98-5 ("SOP 98-5"), REPORTING ON THE COSTS OF START-UP ACTIVITIES. SOP 98-5
requires that costs of start-up activities, including organization costs, be
expensed as incurred. SOP 98-5 will be effective in the first quarter of the
Company's fiscal year ending April 1, 2000. The Company has not yet determined
whether the application of SOP 98-5 will have a material impact on the Company's
financial position or results of operations.
Impact of the Year 2000 Issue
The Company has, with the aid of outside consultants, initiated a program
to assess the impact of Year 2000 issues on its information technology ("IT")
systems and its non-IT systems and has formulated a plan to address its Year
2000 issues.
Through its assessment, the Company has identified potential date
deficiencies in its IT systems, both hardware and software and in its non-IT
systems (including functions involving embedded chip technology), and is in the
process of addressing these deficiencies through upgrades, replacements and
other remediation. The Company expects to complete remediation of its material
IT systems no later than the summer of 1999. In connection with other equipment
with date sensitive operating controls such as distribution center equipment,
HVAC, employee time clocks, security and other similar systems, the Company is
in the process of identifying those items which may require replacement or other
remediation. The Company expects to complete testing and replacement or other
remediation of this equipment no later than the summer of 1999.
17
The Company has made initial inquiries of third parties with whom it has
material business relationships (such as customers, suppliers, licensees,
transportation carriers, utility and other general service providers) to
determine whether they will be able to resolve in a timely manner any Year 2000
issues that will materially and adversely impact the Company. This process
includes the solicitation of written responses to questionnaires, followed, in
some cases, by meetings with certain of such third parties. To date,
approximately one-half of those contacted have responded, none of whom have
raised any Year 2000 issues which the Company believes would have a material
adverse affect on the Company. The Company is in the process of sending
follow-up inquiries to third parties and expects to complete its survey of third
parties in the spring of 1999.
To date, the Company has incurred expenses of approximately $3.0 million
related to the assessment of its Year 2000 issues and development and
implementation of its remediation plan. The total remaining cost of the
Company's Year 2000 project is estimated at $3.1 to $4.1 million and is being
funded through operating cash flows. Such costs do not include internal
management time and the deferral of other projects, the effects of which are not
expected to be material to the Company's results of operations or financial
condition. Of the total project cost, approximately $0.6 million is attributable
to the purchase of new software which will be capitalized. The remainder will be
expensed as incurred. The costs of the Year 2000 project and the dates upon
which the Company plans to complete its Year 2000 initiatives are based on
management's best estimates, which were derived by utilizing several assumptions
of future events including continued availability of certain resources, third
party modification plans and other factors. However, there can be no guarantee
that these estimates will be achieved, and actual results could differ
materially from those plans.
The Company believes that the cause of the most reasonable worst case Year
2000 scenario would be a failure by a significant third party in the Company's
supply chain (including, without limitation, utility or other general service
provider or government entity) to remediate its Year 2000 deficiencies that
continues for several days. If such failure interfered with the Company's
electronic data interface ("EDI") system, processing of customer orders and
shipments would be impaired and would result in the loss of sales and revenue.
In addition, a failure to timely remediate any of the Company's internal
inventory management operating systems would adversely affect the Company's
stock allocation program resulting in mis-timed shipments and potential order
cancellations. The extent of lost revenue as a result of such scenarios cannot
be estimated at this time.
The Company is in the process of developing contingency plans to ensure
that it can address aspects of these and others of its IT and non-IT systems
that could be affected by Year 2000 issues and intends to finalize its
contingency plans by no later than the summer of 1999. For instance, the Company
is in the process of exploring, where possible, alternate service providers and
is analyzing the possibility of using alternate but comparable systems currently
in use within the Company. The Company's Year 2000 efforts are ongoing and its
overall plan, as well as its development of contingency plans, will continue to
evolve as new information becomes available. While the Company anticipates
continuity of its business activities, that continuity will be dependent upon
its ability, and the ability of third parties with whom the Company relies on
directly, or indirectly, to be Year 2000 compliant. See Part II. Other
Information. Item 5. - "Statement Regarding Forward-Looking Disclosure."
18
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
(a) The Annual Meeting of Stockholders of the Company was held on August
13, 1998.
(b) The following directors were elected at the Annual Meeting of
Stockholders to serve until the 1999 Annual Meeting and until their
respective successors are duly elected and qualified:
CLASS A DIRECTOR:
-----------------
Allen Questrom
CLASS B DIRECTORS:
------------------
Ralph Lauren
Michael J. Newman
Frank A. Bennack, Jr.
Terry S. Semel
Peter Strom
CLASS C DIRECTOR:
-----------------
Richard A. Friedman
(c)(i) Each person elected as a director received the number of votes
(shares of Class B Common Stock are entitled to ten votes per share)
indicated beside his name:
NUMBER OF NUMBER OF
VOTES FOR VOTES WITHHELD
--------- --------------
CLASS A DIRECTOR:
-----------------
Allen Questrom 29,875,579 75,494
CLASS B DIRECTORS:
------------------
Ralph Lauren 432,800,210 -0-
Michael Newman 432,800,210 -0-
Peter Strom 432,800,210 -0-
Terry S. Semel 432,800,210 -0-
Frank A. Bennack, Jr. 432,800,210 -0-
CLASS C DIRECTOR:
-----------------
Richard A. Friedman 22,720,979 -0-
19
(ii) 485,414,622 votes were cast for and 32,226 votes were cast against
the ratification of the selection of Deloitte & Touche LLP as the
independent auditors of the Company for the year ending April 3,
1999. Abstentions totaled 25,414; there were no broker nonvotes.
ITEM 5. OTHER INFORMATION.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
Certain statements in this Form 10-Q and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases,
and in oral statements made by or with the approval of an authorized executive
officer constitute "forward-looking statements" within the meaning of the Reform
Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
changes in global economic conditions; risks associated with changes in the
competitive marketplace, including the introduction of new products or pricing
changes by the Company's competitors; risks associated with the Company's
dependence on sales to a limited number of large department store customers and
risks related to extending credit to customers; risks associated with the
Company's dependence on its licensing partners for a substantial portion of its
net income and risks associated with a lack of operational and financial control
over licensed businesses; risks associated with consolidations, restructurings
and other ownership changes in the retail industry; uncertainties relating to
the Company's ability to implement its growth strategy; risks associated with
the possible adverse impact of the inability of the Company's unaffiliated
manufacturers to manufacture in a timely manner, to meet quality standards or to
use acceptable labor practices; risks associated with changes in social,
political, economic and other conditions affecting foreign operations and
sourcing; and, the possible adverse impact of changes in import restrictions.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits--
2.1 Agreement of Sale and Purchase, effective July 22, 1998, between Sun
Life Assurance Company of Canada, as seller, and Polo Ralph Lauren
Corporation, as buyer.
27.1 Financial Data Schedule
(b) Reports on Form 8-K--
No reports on Form 8-K were filed by the Company in the quarter ended
September 26, 1998.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POLO RALPH LAUREN CORPORATION
Date: November 10, 1998 By: /s/ Nancy A. Platoni Poli
-------------------------
Nancy A. Platoni Poli
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
22
AGREEMENT OF SALE AND PURCHASE
------------------------------
SUN LIFE ASSURANCE COMPANY OF CANADA (SELLER)
&
POLO RALPH LAUREN CORPORATION (BUYER)
PROPERTY: 4100 BEECHWOOD COURT
GREENSBORO
GUILFORD COUNTY, NC
EFFECTIVE DATE: JULY 22, 1998
EXHIBITS:
"A" - LEGAL DESCRIPTION
"B" - ESCROW AGREEMENT
"C" - FIRPTA ESCROW AGREEMENT
CONTENTS PAGE
1. Agreement to Sell and Purchase.....................................1
2. Purchase Price.....................................................1
3. Settlement.........................................................2
4. Condition of Title.................................................2
5. Representations and Warranties of Seller...........................2
6. Representations and Warranties of Buyer............................5
7. Conditions of Buyer's Obligations..................................5
8. Condition of Seller's Obligations..................................7
9. FIRPTA Withholding.................................................7
10. Possession.........................................................7
11. Apportionment; Taxes...............................................8
12. Condemnation.......................................................8
13. Default by Buyer...................................................8
14. Default by Seller..................................................8
15. Risk of Loss.......................................................8
16. Brokerage..........................................................9
17. Operation of the Property Prior to Settlement......................9
18. Notice.............................................................9
19. Further Assurances................................................10
20. Miscellaneous.....................................................10
21. Execution.........................................................11
ii
AGREEMENT OF SALE AND PURCHASE
------------------------------
THIS AGREEMENT OF SALE AND PURCHASE ("Agreement") is made this 22nd day of
JULY, 1998, between SUN LIFE ASSURANCE COMPANY OF CANADA, a federally chartered
Canadian insurance company, having an address at One Sun Life Executive Park,
Wellesley Hills, MA 02481, ("Seller") and POLO RALPH LAUREN CORPORATION, a
Delaware corporation having an address at 650 Madison Avenue, New York, New York
10022, or its assignee or nominee ("Buyer"). This Agreement shall be effective
as of the date (the "Effective Date") on which Buyer and Seller complete the
execution of this Agreement and the Escrow Agreement (as defined below).
In consideration of the covenants and provisions contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Seller agrees to sell to Buyer, and
Buyer agrees to purchase from Seller, subject to the terms and conditions of
this Agreement, that certain tract of land known as 4100 Beechwood Drive,
Greensboro, NC 27410, located in Guilford County, North Carolina, as more fully
described by metes and bounds in the legal description attached hereto as
EXHIBIT "A," together with all right, title and interest of Seller in and to any
land lying in the bed of any highway, street, road or avenue, opened or
proposed, in front of or abutting or adjoining such tract or piece of land and
any easements and appurtenances pertaining thereto (the "Real Property") and all
the buildings and other improvements situated thereon, including all of Seller's
interest in any fixtures, equipment, appliances and other personal property (if
any) attached or appurtenant to, located in or on, or used in connection with
the Real Property (the "Personal Property") [the Real Property and the Personal
Property are jointly called the "Property"].
2. PURCHASE PRICE. The purchase price for the Property is SIXTEEN MILLION
AND NO/100 DOLLARS ($16,000,000.00) (the "Purchase Price"), payable as follows:
(a) ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) (the
"Deposit") by wire transfer to Chicago Title Insurance Company ("Escrow Agent"),
which wire transfer shall be delivered to Escrow Agent within twenty-four (24)
hours following the Effective Date. The Deposit shall be held in an interest
bearing, federally insured account by Escrow Agent in accordance with the Escrow
Agreement attached hereto as EXHIBIT "B" (the "Escrow Agreement") and this
Agreement pending consummation of this transaction. Any interest earned on the
Deposit shall be paid to Buyer unless Seller shall be entitled to the Deposit by
reason of a default by Buyer, in which case such interest shall be paid to
Seller. Buyer's Federal Tax I.D. Number is 13-2622036; Seller's Federal Tax I.D.
Number is 38-1082080.
(b) The balance of the Purchase Price shall be paid to Seller at
Settlement (as defined below), minus any withholding required to comply with
Section 1445 of the Internal
1
Revenue Code as more specifically set forth in Paragraph 9 below, in cash by
wire transfer of immediately available federal funds, by certified check or by
plain check of any title insurance company approved by Seller and Buyer.
3. SETTLEMENT. Settlement shall be held on August 19, 1998, or on such
earlier date as Buyer shall designate by at least five (5) days' advance written
notice to Seller, at Buyer's attorney's office at 300 North Greene Street, Suite
1400, Greensboro, North Carolina 27401, at 10:00 a.m. ("Settlement"). It is
agreed that the time of Settlement and the obligation of Seller to deliver the
general warranty deed at Settlement are of the essence of this Agreement.
4. CONDITION OF TITLE.
(a) Title to the Property shall be good and marketable (i) free and
clear of all liens, restrictions, easements, encumbrances, claims or liens by
contractors, subcontractors, mechanics and materialmen, leases, financing
statements or other personal property liens or encumbrances and other title
objections, other than any of the foregoing created, allowed or caused by Buyer,
its employees, contractors or agents and routine utility easements which will
not adversely affect Buyer's intended use of the Property and such title
exceptions as may be approved by Buyer prior to the expiration of the Due
Diligence Period (a "Title Matter"); (ii) affirmatively insured as contiguous
with no gaps or gores; (iii) affirmatively insured as having legal, direct
access to a public street; and (iv) insurable as aforesaid at ordinary rates by
a title insurance company selected by Buyer at Buyer's expense.
(b) If Buyer provides Seller written objection to any Title Matter
prior to the expiration of the Due Diligence Period, or if any new Title Matter
is created or occurs following the expiration of the Due Diligence Period but
prior to the Settlement, and Buyer provides Seller written objection to such new
Title Matter, Seller shall elect either to cure such matter or not to cure such
matter, and communicate its decision by written notice to Buyer sent within ten
(10) days following Buyer's notice to Seller. Seller's failure to notify Buyer
shall be deemed to be Seller's election not to cure. If Seller elects to cure
such Title Matter, Seller must complete such cure prior to the Settlement,
provided that Seller shall have the unilateral right to extend the date of
Settlement for an additional period of time (not to exceed twenty (20) days) to
accomplish such cure. If Seller elects not to cure, Buyer may elect to proceed
to close the sale on the date of Settlement (without any reduction to the
Purchase Price), and be deemed to have accepted such Title Matter in all
respects, or may elect to terminate this Agreement and receive the return of its
Deposit, plus accrued interest. The acceptance of a deed from Seller shall be
conclusive proof that Buyer has accepted the title to the Property as it existed
on the date of Settlement.
5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller, to induce Buyer to
enter into this Agreement and to complete the sale and purchase of the Property
hereunder, represents, warrants and covenants to Buyer as follows:
(a) Seller has no knowledge of, and has received no written notice
from, any governmental authority requiring any work, repairs, construction,
alterations or installations on or in connection with the Property, or asserting
any violation of any federal, state, county or
2
municipal laws, ordinances, codes, orders, regulations or requirements affecting
any portion of the Property, including, without limitation, the Americans with
Disabilities Act and any applicable environmental laws or regulations. There is
no action, suit or proceeding pending or, to the knowledge of Seller, threatened
against or affecting Seller or the Property or any portion thereof relating to
or arising out of the ownership of the Property, in any court or before or by
any federal, state, county or municipal department, commission, board, bureau or
agency or other governmental instrumentality.
(b) To the best of Seller's knowledge, Seller has received no
written notice of assessments or charges for any public improvements that have
been made against the Property which remain unpaid, and Seller has no knowledge
of any plans for improvements by any governmental or quasi-governmental
authority which might result in a special assessment against the Property.
Provided Settlement is completed hereunder, Buyer will be responsible for
payment of assessments or notices of assessments for any public improvement made
after the Effective Date.
(c) To the best of Seller's knowledge, the Property has been duly
subdivided in accordance with all applicable laws and constitutes an independent
tract of land for all applicable zoning, subdivision and taxation purposes.
(d) To the best of Seller's knowledge, Seller has received no notice
from any insurance company which has issued a policy with respect to the
Property or by any board of fire underwriters (or other body exercising similar
functions) claiming any defects or deficiencies or requesting the performance of
any repairs, alterations or other work.
(e) To the best of Seller's knowledge, all certificates of occupancy
necessary for operation of the Property, as presently conducted, have been
issued by all authorities having jurisdiction thereof and all such certificates
of occupancy are in full force and effect. Seller has not received any written
notice of suspension or cancellation of any certificates of occupancy. To the
best of Seller's knowledge there is no defective condition, structural or
otherwise, in the buildings or other improvements on the Property, or in the
buildings' roof, heating, air conditioning, mechanical, plumbing or electrical
systems and equipment.
(f) To the best of Seller's knowledge, there has been no release of
any "Hazardous Substances" (as hereinafter defined) on the Property during
Seller's ownership of the Property, and Seller has received no written notice of
any pending or threatened proceedings or claims involving the presence of
"Hazardous Substances" on the Property. By its execution hereof, Buyer
acknowledges that it has occupied the Property as a tenant during the period of
Seller's ownership, and that Seller's representations contained in this
subparagraph (f) are based on Buyer's assurances (whether in its capacity as
tenant or otherwise) that it (for itself, its employees and agents) is likewise
not aware of any of the foregoing. For purposes of this Agreement, the term
"Hazardous Substances" shall mean those substances or materials regulated under
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et seq. and implementing regulations.
3
(g) To the best of Seller's knowledge, there are no management,
employment, service, equipment, supply, maintenance, water, sewer, or other
utility or concession agreements or agreements with municipalities (including
improvement or development escrows or bonds) with respect to or affecting the
Property which will burden the Property or Buyer after Settlement in any manner
whatsoever, except for instruments of record.
(h) Seller holds fee simple title to the Property. Seller is a duly
existing corporation and has full legal right and all requisite power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution, delivery and performance of this Agreement by Seller and the
consummation by Seller of the transaction contemplated hereby have been duly and
effectively authorized by the Seller. This Agreement has been duly executed and
delivered by the Seller and constitutes a valid and legally binding obligation
of Seller, enforceable against Seller in accordance with its terms.
(i) Seller has entered into no leases, whether oral or written,
agreements of sale, options, tenancies, licenses or any other claims to
possession affecting the Property other than the lease (the "Lease") between
Buyer, as tenant, and Haskell Realty Developers Ltd. IV ("Haskell"), dated
December 28, 1989, which Lease was assigned to Seller, as landlord, pursuant to
the Lease Assignment and Assumption Agreement between Haskell and Seller, dated
March 27,1995. To the best of Seller's knowledge, no other party has any right
or option to acquire the Property or any portion thereof.
(j) No representation, statement or warranty by Seller contained in
this Agreement or in any exhibit attached hereto contains or will contain any
untrue statements or omits or will omit a material fact necessary to make the
statement of fact therein recited not misleading. If, after Seller's execution
hereof, any event occurs or condition exists which renders any of the
representations contained herein untrue or misleading, Seller shall promptly
notify Buyer.
(k) To the best of Seller's knowledge, there are no proceedings
pending or threatened by or against Seller in bankruptcy, insolvency or
reorganization in any state or federal court.
(l) Seller and Buyer acknowledge that, during the entire period of
Seller's ownership of the Property, Buyer has been in possession of the Property
pursuant to the Lease. Furthermore, Seller and Buyer acknowledge that, pursuant
to the Lease, Buyer was charged with certain responsibilities in connection with
its occupancy of the Property. Accordingly, Seller's representations and
warranties in subparagraphs 5(d), 5(e) and 5(g) are limited to matters which are
not within the scope of Buyer's obligations under the Lease.
(m) For purposes of this Agreement, the term " knowledge," or
similar words or phrases, shall mean only the actual knowledge of Thomas
Pedulla, George Collins, Pete Lash or Donnie Robinson, which are the Seller's
representatives who would possess any knowledge possessed by the Seller
regarding the Property, and shall not include the knowledge of Buyer or any
other tenant of the Property.
4
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer, to induce Seller to
enter into this Agreement and to complete the sale and purchase of the Property
hereunder, represents, warrants and covenants to Seller that Buyer is a duly
existing Delaware corporation and has the full legal right and all requisite
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by Buyer
and the consummation by Buyer of the transaction contemplated hereby have been
duly and effectively authorized by the Buyer. This Agreement has been duly
executed and delivered by the Buyer and constitutes a valid and legally binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
7. CONDITIONS OF BUYER'S OBLIGATIONS. The obligation of Buyer under this
Agreement to purchase the Property from Seller is subject to the satisfaction at
Settlement of each of the following conditions (any one of which may be waived
in whole or in part by Buyer at or prior to Settlement):
(a) All of the representations and warranties by Seller set forth in
this Agreement shall be true and correct at and as of Settlement in all material
respects as though such representations and warranties were made at and as of
Settlement, and Seller shall have performed, observed and complied with all
covenants, agreements and conditions required by this Agreement to be performed
on its part prior to or as of Settlement.
(b) Buyer shall have until August 7, 1998 (the "Due Diligence
Period") to conduct due diligence investigations and analysis of the Property
and all information pertaining to the Property. During the Due Diligence Period,
Seller shall make available to Buyer such records and documents relating to the
Property as Buyer may reasonably request and which are in Seller's possession.
If Buyer, in its sole discretion, determines that it does not desire to acquire
the Property, with or without reason, and notifies Seller in writing by 5:00
p.m. on the last day of the Due Diligence Period of its election to terminate
this Agreement, the Deposit and all accrued interest shall be returned to Buyer,
this Agreement thereupon shall become void and there shall be no further
obligation or liability on either of the parties hereto. Failure to provide such
notice in a timely manner shall be deemed to be Buyer's affirmative acceptance
of the title to and condition of the Property and the improvements thereon. Any
condition or matter known to or discovered by Buyer and not disclosed to Seller
prior to the expiration of the Due Diligence Period shall be deemed to be
accepted by Buyer, notwithstanding any representation, warranty or statement by
Seller herein which is or may be inconsistent with such condition or matter.
(c) Within five (5) days after the Effective Date, Seller shall
deliver to Buyer the following if, and only if, such items exist and are in
Seller's possession:
(i) the latest as-built plans or surveys (the "Survey") of the
Property prepared by a registered and licensed surveyor which are in Seller's
possession;
(ii) copies of the floor plans of all buildings on the
Property which are in Seller's possession;
5
(iii) copies of all service contracts, if any, with respect to
the Property;
(iv) copies of the latest environmental reports with respect
to the Property which are in Seller's possession, the prior receipt of which
Buyer hereby acknowledges; and,
(v) copies of the latest title commitment and title policy
with respect to the Property which are in Seller's possession.
(d) At Settlement, Seller shall deliver to Buyer duly executed
originals of the following:
(i) A general warranty deed to the Real Property duly executed
and acknowledged by Seller and in proper form for recording (the "Deed");
(ii) A valid bill of sale for the Personal Property in form
and substance mutually and reasonably satisfactory to Buyer and Seller;
(iii) An assignment in form and substance mutually and
reasonably satisfactory to Seller and Buyer, duly executed by Seller, assigning
to Buyer all of Seller's right, title and interest in and to (A) any and all
guaranties and warranties, if any, pertaining to the Property; and (B) any
permits, licenses, plans, authorizations and approvals relating to ownership,
operation or occupancy of the Property.
(iv) Originals of the following instruments (or copies if
originals are unavailable), all certified by Seller as true and complete to the
best knowledge of Seller, if, and only if, such items exist and are in Seller's
possession:
(A) all certificates of occupancy (and any required
governmental approvals in connection with the transfer of the Property),
licenses, plans, permits, authorizations and approvals required by law and
issued by all governmental authorities having jurisdiction over the Property;
(B) all building records in Seller's possession or
control with respect to the Property;
(C) all assigned guaranties and warranties.
(v) An affidavit of title in favor of Buyer and Buyer's title
insurer qualified to the best of Seller's knowledge.
(vi) A Lease Termination Agreement mutually acceptable to and
executed by Seller and Buyer terminating the Lease.
6
(vii) Such other documents as reasonably may be required to
consummate this transaction in accordance with this Agreement.
(e) Seller previously has turned over to Buyer, and Buyer hereby
acknowledges the prior receipt of, certain of the following items and materials:
bills of current real estate taxes, sewer charges and assessments, water charges
and other utilities; keys and combinations to locks at the Property; plans,
specifications, as-built drawings, surveys, site plans, equipment manuals,
technical data and other documentation relating to the building systems, and any
equipment and other personal property forming a part of the Property. Seller
hereby represents and warrants that, to the best of Seller's knowledge, all of
the items and materials referenced in this paragraph 7(e) in its possession have
been delivered to Buyer.
Unless all the foregoing conditions contained in this Paragraph 7 are
satisfied, prior to or at Settlement, Buyer, at its election, may, either (i)
terminate this Agreement and have the Deposit refunded together with accrued
interest (provided, however, that termination and refund of the Deposit shall
not be Buyer's exclusive remedy) or (ii) waive in writing the satisfaction of
any such conditions, in which event this Agreement shall be read as if such
conditions no longer existed.
8. CONDITION OF SELLER'S OBLIGATIONS. Seller's obligation to sell and
convey the Property under this Agreement shall be conditioned upon the Lease
remaining in full force and effect until Settlement has been completed.
Termination of the Lease at or as of the date of Settlement shall not relieve
Buyer from any liability to Seller arising under the Lease, existing at the time
of Settlement or relating to an event occurring prior to the date of Settlement,
except Seller will acknowledge as of the date of Settlement (if true in all
respects) that all rent and other sums then due under the Lease have been paid.
9. FIRPTA WITHHOLDING. Seller acknowledges that it is a "foreign person"
for purposes of Section 1445 of the Internal Revenue Code (the "Code"), but
Seller covenants that it shall file, on a timely basis, for a withholding
certificate (the "Withholding Certificate") which will alleviate Buyer's
withholding obligation under Section 1445 of the Code on the basis of adequate
security provided to the United States Treasury Department by Seller to secure
payment of any tax that may be due and payable. In the event that Seller fails
to deliver to Buyer the Withholding Certificate prior to or as of Settlement,
Buyer shall be entitled to withhold One Million Six Hundred Thousand and No/100
Dollars ($1,600,000.00) from the Purchase Price and to deposit such funds
pursuant to the FIRPTA Escrow Agreement in the form attached hereto as Exhibit
"C" and take all other steps necessary to comply with the requirements of the
Code and Seller and Buyer shall proceed with Settlement as if Seller had
obtained the Withholding Certificate.
10. POSSESSION. Possession of the Property shall be delivered to Buyer at
Settlement by delivery of the Deed, free of any leases (other than the Lease)
and other claims to or rights of possession pursuant to any agreement entered
into by Seller. The Deed shall be prepared by Buyer at Buyer's expense and shall
be submitted to Seller for Seller's approval prior to Settlement hereunder.
7
11. APPORTIONMENT; TAXES.
(a) Any prepaid rent paid by Buyer to Seller pursuant to the Lease
shall be prorated as of Settlement and any rent paid by Buyer in excess of the
rent due Seller as of Settlement shall be a credit against the Purchase Price.
(b) All realty transfer taxes imposed on or in connection with this
transaction shall be paid by Seller at Settlement.
12. CONDEMNATION. To the best of Seller's knowledge, Seller covenants and
warrants that Seller has not heretofore received any written notice of any
condemnation proceeding or other proceeding in the nature of eminent domain in
connection with the Property. If prior to Settlement any such proceeding is
commenced or any change is made, or proposed to be made, to the current means of
ingress and egress to the Property or to the roads or driveways adjoining the
Property, or to change such ingress or egress or to change the grade thereof,
Seller agrees immediately to notify Buyer thereof. Buyer then shall have the
right, at Buyer's option, to terminate this Agreement by giving written notice
to Seller within ten (10) days after receipt of such notice. If Buyer does not
so terminate this Agreement, Buyer shall proceed to Settlement hereunder as if
no such proceeding had commenced and will pay Seller the full Purchase Price in
accordance with this Agreement, and Seller shall assign to Buyer all of its
right, title and interest in and to any compensation for such condemnation.
13. DEFAULT BY BUYER. If Buyer, without the right to do so and in default
of its obligations hereunder, fails to complete Settlement without default by
Seller, the Deposit and all accrued interest shall be paid to Seller and Buyer
shall pay Seller an additional amount (the "Additional Damages") which shall be
the difference obtained by subtracting (i) the amount of the Deposit and accrued
interest paid to Seller from, (ii) One Hundred Fifty Thousand and No/100 Dollars
($150,000.00). Such payment of the Deposit, all accrued interest and the
Additional Damages to Seller shall be deemed to be liquidated damages for
Buyer's default and the receipt of same shall be Seller's exclusive and sole
remedy, and Seller hereby waives any right to recover the balance of the
Purchase Price, or any part thereof, and the right to pursue any other remedy
permitted at law or in equity against Buyer. Buyer acknowledges that in the
event of Buyer's default, Seller would incur damages which would be difficult to
ascertain, and that the liquidated damages provided for in this paragraph
represent a reasonable estimate of the damages that Seller would likely incur as
a result of Buyer's default.
14. DEFAULT BY SELLER. If Seller, without the right to do so and in
default of its obligations hereunder, fails to complete Settlement without
default by Buyer, the Deposit and all accrued interest shall be returned to
Buyer. In addition, Buyer may exercise any remedies available to it at law or in
equity, including, but not limited to, specific performance.
15. RISK OF LOSS. Seller shall bear the risk of all loss or damage to the
Property from all causes until Settlement. If at any time prior to Settlement
any portion of the Property is destroyed or damaged as a result of fire or any
other casualty whatsoever, Seller shall promptly give written notice thereof to
Buyer and Buyer shall have the right (i) to terminate this
8
Agreement by written notice to Seller, whereupon Escrow Agent shall return the
Deposit (with any accrued interest) to Buyer, and thereafter this Agreement
shall be void and neither party shall have any further rights or obligations
hereunder; or (ii) to complete Settlement pursuant to this Agreement (without
reducing the Purchase Price) and to receive an assignment from Seller of any
insurance proceeds paid to Seller as a result of the casualty, less costs
incurred obtaining such proceeds. All unpaid claims and rights in connection
with any such losses shall be assigned to Buyer at Settlement without in any
manner affecting the Purchase Price.
16. BROKERAGE. Buyer represents and warrants to Seller and Seller
represents and warrants to Buyer that each dealt with no broker, agent, finder
or other intermediary in connection with this sale and purchase. Seller agrees
to indemnify, defend and hold Buyer harmless from and against the claims of any
and all brokers and other intermediaries claiming a commission in connection
with this sale or the Lease. Buyer agrees to indemnify, defend and hold Seller
harmless from and against any broker's claim arising from any breach by Buyer of
Buyer's representation and warranty in this paragraph.
17. OPERATION OF THE PROPERTY PRIOR TO SETTLEMENT. Prior to Settlement:
(a) Seller promptly shall notify Buyer of Seller's receipt of any
written notice from any party alleging that Seller is in default of its
obligations under any permit or agreement affecting the Property, or any portion
or portions thereof.
(b) Without the prior written consent of Buyer, no contract for or
on behalf of or affecting the Property shall be negotiated or entered into by
Seller which cannot be terminated at any time without charge, cost, penalty or
premium.
18. NOTICE. All notices, requests and other communications under this
Agreement shall be in writing and shall be delivered (i) in person, (ii) by
registered or certified mail, return receipt requested, or (iii) by recognized
overnight delivery service providing positive tracking of items (for example,
Federal Express) addressed as follows or at such other address of which Seller
or Buyer shall have given notice as herein provided:
IF INTENDED FOR SELLER:
SUN LIFE ASSURANCE COMPANY OF CANADA
ONE SUN LIFE EXECUTIVE PARK - SC 1307
WELLESLEY HILLS, MASSACHUSETTS 02481
ATTENTION: THOMAS V. PEDULLA
WITH A COPY TO:
POYNER & SPRUILL, L.L.P.
3600 GLENWOOD AVENUE
RALEIGH, NORTH CAROLINA 27612
ATTENTION: JOSEPH B. DEMPSTER, JR.
9
IF INTENDED FOR BUYER:
POLO RALPH LAUREN CORPORATION
650 MADISON AVENUE
NEW YORK, NEW YORK 10022
ATTENTION: GENERAL COUNSEL
WITH A COPY TO:
POLO RALPH LAUREN CORPORATION
4100 BEECHWOOD DRIVE
GREENSBORO, NORTH CAROLINA 27410
ATTENTION: JAMES CALO, VICE PRESIDENT OF OPERATIONS
All such notices, requests and other communications shall be deemed
to have been sufficiently given for all purposes hereof two (2) business days
after deposit in United States mails or one (1) business day after delivery to a
recognized overnight carrier. Notices by the parties may be given on their
behalf by their respective attorneys.
19. FURTHER ASSURANCES. After Settlement, at Buyer's sole cost and
expense, Seller shall execute, acknowledge and deliver, for no further
consideration, all assignments, transfers, deeds and other documents as may be
required to vest in Buyer all of Seller's right, title and interest in and to
the Property.
20. MISCELLANEOUS.
(a) All of the representations and warranties contained in this
Agreement, all covenants, agreements and indemnities made herein, and all
obligations to be performed under the provisions hereof shall survive Settlement
for a period of one (1) year.
(b) This Agreement shall be void and of no force or effect if not
executed by Seller and delivered to Buyer or Buyer's attorney within five (5)
days after execution by Buyer and delivery to Seller.
(c) The captions in this Agreement are inserted for convenience of
reference only and in no way define, describe or limit the scope or intent of
this Agreement or any of the provisions hereof.
(d) Formal tender of an executed deed and purchase money is hereby
waived.
(e) Buyer shall have the right to assign this Agreement, and upon
written notice from Buyer, Seller agrees to convey the Property directly to
Buyer's assignee provided that Buyer and/or assignee have fulfilled Buyer's
obligations under this Agreement.
10
(f) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns.
(g) This Agreement, including the exhibits attached hereto, contains
the whole agreement as to the Property between Seller and Buyer and there are no
other terms, obligations, covenants, representations, statements or conditions,
oral or otherwise of any kind whatsoever concerning this sale and purchase. This
Agreement shall not be altered, amended, changed or modified except in writing
executed by the parties hereto.
(h) This Agreement shall be construed in accordance with the laws of
the State of North Carolina.
(i) Both parties to this Agreement having participated fully and
equally in the negotiation and preparation hereof, this Agreement shall not be
more strictly construed, or any ambiguities within this Agreement resolved,
against either party hereto.
21. EXECUTION. This Agreement may be executed in one or more counterpart
originals, which taken together shall constitute but one and the same original
instrument.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
11
IN WITNESS WHEREOF, intending to be legally bound, the parties have caused
this Agreement to be duly executed, under seal, as of the day and year first
written above.
SELLER: SUN LIFE ASSURANCE COMPANY OF CANADA
BY: /s/ George M. Collins
-------------------------
FOR PRESIDENT
BY: /s/ Thomas V. Padulla
-------------------------
FOR SECRETARY
WITNESS:
BY: /s/ Charles S. Andes
----------------------------
ITS:Property Investments Analyst
----------------------------
BUYER: POLO RALPH LAUREN CORPORATION
BY: /s/ Michael J. Newman (SEAL)
----------------------
ITS: Vice Chairman
----------------------
(CORPORATE SEAL)
ATTEST:
BY: /s/ Victor Cohen
-------------------
ITS: Secretary
-------------------
Escrow Agent has caused this Agreement to be executed in its name solely for the
purpose of acknowledging receipt of the Deposit.
CHICAGO TITLE INSURANCE COMPANY
BY: /s/ Jeffrey I. Hrdlicka
-----------------------
ITS: Authorized Signatory
-----------------------
12
EXHIBIT "A"
LEGAL DESCRIPTION
BEING ALL of Lot 4, Section III of Piedmont Centre as per plat thereof
recorded in Plat Book 96 at Page 134 in the Office of the Register of Deeds of
Guilford County, North Carolina.
13
EXHIBIT "B"
ESCROW AGREEMENT
WHEREAS, SUN LIFE ASSURANCE COMPANY OF CANADA ("Seller"), by Agreement of Sale
and Purchase dated July ___, 1998 (the "Agreement"), has agreed to sell to POLO
RALPH LAUREN CORPORATION ("Buyer") a certain parcel of ground located in
Guilford County, North Carolina, for the consideration therein stated, and to
which Agreement this Escrow Agreement is attached as an exhibit.
WHEREAS, such parties have requested Chicago Title Insurance Company ("Escrow
Agent") to receive the deposit of One Hundred Thousand Dollars ($100,000.00)
(the "Deposit") to be held in escrow by it and to be applied at Settlement in
accordance with the Agreement.
In the event that the transaction contemplated by the Agreement shall not be
consummated as provided in the Agreement, Escrow Agent shall release the Deposit
only upon written request from either Seller or Buyer and after providing
written notice to the other party as hereinafter provided. Upon receipt of a
request for release of the Deposit by either party, Escrow Agent promptly shall
provide written notice ("Release Notice") to the other party of the request for
release of the Deposit. Buyer or Seller, as applicable, shall have ten (10)
business days to object, by way of written notice to Escrow Agent, to the
release of the Deposit to the other party. In the event that either party shall
object to the release of the Deposit as herein provided, Escrow Agent shall hold
the Deposit in an interest-bearing account until either: (i) Escrow Agent shall
receive written instructions, executed by Seller and Buyer, regarding the
disposition of the Deposit; or (ii) a final, non-appealable judgment shall be
entered by a court of competent jurisdiction directing the disposition of the
Deposit. In the event that either party shall fail to object as herein provided
to release of the Deposit to the other party within ten (10) business days after
receipt of a Release Notice, Escrow Agent shall release the Deposit to the party
requesting release of the Deposit.
IT IS UNDERSTOOD and agreed that Escrow Agent is an escrow holder only, is
merely responsible for the safekeeping of the Deposit, and shall not be required
to determine questions of fact or law.
Any notice required to be given herein shall be addressed and deemed to be
received as provided in the Agreement. All notices intended for Escrow Agent
shall be addressed as follows:
Chicago Title Insurance Company
P.O. Box 35587
Greensboro, North Carolina 27425-5587
Attention: Mr. T. Alfred Gardner
In the event that costs or expenses are incurred by Escrow Agent because of
litigation or otherwise, arising out of the holding of the Deposit, Escrow Agent
shall be entitled to reimburse itself out of the Deposit for any reasonable
costs and expenses. Escrow Agent assumes no liability for interest on the funds
held.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
14
THIS ESCROW AGREEMENT constitutes the entire agreement among Escrow Agent,
Seller and Buyer concerning the Deposit.
Dated:____________________ SUN LIFE ASSURANCE COMPANY OF CANADA, Seller
BY: __________________________________
FOR PRESIDENT
WITNESS:
BY: __________________________________
BY: _________________________ FOR SECRETARY
ITS:_________________________
POLO RALPH LAUREN CORPORATION, Buyer
BY: __________________________________(SEAL)
ITS: _______________ PRESIDENT
(CORPORATE SEAL)
ATTEST:
BY: _________________________
ITS:_________________________
ACCEPTANCE and receipt of the
Deposit is hereby acknowledged:
CHICAGO TITLE INSURANCE COMPANY
By: _________________________________________________
15
EXHIBIT "C"
FIRPTA ESCROW AGREEMENT
WHEREAS, SUN LIFE ASSURANCE COMPANY OF CANADA ("Seller"), by Agreement of Sale
and Purchase dated July ___, 1998 (the "Agreement"), has agreed to sell to POLO
RALPH LAUREN CORPORATION ("Buyer") a certain parcel of ground located in
Guilford County, North Carolina, for the consideration therein stated, and to
which Agreement this Firpta Escrow Agreement is attached as an exhibit.
WHEREAS, such parties have requested Chicago Title Insurance Company ("Escrow
Agent") to receive the deposit of One Million Six Hundred Thousand Dollars
($1,600,000.00) (the "Deposit") to be held in escrow by it and to be applied at
Settlement in accordance with the Agreement.
In the event that the transaction contemplated by the Agreement shall not be
consummated as provided in the Agreement, Escrow Agent shall release the Deposit
only upon written request from either Seller or Buyer and after providing
written notice to the other party as hereinafter provided. Upon receipt of a
request for release of the Deposit by either party, Escrow Agent promptly shall
provide written notice ("Release Notice") to the other party of the request for
release of the Deposit. Buyer or Seller, as applicable, shall have ten (10)
business days to object, by way of written notice to Escrow Agent, to the
release of the Deposit to the other party. In the event that either party shall
object to the release of the Deposit as herein provided, Escrow Agent shall hold
the Deposit in an interest-bearing account until either: (i) Escrow Agent shall
receive written instructions, executed by Seller and Buyer, regarding the
disposition of the Deposit; or (ii) a final, non-appealable judgment shall be
entered by a court of competent jurisdiction directing the disposition of the
Deposit. In the event that either party shall fail to object as herein provided
to release of the Deposit to the other party within ten (10) business days after
receipt of a Release Notice, Escrow Agent shall release the Deposit to the party
requesting release of the Deposit.
IT IS UNDERSTOOD and agreed that Escrow Agent is an escrow holder only, is
merely responsible for the safekeeping of the Deposit, and shall not be required
to determine questions of fact or law.
Any notice required to be given herein shall be addressed and deemed to be
received as provided in the Agreement. All notices intended for Escrow Agent
shall be addressed as follows:
Chicago Title Insurance Company
P.O. Box 35587
Greensboro, North Carolina 27425-5587
Attention: Mr. T. Alfred Gardner
In the event that costs or expenses are incurred by Escrow Agent because of
litigation or otherwise, arising out of the holding of the Deposit, Escrow Agent
shall be entitled to reimburse itself out of the Deposit for any reasonable
costs and expenses. Escrow Agent assumes no liability for interest on the funds
held.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
16
THIS FIRPTA ESCROW AGREEMENT constitutes the entire agreement among Escrow
Agent, Seller and Buyer concerning the Deposit.
Dated:____________________ SUN LIFE ASSURANCE COMPANY OF CANADA, Seller
BY: ___________________________________
FOR PRESIDENT
WITNESS:
BY: ___________________________________
BY: _________________________ FOR SECRETARY
ITS:_________________________
POLO RALPH LAUREN CORPORATION, Buyer
BY: __________________________________(SEAL)
ITS: _______________ PRESIDENT
(CORPORATE SEAL)
ATTEST:
BY: _________________________
ITS:_________________________
ACCEPTANCE and receipt of the
Deposit is hereby acknowledged:
CHICAGO TITLE INSURANCE COMPANY
By:
17
5
1,000
6-MOS
APR-03-1999
SEP-26-1998
46,530
0
183,011
12,558
398,335
671,355
376,022
146,248
1,015,813
328,943
0
0
0
1,003
639,982
1,015,813
720,611
833,583
417,256
417,256
293,747
0
(4)
122,584
49,954
72,630
0
0
0
72,630
0.73
0.73
